®
2016 ANNUAL REPORT • FORM 10-K & PROXY STATEMENT
MISSION STATEMENT
We are committed to maximizing shareholder value by consistently contributing to the
(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:82)(cid:81)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)
(cid:79)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:15)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:17)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:81)(cid:72)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)
(cid:53)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:70)(cid:87)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)
(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:75)(cid:82)(cid:81)(cid:72)(cid:86)(cid:87)(cid:15)(cid:3)(cid:72)(cid:87)(cid:75)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:17)
“We remain committed to delivering
shareholder value while embracing the
same core values and guiding principles
that our Bank was built on in 1927.”
LETTER TO OUR SHAREHOLDERS
Valley delivered a year of solid earnings for its shareholders in 2016.
We are particularly proud of this as low interest rates have resulted
in a low margin environment for the banking industry and the costs
of banking regulations continue to inflate core operating expenses.
Despite these challenges, we increased earnings in 2016 and we
achieved significant progress on our strategic initiatives.
Our core strategy is focused around three principle areas: enhancing
non-interest revenue, reducing operating expenses and expanding
our customer base. Over the long-run our business model is one
that allows us to increase earnings and compete effectively, as we
meet the needs of our customers, communities and associates.
In 2016, we executed on a number of major initiatives including the
rationalization of our branch network. As part of our effort to meet
the changing needs of our growing customer base, we will continue
to monitor branch usage patterns, evaluate distribution channels
and other factors to ensure an exceptional customer experience. We
continue to be disciplined about our operating expenses as during
2016 we recognized nearly $20 million in reduced operating costs.
Financial Highlights
Valley is committed to being a premier commercial banking franchise
with a diversified balance sheet, and characterized as an asset
generator in three of the best markets on the east coast. With
disciplined execution from our leadership, we are confident in
achieving our long-term performance objectives.
Our return on average tangible shareholders’ equity increased 45
percent from 7.66 percent in the previous year to 11.07 percent
in 2016. Net income for the year ended December 31, 2016 was
$168.1 million, or $0.63 per diluted common share, compared to
2015 earnings of $103.0 million, or $0.42 per diluted common
share. Despite a 12 percent increase in net interest income, our
net interest margin was weighed down by low market interest rates
throughout the year. However, inflation expectations have recently
increased and we are optimistic that interest rate spreads can
continue to move back towards longer-run levels, as seen late in
the fourth quarter of 2016.
Solid Loan Growth
Our earnings continued to benefit from strong loan growth. Total
loans for 2016 increased over 7 percent from December 31, 2015.
Commercial activity was brisk across all of Valley’s geographic
locations, as each of our markets experienced significant expansion
2
VALLEY NATIONAL BANCORP
in new originations from the prior year. Our commercial lending
segment had over $12 billion in outstanding loans at December
31, 2016. Commercial and industrial lines of business contributed
significantly to our performance with loans increasing approximately
4 percent compared to the prior year while Commercial Real Estate
lending increased nearly 17 percent over the prior year. This growth
is especially impressive given the fierce competition that exists in
all three of our major markets.
Our entry into the demographically attractive Florida markets
continues to serve as a catalyst for improved growth. Our commercial
lending teams in Florida continue to become a larger contributor to
the overall growth of the commercial loan portfolio. As of December
31, 2016 total commercial loans in Florida accounted for 12 percent
of the total for the entire Bank.
Fueled by our widely popular $499 mortgage refinance program,
residential mortgage originations grew 60 percent compared to
the prior year. As we manage through the dynamic interest rate
environment and find ways to improve our returns using less capital,
we are committed to generating sustainable non-interest revenue
over the long-run from this line of business. The gain on sale of
mortgage loans increased over 400 percent from $4 million in the
previous year to over $22 million in 2016.
We would like to emphasize the fact that our improved financial
results were accomplished while still maintaining our traditionally
high credit quality. At year end, total non-performing assets amounted
to $49.4 million, only 0.22 percent of total assets.
Our Associates
Our success is the result of the dedication and hard work of more
than 2,800 associates who commit themselves to upholding our
values with the highest standards every day. The growth of our
franchise is driven by these professionals who excel in their efforts
to build solid banking relationships.
Listening to our associates is very important to us. We provide a
number of opportunities for them to collaborate and share their
feedback with senior management so that we can work together
to improve our work environment and facilitate meaningful change.
We continue to invest in our associates by providing the training,
resources and tools they need to thrive in today’s evolving business
environment.
Invested in Our Communities
Supporting the growth of strong, vibrant communities is something
that we embrace passionately at Valley. Each year, we contribute to
organizations focused on improving our communities, affordable
housing, giving time, educational resources and dollars to advance
their good work. With a sustained focus on our community reinvestment
responsibilities in 2016, we were able to touch more lives and support
the needs of more people.
More than 1,500 of our colleagues supported outreach initiatives
by providing services to many low- and moderate-income individuals
and small businesses throughout three states. These services
included financial literacy workshops, fraud prevention seminars,
homeownership presentations and small business financing events,
among other services. We continue to partner with local nonprofit
and community organizations to understand and identify areas where
our talents and contributions can make a difference in the lives of
the people we serve.
We take an active role in supporting our communities’ economic
development by providing loans and investments to affordable housing
projects, not-for-profit community service organizations, low- and
moderate-income neighborhood revitalization and stabilization
programs and businesses that create economic growth. In 2016 alone,
Valley invested in over $318 million in community development loans.
The Look Ahead
This past year we developed a strategic framework that we are
confident will support long-term value for shareholders and
customers. As part of our strategic vision for the future, we announced
several important changes at the executive management level. With
an expanded leadership team in place, we have been transforming
culturally, structurally and operationally. Ira Robbins, who has been
instrumental in developing our growth and efficiency strategies
with over 20 years of banking experience, assumed the position
of President of Valley National Bank. Rudy Schupp, past President
and CEO of 1st United Bank and an accomplished leader in the
financial services industry with over 40 years of banking experience,
was named President of Valley National Bancorp and Chief Banking
Officer of Valley National Bank. The promotions of both of these
experienced and proven leaders emphasize our commitment to
the Bank’s efficiency and growth initiatives and address Valley’s
long-term succession plans in a prudent and meaningful manner.
We also restructured our Senior Executive Management Team with
several new appointments. Dianne Grenz, a 22-year veteran and
proven leader at Valley, was promoted to Senior Executive Vice
President and Chief Consumer Banking Officer. Thomas Iadanza, a
seasoned and highly successful commercial lender with over 35 years
of experience, was promoted to Senior Executive Vice President and
Chief Lending Officer. Ronald Janis, who has represented Valley since
1983, joined our company to serve as Senior Executive Vice President
and General Counsel. These three talented banking professionals
will serve a vital role in developing Valley’s key strategies and culture.
Technology Roadmap
As part of our strategic focus to increase our customer base, we
recognize the need to ensure that our customers have the ability to
interact with the Bank in any manner they choose. Our customers
desire increased flexibility, efficiency and accessibility in their banking
relationship. As cross-generational customer demands evolve, we
continue to diversify and enhance our digital distribution channels.
To support this digital banking experience, we took steps in 2016 to
recruit new talent led by our new Executive Vice President and Chief
Information Officer, Robert Bardusch. He brings a wide breadth of
experience to his role and will help provide strategic direction on a
multitude of fronts.
A key enabler to our long-term success will be our focus on four
strategic areas in technology and operations. We aim to modernize
our infrastructure and empower our associates with enhanced
mobile capabilities; create a digitally powered company with robust
loan origination and customer relationship management systems;
develop a data driven culture that drives deep insights and real-time
decisioning and; provide a customer-centric experience by enhancing
our digital channels to drive satisfaction and trust.
Balanced Investment and Expense Discipline
While Valley has shown its ability to produce strong growth in
2016, exceptional financial performance requires a commitment
to accomplishing growth on an expense platform that is efficient
and effective and delivering an exceptional customer experience.
In December, 2016, Valley announced a company-wide earnings
enhancement initiative titled Project LIFT. The LIFT program will
seek to identify both additional operating expense reduction and
revenue enhancement opportunities, which together are anticipated
to contribute to sustainable improvement in our earnings for years
to come. This project provides us with an opportunity to improve
operating efficiency and performance and enhance the performance
culture throughout all facets of the Bank. We expect to emerge
from this process a stronger, more efficient organization that will
be able to provide enhanced benefits to our customers, associates
and shareholders.
Optimizing Our Business
To provide consistent and sustainable shareholder returns over
the long-run, it is essential that we monitor and rationalize the
deployment of capital to our lines of business. Diversifying our
revenue stream through wealth management, cash value lines of
credit, premium financing and other lending services continues to
be a key focus for our organization.
One of our strategic initiatives is to develop a sustainable model
in which we can originate and sell residential mortgage loans in
any interest rate environment. To that end, we recruited Kevin
Chittenden to serve as our new Executive Vice President and Chief
Residential Lending Officer. Kevin is an experienced and proven
mortgage banking leader who will shape our residential lending
strategy. Our goal is to build a high performance, full-line mortgage
origination business and make Valley a top residential mortgage
lender throughout our footprint by integrating the right mix of people,
processes and technology.
We are committed to improving and transforming the client experience
across all touchpoints. These investments are intended to make Valley
essential to our customers’ needs and serve as a key differentiator
for us in the marketplace.
We remain committed to delivering shareholder value while
embracing the same core values and guiding principles that our
Bank was built on in 1927. On behalf of our Board of Directors, the
Valley management team and our valued associates, we thank you
for your trust, confidence and continued support.
Gerald H. Lipkin
Chairman & CEO
VALLEY NATIONAL BANCORP 3
“We remain committed to delivering
shareholder value while embracing the
same core values and guiding principles
that our Bank was built on in 1927.”
LETTER TO OUR SHAREHOLDERS
Valley delivered a year of solid earnings for its shareholders in 2016.
We are particularly proud of this as low interest rates have resulted
in a low margin environment for the banking industry and the costs
of banking regulations continue to inflate core operating expenses.
Despite these challenges, we increased earnings in 2016 and we
achieved significant progress on our strategic initiatives.
Our core strategy is focused around three principle areas: enhancing
non-interest revenue, reducing operating expenses and expanding
our customer base. Over the long-run our business model is one
that allows us to increase earnings and compete effectively, as we
meet the needs of our customers, communities and associates.
In 2016, we executed on a number of major initiatives including the
rationalization of our branch network. As part of our effort to meet
the changing needs of our growing customer base, we will continue
to monitor branch usage patterns, evaluate distribution channels
and other factors to ensure an exceptional customer experience. We
continue to be disciplined about our operating expenses as during
2016 we recognized nearly $20 million in reduced operating costs.
Financial Highlights
Valley is committed to being a premier commercial banking franchise
with a diversified balance sheet, and characterized as an asset
generator in three of the best markets on the east coast. With
disciplined execution from our leadership, we are confident in
achieving our long-term performance objectives.
Our return on average tangible shareholders’ equity increased 45
percent from 7.66 percent in the previous year to 11.07 percent
in 2016. Net income for the year ended December 31, 2016 was
$168.1 million, or $0.63 per diluted common share, compared to
2015 earnings of $103.0 million, or $0.42 per diluted common
share. Despite a 12 percent increase in net interest income, our
net interest margin was weighed down by low market interest rates
throughout the year. However, inflation expectations have recently
increased and we are optimistic that interest rate spreads can
continue to move back towards longer-run levels, as seen late in
the fourth quarter of 2016.
Solid Loan Growth
Our earnings continued to benefit from strong loan growth. Total
loans for 2016 increased over 7 percent from December 31, 2015.
Commercial activity was brisk across all of Valley’s geographic
locations, as each of our markets experienced significant expansion
2
VALLEY NATIONAL BANCORP
in new originations from the prior year. Our commercial lending
segment had over $12 billion in outstanding loans at December
31, 2016. Commercial and industrial lines of business contributed
significantly to our performance with loans increasing approximately
4 percent compared to the prior year while Commercial Real Estate
lending increased nearly 17 percent over the prior year. This growth
is especially impressive given the fierce competition that exists in
all three of our major markets.
Our entry into the demographically attractive Florida markets
continues to serve as a catalyst for improved growth. Our commercial
lending teams in Florida continue to become a larger contributor to
the overall growth of the commercial loan portfolio. As of December
31, 2016 total commercial loans in Florida accounted for 12 percent
of the total for the entire Bank.
Fueled by our widely popular $499 mortgage refinance program,
residential mortgage originations grew 60 percent compared to
the prior year. As we manage through the dynamic interest rate
environment and find ways to improve our returns using less capital,
we are committed to generating sustainable non-interest revenue
over the long-run from this line of business. The gain on sale of
mortgage loans increased over 400 percent from $4 million in the
previous year to over $22 million in 2016.
We would like to emphasize the fact that our improved financial
results were accomplished while still maintaining our traditionally
high credit quality. At year end, total non-performing assets amounted
to $49.4 million, only 0.22 percent of total assets.
Our Associates
Our success is the result of the dedication and hard work of more
than 2,800 associates who commit themselves to upholding our
values with the highest standards every day. The growth of our
franchise is driven by these professionals who excel in their efforts
to build solid banking relationships.
Listening to our associates is very important to us. We provide a
number of opportunities for them to collaborate and share their
feedback with senior management so that we can work together
to improve our work environment and facilitate meaningful change.
We continue to invest in our associates by providing the training,
resources and tools they need to thrive in today’s evolving business
environment.
Invested in Our Communities
Supporting the growth of strong, vibrant communities is something
that we embrace passionately at Valley. Each year, we contribute to
organizations focused on improving our communities, affordable
housing, giving time, educational resources and dollars to advance
their good work. With a sustained focus on our community reinvestment
responsibilities in 2016, we were able to touch more lives and support
the needs of more people.
More than 1,500 of our colleagues supported outreach initiatives
by providing services to many low- and moderate-income individuals
and small businesses throughout three states. These services
included financial literacy workshops, fraud prevention seminars,
homeownership presentations and small business financing events,
among other services. We continue to partner with local nonprofit
and community organizations to understand and identify areas where
our talents and contributions can make a difference in the lives of
the people we serve.
We take an active role in supporting our communities’ economic
development by providing loans and investments to affordable housing
projects, not-for-profit community service organizations, low- and
moderate-income neighborhood revitalization and stabilization
programs and businesses that create economic growth. In 2016 alone,
Valley invested in over $318 million in community development loans.
The Look Ahead
This past year we developed a strategic framework that we are
confident will support long-term value for shareholders and
customers. As part of our strategic vision for the future, we announced
several important changes at the executive management level. With
an expanded leadership team in place, we have been transforming
culturally, structurally and operationally. Ira Robbins, who has been
instrumental in developing our growth and efficiency strategies
with over 20 years of banking experience, assumed the position
of President of Valley National Bank. Rudy Schupp, past President
and CEO of 1st United Bank and an accomplished leader in the
financial services industry with over 40 years of banking experience,
was named President of Valley National Bancorp and Chief Banking
Officer of Valley National Bank. The promotions of both of these
experienced and proven leaders emphasize our commitment to
the Bank’s efficiency and growth initiatives and address Valley’s
long-term succession plans in a prudent and meaningful manner.
We also restructured our Senior Executive Management Team with
several new appointments. Dianne Grenz, a 22-year veteran and
proven leader at Valley, was promoted to Senior Executive Vice
President and Chief Consumer Banking Officer. Thomas Iadanza, a
seasoned and highly successful commercial lender with over 35 years
of experience, was promoted to Senior Executive Vice President and
Chief Lending Officer. Ronald Janis, who has represented Valley since
1983, joined our company to serve as Senior Executive Vice President
and General Counsel. These three talented banking professionals
will serve a vital role in developing Valley’s key strategies and culture.
Technology Roadmap
As part of our strategic focus to increase our customer base, we
recognize the need to ensure that our customers have the ability to
interact with the Bank in any manner they choose. Our customers
desire increased flexibility, efficiency and accessibility in their banking
relationship. As cross-generational customer demands evolve, we
continue to diversify and enhance our digital distribution channels.
To support this digital banking experience, we took steps in 2016 to
recruit new talent led by our new Executive Vice President and Chief
Information Officer, Robert Bardusch. He brings a wide breadth of
experience to his role and will help provide strategic direction on a
multitude of fronts.
A key enabler to our long-term success will be our focus on four
strategic areas in technology and operations. We aim to modernize
our infrastructure and empower our associates with enhanced
mobile capabilities; create a digitally powered company with robust
loan origination and customer relationship management systems;
develop a data driven culture that drives deep insights and real-time
decisioning and; provide a customer-centric experience by enhancing
our digital channels to drive satisfaction and trust.
Balanced Investment and Expense Discipline
While Valley has shown its ability to produce strong growth in
2016, exceptional financial performance requires a commitment
to accomplishing growth on an expense platform that is efficient
and effective and delivering an exceptional customer experience.
In December, 2016, Valley announced a company-wide earnings
enhancement initiative titled Project LIFT. The LIFT program will
seek to identify both additional operating expense reduction and
revenue enhancement opportunities, which together are anticipated
to contribute to sustainable improvement in our earnings for years
to come. This project provides us with an opportunity to improve
operating efficiency and performance and enhance the performance
culture throughout all facets of the Bank. We expect to emerge
from this process a stronger, more efficient organization that will
be able to provide enhanced benefits to our customers, associates
and shareholders.
Optimizing Our Business
To provide consistent and sustainable shareholder returns over
the long-run, it is essential that we monitor and rationalize the
deployment of capital to our lines of business. Diversifying our
revenue stream through wealth management, cash value lines of
credit, premium financing and other lending services continues to
be a key focus for our organization.
One of our strategic initiatives is to develop a sustainable model
in which we can originate and sell residential mortgage loans in
any interest rate environment. To that end, we recruited Kevin
Chittenden to serve as our new Executive Vice President and Chief
Residential Lending Officer. Kevin is an experienced and proven
mortgage banking leader who will shape our residential lending
strategy. Our goal is to build a high performance, full-line mortgage
origination business and make Valley a top residential mortgage
lender throughout our footprint by integrating the right mix of people,
processes and technology.
We are committed to improving and transforming the client experience
across all touchpoints. These investments are intended to make Valley
essential to our customers’ needs and serve as a key differentiator
for us in the marketplace.
We remain committed to delivering shareholder value while
embracing the same core values and guiding principles that our
Bank was built on in 1927. On behalf of our Board of Directors, the
Valley management team and our valued associates, we thank you
for your trust, confidence and continued support.
Gerald H. Lipkin
Chairman & CEO
VALLEY NATIONAL BANCORP 3
SENIOR EXECUTIVE MANAGEMENT TEAM
Alan D. Eskow
Senior Executive Vice President
Chief Financial Officer & Secretary
Dianne M. Grenz
Senior Executive Vice President
Chief Consumer Banking Officer
Thomas A. Iadanza
Senior Executive Vice President
Chief Lending Officer
Ronald H. Janis
Senior Executive Vice President
General Counsel
EXECUTIVE MANAGEMENT TEAM
SENIOR EXECUTIVE MANAGEMENT TEAM
Rudy E. Schupp
President of Valley National Bancorp
Chief Banking Officer
Gerald H. Lipkin
Chairman of the Board
& Chief Executive Officer
Ira Robbins
President of Valley National Bank
Robert J. Bardusch
Executive Vice President
Chief Information Officer
Kevin Chittenden
Executive Vice President
Chief Residential Lending Officer
Bernadette M. Mueller
Executive Vice President
CRA Officer
Established in 1927, Valley National Bank is one of the largest commercial banks headquartered in
New Jersey with convenient locations throughout New Jersey, New York and Florida.
Andrea T. Onorato
Executive Vice President
Chief Administrative Officer
Melissa Scofield
Executive Vice President
Chief Risk Officer
4
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 5
SENIOR EXECUTIVE MANAGEMENT TEAM
Alan D. Eskow
Senior Executive Vice President
Chief Financial Officer & Secretary
Dianne M. Grenz
Senior Executive Vice President
Chief Consumer Banking Officer
Thomas A. Iadanza
Senior Executive Vice President
Chief Lending Officer
Ronald H. Janis
Senior Executive Vice President
General Counsel
EXECUTIVE MANAGEMENT TEAM
SENIOR EXECUTIVE MANAGEMENT TEAM
Rudy E. Schupp
President of Valley National Bancorp
Chief Banking Officer
Gerald H. Lipkin
Chairman of the Board
& Chief Executive Officer
Ira Robbins
President of Valley National Bank
Robert J. Bardusch
Executive Vice President
Chief Information Officer
Kevin Chittenden
Executive Vice President
Chief Residential Lending Officer
Bernadette M. Mueller
Executive Vice President
CRA Officer
Established in 1927, Valley National Bank is one of the largest commercial banks headquartered in
New Jersey with convenient locations throughout New Jersey, New York and Florida.
Andrea T. Onorato
Executive Vice President
Chief Administrative Officer
Melissa Scofield
Executive Vice President
Chief Risk Officer
4
VALLEY NATIONAL BANCORP
VALLEY NATIONAL BANCORP 5
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
2016 Annual Report on Form 10-K
by submitting a request in writing to:
Tina Zarkadas
AsAssisiststana t Vice President
ShShara ehehololded r Relations Specialist
VaValllleyey NNatatioionanal Bank
1445555 VVala ley RoRoadad
Wayne, NNJJ 070747700
tzarkadas@v@valalleleynynationanalblbank.com
Financial Information
Investors, security anallysyststs aand
(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:86)(cid:3)(cid:86)(cid:72)(cid:72)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:81)(cid:73)(cid:82)(cid:82)(cid:85)(cid:80)(cid:85)(cid:80)(cid:68)(cid:87)(cid:68) (cid:76)(cid:82)(cid:81)
should submit a request in wwrir tiingng to:
Alan D. Eskow, CPA
Senior Executive Vice President
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:192)(cid:70)(cid:72)(cid:85)(cid:3)
& Corporate Secretary
Valley National Bancorp
1455 Valley Road
WaWaWaWaWaW ynyyyy e, New Jersey 07470
aeaeaeskskskowowowowowo @valleynationalbank.com
Shareholder Inquiries,
Dividend Reinvestment Plan, and
Registrar and Transfer Agent
FFor informmatatioonn reregarding shareholder
aca coununtsts of commmmon stock or Valley’s
DiD vividedendnd RReie nvestmtment Plan, please
coontntacact t ththe e ReRegigiststrrar and Transfer Agent
oror Valley y NaNatitiononalal BBBancorp:
AmAmmere icicann Stock TTTraar nsfer
& & TTTrust Companyy
62622001 15th Avenueee
BrBrooooklyn, New Yoork 111219
Attnnn: Sharehe oldeed rr Rellations Dept.
(877777) 681-80288
Diviidded nd Reinvesse tmennt Plan
(800000) 278-43533
Valleyeeye NNational BaBB ncorpp
Attn::: Shharareheehololdededeerr Relattions Dept.
(80000)) ) 52522-2-414100000,, , exextenssion 3380
(97333)) ) 300305-5-3333 8000
Stock Listing
Valleyyy NNatata ioioonnall BBaBBaBB ncncororpp ccommon
stock issisi
ttraradeded oonoonono ttthehe NNeew York
Stock ExExchchannangegeeee uuuundndndnderer tthehe symbol VLY.
Annual Meeting
April 2727277,, 202001717
9:00 AMMMM
Valley NNNattioonan l Bancororo pp
100 Furlrrllerer SStrt eeeet
Totowa, NeNeN ww Jeeerssey 0757 12
We wouououooo ld like to extend a special thank yooouuuuu toto PPPPeter Croocic tto aanand d AlAlbeb rt LLL... EnEnEnEngegegegellll
fofofooforr rr their years of service and wish tththtthememmm wwelll in ttheir rrreete iremmenent.t.
PPePeteterr CCrCrocociitittoto
Peter Crocitto
SeSSeSeeninioror EEEExecuuuutititit veveveve VVVVVici e ee PrP esident
(cid:9)(cid:9)(cid:9) (cid:38)(cid:75)(cid:38)(cid:75)(cid:38)(cid:75)(cid:38)(cid:75)(cid:76)(cid:72)(cid:72)(cid:76)(cid:72)(cid:72)(cid:73)(cid:3)(cid:73)(cid:3)(cid:50)(cid:83)(cid:50)(cid:83)(cid:50)(cid:83)(cid:72)(cid:85)(cid:72)(cid:72)(cid:85)(cid:85)(cid:68)(cid:87)(cid:68)(cid:68)(cid:87)(cid:68) (cid:76)(cid:81)(cid:76) (cid:74)(cid:3)(cid:74) (cid:50)(cid:73)(cid:192)(cid:70)(cid:72)(cid:85)
AlAlAlbbebertrt LLL EEnEngegelll
Albert L. Engel
Exxxxxeeeecee utive Vice PPrer sidentnt
(cid:9)(cid:3)(cid:38)(cid:75)(cid:75)(cid:75)(cid:75)(cid:75)(cid:76)(cid:76)(cid:72)(cid:76)(cid:72)(cid:72)(cid:76)(cid:72)(cid:73)(cid:3)(cid:53)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:47)(cid:72)(cid:81)(cid:81)(cid:71)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:192)(cid:73)(cid:73) (cid:70)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:85)
6
VALLEY NATIONAL BANCORP
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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
Common Stock, no par value
Non-Cumulative Perpetual Preferred Stock, Series A, no par value
Warrants to purchase Common Stock
Name of exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
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
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
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
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
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
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
No
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2.2 billion on June 30, 2016.
There were 263,838,587 shares of Common Stock outstanding at February 23, 2017.
Documents incorporated by reference:
Certain portions of the registrant’s Definitive Proxy Statement (the “2017 Proxy Statement”) for the 2017 Annual Meeting of
Shareholders to be held April 27, 2017 will be incorporated by reference in Part III. The 2017 Proxy Statement will be filed within 120 days
of December 31, 2016.
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer 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
Item 9A.
Item 9B.
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
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
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Page
3
17
25
25
25
26
28
30
71
72
72
73
74
75
76
78
144
145
145
147
147
147
147
147
147
147
152
PART I
Item 1.
Business
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, 2016, Valley had
consolidated total assets of $22.9 billion, total net loans of $17.1 billion, total deposits of $17.7 billion and total shareholders’
equity of $2.4 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 GCB Capital Trust III and State Bancorp Capital Trusts I and II
through which trust preferred securities were issued. These trusts are not consolidated subsidiaries. See Note 11 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 209 branches serving northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens,
Long Island, and Florida. The Bank offers a full range of commercial, retail, insurance and wealth management financial services
products. The Bank also provides a variety of banking services including automated teller machines, telephone and internet banking,
remote deposit capture, overdraft facilities, drive-in and night deposit services, and safe deposit facilities. In addition, 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 are available products and services, as well as transaction accounts for non-resident aliens.
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 list of subsidiaries). These subsidiaries include, but are not limited to:
•
•
•
•
•
•
•
an all-line insurance agency offering property and casualty, life and health insurance;
an asset management adviser that is a registered investment adviser with Securities and Exchange Commission (SEC);
title insurance agencies in New Jersey, New York and Florida;
subsidiaries which hold, maintain and manage investment assets for the Bank;
a subsidiary which owns and services auto loans;
a subsidiary which specializes in health care equipment lending 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 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 current and former (non-executive officer) 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 bank acquisitions that expanded our branch footprint
into Florida and Long Island, New York. Recent bank transactions are discussed further below.
CNLBancshares, Inc. On December 1, 2015, Valley completed its acquisition of CNLBancshares, Inc. (CNL) and its wholly-
owned subsidiary, CNLBank, headquartered in Orlando, Florida, a commercial bank with approximately $1.6 billion in assets,
$825 million in loans, $1.2 billion in deposits and 16 branch offices on the date of its acquisition by Valley. The CNL acquisition
increased Valley's Florida branch network (first started with the acquisition of 1st United Bancorp, Inc. in 2014 discussed further
below) to a total of 31 branches (after 5 branch closures mostly resulting from branch efficiency efforts during 2016) covering
most major markets in central and southern Florida. The acquired branches allow us to service Florida's west coast markets of
Naples, Bonita Springs, Fort Myers and Sarasota. We also added three offices in the Jacksonville area and expanded our presence
3
2016 Form 10-K
in the Orlando market. The common shareholders of CNL received 0.705 of a share of Valley common stock for each CNL share
they owned prior to the merger. The total consideration for the acquisition was approximately $230 million, consisting of 20.6
million shares of Valley common stock.
1st United Bancorp, Inc. On November 1, 2014, Valley acquired 1st United Bancorp, Inc. (1st United) and its wholly-
owned subsidiary, 1st United Bank, a commercial bank with approximately $1.7 billion in assets, $1.2 billion in loans, and $1.4
billion in deposits, after purchase accounting adjustments. The 1st United acquisition gave Valley its first Florida branch network
consisting of 20 branch offices covering some of the most attractive urban banking markets in Florida, including locations
throughout southeast Florida, the Treasure Coast, central Florida and central Gulf Coast regions. The common shareholders of 1st
United received 0.89 of a share of Valley common stock for each 1st United share they owned prior to the merger. The total
consideration for the acquisition was approximately $300 million, consisting of 30.7 million shares of Valley common stock and
$8.9 million of cash consideration paid to 1st United stock option holders. In conjunction with the merger, Valley shareholders
approved an amendment of its certificate of incorporation to increase its authorized common shares by 100 million shares during
the third quarter of 2014.
In connection with the 1st United acquisition, we acquired loans and other real estate owned subject to Federal Deposit
Insurance Corporation (FDIC) loss-share agreements (referred to as “covered loans” and “covered OREO”, together “covered
assets”). The FDIC loss-share agreements relate to three previous FDIC-assisted acquisitions completed by 1st United from 2009
to 2011. The Bank shares losses on covered assets in accordance with provisions of each loss-share agreement. The vast majority
of Valley's covered loans totaling $70.4 million, or 0.4 percent of our total loans, at December 31, 2016 are covered by commercial
loan and single-family (residential) loss sharing agreements acquired from 1st United that will expire between 2017 and 2021.
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 $1.7 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. Of the acquired branch offices, 12
remain within our 38 branch network in New York and are located in Long Island and Queens. The common shareholders of State
Bancorp received a fixed one- for- one exchange ratio for Valley National Bancorp common stock. The total consideration for the
all stock acquisition equaled $208 million.
Additionally, a warrant issued by State Bancorp (in connection with its previously redeemed 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
489 thousand of Valley common shares has an exercise price of $11.30 per share, and is exercisable on a net exercise basis until
December 5, 2018. At the request of the U.S. Treasury, the warrant shares were individually sold at public auction in May 2015.
All of the warrants remained outstanding and unexercised at December 31, 2016.
Business Segments
Our business segments are reassessed by management, at least on an annual basis, to ensure the proper identification and
reporting of our operating segments. Valley currently 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 22 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 totaled approximately $2.6 billion and represented
15.3 percent of the total loan portfolio at December 31, 2016. We make commercial loans to small and middle market businesses
most often located in the New Jersey and New York area, as well as Florida which accounted for approximately 7 percent of the
$2.6 billion in commercial and industrial loans at December 31, 2016. 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, most 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. Our loan
decisions include consideration of a borrower’s willingness to repay debts, collateral coverage, standing in the community and
other forms of support. Strong consideration is given to long-term existing customers that have maintained a favorable relationship
with the Bank. Commercial loan products offered consist of term loans for equipment purchases, working capital lines of credit
that assist our customers’ 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. Short-term
commercial business loans may be collateralized by a lien on accounts receivable, inventory, equipment and/or partly collateralized
2016 Form 10-K
4
by real estate. Short-term loans may also be made on an unsecured basis based on a borrower’s financial strength and past
performance. Whenever possible, we 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 creditworthy borrowers. Unsecured commercial and industrial loans
totaled $455.5 million at December 31, 2016. In addition, we provide financing to the medical equipment leasing market through
our leasing subsidiary, Highland Capital Corp.
The commercial portfolio also includes approximately $151 million of taxi medallion loans (including $19.1 million of
contractual outstanding balances within our purchased credit-impaired loan portfolio) at December 31, 2016, most of which consist
of loans to fleet owners of New York City medallions. Valley's historical lending criteria has been conservative in regards to
capping both the loan amounts and market valuations for taxi medallions, as well as obtaining personal guarantees whenever
possible. While a substantial majority of loans in this portfolio are performing at December 31, 2016, we will continue to closely
monitor this portfolio's performance and the potential impact of the changes in market valuations for taxi medallions due to
competing car service providers and other factors.
Commercial Real Estate Loans. Commercial real estate and construction loans totaled $9.5 billion and represented 55.4
percent of the total loan portfolio at December 31, 2016. We originate commercial real estate loans that are largely secured by
multi-unit residential property and non-owner occupied commercial, industrial, and retail property within New Jersey, New York,
Pennsylvania and Florida. Loans originated from our Florida lending operations represented 14.5 percent of the $9.5 billion in
total commercial real estate loans at December 31, 2016. 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 generally
structured on a fully amortizing basis for terms up to thirty years. Commercial real estate loans are subject to underwriting standards
and processes similar to commercial and industrial loans but generally they involve larger principal balances and longer repayment
periods as compared to commercial and industrial loans. Commercial real estate loans are viewed primarily as cash flow loans
and secondarily as loans secured by real property. 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.
With respect to loans to developers and builders, we originate and manage construction loans structured on either a revolving or
a non-revolving basis, depending on the nature of the underlying development project. Our construction loans totaling
approximately $825 million at December 31, 2016 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.
Consumer Lending Segment
Residential Mortgage Loans. Residential mortgage loans totaled $2.9 billion and represented 16.6 percent of the total loan
portfolio at December 31, 2016. We offer a full range of residential mortgage loans for the purpose of purchasing or refinancing
one-to-four family residential properties. Our residential mortgage loans include fixed and variable interest rate loans generally
located in counties where we have a branch presence in New Jersey, New York and Florida, as well as contiguous counties, if
applicable, including eastern Pennsylvania. Valley’s ability to be repaid on such loans is closely linked to the economic and real
estate market conditions in our lending markets. 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.
Mortgage loan originations are based on underwriting standards that generally comply with Fannie Mae and/or Freddie Mac
requirements. Appraisals and valuations of real estate collateral are contracted directly with independent appraisers or from
valuation services 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. In deciding whether to originate each residential mortgage, Valley
considers the qualifications of the borrower, the value of the underlying property and other factors that we believe are predictive
of future loan performance. Valley originated first mortgages are generally fixed-rate amortizing loans with 10 year to 30 year
maturities. Valley's non-amortizing (i.e., interest-only) residential mortgage loan portfolio was immaterial at December 31, 2016.
The small amount of interest-only loans is running off year over year, as Valley has no longer originated this type of residential
mortgage loan product for many years.
5
2016 Form 10-K
The Bank is also a servicer of residential mortgage 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. See Note 8 to the
consolidated financial statements for further details.
Other Consumer Loans. Other consumer loans totaled $2.2 billion and represented 12.7 percent of the total loan portfolio
at December 31, 2016. Our other consumer loan portfolio is primarily comprised of direct and indirect automobile loans, home
equity loans and lines of credit, loans secured by the cash surrender value of life insurance, and to a lesser extent, secured and
unsecured other consumer loans (including credit card loans). Valley is an auto lender in New Jersey, New York, Pennsylvania,
Florida, Connecticut and Delaware offering indirect auto loans secured by either new or used automobiles. Automobile originations
(including light truck and sport utility vehicles) are largely produced via indirect channels, originated through approved automobile
dealers. Valley acquired an immaterial amount of automobile loans from both the CNL and 1st United acquisitions in 2015 and
2014, respectively, as auto lending was not a focus of the acquired operations. However, we implemented our indirect auto lending
model in Florida during 2015 using our New Jersey based underwriting and loan servicing platform. The new Florida auto dealer
network generated $36.4 million and $11.5 million of auto loans in 2016 and 2015, respectively. Home equity lending consists
of both fixed and variable interest rate products mainly to provide home equity loans to our residential mortgage customers or
take a secondary position to another lender’s first lien position within the footprint of our primary lending territory. We generally
will not exceed a combined (i.e., first and second mortgage) loan-to-value ratio of 75 percent when originating a home equity
loan. 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. Unsecured consumer loans totaled
approximately $20.6 million, including $7.0 million of credit card loans, at December 31, 2016.
Wealth Management. Our Wealth Management Division provides coordinated and integrated delivery of asset management
advisory, general insurance, title insurance and trust services. 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. Trust services include living and testamentary trusts, investment management, custodial and escrow services,
and estate administration, primarily to individuals.
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, 2016, our total investment securities and interest bearing deposits with banks were $3.2 billion and $171.7
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
At December 31, 2016, approximately 75 percent of Valley’s gross loans totaling $17.2 billion consisted of commercial real
estate (including construction loans), residential mortgage, and home equity loans as compared to 74 percent at December 31,
2015. The remaining 25 percent and 26 percent at December 31, 2016 and 2015, respectively, consisted of loans not collateralized
by real estate. Valley has no internally planned changes that would significantly impact the current composition of our loan portfolio
by loan type. However, we have continued to diversify the geographic concentrations (primarily the New Jersey and New York
City Metropolitan area) within our loan portfolio through our bank acquisitions in Florida during both 2014 and 2015 (see table
and discussion below). 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.
2016 Form 10-K
6
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, 2016.
New Jersey
New York
Florida
Pennsylvania
California
Connecticut
Other
Total
Percentage of Loan Portfolio Segment:
Commercial
and
Industrial
Commercial
Real Estate
Residential
Consumer
% of Total
Loans
43%
42
2
1
2
1
9
100%
32%
46
16
2
*
1
3
100%
68%
10
8
2
8
*
4
100%
48%
26
7
12
1
3
3
100%
42%
37
12
3
2
1
3
100%
*
Represents less than one percent of the loan portfolio segment.
The percentage of total loans for New Jersey, New York and Florida was 44 percent, 34 percent and 12 percent at December
31, 2015, respectively, as compared to the percentages shown in the table above at December 31, 2016. The percentage of loans
by loan portfolio segment and by total loans presented for all other states above did not materially change from December 31,
2015.
Risk Management
Effective risk management is critical to our success. Financial institutions must manage a variety of business risks that can
significantly affect their financial performance. Significant risks we confront are credit risks and asset/liability management risks,
which include interest rate and liquidity risks. Credit risk is the risk of not collecting payments pursuant to the contractual terms
of loan, lease and investment assets. Interest rate risk results from changes in interest rates which may impact the re-pricing of
assets and liabilities in different amounts or at different dates. Liquidity risk is the risk that we will be unable to fund obligations
to loan customers, depositors or other creditors at a reasonable cost.
Valley’s Board performs its risk oversight function primarily through several standing committees, including the Risk
Committee, all of which report to the full Board. The Risk Committee assists the Board by, among other things, establishing an
enterprise-wide risk management framework that is appropriate for Valley’s capital, business activities, size and risk appetite. The
Risk Committee also reviews and recommends to the Board appropriate risk tolerances and limits for credit, compliance, interest
rate, liquidity, operational, strategic and price risk (and ensures that risk is managed within those tolerances), and monitors
compliance with laws and regulations. With guidance from and oversight by the Risk Committee, management continually refines
and enhances its risk management policies and procedures to maintain effective risk management programs and processes.
Additionally, The Dodd-Frank Act Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act")
mandated that stress tests be developed and performed to ensure that financial institutions have sufficient capital to absorb losses
and support operations during multiple economic and bank scenarios. On October 9, 2012, the Federal Reserve Board (FRB)
published final rules implementing the stress testing requirements for banks, such as the Bank, with total consolidated assets of
more than $10.0 billion but less than $50.0 billion. These rules set forth the timing and type of stress test activities, as well as
rules governing controls, oversight and disclosure. On July 28, 2016, we submitted our latest stress testing results, utilizing data
as of December 31, 2015, to the FRB. The full disclosure of the stress testing results, including the results for Valley National
Bank, a summary of the supervisory severely adverse scenario and additional information regarding the methodologies used to
conduct the stress test may be found on the Shareholder Relations section of our website (www.valleynationalbank.com) under
the Dodd-Frank Act Stress Test Reports section. Through the stress testing program that has been implemented and reviewed by
the Risk Committee, Valley complies with current regulations. The results of stress testing activities are considered in combination
with other risk management and monitoring practices to maintain an effective risk management program.
7
2016 Form 10-K
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.
Our historical and current loan underwriting practice prohibits the origination of payment option adjustable residential
mortgages which allow for negative interest amortization and subprime loans. Virtually all of our residential mortgage 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 Underwriting and 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 possible
variations in procedures and due diligence dictated by specific loan requests. 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, valuation services, 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) should not
exceed 60 percent, except for certain low risk loan categories where the loan to value ratio requirement may be higher, based on
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.
Certain impaired loans are reported at the fair value of the underlying collateral (less estimated selling costs) 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 every 12 months (or 18 months for impaired loans
no greater than $1 million with current loan to value ratios less than 75 percent). 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.
2016 Form 10-K
8
All refinanced residential mortgage loans require new appraisals for loans held in our loan portfolio. However, certain
residential mortgage loans may be originated for sale and sold without new appraisals when the investor (Fannie Mae or Freddie
Mac) presents a refinance of an existing government sponsored enterprise loan without the benefit of a new appraisal. Additionally,
all loan types are assessed for full or partial charge-off when they are between 90 and 120 days past due (or sooner when the
borrowers’ obligation has been released in bankruptcy) based upon their estimated net realizable value. See Note 1 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. 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 (TDR).
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.
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 TDR 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 makes purchases of commercial real estate loans and loan participations, residential mortgage
loans, automobile loans, and other loan types, originated by, and sometimes serviced by, other financial institutions. The purchase
decision is usually based on several factors, including current loan origination volumes, market interest rates, excess liquidity, our
continuous efforts to meet the credit needs of certain borrowers under Community Reinvestment Act, as well as other asset/liability
management strategies. All of the purchased loans are selected using Valley’s normal underwriting criteria at the time of purchase,
or in some cases guaranteed by third parties. Purchased commercial real estate participation loans are generally seasoned loans
with expected shorter durations. Additionally, each purchased participation loan is stress-tested by Valley to assure its credit quality.
Purchased commercial real estate loans, residential mortgage loans and automobile loans (excluding purchased credit-
impaired loans acquired in business combinations or FDIC-assisted transactions) totaled approximately $1.3 billion, $818.6 million
and $4.7 million, respectively, at December 31, 2016 representing 15.24 percent, 30.50 percent and 0.41 percent of our total
commercial real estate, residential mortgage and automobile loan portfolios, respectively. At December 31, 2016, the commercial
real estate loans originated by third parties had loans past due 30 days or more totaling 0.67 percent of these loans as compared
to 0.27 percent for our total commercial real estate portfolio, including all delinquencies. Residential mortgage loans originated
by third parties had loans past due 30 days or more totaling 1.11 percent of these loans at December 31, 2016 as compared to 0.64
percent for our total residential mortgage portfolio. The purchased automobile portfolio had loans past due 30 days or more totaling
0.84 percent of these loans at December 31, 2016 as compared to 0.36 percent for our total automobile loan portfolio.
Additionally, Valley has performed credit due diligence on the majority of the loans acquired in our bank acquisitions and
FDIC-assisted transactions (disclosed under the "Recent Acquisitions" section above) in determining the estimated cash flows
receivable from such loans. See the "Loan Portfolio" section of Item 7—Management’s Discussion and Analysis of Financial
Condition and Results of Operations of this report below for additional information.
9
2016 Form 10-K
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, Long Island, and Florida.
Valley ranked 17th in competitive ranking and market share based on the deposits reported by 213 FDIC-insured financial
institutions in the New York, Northern New Jersey and Long Island deposit market as of June 30, 2016. The FDIC also ranked
Valley 9th, 40th and 30th in the states of New Jersey, New York and Florida, respectively, based on deposit market share as of
June 30, 2016. Our FDIC deposit market share ranking improved in Florida from 40th one year earlier due, in large part, to the
assumption of $1.2 billion in deposits from the acquisition of CNL. While our FDIC rankings reflect a solid foundation in our
primary markets, 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, captive finance
companies, mortgage companies, title agencies, asset managers, insurance companies and a growing list of other local, regional
and national companies which offer various financial services. Many of these competitors may have fewer regulatory constraints,
broader geographic service areas, greater capital, and, in some cases, lower cost structures.
In addition, competition has further intensified as a result of recent changes in regulation, and advances in technology and
product delivery systems. We face strong competition for our borrowers, depositors, and other customers from Fintech companies
that provide innovative web-based solutions to traditional retail banking services and products. Fintech companies tend to have
stronger operating efficiencies and less regulatory burdens than their traditional bank counterparts, including Valley. Within our
markets, we also compete with some of the largest financial institutions in the world that have greater human and financial resources
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 209
branches, an extensive ATM network of 224 locations, 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, 2016, Valley National Bank and its subsidiaries employed 2,828 full-time equivalent persons. Management
considers relations with its employees to be satisfactory.
2016 Form 10-K
10
Executive Officers
Name
Gerald H. Lipkin
Ira D. Robbins
Rudy E. Schupp
Alan D. Eskow
Dianne M. Grenz
Thomas A. Iadanza
Ronald H. Janis
Robert J. Bardusch
Kevin Chittenden
Bernadette M. Mueller
Andrea T. Onorato
Melissa F. Scofield
Mitchell L. Crandell
Sherry Ambrosini
Age at
December 31,
2016
75
Executive
Officer
Since
1975
42
66
68
54
58
68
51
52
58
59
57
46
61
2009
2014
1993
2014
2015
2017
2016
2016
2009
2014
2015
2007
2014
Office
Chairman of the Board and Chief Executive Officer of Valley and Valley
National Bank
Senior Executive Vice President of Valley and President of Valley
National Bank
President of Valley and Chief Banking Officer of Valley National Bank
Senior Executive Vice President, Chief Financial Officer and Corporate
Secretary of Valley and Valley National Bank
Senior Executive Vice President of Valley and Chief Consumer Banking
Officer of Valley National Bank
Senior Executive Vice President of Valley and Chief Lending Officer of
Valley National Bank
Senior Executive Vice President and General Counsel of Valley and
Valley National Bank
Executive Vice President of Valley and Chief Information Officer of
Valley National Bank
Executive Vice President of Valley and Chief Residential Lending
Officer of Valley National Bank
Executive Vice President of Valley and Valley National Bank
Executive Vice President of Valley and Valley National Bank
Executive Vice President of Valley and Valley National Bank
First Senior Vice President, Chief Accounting Officer of Valley and
Valley National Bank
First 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 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.
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 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
11
2016 Form 10-K
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 (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 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 enables bank holding companies to acquire banks
in states other than its home state and to open branches in other states, subject to certain restrictions. The Dodd-Frank Act, discussed
below, authorized interstate de novo branching regardless of state law.
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.
Capital Requirements
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.
In July 2013, the FRB and the OCC published final rules establishing a new comprehensive capital framework for U.S.
banking organizations, referred to herein as the Basel III rules. Basel III rules implement the Basel Committee’s December 2010
framework, commonly referred to as Basel III, for strengthening international capital standards as well as certain provisions of
the Dodd-Frank Act. Basel III substantially revised the risk-based capital requirements applicable to bank holding companies and
depository institutions, including Valley and Valley National Bank. Basel III became effective for us on January 1, 2015 (subject
to phase-in periods for certain components).
Basel III (i) introduced a new capital measure called “Common Equity Tier 1,” or CET1, (ii) specified that Tier 1 capital
consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements, (iii) applied most deductions/
adjustments to regulatory capital measures to CET1 and not to the other components of capital, thus potentially requiring higher
levels of CET1 in order to meet minimum ratios, and (iv) expanded the scope of the reductions/adjustments from capital as
compared to existing regulations.
Under Basel III, the minimum capital ratios for us and Valley National Bank are as follows:
•
•
•
•
4.5 percent CET1 to risk-weighted assets.
6.0 percent Tier 1 capital (i.e., CET1 plus Additional Tier 1) to risk-weighted assets.
8.0 percent Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets.
4.0 percent Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known
as the “leverage ratio”).
2016 Form 10-K
12
When fully phased in on January 1, 2019, Basel III also requires us and Valley National Bank to maintain a 2.5 percent
“capital conservation buffer”, composed entirely of CET1, on top of the minimum risk-weighted asset ratios, effectively resulting
in minimum ratios of (i) CET1 to risk-weighted assets of at least 7.0 percent, (ii) Tier 1 capital to risk-weighted assets of at least
8.5 percent, and (iii) total capital to risk-weighted assets of at least 10.5 percent. The capital conservation buffer is designed to
absorb losses during periods of economic stress. Banking institutions with a ratio of (i) CET1 to risk-weighted assets, (ii) Tier 1
capital to risk-weighted assets or (iii) total capital to risk-weighted assets above the respective minimum but below the capital
conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments to executive officers
based on the amount of the shortfall. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625
percent level and will increase by 0.625 percent on each subsequent January 1st, until it reaches 2.5 percent on January 1, 2019.
As of January 1, 2017, we and the Bank were required to maintain a capital conservation buffer of 1.25 percent.
Basel III provides for a number of 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 common
equity issued by nonconsolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10
percent of CET1 or all such categories in the aggregate exceed 15 percent of CET1. The deductions and other adjustments to
CET1 are being phased in incrementally between January 1, 2015 and January 1, 2018.
Under current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded
for the purposes of determining regulatory capital ratios. Under Basel III, the effects of certain accumulated other comprehensive
items are not excluded; however, non-advanced approaches banking organizations, including Valley and Valley National Bank,
were permitted to make a one-time permanent election to continue to exclude these items effective as of January 1, 2015. We made
this one-time election in the applicable bank regulatory reports as of March 31, 2015.
Basel III, with respect to us, required that our trust preferred securities be eliminated from Tier 1 capital by January 1, 2016.
Accordingly, none of Valley’s trust preferred securities were included in Tier 1 capital during 2016.
With respect to Valley National Bank, Basel III also revised the “prompt corrective action” regulations pursuant to Section
38 of the FDICIA, by (i) introducing a CET1 ratio requirement at each capital quality level (other than critically undercapitalized);
(ii) increasing the minimum Tier 1 capital ratio requirement for each category; and (iii) requiring a leverage ratio of 5 percent to
be well-capitalized. 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 8.0 percent, (iii) has a CET1 ratio of at least 6.5 percent, (iv) has a Tier 1 leverage ratio of at least 5.0 percent, and (v) meets
certain other requirements. An institution will be classified as “adequately capitalized” if it meets the aforementioned minimum
capital ratios under Basel III. 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 6.0 percent, (iii) has a CET1 ratio of less than 4.5 percent
or (iv) has Tier 1 leverage ratio of less than 4.0 percent. 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 4.0 percent, (iii)
has a CET1 ratio of less than 3.0 percent or (iv) has a Tier 1 leverage ratio of less than 3.0 percent. An institution will be classified
as “critically undercapitalized” if it has a tangible equity to total assets ratio that is equal to or less than 2.0 percent. An insured
depository institution may be deemed to be in a lower capitalization category if it receives an unsatisfactory examination rating.
Similar categories apply to bank holding companies. When the capital conservation buffer is fully phased in, the capital ratios
applicable to depository institutions under Basel III will exceed the ratios to be considered well-capitalized under the prompt
corrective action regulations.
Basel III prescribes a standardized approach for calculating risk-weighted assets that expand the risk-weighting categories
from the four Basel I-derived categories (0 percent, 20 percent, 50 percent and 100 percent) to a much larger and more risk-
sensitive number of categories, depending on the nature of the assets.
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, 2016 under the “prompt corrective action” regulations in effect as of such date. We believe
that, as of December 31, 2016, Valley and Valley National Bank would meet all capital adequacy requirements under Basel III on
a fully phased-in basis if such requirements were currently effective.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
The Dodd-Frank Act was signed into law on July 21, 2010. The Dodd-Frank Act significantly changed the bank regulatory
landscape and has impacted the lending, deposit, investment, trading and operating activities of financial institutions and their
holding companies. Some of the effects are discussed below.
The Dodd-Frank Act-mandated covered banks and bank holding companies with more than $10 billion in total consolidated
assets (such as Valley) to conduct annual company-run stress tests.
13
2016 Form 10-K
The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) and shifted most of the federal consumer
protection rules applicable to banks and the enforcement power with respect to such rules to the CFPB. The CFPB has issued a
series of final rules related to mortgage loan origination and mortgage loan servicing. The CFPB issued a rule amending Regulation
Z to implement certain amendments to the Truth in Lending Act. The CFPB also issued a rule implementing amendments to the
Truth in Lending Act and the Real Estate Settlement Procedures Act.
In addition, the CFPB amended Regulation B to implement changes to the Equal Credit Opportunity Act. The CFPB also
amended Regulation Z to implement requirements and restrictions to the Truth in Lending Act concerning loan originator
compensation, qualifications of, and registration or licensing of loan originators, compliance procedures for depository institutions,
mandatory arbitration, and the financing of single-premium credit insurance.
Finally, the CFPB issued rules to implement the new ability-to-repay and qualified mortgage provisions provided for by the
Dodd-Frank Act which became effective in January 2014. The ability-to-repay provision requires creditors to make reasonable,
good faith determinations that borrowers are able to repay their mortgages before extending the credit based on a number of factors
and consideration of financial information about the borrower from reasonably reliable third-party documents.
The CFPB has continued to issue final rules regarding mortgages, including amendments to certain mortgage servicing rules
regarding force-placed insurance notices, policies and procedures, early intervention, and loss mitigation requirements under
Regulation X and prompt crediting and periodic statement requirements under Regulation Z. We cannot assure you that existing
or future regulations will not have a material adverse impact on our residential mortgage loan business or the housing markets in
which we participate.
To the effect the Dodd-Frank Act remains in place, it is likely to continue to increase our cost of doing business, limit our
permissible activities, and affect the competitive balance within our industry and market areas.
Volcker Rule
The Volcker Rule (contained in section 619 of the Dodd-Frank Act) prohibits an insured depository institution and its affiliates
from: (i) engaging in “proprietary trading” and (ii) investing in or sponsoring certain types of funds (Covered Funds) subject to
certain limited exceptions. The rule also effectively prohibits short-term trading strategies by any U.S. banking entity if those
strategies involve instruments other than those specifically permitted for trading and prohibits the use of some hedging strategies.
We identified no investments held as of December 31, 2016 that meet the definition of Covered Funds.
Incentive Compensation
The Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines
prohibiting incentive-based payment arrangements at specified regulated entities with at least $1 billion in total assets, such as
Valley and the Bank, that encourage inappropriate risks by providing an executive officer, employee, director or principal
shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition,
these agencies must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation
arrangements. The agencies proposed such regulations in April 2011 and subsequently proposed revised regulations in May 2016,
but the revised regulations have not been finalized. If the revised regulations are adopted in the form proposed, they will impose
limitations on the manner in which Valley may structure compensation for its executives and employees.
In 2010, the FRB, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to
ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such
organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially
affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking
organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the
organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk
management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s
board of directors. These three principles are incorporated into the proposed joint compensation regulations under the Dodd-Frank
Act.
The FRB will review, as part of its regular, risk-focused examination process, the incentive compensation arrangements of
banking organizations, such as Valley, that are not “large, complex banking organizations.” These reviews will be tailored to each
organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation
arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be
incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take
other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or
related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization
is not taking prompt and effective measures to correct the deficiencies.
2016 Form 10-K
14
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 less stringent than, 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 under the authority of Regulation O, may not extend or arrange for any personal loans to its
directors and executive officers.
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. 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.
The OCC conditioned its approval of Valley’s acquisition of 1st United, on the commitment of Valley National Bank to
submit to the OCC before the end of 2014 a CRA plan consistent with the correspondence Valley submitted to the OCC during
the application process. Valley National Bank submitted its CRA plan to the OCC prior to the end of 2014, and received a "no
supervisory objection" to the plan from the OCC during May 2015. While the OCC approval of the most recent acquisition of
CNL in December 2015 was unconditional, the OCC noted it will continue to monitor the Bank's progress with the CRA plan,
and any necessary enhancements based upon new markets or otherwise, through its normal supervisory reviews. Valley National
Bank's CRA plan is available for review on its website at www.valleynationalbank.com.
A bank which does not have a CRA program that is deemed satisfactory by its regulator will be prevented from making
acquisitions.
Corporate Governance
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:
•
•
•
•
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 on our chief executive officer and chief financial officer additional responsibilities with respect to our
external financial statements, 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 which oversees public accounting firms; and
15
2016 Form 10-K
•
increased various criminal penalties for violations of securities laws.
The New York Stock Exchange (NYSE), where Valley common stock is listed, has corporate governance listing standards,
including rules strengthening director independence requirements for boards, as well as the audit committee and the compensation
committee, and requiring the adoption of charters for the nominating, corporate governance, compensation 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.
A bank which is issued a formal or informal enforcement requirement with respect to its Anti Money Laundering program
will be prevented from making acquisitions.
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 is focused on risks to consumers and compliance with the
federal consumer financial laws and includes regular examinations of the Bank. The CFPB, along with the Department of Justice
and bank regulatory authorities also seek to enforce discriminatory lending laws. In such actions, the CFPB and others have used
a disparate impact analysis, which measures discriminatory results without regard to intent. Consequently, unintentional actions
by Valley could have a material adverse impact on our lending and results of operations if the actions are found to be discriminatory
by our regulators.
Valley National Bank is subject to federal consumer protection statutes and regulations promulgated under those laws,
including, but not limited to the following:
•
•
•
•
•
Truth-In-Lending Act and Regulation Z, governing disclosures of credit terms to consumer borrowers;
Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide certain information
about home mortgage and refinanced loans;
Equal Credit Opportunity Act and Regulation B, prohibiting discrimination on the basis of race, creed, or other
prohibited factors in extending credit;
Fair Credit Reporting Act and Regulation V, governing the provision of consumer information to credit reporting
agencies and the use of consumer information; and
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies.
Valley National Bank’s deposit operations are also subject to the following federal statutes and regulations, among others:
•
•
•
The Truth in Savings Act and Regulation DD, which requires disclosure of deposit terms to consumers;
Regulation CC, which relates to the availability of deposit funds to consumers;
The Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial
records and prescribes procedures for complying with administrative subpoenas of financial records; and
2016 Form 10-K
16
•
Electronic Funds Transfer Act and Regulation E, governing automatic deposits to, and withdrawals from, deposit
accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic
banking services.
The CFPB examines Valley National Bank's compliance with such laws and the regulations under them.
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 allowed bank holding companies meeting management, capital and CRA standards to become
financial holding companies and thereby to engage in a substantially broader range of non-banking activities than was previously
permissible, including insurance underwriting and securities underwriting.
The OCC adopted rules to allow national banks to form subsidiaries to engage in financial activities allowed for financial
holding companies, subject to certain restrictions. While Valley National Bank may elect to create financial subsidiaries, Valley
has not elected to become a financial holding company.
Insurance of Deposit Accounts
The Bank’s deposits are insured up to applicable limits by the 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.
As required by the Dodd-Frank Act, the FDIC has adopted rules that revise 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 rules 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 rules 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 Dodd-Frank Act made permanent a $250
thousand limit for federal deposit insurance.
In 2016, the FDIC added a surcharge to the insurance assessments for banks with over $10 billion in assets, which became
effective in July 2016 and which will continue until the FDIC reserve ratio reaches 1.35% or the end of 2018, whichever comes
first.
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.
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.
Currently, we are operating in a slow growth economic environment accompanied by, despite recent increases, a relatively
low level of market interest rates. Financial institutions can be affected by changing conditions in the real estate and financial
markets. Dramatic declines in the housing market in past years, with falling home prices and increasing foreclosures and
unemployment, resulted in significant write-downs of asset values by financial institutions. While the economy and real estate
market conditions have significantly improved in recent years, a return to a recessionary economy could result in financial stress
on our borrowers that would adversely affect our financial condition and results of operations. The majority of Valley’s lending
is in northern and central New Jersey, New York City metropolitan area and Florida. As a result of this geographic concentration,
a significant broad-based deterioration in economic conditions in these areas could have a material adverse impact on the quality
of Valley’s loan portfolio, results of operations and future growth potential. Adverse economic conditions in our market areas can
reduce our rate of growth, affect our customers’ ability to repay loans and adversely impact our financial condition and earnings.
17
2016 Form 10-K
General economic conditions, including inflation, unemployment and money supply fluctuations, also may affect our profitability
adversely.
Changes in interest rates or prolonged low levels of 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, including the held to maturity and available for sale investment securities portfolios, and (iii) the average duration of Valley’s
interest-earning assets and liabilities. 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 or unexpected change in market interest rates or a prolonged period
of low interest rates, such as those experienced in 2016 despite any potential movements in the FRB's accommodative monetary
policy, could have a material adverse effect on Valley’s financial condition and results of operations. See additional information
at the “Net Interest Income” and “Interest Rate Sensitivity” sections of our MD&A.
Claims and litigation could result in losses and damage to our reputation.
From time to time as part of Valley’s normal course of business, customers, bankruptcy trustees, former customers, contractual
counterparties, third parties 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. See the "Litigation"
section under Note 15 to the consolidated financial statements for additional information and a significant pending lawsuit.
Future acquisitions may dilute shareholder value.
We regularly evaluate opportunities to acquire other financial institutions. As a result, merger and 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 our tangible book value and net income per common share may occur in connection with any future acquisitions.
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 actual or projected capital ratios fall below or
near the current (Basel III) regulatory required minimums, we or the Bank could be forced to raise additional capital by making
additional offerings of common stock, preferred stock or 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. In June 2015, Valley issued 4.6 million shares of non-cumulative perpetual preferred stock with a liquidation preference
of $25 per share. In December 2016, Valley issued 9.24 million shares of common stock with the intention to use the proceeds
for continued growth in the Bank’s loan portfolio, as well as other general corporate purposes. See Note 18 to the consolidated
financial statements for more details on our common and preferred stock.
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, 2016, approximately 75 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 downturn in the real estate market in our primary market areas could result in an increase in the number of borrowers
2016 Form 10-K
18
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 or
commercial real estate prices in the New Jersey, New York and Florida markets we primarily serve, along with the reduced
availability of mortgage credit, also may result in increases in delinquencies and losses in our loan portfolios. Unexpected decreases
in home or commercial real estate prices coupled with slow economic growth 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 another correction in residential real estate market prices
and reduced levels of home sales, could result in 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. 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 factor 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. Deterioration in economic conditions affecting
borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and
outside of our control, may require an increase in the allowance for loan losses. Additionally, 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. If actual net charge-offs were to
exceed Valley’s allowance, its earnings would be negatively impacted by additional provisions for loan losses. Any increase in
our allowance for loan losses or loan charge-offs as required by the OCC or otherwise could have an adverse effect on our results
of operations or financial condition.
We may be required to increase our allowance for credit losses as a result of a recent change to an accounting standard.
In 2016, the FASB released a new standard for determining the amount of the allowance for credit losses. The new standard
will be effective for Valley for reporting periods beginning January 1, 2020. The new credit loss model will be a significant change
from the standard in place today, as it requires the allowance for credit losses to be calculated based on current expected credit
losses (commonly referred to as the "CECL model") rather than losses inherent in the portfolio as of a point in time. When adopted,
the CECL model will likely increase our allowance for credit losses, which could materially affect our financial condition and
future results of operations. The extent of the increase and its impact to our financial condition is under evaluation, but will
ultimately depend upon the nature and characteristics of Valley's portfolio at the adoption date, and the macroeconomic conditions
and forecasts at that date; therefore, the potential financial impact is currently unknown.
Cyber-attacks and information security breaches could compromise our information or result in the data of our customers
being improperly divulged, which could expose us to liability and losses.
Many 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 we have not experienced, to date, 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.
19
2016 Form 10-K
We may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis, which
could expose us to additional liability and could have a material adverse effect on us.
We are required to comply with anti-money laundering, anti-terrorism and other laws and regulations in the United States.
These laws and regulations require us, among other things, to adopt and enforce “know-your-customer” policies and procedures
and to report suspicious and large transactions to applicable regulatory authorities. These laws and regulations have become
increasingly complex and detailed, require improved systems and sophisticated monitoring and compliance personnel and have
become the subject of enhanced government supervision.
While we have adopted policies and procedures aimed at detecting and preventing the use of our banking network for money
laundering and related activities, those policies and procedures may not completely eliminate instances in which we may be used
by customers to engage in money laundering and other illegal or improper activities. To the extent we fail to fully comply with
applicable laws and regulations, the OCC, along with other banking agencies, have the authority to impose fines and other penalties
on us. In addition, our business and reputation could suffer if customers use our banking network for money laundering or illegal
or improper purposes.
We could incur future goodwill impairment
If our estimates of the fair value of our goodwill change as a result of changes in our business or other factors, we may
determine a goodwill impairment charge is necessary. Estimates of the fair value of goodwill are determined using several factors
and assumptions, including, but not limited to, industry pricing multiples and estimated cash flows. Based upon Valley’s 2016
goodwill impairment testing, the fair values of its four reporting units, wealth management, consumer lending, commercial lending,
and investment management, were in excess of their carrying values. If the fair values of the four reporting units were less than
their book value of the total common shareholders’ equity for an extended period of time, Valley would consider this and other
factors, including the anticipated cash flows of each of the reporting units, to determine whether goodwill is impaired. No assurance
can be given that we will not record an impairment loss on goodwill in the future and any such impairment loss could have a
material adverse effect on our results of operations and financial condition. At December 31, 2016, our goodwill totaled $690.6
million, including $113.6 million acquired in the acquisition of CNL in December 2015. See Note 8 to the consolidated financial
statements for additional information.
We may reduce or eliminate the cash dividend on our common stock, which could adversely affect the market price of our
common stock.
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 depending upon our results of
operations, financial condition or other metrics. 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 four-quarter period in which the dividend is being paid.
If our subsidiaries are unable to make dividends and distributions to us, we may be unable to make dividend payments to
our preferred and common shareholders or interest payments on our long-term borrowings and 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 preferred
and 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 preferred and common shareholders or interest payments on our long-term borrowings and 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.
The required accounting treatment of purchased credit-impaired (PCI) loans, including loans acquired through business
combinations, FDIC-assisted transactions, or bulk loan purchases could result in higher net interest margins and interest
income in current periods and lower net interest margins and interest income in future periods.
Under U.S. GAAP, we record loans acquired at a discount (that is due, in part, to credit,) at fair value which may underestimate
the actual performance of such loans. As a result, if these loans outperform our original fair value estimates, the difference between
2016 Form 10-K
20
our original estimate and the actual performance of the loan (the “discount”) is accreted into net interest income. Thus, our net
interest margins may initially appear higher. We expect the yields on our loans to decline as our acquired loan portfolio pays down
or matures and we expect downward pressure on our interest income to the extent that the runoff on our acquired loan portfolio
is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest income in current
periods and lower net interest rate margin and lower interest income in future periods. See the “Loan Portfolio” section of our
MD&A and Note 5 to the consolidated financial statements for additional analysis and discussion of our PCI loans.
An increase in our non-performing assets may reduce our interest income and increase our net loan charge-offs, provision
for loan losses, and operating expenses.
Our non-accrual loans decreased from 1.20 percent at December 31, 2012 to 0.41 percent and 0.22 percent of total loans at
December 31, 2015 and 2016, respectively. Although the economy continued to gradually improve during 2016, a downturn in
economic or real estate market conditions could result in increased charge-offs to our allowance for loan losses and lost interest
income relating to non-performing loans. Non-performing assets (including non-accrual loans, other real estate owned, other
repossessed assets and non-accrual debt securities) totaled $49.4 million at December 31, 2016. These non-performing assets can
adversely affect our net income mainly through decreased interest income and 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
increases in non-performing loans in the future, or that our non-performing assets will not result in lower financial returns in the
future.
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.
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 dependent upon 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.
21
2016 Form 10-K
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 to 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 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 low cost source of funds, increasing its funding costs and reducing Valley’s net interest income and net income.
Our market share and income may be adversely affected by our inability to successfully compete against larger and more
diverse financial service providers and digital Fintech start-up firms.
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 to deal with the potential negative changes in the financial markets and
regulatory landscape. 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, title agencies, asset managers, insurance
companies, and a large list of other local, regional and national institutions which offer financial services. Additionally, the financial
services industry is facing a wave of digital disruption from Fintech companies that provide innovative web-based solutions to
traditional retail banking services and products. Fintech companies tend to have stronger operating efficiencies and less regulatory
burdens than their traditional bank counterparts, including Valley.
Mergers and acquisitions of financial institutions within New Jersey, the New York Metropolitan area and Florida may also
occur given the current difficult banking environment and add more competitive pressure to a substantial portion of our marketplace.
Our profitability depends upon our continued ability to successfully compete in our market area. 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.
2016 Form 10-K
22
Our ability to make opportunistic acquisitions is subject to significant risks, including the risk that regulators will not provide
the requisite approvals.
We may make opportunistic whole or partial acquisitions of other banks, branches, financial institutions, or related businesses
from time to time that we expect may further our business strategy (including through participation in FDIC-assisted acquisitions
or assumption of deposits from troubled institutions should such opportunities exist). Any possible acquisition will be subject to
regulatory approval, and there can be no assurance that we will be able to obtain such approval in a timely manner or at all. Even
if we obtain regulatory approval, these acquisitions could involve numerous risks, including lower than expected performance or
higher than expected costs, difficulties related to integration, diversion of management’s attention from other business activities,
changes in relationships with customers, and the potential loss of key employees. In addition, we may not be successful in identifying
acquisition candidates, integrating acquired institutions, or preventing deposit erosion or loan quality deterioration at acquired
institutions. Competition for acquisitions can be highly competitive, and we may not be able to acquire other institutions on
attractive terms. There can be no assurance that we will be successful in completing or will even pursue future acquisitions, or if
such transactions are completed, that we will be successful in integrating acquired businesses into operations. Ability to grow may
be limited if we choose not to pursue or are unable to successfully make acquisitions in the future.
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.
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 operations. Many of Valley’s competitors have substantially greater resources to invest in technological
improvements. Valley may not be able to effectively implement new technology-driven products and services or be successful in
marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the
financial services industry could have a material adverse impact on Valley’s business and, in turn, Valley’s financial condition and
results of operations.
We rely on our systems, employees and certain service providers, and if our system fails, our operations could be disrupted.
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.
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. 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
23
2016 Form 10-K
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.
We may not be able to attract and retain skilled people.
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most
activities in which we engage can be intense and we may not be able to hire people or to retain them. The unexpected loss of
services of one or more of our key personnel, including, but not limited to, the executive officers disclosed in Item 1 of this Annual
Report, could have a material adverse impact on our business because we would lose the employees’ skills, knowledge of the
market, and years of industry experience and may have difficulty promptly finding qualified replacement personnel.
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
New Jersey, New York and Florida in which our branches operate are subject to severe flooding from time to time and significant
weather related disruptions may become common events in the future. Heavy storms and hurricanes can also cause severe property
damage and result in business closures, negatively impacting both the financial health of retail and commercial customers and our
ability to operate our business. The risk of significant disruption and potential losses from future storm activity exists in all of our
primary markets.
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 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 20,200 individual
residential mortgages totaling approximately $4.3 billion. Of the $4.3 billion in originations, approximately $9.2 million in unpaid
principal balances remain outstanding from the origination years 2006 through 2008. These particular years are considered to be
‘high risk’ years in the mortgage industry due to the escalation in housing prices, and subsequent decline during the financial crisis.
However, these potentially higher risk loans in our retained mortgage loan servicing portfolio continued to outperform Fannie
Mae’s overall portfolio performance (for each applicable origination year) at December 31, 2016. Over the past several years, we
have experienced a nominal amount of repurchase requests, and only a few of which have actually resulted in repurchases by
Valley (only one loan repurchase in 2016 and no repurchases in 2015). None of the loan repurchases resulted in material loss. As
of December 31, 2016, no reserves pertaining to loans sold were established on our financial statements. While we currently
believe our repurchase risk remains low based upon our careful loan underwriting and documentation standards, it is possible that
requests to repurchase loans could occur in the future and such requests may have a negative financial impact on us.
2016 Form 10-K
24
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
We conduct our business at 209 retail banking centers locations throughout New Jersey, the New York City boroughs of
Manhattan, Brooklyn and Queens, Long Island, and Florida. We own 99 of our banking center facilities and several non-branch
operating facilities. The other properties are leased for various terms.
The following table summarizes our retail banking centers by district in each state:
Number of banking
centers
% of Total
New Jersey
Northern
Central
Total New Jersey
New York
Manhattan
Long Island
Brooklyn
Queens
Total New York
Florida
Southern
Central and Northeast
Total Florida
Total
114
26
140
12
12
9
5
38
19
12
31
209
54.6
12.5
67.1
5.7
5.7
4.3
2.4
18.1
9.1
5.7
14.8
100.0%
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. Our New York City corporate headquarters are located at One Penn Plaza
in Manhattan and are primarily used as a central hub for New York based lending activities of senior executives and other commercial
lenders. We also lease four non-bank office facilities in Florida, used for operational, executive and lending purposes.
In the second quarter of 2015, we disclosed a branch efficiency plan to "right-size" our branch network. We, like many in
the banking industry, have experienced a significant decline in branch foot traffic as the emergence of self-service technology
continues to reshape the banking industry. In response to these shifts in customer preference we have invested in new delivery
channels and systems that will modernize the branch banking experience. Mobile banking, remote deposit, enhanced ATMs, online
account opening, cash recyclers and complementary online services are part of our modernization plan and will redefine the
traditional banking experience at Valley. As a result of our reviews and the evolution of banking in general, our plan included the
closure and consolidation of 31 branch locations based upon our continuous evaluation of customer delivery channel preferences,
branch usage patterns, and other factors. Of the 31 branches, 30 branches were closed by September 30, 2016. The remaining
branch, located in Sebastian, Florida, was sold with its deposits totaling approximately $13 million to another financial institution
during the fourth quarter of 2016 and resulted in an immaterial gain for the year ended December 31, 2016. The majority of the
closed branches were located in New Jersey, and consisted of both leased and owned properties.
The total net book value of our premises and equipment (including land, buildings, leasehold improvements and furniture
and equipment) was $291.2 million at December 31, 2016. We believe that all of our properties and equipment are well maintained,
in good operating 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. See Note 15 to the consolidated financial statements for further details.
25
2016 Form 10-K
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
$
High
$
9.76
10.20
9.86
12.14
2016
Low
Dividend
High
2015
Low
Dividend
$
8.31
8.49
8.73
9.36
$
0.11
0.11
0.11
0.11
$
9.80
10.48
10.50
11.24
$
8.80
9.26
9.04
9.50
0.11
0.11
0.11
0.11
There were 7,736 shareholders of record as of December 31, 2016.
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. Under our non-cumulative preferred stock issued in June
2015, we cannot issue dividends on our common stock if we do not pay dividends on the preferred stock. In addition, under the
terms of the trust preferred securities issued by GCB Capital Trust III and State Bancorp Capital Trusts I and II 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 related trust preferred securities.
Performance Graph
The following graph compares the cumulative total return on a hypothetical $100 investment made on December 31, 2011
in: (a) Valley’s common stock; (b) Valley's custom peer group of 17 U.S. Banks (Valley Peer 17) in the States located in the
Northeast and Mid-Atlantic; (c) Valley's custom peer group of 18 U.S. Banks (Valley Peer 18) in the States located in the Northeast,
Mid-Atlantic, Florida and other metropolitan areas with total assets ranging from $6.0 billion to $50.0 billion (see below for
details); and (d) the Standard and Poor’s (S&P) 500 Stock 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.
From time to time, certain banks within both the Valley Peer 17 and Valley Peer 18 groups (included in the table below) may
enter into merger agreements to be acquired, or announce or complete acquisitions of other institutions. These pending or completed
transactions may impact the overall performance of the common stock of the peer groups as compared to Valley’s common stock.
2016 Form 10-K
26
Valley
Valley Peer 17*
Valley Peer 18*
S&P 500
$
12/11
12/12
12/13
12/14
12/15
12/16
100.00 $
100.00
100.00
100.00
83.98 $
111.30
107.71
115.98
97.01 $
159.05
158.01
153.51
97.28 $
168.16
162.42
174.47
103.16 $
194.72
177.33
176.88
127.41
239.94
230.06
197.98
* The Valley peer group index (Valley Peer 17) was comprised of the following 17 banks in 2015: Astoria Financial Corporation, Inc., Community
Bank System, Inc., BankUnited, Inc., Dime Community Bancshares, Inc., EverBank Financial Corp., First Niagara Financial Group, Inc.,
Flushing Financial Corporation, Fulton Financial Corporation, Investors Bancorp, Inc., NBT Bancorp Inc., National Penn Bancshares, Inc.,
New York Community Bancorp, Inc., People's United Financial, Inc., Provident Financial Services, Inc., Signature Bank, Sterling Bancorp,
and Webster Financial Corporation. In 2016, Valley added PacWest Bancorp, PrivateBancorp, Prosperity Bancshares and Texas Capital
Bancshares to the custom peer index, and removed First Niagara Financial Group, Inc. and National Penn Bancshares, Inc., due to their
acquisitions by, and merger into other institutions during 2016. Astoria Financial was also removed in 2016 prior to the publicly announced
termination of the pending merger with, and into New York Community Bancorp, Inc. The revised peer group index is referred to as Valley
Peer 18 in the table above.
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, 2016:
Period
October 1, 2016 to October 31, 2016
November 1, 2016 to November 30, 2016
December 1, 2016 to December 31, 2016
Total
Total Number of
Shares Purchased (2)
7,846
45,379
84,211
137,436
Average Price
Paid Per
Share
$
9.60
10.39
11.22
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)
4,112,465
4,112,465
4,112,465
(1) On January 17, 2007, Valley publicly announced its intention to repurchase up to 4.7 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, 2016.
(2) Represents repurchases made in connection with the vesting of employee stock awards and the payment of withholding taxes with sale
proceeds.
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.
27
2016 Form 10-K
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.
2016
As of or for the Years Ended December 31,
2013
2014
2015
($ in thousands, except for share data)
2012
$
775,305
$
714,889
$
644,536
$
623,986
$
148,774
626,531
8,382
618,149
11,869
606,280
777
—
22,030
1,358
79,060
103,225
315
34,744
441,066
476,125
233,380
65,234
168,146
7,188
156,754
558,135
7,866
550,269
8,101
542,168
2,487
—
4,245
2,776
74,294
83,802
51,129
27,312
420,634
499,075
126,895
23,938
102,957
3,813
161,846
482,690
7,933
474,757
1,884
472,873
745
—
1,731
18,087
57,053
77,616
10,132
24,196
368,927
403,255
147,234
31,062
116,172
—
168,377
455,609
7,889
447,720
16,095
431,625
14,678
—
33,695
10,947
69,333
128,653
—
14,352
366,986
381,338
178,940
46,979
131,961
—
678,410
181,312
497,098
7,217
489,881
25,552
464,329
2,587
(5,247)
46,998
(329)
76,937
120,946
—
4,157
370,743
374,900
210,375
66,748
143,627
—
$
$
160,958
$
99,144
$
116,172
$
131,961
$
143,627
$
0.63
0.63
0.44
8.59
5.80
$
0.42
0.42
0.44
8.26
5.36
$
0.56
0.56
0.44
8.03
5.38
$
0.66
0.66
0.60
7.72
5.39
0.73
0.73
0.65
7.57
5.26
254,841,571
234,405,909
205,716,293
199,309,425
178,424,883
255,268,336
234,437,000
205,716,293
199,309,425
178,426,070
0.76%
0.53%
0.69%
0.83%
0.91%
7.46
11.07
10.08
6.91
66.00
69.80
7.74
9.27
9.90
12.15
5.26
7.66
10.08
6.52
78.71
105.00
7.90
9.01
9.72
12.02
7.18
10.26
9.62
6.87
73.00
78.40
7.46
N/A
9.73
11.42
8.69
12.51
9.51
6.86
66.16
90.90
7.27
N/A
9.65
11.87
9.57
13.65
9.48
6.71
61.38
89.04
8.09
N/A
10.87
12.38
Summary of Operations:
Interest income—tax equivalent basis
(1)
Interest expense
Net interest income—tax equivalent basis
(1)
Less: tax equivalent adjustment
Net interest income
Provision for credit losses
Net interest income after provisions for credit losses
Non-interest income:
Gains on securities transactions, net
Net impairment losses on securities recognized in earnings
Gains on sales of loans, net
Gains (losses) on sales of assets, net
Other non-interest income
Total non-interest income
Non-interest expense:
Loss on extinguishment of debt
Amortization of tax credit investments
Other non-interest expense
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Dividends on preferred stock
Net income available to common shareholders
Per Common Share (2) :
Earnings per share:
Basic
Diluted
Dividends declared
Book value
Tangible book value (3)
Weighted average shares outstanding:
Basic
Diluted
Ratios:
Return on average assets
Return on average shareholders’ equity
Return on average tangible shareholders’ equity
(4)
Average shareholders’ equity to average assets
(5)
Tangible common equity to tangible assets
Efficiency ratio (6)
Dividend payout
Tier 1 leverage capital (7)
Common equity Tier 1 capital (7)
Tier 1 risk-based capital (7)
Total risk-based capital (7)
Financial Condition:
Assets
Net loans
Deposits
Shareholders’ equity
$ 22,864,439
$ 21,612,616
$ 18,792,491
$ 16,154,929
$ 16,012,402
17,121,684
17,730,708
2,377,156
15,936,929
16,253,551
2,207,091
13,371,560
14,034,116
1,863,017
11,453,995
11,319,262
1,541,040
10,892,599
11,264,018
1,502,377
See Notes to the Selected Financial Data that follow.
2016 Form 10-K
28
Notes to Selected Financial Data
(1)
(2)
(3)
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.
All per common share amounts reflect all common stock dividends and all stock splits prior to 2013.
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
goodwill and other intangible assets by common shares outstanding as follows:
2016
2015
At December 31,
2014
($ in thousands, except for share data)
2013
2012
Common shares outstanding
Shareholders’ equity
Less: Preferred stock
Less: Goodwill and other intangible assets
Tangible common shareholders’ equity
Tangible book value per common share
263,638,830
253,787,561
232,110,975
199,593,109
198,438,271
$
2,377,156
$
2,207,091
$
1,863,017
$
1,541,040
$
1,502,377
111,590
736,121
1,529,445
5.80
$
$
111,590
735,221
1,360,280
5.36
$
$
—
614,667
1,248,350
5.38
$
$
—
464,364
1,076,676
5.39
$
$
—
459,357
1,043,020
5.26
$
$
(4) Return on average tangible shareholders’ equity, which is a non-GAAP measure, is computed by dividing net income by
average shareholders’ equity less average goodwill and average other intangible assets, as follows:
Net income
Average shareholders’ equity
Less: Average goodwill and other intangible
assets
Average tangible shareholders’ equity
2016
2015
Years Ended December 31,
2014
($ in thousands)
2013
2012
$
$
168,146
2,253,570
$
$
102,957
1,958,757
$
$
116,172
1,618,965
$
$
131,961
1,519,299
$
$
143,627
1,500,997
734,520
614,084
486,769
464,085
449,078
$
1,519,050
$
1,344,673
$
1,132,196
$
1,055,214
$
1,051,919
Return on average tangible shareholders’ equity
11.07%
7.66%
10.26%
12.51%
13.65%
(5) Tangible common shareholders’ equity to tangible assets, which is a non-GAAP measure, is computed by dividing tangible
shareholders’ equity (shareholders’ equity less goodwill and other intangible assets) by tangible assets, as follows:
2016
2015
At December 31,
2014
($ in thousands)
2013
2012
Tangible common shareholders’ equity
$
1,529,445
$
1,360,280
$
1,248,350
$
1,076,676
$
1,043,020
Total assets
$ 22,864,439
$ 21,612,616
$ 18,792,491
$ 16,154,929
$ 16,012,402
Less: Goodwill and other intangible assets
736,121
735,221
614,667
464,364
459,357
Tangible assets
$ 22,128,318
$ 20,877,395
$ 18,177,824
$ 15,690,565
$ 15,553,045
Tangible common shareholders’ equity to tangible
assets
6.91%
6.52%
6.87%
6.86%
6.71%
(6) The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total non-interest income.
(7) December 31, 2016 and 2015 capital positions and ratios were calculated under Basel III rules which became effective January
1, 2015.
29
2016 Form 10-K
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 in Part1, Item 1A of this Annual Report on Form 10-K include, but
are not limited to:
• weakness or a decline in the U.S. economy, in particular in New Jersey, New York Metropolitan area (including Long
Island) and Florida as well as an unexpected decline in commercial real estate values within our market areas;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
less than expected cost savings and revenue enhancement from Valley's cost reduction plans including earnings
enhancement program called "LIFT";
damage verdicts or settlements or restrictions related to existing or potential litigations arising from claims of breach of
fiduciary responsibility, negligence, fraud, contractual claims, environmental laws, patent or trade mark infringement,
and other matters;
cyber-attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain
unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
results of examinations by the OCC, the FRB, the CFPB and other regulatory authorities, including the possibility that
any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down
assets, require us to reimburse customers, change the way we do business, or limit or eliminate certain other banking
activities;
changes in accounting policies or accounting standards, including the new authoritative accounting guidance (known as
the current expected credit loss (CECL) model) which may increase the required level of our allowance for credit losses
after adoption on January 1, 2020;
higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes
in tax laws, regulations and case law;
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;
unexpected changes in market interest rates for interest earning assets and/or interest bearing liabilities;
changes in investor sentiment or consumer spending savings behavior;
our inability to pay dividends at current levels, or at all, because of inadequate future earnings, regulatory restrictions or
limitations, and changes in the composition of qualifying regulatory capital and minimum capital requirements (including
those resulting from the U.S. implementation of Basel III requirements);
less than expected cost savings from the maturity, modification or prepayment of long-term borrowings that mature
through 2022;
further prepayment penalties related to the early extinguishment of high cost borrowings;
higher than expected loan losses within one or more segments of our loan portfolio;
lower than expected cash flows from purchased credit-impaired loans;
2016 Form 10-K
30
•
•
•
•
unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on
our business caused by severe weather or other external events;
unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large
prepayments, changes in regulatory lending guidance or other factors;
the failure of other financial institutions with whom we have trading, clearing, counterparty and other financial
relationships; and
inability to retain and attract customers and qualified employees.
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 because it is likely that materially different amounts would be reported under different conditions or using
different assumptions. Management has reviewed the application of these policies with the Audit Committee of Valley’s Board of
Directors.
The judgments used by management in applying the critical accounting policies discussed below may be affected by
significant changes 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 credit losses includes the allowance for loan losses and the reserve for
unfunded commercial letters of credit and represents management’s estimate of credit losses inherent in the loan portfolio at the
balance sheet date. The determination of the appropriate level of the allowance is based on periodic evaluations of the loan
portfolios. There are numerous components that enter into the evaluation of the allowance for loan losses, which includes a
quantitative analysis, as well as a qualitative review of its results. The qualitative review is subjective and requires a significant
amount of judgment. 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, our allowance for credit losses methodology includes loan
portfolio evaluations at the portfolio segment level, which consist of the commercial and industrial, commercial real estate,
construction, residential mortgage, home equity, automobile and other consumer loan portfolios.
The allowance for loan losses 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;
reserves for other loans that are not impaired; and, if applicable,
reserves for impairment of purchased credit-impaired (PCI) loans, including covered loans subject to the loss-sharing
agreements with the FDIC, subsequent to their acquisition date.
•
•
•
•
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.
Reserves for PCI loans within the Allowance for Loan Losses
We evaluated the acquired PCI 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
31
2016 Form 10-K
acquired at a discount attributable, at least in part, to credit quality. The PCI 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
applicable to covered PCI loans. The fair values include estimates related to expected prepayments and the amount and timing of
undiscounted expected principal, interest and other cash flows.
The PCI 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 the PCI 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 applicable to
covered PCI loans. Under the accounting guidance of ASC Subtopic 310-30, for acquired credit impaired loans, the allowance for
loan losses on (or reserves for) PCI 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 PCI loan pools as of such measurement date compared
to those originally estimated are recognized by recording a provision and allowance for loan losses on PCI loans. Subsequent
increases in the expected cash flows of the loans in that pool would first reduce any allowance for loan losses on PCI loans; and
any excess will be accreted for prospectively as a yield adjustment. Any portion of the additional estimated losses related to covered
PCI 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 included in other assets in our consolidated financial statements. Valley had no allowance
reserves related to PCI loans at December 31, 2016 and 2015.
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 $114.4 million at December 31, 2016.
For impaired credits, if the present value of expected cash flows were 10 percent higher or lower, the allowance would have
decreased $4.5 million or increased $5.7 million, respectively, at December 31, 2016. If the fair value of the collateral (for collateral
dependent loans) was 10 percent higher or lower, the allowance would have decreased $275 thousand or increased $458 thousand,
respectively, at December 31, 2016.
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 $5.4 million as of December 31,
2016. Additionally, if the historical loss factors used to calculate the allowance for non-classified loans were 10 percent higher or
lower, the allowance would have increased or decreased by approximately $9.7 million, respectively, at December 31, 2016.
Moreover, if the expected loss rate applied to classified loans were to increase or decrease by 10 percent, the allowance would
have been $651thousand higher or lower, respectively, at December 31, 2016.
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. 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.
2016 Form 10-K
32
Goodwill and Other Intangible Assets. We record all assets, liabilities, and non-controlling interests in the acquiree in
purchase acquisitions, including goodwill and other intangible assets, at fair value as of the acquisition date, and expense all
acquisition related costs as incurred as required by ASC Topic 805, “Business Combinations.” Goodwill totaling $690.6 million
at December 31, 2016 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 $45.5 million at December 31, 2016 are amortized over their estimated
useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying
amount. Such evaluation of other intangible assets is based on undiscounted cash flow projections. The initial recording of goodwill
and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed
liabilities.
Currently, the goodwill impairment analysis is generally a two-step test. During 2016, Valley elected to perform step one
of the two-step goodwill impairment test for all of its reporting units but may choose to perform an optional qualitative assessment
allowable for one or more units in the future periods to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. Step one 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
assets impairment charges at December 31, 2016, the impact of a five percent impairment charge on these intangible assets would
result in a reduction in pre-tax income of approximately $36.8 million. See Note 8 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, 2016 and 2015, management
determined it is more likely than not that Valley will realize its net deferred tax assets and therefore a valuation allowance was not
established. However, in 2015 we reduced our deferred tax assets by $3.1 million due to the expiration of certain state tax net
operating loss carryforwards. In addition to our judgments regarding the realizable amount of our deferred tax assets, we are
required to adjust our state deferred tax assets for the impact of our expansion outside of our traditional markets, specifically New
Jersey. During the fourth quarters of 2015 and 2014, we reduced our state deferred tax assets by $3.3 million and $7.6 million,
respectively, to reflect the effect of the CNL and 1st United acquisitions in Florida on our existing state deferred tax assets. The
$6.4 million and $7.6 million in total reductions were reflected as charges to our (state) income tax expense for 2015 and 2014,
respectively. During 2016, the charge to our income tax expense related to the reduction of such deferred tax assets were immaterial.
33
2016 Form 10-K
However, future adjustments to our state deferred tax assets may be required, dependent on any significant changes in the nature,
location and composition of our income producing assets.
We maintain a reserve related to certain tax positions 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 13 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
Company Overview. At December 31, 2016, Valley had consolidated total assets of $22.9 billion, total net loans of $17.1
billion, total deposits of $17.7 billion and total shareholders’ equity of $2.4 billion. Our commercial bank operations include branch
office locations in northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens, Long Island
and Florida. Of our current 209-branch network, 67 percent, 18 percent and 15 percent of the branches are located in New Jersey,
New York and Florida, respectively. Despite significant branch consolidation activity in 2016, we have grown both in asset size
and locations significantly over the past several years primarily through bank acquisitions.
On November 1, 2014, Valley expanded its physical banking presence from New Jersey and New York into Florida through
the acquired 1st United Bancorp, Inc. ("1st United") and its wholly-owned subsidiary, 1st United Bank, a commercial bank with
approximately $1.7 billion in assets, $1.2 billion in loans, and $1.4 billion in deposits, after purchase accounting adjustments. The
1st United acquisition provided Valley unique access to Florida's high growth market through its experienced management team
and a 20 branch network covering some of the most attractive urban banking markets in Florida, including locations throughout
southeast and central Florida, including the Treasure Coast and central Gulf Coast regions. On December 1, 2015, Valley followed
up this highly successful entry into the Florida market with its acquisition of CNLBancshares, Inc. (CNL) and its wholly-owned
subsidiary, CNLBank, a commercial bank with approximately $1.6 billion in assets, $825 million in loans, and $1.2 billion in
deposits, after purchase accounting adjustments, and a branch network of 16 offices on the date of its acquisition by Valley. Today,
Valley's Florida branch network totals 31 branches covering most major markets in central and southern Florida. See Item 1 of
this Annual Report for more details regarding our past merger activity, as well as Note 2 to the consolidated financial statements.
Borrowing Strategy. As part of its funding and asset/liability management strategies, Valley periodically assesses the
viability of the prepayment or modification of various levels of debt on its balance sheet, including a portion of its relatively high
cost borrowings (mostly from the Federal Home Loan Bank of New York) that contractually mature through the end of 2022. As
time moves closer to such maturity dates, the cash charge (or the "prepayment penalty") related to the early repayment of these
borrowings, while substantial, may decline and become a more advantageous option to Valley dependent upon the current level
of market interest rates for similar or alternate funding sources. In August 2016, we elected to prepay $405 million of FHLB
borrowings with various maturity dates in 2018. The prepaid borrowings with a total average cost of 3.69 percent were funded
with a new fixed-rate five-year FHLB advance totaling $405 million. The transaction was accounted for as a debt modification
under U.S. GAAP. As a result, the new advance has an adjusted annual interest rate of 2.51 percent, after amortization of prepayment
penalties totaling $20.0 million paid to the FHLB. During 2016, we also repaid borrowings of $182 million with an average cost
of 4.69 percent that matured in March and April 2016, and another $75 million of borrowings with a cost of 5.00 percent matured
in July 2016. In 2013, we entered into forward starting interest rate swaps, including $182 million (hedging the changes in market
interest rates prior to the maturity of our borrowings) with an average fixed rate of 2.74 percent that became effective in March
and April 2016 and have maturity dates ranging from March 2019 to September 2020.
Additionally, in August 2016 Valley terminated an interest rate swap with a notional amount of $125 million and September
2023 maturity. The terminated swap was used to hedge the change in the fair value of Valley’s 5.125 percent subordinated notes
issued in September 2013. The transaction resulted in an adjusted fixed annual interest rate of 3.32 percent on the subordinated
notes, after amortization of the derivative valuation adjustment recorded at the termination date. See Note 15 to the consolidated
financial statements for additional information regarding our derivative transactions.
2016 Form 10-K
34
Similar to the 2016 debt prepayments, we elected to prepay $845 million of our borrowings during the fourth quarter of
2015. The prepaid borrowings had maturities in 2017 and 2018, and a total average cost of 3.72 percent. The settlement of such
borrowings resulted in the recognition of pre-tax prepayment penalty charges of $51.1 million ($29.8 million after-tax) for the
year ended December 31, 2015. Funding for the transaction was obtained from new sources consisting of both brokered money
market deposits and securities sold under agreements to repurchase (repos) totaling $800 million, as well as a portion of our low
yielding excess liquidity. In late December 2014, we also elected to use a portion of our low yielding excess liquidity to prepay
$275 million of our long-term borrowings, which had a combined weighted average interest rate of 4.52 percent and contractual
maturity dates in November 2015. The debt extinguishment resulted in a loss consisting of prepayment penalties totaling
approximately $10.1 million for the year ended December 31, 2014.
While not considered part of the higher cost borrowings portfolio, we also prepaid $87 million of FHLB advances assumed
in the acquisition of CNL during May 2016. The $87 million prepayment of FHLB borrowings was entirely funded by cash balances
that were held as collateral at the FHLB of Atlanta, and resulted in the recognition of a $315 thousand loss on extinguishment of
debt for the year ended December 31, 2016.
Moving forward, we will continue to evaluate all of our remaining high cost borrowings maturing for future opportunities,
including potential prepayments, to enhance our net interest income and margin. Our ability to take action is dependent on the
level of market interest rates, our ability to obtain similar amounts of debt instruments, as well as other factors. See Note 10 to
the consolidated financial statements for more details on our borrowed funds.
Annual Results. Net income totaled $168.1 million, or $0.63 per diluted common share, for the year ended December 31,
2016 compared to $103.0 million in 2015, or $0.42 per diluted common share. The increase in net income was largely due to: (i) a
$67.9 million, or 12.3 percent, increase in our net interest income largely caused by a $2.0 billion increase in average loans and
a $840.1 million decrease in average long-term borrowings largely resulting from the fourth quarter of 2015 prepayment of $845
million in high cost borrowings, (ii) a $23.0 million, or 4.6 percent, decrease in total non-interest expense mostly caused by the
$50.8 million decline in the recognition of losses on the extinguishment of debt as compared to 2015, partially offset by higher
amortization of tax credit investments and general increases in operating expenses resulting from the acquisition of CNL on
December 1, 2015 and (iii) a $19.4 million, or 23.2 percent, increase in total non-interest income mainly due to higher net gains
on sales of loans and lower charges to the non-interest income related to the changes in our FDIC loss-share receivable, partially
offset by (iv) a $41.3 million increase in income tax expense largely due to higher pre-tax income and (v) a $3.8 million increase
in our provision for credit losses due to significant loan growth during 2016. See the “Net Interest Income,” “Non-Interest Income,”
“Non-Interest Expense,” and “Income Taxes” sections below for more details on the items above impacting our 2016 annual
results. The Non-Interest Expense section also includes information regarding our earnings enhancement programs.
Economic Overview and Indicators. The U.S. economy continued to expand in 2016. Real gross domestic product expanded
1.6 percent in 2016, after advancing 2.6 percent and 2.4 percent in 2015 and 2014, respectively. Nonfarm payroll growth remained
solid, business investment increased somewhat in the second half of the year and the housing market improved further. Long-term
interest rates trended mostly lower throughout 2016; more recently, interest rates have risen as inflation expectations have increased
considerably.
Labor market conditions improved further during 2016, with solid job gains, a pickup in wage growth and a lower
unemployment rate as compared with the end of 2015. In 2016, nonfarm payrolls added approximately 2.2 million jobs compared
to 2.7 million and 3.0 million in 2015 and 2014, respectively. The unemployment rate ended the fourth quarter of 2016 at 4.7
percent (as noted in the table below), and 30 basis points lower than compared to December 31, 2015.
Consumer spending was supported by an improving labor market. Personal consumption expenditures for 2016 compared
to the previous year increased 2.7 percent compared to 3.2 percent and 2.9 percent in 2015 and 2014, respectively. Despite some
slowing in the pace of hiring, recent increases in wage growth should help maintain buoyant consumption figures.
The housing market improved further in 2016 with sales of both new and existing homes increasing compared to the prior
two years. In addition, prices continued to climb as inventories remained low and activity increased. Sales of existing U.S. homes
in 2016 advanced at an annual average pace of 5.4 million compared to 5.2 million and 4.9 million in 2015 and 2014, respectively.
New single-family home sales advanced at an average annual rate of 561 thousand compared to 502 thousand and 440 thousand
in 2015 and 2014, respectively.
The Federal Reserve’s Open Market Committee (FOMC) increased the target range for the federal funds rate to 0.50 to 0.75
percent in the December 2016 meeting. However, at their February 2017 meeting, the FOMC cited inflation had increased in
recent quarters but remains below their long-term objective for such measure. In determining future policy actions, the FOMC
will assess (both realized and expected) progress toward its objectives of maximum employment and two percent inflation. The
FOMC has maintained its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-
35
2016 Form 10-K
backed securities in agency mortgage-backed securities and will continue rolling over maturing Treasury securities at auction.
This policy should help maintain accommodative financial conditions until the normalization of the level of the federal funds rate
is well under way. The FOMC has continued to emphasize that changes in monetary policy will be data dependent.
The 10-year U.S. Treasury note yield ended the fourth quarter of 2016 at 2.45 percent, 18 basis points higher compared with
December 31, 2015. The spread between the 2-year and 10-year U.S. Treasury note yields ended the fourth quarter of 2016 at 1.25
percentage points, 42 basis points higher than September 30, 2016 and 4 basis points higher compared with December 31, 2015.
Market interest rates for residential mortgages increased considerably in the fourth quarter of 2016, yet remain below
historical averages. In addition, rates on automobile loans increased modestly during the fourth quarter. These rate dynamics,
combined with other positive economic indicators, such as the consumer confidence index, are expected to positively impact the
profitability of our consumer lending segment during the first quarter of 2017. However at this point, we do not expect the loan
activity in 2017, particularly refinanced residential mortgage loans, to match the consumer demand and volumes that we
experienced in 2016. In the fourth quarter of 2016 and early 2017, we also continued to see strong demand for commercial real
estate and construction loans in most of our primary markets. However, our business operations and results may be challenged in
the future due to several factors, including, but not limited to an unexpected decline in the spread between short- and long-term
market interest rates or slower than expected economic activity within our markets.
The following economic indicators reflect certain factors that may be used to assess the market conditions in our primary
markets of northern and central New Jersey, the New York City metropolitan area, and Florida.
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
For the Month Ended
Selected Economic Indicators:
Unemployment rate:
U.S.
New York Metro Region (1)
New Jersey
New York
Miami-Fort Lauderdale Metro
Region
Florida
2-year U.S. Treasury rate (2)
10-year U.S. Treasury rate (2)
Real Gross Domestic Product (3)
Change in personal income (4) :
New Jersey
New York
Florida
Homeowner vacancy rates:
New Jersey
New York
Florida
Number of U.S. regional existing
home sales (5) :
Northeast census region
South census region
Number of building permits
authorized for new homes (2) :
New Jersey
New York
Florida
2016 Form 10-K
4.70%
4.80
5.00
5.10
4.90
4.90
4.90%
5.20
5.30
4.80
5.10
4.70
4.90%
4.40
4.90
4.80
4.60
4.70
5.00%
4.70
4.40
4.80
4.90
5.00
5.00%
4.40
4.90
5.30
5.00
5.10
December 31,
2016
September 30,
2016
June 30,
2016
March 31,
2016
December 31,
2015
Three Months Ended
1.01%
2.14
1.90
NA
NA
NA
2.70
2.30
1.90
0.73%
0.77%
0.84%
0.84%
1.56
2.90
3.42
2.76
4.79
1.80
2.20
2.30
1.75
1.20
2.86
2.69
4.42
1.90
2.10
2.30
1.91
1.10
3.28
4.08
4.34
1.80
2.20
2.30
2.19
1.40
3.65
2.89
5.00
1.40
2.40
2.70
766,667
2,226,667
700,000
2,173,333
756,667
2,233,333
703,333
2,226,667
726,667
2,116,667
2,048
3,362
9,774
1,909
2,982
10,372
36
1,749
2,322
8,664
2,581
2,380
8,536
2,809
5,632
9,907
NA—not available
(1) As reported by the Bureau of Labor Statistics for the NY-NJ-PA Metropolitan Statistical Area.
(2) Quarterly average for the period presented.
(3) Quarterly, compounded annual rate of change.
(4) Quarterly average, year over year percent change.
(5) Quarterly average, seasonally adjusted annual rate.
Sources: Bureau of Labor Statistics, U.S. Census Bureau, Federal Reserve Economic Data (FRED)
Loans. Total loans increased by $1.2 billion, or 7.4 percent, to $17.2 billion at December 31, 2016 from December 31, 2015
largely due to organic commercial real estate loan growth, loan participations with other banks that largely consisted of multi-
family and 1-4 family mortgage loans, as well as organic growth in several loan categories in 2016. Total commercial real estate
loans of $9.5 billion at December 31, 2016 grew by $1.4 billion, or 16.7 percent, as compared to December 31, 2015 and were
supplemented by the purchase of loan participations totaling approximately $719 million during the year ended December 31,
2016. Commercial and industrial loans totaled $2.6 billion at December 31, 2016 and increased by $97.7 million, or 3.8 percent,
from December 31, 2015 largely due to organic loan growth from new customer activity in the second half of 2016. At December 31,
2016, other consumer loans totaled $577.1 million and increased by $135.2 million from December 31, 2015 largely due to
continued growth and customer usage of collateralized personal lines of credit. Residential mortgage loans totaled $2.9 billion
at December 31, 2016 and decreased $262.6 million, or 8.4 percent, from December 31, 2015 due, in part, to the sale of
approximately $558 million loans (both new originations and seasoned loans) that were largely a function of our normal management
of the overall interest rate risk associated with our balance sheet during 2016. Automobile loans decreased $100.1 million, or 8.1
percent, to $1.1 billion at December 31, 2016 from December 31, 2015, mostly due to a negative trend in the level of our new
indirect auto loan volumes during the first nine months of 2016 caused by new regulatory constraints on market pricing and fees,
partially offset by new production from enhancements adopted to address these changes in regulation and our relatively new
Florida auto dealer network. Home equity loans totaled $469.0 million at December 31, 2016 and decreased $42.2 million from
December 31, 2015 due to normal repayment activity and lower line of credit usage as new customer demand remained tepid
despite the low level of market interest rates in 2016. Total covered loans (i.e., loans subject to our loss-sharing agreements with
the FDIC) decreased to only $70.4 million, or 0.4 percent of our total loans, at December 31, 2016 as compared to $122.3 million,
or 0.8 percent of our total loans, at December 31, 2015 mainly due to normal collection and prepayment activity, as well as the
expiration of certain loss-sharing agreements.
Our residential mortgage loan origination activity increased in 2016 as compared to 2015 largely due to the continued success
of our low fixed price mortgage refinance program, the relatively low level of market interest rates, and a solid increase in the
level of consumer refinance activity mainly during the second half of 2016. Our new and refinanced residential mortgage loan
originations increased 81.7 percent to $891.0 million for the year ended December 31, 2016 as compared to $490.4 million in
2015. During 2016, Valley sold $558.1 million of residential mortgage loans (including $16.4 million of residential mortgage
loans held for sale at December 31, 2015), as compared to approximately $135.2 million of mortgages sold during the year ended
December 31, 2015. Net gains on sales of residential mortgage loans increased to $22.0 million for the year ended December 31,
2016 as compared to $4.2 million in 2015 largely due to an increase in sales volumes for 2016, including the transfer and sale of
approximately $170 million of performing 30-year fixed rate mortgages during the second half of 2016 as part of our on-going
asset/liability management activities. Although our residential mortgage production increased 43.8 percent in the fourth quarter
of 2016 as compared to the linked third quarter of 2016, we did experience a large decline in loan application volumes during
December 2016 and the early stages of the first quarter of 2017. The decreased application volume is largely attributable to the
recent increase in the level of market interest rates. As a result of the anticipated decrease in volume coupled with the $7.3 million
gain realized on $170 million of seasoned loans sold in the fourth quarter of 2016, we anticipate a significant decrease in gains
on loan sales during the first quarter of 2017 as compared to the fourth quarter of 2016.
For 2017, we anticipate our overall loan portfolio growth to be in the range of six to eight percent, however, there can be
no assurance that we will achieve such levels given the potential for unforeseen changes in the market and other conditions. See
further details on our loan activities under the “Loan Portfolio” section below.
Asset Quality. Our past due loans and non-accrual loans, discussed further below, exclude PCI loans. Under U.S. GAAP,
the PCI loans (acquired at a discount that is due, in part, to credit quality) are accounted for on a pool basis and are not subject to
delinquency classification in the same manner as loans originated by Valley. At December 31, 2016, our PCI loan portfolio totaled
$1.8 billion, or 10.3 percent of our total loan portfolio, and includes all of the loans acquired from CNL on December 1, 2015.
Total non-PCI loan portfolio delinquencies (including loans past due 30 days or more and non-accrual loans) as a percentage
of total loans was 0.55 percent at both December 31, 2016 and 2015. However, total accruing past due loans increased to $56.7
million at December 31, 2016 from $26.1 million at December 31, 2015 mostly due to normal fluctuations in early stage
delinquencies, loan growth in 2016, and a few large matured performing loans in the normal process of renewal at December 31,
2016. Non-accrual loans totaled $37.5 million, or 0.22 percent of our entire loan portfolio of $17.2 billion, at December 31, 2016
37
2016 Form 10-K
as compared to $62.1 million, or 0.39 percent of total loans, at December 31, 2015. Overall, our non-performing assets decreased
by 36.8 percent to $49.4 million at December 31, 2016 as compared to $78.2 million at December 31, 2015 largely due to the
aforementioned decrease in non-accrual loans, as well as a $4.0 million decline in other real estate owned (OREO).
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 future strength of the U.S. economy and the housing and the labor markets, management cannot provide
assurance that our non-performing assets will remain at, or decline from, the levels reported as of December 31, 2016. See the
“Non-performing Assets” section below for further analysis of our asset quality.
Investments. During the year ended December 31, 2016, we recognized net gains on securities transactions of $777 thousand
as compared to $2.5 million and $745 thousand in 2015 and 2014, respectively. Valley recognized no other-than-temporary
impairment charges attributable to credit on investment securities during the years ended December 31, 2016, 2015 and 2014. See
further details in the “Investment Securities Portfolio” section below and Note 4 to the consolidated financial statements.
Deposits and Other Borrowings. The mix of total deposits remained relatively unchanged during 2016 as compared to
2015. Non-interest bearing deposits represented approximately 30 percent of total average deposits for the year ended December 31,
2016, while savings, NOW and money market accounts were 51 percent and time deposits were 19 percent. Average non-interest
bearing deposits increased $670.8 million to approximately $5.1 billion for the year ended December 31, 2016 as compared to
2015 due, in part, to $501.7 million of non-interest bearing deposits assumed from CNL in December 2015. Additionally, both
retail and commercial non-interest bearing deposits grew organically during 2016 mainly due to our continuous efforts to encourage
new loan borrowers to maintain deposit accounts at Valley, and the prolonged low level of fixed interest rate investment alternatives,
such as time deposits. Average savings, NOW and money market account balances also increased $1.3 billion to $8.6 billion in
2016 largely due to increased use of brokered money market account balances in our loan growth funding strategy and other
liquidity needs (including the funding of a portion of the prepaid borrowings in the fourth quarter of 2015) and $562.2 million in
deposits assumed from CNL. Lastly, average time deposits increased $150.6 million to $3.1 billion for 2016 as compared to 2015
mainly due to $103.9 million in time deposits assumed from CNL and organic growth from retail time deposit campaigns mostly
during the third quarter of 2016.
Average short-term borrowings increased $1.0 billion to $1.2 billion for 2016 as compared to 2015. Within the category,
average FHLB advances, repos with commercial counterparties, and customer (deposit sweep) repos increased $834.7 million,
$83.9 million, and $74.5 million, respectively, as compared to 2015. The increase in average balances for 2016 were largely
caused by the combination of new borrowings in the fourth quarter of 2015, which included $526 million of FHLB advances and
$235 million of repos with commercial counterparties, and general increases in our customer repo account balances and FHLB
advances (used for funding purposes) during the year ended December 31, 2016. The majority of the new funds in the fourth
quarter of 2015 were used to partially fund the prepayment of high cost long-term borrowings in 2015.
Average long-term borrowings decreased $840.1 million to approximately $1.6 billion for 2016 as compared to 2015 largely
due to the aforementioned prepayment of $845 million in the fourth quarter of 2015. See further discussion of our average interest
bearing liabilities under the “Net Interest Income” section below.
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 regulations under the Dodd-Frank Act and the Basel Rules highlighted
in the “Supervision and Regulation” section of Item 1 of this Annual Report. During 2016, U.S. economic environment and labor
markets continued to show gradual, but consistent improvement throughout the year. Despite these positives, considerable
uncertainty remains in the economic outlook for 2017 due to several factors, including possible changes in U.S. fiscal and other
policies, the future path of productivity growth and other global economic developments. These factors combined with the level
of market interest rates may pose significant obstacles in the future for us and the markets in which we participate. However, 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 believe we are
well positioned to move quickly on market expansion opportunities as they may arise, including through possible acquisitions of
other institutions within New Jersey, the New York City Metropolitan area and Florida.
Net Interest Income
Net interest income consists of interest income and dividends earned on interest earning assets less interest expense 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.
2016 Form 10-K
38
Annual Period 2016. Net interest income on a tax equivalent basis increased by $68.4 million to $626.5 million for 2016
compared with $558.1 million for 2015. The increase was mainly driven by a $2.0 billion increase in average loan balances and
a $840.1 million decrease in average long-term borrowings as compared to 2015. See further discussion of the changes in our
average interest earning assets and interest-bearing liabilities below.
The net interest margin on a tax equivalent basis was 3.16 percent for the year ended December 31, 2016, a decrease of 4
basis points as compared to 3.20 percent for 2015. The decrease was largely due to a 19 basis point decline in the yield on interest
earning assets, which was mainly attributable to the low market interest rates on (new and refinanced) loans throughout 2016 as
compared to our overall yield of the portfolio and a large volume of prepayments of high yielding loans, including some PCI loans
where borrower prepayment was encouraged by management. As a result, the yield on average loans decreased 20 basis points
to 4.18 percent for 2016 as compared to 4.38 percent in 2015. Additionally, our average taxable investment portfolio yield decreased
17 basis points during 2016 as compared to one year ago largely due to normal repayments of higher yielding securities combined
with higher prepayments and premium amortization on residential mortgage-backed securities. Largely mitigating these lower
asset yields, the cost of interest bearing liabilities decreased by approximately 19 basis points to 1.02 percent for 2016. The decline
in the overall cost as compared to 2015 was mainly due to a 22 basis point decrease in our cost of average long-term borrowings
driven by the prepayment and modification of high cost borrowings totaling $845 million and $405 million in the fourth quarter
of 2015 and third quarter of 2016, respectively. Additionally, but to a much lesser extent, our cost of long-term borrowings was
positively impacted by the maturity of high cost borrowings with a combined total of $182 million in March and April 2016, and
another $75 million of such borrowings in July 2016 (See "Borrowings Strategy" section above for more details). Partially
offsetting the lower cost of long-term borrowings, the cost of savings, NOW and money market deposits increased 12 basis points
mainly due to an increased use of brokered money market deposits for both prepayment and normal repayment of long-term
borrowings, as well as the funding of new loan growth and other liquidity needs during 2016 as compared to 2015.
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 2.14 percent in 2015 to 1.83 percent in 2016, negatively impacting our yield on average loans as new
and renewed fixed-rate loans originated in 2016 were typically originated at rates below the overall yield of 4.38 percent on average
loans in 2015. However, the 10 year treasury rate averaged approximately 2.39 percent from November 9, 2016 (i.e., the day after
the presidential election) through December 31, 2016 and has remained at this relative level in the early stages of 2017. Additionally,
the U.S. prime rate increased to 3.75 percent from 3.50 percent in mid-December 2016 driven by the Federal Reserve's 25 basis
point increase in the targeted federal funds rate. The increase, and our increase in the Valley prime rate to 4.875 percent from 4.75
percent at the same time, will have an immediate positive impact on the yield of our U.S. and Valley prime rate based loan portfolios
for 2017 as compared to 2016. Should the treasury rates remain at or increase above current levels, this will also have a positive,
but more gradual, effect on our interest income based on our ability to originate new and renewed fixed rate loans.
Average interest earning assets totaling $19.8 billion for the year ended December 31, 2016 increased $2.4 billion, or 13.8
percent, as compared to 2015. Average loan balances increased $2.0 billion to $16.4 billion in 2016 and drove all of the $52.7
million increase in the interest income on a tax equivalent basis for loans as compared to 2015, which was partially offset by the
low interest rates on new and renewed loans. The growth in average loans during 2016 was fueled mostly by solid demand for
commercial real estate loans and secured personal lines of credit throughout the year, $892.8 million of purchased loans primarily
consisting of participations in multi-family loans and whole 1-4 family loans (that were a mix of qualifying and non-qualifying
CRA loans with adjustable and fixed rates) and $825.5 million in loans acquired from CNL on December 1, 2015. Average
investment securities increased $433.2 million to approximately $3.1 billion in 2016 primarily due to $327.3 million of investment
securities acquired from CNL, and moderate expansion of our investment portfolio as compared to 2015 largely due to higher
levels of available liquidity and low cost funding during the second half of 2016. Average federal funds sold and other interest
bearing deposits increased $16.9 million to $288.2 million for the year ended December 31, 2016 as compared to 2015 mostly
caused by higher levels of overnight liquidity held primarily due to the timing of new loan originations and loan purchases.
Average interest bearing liabilities increased $1.6 billion to $14.5 billion for the year ended December 31, 2016 from the
same period in 2015 mainly due to a $1.3 billion increase in average savings, NOW, and money market accounts mostly due to
increased use of brokered money market account balances in our loan growth funding strategy and other liquidity needs (including
the funding of a portion of the prepaid borrowings in the fourth quarter of 2015). Average time deposits increased $150.6 million
to $3.1 billion for 2016 as compared to 2015 mainly due to $103.9 million in time deposits assumed from CNL and organic growth
from retail time deposit campaigns mostly during the third quarter of 2016. Average short-term borrowings increased $1.0 billion
to $1.2 billion for 2016 as compared to 2015 due, in part, to the combination of new borrowings in the fourth quarter of 2015,
which included $526 million of FHLB advances and $235 million of repos with commercial counterparties, and general increases
in our customer repo account balances and FHLB advances in 2016. Average long-term borrowings decreased $840.1 million to
approximately $1.6 billion for 2016 as compared to 2015 largely due to the aforementioned prepayment of $845 million in the
39
2016 Form 10-K
fourth quarters of 2015. See the "Fourth Quarter of 2016" section below for more information regarding changes in our interest
bearing liabilities during 2016.
Fourth Quarter of 2016. Net interest income on a tax equivalent basis totaling $166.6 million for the fourth quarter of 2016
increased $10.3 million and $16.5 million as compared to the third quarter of 2016 and fourth quarter of 2015, respectively. Interest
income on a tax equivalent basis increased $9.9 million to $203.3 million for the fourth quarter of 2016 as compared to the third
quarter of 2016 largely due to a 14 basis point increase in the yield on average loans, and increases of $209.0 million and $152.0
million in average loans and investment securities, respectively. The increase in loan yield was supplemented by higher interest
accretion on certain acquired PCI loan pools caused by improvements in their forecasted cash flows during the fourth quarter of
2016, as well as a moderate increase in market interest rates, including higher rates on our prime rate-indexed loan portfolios
during mid-December 2016. The loan yield for the fourth quarter of 2016 also included approximately $5.0 million of additional
periodic fee income related to derivative interest rate swaps executed with commercial lending customers and loan prepayment
penalty fees as compared to the third quarter of 2016. Interest expense of $36.7 million for the three months ended December 31,
2016 decreased $357 thousand from the third quarter of 2016, and decreased $848 thousand as compared to the fourth quarter of
2015. During the fourth quarter of 2016, our interest expense on long-term borrowings declined by $693 thousand largely due to
the full-quarter benefit of the interest rate reduction resulting from the modification of $405 million in FHLB borrowings during
August 2016, as well as the maturity of $75 million in high-cost borrowings in late July 2016. The decrease was partially offset
by higher interest expense on savings, NOW and money market deposits resulting from a $524.8 million increase in average
balances as compared to the third quarter of 2016. The increase in average balances resulted from our utilization of more low-
cost brokered money market deposits for liquidity and loan funding purposes, and a moderate shift from short-term borrowings
that were previously used, in part, to fund the repayment of matured long-term borrowings during 2016.
The net interest margin on a tax equivalent basis was 3.27 percent for the fourth quarter of 2016, an increase of 13 basis
points from 3.14 percent in the linked third quarter of 2016 and a 3 basis point decrease from 3.30 percent for the three months
ended December 31, 2015. The yield on average interest earning assets also increased by 10 basis points on a linked quarter basis.
The higher yield was mainly a result of the aforementioned increase in the yield on average loans to 4.27 percent for the fourth
quarter of 2016. This was caused, in part, by the aforementioned $5.0 million increase in periodic loan fee income as compared
to the third quarter of 2016. The $5.0 million increase represented approximately 12 basis points of the 4.27 percent yield on
average loans for the fourth quarter of 2016, and 10 basis points of the 13 basis point increase in our net interest margin from the
third quarter of 2016. The yield on average investment securities also moderately increased during the fourth quarter of 2016. The
overall cost of average interest bearing liabilities decreased by 4 basis points from 1.02 percent in the linked third quarter of 2016.
The decrease was primarily due to a 12 basis point decrease in the cost of long-term borrowings mostly caused by the aforementioned
debt modification and an increase in the portion of our funding base represented by low-cost brokered deposits, partially offset
by an 11 basis point increase in the cost of short-term borrowings. Our cost of deposits totaled 0.46 percent for the fourth quarter
of 2016 as compared to 0.47 percent for the three months ended September 30, 2016.
Looking forward, our net interest margin for the first quarter of 2017 may decline as compared to the fourth quarter of 2016
due to lower levels of loan fee income, as well as a multitude of conditional, and sometimes unpredictable, factors that can impact
our actual margin results. For example, our margin may continue to face the risk of compression in the future due to, among other
factors, the relatively low level of interest rates despite the incremental increase in market interest rates during the fourth quarter,
further repayment of higher yielding interest earning assets, and the re-pricing risk related to interest bearing deposits and short-
term borrowings. Additionally, our investment portfolios include a large number of residential mortgage-backed securities
purchased at a premium. The amortization of such premiums, which impacts both the yield and interest income recognized on
such securities, may increase or decrease dependent upon the level of principal prepayments and market interest rates. To manage
these risks, we continuously explore ways to maximize our mix of interest earning assets on our balance sheet, while maintaining
a low cost of funds to optimize our net interest margin and overall returns. The increase in both the U.S. and Valley prime rates
driven by the Federal Reserve's 25 basis point increase in the targeted federal funds rate in December 2016 and the recent increase
in mortgage loan rates, should benefit both our future net interest income and margin. Additionally, potential future loan growth
from both the commercial and consumer lending segments (based upon solid loan pipelines seen in the early stages of 2017) is
anticipated to positively impact our future net interest income.
2016 Form 10-K
40
The following table reflects the components of net interest income for each of the three years ended December 31, 2016,
2015 and 2014:
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Total interest earning assets
19,829,312
775,305
2016
2015
2014
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
($ in thousands)
$ 16,400,745
$ 685,927
4.18% $ 14,447,020
$ 633,220
4.38% $ 12,081,683
$ 552,847
4.58%
2,536,197
64,349
604,188
23,903
288,182
1,126
2.54
3.96
0.39
3.91
2,161,094
58,607
546,129
22,413
271,261
649
17,425,504
714,889
2.71
4.10
0.24
4.10
2,232,559
68,730
556,067
22,590
170,474
369
15,040,783
644,536
3.08
4.06
0.22
4.29
(109,084)
291,021
2,032,704
921
$ 22,044,874
(105,126)
311,732
1,809,504
(3,559)
$ 19,438,055
(109,341)
318,380
1,598,642
(23,152)
$ 16,825,312
$ 8,563,208
$ 39,787
0.46% $
7,259,838
$ 24,824
0.34% $
5,938,245
$ 19,671
0.33%
3,104,307
11,667,515
1,246,790
37,775
77,562
12,022
1,610,576
59,190
1.22
0.66
0.96
3.68
1.02
2,953,689
10,213,527
243,192
35,432
60,256
919
2,450,628
95,579
12,907,347
156,754
1.20
0.59
0.38
3.90
1.21
2,249,189
8,187,434
290,818
27,882
47,553
972
2,837,088
113,321
11,315,340
161,846
1.24
0.58
0.33
3.99
1.43
5,067,124
199,299
2,253,570
4,396,331
175,620
1,958,757
3,731,727
159,280
1,618,965
$ 22,044,874
$ 19,438,055
$ 16,825,312
626,531
2.89%
558,135
2.89%
482,690
2.86%
(8,382)
$ 618,149
(7,866)
$ 550,269
(7,933)
$ 474,757
3.12%
0.04
3.16%
3.16%
0.04
3.20%
3.16%
0.05
3.21%
Assets
Interest earning assets:
(1)(2)
Loans
Taxable investments
(3)
Tax-exempt investments
(1)(3)
Federal funds sold and other
interest bearing deposits
Allowance for loan losses
Cash and due from banks
Other assets
Unrealized losses on securities
available for sale, net
Total assets
Liabilities and Shareholders’
Equity
Interest bearing liabilities:
Savings, NOW and money
market deposits
Time deposits
Total interest bearing deposits
Short-term borrowings
Long-term borrowings
(4)
Non-interest bearing deposits
Other liabilities
Shareholders’ equity
Total liabilities and
shareholders’ equity
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)
Total interest bearing liabilities
14,524,881
148,774
Interest income is presented on a tax equivalent basis using a 35 percent federal tax rate.
(1)
(2) Loans are stated net of unearned income and include non-accrual loans.
(3) The yield for securities that are classified as available for sale is based on the average historical amortized cost.
(4)
(5)
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.
41
2016 Form 10-K
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,
Interest income:
Loans*
Taxable investments
Tax-exempt investments*
Federal funds sold and other interest bearing
deposits
Interest expense:
Savings, NOW and money market deposits
Time deposits
Short-term borrowings
Long-term borrowings and junior
subordinated debentures
Total (decrease) increase in interest expense
2016 Compared to 2015
Change
Due to
Rate
Change
Due to
Volume
Total
Change
2015 Compared to 2014
Change
Due to
Rate
Change
Due to
Volume
Total
Change
(in thousands)
$
82,703
$
(29,996) $
52,707
$
104,482
$
(24,109) $
80,373
(7,978)
(10,123)
9,695
2,319
(3,953)
(829)
43
434
4,990
1,827
8,069
9,973
516
3,034
5,742
1,490
477
60,416
14,963
2,343
11,103
(2,145)
(406)
238
229
42
102,169
(31,816)
4,501
8,477
(171)
652
(927)
118
(177)
280
70,353
5,153
7,550
(53)
(31,145)
(16,259)
(5,244)
8,279
(36,389)
(7,980)
(15,126)
(2,319)
(2,616)
(2,773)
(17,742)
(5,092)
Total increase (decrease) in interest income
94,760
(34,344)
Increase (decrease) in net interest income
$
111,019
$
(42,623) $
68,396
$
104,488
$
(29,043) $
75,445
*
Interest income is presented on a fully tax equivalent basis using a 35 percent federal tax rate.
Non-Interest Income
Non-interest income represented 11.9 percent and 10.6 percent of total interest income plus non-interest income for 2016
and 2015, respectively. For the year ended December 31, 2016, non-interest income increased $19.4 million compared with 2015
mainly due to an increase in net gains on sales of loans and a decrease in the negative impact on non-interest income from the
change of the FDIC loss-share receivable. The following table presents the components of non-interest income for the years ended
December 31, 2016, 2015, and 2014:
Trust and investment services
Insurance commissions
Service charges on deposit accounts
Gains on securities transactions, 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
2016 Form 10-K
42
2016
Years Ended December 31,
2015
(in thousands)
2014
$
$
10,345
19,106
20,879
777
6,441
22,030
1,358
6,694
(1,291)
16,886
103,225
$
$
10,020
17,233
21,176
2,487
6,641
4,245
2,776
6,815
(3,326)
15,735
83,802
$
$
9,512
16,853
22,771
745
7,013
1,731
18,087
6,392
(20,792)
15,304
77,616
Insurance commissions increased $1.9 million for the year ended December 31, 2016 from $17.2 million in 2015 mainly
due to additional commissions generated from the Bank's insurance agency subsidiary. The increased commissions were mainly
driven by the customer lists (i.e., intangible assets) acquired from an independent insurance agency in January 2016. See Note 2
to the consolidated financial statements for more details on this acquisition.
Net gains on securities transactions decreased $1.7 million to $777 thousand for the year ended December 31, 2016 as
compared to $2.5 million in 2015 due to an immaterial amount of investment securities sold during 2016. Net gains during 2015
related to the sale of corporate debt securities and trust preferred securities with a total unamortized cost of approximately $34.2
million, including one corporate debt security classified as held to maturity with amortized cost of $9.8 million. The sales of these
securities were primarily due to an investment portfolio re-balancing during the first quarter of 2015 due to changes in our regulatory
capital calculation under the new Basel III regulatory capital reform (effective for Valley on January 1, 2015). The sale of held to
maturity securities based upon the change in capital requirements is permitted without tainting the remaining held to maturity
investment portfolio.
Net gains on sales of loans increased $17.8 million for the year ended December 31, 2016 as compared to 2015 largely due
to an increase in loan volumes combined with a higher percentage of residential mortgage loans originated for sale during 2016.
The increased volume was caused by the continued success of our low fixed-cost mortgage refinance programs and the low level
of market interest rates for the majority of 2016. Residential mortgage loan originations (including both new and refinanced loans)
increased 81.7 percent to $891.0 million for the year ended December 31, 2016 as compared to $490.4 million in 2015. During
2016, we sold $558.1 million of residential mortgages originated for sale (including $16.1 million of residential mortgage loans
held for sale at December 31, 2015), as compared to $135.2 million of residential mortgage loans sold during 2015. In addition,
of the $22.0 million in net gains on sales of loans for 2016, $7.3 million related to gains on the sale of approximately $170 million
of performing 30-year fixed rate mortgages that were transferred to loans held for sale from the loan portfolio during the third
quarter of 2016. Our net gains on sales of loans for each period are comprised of both gains on sales of residential mortgages and
the net change in the mark to market gains and losses on our loans held for sale carried at fair value at each period end. The net
change in the fair value of loans held for sale totaled a net loss of $473 thousand in 2016 as compared to a net gain of $313 thousand
gain in 2015. Our decision to either sell or retain our mortgage loan production is dependent upon, amongst other factors, the
levels of interest rates, consumer demand, the economy and our ability to maintain the appropriate level of interest rate risk on
our balance sheet. The market interest rates for residential mortgages increased during the fourth quarter of 2016, yet remain
relatively low as compared to recent historical norms. Despite this fact, the higher interest rates are expected to negatively impact
the future level of refinanced loan volumes, and likely the amount of net gains on the sales of residential mortgage loans originated
for sale recognized in the first quarter of 2017 if we cannot generate compensating new loan volumes. See further discussions of
our residential mortgage loan origination activity under “Loans” in the "Executive Summary" section of this MD&A above and
the fair valuation of our loans held for sale at Note 3 of the consolidated financial statements.
Net gains on sales of assets decreased $1.4 million for the year ended December 31, 2016 as compared to $2.8 million for
2015. The net gains on sales of $1.4 million in 2016 were mainly due to net gains on the sale of five former branch locations that
were closed during 2016. The net gains on sales of assets during 2015 were largely caused by net gains totaling $4.8 million on
the sale of two branch offices in the fourth quarter of 2015. The 2015 fourth quarter net gains were also net of non-cash fixed asset
impairment charges totaling $1.9 million related to actual and planned branch closures as of December 31, 2015. See the "Earnings
Enhancement Programs" section below for additional information.
The Bank and the FDIC share in the losses on loans and real estate owned as part of the loss-sharing agreements related to
various past FDIC-assisted transactions described in Note 1 to the consolidated financial statements. The asset arising from the
loss-sharing agreements is referred to as the “FDIC loss-share receivable” in 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 estimated
cash flows on certain covered loan pools. The aggregate effect of changes in the FDIC loss-share receivable amounted to a $1.3
million net reduction in non-interest income for the year ended December 31, 2016 as compared to $3.3 million and $20.8 million
for 2015 and 2014, respectively. The majority of the reduction in both the receivable and non-interest income during all three
periods related to the prospective adjustment to the receivable related to better than originally estimated cash flows on certain
pools of covered loans since the acquisition date. The large reduction for 2014 was mainly due to the better than originally expected
cash flows on certain loan pools mostly covered by a commercial loss-sharing agreement with the FDIC that expired in March
2015, as well as a negative (credit) provision for losses on covered loans resulting in a $4.6 million decrease in the estimated losses
covered by the loss-share agreements with the FDIC in 2014. 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.
43
2016 Form 10-K
See the “Results of Operations—2015 Compared to 2014” section later in this MD&A for the discussion and analysis of
changes in our non-interest income from 2014 to 2015.
Non-Interest Expense
Non-interest expense decreased $23.0 million to $476.1 million for the year ended December 31, 2016 from $499.1 million
for 2015. The decrease was mainly attributable to the significant loss on the extinguishment of debt in 2015, partially offset by
various increases caused by the acquisition of CNL on December 1, 2015 as well as other reasons discussed in more detail below.
The following table presents the components of non-interest expense for the years ended December 31, 2016, 2015 and 2014:
Salary and employee benefits expense
Net occupancy and equipment expense
FDIC insurance assessment
Amortization of other intangible assets
Professional and legal fees
Loss on extinguishment of debt
Amortization of tax credit investments
Telecommunication expense
Other
Total non-interest expense
2016
Years Ended December 31,
2015
(in thousands)
2014
235,853
87,140
20,100
11,327
17,755
315
34,744
10,021
58,870
476,125
$
$
221,765
90,521
16,867
9,169
18,945
51,129
27,312
8,259
55,108
499,075
$
$
193,489
74,492
14,051
9,919
16,859
10,132
24,196
6,993
53,124
403,255
$
$
Salary and employee benefits expense increased by $14.1 million for the year ended December 31, 2016 largely due to
additional staffing expenses related to our acquisition of CNL on December 1, 2015 and moderately higher stock and cash incentive
compensation expense as compared to 2015. These increases were partially offset by a $1.2 million increase in net periodic pension
income from our frozen qualified and non-qualified benefit plans as compared to 2015 (See Note 12 to the consolidated financial
statements for more information). Within this category, medical health insurance expenses increased $1.7 million to $19.1 million
during the year ended December 31, 2016 as compared to 2015. While this increase can be partially attributed to the CNL acquisition,
our health care expenses are at times volatile due to self-funding of a large portion of our insurance plan and these medical expenses
can fluctuate based on our plan experience into the foreseeable future.
Net occupancy and equipment expenses decreased $3.4 million for the year ended December 31, 2016 as compared to 2015
mainly due, in part, to (i) a reduction in branch rental expense caused by branch closures in 2016, as well as branch closures
commencing in the second half of 2015, (ii) the reversal of an accrued lease obligation of a terminated lease for a previously closed
branch location during the third quarter of 2016 and (iii) lower repairs and maintenance expenses during 2016 as compared to
2015. These decreases were partially offset by an increase in depreciation expense mostly caused by the acquired CNL branches.
The FDIC insurance assessment increased $3.2 million for the year ended December 31, 2016 as compared to 2015 largely
due to our growth resulting from the CNL acquisition and expansion of our commercial lending segment over the last 12 month
period.
Amortization of intangible assets increased $2.2 million for the year ended December 31, 2016 as compared to 2015 largely
due to higher amortization expense of core deposit intangibles during 2016 caused by the CNL acquisition, partially offset by a
decrease in the amortization of loan servicing rights mostly caused by a moderate decline in the level of serviced loan repayments.
See Note 8 to the consolidated financial statements for more details.
Professional and legal fees decreased $1.2 million for the year ended December 31, 2016 as compared to 2015 mostly due
to a lower level of legal expenses related to general corporate matters and the acquisition of CNL in 2015.
The loss on extinguishment of debt decreased $50.8 million for the year ended December 31, 2016 as compared to 2015
primarily due to the prepayment penalties incurred in connection with the early repayment of $845 million in high cost long-term
borrowings during the fourth quarter of 2015. The 2016 losses related to the prepayment of $87 million of FHLB advances assumed
in the acquisition of CNL. See the " Executive Summary - Borrowings Strategy" section of this MD&A above for more details.
Amortization of tax credit investments increased $7.4 million for the year ended December 31, 2016 as compared to 2015
primarily due to continued impairment of maturing tax credit investments in renewable energy sources. Tax credit investments,
2016 Form 10-K
44
while negatively impacting the level of our operating expenses and efficiency ratio, directly reduce our income tax expense and
effective tax rate. See Note 14 to the consolidated financial statements for additional information.
Telecommunication expense increased $1.8 million for the year ended December 31, 2016 as compared to 2015 mostly due
to the expansion of our Florida operations as a result of the CNL acquisition.
Other non-interest expense increased $3.8 million for the year ended December 31, 2016 as compared to 2015 due to moderate
increases in several significant components of other expense, such as data processing, travel and entertainment, insurance, debit
card and ATM expenses, as well as other operating losses during the year ended December 31, 2016 partly caused by our growth,
both organically and through acquisition.
Efficiency Ratio. The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total
non-interest income. 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. Our
overall efficiency ratio, and its comparability to some of our peers, is negatively impacted by the amortization of tax credit
investments within non-interest expense, reductions in our non-interest income related to changes in the FDIC loss-share receivable
and, from time to time, loss on extinguishment of debt.
The following table presents our efficiency ratio and a reconciliation of the efficiency ratio adjusted for such items during
the years ended December 31, 2016, 2015 and 2014:
Total non-interest expense
Less: Amortization of tax credit investments
Less: Loss on extinguishment of debt
Total non-interest expense, adjusted
Net interest income
Total non-interest income
Total net interest income and non-interest income
Less: Change in FDIC loss-share receivable
Total net interest income and non-interest income, adjusted
Efficiency ratio
Efficiency ratio, adjusted
Years Ended December 31,
2016
2015
2014
$ 476,125
34,744
315
($ in thousands)
$ 499,075
27,312
51,129
$ 403,255
24,196
10,132
$ 441,066
$ 420,634
$ 368,927
618,149
103,225
550,269
83,802
474,757
77,616
721,374
(1,291)
$ 722,665
634,071
(3,326)
$ 637,397
552,373
(20,792)
$ 573,165
66.00%
61.03%
78.71%
65.99%
73.00%
64.37%
Earnings Enhancement Programs. In December 2016, Valley announced a company-wide earnings enhancement initiative
called LIFT. The LIFT program will seek to identify both additional operating expense reduction and revenue enhancement
opportunities, which together are anticipated to contribute to sustainable improvement in our earnings for years to come. Valley
has selected EHS Partners, LLC, a New York based consulting firm, to help achieve its program goals. The planning and discovery
phase for LIFT has already commenced and is scheduled for completion during the first half of 2017 (with the implementation
phase to begin soon thereafter). Management believes that the LIFT program will not only be a short-term catalyst to improving
the operating performance of Valley, but also a comprehensive effort to identify new sources of revenue to ensure we deliver on
our long-term goals.
In 2015, we disclosed a branch efficiency plan to "right-size" our branch network. Our plan included the closure and
consolidation of 31 branch locations based upon our continuous evaluation of customer delivery channel preferences, branch usage
patterns, and other factors. Of the 31 branches, 30 branches were closed by September 30, 2016. The remaining branch, located
in Sebastian, Florida, was sold with its deposits totaling approximately $13 million to another financial institution during the fourth
quarter of 2016 and resulted in an immaterial gain for the year ended December 31, 2016. The majority of the closed branches
were located in New Jersey, and consisted of both leased and owned properties.
As part of the LIFT program and beyond, we will continue to evaluate the operational efficiency of our entire branch network
(consisting of 110 leased and 99 owned office locations at December 31, 2016) to ensure the optimal performance of our retail
operations, in conjunction with several other factors, including our customers’ delivery channel preferences, branch usage patterns,
45
2016 Form 10-K
and the potential opportunity to move existing customer relationships to another branch location without imposing a negative
impact on their banking experience.
In addition to the branch closures, Valley commenced a cost reduction plan in the fourth quarter of 2015 aimed at achieving
operational efficiencies through streamlining various aspects of Valley's business model, staff reductions and further utilization
of technological enhancements. These measures saved nearly $20 million in pre-tax operating expenses for the full year of 2016,
exclusive of the CNL staffing reductions effective April 1, 2016.
See the “Results of Operations—2015 Compared to 2014” section later in this MD&A for the discussion and analysis of
changes in our non-interest expense from 2014 to 2015.
Income Taxes
Income tax expense was $65.2 million for the year ended December 31, 2016, reflecting an effective tax rate of 28.0 percent,
as compared to $23.9 million for the year ended 2015, reflecting an effective tax rate of 18.9 percent. The increase in both income
tax expense and the effective tax rate in 2016 was primarily the result of higher pre-tax income caused, in part, by the absence of
the $51.1 million pre-tax loss on extinguishment of debt recognized in 2015 and a $3.8 million decline in tax credits as compared
to 2015. The 2015 income tax expense also included $6.4 million in charges to our state income tax expenses related to both the
expiration of certain net operating loss carryforwards and a reduction in our deferred taxes. See discussion of our income taxes
under the "Critical Accounting Polices and Estimates" section above for more details.
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. Based on the current information available, we anticipate that our effective tax rate will range from 27 percent
to 31 percent for 2017, primarily reflecting the impacts of tax-exempt income, tax-advantaged investments and general business
credits, exclusive of any potential future tax reform measures or other unanticipated changes in tax laws and regulations.
See additional information regarding our income taxes under our “Critical Accounting Policies and Estimates” section above,
as well as Note 13 to the consolidated financial statements.
Business Segments
We have four business segments that we monitor and report on to manage our business operations. These segments are
consumer lending, commercial lending, 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, 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. Furthermore, changes in management structure or allocation methodologies and procedures may result
in changes in reported segment financial data. See Note 22 to the consolidated financial statements for the segments’ financial
data.
Consumer lending. The consumer lending segment is mainly comprised of residential mortgage loans, automobile loans
and home equity loans and represented in aggregate 29.3 percent of the total loan portfolio at December 31, 2016. The duration
of the residential mortgage loan portfolio (which represented 16.6 percent of our total loan portfolio at December 31, 2016) is
subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the
automobile loans (representing 6.6 percent of total loans at December 31, 2016) 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. The consumer lending segment
also includes the Wealth Management Division, comprised of trust, asset management, insurance services, and asset-based lending
support services.
2016 Form 10-K
46
Average interest earning assets in this segment increased $317.5 million to $5.1 billion for the year ended December 31,
2016 as compared to 2015. The increase was largely attributable to continued organic growth in secured personal lines of credit
over the last 12-month period and $283 million of PCI loans acquired from CNL in December 2015, partially offset by declines
in auto loan volume and our election to originate a higher volume of residential mortgage loans for sale, rather than for investment
during 2016.
Income before income taxes generated by the consumer lending segment increased $27.3 million to $70.0 million for the
year ended December 31, 2016 as compared to $42.7 million in 2015 mainly due to increases in net interest income and non-
interest income, partially offset by an increase in non-interest expense. Net interest income increased $11.0 million to $141.8
million for the year ended December 31, 2016 as compared to 2015 mostly caused by the additional interest income generated
from higher average loan balances. Non-interest income increased $18.1 million to $63.4 million for the year ended December 31,
2016 as compared to 2015 largely due to a $17.8 million increase in net gains on sales of loans caused by a higher level of sales
volumes in 2016 as compared to 2015 (see further details in the "Non-Interest Income" section above). The positive impact of
these items was partially offset by a $2.9 million increase in non-interest expense as compared to the year ended December 31,
2015.
The net interest margin on the consumer lending portfolio increased 5 basis points to 2.79 percent for the year ended
December 31, 2016 as compared to 2015 due to a 15 basis point decrease in the costs associated with our funding sources that
was partially offset by a 10 basis point decline in the yield on average loans. The decrease in our cost of funding was mainly driven
by our prepayments and modifications of higher cost long-term borrowings in both the fourth quarter of 2015 and third quarter
of 2016 (see "Borrowings Strategy" section above for more details), as well as some maturities of other high-cost borrowings.
The decrease in yield on average loans was largely caused by new and refinanced loan volumes that remained at relatively low
interest rates throughout 2016 as compared to the overall yield of our loan portfolio, as well as repayment of higher yielding loans,
including some PCI loans. See the "Net Interest Income" section above for more detail regarding net interest margin.
The return on average interest earning assets before income taxes for the consumer lending segment was 1.38 percent for
2016 compared to 0.90 percent for 2015.
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 totaled approximately $2.6 billion and represented 15.3 percent of the total loan portfolio at
December 31, 2016. Commercial real estate loans and construction loans totaled $9.5 billion and represented 55.4 percent of the
total loan portfolio at December 31, 2016.
Average interest earning assets in this segment increased $1.6 billion to $11.3 billion for the year ended December 31, 2016
as compared to $9.7 billion in 2015. The increase was primarily attributable to purchases of participations in multi-family loans
totaling over $718 million during 2016, and $542 million of PCI loans acquired from CNL in December 2015, as well as continued
organic loan growth (including new loan production from our Florida market) mostly within the non-PCI commercial real estate
loan portfolio over the last 12 months.
For the year ended December 31, 2016, income before income taxes for the commercial lending segment increased $31.6
million to $193.0 million as compared to 2015 mostly due to an increase in net interest income coupled with an increase in non-
interest income, partially offset by increases in internal transfer expense, non-interest expense and the provision for credit losses.
Net interest income increased $48.8 million to $431.0 million for the year ended December 31, 2016 as compared to 2015 largely
due to the aforementioned increase in average loan balances. Non-interest income increased $2.5 million to $3.3 million for the
year ended December 31, 2016 as compared to 2015 due to a decline in the charge to non-interest income related to the change
in our FDIC loss-share receivable. See further details in the "Non-Interest Income" section above. The increases of $13.7 million
and $2.5 million in internal transfer expense and non-interest expense, respectively, as compared to 2015 were due, in part, to
additional operating expenses related to our growth, including the acquisition of CNL. The provision for credit losses increased
$4.0 million to $11.0 million for the year ended December 31, 2016 as compared to 2015 largely due to organic and purchased
loan growth, as well as other qualitative factors. See further details in the "Allowance for Credit Losses" section below.
The net interest margin for this segment decreased 13 basis points to 3.81 percent during 2016 as a result of a 28 basis point
decrease in the yield on average loans, partially offset by a 15 basis point decrease in the cost of our funding sources as compared
to 2015. The decrease in the yield on loans was primarily due to the new and refinanced loan volumes at current interest rates that
were relatively low compared to the overall yield of our loan portfolio, as well as repayment of higher yielding loans during 2016.
The return on average interest earning assets before income taxes for this segment was 1.71 percent for 2016 compared to
1.67 percent for the prior year period.
47
2016 Form 10-K
Investment management. The investment management segment generates a large portion of our income through
investments in various types of securities and interest-bearing deposits with other banks. These investments are mainly comprised
of fixed rate 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 least sensitive assets to changes in market interest rates. However, a 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.
Average interest earning assets increased $450.1 million to $3.4 billion for the year ended December 31, 2016 as compared
to 2015 mostly due to an increase in average investment balances and a moderate increase in average federal funds sold and other
interest bearing deposits. The increase in average investment balances was partially due to $327.3 million of investment securities
acquired from CNL, and some expansion of our investment portfolio as compared to 2015 due to higher levels of available liquidity
and low cost of funding sources mainly during the second half of 2016. Average federal funds sold and other interest bearing
deposits increased $16.9 million to $288.2 million for the year ended December 31, 2016 as compared to 2015 due to higher levels
of overnight liquidity held due to the high volume and timing of new loan originations and loan purchases.
For the year ended December 31, 2016, income before income taxes for the investment management segment increased $5.5
million to $22.6 million as compared to 2015 largely due to a $8.9 million increase in net interest income, partially offset by a
$3.0 million increase in internal transfer expense. The increase in net interest income was mainly driven by higher average interest
earning balances.
The net interest margin for this segment increased 2 basis points to 1.92 percent during the year ended December 31, 2016
as compared to 2015 as a result of a 15 basis point decrease in costs associated with our funding sources, partially offset by a 13
basis point decrease in the yield on average investments driven downward by principal repayments of higher yielding investments
and new investments at lower market interest rates.
The return on average interest earning assets before income taxes for this segment was 0.66 percent for 2016 compared to
0.57 percent for 2015.
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 securities gains and losses not reported in the investment
management segment above, losses on the extinguishment of debt, interest expense related to subordinated notes, as well as income
and expense from derivative financial instruments.
The pre-tax net loss for the corporate segment decreased $42.0 million for the year ended December 31, 2016 to $52.2
million as compared to 2015. The decline in the net loss for this segment was mainly due to a decrease in non-interest expense
coupled with an increase in internal transfer income. The non-interest expense decreased $28.1 million to $342.0 million for the
year ended December 31, 2016 as compared to 2015 largely due to a $50.8 million decrease in the loss on extinguishment of debt
during 2016, partially offset by increases of $14.1 million and $7.4 million in salary and employee benefits expense and the
amortization of tax credit investments, respectively (see further details in the "Non-Interest Expense" section above). Internal
transfer income increased $15.9 million to $280.3 million for the year ended December 31, 2016 as compared to the prior year.
Interest Rate Sensitivity
ASSET/LIABILITY MANAGEMENT
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 optimizing the level of new residential mortgage originations retained in our mortgage portfolio
through increasing or decreasing loan sales in the secondary market, product pricing levels, the desired maturity levels for new
originations, the composition levels of both our interest earning assets and interest bearing liabilities, as well as several other risk
management activities.
2016 Form 10-K
48
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, 2016. 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, 2016. 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,
2016. Although the size of Valley’s balance sheet is forecasted to remain static as of December 31, 2016 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 2016. The model utilizes an immediate parallel shift in the market interest rates at December 31, 2016.
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 income, while structuring the balance sheet in response to actual or potential changes in interest
rates. Additionally, our net interest income is impacted by the level of competition within our marketplace. Competition can
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.
The following table reflects management’s expectations of the change in our net interest income over the next 12 month
period in light of the aforementioned assumptions. While an instantaneous and severe shift in interest rates was used in this simulation
model, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest
impact than shown in the table below.
Changes in Interest Rates
(in basis points)
+200
+100
- 100
Estimated Change in
Future Net Interest Income
Dollar
Change
Percentage
Change
$
($ in thousands)
(1,479)
166
(14,519)
(0.23)%
0.03
(2.26)
As noted in the table above, a 100 basis point immediate increase in interest rates combined with a static balance sheet where
the size, mix, and proportions of assets and liabilities remain unchanged is projected to increase net interest income over the next
12 months by 0.03 percent. The sensitivity of our balance sheet to such a move in interest rates at December 31, 2016 decreased
as compared to December 31, 2015 (which was an increase of 1.26 percent in net interest income over a 12 month period). Despite
the decrease in asset sensitivity as compared to December 31, 2015, we believe the balance sheet remains well-positioned to respond
positively to a rising market interest rate environment. Our current asset sensitivity to a 100 basis point immediate increase in
interest rates is impacted by, among other factors, asset cash flow and repricing characteristics complemented by a funding structure
that provides for very stable earnings and low volatility. Additionally, the recent steepening of the yield curve with a greater increase
in long-term rates (generally tied to asset repricing), as opposed to a move in short-term rates (generally tied to liability repricing),
is usually a positive environment for the generation of net interest income. Future changes including, but not limited to, the slope
of the yield curve and projected cash flows, will affect our net interest income results and may increase or decrease the level of net
interest income sensitivity.
49
2016 Form 10-K
Our interest rate swaps and caps designated as cash flow hedging relationships are designed to protect us from upward
movements in interest rates on certain deposits and other borrowings based on the prime rate (as reported by The Wall Street Journal)
or the three-month LIBOR rate. Our cash flow interest rate swaps had a total notional value of $582 million at December 31, 2016
and currently pay fixed and receive floating rates. We also utilize fair value and non-designated hedge interest rate swaps to effectively
convert fixed rate loans and brokered certificates of deposit to floating rate instruments. The cash flow hedges are expected to
benefit our net interest income in a rising interest rate environment. However, due to the prolonged low level of market interest
rates and the strike rate of these instruments, the cash flow hedge interest rate swaps and cap negatively impacted our net interest
income during 2016. This negative trend will likely continue based upon the current market expectations regarding the Federal
Reserve’s monetary policies which are designed to impact the level of market interest rates. See Note 15 to the consolidated financial
statements for further details on our derivative transactions.
Despite the negative impact of such derivative transactions, the possibility of an improving U.S. economy, the debt modification
of $405 million in high cost FHLB borrowings during August 2016, the repayment of $75 million in high cost borrowings that
matured in July 2016, and the commercial lending demand and approved new loan pipelines during the first quarter of 2017 could
all benefit our future net interest income.
The following table sets forth the amounts of interest earning assets and interest bearing liabilities that were outstanding at
December 31, 2016 and their associated fair values. The expected cash flows are categorized based on each financial instrument’s
anticipated maturity or interest rate reset date in each of the future periods presented.
INTEREST RATE SENSITIVITY ANALYSIS
Rate
2017
2018
2019
2020
2021
Thereafter
Total
Balance
Fair
Value
($ in thousands)
Interest sensitive assets:
Interest bearing deposits with
banks
Investment securities held to
maturity
Investment securities
available for sale
Loans held for sale, at fair
value
Loans
0.30% $
171,710
$
— $
— $
— $
— $
— $
171,710
$
171,710
3.06
2.35
3.31
3.85
440,253
197,071
155,580
187,703
134,702
810,263
1,925,572
1,924,597
281,865
183,626
133,374
127,120
92,321
479,067
1,297,373
1,297,373
57,708
—
—
—
—
—
57,708
57,708
6,680,911
2,110,877
2,042,900
1,670,338
1,512,877
3,218,200
17,236,103
16,871,074
Total interest sensitive assets
3.65% $ 7,632,447
$ 2,491,574
$ 2,331,854
$ 1,985,161
$ 1,739,900
$ 4,507,530
$ 20,688,466
$ 20,322,462
Interest sensitive liabilities:
Deposits:
Savings, NOW and
money market
Time
Short-term borrowings
Long-term borrowings
Junior subordinated
debentures
Total interest sensitive
liabilities
Interest sensitivity gap
Ratio of interest sensitive
assets to interest sensitive
liabilities
0.26% $ 3,027,898
$
835,617
$
677,100
$
500,918
$
412,833
$ 3,884,646
$ 9,339,012
$ 9,339,012
1.22
0.65
3.54
5.78
2,122,906
1,080,960
—
75,000
50,000
—
24,743
473,924
98,763
147,547
162,687
133,044
3,138,871
—
—
—
—
—
—
—
—
1,080,960
840,000
468,906
1,433,906
1,523,386
—
16,834
41,577
45,785
3,160,572
1,081,751
0.82% $ 6,306,764
$ 1,384,284
$
775,863
$
648,465
$ 1,415,520
$ 4,503,430
$ 15,034,326
$ 15,150,506
$ 1,325,683
$ 1,107,290
$ 1,555,991
$ 1,336,696
$
324,380
$
4,100
$ 5,654,140
$ 5,171,956
1.21:1
1.80:1
3.01:1
3.06:1
1.23:1
1.00:1
1.38:1
1.34:1
The above table provides an approximation of the projected re-pricing of assets and liabilities at December 31, 2016 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
repayments 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.
2016 Form 10-K
50
Our cash flow derivatives are designed to protect us from upward movement in interest rates on certain deposits. 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, 2016 was a positive $1.3 billion, representing a ratio of interest
sensitive assets to interest sensitive liabilities of 1.21:1. Current market prepayment speeds and balance sheet management strategies
implemented throughout 2016 have allowed us to maintain our asset sensitivity level reported in the table above comparable to
December 31, 2015. 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, 2016. 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, 2016 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 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, 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 liquidity to cover current
and potential funding requirements.
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 125 percent or reliance on wholesale funding
greater than 25 percent of total funding. The Bank was in compliance with the foregoing policies at December 31, 2016.
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., 85.0 percent of original cost basis
has been repaid), investment securities available for sale, loans held for sale, and, from time to time, federal funds sold and
receivables related to unsettled securities transactions. These liquid assets totaled approximately $1.8 billion, representing 8.9
percent of earning assets, at December 31, 2016 and $2.1 billion, representing 10.7 percent of earning assets, at December 31,
2015. Of the $1.8 billion of liquid assets at December 31, 2016, approximately $537.4 million of various investment securities
were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of approximately $557
million in principal from securities in the total investment portfolio over the next 12 months 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, 2016) are projected to be approximately $4.5 billion over
the next 12 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, including retail and
commercial deposits, brokered and municipal deposits, and short-term and long-term borrowings. Our core deposit base, which
generally excludes fully insured brokered deposits and both retail and brokered certificates of deposit over $250 thousand, represents
the largest of these sources. Core deposits averaged approximately $14.7 billion and $14.5 billion for the years ended December 31,
2016 and 2015, respectively, representing 73.9 percent and 67.2 percent of average earning assets at December 31, 2016 and 2015,
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.
51
2016 Form 10-K
The following table lists, by maturity, all certificates of deposit of $100 thousand and over at December 31, 2016:
Less than three months
Three to six months
Six to twelve months
More than twelve months
Total
2016
(in thousands)
337,889
545,451
306,302
515,058
1,704,700
$
$
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 $727 million 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. In addition to the FHLB advances, the Bank has
pledged such assets to collateralize a $100 million letter of credit issued by the FHLB on Valley’s behalf to secure certain public
deposits at December 31, 2016. 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, 2016, our borrowing capacity under the Fed’s discount
window was approximately $1.1 billion.
We also have access to other short-term and long-term borrowing sources to support our asset base. Short-term borrowings
include securities sold under repos, federal funds purchased and FHLB advances. Our short-term borrowings remained relatively
unchanged at approximately $1.1 billion at both December 31, 2016 and 2015. At December 31, 2016, FHLB advances increased
by $256 million but were almost entirely offset by decreases of $202 million and $50 million in repo balances and overnight
federal funds purchased, respectively, as compared to December 31, 2015. The change in short-term borrowings is generally driven
by the levels of loan originations (including residential mortgages originated for sale), repayments of long-term borrowings, and
our use of time deposits, fully insured brokered deposits and other short-term funding in our current liquidity/funding strategies.
During 2016, average short-term FHLB advances exceeded 30 percent of total shareholders' equity at December 31, 2016.
The following table sets forth information regarding Valley’s short-term FHLB advances at the dates and for the years ended
December 31, 2016 and 2015:
FHLB advances:
Average balance outstanding
Maximum outstanding at any month-end during the period
Balance outstanding at end of period
Weighted average interest rate during the period
Weighted average interest rate at the end of the period
2016
2015
($ in thousands)
$
$
868,541
1,163,000
782,000
1.19%
0.80
33,841
526,000
526,000
0.40%
0.90
Corporation Liquidity. Valley’s recurring cash requirements primarily consist of quarterly dividend payments to preferred
and common shareholders and interest expense payments on subordinated notes and junior subordinated debentures issued to
capital trusts. As part of our on-going asset/liability management strategies, Valley could also use cash to repurchase shares of its
outstanding common stock under its share repurchase program or redeem its callable junior subordinated debentures. These cash
needs are routinely satisfied by dividends collected from the Bank. Projected cash flows from the Bank are expected to be adequate
to pay preferred and common dividends, if declared, and interest expense payable to subordinated note holders and 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 cash and potential new funds borrowed from outside sources
or capital issuances. Valley also has the right to defer interest payments on the junior subordinated debentures, and therefore
distributions on its trust preferred securities for consecutive quarterly periods up to five years, but not beyond the stated maturity
dates, and subject to other conditions.
2016 Form 10-K
52
Investment Securities Portfolio
The primary purpose of the investment portfolio is to provide a source of earnings, be a source of liquidity, and serve as a
tool for managing interest rate risk. 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. See additional information under "Interest Rate Sensitivity", "Liquidity" and "Capital Adequacy" sections elsewhere
in this MD&A.
As of December 31, 2016, our investment portfolio was comprised of U.S. Treasury securities, U.S. government agencies,
taxable and tax-exempt issues of states and political subdivisions, residential mortgage-backed securities (including 12 private
label mortgage-backed securities), single-issuer trust preferred securities principally issued by bank holding companies (including
2 pooled securities), high quality corporate bonds and perpetual preferred 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, Fannie Mae and Freddie Mac. 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.
Among other securities, our investments in the private label mortgage-backed securities, trust preferred securities, perpetual
preferred securities and bank issued corporate bonds may pose a higher risk of future impairment charges to us as a result of the
uncertain economic environment 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, 2016, 2015 and 2014 were as follows:
Held to maturity
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political subdivisions
Residential mortgage-backed securities
Trust preferred securities
Corporate and other debt securities
Total investment securities held to maturity (amortized cost)
Available for sale
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political subdivisions
Residential mortgage-backed securities
Trust preferred securities
Corporate and other debt securities
Total debt securities
Equity securities
Total investment securities available for sale (fair value)
Trading
Trust preferred securities
Total trading securities (fair value)
Total investment securities
2016
2015
(in thousands)
2014
138,830
11,329
$
138,978
12,859
$
139,121
14,081
252,185
314,405
566,590
1,112,460
59,804
36,559
1,925,572
49,591
23,041
40,342
79,425
119,767
1,015,542
8,009
60,565
1,276,515
20,858
1,297,373
$
$
$
194,547
310,318
504,865
852,289
59,785
27,609
1,596,385
549,473
29,963
44,414
80,552
124,966
696,428
8,404
77,552
1,486,786
20,075
1,506,861
$
$
$
197,440
302,578
500,018
986,992
98,456
39,648
1,778,316
49,443
33,825
11,136
32,915
44,051
644,276
20,537
74,012
866,144
20,826
886,970
— $
— $
$
3,222,945
— $
— $
$
3,103,246
14,233
14,233
2,679,519
$
$
$
$
$
$
$
53
2016 Form 10-K
As of December 31, 2016, total investments increased $119.7 million or 3.9 percent as compared to 2015 largely due to an
increase in residential mortgage-backed securities classified as held for maturity and available for sale totaling a combined $579.3
million, and, to a much lesser extent, an increase of $57.6 million in obligations of states and state agencies classified as held to
maturity. These increases were partially offset by a $499.9 million decrease in U.S. Treasury securities classified as available for
sale largely due to the maturity of short-term U.S. Treasuries purchased in late December 2015.
At December 31, 2016, we had $1.1 billion and $1.0 billion of residential mortgage-backed securities classified as held to
maturity and available for sale, respectively. Approximately 91 percent and 68 percent of these residential mortgage-backed
securities, respectively, were issued and guaranteed by Ginnie Mae. The residential mortgage-backed securities also include $168
thousand and $11.8 million of private label mortgage-backed securities classified as held to maturity and available for sale,
respectively, at December 31, 2016. The remainder of our outstanding residential mortgage-backed security balances at
December 31, 2016 were issued by either Freddie Mac or Fannie Mae.
The following table presents the remaining contractual maturities (unadjusted for any expected prepayments) with the
corresponding weighted-average yields of held to maturity and available for sale debt securities at December 31, 2016:
0-1 year
1-5 years
5-10 years
Over 10 years
Total
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
Amount
(1)
Yield
(2)
($ in thousands)
$
—
—
—% $ 68,402
2.92% $ 70,428
2.97% $
—
—% $ 138,830
2.94%
—
—
—
—
—
11,329
3.52
11,329
3.52
—
85,089
—
1.50
14,162
85,393
2.71
5.08
147,150
133,643
4.71
4.58
90,873
10,280
4.07
4.54
252,185
314,405
4.37
3.88
85,089
1.50
99,555
4.74
280,793
4.64
101,153
4.12
566,590
4.10
—
—
50
—
—
577
—
2.39
23,250
4.41
—
6.47
15,724
—
13,250
3.09
—
4.71
1,096,159
59,804
9
2.33
5.03
—
1,112,460
59,804
36,559
2.34
5.03
5.82
$ 85,139
1.13% $ 191,784
4.11% $ 380,195
4.18% $1,268,454
2.99% $ 1,925,572
3.06%
$
—
—
—% $
931
1.84% $ 48,660
1.60% $
—
—% $
49,591
1.61%
—
5,803
1.40
2,530
2.29
14,708
2.60
23,041
2.26
—
4,551
4,551
37
—
—
—
—
5.43
—
1.32
10,329
29,639
3.70
2.65
23,138
18,731
3.97
4.97
6,875
26,504
4.70
4.29
40,342
79,425
4.03
3.59
39,968
2.92
41,869
4.42
33,379
4.37
119,767
3.74
3,765
—
27,456
5.05
—
2.54
35,722
—
19,004
6.88
—
3.69
976,018
8,009
2
2.53
1.00
—
1,015,542
2.69
8,009
10.00
60,565
2.62
Corporate and other debt securities
14,103
Total (5)
$ 18,691
0.02% $ 77,923
2.79% $ 147,785
2.68% $1,032,116
2.78% $ 1,276,515
2.73%
(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.
2016 Form 10-K
54
Held to maturity
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political
subdivisions: (3)
Obligations of states and state
agencies
Municipal bonds
Total obligations of states and
political subdivisions
Residential mortgage-backed
securities (4)
Trust preferred securities
Corporate and other debt securities
Total
Available for sale
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political
subdivisions: (3)
Obligations of states and state
agencies
Municipal bonds
Total obligations of states and
political subdivisions
Residential mortgage-backed
securities (4)
Trust preferred securities
The residential mortgage-backed securities portfolio is a significant source of our liquidity through the monthly cash flow
of principal and interest. Mortgage-backed securities, like all securities, are sensitive to change in the interest rate environment,
increasing and decreasing in value as interest rates fall and rise. As interest rates fall, the potential increase in prepayments can
reduce the yield on the mortgage-backed securities portfolio, and reinvestment of the proceeds will be at lower yields. Conversely,
rising interest rates may reduce cash flows from prepayments and extend anticipated duration of these assets. We monitor the
changes in interest rates, cash flows and duration, in accordance with our investment policies. Management seeks out investment
securities with an attractive spread over our cost of funds.
Other-Than-Temporary Impairment Analysis
We may be required to record impairment charges on our investment securities if they suffer a decline in value that is
considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence
of reliable pricing information for investment securities, adverse changes in business climate, adverse actions by regulators, or
unanticipated changes in the competitive environment could have a negative effect on our investment portfolio and may result in
other-than temporary impairment on our investment securities in future periods. For debt securities, the primary consideration in
determining whether impairment is other-than-temporary is whether or not Valley expects 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.
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, 2016.
Held to maturity investment grades:*
AAA Rated
AA Rated
A Rated
Non-investment grade
Not rated
Total investment securities held to maturity
Available for sale investment grades:*
AAA Rated
AA Rated
A Rated
BBB Rated
Non-investment grade
Not rated
$
$
$
Total investment securities available for sale $
Amortized
Cost
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
1,412,662
249,047
38,182
3,678
222,003
1,925,572
1,141,645
69,014
26,844
39,555
13,093
25,572
1,315,723
$
$
$
$
22,629
6,857
2,011
2
93
31,592
1,986
190
7
428
1,126
329
4,066
$
$
$
$
(18,298) $
(598)
—
(66)
(13,605)
(32,567) $
(17,788) $
(1,795)
(105)
(628)
(1,391)
(709)
(22,416) $
1,416,993
255,306
40,193
3,614
208,491
1,924,597
1,125,843
67,409
26,746
39,355
12,828
25,192
1,297,373
* 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 $222.0 million in investments not rated by the rating agencies with aggregate unrealized
losses of $13.6 million at December 31, 2016. The unrealized losses for this category mainly relate to 4 single-issuer bank trust
preferred issuances with a combined amortized cost of $35.9 million. All single-issuer bank trust preferred securities classified as
held to maturity, including the aforementioned four securities, are paying in accordance with their terms and have no deferrals of
interest or defaults. Additionally, we analyze the performance of each issuer on a quarterly basis, including a review of performance
55
2016 Form 10-K
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, 2016, 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.
There was no other-than-temporary impairment recognized in earnings as a result of Valley's impairment analysis of its
securities during the years ended December 31, 2016, 2015 and 2014 as the collateral supporting much of the investment securities
has improved or performed as expected. See Note 4 to our consolidated financial statements for additional information regarding
our other-than-temporary impairment analysis.
Loan Portfolio
The following table reflects the composition of the loan portfolio for the years indicated.
Commercial and industrial
Commercial real estate:
Commercial real estate
Construction
Total commercial real estate
Residential mortgage
Consumer:
Home equity
Automobile
Other consumer
Total consumer loans
Total loans (1)(2)
As a percent of total loans:
Commercial and industrial
Commercial real estate
Residential mortgage
Consumer loans
Total
2016
2015
$
2,638,195
$
2,540,491
At December 31,
2014
($ in thousands)
2,251,111
$
2013
2012
$
2,021,333
$
2,131,343
8,719,667
824,946
9,544,613
2,867,918
7,424,636
754,947
8,179,583
3,130,541
6,160,881
533,134
6,694,015
2,576,372
5,043,169
429,231
5,472,400
2,507,588
4,537,977
427,368
4,965,345
2,472,088
469,009
1,139,227
577,141
2,185,377
$ 17,236,103
511,203
1,239,313
441,976
2,192,492
$ 16,043,107
497,247
1,144,831
310,337
1,952,415
$ 13,473,913
449,292
901,399
215,600
1,566,291
$ 11,567,612
485,702
786,528
181,793
1,454,023
$ 11,022,799
15.3%
55.4
16.6
12.7
100%
15.8%
51.0
19.5
13.7
100%
16.7%
49.7
19.1
14.5
100%
17.5%
47.3
21.7
13.5
100%
19.4%
45.0
22.4
13.2
100%
(1)
Includes covered loans totaling $70.4 million, $122.3 million, $211.9 million, $96.2 million and $180.7 million at December 31, 2016,
2015, 2014, 2013 and 2012, respectively (primarily consisting of commercial real estate loans and residential mortgage loans).
(2) Total loans are net of unearned premiums and deferred loan costs of $15.3 million and $3.5 million at December 31, 2016 and 2015,
respectively, as compared to unearned discounts and deferred loan fees of $9.0 million, $5.6 million and $3.4 million at December 31,
2014, 2013, and 2012, respectively.
Total loans increased $1.2 billion to approximately $17.2 billion at December 31, 2016 from December 31, 2015. Our loan
portfolio includes PCI loans, which are loans acquired at a discount that is due, in part, to credit quality. At December 31, 2016,
our PCI loan portfolio decreased $469.0 million to $1.8 billion as compared to December 31, 2015 primarily due to larger loan
repayments, of which some resulted from continued efforts by management to encourage borrower prepayment. The non-PCI loan
portion of the loan portfolio increased $1.7 billion at December 31, 2016 as compared to December 31, 2015 largely due to organic
commercial real estate growth, loan participations with other banks that largely consisted of multi-family and 1-4 family mortgage
loans, and organic growth in several loan categories in 2016 discussed further below. During 2016, Valley also originated $421.3
million of residential mortgage loans for sale rather than investment. Loans held for sale totaled $57.7 million and $16.4 million
at December 31, 2016 and 2015, respectively. See additional information regarding our residential mortgage loan activities below.
Commercial and industrial loans totaled $2.6 billion at December 31, 2016 and increased by $97.7 million from December 31,
2015, despite a $102.8 million decline in the PCI loan portion of the portfolio during 2016. Exclusive of the decline in PCI loans,
the non-PCI commercial and industrial loan portfolio increased by $200.5 million from December 31, 2015. This growth was
partially driven by new organic customer relationships originated during 2016 and a new secured commercial lending agreement
with a large regional auto retailer during the fourth quarter of 2016. In addition to the PCI loan repayments, the level of loan
2016 Form 10-K
56
growth within this portfolio continues to be challenged by strong market competition for both new and existing commercial loan
borrowers within our primary markets, and relatively unchanged outstanding balances on lines of credit by our customers at
December 31, 2016 as compared to December 31, 2015 despite an increase in total commitments under lines of credit during the
year.
Commercial real estate loans (excluding construction loans) increased $1.3 billion to $8.7 billion at December 31, 2016
from December 31, 2015 largely due to $719 million of loan participations in multi-family loans (mostly in New York City)
purchased during 2016 and solid organic loan volumes from all of our primary markets. The purchased participation loans are
seasoned loans with expected shorter durations. Each purchased participation loan is reviewed under Valley's normal underwriting
criteria and stress-tested by Valley to assure its credit quality. The organic loan volumes generated across a broad based segment
of borrowers within the commercial real estate portfolio were partially offset by a $263.8 million decline in the acquired PCI loan
portion of the portfolio. Construction loans totaled $824.9 million at December 31, 2016 and increased $70.0 million from
December 31, 2015 mostly due to advances on existing construction projects.
Residential mortgage loans totaled $2.9 billion at December 31, 2016 and decreased by $262.6 million from December 31,
2015 mostly due to a large percentage of new loans originated for sale rather than investment during 2016 and the transfer of
$174.5 million in performing residential mortgage loans to loans held for sale during the third quarter of 2016. Our new and
refinanced residential mortgage loan originations increased 81.7 percent to $891.0 million for the year ended December 31, 2016
as compared to $490.4 million in 2015. Of the $891.0 million in total originations, $58.5 million represented new Florida residential
mortgage loans. During 2016, Valley sold $558.1 million of residential mortgages originated for sale (including $16.1 million of
residential mortgage loans held for sale at December 31, 2015) as compared to approximately $135.2 million of mortgages sold
during the year ended December 31, 2015. We retain mortgage originations based on credit criteria and loan to value levels, the
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. From time to time, we purchase residential mortgage loans originated by, and sometimes
serviced by, other financial institutions based on several factors, including current loan origination volumes, market interest rates,
excess liquidity, CRA and other asset/liability management strategies. All of the purchased loans are selected using Valley’s normal
underwriting criteria at the time of purchase. During 2016, Valley purchased approximately $173.9 million of 1-4 family loans,
of which a large portion of the loans qualify for CRA purposes.
Due to the recent increase in market interest rates, our mortgage loan pipeline, particularly refinanced loans, has declined
as compared to the activity in the fourth quarter of 2016. However, we do expect to continue to sell a significant portion of our
new conforming fixed rate residential mortgage loan originations as part of our overall interest rate risk management strategies
during the first quarter of 2017. While we do anticipate a sequential quarterly decline in net gains on loan sales largely due to
$7.3 million of gains from approximately $170 million of seasoned portfolio loans sold during the fourth quarter of 2016, we do
not expect a significant decline in gains from our normal levels of production of new loans originated for sale in the first quarter
of 2017.
Consumer loans totaled $2.2 billion at December 31, 2016 and decreased only $7.1 million from December 31, 2015 as
declines in both automobile and home equity loans were largely offset by an increase other consumer loans. Automobile loans
decreased $100.1 million to $1.1 billion at December 31, 2016 from December 31, 2015 mainly due to a decline in indirect auto
originations during the first nine months of 2016 largely caused by current market loan pricing and fee constraints resulting from
new regulatory lending guidance. During the third quarter of 2016, management implemented various strategies to enhance new
auto volumes, including new technology to improve the decision-making process for our auto dealer network. These enhancements
and continued growth in our relatively new Florida markets led to improved new loan volumes during the fourth quarter of 2016.
During the fourth quarter of 2016, automobile loans increased by $17.6 million from September 30, 2016. While we're optimistic
that this positive trend in new loan production will continue into the first quarter of 2017, we can provide no assurance that our
auto loans will not decline in future periods. Home equity loans decreased $42.2 million in 2016 from $511.2 million at December 31,
2015 mostly due to normal repayment activity largely within the PCI loan portion of the portfolio. New home equity loan volumes
and customer usage of existing home equity lines of credit continued to be weak during 2016 despite the relatively favorable low
interest rate environment. Other consumer loans increased $135.2 million to $577.1 million at December 31, 2016 as compared
to 2015 largely due to continued strong growth and customer usage of collateralized personal lines of credit that allow the customer
to manage their liquidity needs by accessing the cash value of their whole life insurance policy.
We are optimistic that both commercial and consumer lending activity will continue to be brisk in 2017, despite the expected
reduction in refinanced residential mortgage loan activity caused by the recent increase in interest rates and, while not anticipated,
any potential setbacks that could occur in the indirect automobile loan volumes or other portfolio segments. For 2017, we anticipate
our overall loan portfolio growth to be in the range of six to eight percent. However, there can be no assurance that we will achieve
such levels or that the overall loan portfolio balance will not decline from December 31, 2016.
57
2016 Form 10-K
Most of our lending is in northern and central New Jersey, New York City, Long Island and Florida, with the exception of
smaller auto and residential mortgage loan portfolios derived from the other neighboring states of New Jersey, which could present
a geographic and credit risk if there was another significant broad based economic downturn or a prolonged economic recovery
within these regions. We are witnessing new loan activity across Valley's entire geographic footprint, including new loans and
solid loan pipelines from our Florida lending operations. Valley’s Florida Division accounted for approximately $485 million of
approximately $4.2 billion in new and purchased commercial loan volume, excluding lines of credit, during 2016. However, the
New Jersey and New York Metropolitan markets continue to account for a disproportionately larger percentage of our lending
activity. To mitigate these risks, we are making 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. Geographically, we may make further inroads into the Florida
lending market, through acquisition, select de novo branch efforts or adding lending staff.
The following table reflects the contractual maturity distribution of the commercial and industrial and construction loans
within our loan portfolio as of December 31, 2016:
Commercial and industrial—fixed-rate
Commercial and industrial—adjustable-rate
Construction—fixed-rate
Construction—adjustable-rate
One Year or
Less
One to
Five Years
Over Five
Years
Total
$
$
787,532
851,329
66,352
197,099
1,902,312
$
$
(in thousands)
435,868
471,178
125,810
373,724
1,406,580
$
$
44,348
47,940
15,606
46,355
154,249
$
$
1,267,748
1,370,447
207,768
617,178
3,463,141
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.
Purchased Credit-Impaired Loans (Including Covered Loans)
PCI loans totaling $1.8 billion and $2.2 billion at December 31, 2016 and 2015, respectively, mostly consist of loans acquired
in business combinations subsequent to 2011, and covered loans in which the Bank will share losses with the FDIC under loss-
sharing agreements. Our covered loans, consisting primarily of residential mortgage loans and commercial real estate loans, totaled
$70.4 million and $122.3 million at December 31, 2016 and 2015, respectively. During 2016 and 2015, we reclassified $27.5
million and $30.7 million of PCI loans, respectively, from our covered loan portfolio due to the expiration of certain commercial
loan loss-sharing agreements with the FDIC.
As required by U.S. GAAP, all of our PCI loans are accounted for under ASC Subtopic 310-30. This accounting guidance
requires the PCI loans to be 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, aggregate fair value and expected cash flows. For PCI 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 PCI 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 PCI loans and could change the amount of interest income, and possibly principal, expected to be collected. Reclassifications
of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in
expected cash flows of the loan pools.
At both acquisition and subsequent quarterly reporting dates, we use a third party service provider to assist with validation
of our assessment of 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
2016 Form 10-K
58
individually reviewed by us. 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 was subsequently aggregated on a
pool basis. The expected payment data, discount rates, impairment data and changes to the accretable yield received back from
the third party were 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.
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 re-forecasting 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 tables summarize the changes in the carrying amounts of PCI loans and the accretable yield on these loans
for the years ended December 31, 2016 and 2015.
2016
2015
Carrying
Amount
Accretable
Yield
Carrying
Amount
Accretable
Yield
Balance, beginning of the period
Acquisition
Accretion
Payments received
Net (decrease) increase in expected cash flows
Transfers to other real estate owned
Other, net
Balance, end of the period
$
$
2,240,471
—
107,482
(572,081)
—
(1,176)
(3,194)
1,771,502
$
$
(in thousands)
415,179
—
(107,482)
—
(9,989)
—
(3,194)
294,514
$
$
1,721,601
824,882
105,078
(407,890)
—
(3,200)
—
2,240,471
$
$
336,208
126,930
(105,078)
—
57,119
—
—
415,179
The net decrease or increase in expected cash flows for certain pools of loans (included in the table above) is recognized
prospectively as an adjustment to the yield over the estimated remaining life of the individual pools. The net decrease in the
expected cash flows totaling approximately $10.0 million for 2016 was largely due to better than expected collections, including
loan prepayments, within certain loan pools which reduced the remaining reforecasted accretable yield during the fourth quarter
of 2016. The net increase of $57.1 million during 2015 was mainly related to a decrease in the expected losses for certain loan
pools during the fourth quarter of 2015.
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. The decrease in the FDIC loss-share receivable due to the increase in
expected cash flows for covered loan pools is recognized on a prospective basis over the shorter period of the lives of the loan
pools and the loss-share agreements, with a corresponding reduction in non-interest income for the period. See section below for
further details regarding the FDIC loss-share receivable. Conversely, an increase or decrease in expected future cash flows of
covered loans since the acquisition dates will increase or decrease (if applicable) the clawback liability (the amount the FDIC
requires us to pay back if certain thresholds are met) accordingly.
FDIC Loss-Share Receivable Related to Covered Loans and Foreclosed Assets
The receivable arising from the loss-sharing agreements with the FDIC is measured separately from the covered loan portfolio
because the agreements are not contractually part of the covered loans and are not transferable should the Bank choose to dispose
of the covered loans. The FDIC loss-share receivable (which is included in other assets on Valley's consolidated statements of
financial condition) totaled $7.2 million and $8.3 million at December 31, 2016 and 2015, respectively. The aggregate effects of
changes in the FDIC loss-share receivable was a reduction in non-interest income of $1.3 million, $3.3 million and $20.8 million
for the years ended December 31, 2016, 2015 and 2014, respectively.
See Note 1 to the consolidated financial statements for further details on the FDIC loss-share receivable and the related
FDIC-assisted transactions.
59
2016 Form 10-K
Non-performing Assets
Non-performing assets (NPAs), which exclude non-performing PCI loans, include non-accrual loans, other real estate owned
(OREO), other repossessed assets (which mainly consist of automobiles) and non-accrual debt securities at December 31, 2016.
Loans are generally placed on non-accrual status when they become past due in excess of 90 days as to payment of principal or
interest. Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of
collection. OREO is acquired through foreclosure on loans secured by land or real estate. OREO and other repossessed assets are
reported at the lower of cost or fair value, less cost to sell at the time of acquisition and at the lower of fair value, less estimated
costs to sell, or cost thereafter. The level of non-performing assets has decreased 36.8 percent over the last 12 month period and
74.7 percent since December 31, 2012 (as shown in the table below) mostly due to strong downward trend within non-accrual
loan category, and a steady decline in the other non-performing asset categories. Overall, we believe the total non-performing
assets has remained relatively low as a percentage of the total loan portfolio and non-performing assets over the past five years
and is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased
from third parties. Past due loans and non-accrual loans in the table below exclude PCI loans. Under U.S. GAAP, the PCI loans
(acquired at a discount that is due, in part, to credit quality) are accounted for on a pool basis and are not subject to delinquency
classification in the same manner as loans originated by Valley. For details regarding performing and non-performing PCI loans,
see the "Credit quality indicators" section in Note 5 to the consolidated financial statements.
2016 Form 10-K
60
The following table sets forth by loan category, accruing past due and non-performing assets on the dates indicated in
conjunction with our asset quality ratios:
Accruing past due loans (1)
30 to 59 days past due
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total 30 to 59 days past due
60 to 89 days past due
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total 60 to 89 days past due
90 or more days past due
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total 90 or more days past due
Total accruing past due loans
Non-accrual loans (1)
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total non-accrual loans
Non-performing loans held for sale
Other real estate owned (OREO) (2)
Other repossessed assets
Non-accrual debt securities (3)
Total non-performing assets
Performing troubled debt restructured loans
Total non-accrual loans as a % of loans
Total NPAs as a % of loans and NPAs
Total accruing past due and non-accrual loans as a
% of loans
Allowance for loan losses as a % of non-accrual
loans
2016
2015
At December 31,
2014
($ in thousands)
2013
2012
$
$
$
$
$
6,705
5,894
6,077
12,005
4,197
34,878
5,010
8,642
—
3,564
1,147
18,363
142
474
1,106
1,541
209
3,472
56,713
8,465
15,079
715
12,075
1,174
37,508
—
9,612
384
1,935
49,439
85,166
$
$
$
$
$
3,920
2,684
1,876
6,681
3,348
18,509
524
—
2,799
1,626
626
5,575
213
131
—
1,504
208
2,056
26,140
10,913
24,888
6,163
17,930
2,206
62,100
—
13,563
437
2,142
78,242
77,627
$
$
$
$
$
1,630
8,938
448
6,200
2,982
20,198
1,102
113
—
3,575
764
5,554
226
49
3,988
1,063
152
5,478
31,230
8,467
22,098
5,223
17,760
2,209
55,757
7,130
14,249
1,232
4,729
83,097
$
$
$
6,398
9,142
1,186
6,595
3,792
27,113
571
2,442
4,577
1,939
784
10,313
233
7,591
—
1,549
118
9,491
46,917
21,029
43,934
8,116
19,949
2,035
95,063
—
19,580
6,447
3,771
$
$
$
3,397
11,214
1,793
13,730
5,887
36,021
181
2,031
4,892
5,221
1,340
13,665
283
2,950
2,575
2,356
501
8,665
58,351
22,424
58,625
14,805
32,623
3,331
131,808
—
15,612
7,805
40,303
$ 124,861
$ 195,528
97,743
$ 107,037
$ 105,446
0.22%
0.29
0.39%
0.49
0.41%
0.61
0.82%
1.07
1.20%
1.74
0.55
0.55
0.65
1.23
1.73
305.05
170.98
183.57
119.52
98.78
(1) Past due loans and non-accrual loans exclude PCI loans that are accounted for on a pool basis.
61
2016 Form 10-K
(2) This table excludes OREO properties related to the FDIC-assisted transactions totaling $558 thousand, $5.0 million, $9.2 million, $12.3
million and $8.9 million at December 31, 2016, 2015, 2014, 2013 and 2012, 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 $817 thousand, $610 thousand, $621 thousand, $1.6 million and $6.9 million at December 31, 2016,
2015, 2014, 2013 and 2012, respectively.
(3)
Loans past due 30 to 59 days increased $16.4 million to $34.9 million at December 31, 2016 compared to $18.5 million at
December 31, 2015 mostly due to increases in both residential mortgage loans and construction loans. Residential mortgage loans
within this delinquency category increased $5.3 million to $12.0 million at December 31, 2016 compared to $6.7 million at
December 31, 2015. The $4.2 million increase in construction loans was caused by the late receipt of payment from a $4.2 million
relationship brought current as to all contractual payments in January 2017. In addition, the commercial and industrial loans within
this delinquency category included two new loan relationships totaling $4.5 million of the $6.7 million at December 31, 2016.
While this delinquency category at December 31, 2016 was significantly higher than the low levels seen at December 31, 2015,
we continue to closely monitor this category and we do not believe the increase in delinquencies at December 31, 2016 represents
a material negative trend within our total loan portfolio exceeding $17 billion.
Loans past due 60 to 89 days increased $12.8 million to $18.4 million at December 31, 2016 as compared to December 31,
2015 largely due to increases in both commercial real estate loans and commercial and industrial loans, partially offset by a decrease
in construction loans. The $8.6 million increase in commercial real estate loans was primarily due to two matured performing
loans (in the normal process of renewal) with a combined total of a $4.5 million and one potential problem loan of $3.8 million
included within this delinquency category at December 31, 2016. Commercial and industrial loans also increased $4.5 million
from December 31, 2015 largely due to matured performing loans with an aggregate total of $4.5 million at December 31, 2016.
These matured loans represent one loan relationship collateralized by New York City (NYC) taxi cab medallions. Valley believes
this relationship is well-secured and in the normal process of collection. See discussion of the taxi cab medallion loan portfolio
below.
Loans 90 days or more past due and still accruing increased $1.4 million to $3.5 million at December 31, 2016 compared
to $2.1 million at December 31, 2015. The increase in this delinquency category was caused by matured performing construction
and commercial real estate loans totaling $1.1 million and $343 thousand, respectively, at December 31, 2016. These loans were
in the normal process of renewal at December 31, 2016. 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 decreased $24.6 million to $37.5 million at December 31, 2016 as compared to $62.1 million at
December 31, 2015 due to significant declines in all of the loan categories. The decrease in the commercial categories was largely
due to strong collections resulting in several full repayments of impaired loans, as well as a commercial real estate loans totaling
$3.4 million transferred to OREO during the third quarter of 2016. 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 and the valuation of the underlying collateral, if applicable. Our impaired loans (mainly consisting of non-accrual
commercial and industrial loans and commercial real estate loans over $250 thousand and all troubled debt restructured loans)
totaled $114.8 million at December 31, 2016 and had $10.5 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 $2.1 million, $3.5 million and $2.2 million for the years ended December 31,
2016, 2015 and 2014, 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 $207 thousand, $1.3 million and $735 thousand for the years
ended December 31, 2016, 2015 and 2014, respectively.
At December 31, 2016, our commercial and industrial loan portfolio included $151.2 million of taxi medallion loans mostly
to fleet owners, which consist of $140.2 million and $11.0 million of NYC and Chicago taxi medallion loans, respectively. During
the fourth quarter of 2016, $4.9 million of performing Chicago taxi medallion loans were restructured into amortizing loans and
had related reserves within the allowance of loan losses totaling $2.7 million at December 31, 2016. At December 31, 2016, the
Chicago medallion portfolio included one other impaired non-accrual loan relationship totaling $1.5 million, after a $3.7 million
charge-off recognized in the third quarter of 2016. With the exception of the aforementioned matured performing $4.5 million
NYC medallion relationship within the loans past due 60 to 89 days category, there were no past due or non-accruing loans within
the NYC medallion portfolio at December 31, 2016. Valley's historical taxi medallion lending criteria has been conservative in
regards to capping the loan amounts in relation to market valuations, as well as obtaining personal guarantees and other collateral
whenever possible. We will continue to closely monitor this portfolio's performance and the potential impact of the changes in
market valuation for taxi medallions due to competing car service providers and other factors. Overall, we believe our credit quality
2016 Form 10-K
62
metrics continue to reflect our solid underwriting standards at December 31, 2016. However, we can provide no assurances as to
the future level of our loan delinquencies.
OREO (which consists of 23 commercial and residential properties), excluding OREO subject to loss-sharing agreements
with the FDIC, decreased $4.0 million to $9.6 million at December 31, 2016 as compared to $13.6 million at December 31, 2015.
The decrease was mainly due to a higher volume of sales of foreclosed properties in 2016 as compared to 2015. During 2016, we
sold 33 OREO properties totaling $13.6 million as compared to 45 properties totaling $11.4 million sold in 2015. In addition,
covered OREO properties totaling $1.8 million were reclassified to non-covered OREO due to the expiration of certain FDIC loss-
share agreements in 2016. Overall, 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 and the average time to complete a
foreclosure in the State of New Jersey, which currently exceeds two and a half years. The residential mortgage and consumer loans
secured by residential real estate properties for which formal foreclosure proceedings are in-process totaled $7.1 million at
December 31, 2016. We believe this lengthy legal process negatively impacts the level of our non-accrual loans and NPAs, and
the ability to compare our NPA levels to similar banks located outside of our primary markets as of December 31, 2016. See
additional information regarding our foreclosed asset activity, including OREO and other repossessed assets, in Note 3 to the
consolidated financial statements.
The non-accrual debt securities consists of one other-than-temporarily impaired security with a carrying value of $1.9
million and $2.1 million at December 31, 2016 and 2015, respectively. The security had an aggregate unamortized cost of $2.8
million at both December 31, 2016 and 2015. See additional information at the “Investment Securities Portfolio” section of this
MD&A and Note 4 to the consolidated financial statements.
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 loans 90 days or more past due and still accruing or
as non-accrual loans) totaled $85.2 million at December 31, 2016 and consisted of 96 loans (primarily in the commercial and
industrial loan and commercial real estate portfolios) as compared to $77.6 million at December 31, 2015. On an aggregate basis,
the $85.2 million in performing TDRs at December 31, 2016 had a modified weighted average interest rate of approximately 4.68
percent as compared to a pre-modification weighted average interest rate of 4.75 percent. See Note 5 to the consolidated financial
statements for additional disclosures regarding our TDRs.
Potential Problem Loans
Although we believe that substantially all risk elements at December 31, 2016 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 $131.4 million and $101.1 million in potential problem loans at December 31, 2016
and 2015, 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, 2016, the potential problem loans consisted of various types
of performing commercial credits internally risk rated substandard because the loans exhibited well-defined weaknesses and
required additional attention by management. See further discussion regarding our internal loan classification system at Note 5 to
the consolidated financial statements. There can be no assurance that Valley has identified all of its potential problem loans at
December 31, 2016.
Asset Quality and Risk Elements
Lending is one of the most important functions performed by Valley and, by its very nature, lending is also the most
complicated, risky and profitable part of our business. For our commercial loan portfolio, comprised of commercial and industrial
loans, commercial real estate loans, and construction loans, a separate credit department is responsible for risk assessment and
periodically evaluating overall creditworthiness of a borrower. Additionally, efforts are made to limit concentrations of credit so
as to minimize the impact of a downturn in any one economic sector. We believe our loan portfolio is diversified as to type of
borrower and loan. However, loans collateralized by real estate, including $1.5 billion of PCI loans, represent approximately 75
percent of total loans at December 31, 2016. Most of the loans collateralized by real estate are in northern and central New Jersey,
New York City, and Florida presenting a geographical credit risk if there was a further significant broad-based deterioration in
economic conditions within these regions (see Part I, Item 1A. Risk Factors - "Our financial results and condition may be adversely
impacted by weak economic conditions").
Consumer loans are comprised of residential mortgage loans, home equity loans, automobile loans and other consumer
loans. Residential mortgage loans are secured by 1-4 family properties generally located in counties where we have branch presence
63
2016 Form 10-K
in New Jersey, New York and Florida, as well as counties contiguous thereto, if applicable, including eastern 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 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 2016 was 59 percent while FICO® (independent objective
criteria measuring the creditworthiness of a borrower) scores averaged 767. 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 our primary markets,
automobile loans are mostly originated in several other contiguous states. Due to the level of our underwriting standards applied
to all loans, management believes the out of market loans generally present no more risk than those made within the market.
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.
Allowance for Credit Losses
The allowance for credit losses includes the allowance for loan losses and the reserve for unfunded commercial letters of
credit. 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 loan losses 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 (including automobile and home equity
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
evaluating the PCI loan pools for additional credit impairment subsequent to the acquisition dates.
Additionally, the qualitative factors, such as 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 four 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
(using the appropriate loss look-back and loss emergence periods) adjusted for both internal and external qualitative risk factors
to Valley, including the aforementioned factors, as well as changes in both organic and purchased loan portfolio volumes, the
composition and concentrations of credit, new market initiatives, and the impact of competition on loan structuring and pricing,
and (iv) an allowance for PCI loan pools impaired subsequent to the acquisition date, if applicable.
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 (less estimated selling costs) 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 at Fair Value 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 is recorded as a specific valuation allowance in the allowance for credit losses. At December 31, 2016, a $10.5 million
specific valuation allowance was included in the allowance for credit losses related to $114.8 million of impaired loans that had
such an allowance. See Note 5 to the consolidated financial statements for more details regarding impaired loans.
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 over a look-back period determined to provide the appropriate amount of data to accurately
2016 Form 10-K
64
estimate expected losses as of period end. Additionally, management assesses the loss emergence period for the expected losses
of each loan segment and adjusts each historical loss factor accordingly. The loss emergence period is the estimated time from
the date of a loss event (such as a personal bankruptcy) to the actual recognition of the loss (typically via the first full or partial
loan charge-off), and is determined based upon a study of our past loss experience by loan segment. The loss factors may also 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 following table summarizes the relationship among loans, loans charged-off, loan recoveries, the provision for credit
losses and the allowance for credit losses for the years indicated:
Average loans outstanding
$ 16,400,745
$ 14,447,020
($ in thousands)
$ 12,081,683
$ 11,187,968
$ 11,238,269
2016
Years Ended December 31,
2014
2013
2015
2012
Beginning balance—Allowance for credit
losses
Loans charged-off: (1)
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total loan charge-offs
Charged-off loans recovered: (2)
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Total Consumer
Total loan recoveries
Net charge-offs (1)(2)
Provision charged for credit losses
Ending balance—Allowance for credit
losses
Components of allowance for credit
losses:
$
108,367
$
104,287
$
117,112
$
132,495
$
136,185
(5,990)
(650)
—
(866)
(3,463)
(10,969)
2,852
2,047
10
774
1,654
7,337
(3,632)
11,869
(7,928)
(1,864)
(926)
(813)
(3,441)
(14,972)
7,233
846
913
421
1,538
10,951
(4,021)
8,101
(12,722)
(4,894)
(4,576)
(1,004)
(3,702)
(26,898)
6,874
2,198
912
248
1,957
12,189
(14,709)
1,884
(19,837)
(7,060)
(3,786)
(4,446)
(5,120)
(40,249)
4,219
816
929
768
2,039
8,771
(16,103)
(9,596)
(2,092)
(3,518)
(5,339)
(36,648)
4,475
222
50
701
1,958
7,406
(31,478)
16,095
(29,242)
25,552
$
116,604
$
108,367
$
104,287
$
117,112
$
132,495
Allowance for loan losses (3)
Allowance for unfunded letters of credit
Allowance for credit losses
Components of provision for credit losses:
Provision for loan losses (4)
Provision for unfunded letters of credit
Provision for credit losses
$
$
$
$
114,419
2,185
116,604
11,873
(4)
11,869
$
$
$
$
106,178
2,189
108,367
7,846
255
8,101
$
$
$
$
102,353
1,934
104,287
3,445
(1,561)
1,884
$
$
$
$
113,617
3,495
117,112
14,895
1,200
16,095
$
$
$
$
130,200
2,295
132,495
25,640
(88)
25,552
Ratio of net charge-offs during the period to
average loans outstanding
Allowance for credit losses as a % of non-
PCI loans
Allowance for credit losses as a % of total
loans
0.02%
0.03%
0.12%
0.28%
0.26%
0.75
0.68
0.79
0.68
0.89
0.77
1.09
1.01
1.34
1.20
(1)
(2)
Includes covered loans charge-offs totaling $200 thousand, $1.5 million, $146 thousand and $4.0 million during 2015, 2014, 2013 and 2012, respectively.
There were no covered loans charge-offs during 2016.
Includes charged-off covered loan recoveries totaling $462 thousand during 2014. There were no recoveries of charged-off covered loans during 2016,
2015, 2013 and 2012.
65
2016 Form 10-K
(3)
(4)
Includes reserve allocations related to covered loans totaling $200 thousand, $7.1 million and $9.5 million at December 31, 2014, 2013 and 2012, respectively.
There were no allocated reserves related to covered loans at December 31, 2016 and 2015.
Includes a negative (credit) provision for covered loans totaling $5.9 million and $2.3 million for 2014 and 2013, respectively. There was no provision for
covered loans in 2016, 2015 and 2012.
Our net loan charge-offs decreased $389 thousand to $3.6 million in 2016 as compared to $4.0 million in 2015 mainly due
to lower gross charge-offs in all of the commercial loan categories (as shown in the table above). Total commercial and industrial
loan charge-offs declined $1.9 million to $6.0 million for the year ended December 31, 2016 as compared to 2015, despite a $3.7
million partial charge-off related to one Chicago taxi medallion relationship within this loan category during 2016.
Net charge-offs significantly declined in the last two years and have remained relatively low over the last five years as
compared to many of our peers, despite the moderate pace of economic growth over most of such period. During this five-year
period, our net charge-offs were at a high of 0.28 percent of average loans during 2013 and a low of 0.02 percent during 2016.
The moderate level of our net loan charge-offs during 2016 was largely as a result of the continued solid performance of our loan
portfolio and the gradual, but steadily improving economic environment. While we have a positive outlook for the future
performance of the loan portfolio and the economy, there can be no assurance that our levels of net-charge-offs will continue to
improve during 2017, and not deteriorate in the future.
The provision for credit losses increased $3.8 million to $11.9 million in 2016 as compared to $8.1 million in 2015 and was
mostly due to the 7.4 percent annual loan growth in 2016, as well as moderate increases in the estimated loss emergence periods
for most of our commercial loan portfolios based upon our most recent annual loss emergence study performed at September 30,
2016. The loss emergence period (LEP) assumption represents the estimated average amount of time from the point at which a
loss is incurred to the point at which a loss is confirmed, typically by a charge-off. A longer LEP assumption will increase the
level of the allowance for loan losses, and conversely, a shorter LEP will reduce the level of such reserves. The negative provision
for covered loans in 2014 related to a decrease in the estimated additional credit impairment of certain covered loan pools (initially
recognized in 2011 and 2010) subsequent to acquisition dates.
The following table summarizes the allocation of the allowance for credit losses to specific loan portfolio categories for the
past five years:
2016
2015
2014
2013
2012
Percent
of Loan
Category
to total
loans
Percent
of Loan
Category
to total
loans
Allowance
Allocation
Percent
of Loan
Category
to total
loans
Allowance
Allocation
Percent
of Loan
Category
to total
loans
Allowance
Allocation
Allowance
Allocation
Percent
of Loan
Category
to total
loans
Allowance
Allocation
($ in thousands)
Loan Category:
Commercial and
industrial*
Commercial real
estate:
Commercial real
estate
Construction
Residential mortgage
Total Consumer
Unallocated
Total allowance for
credit losses
$
53,005
15.3% $
50,956
15.8% $
45,610
16.7% $
55,046
17.5 % $
66,665
19.4%
36,405
19,446
3,702
4,046
—
50.6
4.8
16.6
12.7
—
32,037
15,969
4,625
4,780
—
46.3
4.7
19.5
13.7
—
27,426
15,414
5,093
5,179
5,565
45.7
4.0
19.1
14.5
32,002
10,341
7,786
4,356
7,581
43.6
3.7
21.7
13.5
—
26,676
17,393
9,423
5,542
6,796
41.1
3.9
22.4
13.2
—
$ 116,604
100% $ 108,367
100% $ 104,287
100% $ 117,112
100 % $
132,495
100%
* Includes the allowance for unfunded letters of credit.
The allowance for credit losses, comprised of our allowance for loan losses and reserve for unfunded letters of credit, as a
percentage of total loans was 0.68 percent at both December 31, 2016 and 2015. Our allowance allocations for losses at
December 31, 2016 mostly increased within the commercial loan categories (see table above) as compared to December 31, 2015.
These increases were due, in part, to both purchased and organic loan growth within the non-PCI loan portfolio over the last twelve-
month period. Additionally, our estimate of the allowance for credit losses at December 31, 2016 was impacted by the level of
net charge-offs and internally classified loans, assumptions based on the current economic environment, as well as other qualitative
factors. Total net loan charge-offs of $3.6 million in 2016 were at the lowest level reported since 2005, both in terms of total
amount and as a percentage of average loans outstanding during the period. The overall amount of the allowance for credit losses
2016 Form 10-K
66
has continued to be positively impacted by, amongst other factors, the decline in non-accrual loans as a result of the strengthening
economy and significant repayments of many of these impaired loan relationships within the portfolio during 2016.
Our allowance for credit losses as a percentage of total non-PCI loans (excluding all PCI loans with carrying values totaling
approximately $1.8 billion) was 0.75 percent at December 31, 2016 as compared to 0.76 percent at December 31, 2015. PCI loans,
largely acquired through prior bank acquisitions, are accounted for on a pool basis and initially recorded net of fair valuation
discounts related to credit which may be used to absorb future losses on such loans before any allowance for loan losses is recognized
subsequent to acquisition. Due to the adequacy of such discounts, there were no allowance reserves related to PCI loans at
December 31, 2016. See Notes 1 and 6 to the consolidated financial statements for additional information regarding our allowance
for loan losses.
Prior to December 31, 2015, the allowance also contained reserves identified as the unallocated portion in the table above
to cover inherent losses within a given loan category which have not been otherwise reviewed or measured on an individual basis.
Such reserves represented management’s attempt to ensure that the overall allowance reflected a margin for imprecision and the
uncertainty that is inherent in estimates of probable credit losses. During 2015, Valley refined and enhanced its assessment of the
adequacy of the allowance for loan losses. As a result, Valley no longer has an “unallocated” segment in its allowance for credit
losses, as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative
framework for the respective portfolios at December 31, 2016 and 2015. As such, the unallocated allowance has in essence been
reallocated to the certain portfolios based on the risks and uncertainties it was meant to capture.
Loan Repurchase Contingencies
We engage in the origination of residential mortgages for sale into the secondary market. Such loan sales were a significant
portion of our mortgage loan production from the third quarter of 2012 until late in the second quarter of 2013 when market interest
rates were at historical lows and consumer demand was robust. During 2016, loan sales increased significantly from 2015 and
2014 as refinance activity once again strengthened due to a favorably low interest rate environment for most of the year. In
connection with loan 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 due to such loans. However, the
performance of our loans sold has been historically strong due to our strict underwriting standards and procedures. Over the past
several years, we have experienced a nominal amount of repurchase requests, and only a few of which have actually resulted in
repurchases by Valley (only one loan repurchase in 2016 and no repurchases in 2015). None of the loan repurchases resulted in
material loss. Accordingly, no reserves pertaining to loans sold were established on our consolidated financial statements at
December 31, 2016 and 2015. 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, 2016 and 2015,
shareholders’ equity totaled approximately $2.4 billion and $2.2 billion, or 10.4 percent and 10.2 percent of total assets, respectively.
During 2016, total shareholders’ equity increased by $170.1 million primarily due to (i) net income of $168.1 million, (ii) net
proceeds of $106.4 million from issuance of 9.24 million shares of common stock, no par value per share, (iii) a $7.2 million
increase attributable to the effect of our stock incentive plan, (iv) net proceeds of $5.2 million from the reissuance of treasury
stock and issuance of authorized common shares issued under our dividend reinvestment plan totaling 554 thousand shares, and
(v) a $3.6 million decrease in our accumulated other comprehensive loss. These increases were partially offset by cash dividends
declared on common and preferred stock totaling a combined $120.4 million. See Note 19 to the consolidated financial statements
for more information regarding the changes in our accumulated other comprehensive loss during 2016.
Valley and Valley National Bank are subject to the regulatory capital requirements administered by the Federal Reserve
Bank and the OCC. Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National
Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets,
and Tier 1 capital to average assets, as defined in the regulations.
Effective January 1, 2015, Valley implemented the Basel III regulatory capital framework and related Dodd-Frank Wall
Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Basel III final rules require a new common equity Tier 1 capital
to risk-weighted assets ratio of 4.5 percent, Tier 1 capital to risk-weighted assets of 6.0 percent, ratio of total capital to risk-weighted
assets of 8.0 percent, and minimum leverage ratio of 4.0 percent. The new rule changes included the implementation of a new
capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. The capital conservation
buffer is subject to a three year phase-in period that started on January 1, 2016, at 0.625 percent of risk-weighted assets and
increases each subsequent year by 0.625 percent until reaching its final level of 2.5 percent when fully phased-in on January 1,
67
2016 Form 10-K
2019. As of December 31, 2016 and 2015, Valley and Valley National Bank exceeded all capital adequacy requirements with the
capital conservation buffer under the Basel III Capital Rules. See Note 17 for Valley’s and Valley National Bank’s regulatory
capital positions and capital ratios at December 31, 2016 and 2015.
The Dodd-Frank Act requires federal banking agencies to issue regulations that require banks with total consolidated assets
of more than $10.0 billion to conduct and publish company-run annual stress tests to assess the potential impact of different
scenarios on the consolidated earnings and capital of each bank and certain related items over a nine-quarter forward-looking
planning horizon, taking into account all relevant exposures and activities. On October 9, 2012, the FRB published final rules
implementing the stress testing requirements for banks with total consolidated assets of more than $10.0 billion but less than $50.0
billion. These rules set forth the timing and type of stress test activities, as well as rules governing controls, oversight and disclosure.
In March 2014, the FRB, OCC, and FDIC issued final supervisory guidance for these stress tests. This joint final supervisory
guidance discusses supervisory expectations for stress test practices, provides examples of practices that would be consistent with
those expectations, and offers additional details about stress test methodologies. It also emphasizes the importance of stress testing
as an ongoing risk management practice.
On July 28, 2016, we submitted our latest stress testing results, utilizing data as of December 31, 2015, to the FRB. The
full disclosure of the stress testing results, including the results for Valley National Bank, a summary of the supervisory severely
adverse scenario and additional information regarding the methodologies used to conduct the stress test may be found on the
Shareholder Relations section of our website (www.valleynationalbank.com) under the Dodd-Frank Act Stress Test Reports section.
Typically, our primary source of capital growth is through retention of earnings. Our rate of earnings retention is derived by
dividing undistributed earnings per common share by earnings (or net income available to common stockholders) per common
share. Our retention ratio was 30.2 and zero for the years ended December 31, 2016 and 2015, respectively. Our rate of earnings
retention increased from the year ended December 31, 2015 which was negatively impacted by $51.1 million in pre-tax debt
prepayment penalties recognized during the fourth quarter of 2015, and, to a much lesser extent, merger costs from the acquisition
of CNL in December 2015. We expect our annual retention rate to improve in 2017 due to, among other factors, (i) synergies
realized from the integration of CNL's back office operations completed in February 2016 and the related CNL staffing reductions
effective April 1, 2016, (ii) solid loan growth, (iii) the recent increase in long-term market interest rates, and (iv) potential earnings
improvement from our earnings enhancement program called LIFT just begun in the first quarter of 2017 (discussed elsewhere
in this MD&A).
Cash dividends declared amounted to $0.44 per common share for both years ended December 31, 2016 and 2015. The
Board is committed to examining and weighing relevant facts and considerations, including its commitment to shareholder value,
each time it makes a cash dividend decision in this economic environment. The Federal Reserve has cautioned all bank holding
companies about distributing dividends which may reduce the level of capital or not allow capital to grow in light of the increased
capital levels as required under the Basel III rules. Prior to the date of this filing, Valley has received no objection or adverse
guidance from the FRB or the OCC regarding the current level of its quarterly common stock dividend.
Valley maintains an effective shelf registration statement with the SEC that allows Valley to periodically offer and sell in
one or more offerings, individually or in any combination, of Valley’s common stock, preferred stock and other non-equity securities.
The shelf registration statement provides Valley with capital raising flexibility and enables Valley to promptly access the capital
markets in order to pursue growth opportunities that may become available in the future or permits 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.
Additional equity offerings, including shares issued under Valley’s dividend reinvestment plan, 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 reasons beyond management’s control, including numerous external factors that could negatively impact the
strengthening of the U.S. economy or our ability to maintain or increase the level of our net income. See Note 18 to the consolidated
financial statements for additional information on Valley’s common and preferred stock issuances, as well as activity within its
dividend reinvestment plan.
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. See Note 15 of the consolidated
financial statements for additional information.
2016 Form 10-K
68
The following table summarizes Valley’s contractual obligations and other commitments to make future payments as of
December 31, 2016. 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.
Contractual obligations:
Time deposits
Long-term borrowings (1)
Junior subordinated debentures
issued to capital trusts (1)
Operating leases
Capital expenditures
Other purchase obligations (2)
Total
Other commitments:
Commitments to extend credit
Standby letters of credit
Commitments to sell loans
Total
Note to
Financial
Statements
One Year
or Less
One to
Three Years
Three to
Five Years
Over Five
Years
Total
(in thousands)
Note 9
$ 2,122,906
$
572,687
$
310,235
$
133,043
$ 3,138,871
Note 10
75,000
50,000
840,000
475,000
1,440,000
Note 11
Note 15
—
27,256
7,050
27,429
$ 2,259,641
Note 15
$ 3,245,372
Note 15
Note 15
121,924
147,250
—
53,224
—
—
52,212
—
45,363
281,310
—
45,363
414,002
7,050
$
$
799
676,710
383
$ 1,202,830
627,981
$
22,470
—
55,785
73,301
—
$
$
—
934,716
28,611
$ 5,073,897
554,854
$ 4,483,992
—
—
217,695
147,250
$ 3,514,546
$
650,451
$
129,086
$
554,854
$ 4,848,937
(1) Amounts presented consist of the contractual principal balances. Carrying values and call dates are set forth in Notes 10 and 11 to the
consolidated financial statements for long-term borrowings and junior subordinated debentures issued to capital trusts, respectively.
(2) This category primarily consists of contractual obligations for communication and technology costs.
Valley also has obligations under its pension benefit plans, not included in the above table, as further described in Note 12
of the consolidated financial statements.
Derivative Instruments and Hedging Activities. We are exposed to certain risks arising from both our business operations
and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through
management of our core business activities. We manage economic risks, including interest rate and liquidity risks, primarily by
managing the amount, sources, and duration of our 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.
Valley also enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock
commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward
commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential
mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes
in interest rates on Valley’s commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.
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 $1.4 million ownership interest in the common securities of our statutory
trusts to issue trust preferred securities. See “Capital Adequacy” section above and Note 11 of the consolidated financial statements.
69
2016 Form 10-K
Results of Operations—2015 Compared to 2014
Net interest income on a tax equivalent basis increased by $75.4 million to $558.1 million for 2015 compared with $482.7
million for 2014. The increase was mainly driven by a $2.4 billion increase in average loan balances and a $386.5 million decrease
in average long-term borrowings as compared to 2014. The growth in average loans during 2015 was fueled mostly by solid
demand for commercial real estate loans, automobile loans and secured personal lines of credit throughout the year, $1.2 billion
of purchased participations in multi-family loans and whole 1-4 family loans (that were a mix of qualifying and non-qualifying
CRA loans with adjustable and fixed rates), $1.2 billion in loans acquired from 1st United on November 1, 2014 and, to a much
lesser extent, approximately $825 million in loans acquired from CNL on December 1, 2015.
Average interest earning assets totaling $17.4 billion for the year ended December 31, 2015 increased $2.4 billion, or 15.9
percent, as compared to 2014. Average loan balances increased $2.4 billion to $14.4 billion in 2015 and drove all of the $80.4
million increase in the interest income on a tax equivalent basis for loans as compared to 2014, which was partially offset by the
low interest rates on new and renewed loans. The increase in average loans was primarily due to the aforementioned commercial
real estate loans, automobile loans and secured personal lines of credit growth throughout the year and purchased participations
in multi-family loans and whole 1-4 family loans. Average investment securities decreased $81.4 million to approximately $2.7
billion in 2015 primarily due to a lower level of reinvestment of principal and interest payments from investments due to the
funding needs related to our organic and purchased loan growth during 2015. Average federal funds sold and other interest bearing
deposits increased $100.8 million to $271.3 million for the year ended December 31, 2015 as compared to 2014 due to higher
levels of overnight liquidity held primarily due to the timing of new loan originations and loan purchases, funds held from the
issuance of subordinated notes in June 2015 used to repay the notes that matured in July 2015, and to a lesser extent, excess funds
used for a portion of our prepayment of high cost borrowings in the fourth quarter of 2015.
Average interest bearing liabilities increased $1.6 billion to $12.9 billion for the year ended December 31, 2015 from the
same period in 2014 mainly due to a $1.3 billion increase in average savings, NOW, and money market accounts mostly resulting
from (1) $591.7 million in deposits assumed from 1st United, (2) increased use of brokered money market account balances in
our loan growth funding strategy and other liquidity needs (including $500 million of such deposits we used to fund the prepayment
of high cost borrowings totaling $795 million in late October 2015), and (3) approximately $46 million in average balances related
to deposits assumed from CNL. Average time deposits also increased $704.5 million to $3.0 billion for 2015 as compared to 2014
mainly due to significant organic growth from retail time deposit campaigns in New Jersey, New York and Florida in the fourth
quarter of 2014 and second quarter of 2015 and $256.5 million in deposits assumed from 1st United during the fourth quarter of
2014. Average short-term borrowings decreased $47.6 million to $243.2 million for 2015 as compared to 2014 mostly due to
lower levels of overnight federal funds purchased and short-term FHLB advances utilized as short-term funding sources for loan
growth throughout most of 2015. Average long-term borrowings decreased to approximately $2.5 billion for 2015 as compared
to $2.8 billion in 2014 largely due to the prepayments of high cost borrowings of $275 million and $845 million in the fourth
quarters of 2014 and 2015, respectively.
Non-interest income represented 11 percent of total interest income plus non-interest income for both 2015 and 2014,
respectively. For the year ended December 31, 2015, non-interest income increased $6.2 million compared with 2014 mainly due
to a decrease in the negative impact on non-interest income from the change of the FDIC loss-share receivable and increases in
both net gains on sales of loans and net gains on securities transactions, partially offset by a decrease in net gains on sales of assets.
The aggregate effect of changes in the FDIC loss-share receivable amounted to a $3.3 million net reduction in non-interest
income for the year ended December 31, 2015 as compared to $20.8 million for 2014. The majority of the reduction in both the
receivable and non-interest income during both 2015 and 2014 relates to the prospective adjustment to the receivable related to
better than originally estimated cash flows on certain pools of covered loans since the acquisition date.
Net gains on sales of loans increased $2.5 million for the year ended December 31, 2015 as compared to 2014 largely due
to an increase in sales volumes, and decreased $29.5 million from December 31, 2013 mostly due to a significant decline in loans
originated for sale as our new and refinanced loan origination volumes were slowed by the higher level of long-term market interest
rates since June 2013.
Net gains on securities transactions increased $1.7 million to $2.5 million for the year ended December 31, 2015 as compared
to $745 thousand in 2014. The increase was largely due to gross gains totaling $3.3 million on the sale of corporate debt securities
and trust preferred securities with amortized cost totaling $25.9 million during 2015, and, to a much lesser extent, an increase in
net gains from the normal maturities and early redemptions of certain securities. The sale transactions included a corporate debt
security classified as held to maturity and a previously impaired pooled trust preferred security with amortized costs of $9.8 million
and $2.6 million, respectively. These gains were partially offset by $947 thousand of gross losses recognized on the sale of trust
preferred securities with a total amortized cost of $8.3 million.
2016 Form 10-K
70
Net gains on sales of assets decreased $15.3 million for the year ended December 31, 2015 as compared to $18.1 million
for 2014. The decrease in 2015 was mainly the result of a $17.8 million gain recognized in December 2014 from the sale of a
Manhattan branch location.
Non-interest expense increased $95.8 million to $499.1 million for the year ended December 31, 2015 from $403.3 million
for 2014. The increase from 2014 was mainly attributable to increases in the loss on extinguishment of debt, salaries and employee
benefits, and net occupancy and equipment. The loss on extinguishment of debt totaling $51.1 million and $10.1 million for the
years ended December 31, 2015 and December 31, 2014, respectively, entirely consisted of prepayment penalties incurred in
connection with the early repayment of $845 million and $275 million in high cost long-term borrowings during the fourth quarters
of 2015 and 2014, respectively. Salary and employee benefits expense increased by $28.3 million for the year ended December 31,
2015 across most categories as compared to 2014 largely due to the additional staffing expenses related to our acquisition of 1st
United on November 1, 2014 and, to a much lesser extent, general increases in 2015 and the acquisition of CNL on December 1,
2015. Additionally, many of the back office efficiencies related to the 1st United transaction were not fully realized until after the
systems conversion in the latter part of the first quarter of 2015. Within the salary and employee benefits category, medical health
insurance expenses increased $2.4 million to $17.4 million during the year ended December 31, 2015 as compared to 2014 due,
in part, to general cost increases, as well as the acquisition of 1st United. In addition, net occupancy and equipment expenses
increased $16.0 million for the year ended December 31, 2015 as compared to 2014. The increase was largely due to additional
rents and other costs associated with the 20 branch network acquired from 1st United in 2014, as well as a general increase in
repairs and maintenance expenses. During the fourth quarter of 2015, we also recorded $2.6 million of additional lease obligation
expense related to 15 planned branch closures for 2016.
We also incurred merger expenses (largely within professional and legal fees) totaling $1.8 million for the year ended
December 31, 2015 related to the acquisition of CNL as compared to $2.6 million for the year ended December 31, 2014 related
to the acquisition of 1st United. See Note 2 to the consolidated financial statements for further details regarding the acquisition.
Income tax expense was $23.9 million for the year ended December 31, 2015, reflecting an effective tax rate of 18.9 percent,
as compared to $31.1 million for the year ended 2014, reflecting an effective tax rate of 21.1 percent. The decrease in both 2015
tax expense and the effective tax rate was primarily the result of the lower pre-tax income.
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.”
71
2016 Form 10-K
Item 8.
Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Assets
Cash and due from banks
Interest bearing deposits with banks
Investment securities:
Held to maturity (fair value of $1,924,597 at December 31, 2016 and
$1,621,039 at December 31, 2015)
Available for sale
Total investment securities
Loans held for sale, at fair value
Loans
Less: Allowance for loan losses
Net loans
Premises and equipment, net
Bank owned life insurance
Accrued interest 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
Accrued expenses and other liabilities
Total Liabilities
Shareholders’ Equity
Preferred stock (no par value, authorized 30,000,000 shares; issued 4,600,000
shares at December 31, 2016 and 2015)
Common stock (no par value, authorized 332,023,233 shares; issued 263,804,877
shares at December 31, 2016 and 253,787,561 shares at December 31, 2015)
Surplus
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost (166,047 common shares at December 31, 2016)
Total Shareholders’ Equity
December 31,
2016
2015
(in thousands except for share data)
$
220,791
171,710
$
243,575
170,225
$
$
1,925,572
1,297,373
3,222,945
57,708
17,236,103
(114,419)
17,121,684
291,180
391,830
66,816
690,637
45,484
583,654
22,864,439
$
1,596,385
1,506,861
3,103,246
16,382
16,043,107
(106,178)
15,936,929
298,943
387,542
63,554
686,339
48,882
656,999
21,612,616
5,252,825
$
4,914,285
9,339,012
3,138,871
17,730,708
1,080,960
1,433,906
41,577
200,132
20,487,283
8,181,362
3,157,904
16,253,551
1,076,991
1,810,728
41,414
222,841
19,405,525
111,590
111,590
92,353
2,044,401
172,754
(42,093)
(1,849)
2,377,156
88,626
1,927,399
125,171
(45,695)
—
2,207,091
Total Liabilities and Shareholders’ Equity
$
22,864,439
$
21,612,616
See accompanying notes to consolidated financial statements.
2016 Form 10-K
72
CONSOLIDATED STATEMENTS OF INCOME
2016
Years Ended December 31,
2015
(in thousands, except for share data)
2014
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
Fees from loan servicing
Gains on sales of loans, net
Gains on sales of assets, net
Bank owned life insurance
Change in FDIC loss-share receivable
Other
Total non-interest income
Non-Interest Expense
Salary and employee benefits expense
Net occupancy and equipment expense
FDIC insurance assessment
Amortization of other intangible assets
Professional and legal fees
Loss on extinguishment of debt
Amortization of tax credit investments
Telecommunication expenses
Other
Total non-interest expense
Income Before Income Taxes
Income tax expense
Net Income
Dividends on preferred stock
Net Income Available to Common Shareholders
Earnings Per Common Share:
Basic
Diluted
Cash Dividends Declared Per Common Share
Weighted Average Number of Common Shares Outstanding:
Basic
Diluted
$
685,911
$
633,199
$
552,821
58,143
15,537
6,206
1,126
766,923
39,787
37,775
12,022
59,190
148,774
618,149
11,869
606,280
10,345
19,106
20,879
777
6,441
22,030
1,358
6,694
(1,291)
16,886
103,225
235,853
87,140
20,100
11,327
17,755
315
34,744
10,021
58,870
476,125
233,380
65,234
168,146
7,188
160,958
0.63
0.63
0.44
$
$
52,050
14,568
6,557
649
707,023
24,824
35,432
919
95,579
156,754
550,269
8,101
542,168
10,020
17,233
21,176
2,487
6,641
4,245
2,776
6,815
(3,326)
15,735
83,802
221,765
90,521
16,867
9,169
18,945
51,129
27,312
8,259
55,108
499,075
126,895
23,938
102,957
3,813
99,144
0.42
0.42
0.44
$
$
62,458
14,683
6,272
369
636,603
19,671
27,882
972
113,321
161,846
474,757
1,884
472,873
9,512
16,853
22,771
745
7,013
1,731
18,087
6,392
(20,792)
15,304
77,616
193,489
74,492
14,051
9,919
16,859
10,132
24,196
6,993
53,124
403,255
147,234
31,062
116,172
—
116,172
0.56
0.56
0.44
254,841,571
255,268,336
234,405,909
234,437,000
205,716,293
205,716,293
$
$
See accompanying notes to consolidated financial statements.
73
2016 Form 10-K
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income
$
168,146
$
102,957
$
116,172
2016
Years Ended December 31,
2015
(in thousands)
2014
Other comprehensive income (loss), net of tax:
Unrealized gains and losses on securities available for sale
Net (losses) gains arising during the period
Less reclassification adjustment for net gains included in net
income
Total
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 accretion of credit
impairment losses included in net income
Total
Unrealized gains and losses on derivatives (cash flow hedges)
Net losses on derivatives arising during the period
Less reclassification adjustment for net losses included in net
income
Total
Defined benefit pension plan
Net gains (losses) arising during the period
Amortization of prior service cost
Amortization of net loss
Total
Total other comprehensive income (loss)
(4,293)
(465)
(4,758)
417
(539)
(122)
(2,461)
7,641
5,180
3,298
(181)
185
3,302
3,602
Total comprehensive income
$
171,748
$
See accompanying notes to consolidated financial statements.
(2,000)
(1,446)
(3,446)
(241)
(424)
(665)
(7,239)
4,127
(3,112)
3,444
117
462
4,023
(3,200)
99,757
$
19,398
(433)
18,965
1,334
(383)
951
(12,147)
3,886
(8,261)
(16,207)
177
132
(15,898)
(4,243)
111,929
2016 Form 10-K
74
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Common Stock
Preferred
Stock
Shares
Amount
Surplus
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Total
Shareholders’
Equity
($ in thousands)
Balance - December 31, 2013
$
— 199,593
$ 69,941
$ 1,403,375
$106,340
$
(38,252) $
(364) $ 1,541,040
Net income
Other comprehensive loss, net of
tax
Cash dividends declared on
common stock
Effect of stock incentive plan, net
Common stock issued
Balance - December 31, 2014
Net income
Other comprehensive loss,
net of tax
Preferred stock issued
Cash dividends declared on
preferred stock
Cash dividends declared on
common stock
Effect of stock incentive plan, net
Common stock issued
Balance - December 31, 2015
Net income
Other comprehensive income, net
of tax
Cash dividends declared on
preferred stock
Cash dividends declared on
common stock
Effect of stock incentive plan, net
Common stock issued
—
—
—
—
—
—
—
1,299
—
—
—
234
— 31,219
— 232,111
10,897
81,072
—
—
111,590
—
—
—
—
—
—
—
—
500
—
—
—
—
—
190
— 116,172
—
—
—
(4,243)
— (91,581)
6,269
284,108
(83)
(3)
—
—
—
1,693,752
130,845
(42,495)
— 102,957
—
—
—
—
—
—
(3,813)
— (104,753)
7,153
(30)
(35)
(3,200)
—
—
—
—
—
— 21,177
7,364
226,494
111,590
253,788
88,626
1,927,399
125,171
(45,695)
—
—
—
—
—
—
—
—
—
—
57
—
—
—
—
365
9,794
3,362
— 168,146
—
—
—
(7,188)
— (113,212)
10,737
106,265
(143)
(20)
—
3,602
—
—
—
—
—
—
—
(614)
821
(157)
—
—
—
—
—
(2,598)
2,755
—
—
—
—
—
(3,894)
2,045
116,172
(4,243)
(91,581)
5,806
295,823
1,863,017
102,957
(3,200)
111,590
(3,813)
(104,753)
4,715
236,578
2,207,091
168,146
3,602
(7,188)
(113,212)
7,065
111,652
Balance - December 31, 2016
$
111,590
263,639
$ 92,353
$ 2,044,401
$172,754
$
(42,093) $ (1,849) $ 2,377,156
See accompanying notes to consolidated financial statements.
75
2016 Form 10-K
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
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
Proceeds from sales of loans held for sale
Gains on sales of loans, net
Originations of loans held for sale
Gains on sales of assets, net
Net deferred income tax expense
FDIC loss-share receivable (excluding reimbursements)
Net change in:
Trading securities
Fair value of borrowings hedged by derivative transactions
Cash surrender value of bank owned life insurance
Accrued interest receivable
Other assets
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Net loan originations and purchases
Investment securities held to maturity:
Purchases
Sales
Maturities, calls and principal repayments
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
(Payments to) reimbursements from the FDIC
Cash and cash equivalents acquired in acquisitions
Net cash used in investing activities
Years Ended December 31,
2016
2015
2014
(in thousands)
$
168,146
$
102,957
$
116,172
24,431
10,032
11,869
24,310
11,327
(777)
572,439
(22,030)
(425,713)
(1,358)
27,154
1,291
—
6,158
(6,694)
(3,262)
46,167
(24,313)
419,177
21,082
7,575
8,101
22,080
9,169
(2,487)
144,790
(4,245)
(134,328)
(2,776)
16,453
3,326
14,233
1,473
(6,815)
(2,480)
(74,589)
31,410
154,929
19,465
7,489
1,884
26,949
9,919
(745)
85,452
(1,731)
(91,463)
(18,087)
11,455
20,792
31
1,364
(6,392)
423
15,867
(14,868)
183,976
(1,379,218)
(1,756,578)
(778,300)
(669,157)
—
325,766
(679,530)
4,782
867,998
2,406
20,560
(20,707)
(213)
—
(1,527,313)
(239,608)
11,666
402,485
(594,327)
140,640
142,588
—
23,861
(34,040)
1,889
201,025
(1,700,399)
(397,186)
—
347,531
(28,415)
62,025
153,673
—
43,360
(21,862)
5,582
102,025
(511,567)
2016 Form 10-K
76
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
Cash flows from financing activities:
Net change in deposits
Net change in short-term borrowings
Proceeds from issuance of long-term borrowings, net
Repayments of long-term borrowings
Proceeds from issuance of preferred stock, net
Cash dividends paid to preferred shareholders
Cash dividends paid to common shareholders
Purchase of common shares to treasury
Common stock issued, net
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on deposits and borrowings
Federal and state income taxes
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned
Loans transferred to loans held for sale
Acquisition:
Non-cash assets acquired:
Investments securities held to maturity
Investment securities available for sale
Loans
Premises and equipment
Bank owned life insurance
Accrued interest receivable
Goodwill
Other intangible assets
Other assets
Total non-cash assets acquired
Liabilities assumed:
Deposits
Short-term borrowings
Long-term borrowings
Accrued expenses and other liabilities
Total liabilities assumed
Net non-cash assets acquired
Net cash and cash equivalents acquired in acquisition
Common stock issued in acquisition
Years Ended December 31,
2016
2015
2014
(in thousands)
1,477,157
3,969
385,000
(769,182)
—
(7,188)
(111,813)
(3,191)
112,085
1,086,837
(21,299)
413,800
392,501
151,209
26,564
8,089
174,501
$
$
$
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
1,051,660
873,123
162,792
(970,000)
111,590
(3,813)
(102,279)
(2,108)
7,898
1,128,863
(416,607)
830,407
413,800
159,170
50,027
8,828
—
$
$
$
$
— $
327,152
822,716
8,550
5,090
3,741
113,587
18,616
49,831
1,349,283
1,167,725
57,087
90,738
5,156
1,320,706
28,577
201,025
229,602
$
$
$
1,300,011
(151,470)
—
(275,000)
—
—
(88,119)
(1,688)
5,096
788,830
461,239
369,168
830,407
162,762
34,236
11,012
27,329
7,930
216,074
1,160,269
11,234
25,224
3,792
148,115
9,750
52,349
1,634,737
1,414,843
16,796
—
13,900
1,445,539
189,198
102,025
291,223
$
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
77
2016 Form 10-K
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 largely through its offices and ATM network throughout northern and central New Jersey, the New
York City boroughs of Manhattan, Brooklyn and Queens, Long Island, and Florida. 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, but are not limited to:
•
•
•
•
•
•
•
an all-line insurance agency offering property and casualty, life and health insurance;
an asset management adviser that is a registered investment adviser with Securities and Exchange Commission (SEC);
title insurance agencies in New Jersey, New York and Florida;
subsidiaries which hold, maintain and manage investment assets for the Bank;
a subsidiary which owns and services auto loans;
a subsidiary which specializes in health care equipment lending 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 11 for more details. 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 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.
2016 Form 10-K
78
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 $113.8 million and $59.9 million at December 31, 2016 and 2015, respectively.
Investment Securities
At the time of purchase, management generally elects to classify investment securities into one of two categories: held to
maturity or available for sale. 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. Realized gains or losses on the sale of available for sale are recognized by the specific identification
method and are included in net gains on securities transactions. 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 and 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. 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 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. There was no other-than-temporary impairment recognized in earnings as a result of Valley's
impairment analysis of its securities during 2016, 2015 and 2014.
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 generally 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 non-interest income in the accompanying consolidated
statements of income as a component of net gains on sales of loans. 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.
79
2016 Form 10-K
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 purchased credit-impaired 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 non-accrual loans are generally
applied against principal. A loan in which the borrowers’ obligation has not been released in bankruptcy courts 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.
Purchased Credit-Impaired Loans (Including Covered Loans)
Purchased credit-impaired (PCI) loans are loans acquired at a discount (that is due, in part, to credit quality). Valley's PCI
loan portfolio primarily consists of loans acquired in business combinations subsequent to 2011 and (covered) loans in which the
Bank will share losses with the FDIC under loss-sharing agreements that have resulted from past FDIC-assisted transactions by
Valley and acquired from 1st United Bancorp, Inc. (1st United) in 2014. The PCI loans are initially recorded at fair value (as
determined by the present value of expected future cash flows) with no allowance for loan losses. Interest income on PCI loans
has been accounted for based on the acquired loans’ expected cash flows. The PCI 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). Any allowance
for loan losses related to covered PCI loans is determined without consideration of the amounts recoverable through the FDIC
loss-share agreements (see “FDIC Loss-Share Receivable” below). Valley had no allowance reserves related to PCI loans at
December 31, 2016 and 2015.
The Bank periodically evaluates the remaining contractual required payments due and estimates of cash flows expected to
be collected for the underlying loans of each PCI loan pool. 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. For the pools with better than expected cash flows,
the forecasted increase is recorded as an additional accretable yield that is recognized as a prospective increase to our interest
income on loans and the FDIC loss-share receivable, if applicable, is prospectively reduced by the guaranteed portion of the
additional cash flows expected to be received, with a corresponding reduction to non-interest income. See Note 5 for additional
information.
PCI 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.
FDIC Loss-Share Receivable
Valley National Bank has several loss-share agreements with the FDIC (referred to as the “FDIC loss-share receivable”
reported within other assets on Valley’s consolidated statements of financial condition) which relate to the LibertyPointe Bank
and The Park Avenue Bank transactions entered into by Valley in 2010, as well as three prior FDIC-assisted transactions by 1st
United (including Republic Federal Bank, The Bank of Miami and Old Harbor Bank) acquired by Valley in 2014. The FDIC loss-
share receivable arising from the loss-share agreements 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.
2016 Form 10-K
80
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. Our FDIC loss-share receivable totaled $7.2 million and $8.3 million at December 31, 2016 and 2015,
respectively. Although this asset represents a contractual receivable from the FDIC, there is no contractual interest rate associated
with the asset.
The difference between the present value 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. Actual or expected losses in excess of the acquisition
date estimates result in an increase in the FDIC loss-share receivable. Conversely, when actual or expected losses are less than
the acquisition date estimates, the loss share receivable is decreased. This reduction is recognized prospectively over the shorter
of (i) the estimated life of the respective pools of covered loans or (ii) the term of the loss-sharing agreements with the FDIC. The
FDIC loss-share receivable is also reduced and increased as loss-sharing payments are received from and made to the FDIC.
Effective January 1, 2015, the losses on commercial related loans (commercial and industrial loans and commercial real
estate loans) from the Republic Federal Bank transaction ceased being covered under the loss-share agreement. Any recoveries,
net of expenses, of losses incurred prior to January 1, 2015 on such loans will continue to be covered (and must be shared with
the FDIC in accordance with the loss-share agreement) through December 31, 2017. The losses on consumer related loans
(residential mortgage loans and consumer loans) continue to be covered under the loss-share agreement through December 31,
2019. Under the terms of this loss-sharing agreement with the FDIC, losses are shared on the acquired loan and other real estate
owned portfolio between 80 percent and 95 percent based upon certain aggregate loss limits.
Effective April 1, 2015, the losses on commercial related loans from the LibertyPointe Bank and The Park Avenue Bank
transactions ceased to be covered under the loss-share agreements. Any recoveries, net of expenses, of losses incurred prior to
April 1, 2015 on such loans will continue to be covered by the loss-sharing agreement through March 31, 2018. The losses on
consumer related loans will continue to be covered under the loss-share agreements through March 31, 2020. Under the terms of
the loss-sharing agreements for the LibertyPointe Bank and The Park Avenue Bank transaction, the FDIC is obligated to reimburse
Valley for 80 percent and 95 percent, respectively, of any future losses on covered consumer loans up to certain aggregate loss
limits.
Effective January 1, 2016, the losses on commercial related loans from The Bank of Miami transaction ceased to be covered
under the loss-share agreement. Any recoveries, net of expenses, of losses incurred prior to January 1, 2016 on such loans will
continue to be covered through December 31, 2018. The losses on consumer related loans continue to be covered under the loss-
share agreement through December 31, 2020. Under the terms of this loss-sharing agreement with the FDIC, losses are shared on
the acquired loan and other real estate owned portfolio up to 80 percent of the covered assets acquired.
Effective January 1, 2017, the losses on commercial related loans from the Old Harbor Bank transaction ceased to be covered
under the loss-share agreement. Any recoveries, net of expenses, on losses incurred prior that date will be shared with the FDIC
in accordance with the loss-share agreement through December 31, 2019. The losses on consumer related loans will continue to
be covered under the loss-share agreement through October 31, 2021. Under the terms of this loss-sharing agreement with the
FDIC, losses are shared on the acquired loans and other real estate owned portfolio up to 70 percent of those covered assets within
certain aggregate loss limits.
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-PCI loan portfolio and off-balance sheet unfunded letters of credit, as well as reserves for impairment of PCI loans
subsequent to their acquisition date. As discussed under the “Purchased Credit-Impaired Loans” section above, Valley had no
allowance reserves related to PCI loans at December 31, 2016 and 2015. 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,
tracking the historical levels of classified loans and delinquencies, estimating the appropriate loss look-back and loss emergence
periods related to historical losses for each loan segment, providing specific reserves on impaired loans, and assigning incremental
reserves where necessary based upon qualitative and economic outlook factors including numerous variables, such as the nature
and trends of recent 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.
81
2016 Form 10-K
The allowance for loan losses consists of four 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
(using the appropriate loss look-back and loss emergence periods) adjusted for both internal and external qualitative risk factors
to Valley, including the aforementioned factors, as well as changes in both organic and purchased loan portfolio volumes, the
composition and concentrations of credit, new market initiatives, and the impact of competition on loan structuring and pricing,
and (iv) an allowance for PCI loan pools impaired subsequent to the acquisition date, if applicable.
The Credit Risk Management Department individually evaluates non-accrual (non-homogeneous) commercial and industrial
loans and commercial real estate loans over $250 thousand and all troubled debt restructured loans. 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 estimated current fair value (less estimated selling costs) 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 from non-accrual 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 adversely classified 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 assign a valuation 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. Commercial loans are generally assessed for full or partial charge-off to the net realizable value for collateral
dependent loans when a loan is between 90 or 120 days past due or sooner if it is probable that a loan may not be fully collectable.
Residential loans and home equity loans are generally charged-off to net realizable value when the loan is 120 days past due (or
sooner when the borrowers’ obligation has been released in bankruptcy). Automobile loans are fully charged-off when the loan is
120 days past due or partially charged-off to the net realizable value of collateral, if the collateral is recovered prior to such
time. Unsecured consumer loans are generally fully charged-off when the loan is 150 days past due.
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, historical loss severity in the event of default, and the average loss emergence period for each
loan portfolio segment. The management analysis includes an evaluation of loan portfolio volumes, the composition and
concentrations of credit, credit quality and current delinquency trends.
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. Estimated useful lives range from 3 years for capitalized software to up to 40 years for
buildings. 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. See Note 7 for further details.
2016 Form 10-K
82
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
Valley acquires other real estate owned (OREO) through foreclosure on loans secured by real estate. OREO 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 valuation write-downs after the date of foreclosure, and realized gains and losses upon
sale of the properties are included in other non-interest expense. OREO and other repossessed assets totaled $10.6 million and
$19.0 million (including $588 thousand and $5.0 million of OREO properties related to the FDIC-assisted transactions, which are
subject to the loss-sharing agreements) at December 31, 2016 and 2015, respectively. At December 31, 2016, OREO included
foreclosed residential real estate properties totaling $1.6 million. Residential mortgage and consumer loans secured by residential
real estate properties for which formal foreclosure proceedings are in process totaled $7.1 million at December 31, 2016.
Goodwill
Intangible assets resulting from acquisitions under the acquisition method of accounting consist of goodwill and other
intangible assets (see “Other Intangible Assets” below). Goodwill is not amortized and is subject to an annual assessment for
impairment. Currently, the goodwill impairment analysis is generally a two-step test. However, Valley may choose to perform an
optional qualitative assessment to determine whether it is necessary to perform the two-step quantitative goodwill impairment test
for one or more units in future periods. During 2016 and 2015, Valley elected to perform step one of the two-step goodwill
impairment test for all of its reporting units.
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 (the
portion of an acquisition purchase price which represents value assigned to the existing deposit base), 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 originated mortgage loans are sold with servicing rights retained, or when servicing
rights are purchased. 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
83
2016 Form 10-K
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. The
amortization of loan servicing rights is recorded in non-interest income.
Stock-Based Compensation
Compensation expense for stock options and restricted stock awards (i.e., non-vested stock awards) is based on the fair value
of the award on the date of the grant and is recognized ratably over the service period of the award. Under Valley’s long-term
incentive compensation plans, award grantees that are eligible for retirement do not have a service period requirement.
Compensation expense for these awards is recognized immediately in earnings. The service period for non-retirement eligible
employees is the shorter of the stated vesting period of the award or the period until the employee’s retirement eligibility date.
The fair value of each option granted is estimated using a binomial option pricing model. The fair value of restricted stock awards
is based upon the last sale price reported for Valley’s common stock on the date of grant or the last sale price reported preceding
such date, except for performance-based restricted stock and restricted stock unit awards with a market condition. The grant date
fair value of a performance-based restricted stock or restrict stock unit award that vests based on a market condition is determined
by a third party specialist using a Monte Carlo valuation model. See Note 12 for additional information.
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. Deferred tax assets are
recognized if, in management's judgment, their realizability is determined to be more likely than not. A valuation allowance is
established to reduce deferred tax assets to the amount we expect to realize. Deferred income tax expense or 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 that management believes contain an element of uncertainty. An
uncertain tax position is measured based on the largest amount of benefit that management believes is more likely than not to be
realized. Periodically, Valley evaluates each of its tax positions and strategies to determine whether the reserve continues to be
appropriate. See Note 13 for further analysis of Valley’s accounting for income taxes.
Comprehensive Income
Comprehensive income or loss 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 income or loss, 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 pension benefit adjustment for the unfunded portion of its various
employee, officer, and director pension plans. Valley presents comprehensive income and its components in the consolidated
statements of comprehensive income for all periods presented. See Note 19 for additional disclosures.
Earnings Per Common Share
In Valley's computation of the earnings per common share, the numerator of both the basic and diluted earnings per common
share is net income available to common shareholders (which is equal to net income less dividends on preferred stock). The
2016 Form 10-K
84
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.
The following table shows the calculation of both basic and diluted earnings per common share for the years ended
December 31, 2016, 2015 and 2014:
Net income available to common shareholders
Basic weighted-average number of common shares
outstanding
Plus: Common stock equivalents
Diluted weighted-average number of common shares
outstanding
Earnings per common share:
Basic
Diluted
2016
2015
(in thousands, except for share data)
2014
160,958
$
99,144
$
116,172
254,841,571
234,405,909
205,716,293
426,765
31,091
—
255,268,336
234,437,000
205,716,293
$
0.63
0.63
$
0.42
0.42
0.56
0.56
$
$
Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or
exercise, if applicable, of performance-based restricted stock units, common stock options and warrants to purchase Valley’s
common shares. Common stock options and warrants with exercise prices that exceed the average market price of Valley’s common
stock during the periods presented have an anti-dilutive effect on the diluted earnings per common share calculation and therefore
are excluded from the diluted earnings per share calculation. Anti-dilutive common stock options and warrants equaled
approximately 4.0 million, 4.7 million, and 6.2 million of common shares for the years ended December 31, 2016, 2015, and 2014,
respectively.
Preferred and Common Stock Dividends
In June 2015, Valley issued 4.6 million shares of non-cumulative perpetual preferred stock which were initially recorded at
fair value (see Note 18 for additional details on the preferred stock issuance). The preferred shares are senior to Valley common
stock, whereas the current year dividends must be paid before Valley can pay dividends to its common stockholders. Preferred
dividends declared are deducted from net income for computing income available to common stockholders and earnings per
common share computations.
Cash dividends to both preferred and common stockholders are payable and accrued when declared by Valley's Board of
Directors.
Treasury Stock
Treasury stock is recorded using the cost method and accordingly is presented as a reduction of shareholders’ equity.
Derivative Instruments and Hedging Activities
As part of its asset/liability management strategies and to accommodate commercial borrowers, Valley has used interest rate
swaps and caps to hedge variability in cash flows or fair values 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
commercial lending customers, mortgage banking activities consisting of customer interest rate lock commitments and forward
contracts to sell residential mortgage loans, and hybrid instruments, consisting of market linked certificates of deposit with an
embedded swap contract. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of
forecasted transactions, are considered cash flow hedges. 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. Valley records all derivatives as assets or liabilities at fair value on the consolidated statements of financial condition.
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. 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. On a quarterly basis, Valley assesses the effectiveness of each hedging relationship by comparing the
changes in cash flows or fair value of the derivative hedging instrument with the changes in cash flows or fair value of the designated
85
2016 Form 10-K
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 subsequent 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. Valley made an accounting policy election
to use the exception under the ASU No. 2011-04 and calculate the credit valuation adjustments to the fair value of derivatives on
a net basis by counterparty portfolio. See Note 3 for additional information.
New Authoritative Accounting Guidance
Accounting Standards Update (ASU) No. 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment" eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current
goodwill impairment test guidance) to measure a goodwill impairment charge. Instead, an entity will be required to record an
impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on
Step 1 of the current guidance). In addition, ASU No. 2017-04 eliminates the requirements for any reporting unit with a zero or
negative carrying amount to perform a qualitative assessment, and if it fails that qualitative test, to perform Step 2 of the goodwill
impairment test. However, an entity will be required to disclose the amount of goodwill allocated to each reporting unit with a
zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting
unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for Valley for its annual or any
interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and is not expected to have a significant
impact on the presentation Valley's consolidated financial statements. Early adoption is permitted for annual and interim goodwill
impairment testing dates after January 1, 2017.
ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments"
clarifies on how certain cash receipts and cash payments should be classified and presented in the statement of cash flow. The
ASU No. 2016-15 includes guidance on eight specific cash flow issues with the objective of reducing the existing diversity in
practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No.
2016-15 is effective for Valley for fiscal years beginning after December 15, 2017 and it should be applied using a retrospective
transition method to each period presented. ASU No. 2016-15 is not expected to have a significant impact on the presentation
Valley's consolidated statements of cash flows.
ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments" amends the accounting guidance on the impairment of financial instruments. The ASU No. 2016-13 adds to U.S.
GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather
than incurred losses. Under the new guidance, an entity is required to measure all expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13
is effective for Valley for reporting periods beginning January 1, 2020. Management is currently evaluating the impact of the ASU
on Valley’s consolidated financial statements. Valley expects that the new guidance will result in an increase in its allowance for
credit losses due to several factors, including: (i) the allowance related to Valley loans will increase to include credit losses over
the full remaining expected life of the portfolio, and will consider expected future changes in macroeconomic conditions, (ii) the
non-accretable difference (as defined in Note 5) on PCI loans will be recognized as an allowance, offset by an increase in the
carrying value of the related loans, and (iii) an allowance will be established for estimated credit losses on investment securities
classified as held to maturity. The extent of the increase is under evaluation, but will depend upon the nature and characteristics
of the Valley's loan and investment portfolios at the adoption date, and the economic conditions and forecasts at that date.
ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting" simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance. The
amendments focus on income tax accounting upon vesting or exercise of share-based payments, award classification, liability
classification exception for statutory tax withholding requirements, estimating forfeitures, and cash flow presentation. ASU No.
2016-09 is effective for Valley for annual periods beginning after December 15, 2017, and interim periods within annual periods
beginning after December 15, 2018 with an early adoption permitted. ASU No. 2016-09 is not expected to have a significant
impact on Valley's consolidated financial statements.
ASU No. 2016-02, “Leases (Topic 842)” requires the recognition of a right of use asset and related lease liability by lessees
for leases classified as operating leases under current GAAP. Topic 842, which replaces the current guidance under Topic 840,
retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and
cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12
months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of
use assets and lease liabilities. Topic 842 will be effective for Valley for reporting periods beginning January 1, 2019, with an
early adoption permitted. Valley must apply a modified retrospective transition approach for the applicable leases existing at, or
entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective
2016 Form 10-K
86
approach would not require any transition accounting for leases that expired before the earliest comparative period presented.
Management is currently evaluating the impact of Topic 842 on Valley’s consolidated financial statements by reviewing its existing
lease contracts and service contracts that may include embedded leases. Valley expects a gross-up of its consolidated statements
of financial condition as a result of recognizing lease liabilities and right of use assets; the extent of such gross-up is under
evaluation. Valley does not expect material changes to the recognition of operating lease expense in its consolidated statements
of income.
ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets
and Financial Liabilities” requires that: (i) equity investments with readily determinable fair values must be measured at fair value
with changes in fair value recognized in net income, (ii) equity investments without readily determinable fair values must be
measured at either fair value or at cost adjusted for changes in observable prices minus impairment with changes in value under
either of these methods recognized in net income, (iii) entities that record financial liabilities at fair value due to a fair value option
election must recognize changes in fair value in other comprehensive income if it is related to instrument-specific credit risk, and
(iv) entities must assess whether a valuation allowance is required for deferred tax assets related to available-for-sale debt securities.
ASU No. 2016-01 is effective for Valley for reporting periods beginning January 1, 2018 and is not expected to have a material
effect on Valley’s consolidated financial statements.
ASU No. 2015-07, "Fair Value Measurement (Topic 820) - Disclosure for Investments in Certain Entities That Calculate
Net Asset Value per Share (or Its Equivalent)", which removes the requirement to categorize within the fair value hierarchy all
investments for which the fair value is measured using the net asset value per share practical expedient. ASU No. 2015-07 also
removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net
asset value per share practical expedient. ASU No. 2015-07 became effective for Valley for reporting periods after January 1,
2016 and did not have an impact on Valley's fair value measurement disclosures at Note 6.
ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs"
requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from
the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt
issuance costs are not affected by the amendments in the ASU No. 2015-03. ASU No. 2015-03 is effective for reporting periods
beginning January 1, 2016 (with early adoption permitted), and is to be applied retrospectively. At December 31, 2015, Valley
early adopted ASU No. 2015-03 to reflect the reclassification of the debt issuance costs from other assets to long-term borrowings
for all periods presented in our consolidated statements of financial condition. See Note 10 to the consolidated financial statements
for more details.
ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)" implements a common revenue standard that
clarifies the principles for recognizing revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In 2016, the Financial
Accounting Standards Board issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606) - Principal versus
Agent Considerations (Reporting Revenue Gross versus Net)” and ASU No. 2016-10, “Revenue from Contracts with Customers
(Topic 606) - Identifying Performance Obligations and Licensing,” to further clarify the new guidance under Topic 606. ASU
No. 2014-09 and its aforementioned amendments are effective on January 1, 2018. Management is currently evaluating by
identification of revenue within the scope of the guidance to assess potential impact. Management has not yet identified any
material changes in the timing of revenue recognition and it does not expect the new revenue guidance to have a significant impact
on Valley’s consolidated financial statements.
BUSINESS COMBINATIONS (Note 2)
Masters Coverage Corp.
On January 4, 2016, Masters Coverage Corp., an all-line insurance agency that is a wholly-owned subsidiary of the Bank,
acquired certain assets of an independent insurance agency located in New York. The purchase price totaled approximately $1.4
million in cash and future cash consideration.
CNLBancshares, Inc.
On December 1, 2015, Valley completed its acquisition of CNLBancshares, Inc. (CNL) and its wholly-owned subsidiary,
CNLBank, headquartered in Orlando, Florida, a commercial bank with approximately $1.6 billion in assets, $825 million in loans,
$1.2 billion in deposits and 16 Florida branch offices at the date of its acquisition by Valley. The CNL acquisition increased Valley's
Florida branch network to a total of 31 branches (after 5 branch closures mostly resulting from branch efficiency efforts during
2016) covering most major markets in central and southern Florida. The common shareholders of CNL received 0.705 of a share
of Valley common stock for each CNL share they owned prior to the merger. The total consideration for the acquisition was
approximately $230 million, consisting of 20.6 million shares of Valley common stock.
87
2016 Form 10-K
Merger expenses totaled $1.8 million for the year ended December 31, 2015, which largely related to professional and legal
fees included in non-interest expense on the consolidated statements of income. Valley also recorded a $3.3 million charge within
income tax expense during 2015, which mostly related to the effect of the CNL acquisition on the valuation of our deferred tax
assets.
1st United Bancorp, Inc.
On November 1, 2014, Valley acquired 1st United Bancorp, Inc. (1st United) and its wholly-owned subsidiary, 1st United
Bank, a commercial bank with approximately $1.7 billion in assets, $1.2 billion in loans, and $1.4 billion in deposits, before
purchase accounting adjustments. The 1st United acquisition gave Valley its first Florida branch network consisting of 20 branches
covering some of the most attractive urban banking markets in Florida, including locations throughout southeast Florida, the
Treasure Coast, central Florida and central Gulf Coast regions. The common shareholders of 1st United received 0.89 of a share
of Valley common stock for each 1st United share they owned prior to the merger. The total consideration for the acquisition was
approximately $300 million, consisting of 30.7 million shares of Valley common stock and $8.9 million of cash consideration
paid to 1st United stock option holders. In conjunction with the merger, Valley shareholders approved an amendment of its
certificate of incorporation to increase its authorized common shares by 100 million shares during the third quarter of 2014.
Merger expenses totaled $2.6 million for the year ended December 31, 2014, which largely related to professional and legal
fees included in non-interest expense on the consolidated statements of income. Valley also recorded a $7.6 million charge within
income tax expense for the fourth quarter of 2014 which mostly related to the effect of the 1st United acquisition on the valuation
of our deferred tax assets.
See Note 8 for addition information regarding goodwill and intangible assets resulting from business combinations.
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
Level 3
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.
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).
2016 Form 10-K
88
Assets and Liabilities Measured at Fair Value on a Recurring Basis and Non-Recurring Basis
The following tables present the assets and liabilities that are measured at fair value on a recurring and non-recurring basis
by level within the fair value hierarchy as reported on the consolidated statements of financial condition at December 31, 2016
and 2015. The assets presented under “non-recurring fair value measurements” in the table below are not measured at fair value
on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is
recognized).
December 31,
2016
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)
(in thousands)
Recurring fair value measurements:
Assets
Investment securities:
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
Equity securities
Total available for sale
Loans held for sale (1)
Other assets (2)
Total assets
Liabilities
Other liabilities (2)
Total liabilities
Non-recurring fair value measurements:
Collateral dependent impaired loans (3)
Loan servicing rights
Foreclosed assets (4)
Total
$
$
$
$
$
$
$
49,591
23,041
$
49,591
—
— $
23,041
119,767
1,015,542
8,009
60,565
20,858
1,297,373
57,708
29,055
1,384,136
44,077
44,077
5,385
6,489
4,532
16,406
$
$
$
$
$
—
—
—
8,064
1,306
58,961
—
—
58,961
$
— $
— $
— $
—
—
— $
119,767
1,005,589
6,074
52,501
19,552
1,226,524
57,708
29,055
1,313,287
44,077
44,077
$
$
$
— $
—
—
— $
—
—
—
9,953
1,935
—
—
11,888
—
—
11,888
—
—
5,385
6,489
4,532
16,406
89
2016 Form 10-K
Fair Value Measurements at Reporting Date Using:
December 31,
2015
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
$
549,473
29,963
$
549,473
—
$
124,966
696,428
8,404
77,552
20,075
1,506,861
16,382
33,774
1,557,017
50,844
50,844
15,427
2,571
16,672
34,670
$
$
$
$
$
$
$
$
$
$
—
—
—
17,710
1,198
568,381
—
—
568,381
$
— $
— $
— $
—
—
— $
— $
29,963
124,966
684,777
6,262
59,842
18,877
924,687
16,382
33,774
974,843
50,844
50,844
$
$
$
— $
—
—
— $
—
—
—
11,651
2,142
—
—
13,793
—
—
13,793
—
—
15,427
2,571
16,672
34,670
Recurring fair value measurements:
Assets
Investment securities:
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
Equity securities
Total available for sale
Loans held for sale (1)
Other assets (2)
Total assets
Liabilities
Other liabilities (2)
Total liabilities
Non-recurring fair value measurements:
Collateral dependent impaired loans (3)
Loan servicing rights
Foreclosed assets (4)
Total
(1) Loans held for sale (which consist of residential mortgages) are carried at fair value and had contractual unpaid principal
balances totaling approximately $58.2 million and $16.1 million at December 31, 2016 and 2015, respectively.
(2) Amount represents derivative financial instruments.
(3) Excludes PCI loans.
(4)
Includes covered other real estate owned totaling $300 thousand and $4.2 million at December 31, 2016 and 2015,
respectively.
2016 Form 10-K
90
The changes in Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2016, 2015 and
2014 are summarized below:
Balance, beginning of the period
Net (losses) gains included in other comprehensive income
Sales
Settlements, net
Balance, end of the period
$
$
2016
$
Available For Sale Securities
2015
(in thousands)
19,309
(1,072)
(2,674)
(1,770)
13,793
13,793
(203)
—
(1,702)
11,888
$
$
$
2014
28,523
1,648
(7,718)
(3,144)
19,309
There were no changes in unrealized gains or losses on Level 3 assets included in earnings during 2016, 2015 and 2014.
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. There were no transfers of assets into and out of Level 3, or between Level 1 and Level 2 during 2016 and
2015.
There have been no material changes in the valuation methodologies used at December 31, 2016 from December 31, 2015.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All of
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 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 securities. All U.S. Treasury securities, certain corporate and other debt securities, and certain common
and preferred equity securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are
reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service
or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices
obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements
consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading
levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among
other things. Management reviews the data and assumptions used in pricing the securities by its third party 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 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 certain private label mortgage-backed securities. The cash flows for the residential mortgage-backed securities incorporated
the expected cash flow of each security adjusted for default rates, loss severities and prepayments of the individual loans
collateralizing the security.
91
2016 Form 10-K
The following table presents quantitative information about Level 3 inputs used to measure the fair value of these securities
at December 31, 2016:
Security Type
Private label mortgage-backed securities
Valuation
Technique
Unobservable
Input
Discounted cash flow Prepayment rate
Default rate
Loss severity
Range
15.0 - 22.5%
3.6 - 33.2
45.6 - 66.0
Weighted
Average
19.1%
9.0
60.0
Significant increases or decreases in any of the unobservable inputs in the table above in isolation would result in a significantly
lower or higher fair value measurement of the securities. Generally, a change in the assumption used for the default rate is
accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in
the assumption used for prepayment rates.
For the Level 3 available for sale residential mortgage-backed securities (consisting of four private label 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.
For the Level 3 available for sale trust preferred securities (consisting of one pooled security), 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 calculation is received from an independent valuation adviser.
In validating the fair value calculation from an independent valuation adviser, Valley reviews the 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.
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 and maturity 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, 2016 and 2015 based on the short duration these assets were
held and the high credit quality of these loans.
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 inputs, such as the
LIBOR and Overnight Index Swap rate curves. The fair value of mortgage banking derivatives, consisting of interest rate lock
commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain
loans held for sale at December 31, 2016 and 2015), is determined based on the current market prices for similar instruments
provided by Freddie Mac and Fannie Mae. The fair values of most 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, 2016 and 2015.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
The following valuation techniques were used for certain non-financial assets measured at fair value on a non-recurring
basis, including impaired loans reported at the fair value of the underlying collateral, loan servicing rights and foreclosed assets,
which are reported at fair value upon initial recognition or subsequent impairment as described below.
2016 Form 10-K
92
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.
At December 31, 2016, appraisals were discounted up to 6.3 percent based on specific market data by location and property type.
During 2016 and 2015, 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 collateral dependent loan charge-offs to the allowance for loan losses totaled $4.3 million and $5.4
million for the years ended December 31, 2016 and 2015, respectively. These collateral dependent impaired loans with a total
recorded investment of $8.4 million and $15.8 million at December 31, 2016 and 2015, respectively, were reduced by specific
valuation allowance allocations totaling $3.0 million and $352 thousand to a reported total net carrying amount of $5.4 million
and $15.4 million at December 31, 2016 and 2015, respectively.
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, prepayment speeds, internal rate of
return (“discount rate”), servicing cost, ancillary income, float rate, tax rate, and inflation. The prepayment speed and the discount
rate are considered two of the most significant inputs in the model. At December 31, 2016, the fair value model used prepayment
speeds (stated as constant prepayment rates) from 0 percent up to 27 percent and a discount rate of 8 percent for the valuation of
the loan servicing rights. A significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs.
The use of different assumptions could have a significant positive or negative effect on the fair value estimate. Impairment charges
are recognized on loan servicing rights when the amortized cost of a risk-stratified group of loan servicing rights exceeds the
estimated fair value. Valley recognized net impairment charges on loan servicing rights totaling $611 thousand and $88 thousand
for the years ended December 31, 2016 and 2014, respectively, as compared to net recoveries of impairment charges totaling $303
thousand for the year ended December 31, 2015.
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,
similar to the criteria used for impaired loans described above. There were no adjustments to the appraisals of foreclosed assets
at December 31, 2016. During the years ended December 31, 2016 and 2015, foreclosed assets measured at fair value upon initial
recognition or subsequent re-measurement totaled $4.5 million and $16.7 million, respectively. The charge-offs of foreclosed
assets to the allowance for loan losses totaled $1.7 million and $1.6 million for the years ended December 31, 2016 and 2015,
respectively. The re-measurement of foreclosed assets at fair value subsequent to their initial recognition resulted in losses of $1.0
million, $2.0 million and $4.7 million included in non-interest expense for the years ended December 31, 2016, 2015 and 2014,
respectively.
Other Fair Value Disclosures
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.
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.
93
2016 Form 10-K
The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the
consolidated statements of financial condition at December 31, 2016 and 2015 were as follows:
December 31,
2016
2015
Fair Value
Hierarchy
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(in thousands)
Financial assets
Cash and due from banks
Interest bearing deposits with banks
Investment securities held to maturity:
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political
subdivisions
Residential mortgage-backed securities
Trust preferred securities
Corporate and other debt securities
Total investment securities held to maturity
Net loans
Accrued interest receivable
Federal Reserve Bank and Federal Home Loan
Bank stock (1)
Financial liabilities
Deposits without stated maturities
Deposits with stated maturities
Short-term borrowings
Long-term borrowings
Junior subordinated debentures issued to
capital trusts
Accrued interest payable (2)
Level 1
$
220,791
$
220,791
$
243,575
$
Level 1
171,710
171,710
170,225
Level 1
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
Level 1
138,830
11,329
147,495
11,464
566,590
1,112,460
59,804
36,559
1,925,572
17,121,684
577,826
1,102,802
47,290
37,720
1,924,597
16,756,655
243,575
170,225
149,483
13,130
527,263
855,272
46,437
138,978
12,859
504,865
852,289
59,785
27,609
1,596,385
15,936,929
29,454
1,621,039
15,824,475
66,816
66,816
63,554
63,554
Level 1
147,127
147,127
145,068
145,068
Level 1
Level 2
Level 1
Level 2
Level 2
Level 1
14,591,837
14,591,837
13,095,647
13,095,647
3,138,871
1,080,960
1,433,906
41,577
10,675
3,160,572
1,081,751
1,523,386
45,785
10,675
3,157,904
1,076,991
1,810,728
41,414
13,110
3,203,389
1,076,991
1,945,741
44,127
13,110
(1)
(2)
Included in other assets.
Included in accrued expenses and other liabilities.
The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities
in the table above:
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 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 (Level 2 inputs). 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. 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 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. The discount rate is a product of both the applicable index and credit
2016 Form 10-K
94
spread, subject to the estimated current new loan interest rates. The credit spread component is static for all maturities and may
not necessarily reflect the value of estimating all actual cash flows repricing. 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. Federal Reserve Bank and FHLB stock are non-marketable
equity securities and are reported at their redeemable carrying amounts, which approximate the fair value.
Deposits. The carrying amounts of deposits without stated maturities (i.e., non-interest bearing, savings, NOW, and money
market deposits) approximate their estimated fair value. 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 carrying amounts of certain short-term borrowings, including securities sold
under agreement to repurchase and FHLB borrowings (and from time to time, federal funds purchased) approximate their fair
values because they frequently re-price to a market rate. The fair values of other short-term and long-term borrowings are estimated
by obtaining quoted market prices of the identical or similar financial instruments when available. When quoted prices are
unavailable, the fair values of the borrowings are estimated by discounting the estimated future cash flows using current market
discount rates of financial instruments with similar characteristics, terms and remaining maturity.
Junior subordinated debentures issued to capital trusts. The fair value of debentures issued to capital trusts not carried
at 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 of U.S. Treasury security or the
three-month LIBOR for the variable rate indexed debentures (Level 2 inputs). The credit spread used to discount the expected
cash flows was calculated based on the median current spreads for all fixed and variable publicly traded trust preferred securities
issued by banks.
95
2016 Form 10-K
INVESTMENT SECURITIES (Note 4)
Held to Maturity
The amortized cost, gross unrealized gains and losses and fair value of investment securities held to maturity at December 31,
2016 and 2015 were as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair Value
— $
—
(1,428)
(466)
(1,894)
(18,090)
(12,554)
(29)
(32,567) $
— $
—
(10)
(85)
(95)
(8,035)
(13,384)
(49)
(21,563) $
147,495
11,464
257,449
320,377
577,826
1,102,802
47,290
37,720
1,924,597
149,483
13,130
205,075
322,188
527,263
855,272
46,437
29,454
1,621,039
December 31, 2016
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political
subdivisions
Residential mortgage-backed securities
Trust preferred securities
Corporate and other debt securities
Total investment securities held to maturity
December 31, 2015
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
$
$
Municipal bonds
Total obligations of states and political
subdivisions
Residential mortgage-backed securities
Trust preferred securities
Corporate and other debt securities
$
138,830
$
8,665
$
11,329
252,185
314,405
566,590
1,112,460
59,804
36,559
1,925,572
138,978
12,859
194,547
310,318
504,865
852,289
59,785
27,609
$
$
135
6,692
6,438
13,130
8,432
40
1,190
31,592
10,505
271
10,538
11,955
22,493
11,018
36
1,894
$
$
Total investment securities held to maturity
$
1,596,385
$
46,217
$
2016 Form 10-K
96
The age of unrealized losses and fair value of related securities held to maturity at December 31, 2016 and 2015 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, 2016
Obligations of states and political
subdivisions:
Obligations of states and state
agencies
Municipal bonds
Total obligations of states and
political subdivisions
Residential mortgage-backed
securities
Trust preferred securities
$
98,114
$
27,368
(1,428) $
(466)
125,482
(1,894)
692,108
(14,420)
Corporate and other debt securities
2,971
Total
$
820,561
$
(29)
(16,343) $
— $
— $
98,114
$
27,368
(1,428)
(466)
—
—
—
—
125,482
(1,894)
114,505
45,898
—
160,403
$
(3,670)
(12,554)
—
(16,224) $
806,613
45,898
2,971
980,964
$
(18,090)
(12,554)
(29)
(32,567)
December 31, 2015
Obligations of states and political
subdivisions:
Obligations of states and state
agencies
Municipal bonds
Total obligations of states and
political subdivisions
Residential mortgage-backed
securities
Trust preferred securities
Corporate and other debt securities
$
6,837
$
8,814
15,651
244,440
—
2,951
Total
$
263,042
(5) $
(72)
1,965
$
10,198
(5) $
(13)
8,802
$
19,012
(77)
12,163
(18)
27,814
(10)
(85)
(95)
(2,916)
—
(49) $
(3,042) $
162,756
45,047
(5,119)
(13,384)
— $
219,966
$
— $
(18,521) $
407,196
45,047
2,951
483,008
$
$
(8,035)
(13,384)
(49)
(21,563)
$
$
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, in some cases, 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, 2016 was 132 as compared to
74 at December 31, 2015.
The unrealized losses within the residential mortgage-backed securities category of the held to maturity portfolio at
December 31, 2016 mostly related to investment grade securities issued by Ginnie Mae.
The unrealized losses existing for more than twelve months for trust preferred securities at December 31, 2016 primarily
related to four non-rated single-issuer securities, issued by bank holding companies. All single-issuer 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, 2016.
Management does not believe that any individual unrealized loss as of December 31, 2016 included in the table above
represents other-than-temporary impairment as management mainly attributes the declines in fair value to changes in interest rates
and 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 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.
During 2015, Valley sold one corporate debt security classified as held to maturity with an amortized cost of $9.8 million.
See "Realized Gains and Losses" section below for further details regarding this transaction.
97
2016 Form 10-K
As of December 31, 2016, 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 $968.0 million.
The contractual maturities of investments in debt securities held to maturity at December 31, 2016 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.
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
Total investment securities held to maturity
December 31, 2016
Amortized Cost
Fair Value
(in thousands)
$
$
85,139
191,207
364,471
172,295
1,112,460
1,925,572
$
$
85,139
199,327
377,665
159,664
1,102,802
1,924,597
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 6.7 years at
December 31, 2016.
2016 Form 10-K
98
Available for Sale
The amortized cost, gross unrealized gains and losses and fair value of investment securities available for sale at December 31,
2016 and 2015 were as follows:
$
$
$
December 31, 2016
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political subdivisions
Residential mortgage-backed securities
Trust preferred securities*
Corporate and other debt securities
Equity securities
Total investment securities available for sale
December 31, 2015
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political subdivisions:
Obligations of states and state agencies
Municipal bonds
Total obligations of states and political subdivisions
Residential mortgage-backed securities
Trust preferred securities*
Corporate and other debt securities
Equity securities
Total investment securities available for sale
$
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair
Value
$
51,020
22,815
$
6
232
(1,435) $
(6)
49,591
23,041
40,696
80,045
120,741
1,029,827
10,164
60,651
20,505
1,315,723
551,173
29,316
44,285
80,717
125,002
701,764
10,458
78,202
21,022
1,516,937
$
$
$
70
147
217
2,061
—
436
1,114
4,066
4
665
196
209
405
3,348
—
1,239
575
6,236
$
$
$
(424)
(767)
(1,191)
(16,346)
(2,155)
(522)
(761)
(22,416) $
40,342
79,425
119,767
1,015,542
8,009
60,565
20,858
1,297,373
(1,704) $
(18)
549,473
29,963
(67)
(374)
(441)
(8,684)
(2,054)
(1,889)
(1,522)
(16,312) $
44,414
80,552
124,966
696,428
8,404
77,552
20,075
1,506,861
*
Includes two pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies, at
December 31, 2016 and 2015.
99
2016 Form 10-K
The age of unrealized losses and fair value of related securities available for sale at December 31, 2016 and 2015 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)
$
$
48,660
2,530
(1,435) $
(4)
— $
4,034
— $
(2)
$
48,660
6,564
(1,435)
(6)
28,628
42,573
71,201
(404)
(506)
(910)
753
11,081
11,834
(20)
(261)
(281)
29,381
53,654
(424)
(767)
83,035
(1,191)
788,030
(11,889)
132,718
(294)
—
(14,532) $
8,009
15,192
14,883
186,670
$
920,748
(4,457)
(2,155)
(228)
(761)
8,009
47,484
14,883
(7,884) $ 1,129,383
(16,346)
(2,155)
(522)
(761)
(22,416)
(1,704)
(18)
(67)
(374)
(441)
(8,684)
(2,054)
(1,889)
(1,522)
(16,312)
$
$
$
(1,704) $
(5)
— $
4,736
— $
(13)
548,538
8,225
(67)
(128)
(195)
(4,147)
—
(471)
—
(6,522) $
—
13,551
13,551
164,010
8,404
36,137
14,273
241,111
$
—
(246)
(246)
24,359
51,758
76,117
8,404
457,625
(4,537)
(2,054)
(1,418)
57,340
(1,522)
14,273
(9,790) $ 1,170,522
December 31, 2016
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political
subdivisions:
Obligations of states and state
agencies
Municipal bonds
Total obligations of states and
political subdivisions
Residential mortgage-backed
securities
Trust preferred securities
Corporate and other debt securities
Equity securities
Total
December 31, 2015
U.S. Treasury securities
U.S. government agency securities
Obligations of states and political
subdivisions:
Obligations of states and state
agencies
Municipal bonds
Total obligations of states and
political subdivisions
Residential mortgage-backed
securities
Trust preferred securities
Corporate and other debt securities
Equity securities
Total
32,292
—
942,713
548,538
3,489
24,359
38,207
62,566
293,615
—
21,203
—
929,411
$
$
$
$
$
$
The unrealized losses on investment securities available for sale are primarily due to changes in interest rates (including, in
certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security
positions in the securities available for sale portfolio in an unrealized loss position at December 31, 2016 was 298 as compared to
291 at December 31, 2015.
The unrealized losses more than twelve months for the residential mortgage-backed securities category of the available for
sale portfolio at December 31, 2016 largely related to several investment grade securities mainly issued by Ginnie Mae.
The unrealized losses for trust preferred securities at December 31, 2016 in the more than twelve months category in the
table above entirely relate to 2 pooled trust preferred securities with a combined amortized cost of $10.2 million and a fair value
of $8.0 million. One of the two pooled trust preferred securities had an unrealized loss of $1.3 million and an investment grade
rating at December 31, 2016.
As of December 31, 2016, 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 $537.4 million.
2016 Form 10-K
100
The contractual maturities of investments securities available for sale at December 31, 2016 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.
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
Total investment securities available for sale
December 31, 2016
Amortized Cost
Fair Value
(in thousands)
$
$
18,770
73,904
114,174
58,543
1,029,827
20,505
1,315,723
$
$
18,654
74,158
112,063
56,098
1,015,542
20,858
1,297,373
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,
2016 was 8.6 years.
Other-Than-Temporary Impairment Analysis
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.
Among other securities, our investments in the private label mortgage-backed securities, trust preferred securities (including
two pooled securities), corporate bonds, perpetual preferred securities and bank issued corporate bonds may pose a higher risk of
future impairment charges to us as a result of the uncertain economic environment and its potential negative effect on the future
performance of the security issuers and, if applicable, the underlying mortgage loan collateral of the security.
Valley’s investment portfolios include private label mortgage-backed securities, trust preferred securities principally issued
by bank holding companies (including two pooled trust preferred securities), corporate bonds, and perpetual preferred 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.
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. 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. All of the issuers had capital ratios at December 31, 2016 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.
101
2016 Form 10-K
Management does not believe that any individual unrealized loss as of December 31, 2016 represents an other-than-temporary
impairment, 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.
At December 31, 2016, approximately 43 percent of the $686.4 million carrying value of obligations of states and political
subdivisions were issued by the states of (or municipalities within) New Jersey, New York, Utah and Maryland. The obligations
of states and political subdivisions mainly consist of general obligation bonds and, to much lesser extent, special revenue bonds
which had an aggregated amortized cost and fair value of $20.3 million and $20.8 million, respectively, at December 31, 2016.
The special revenue bonds were mainly issued by the Port Authorities of New York and New Jersey, as well as various school
districts. As part of Valley’s pre-purchase analysis and on-going quarterly assessment of impairment of the obligations of states
and political subdivisions, our Credit Risk Management Department conducts a financial analysis and risk rating assessment of
each security issuer based on the issuer’s most recently issued financial statements and other publicly available information.
Substantially all of these investments are investment grade. As of December 31, 2016, these securities are expected to perform in
accordance with their contractual terms and, as a result, Valley expects to recover the entire amortized cost basis of these securities.
For the two pooled trust preferred securities, Valley evaluates the projected cash flows from each of its tranches in the two
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.
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, 2016. 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
There was no other-than-temporary impairment recognized in earnings as a result of Valley's impairment analysis of its
securities during 2016 , 2015 and 2014. At December 31, 2016, four previously impaired private label mortgage-backed securities
had a combined amortized cost of $10.2 million and fair value of $9.9 million, respectively, while one previously impaired pooled
trust preferred security had an amortized cost of $2.8 million and fair value of $1.9 million, respectively.
The previously impaired trust preferred securities discussed above were not accruing interest during the years ended
December 31, 2016, 2015, and 2014. See Note 1 for details regarding Valley's policy for the recognition of interest on impaired
debt securities.
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, 2016, 2015 and 2014:
Balance, beginning of period
Accretion of credit loss impairment due to an increase in
expected cash flows
Sales
Balance, end of period
2016
2015
(in thousands)
2014
5,837
$
8,947
$
(921)
—
4,916
$
(728)
(2,382)
5,837
$
9,990
(661)
(382)
8,947
$
$
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. The
credit loss component increases if other-than-temporary impairments (initial and subsequent) are recognized in earnings for credit
impaired debt securities. The credit loss component is reduced if (i) Valley receives cash flows in excess of what it expected to
2016 Form 10-K
102
receive over the remaining life of the credit impaired debt security, (ii) the security matures, (iii) the security is fully written down,
or (iv) Valley sells, intends to sell or believes it will be required to sell previously credit impaired debt securities.
Realized Gains and Losses
Gross gains and losses realized on sales, maturities and other securities transactions included in earnings for the years ended
December 31, 2016, 2015 and 2014 were as follows:
Sales transactions:
Gross gains
Gross losses
Maturities and other securities transactions:
Gross gains
Gross losses
Gains on securities transactions, net
2016
2015
(in thousands)
2014
$
$
$
$
$
271
(58)
213
615
(51)
564
777
$
$
$
$
$
3,274
(947)
2,327
293
(133)
160
2,487
$
$
$
$
$
746
(2)
744
10
(9)
1
745
LOANS (Note 5)
The detail of the loan portfolio as of December 31, 2016 and 2015 was as follows:
December 31, 2016
December 31, 2015
Non-PCI
Loans
PCI
Loans*
Total
Non-PCI
Loans
PCI
Loans*
Total
(in thousands)
$ 2,357,018
$
281,177
$ 2,638,195
$ 2,156,549
$
383,942
$ 2,540,491
Loans:
Commercial and industrial
Commercial real estate:
Commercial real estate
7,628,328
1,091,339
8,719,667
6,069,532
1,355,104
7,424,636
Construction
Total commercial real estate
loans
Residential mortgage
Consumer:
Home equity
Automobile
Other consumer
Total consumer loans
Total loans
710,266
114,680
824,946
607,694
147,253
754,947
8,338,594
2,684,195
1,206,019
183,723
9,544,613
2,867,918
6,677,226
2,912,079
1,502,357
218,462
8,179,583
3,130,541
376,213
1,139,082
569,499
2,084,794
92,796
145
7,642
469,009
391,809
119,394
511,203
1,139,227
1,238,826
487
1,239,313
577,141
426,147
100,583
2,185,377
2,056,782
15,829
135,710
441,976
2,192,492
$ 15,464,601
$ 1,771,502
$ 17,236,103
$ 13,802,636
$ 2,240,471
$ 16,043,107
*
PCI loans include covered loans (mostly consisting of residential mortgage and commercial real estate loans) totaling $70.4 million and
$122.3 million at December 31, 2016 and 2015, respectively.
Total non-PCI loans are net of unearned premiums and deferred loan costs totaling $15.3 million and $3.5 million at
December 31, 2016 and 2015, respectively. The outstanding balances (representing contractual balances owed to Valley) for PCI
loans totaled $1.9 billion and $2.4 billion at December 31, 2016 and 2015, respectively.
Valley transferred $174.5 million of residential mortgage loans from the loan portfolio to loans held for sale during the third
quarter of 2016. These loans were sold during the fourth quarter of 2016 resulting in net gains totaling $7.3 million. Exclusive of
such transfers, there were no other sales or transfers of loans from the held for investment portfolio during 2016 and 2015.
103
2016 Form 10-K
Purchased Credit-Impaired Loans (Including Covered Loans)
PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are 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 PCI loans, or the “accretable yield,” is recognized as
interest income utilizing the level-yield method over the life of each pool. Contractually required payments for interest and principal
that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield
adjustment, as a loss accrual or a valuation allowance. Reclassifications of the non-accretable difference to the accretable yield
may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loan pools. Valley's PCI loan
portfolio included covered loans (i.e., loans in which the Bank will share losses with the FDIC under loss-sharing agreements)
totaling $70.4 million and $122.3 million at December 31, 2016 and 2015, respectively. See Note 1 for additional information.
The following table presents changes in the accretable yield for PCI loans for the years ended December 31, 2016 and 2015:
Balance, beginning of period
Acquisition
Accretion
Net (decrease) increase in expected cash flows
Other, net
Balance, end of period
2016
2015
(in thousands)
$
$
415,179
—
(107,482)
(9,989)
(3,194)
294,514
$
$
336,208
126,930
(105,078)
57,119
—
415,179
The net (decrease) increase in expected cash flows for certain pools of loans (included in the table above) is recognized
prospectively as an adjustment to the yield over the estimated remaining life of the individual pools. The net decrease in the
expected cash flows totaling approximately $10.0 million for 2016 was largely due to better than expected collections, including
loan prepayments, within certain loan pools which reduced the remaining reforecasted accretable yield during the fourth quarter
of 2016. The net increase of $57.1 million during 2015 was mainly related to a decrease in the expected losses for certain loan
pools during the fourth quarter of 2015.
FDIC Loss-Share Receivable
The receivable arising from the loss-sharing agreements with the FDIC is measured separately from the covered loan portfolio
because the agreements are not contractually part of the covered loans and are not transferable should the Bank choose to dispose
of the covered loans. The FDIC loss share receivable (which is included in other assets on Valley's consolidated statements of
financial condition) totaled $7.2 million and $8.3 million at December 31, 2016 and 2015, respectively. The aggregate effects of
changes in the FDIC loss-share receivable was a reduction in non-interest income of $1.3 million, $3.3 million and $20.8 million
for the years ended December 31, 2016, 2015 and 2014, respectively.
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, 2016:
Outstanding at beginning of year
New loans and advances
Repayments
Outstanding at end of year
All loans to related parties are performing as of December 31, 2016.
2016 Form 10-K
104
2016
(in thousands)
191,566
26,736
(52,982)
165,320
$
$
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 quality, concentrations of credit, loan delinquencies, non-performing, and potential problem
loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through
cyclical economic circumstances.
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. Whenever possible, Valley
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 $455.5 million and $386.6
million at December 31, 2016 and 2015, respectively. The commercial portfolio also includes taxi medallion loans, most of which
consist of loans to fleet owners of New York City medallions. Valley's historical taxi medallion lending criteria has been conservative
in regards to capping the loan amounts in relation to market valuations, as well as obtaining personal guarantees whenever possible.
While the vast majority of these loans are performing at December 31, 2016, we continue to closely monitor this portfolio's
performance and the potential impact of the changes in market valuations for taxi medallions due to competing car service providers
and other factors.
Commercial real estate loans. Commercial real estate loans are subject to underwriting standards and processes similar to
commercial and industrial loans but generally they involve larger principal balances and longer repayment periods as compared
to commercial and industrial loans. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans
secured by real property. 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 generally
comply with Fannie Mae and/or Freddie Mac requirements. Appraisals and valuations of real estate collateral are contracted directly
with independent appraisers or from valuation services 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, Florida 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.
105
2016 Form 10-K
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 75 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 the strength or weakness of the used vehicle market, original advance rate, when in the life cycle of a loan a default
occurs and the condition of the collateral being liquidated. Where permitted by law, and subject to the limitations of the bankruptcy
code, deficiency judgments are sought and acted upon to ultimately collect all money owed, even when a default resulted in a loss
at collateral liquidation. Valley uses a third party to actively track collision and comprehensive risk insurance required of the
borrower on the automobile and this third party provides coverage to Valley in the event of an uninsured collateral loss.
Other consumer loans. Valley’s other consumer loan portfolio includes direct consumer term loans, both secured and
unsecured. The other consumer loan portfolio includes exposures in personal lines of credit (including those secured by cash
surrender value of life insurance), credit card loans and personal loans. Unsecured consumer loans totaled approximately $20.6
million and $18.8 million, including $7.0 million and $7.1 million of credit card loans, at December 31, 2016 and 2015, respectively.
Valley believes the aggregate risk exposure of these loans and lines of credit was not significant at December 31, 2016.
Credit Quality
The following tables present past due, non-accrual and current loans (excluding PCI loans, which are accounted for on a
pool basis) by loan portfolio class at December 31, 2016 and 2015:
Past Due and Non-Accrual Loans
30-59 Days
Past Due
Loans
60-89 Days
Past Due
Loans
Accruing
Loans
90 Days Or
More
Past Due
Non-
Accrual
Loans
Total
Past Due
Loans
Current
Non-PCI
Loans
Total
Non-PCI
Loans
(in thousands)
December 31, 2016
Commercial and industrial $
Commercial real estate:
Commercial real estate
Construction
Total commercial real
estate loans
Residential mortgage
Consumer loans:
Home equity
Automobile
Other consumer
Total consumer loans
6,705
$
5,010
$
142
$
8,465
$
20,322
$ 2,336,696
$ 2,357,018
5,894
6,077
11,971
12,005
929
3,192
76
4,197
8,642
—
8,642
3,564
415
723
9
1,147
474
1,106
1,580
1,541
—
188
21
209
15,079
715
15,794
12,075
1,028
146
—
1,174
30,089
7,898
37,987
29,185
2,372
4,249
106
6,727
7,598,239
7,628,328
702,368
710,266
8,300,607
2,655,010
8,338,594
2,684,195
373,841
376,213
1,134,833
1,139,082
569,393
569,499
2,078,067
2,084,794
Total
$
34,878
$
18,363
$
3,472
$ 37,508
$
94,221
$ 15,370,380
$ 15,464,601
2016 Form 10-K
106
Past Due and Non-Accrual Loans
30-59 Days
Past Due
Loans
60-89 Days
Past Due
Loans
Accruing
Loans
90 Days Or
More
Past Due
Non-
Accrual
Loans
Total
Past Due
Loans
Current
Non-PCI
Loans
Total
Non-PCI
Loans
(in thousands)
December 31, 2015
Commercial and industrial $
Commercial real estate:
Commercial real estate
Construction
Total commercial real
estate loans
Residential mortgage
Consumer loans:
Home equity
Automobile
Other consumer
Total consumer loans
3,920
$
524
$
213
$ 10,913
$
15,570
$ 2,140,979
$ 2,156,549
2,684
1,876
4,560
6,681
1,308
1,969
71
3,348
—
2,799
2,799
1,626
111
491
24
626
131
—
131
1,504
—
164
44
208
24,888
6,163
31,051
17,930
2,088
118
—
2,206
27,703
10,838
38,541
27,741
3,507
2,742
139
6,388
6,041,829
6,069,532
596,856
607,694
6,638,685
2,884,338
6,677,226
2,912,079
388,302
391,809
1,236,084
1,238,826
426,008
426,147
2,050,394
2,056,782
Total
$
18,509
$
5,575
$
2,056
$ 62,100
$
88,240
$ 13,714,396
$ 13,802,636
If interest on non-accrual loans had been accrued in accordance with the original contractual terms, such interest income
would have amounted to approximately $2.1 million, $3.5 million, and $2.2 million for the years ended December 31, 2016, 2015
and 2014, respectively; none of these amounts were included in interest income during these periods.
Impaired loans. Impaired loans, consisting of non-accrual commercial and industrial loans and commercial real estate
loans over $250 thousand and all loans which were modified in troubled debt restructurings, are individually evaluated for
impairment. PCI loans are not classified as impaired loans because they are accounted for on a pool basis.
107
2016 Form 10-K
The following table presents the information about impaired loans by loan portfolio class at December 31, 2016 and 2015:
Recorded
Investment
With No
Related
Allowance
Recorded
Investment
With
Related
Allowance
Total
Recorded
Investment
(in thousands)
Unpaid
Contractual
Principal
Balance
Related
Allowance
$
3,609
$
27,031
$
30,640
$
35,957
$
5,864
21,318
1,618
22,936
8,398
1,182
1,182
36,125
7,863
30,113
8,847
38,960
7,842
263
263
54,928
$
$
$
36,974
2,379
39,353
9,958
2,352
2,352
78,694
17,851
37,440
5,530
42,970
14,770
1,869
1,869
77,460
$
$
$
58,292
3,997
62,289
18,356
3,534
3,534
114,819
25,714
67,553
14,377
81,930
22,612
$
$
60,267
3,997
64,264
19,712
3,626
3,626
123,559
33,071
71,263
14,387
85,650
24,528
$
$
2,132
2,132
132,388
$
2,224
2,224
145,473
$
3,612
260
3,872
725
70
70
10,531
3,439
3,354
317
3,671
1,377
295
295
8,782
$
$
$
December 31, 2016
Commercial and industrial
Commercial real estate:
Commercial real estate
Construction
Total commercial real estate loans
Residential mortgage
Consumer loans:
Home equity
Total consumer loans
Total
December 31, 2015
Commercial and industrial
Commercial real estate:
Commercial real estate
Construction
Total commercial real estate loans
Residential mortgage
Consumer loans:
Home equity
Total consumer loans
Total
Interest income recognized on a cash basis for impaired loans classified as non-accrual totaled $207 thousand, $1.3 million
and $735 thousand for the years ended December 31, 2016, 2015 and 2014, respectively.
The following table presents, by loan portfolio class, the average recorded investment and interest income recognized on
impaired loans for the years ended December 31, 2016, 2015 and 2014:
2016
2015
2014
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
(in thousands)
$
36,552
$
1,045
$
28,451
$
893
$
30,485
$
1,114
59,633
5,790
65,423
21,340
2,626
2,626
2,122
182
2,304
874
68
68
77,154
16,399
93,553
24,435
3,852
3,852
2,380
534
2,914
728
111
111
74,256
21,515
95,771
26,863
2,214
2,214
2,488
547
3,035
812
49
49
$
125,941
$
4,291
$
150,291
$
4,646
$
155,333
$
5,010
108
Commercial and industrial
Commercial real estate:
Commercial real estate
Construction
Total commercial real estate
loans
Residential mortgage
Consumer loans:
Home equity
Total consumer loans
Total
2016 Form 10-K
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
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 (TDR). Valley’s PCI loans are excluded
from the TDR disclosures below because they are evaluated for impairment on a pool by pool basis. When an individual PCI loan
within a pool is modified as a TDR, it is not removed from its pool. All TDRs are classified as impaired loans and are included in
the impaired loan disclosures above.
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 of the loan 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.
Performing TDRs (not reported as non-accrual loans) totaled $85.2 million and $77.6 million as of December 31, 2016 and
2015, respectively. Non-performing TDRs totaled $10.6 million and $21.0 million as of December 31, 2016 and 2015, respectively.
The following table presents non-PCI loans by loan class modified as TDRs during the years ended December 31, 2016 and
2015. The pre-modification and post-modification outstanding recorded investments disclosed in the table below represent the
loan carrying amounts immediately prior to the modification and the carrying amounts at December 31, 2016 and 2015, respectively.
Troubled Debt
Restructurings
December 31, 2016
Commercial and industrial
Commercial real estate:
Commercial real estate
Construction
Total commercial real estate
Residential mortgage
Consumer
Total
December 31, 2015
Commercial and industrial
Commercial real estate:
Commercial real estate
Construction
Total commercial real estate
Residential mortgage
Consumer
Total
Number of
Contracts
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
($ in thousands)
19
$
18,186
$
4
3
7
7
1
34
17
5
2
7
7
2
33
$
$
$
8,325
2,922
11,247
1,867
54
31,354
8,409
6,768
646
7,414
2,659
1,111
19,593
$
$
$
16,277
7,092
3,626
10,718
1,826
51
28,872
6,793
6,709
1,391
8,100
2,603
1,095
18,591
The total TDRs presented in the table above had allocated specific reserves for loan losses that totaled $4.8 million and $1.4
million at December 31, 2016 and 2015, respectively. These specific reserves are included in the allowance for loan losses for
loans individually evaluated for impairment disclosed in Note 6. Partial loan charge-offs related to loans modified as TDRs presented
in the table above totaled $320 thousand during 2015. There were no loan charge-offs related to loans modified as TDRs during
2016.
109
2016 Form 10-K
The non-PCI loans modified as TDRs within the previous 12 months and for which there was a payment default (90 or more
days past due) for the years ended December 31, 2016 and 2015 were as follows:
Troubled Debt Restructurings Subsequently Defaulted
Commercial and industrial
Commercial real estate
Residential mortgage
Consumer
Total
Years Ended December 31,
2016
2015
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
($ in thousands)
— $
2
4
—
6
$
—
357
853
—
1,210
1
1
1
1
4
$
$
129
87
214
75
505
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 “Pass,” “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Substandard
loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley 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, and, therefore, not presented
in the table below. 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 Special Mention. Loans rated as Pass 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.
The following table presents the risk category of loans by class of loans (excluding PCI loans) based on the most recent
analysis performed at December 31, 2016 and 2015.
Credit exposure—
by internally assigned risk rating
Pass
Special
Mention
Substandard
(in thousands)
Doubtful
Total Non-PCI
Loans
December 31, 2016
Commercial and industrial
Commercial real estate
Construction
Total
December 31, 2015
Commercial and industrial
Commercial real estate
Construction
Total
$
2,246,457
7,486,469
708,070
$ 10,440,996
$
$
2,049,752
5,893,354
596,530
8,539,636
$
$
$
$
44,316
57,591
200
102,107
68,243
79,279
1,102
148,624
$
$
$
$
64,649
84,268
1,996
150,913
36,254
96,899
10,062
143,215
$
$
$
$
1,596
—
—
1,596
2,300
—
—
2,300
$
2,357,018
7,628,328
710,266
$ 10,695,612
$
$
2,156,549
6,069,532
607,694
8,833,775
2016 Form 10-K
110
For residential mortgages, automobile, home equity and other consumer loan portfolio classes (excluding PCI loans), Valley
also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The
following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2016 and
2015:
Credit exposure—
by payment activity
December 31, 2016
Residential mortgage
Home equity
Automobile
Other consumer
Total
December 31, 2015
Residential mortgage
Home equity
Automobile
Other consumer
Total
Performing
Loans
Non-Performing
Loans
(in thousands)
Total Non-PCI
Loans
$
$
$
$
2,672,120
375,185
1,138,936
569,499
4,755,740
2,894,149
389,721
1,238,708
426,147
4,948,725
$
$
$
$
12,075
1,028
146
—
13,249
17,930
2,088
118
—
20,136
$
$
$
$
2,684,195
376,213
1,139,082
569,499
4,768,989
2,912,079
391,809
1,238,826
426,147
4,968,861
Valley evaluates the credit quality of its PCI loan pools based on the expectation of the underlying cash flows of each pool,
derived from the aging status and by payment activity of individual loans within the pool. The following table presents the recorded
investment in PCI loans by class based on individual loan payment activity as of December 31, 2016 and 2015:
Credit exposure—
by payment activity
December 31, 2016
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Consumer
Total
December 31, 2015
Commercial and industrial
Commercial real estate
Construction
Residential mortgage
Consumer
Total
Performing
Loans
Non-Performing
Loans
(in thousands)
Total
PCI Loans
$
$
$
$
272,483
1,080,376
113,370
179,793
98,469
1,744,491
373,665
1,342,030
141,547
214,713
129,891
2,201,846
$
$
$
$
8,694
10,963
1,310
3,930
2,114
27,011
10,277
13,074
5,706
3,749
5,819
38,625
$
$
$
$
281,177
1,091,339
114,680
183,723
100,583
1,771,502
383,942
1,355,104
147,253
218,462
135,710
2,240,471
111
2016 Form 10-K
ALLOWANCE FOR CREDIT LOSSES (Note 6)
The allowance for credit losses consists of the allowance for loan losses and 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 loan losses is based on ongoing evaluations
of the probable estimated losses inherent in the loan portfolio, including unexpected additional credit impairment of PCI loan
pools subsequent to acquisition. There was no allowance allocation for PCI loan losses at December 31, 2016 and 2015.
The following table summarizes the allowance for credit losses at December 31, 2016 and 2015:
Components of allowance for credit losses:
Allowance for loan losses
Allowance for unfunded letters of credit
Total allowance for credit losses
December 31,
2016
2015
(in thousands)
$
$
114,419
2,185
116,604
$
$
106,178
2,189
108,367
The following table summarizes the provision for credit losses for the years ended December 31, 2016, 2015 and 2014:
Components of provision for credit losses:
Provision for loan losses
Provision for unfunded letters of credit
Total provision for credit losses
2016
2015
(in thousands)
2014
$
$
11,873
(4)
11,869
$
$
7,846
255
8,101
$
$
3,445
(1,561)
1,884
The following table details the activity in the allowance for loan losses by portfolio segment for the years ended December 31,
2016 and 2015:
Commercial
and Industrial
Commercial
Real Estate
Residential
Mortgage
Consumer
Unallocated
Total
(in thousands)
December 31, 2016
Allowance for loan losses:
Beginning balance
Loans charged-off
Charged-off loans recovered
Net charge-offs
Provision for loan losses
Ending balance
December 31, 2015
Allowance for loan losses:
Beginning balance
Loans charged-off
Charged-off loans recovered
Net charge-offs
Provision for loan losses
$
48,767
$
48,006
$
4,625
$
4,780
$
— $ 106,178
(5,990)
2,852
(3,138)
5,191
(650)
2,057
1,407
6,438
50,820
$
55,851
$
(866)
774
(92)
(831)
3,702
(3,463)
1,654
(1,809)
1,075
—
—
—
(10,969)
7,337
(3,632)
11,873
$
4,046
$
— $ 114,419
43,676
$
42,840
$
5,093
$
5,179
$
5,565
$ 102,353
$
$
(7,928)
7,233
(695)
5,786
(2,790)
1,759
(1,031)
6,197
(813)
421
(392)
(76)
4,625
(3,441)
1,538
(1,903)
1,504
—
—
—
(5,565)
(14,972)
10,951
(4,021)
7,846
$
4,780
$
— $ 106,178
Ending balance
$
48,767
$
48,006
$
During 2015, Valley refined and enhanced its assessment of the adequacy of the allowance for loan losses, including both
changes to look-back periods for certain portfolios, as well as enhancements to its qualitative factor framework. The enhancements
were meant to increase the level of precision in the allowance for credit losses. As a result, Valley no longer has an “unallocated”
segment in its allowance for credit losses, as the risks and uncertainties meant to be captured by the unallocated allowance have
2016 Form 10-K
112
been included in the qualitative framework for the respective portfolios (reported in the table above) at December 31, 2016 and
2015. As such, the unallocated allowance has in essence been reallocated to the certain portfolios based on the risks and uncertainties
it was meant to capture. See Note 1 to the consolidated financial statements for additional information regarding our allowance
for loan losses.
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, 2016 and 2015. Loans individually
evaluated for impairment represent Valley’s impaired loans. Loans acquired with discounts related to credit quality represent
Valley’s PCI loans.
Commercial
and Industrial
(in thousands)
Commercial
Real Estate
Residential
Mortgage
Consumer
Total
December 31, 2016
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with discounts related to
credit quality
Total
December 31, 2015
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Total
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with discounts related to
credit quality
Total
$
$
$
$
$
$
$
$
5,864
44,956
50,820
30,640
$
$
$
3,872
51,979
55,851
62,289
$
$
$
725
2,977
3,702
18,356
$
$
$
70
3,976
4,046
3,534
$
$
$
10,531
103,888
114,419
114,819
2,326,378
8,276,305
2,665,839
2,081,260
15,349,782
281,177
2,638,195
1,206,019
$ 9,544,613
183,723
$ 2,867,918
100,583
$ 2,185,377
1,771,502
$ 17,236,103
3,439
45,328
48,767
25,714
$
$
$
3,671
44,335
48,006
81,930
$
$
$
1,377
3,248
4,625
22,612
$
$
$
295
4,485
4,780
2,132
$
$
$
8,782
97,396
106,178
132,388
2,130,835
6,595,296
2,889,467
2,054,650
13,670,248
383,942
2,540,491
1,502,357
$ 8,179,583
218,462
$ 3,130,541
135,710
$ 2,192,492
2,240,471
$ 16,043,107
PREMISES AND EQUIPMENT, NET (Note 7)
At December 31, 2016 and 2015, premises and equipment, net consisted of:
Land
Buildings
Leasehold improvements
Furniture and equipment
Total premises and equipment
Accumulated depreciation and amortization
Total premises and equipment, net
2016
2015
(in thousands)
78,116
210,012
73,405
240,424
601,957
(310,777)
291,180
$
$
80,519
211,923
70,314
224,340
587,096
(288,153)
298,943
$
$
Depreciation and amortization of premises and equipment included in non-interest expense for the years ended December 31,
2016, 2015 and 2014 was approximately $24.4 million, $21.1 million, and $19.5 million, respectively.
113
2016 Form 10-K
GOODWILL AND OTHER INTANGIBLE ASSETS (Note 8)
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, 2014
Goodwill from business combinations
Balance at December 31, 2015
Goodwill from business combinations
Balance at December 31, 2016
$
$
$
20,517
—
20,517
701
21,218
$
$
$
168,922
30,197
199,119
984
200,103
(in thousands)
252,900
$
61,360
314,260
1,998
316,258
$
$
$
$
$
133,553
18,890
152,443
615
153,058
$
$
$
575,892
110,447
686,339
4,298
690,637
* 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.
Certain estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition
date. During 2016, goodwill from business combinations primarily related to the effect of the combined adjustments to the estimated
fair values of the acquired assets and liabilities as of the acquisition date of CNL, as well as $701 thousand of goodwill from the
acquisition of certain assets from an independent insurance agency during the first quarter of 2016. The adjustments mostly related
to the fair value of certain PCI loans, core deposit intangibles and time deposits which, resulted in an increase in goodwill totaling
$3.6 million. There was no impairment of goodwill during the years ended December 31, 2016, 2015 and 2014.
The following tables summarize other intangible assets as of December 31, 2016 and 2015:
December 31, 2016
Loan servicing rights
Core deposits
Other
Total other intangible assets
December 31, 2015
Loan servicing rights
Core deposits
Other
Total other intangible assets
Gross
Intangible
Assets
Accumulated
Amortization
Valuation
Allowance
(in thousands)
Net
Intangible
Assets
$
$
$
$
73,002
61,504
4,087
138,593
75,932
62,714
4,374
143,020
$
$
$
$
(52,634) $
(37,562)
(2,013)
(92,209) $
(59,251) $
(31,934)
(2,664)
(93,849) $
(900) $
—
—
(900) $
(289) $
—
—
(289) $
19,468
23,942
2,074
45,484
16,392
30,780
1,710
48,882
Core deposits are amortized using an accelerated method and have a weighted average amortization period of 11 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 20
years. In 2016, Valley recorded $660 thousand in other intangibles, consisting of customer lists acquired from an independent
insurance agency. In 2015, Valley recorded $19.3 million in core deposit intangibles resulting from the CNL acquisition. 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, 2016, 2015 and 2014.
2016 Form 10-K
114
The following table summarizes the change in loan servicing rights during the years ended December 31, 2016, 2015 and
2014:
Loan servicing rights
Balance at beginning of year
Origination of loan servicing rights
Amortization expense
Balance at end of year
Valuation allowance
Balance at beginning of year
Impairment adjustment
Balance at end of year
Balance at end of year, net of valuation allowance
2016
2015
(in thousands)
2014
$
$
$
$
$
16,681
8,479
(4,792)
20,368
$
$
(289) $
(611)
(900) $
$
19,468
20,446
1,696
(5,461)
16,681
$
$
(592) $
303
(289) $
$
16,392
26,068
1,065
(6,687)
20,446
(504)
(88)
(592)
19,854
Loan servicing rights are accounted for using the amortization method (see Note 1 for more details).
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 of loans originated and sold by the Bank, and to a lesser extent, purchased mortgage
servicing rights. The aggregate principal balances of residential mortgage loans serviced by the Bank for others approximated
$2.5 billion, $2.1 billion and $2.3 billion at December 31, 2016, 2015 and 2014, respectively. The SBA loans serviced by the Bank
for third-party investors totaled $23.8 million, $32.3 million and $26.9 million at December 31, 2016, 2015 and 2014, respectively.
The outstanding balance of all loans serviced for others is not included in the consolidated statements of financial condition.
Valley recognized amortization expense on other intangible assets, including recoveries and net impairment charges on loan
servicing rights (reflected in the table above), of $11.3 million, $9.2 million and $9.9 million for the years ended December 31,
2016, 2015 and 2014, respectively.
The following table presents the estimated amortization expense of other intangible assets over the next five-year period:
Year
2017
2018
2019
2020
2021
DEPOSITS (Note 9)
Loan Servicing
Rights
Core
Deposits
(in thousands)
Other
$
$
4,888
3,989
3,101
2,417
1,771
$
4,842
4,215
3,671
3,127
2,582
280
249
235
220
206
Included in time deposits are certificates of deposit over $100 thousand totaling $1.7 billion at both December 31, 2016 and
2015. Interest expense on time deposits of $100 thousand or more totaled approximately $1.5 million, $4.0 million, and $5.9
million in 2016, 2015 and 2014, respectively.
The scheduled maturities of time deposits as of December 31, 2016 are as follows:
Year
2017
2018
2019
2020
2021
Thereafter
Total time deposits
Amount
(in thousands)
2,122,906
473,924
98,763
147,548
162,687
133,043
3,138,871
$
$
115
2016 Form 10-K
Deposits from certain directors, executive officers and their affiliates totaled $85.6 million and $57.3 million at December 31,
2016 and 2015, respectively.
BORROWED FUNDS (Note 10)
Short-Term Borrowings
Short-term borrowings at December 31, 2016 and 2015 consisted of the following:
Securities sold under agreements to repurchase
Federal funds purchased
FHLB advances
Total short-term borrowings
2016
2015
(in thousands)
$
$
298,960
—
782,000
1,080,960
$
$
500,991
50,000
526,000
1,076,991
The weighted average interest rate for short-term borrowings was 0.65 percent and 0.69 percent at December 31, 2016 and
2015, respectively.
Long-Term Borrowings
Long-term borrowings at December 31, 2016 and 2015 consisted of the following:
FHLB advances, net (1)
Securities sold under agreements to repurchase
Subordinated debt, net (2)
Other
Total long-term borrowings
2016
2015
(in thousands)
$
1,031,666
165,000
236,731
509
1,433,906
$
1,272,591
307,500
230,573
64
1,810,728
$
$
(1)
(2)
FHLB advances are presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling $18.3 million
and $3.6 million at December 31, 2016 and 2015, respectively.
Subordinated debt is presented net of unamortized debt issuance costs totaling $1.9 million and $2.2 million at December 31, 2016 and
2015, respectively.
In August 2016, Valley prepaid $355 million and $50 million of the long-term FHLB advances and securities sold under
agreements to repurchase, respectively. These prepaid borrowings, which had contractual maturity dates in 2018 and a total average
interest rate of 3.69 percent, were funded with a new fixed-rate five-year FHLB advance totaling $405.0 million. The transaction
was accounted for as a debt modification under U.S. GAAP. As a result, the new advance has an adjusted annual interest rate of
2.51 percent, after amortization of prepayment penalties totaling $20.0 million paid to the FHLB.
In May 2016, Valley prepaid $87 million of FHLB advances assumed in the acquisition of CNL. The prepayment was entirely
funded by cash balances that were held as a collateral at the FHLB of Atlanta and resulted in the recognition of a $315 thousand
loss on extinguishment of debt for the year ended December 31, 2016.
In December 2015, Valley prepaid $625 million and $220 million of the long-term FHLB advances and securities sold under
agreements to repurchase, respectively. These prepaid borrowings had contractual amounts of $795 million and $50 million
maturing in 2017 and 2018, respectively, and had a combined weighted average interest rate of 3.72 percent. The debt extinguishment
resulted in a loss, consisting of prepayment penalties, totaling approximately $51.1 million for the year ended December 31, 2015.
FHLB Advances. The long-term FHLB advances had a weighted average interest rate of 3.37 percent and 3.96 percent at
December 31, 2016 and 2015, 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. The pledged assets to the FHLB also
collateralize a $100 million letter of credit issued by the FHLB on Valley’s behalf to secure certain public deposits held at the
Bank.
2016 Form 10-K
116
The long-term FHLB advances at December 31, 2016 are scheduled for contractual balance repayments as follows:
Year
2017
2021
Thereafter
Total long-term FHLB advances
Amount
(in thousands)
$
$
10,000
840,000
200,000
1,050,000
Valley has no FHLB advances maturing in the years 2018 to 2020. The FHLB advances with scheduled repayments in years
after 2017, reported in the table above, include $10 million in advances which are callable for early redemption by the FHLB
during 2017 with interest rates ranging from 2.27 percent to 3.25 percent.
Long-term borrowings for securities sold under agreements. The long-term borrowings for securities sold under
agreements had a weighted average interest rate of 2.41 percent and 3.35 percent at December 31, 2016 and 2015, respectively.
The long-term repos at December 31, 2016 are scheduled for contractual balance repayments as follows:
Year
2017
2018
Thereafter
Total long-term securities sold under agreements to repurchase
Amount
(in thousands)
$
$
65,000
50,000
50,000
165,000
Subordinated Debt. In June 2015, the Bank issued $100 million of 4.55 percent subordinated debentures (notes) due
July 30, 2025 with no call dates or prepayments allowed unless certain conditions exist. This subordinated note issuance was
intended to replace our $100 million of 5 percent subordinated notes which matured and were repaid in July 2015. Interest on the
subordinated notes is payable semi-annually in arrears on June 30 and December 30 of each year.
In September 2013, Valley issued $125 million of its 5.125 percent subordinated notes due September 27, 2023 with no call
dates or prepayments allowed, unless certain conditions exist. Interest on the subordinated debentures is payable semi-annually
in arrears on March 27 and September 27 of each year. In conjunction with the issuance, Valley entered into an interest rate swap
transaction used to hedge the change in the fair value of the subordinated notes. In August 2016, the fair value interest rate swap
with a notional amount of $125 million was terminated resulting in an adjusted fixed annual interest rate of 3.32 percent on the
subordinated notes, after amortization of the derivative valuation adjustment recorded at the termination date (see Note 15). The
subordinated notes had a net carrying value of $136.7 million and $130.6 million at December 31, 2016 and 2015, respectively.
Pledged Securities. 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 and $1.4 billion at December 31, 2016 and
2015, respectively.
JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS (Note 11)
Valley acquired GCB Capital Trust III, State Bancorp Capital Trust I, and State Bancorp Capital Trust II in past bank
acquisitions. These statutory trusts were established for the sole purpose of issuing trust preferred securities and related trust
common securities. The proceeds from such issuances were used by the trust to purchase an equivalent amount of junior subordinated
debentures issued by the acquired bank, and now assumed by Valley. The junior subordinated debentures, the sole assets of the
trusts, are unsecured obligations of Valley, and are subordinate and junior in right of payment to all present and future senior and
subordinated indebtedness and certain other financial obligations of Valley. Valley does not consolidate its capital trusts based on
U.S. GAAP but wholly owns all of the common securities of each trust.
117
2016 Form 10-K
The table below summarizes the outstanding junior subordinated debentures and the related trust preferred securities issued
by each trust as of December 31, 2016 and 2015:
Junior Subordinated Debentures:
December 31, 2016
Carrying value (1)
Contractual principal balance
December 31, 2015
Carrying value (1)
Contractual principal balance
Annual interest rate (2)
Stated maturity date
Initial call date
Trust Preferred Securities:
December 31, 2016 and 2015
Face value
Annual distribution rate (2)
Issuance date
Distribution dates (3)
GCB
Capital Trust III
State Bancorp
Capital Trust I
State Bancorp
Capital Trust II
($ in thousands)
$
$
24,777
24,743
$
24,846
$
24,743
$
8,724
10,310
8,624
$
10,310
8,076
10,310
7,944
10,310
6.96%
July 30, 2037
July 30, 2017
3-month LIBOR+3.45%
November 7, 2032
November 7, 2007
3-month LIBOR+2.85%
January 23, 2034
January 23, 2009
$
24,000
$
10,000
$
10,000
6.96%
July 2, 2007
3-month LIBOR+3.45%
October 29, 2002
3-month LIBOR+2.85%
December 19, 2003
Quarterly
Quarterly
Quarterly
(1) The carrying values include unamortized purchase accounting adjustments at December 31, 2016 and 2015.
(2)
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 for all of the junior
subordinated debentures and related trust preferred securities excludes the effect of the purchase accounting adjustments.
(3) All cash distributions are cumulative.
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 redemption on the date no earlier than the call dates noted in the table
above. 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
dates 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 included in Valley’s total risk-based capital (as Tier 2 capital) for regulatory purposes at
December 31, 2016. Based on the regulatory capital guidance under the Basel III rules, the trust preferred securities issued by our
capital trusts were fully phased out of Tier 1 capital on January 1, 2016.
BENEFIT PLANS (Note 12)
Pension Plan
The Bank has a non-contributory defined benefit plan (qualified plan) covering most of its employees. The qualified plan
benefits are based upon years of credited service and the employee’s highest average compensation as defined. Additionally, the
Bank has a supplemental non-qualified, non-funded retirement plan, which is designed to supplement the pension plan for key
officers, and Valley has a non-qualified, non-funded directors’ retirement plan (both of these plans are referred to as the “non-
qualified plans” below).
Effective December 31, 2013 the benefits earned under the qualified and non-qualified were frozen. As a result, Valley re-
measured the projected benefit obligation of the affected plans and the funded status of each plan at June 30, 2013. Consequently,
participants in each plan will not accrue further benefits and their pension benefits will be determined based on the compensation
and service as of December 31, 2013. Plan benefits will not increase for any compensation or service earned after such date.
However, participants’ benefits will continue to vest as long as they work for Valley.
2016 Form 10-K
118
The following table sets forth the change in the 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, 2016 and 2015:
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
Interest cost
Actuarial loss (gain)
Benefits paid
Projected benefit obligation at end of year
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
Fair value of plan assets at end of year*
Funded status of the plan
Asset recognized
Accumulated benefit obligation
2016
2015
(in thousands)
$
$
$
$
$
157,661
6,681
2,047
(5,546)
161,306
189,414
22,424
347
(5,546)
206,639
45,333
161,306
$
$
$
$
$
176,339
6,889
(17,177)
(8,390)
157,661
194,646
2,875
283
(8,390)
189,414
31,753
157,661
*
Includes accrued interest receivable of $606 thousand and $607 thousand as of December 31, 2016 and 2015, respectively.
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 $367 thousand of the net actuarial loss reported in the following table as of
December 31, 2016 as a component of net periodic pension expense during 2017.
Net actuarial loss
Deferred tax benefit
Total
2016
2015
(in thousands)
$
$
30,140
(12,647)
17,493
$
$
36,271
(15,118)
21,153
The non-qualified plans 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
2016
2015
(in thousands)
$
$
18,286
18,286
—
17,411
17,411
—
In determining discount rate assumptions, management looks to current rates on fixed-income corporate debt securities that
receive a rating of AA or higher from either Moody’s or S&P with durations equal to the expected benefit payments streams
required of each plan. The weighted average discount rate used in determining the actuarial present value of benefit obligations
for the qualified and non-qualified plans were 4.11 percent and 4.33 percent as of December 31, 2016 and 2015, respectively.
119
2016 Form 10-K
The net periodic pension income for the qualified and non-qualified plans included the following components for the years
ended December 31, 2016, 2015 and 2014:
Interest cost
Expected return on plan assets
Amortization of net loss
Total net periodic pension income
2016
2015
(in thousands)
2014
$
$
$
6,681
(14,539)
294
(7,564) $
$
6,889
(14,023)
790
(6,344) $
6,897
(12,967)
226
(5,844)
At the end of 2016, Valley changed the method utilized to estimate the interest cost component of net periodic pension costs
for our qualified and non-qualified plans. Historically, Valley estimated the interest cost component (and the service cost component
when it was applicable) using a single weighted average discount rate derived from the yield curve used to measure the benefit
obligation at the beginning of the period. Valley will elect to use a spot rate approach for the plans in the estimation of these
components of benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as Valley
believes this provides a better estimate of service and interest costs. Valley considers this a change in estimate and, accordingly,
will account for it prospectively starting in 2017. This change does not affect the measurement of the total benefit obligation. For
2017, the change in estimate is expected to increase net periodic pension income by approximately $765 thousand when compared
to the prior approach.
Other changes in the qualified and non-qualified plan assets and benefit obligations recognized in other comprehensive
income/loss for the years ended December 31, 2016 and 2015 were as follows:
Net gain
Prior service cost
Amortization of actuarial loss
Total recognized in other comprehensive income
Total recognized in net periodic pension income and other comprehensive
income/loss (before tax)
2016
2015
(in thousands)
(5,837) $
462
(294)
(5,669) $
(6,030)
—
(790)
(6,820)
(13,233) $
(13,163)
$
$
$
The benefit payments, which reflect expected future service, as appropriate, expected to be paid in future years are presented
in the following table:
Year
2017
2018
2019
2020
2021
Thereafter
$
Amount
(in thousands)
6,847
7,206
7,744
8,081
8,423
45,462
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, 2016, 2015 and 2014 were as follows:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
2016
2015
2014
4.33%
7.50%
N/A
4.02%
7.50%
N/A
4.89%
7.50%
N/A
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.
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
2016 Form 10-K
120
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 annualized 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.
The exposure of the plan assets of the qualified plan 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.
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 following table presents the qualified plan weighted-average asset allocations by asset category
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.
% of Total
Investments
December 31,
2016
Fair Value Measurements at Reporting Date Using:
Significant
Quoted Prices
Unobservable
in Active Markets
Inputs
for Identical
(Level 3)
Assets (Level 1)
Significant
Other
Observable Inputs
(Level 2)
($ in thousands)
43% $
21
19
12
5
*
100% $
88,250
43,152
38,975
24,910
10,402
344
206,033
$
$
88,250
—
38,975
24,910
10,402
—
162,537
$
$
— $
43,152
—
—
—
344
43,496
$
—
—
—
—
—
—
—
% of Total
Investments
December 31,
2015
Fair Value Measurements at Reporting Date Using:
Significant
Quoted Prices
Unobservable
in Active Markets
Inputs
for Identical
(Level 3)
Assets (Level 1)
Significant
Other
Observable Inputs
(Level 2)
($ in thousands)
41% $
22
19
12
6
*
100% $
76,578
41,786
36,052
22,130
11,913
348
188,807
$
$
76,578
—
36,052
2,213
11,913
—
126,756
$
$
— $
41,786
—
—
—
348
42,134
$
—
—
—
—
—
—
—
Assets:
Investments:
Equity securities
Corporate bonds
Mutual funds
U.S. Treasury securities
Cash and money market funds
U.S. government agency securities
Total investments
Assets:
Investments:
Equity securities
Corporate bonds
Mutual funds
U.S. Treasury securities
Cash and money market funds
U.S. government agency securities
Total investments
*
Represents less than one percent of total investments.
121
2016 Form 10-K
The following is a description of the valuation methodologies used for assets measured at fair value:
Equity securities, U.S. Treasury securities and cash and money market funds 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.
Based upon actuarial estimates, Valley does not expect to make any contributions to the qualified plan. Funding requirements
for subsequent years are uncertain and will significantly depend on whether the plan’s actuary changes any assumptions used to
calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any
legislative or regulatory changes affecting plan funding requirements. For tax planning, financial planning, cash flow management
or cost reduction purposes, Valley may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by
law.
Other Non-Qualified Plans
Valley maintains other non-qualified plans for former directors of banks acquired, as well as a non-qualified plan for former
senior management of Merchants Bank of New York acquired in January of 2001. Valley did not merge these plans into its existing
non-qualified plans. Collectively, at December 31, 2016 and 2015, the remaining obligations under these plans were $3.3 million
and $3.4 million, respectively, of which $1.5 million and $1.6 million, respectively, were funded by Valley. As of December 31,
2016 and 2015, the entire obligations were included in other liabilities and $867 thousand (net of a $614 thousand tax benefit)
and $1.0 million (net of a $748 thousand 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 cash 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 $10.5 million, $9.0 million and $6.8 million during 2016, 2015 and 2014, respectively.
Savings and Investment Plan
Valley National Bank maintains a KSOP, which is 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 $6.7 million, $7.1 million and $6.0 million in expense for contributions to the plan for
the years ended December 31, 2016, 2015 and 2014, respectively.
Effective January 1, 2016, Valley amended the benefits under the Bank’s 401(k) plan. Under the amendment, Valley’s
matching contribution increased to a 100 percent of the first 4 percent of compensation contributed by an employee each pay
period, and 50 percent of the next 2 percent of compensation contributed, for a maximum matching contribution of 5 percent with
an annual limit of $13,250 in 2016. During 2015 and 2014, Valley's matching contribution was dollar-for-dollar up to 6 percent
of compensation contributed by an employee each pay period.
Stock-Based Compensation
Valley currently has one active employee stock option plan, the 2016 Long-Term Stock Incentive Plan (the “2016 Stock
Plan”), adopted by Valley’s Board of Directors on January 29, 2016 and approved by its shareholders on April 28, 2016. The
2016 Stock Plan provides for certain increases and decreases in the number of shares available for grant under Valley's 2009 Long-
Term Stock Incentive Plan (the "2009 Stock Plan"). Effective January 1, 2016, the 2.2 million of common shares remaining under
the 2009 Stock Plan became available for future grants under the 2016 Stock Plan. Accordingly, Valley will no longer grant new
awards under the 2009 Stock Plan.
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.
2016 Form 10-K
122
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 2016 Stock Plan, Valley may award shares of common stock to its employees and non-employee directors in the
form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs).
As of December 31, 2016, 8.3 million shares of common stock were available for issuance under the 2016 Stock Plan. 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, except for performance-based awards with a market
condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third
party specialist using a Monte Carlo valuation model. The maximum term to exercise an incentive stock option is ten years from
the date of grant and is subject to a vesting schedule.
Valley recorded total stock-based compensation expense, primarily for restricted stock awards, totaling $10.0 million, $8.8
million and $7.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. The stock-based compensation
expense for 2016, 2015 and 2014 included $3.5 million, $2.6 million and $3.9 million, respectively, related to stock awards granted
to retirement eligible employees and was immediately recognized. The fair values of all other stock awards are expensed over the
shorter of the vesting or required service period. As of December 31, 2016, the unrecognized amortization expense for all stock-
based compensation totaled approximately $13.8 million and will be recognized over an average remaining vesting period of
approximately 2.5 years.
Restricted Stock. Restricted stock is awarded to key employees providing for the immediate award of our common stock
subject to certain vesting and restrictions under the Employee Stock Incentive Plan. Compensation expense is measured based on
the grant-date fair value of the shares.
The following table sets forth the changes in restricted stock awards outstanding for the years ended December 31, 2016,
2015 and 2014:
Outstanding at beginning of year
Granted
Vested
Forfeited
Outstanding at end of year
Restricted Stock Awards Outstanding
2015
2014
2016
2,755,138
544,307
(1,050,293)
(148,336)
2,100,816
2,574,616
886,427
(559,958)
(145,947)
2,755,138
1,709,312
1,488,960
(524,663)
(98,993)
2,574,616
The restricted stock awards granted in 2016 have vesting periods ranging from three to six years. The average grant date fair
value of restricted stock awarded during the year ended December 31, 2016 was $8.84 per share. Included in the restricted shares
granted (in the table above) during 2014, 240 thousand shares were performance-based awards made to executive officers. The
performance-based restricted stock awards vest based on the same performance measures for the RSU grants discussed further
below. A portion of the performance-based restricted stock awards vest after three years based on the cumulative performance of
Valley during that time period with an opportunity for earlier vesting of a portion of the shares based on growth in tangible book
value performance. During 2016 and 2015, 53 thousand and 50 thousand restricted shares, respectively, of the performance-
based restricted stock awards vested. The remaining outstanding awards were unvested as of December 31, 2016, of which 85
thousand shares vested during the first quarter of 2017. The remaining unvested restricted stock awards were subsequently forfeited
during the first quarter of 2017 due to failure to meet the performance and market conditions.
Restricted Stock Units. Valley granted 431 thousand shares and 313 thousand shares of performance-based RSUs to certain
executive officers for the year ended December 31, 2016 and 2015, respectively. The RSUs vest based on (i) growth in tangible
book value per share plus dividends (75 percent of performance shares) and (ii) total shareholder return as compared to our peer
group (25 percent of performance shares). The RSUs "cliff" vest after three years based on the cumulative performance of Valley
during that time period. The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common share) over the
applicable performance period. Dividend equivalents and accrued interest, per the terms of the agreements, are accumulated and
paid to the grantee at the vesting date, or forfeited if the performance conditions are not met. The grant date fair value of the RSUs
was $8.32 and $8.98 per share for the years ended December 31, 2016 and 2015, respectively. Compensation costs related to RSUs
totaled $2.8 million and $2.3 million, and were included in total stock-based compensation expense for the years ended
December 31, 2016 and 2015, respectively.
123
2016 Form 10-K
Our 2016 Stock Plan provides for our non-employee directors to be eligible recipients of limited equity awards. Commencing
with our 2017 annual meeting, each non-employee director will receive RSU awards totaling $50,000 in grant date fair value as
part of their annual retainer. The RSUs will be granted on the date of the annual shareholders’ meeting, with the number of RSUs
to be determined using the closing market price on the date prior to grant. The RSUs vest on the earliest of the next annual
shareholders’ meeting or the first anniversary of the grant date, with acceleration upon a change in control, death or disability, but
not resignation from the board.
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; the stock volatility,
based on Valley’s historical and implied stock price volatility; the 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.
The following table summarizes stock options activity as of December 31, 2016, 2015 and 2014 and changes during the
years ended on those dates:
2016
2015
2014
Stock Options
Outstanding at beginning of year
Granted
Forfeited or expired
Outstanding at end of year
Exercisable at year-end
$
Shares
1,383,365
—
(650,876)
732,489
632,489
Weighted
Average
Exercise
Price
16
—
18
14
14
Weighted
Average
Exercise
Price
17
11
18
16
16
$
Shares
1,828,591
100,000
(545,226)
1,383,365
1,283,365
$
Shares
2,322,593
—
(494,002)
1,828,591
1,828,591
Weighted
Average
Exercise
Price
The following table summarizes information about stock options outstanding and exercisable at December 31, 2016:
Range of Exercise Prices
$10-14
14-15
15-17
18-19
Options Outstanding and Exercisable
Number of Options
Weighted Average
Remaining Contractual
Life in Years
Weighted Average
Exercise Price
134,681
445,654
3,388
48,766
632,489
$
3.6
1.1
1.1
0.1
1.6
Director Restricted Stock Plan. The Director Restricted Stock Plan provides the non-employee members of the Board of
Directors with the opportunity to forgo some or their entire annual cash retainer and meeting fees in exchange for shares of Valley
restricted stock. On January 29, 2014, the Director Restricted Stock Plan was amended to provide that no additional fees may be
exchanged for Valley’s restricted stock effective April 1, 2014. The Director Restricted Stock Plan will terminate after April 2018
when the remaining restricted stock under the plan vests and is delivered, or is forfeited pursuant to such plan.
The following table sets forth the changes in director’s restricted stock awards outstanding for the years ended December 31,
2016, 2015 and 2014:
Outstanding at beginning of year
Vested
Outstanding at end of year
Restricted Stock Awards Outstanding
2015
2014
2016
80,117
(24,607)
55,510
98,086
(17,969)
80,117
121,792
(23,706)
98,086
2016 Form 10-K
124
17
—
19
17
17
12
15
16
19
14
INCOME TAXES (Note 13)
Income tax expense for the years ended December 31, 2016, 2015 and 2014 consisted of the following:
Current expense (benefit):
Federal
State
Deferred expense:
Federal
State
Total income tax expense
2016
2015
(in thousands)
2014
$
$
25,176
12,904
38,080
10,658
16,496
27,154
65,234
$
$
$
7,978
(493)
7,485
(7,539)
23,992
16,453
23,938
$
25,156
(5,549)
19,607
(13,888)
25,343
11,455
31,062
The tax effects of temporary differences that gave rise to the significant portions of the deferred tax assets and liabilities as
of December 31, 2016 and 2015 are as follows:
Deferred tax assets:
Allowance for loan losses
Depreciation
Employee benefits
Investment securities, including other-than-temporary impairment losses
Net operating loss carryforwards
Purchase accounting
Other
Total deferred tax assets
Deferred tax liabilities:
Pension plans
Other investments
Other
Total deferred tax liabilities
Net deferred tax asset (included in other assets)
2016
2015
(in thousands)
47,485
12,432
16,121
17,272
46,667
33,172
22,183
195,332
24,575
20,831
20,418
65,824
129,508
$
$
44,382
15,661
16,104
18,697
57,722
40,585
21,310
214,461
18,861
15,720
21,449
56,030
158,431
$
$
Valley's federal net operating loss carryforwards totaled approximately $77.6 million at December 31, 2016 and expire
during the period from 2029 through 2034 and state net operating loss carryforwards totaled approximately $514.3 million at
December 31, 2016 and expire during the period from 2017 through 2036. Valley’s federal and state alternative minimum tax
credit carryforwards were approximately $1.9 million and $3.7 million at December 31, 2016, respectively, and can be carried
forward indefinitely.
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.
125
2016 Form 10-K
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, 2016, 2015 and 2014 were
as follows:
2016
2015
(in thousands)
2014
Federal income tax at expected statutory rate
$
81,683
$
44,413
$
51,532
Increase (decrease) due to:
State income tax expense, net of federal tax effect
19,197
15,274
12,866
Tax-exempt interest, net of interest incurred to carry tax-
exempt securities
Bank owned life insurance
Tax credits from securities and other investments
Reduction in reserve for uncertainties
Other, net
Income tax expense
(5,308)
(2,343)
(25,954)
—
(2,041)
65,234
$
(4,864)
(2,385)
(28,988)
—
488
$
23,938
$
(4,406)
(2,237)
(20,555)
(6,971)
833
31,062
A reconciliation of Valley’s gross unrecognized tax benefits for 2016, 2015 and 2014 are presented in the table below:
Beginning balance
Additions based on tax positions related to prior years
Settlements with taxing authorities
Reductions due to expiration of statute of limitations
Ending balance
2016
2015
(in thousands)
2014
$
$
19,892
3,958
(4,820)
(2,886)
16,144
$
$
18,647
1,245
—
—
19,892
$
$
30,713
1,408
(9,050)
(4,424)
18,647
The entire balance of unrecognized tax benefits, if recognized, would favorably affect our effective income tax rate. It is
reasonably possible that the liability for unrecognized tax benefits could increase or decrease in the next twelve months due to
completion of tax authorities’ exams or the expiration of statutes of limitations. Management estimates that the liability for
unrecognized tax benefits could decrease by $16.1 million within the next twelve months.
Valley’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Valley
has accrued approximately $4.6 million and $5.2 million of interest associated with Valley’s uncertain tax positions at December 31,
2016 and 2015, 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 2009. Valley is under examination
by the IRS and also currently under routine examination by various state jurisdictions, and we expect the examinations to be
completed within the next twelve months. Valley has considered, for all open audits, any potential adjustments in establishing our
reserve for unrecognized tax benefits as of December 31, 2016.
TAX CREDIT INVESTMENTS (Note 14)
Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and
other investments related to community development and renewable energy sources. Some of these tax-advantaged investments
support Valley’s regulatory compliance with the Community Reinvestment Act. Valley’s investments in these entities generate a
return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating
losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income
tax expense.
Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s
unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities
on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including
impairment losses, within non-interest expense of the consolidated statements of income using the equity method of accounting.
An impairment loss is recognized when the fair value of the tax credit investment is less than its carrying value.
2016 Form 10-K
126
The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments,
and related unfunded commitments at December 31, 2016 and 2015:
Other Assets:
Affordable housing tax credit investments, net
Other tax credit investments, net
Total tax credit investments, net
Other Liabilities:
Unfunded affordable housing tax credit commitments
Unfunded other tax credit commitments
Total unfunded tax credit commitments
December 31,
2016
2015
(in thousands)
$
$
$
$
29,567
44,763
74,330
4,850
7,276
12,126
$
$
$
$
32,094
70,681
102,775
7,330
12,545
19,875
The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax
credit investments for the years ended December 31, 2016, 2015 and 2014:
Components of Income Tax Expense:
Affordable housing tax credits and other tax benefits
Other tax credit investment credits and tax benefits
Total reduction in income tax expense
Amortization of Tax Credit Investments:
Affordable housing tax credit investment losses
Affordable housing tax credit investment impairment losses
Other tax credit investment losses
Other tax credit investment impairment losses
Total amortization of tax credit investments recorded in
non-interest expense
$
$
$
$
COMMITMENTS AND CONTINGENCIES (Note 15)
Lease Commitments
2016
2015
2014
(in thousands)
$
$
$
5,013
33,294
38,307
2,077
450
790
31,427
$
$
$
4,709
23,877
28,586
2,594
1,321
1,079
22,318
34,744
$
27,312
$
5,296
14,357
19,653
3,184
3,211
2,359
15,442
24,196
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
2017
2018
2019
2020
2021
Thereafter
Total lease commitments
Gross Rents
Sublease
Rents
(in thousands)
Net Rents
$
$
27,256
26,863
26,361
26,458
25,754
281,310
414,002
$
$
2,888
2,260
2,125
2,059
1,972
9,631
20,935
$
$
24,368
24,603
24,236
24,399
23,782
271,679
393,067
127
2016 Form 10-K
Net occupancy expense for years ended December 31, 2016, 2015, and 2014 included net rental expense of $27.7 million,
$31.7 million, and $21.2 million, respectively, net of rental income of $4.0 million, $3.8 million, and $3.1 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, 2016 and
2015:
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
Commitments to sell loans
Outstanding residential mortgage loan commitments
Commitments under unused lines of credit—credit card
Commercial letters of credit
$
2016
2015
(in thousands)
$
2,855,326
904,999
560,929
217,695
147,250
108,063
49,715
4,960
2,554,146
822,506
724,236
198,253
41,860
54,293
50,532
4,249
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 Florida.
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 or 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.
Litigation
In the normal course of business, Valley is 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. However, in the event of an unexpected adverse outcome in one or more of our legal
proceedings, operating results for a particular period may be negatively impacted. Disclosure is required when a risk of material
loss in a litigation or claim is more than remote, even when the risk of a material loss is less than likely. Unless an estimate cannot
be made, disclosure is also required of the estimate of the reasonably possible loss or range of loss.
Although there can be no assurance as to the ultimate outcome, Valley has generally denied, or believes it has a meritorious
defense and will deny liability in litigation pending against Valley and claims made, including the matter described below. Valley
intends to defend vigorously each case against it. Liabilities are established for legal claims when payments associated with the
claims become probable and the costs can be reasonably estimated.
Merrick Bank Corporation v. Valley National Bank and American Express Travel Related Services v. Valley National
Bank litigation. For about a decade, Valley served as the depository bank for various charter operators under regulations of the
Department of Transportation (DOT) and contracts entered into with charter operators under those regulations. The purported
2016 Form 10-K
128
intent of the regulations is to afford some protection to the customers of the charter operators. A charter operator has several
options with regard to fulfilling its obligations under the regulations, with one option requiring the charter operator to deposit the
proceeds of tickets purchased for a charter flight into an FDIC insured bank account. The funds for a flight are released when the
charter operator certifies that the flight has been completed. Valley stopped serving as a depository bank for the charter business
due to the narrow profit in that business combined with the legal expenses incurred to defend itself in a prior case in which Valley
was completely successful and the anticipated legal expenses from the following similar cases that are still pending.
Valley served as the depository bank for Myrtle Beach Direct Air (Direct Air) under a contract between Direct Air and Valley
approved by the DOT under the DOT regulations. Direct Air commenced operations in 2007 but in March 2012 Direct Air ceased
operations and filed for bankruptcy. Thereafter the United States Justice Department charged three of the principals of Direct Air
with criminal fraud; that case is expected to go to trial in September 2017. Merrick Bank Corp. (Merrick) was the merchant bank
for Direct Air and processed credit card purchases for Direct Air. Following the bankruptcy of Direct Air, Merrick incurred
chargebacks in the approximate amount of $26.2 million when the Direct Air customers whose flights had been canceled obtained
a credit from their card issuing banks for the cost of the ticket or other item purchased from Direct Air. Merrick was not able to
recover the chargebacks from Direct Air. Direct Air’s depository account at Valley contained approximately $1.0 million at the
time Direct Air ceased operations.
Merrick filed an action against Valley with ten counts in December 2013. Valley moved to dismiss five of the counts and,
in March 2015, the court dismissed four of the five counts. American Express Travel Related Services (American Express) filed
a similar action against Valley claiming about $3.0 million in chargebacks. Five of American Express’ eleven counts have been
dismissed. The two cases have now been consolidated in the Federal District Court of New Jersey.
The parties are scheduled for mediation in March 2017 after which, if the mediation is not successful, Valley will file summary
judgment motions on all of the remaining counts in both the Merrick and American Express cases.
At December 31, 2016, Valley could not estimate an amount or range of reasonably possible losses related to the matter
described above. Based upon information currently available and advice of counsel, Valley believes that the eventual outcome of
such claims will not have a material adverse effect on Valley’s consolidated financial position. However, in the event of unexpected
future developments, it is possible that the ultimate resolution of the matters, if unfavorable, may be material to Valley’s results
of operations for a particular period.
Derivative Instruments and Hedging Activities
Valley is exposed to certain risks arising from both its business operations and economic conditions. Valley principally
manages its exposure 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 related to assets and liabilities as outlined below.
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, 2016, Valley had the following cash flow hedge derivatives:
• Two interest rate swaps with a total notional amount of $100 million to hedge the changes in cash flows associated with
prime-rate-indexed deposits, consisting of consumer and commercial money market deposit accounts. The swaps 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 and expire in July 2017.
• One interest rate cap with a total notional amount of $125 million with a strike rate of 7.44 percent and a maturity date
of September 27, 2023 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.
• Three forward starting interest rate swaps with a total notional amount of $300 million to hedge the changes in cash flows
associated with certain brokered money market deposits. Starting in November 2015, the interest rate swaps required
Valley to pay fixed-rate amounts ranging from approximately 2.57 percent to 2.97 percent, in exchange for the receipt
129
2016 Form 10-K
of variable-rate payments at the three-month LIBOR rate. The three swaps have expiration dates ranging from November
2018 to November 2020.
•
Four forward starting interest rate swaps with a total notional amount of $182 million to hedge the changes in cash flows
associated with borrowed funds. Starting in March and April 2016, the interest rate swaps required Valley to pay fixed-
rate amounts ranging from approximately 2.51 percent to 2.88 percent, in exchange for the receipt of variable-rate payments
at the three-month LIBOR rate. The four swaps have expiration dates ranging from March 2019 to September 2020.
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. 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.
At December 31, 2016, Valley had one interest rate swap with a notional amount of approximately $8.0 million used to
hedge the change in the fair value of a commercial loan.
In August 2016, Valley terminated an interest rate swap with a notional amount of $125 million. The terminated swap,
originally maturing in September 2023, was used to hedge the change in the fair value of Valley’s $125 million of 5.125 percent
subordinated notes issued in September 2013. The transaction resulted in an adjusted annual interest rate of 3.32 percent on the
subordinated notes, after amortization of the derivative valuation adjustment recorded at the termination date.
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, Valley executes interest rate swaps with
commercial lending 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.
In 2014, Valley issued $25 million of market linked certificates of deposit through a broker dealer. The rate paid on these
hybrid instruments is based on a formula derived from the spread between the long and short ends of the constant maturity swap
(CMS) rate curve. This type of instrument is referred to as a "steepener" since it derives its value from the slope of the CMS
curve. Valley has determined that these hybrid instruments contain an embedded swap contract which has been bifurcated from
the host contract. Valley entered into a swap (with a total notional amount of $25 million) almost simultaneously with the deposit
issuance where the receive rate on the swap mirrors the pay rate on the brokered deposits. The bifurcated derivative and the stand
alone swap are both marked to market through other non-interest expense. Although these instruments do not meet the hedge
accounting requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in
opposite directions with changes in the three-month LIBOR rate and, therefore, provide an effective economic hedge.
Valley also regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include
interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary
market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future
delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the
effect of future changes in interest rates on Valley’s commitments to fund the loans as well as on its portfolio of mortgage loans
held for sale.
2016 Form 10-K
130
Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial
instruments were as follows:
December 31, 2016
December 31, 2015
Fair Value
Fair Value
Other
Assets
Other
Liabilities
Notional
Amount
Other
Assets
Other
Liabilities
Notional
Amount
(in thousands)
Derivatives designated as hedging
instruments:
Cash flow hedge interest rate caps
and swaps
Fair value hedge interest rate swaps
Total derivatives designated as
hedging instruments
Derivatives not designated as hedging
instruments:
Interest rate swaps and embedded
derivatives
Mortgage banking derivatives
Total derivatives not designated as
hedging instruments
$
$
$
$
802
—
15,641
986
$ 707,000
7,999
$
$
1,284
7,658
24,823
1,306
$ 907,000
133,209
802
$
16,627
$ 714,999
$
8,942
$
26,129
$ 1,040,209
$
25,285
2,968
25,284
2,166
$ 1,075,722
246,583
$
$
24,628
204
24,623
92
$ 654,134
73,438
$
28,253
$
27,450
$ 1,322,305
$
24,832
$
24,715
$ 727,572
Losses included in the consolidated statements of income and in other comprehensive income (loss), on a pre-tax basis,
related to interest rate derivatives designated as hedges of cash flows were as follows:
2016
2015
(in thousands)
2014
Amount of loss reclassified from accumulated other comprehensive loss to
interest expense
Amount of loss recognized in other comprehensive income
$
(13,034) $
(4,035)
(7,075) $
(12,360)
(6,663)
(20,910)
The net gains or losses related to cash flow hedge ineffectiveness were immaterial during the years ended December 31,
2016, 2015 and 2014. The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other
comprehensive loss were $12.5 million and $17.6 million at December 31, 2016 and 2015, 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. Valley estimates that $8.8 million
will be reclassified as an increase to interest expense in 2017.
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 expense
Hedged item—loans, deposits and long-term borrowings:
Interest income
Interest expense
2016
2015
(in thousands)
2014
$
$
$
320
6,670
(320) $
(6,645)
$
176
1,400
(176) $
(1,473)
(13)
9,380
13
(9,449)
During the years ended December 31, 2016, 2015 and 2014, the amounts recognized in non-interest expense related to the
ineffectiveness of fair value hedges were immaterial.
131
2016 Form 10-K
Net gains (losses) included in the consolidated statements of income related to derivative instruments not designated as
hedging instruments were as follows:
Non-designated hedge interest rate derivatives
Other non-interest expense
2016
2015
(in thousands)
2014
$
690
$
158
$
(214)
Collateral Requirements and Credit Risk Related Contingency 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, 2016, Valley was in compliance with all of the provisions of
its derivative counterparty agreements. As of December 31, 2016, 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 $25.2 million.
Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties. At
December 31, 2016, Valley had $52.4 million in collateral posted with its counterparties.
BALANCE SHEET OFFSETTING (Note 16)
Certain financial instruments, including derivatives (consisting of interest rate caps and swaps) and repurchase agreements
(accounted for as secured long-term borrowings), may be eligible for offset in the consolidated balance sheet and/or subject to
master netting arrangements or similar agreements. Valley is party to master netting arrangements with its financial institution
counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation
purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in
the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment
securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. Master repurchase
agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts.
In such cases, the collateral would be used to settle the fair value of the repurchase agreement should Valley be in default.
2016 Form 10-K
132
The table below presents information about Valley’s financial instruments that are eligible for offset in the consolidated
statements of financial condition as of December 31, 2016 and 2015.
Gross Amounts
Recognized
Gross Amounts
Offset
Net Amounts
Presented
Financial
Instruments
Cash
Collateral
Net
Amount
Gross Amounts Not Offset
December 31, 2016
Assets:
Interest rate caps and swaps $
26,087
Liabilities:
Interest rate caps and swaps $
Repurchase agreements
Total
$
41,911
165,000
206,911
December 31, 2015
Assets:
Interest rate caps and swaps $
33,570
Liabilities:
Interest rate caps and swaps $
Repurchase agreements
Total
$
50,752
475,000
525,752
$
$
$
$
$
$
(in thousands)
— $
26,087
— $
—
— $
41,911
165,000
206,911
— $
33,570
— $
—
— $
50,752
475,000
525,752
$
$
$
$
$
$
(5,268) $
—
$
20,819
(5,268) $ (36,643) (1) $
—
(165,000) (2)
(5,268) $ (201,643)
$
—
—
—
(8,942) $
—
$
24,628
(8,942) $ (41,810) (1) $
—
(475,000) (2)
(8,942) $ (516,810)
$
—
—
—
(1)
(2)
Represents the amount of collateral posted with counterparties that offsets net liabilities at December 31, 2016 and 2015, respectively.
Actual cash collateral posted with counterparties totaled $52.4 million and $53.0 million at December 31, 2016 and 2015, respectively.
Represents the fair value of non-cash pledged investment securities.
REGULATORY AND CAPITAL REQUIREMENTS (Note 17)
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 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 calculated under regulatory accounting
practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National Bank to
maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier
1 capital to average assets, as defined in the regulations.
Effective January 1, 2015, Valley implemented the Basel III regulatory capital framework and related Dodd-Frank Wall
Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Basel III final rules require a new common equity Tier 1 capital
to risk-weighted assets ratio of 4.5 percent, Tier 1 capital to risk-weighted assets of 6.0 percent, ratio of total capital to risk-weighted
assets of 8.0 percent, and minimum leverage ratio of 4.0 percent. The new rule changes included the implementation of a new
capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. The capital conservation
buffer is subject to a three year phase-in period that started on January 1, 2016, at 0.625 percent of risk-weighted assets and
increases each subsequent year by 0.625 percent until reaching its final level of 2.5 percent when fully phased-in on January 1,
2019. The final rule also revised the definition and calculation of Tier 1 capital, total capital and risk-weighted assets. As of
December 31, 2016 and 2015, Valley and Valley National Bank exceeded all capital adequacy requirements with the capital
conservation buffer under the Basel III Capital Rules (see table below).
133
2016 Form 10-K
The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under the Basel III risk-
based capital guidelines at December 31, 2016 and 2015:
Actual
Minimum Capital
Requirements
To Be Well
Capitalized Under
Prompt Corrective
Action Provision
Amount
Ratio
Amount
Ratio
Amount
Ratio
($ in thousands)
$ 2,084,531
2,023,857
12.15% $ 1,480,006
1,476,767
11.82
8.625%
8.625
N/A
$ 1,712,193
N/A
10.00%
1,590,825
1,807,201
1,698,767
1,807,201
1,698,767
1,807,201
9.27
10.55
9.90
10.55
7.74
8.25
879,424
877,499
1,136,816
1,134,328
878,244
876,026
5.125
5.125
6.625
6.625
4.00
4.00
N/A
1,112,926
N/A
1,369,755
N/A
1,095,032
N/A
6.50
N/A
8.00
N/A
5.00
$ 1,910,304
1,826,420
12.02% $ 1,271,171
1,266,942
11.53
8.00%
8.00
N/A
$ 1,583,677
N/A
10.00%
1,431,973
1,618,053
1,543,937
1,618,053
1,543,937
1,618,053
9.01
10.22
9.72
10.22
7.90
8.29
715,034
712,655
953,378
950,206
781,388
780,831
4.50
4.50
6.00
6.00
4.00
4.00
N/A
1,029,390
N/A
1,266,942
N/A
976,039
N/A
6.50
N/A
8.00
N/A
5.00
As of December 31, 2016
Total Risk-based Capital
Valley
Valley National Bank
Common Equity Tier 1 Capital
Valley
Valley National Bank
Tier 1 Risk-based Capital
Valley
Valley National Bank
Tier 1 Leverage Capital
Valley
Valley National Bank
As of December 31, 2015
Total Risk-based Capital
Valley
Valley National Bank
Common Equity Tier 1 Capital
Valley
Valley National Bank
Tier 1 Risk-based Capital
Valley
Valley National Bank
Tier 1 Leverage Capital
Valley
Valley National Bank
2016 Form 10-K
134
COMMON AND PREFERRED STOCK (Note 18)
Common Stock
Common Stock Issuance. In December 2016, Valley issued and sold 9.24 million of its common stock in a registered public
offering. The net proceeds of the offering were $106.4 million and will be used to, among other things, support continued loan
growth at the Bank.
Dividend Reinvestment Plan. 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 2016, 2015 and 2014, 554 thousand, 713 thousand, and 499 thousand
of common shares, respectively, were reissued from treasury stock or issued from authorized common shares under the DRIP for
net proceeds totaling $5.2 million, $7.0 million and $5.0 million, respectively.
Common Stock Warrants. On January 1, 2012, Valley assumed in the acquisition of State Bancorp, Inc. a warrant issued
(in connection with State Bancorp's redeemed preferred stock issuance) to the U.S. Treasury in December 2008. The ten-year
warrant to purchase up to 489 thousand of Valley common shares has an exercise price of $11.30 per share, and is exercisable on
a net exercise basis. During May 2015, the U.S. Treasury sold the warrant shares individually through a public action, in which
Valley did not receive any of the proceeds. All of the warrants, which will expire on December 5, 2018, remained outstanding and
unexercised at December 31, 2016.
In connection with the issuance of senior preferred shares in 2008 under the TARP program, Valley issued to the U.S. Treasury
a ten-year warrant to purchase up to approximately $2.5 million of Valley common shares. During 2010, the U.S. Treasury sold
the warrant shares individually 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 1.103 Valley common shares at $16.12 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 $4.7 million of 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, 2016, 2015 and 2014.
Other Stock Repurchases. Valley also purchases shares directly from its employees in connection with employee elections
to withhold taxes related to the vesting of stock awards, including vested stock options exchanged for Valley common stock in
the CNL acquisition. During the years ended December 31, 2016, 2015 and 2014, Valley purchased approximately 328 thousand,
387 thousand and 174 thousand shares, respectively, of its outstanding common stock at an average price of $9.73, $9.95 and
$9.68, respectively, for such purpose.
Preferred Stock
On June 19, 2015, Valley issued 4.6 million shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock,
Series A, no par value per share, with a liquidation preference of $25 per share. Dividends on the preferred stock accrue and are
payable quarterly in arrears, at a fixed rate per annum equal to 6.25 percent from the original issue date to, but excluding, June
30, 2025, and thereafter at a floating rate per annum equal to three-month LIBOR plus a spread of 3.85 percent. The net proceeds
from the preferred stock offering totaled approximately $111.6 million. The preferred stock is included in Valley's Tier 1 capital
and total risk-based capital at December 31, 2016 and 2015.
135
2016 Form 10-K
OTHER COMPREHENSIVE INCOME (Note 19)
The following table presents the tax effects allocated to each component of other comprehensive income (loss) for the years
ended December 31, 2016, 2015 and 2014. Components of other comprehensive income (loss) include changes in net unrealized
gains and 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 and losses on derivatives used in cash flow hedging relationships;
and the pension benefit adjustment for the unfunded portion of various employee, officer and director pension plans.
Before
Tax
2016
Tax
Effect
After
Tax
Before
Tax
2015
Tax
Effect
(in thousands)
After
Tax
Before
Tax
2014
Tax
Effect
After
Tax
Unrealized gains and losses on
available for sale (AFS) securities
Net (losses) gains arising during the
period
Less reclassification adjustment for
net gains included in net income (1)
Net change
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
accretion of credit impairment
losses included in net income (2)
Net change
Unrealized gains and losses on
derivatives (cash flow hedges)
Net (losses) gains arising during the
period
Less reclassification adjustment for
net losses included in net income (3)
Net change
Defined benefit pension plan
Net gains (losses) arising during the
period
Amortization of prior service cost (4)
Amortization of net loss (4)
Net change
Total other comprehensive income
(loss)
$ (7,294) $
3,001
$ (4,293) $ (3,458) $
1,458
$ (2,000) $ 33,329
$ (13,931) $ 19,398
(777)
312
(465)
(2,487)
(8,071)
3,313
(4,758)
(5,945)
1,041
2,499
(1,446)
(745)
312
(433)
(3,446)
32,584
(13,619)
18,965
719
(302)
417
(416)
175
(241)
2,299
(965)
1,334
(921)
(202)
382
80
(539)
(122)
(728)
(1,144)
304
479
(424)
(665)
(661)
1,638
278
(687)
(383)
951
(4,035)
1,574
(2,461)
(12,360)
5,121
(7,239)
(20,910)
8,763
(12,147)
13,034
8,999
(5,393)
(3,819)
7,641
5,180
7,075
(2,948)
4,127
6,663
(2,777)
3,886
(5,285)
2,173
(3,112)
(14,247)
5,986
(8,261)
5,837
(2,539)
3,298
6,030
(2,586)
3,444
(27,902)
11,695
(16,207)
(300)
294
119
(109)
(181)
185
206
790
(89)
(328)
117
462
305
226
(128)
(94)
177
132
5,831
(2,529)
3,302
7,026
(3,003)
4,023
(27,371)
11,473
(15,898)
$
6,557
$ (2,955) $
3,602
$ (5,348) $
2,148
$ (3,200) $ (7,396) $
3,153
$ (4,243)
(1) Included in gains on securities transactions, net.
(2) Included in interest and dividends on investment securities (taxable).
(3) Included in interest expense.
(4) Included in the computation of net periodic pension cost. See Note 12 for details.
2016 Form 10-K
136
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, 2016, 2015 and 2014:
Components of Accumulated Other Comprehensive Loss
Unrealized
Gains
and Losses
on AFS
Securities
Non-credit
Impairment
Losses on
Securities
Unrealized
Gains
and Losses
on
Derivatives
Defined
Benefit
Pension
Plan
Total
Accumulated
Other
Comprehensive
Loss
Balance-December 31, 2013
$
(20,855) $
(806) $
(in thousands)
(6,271) $
(10,320) $
(38,252)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from other comprehensive
income (loss)
Other comprehensive income (loss), net
Balance-December 31, 2014
Other comprehensive (loss) income before
reclassifications
Amounts reclassified from other comprehensive
(loss) income
Other comprehensive (loss) income, net
Balance-December 31, 2015
Other comprehensive (loss) income before
reclassifications
Amounts reclassified from other comprehensive
(loss) income
Other comprehensive (loss) income, net
Balance-December 31, 2016
19,398
1,334
(12,147)
(16,207)
(7,622)
(433)
18,965
(1,890)
(2,000)
(1,446)
(3,446)
(5,336)
(383)
951
145
(241)
(424)
(665)
(520)
3,886
(8,261)
(14,532)
309
(15,898)
(26,218)
3,379
(4,243)
(42,495)
(7,239)
3,444
(6,036)
4,127
(3,112)
(17,644)
579
4,023
(22,195)
2,836
(3,200)
(45,695)
(4,293)
417
(2,461)
3,298
(3,039)
(465)
(4,758)
(10,094) $
$
(539)
(122)
(642) $
7,641
5,180
(12,464) $
4
3,302
(18,893) $
6,641
3,602
(42,093)
137
2016 Form 10-K
QUARTERLY FINANCIAL DATA (UNAUDITED) (Note 20)
March 31
June 30
September 30
December 31
Quarters Ended 2016
(in thousands, except for share data)
191,203
$
189,028
$
$
201,095
Interest income
Interest expense
Net interest income
Provision for credit losses
Non-interest income:
Gains on sales of loans, net
Other non-interest income
Non-interest expense:
Loss on extinguishment of debt
Amortization of tax credit investments
Other non-interest expense
Income before income taxes
Income tax expense
Net income
Dividend on preferred stock
Net income available to common shareholders
Earnings per common share:
Basic
Diluted
Cash dividends declared per common share
Weighted average number of common shares outstanding:
$
185,597
37,444
148,153
800
1,795
19,653
—
7,264
110,961
50,576
14,389
36,187
1,797
34,390
37,573
151,455
1,429
3,105
21,159
315
7,646
111,842
54,487
15,460
39,027
1,797
37,230
37,057
154,146
5,840
4,823
20,030
—
6,450
106,818
59,891
17,049
42,842
1,797
41,045
36,700
164,395
3,800
12,307
20,353
—
13,384
111,445
68,426
18,336
50,090
1,797
48,293
0.19
0.19
0.11
$
$
0.14
0.14
0.11
$
$
0.15
0.15
0.11
$
0.16
0.16
0.11
Basic
Diluted
254,075,349
254,381,170
254,473,994
256,422,437
254,347,420
254,771,213
254,940,307
256,952,036
2016 Form 10-K
138
Interest income
Interest expense
Net interest income
Provision for credit losses
Non-interest income:
Gains on sales of loans, net
Other non-interest income
Non-interest expense:
Loss on extinguishment of debt
Amortization of tax credit investments
Other non-interest expense
Income before income taxes
Income tax expense
Net income
Dividend on preferred stock
Net income available to common shareholders
Earnings per common share:
Basic
Diluted
Cash dividends declared per common share
Weighted average number of common shares outstanding:
March 31
June 30
September 30
December 31
Quarters Ended 2015
$
170,985
38,899
132,086
—
598
18,047
—
4,496
(in thousands, except for share data)
174,690
$
175,754
$
39,577
136,177
4,500
422
19,778
—
4,511
40,730
133,960
94
2,014
18,905
—
5,224
103,622
102,901
103,428
42,613
12,272
30,341
—
30,341
44,465
12,474
31,991
—
31,991
46,133
10,179
35,954
2,017
33,937
$
185,594
37,548
148,046
3,507
1,211
22,827
51,129
13,081
110,683
(6,316)
(10,987)
4,671
1,796
2,875
$
$
0.13
0.13
0.11
$
0.14
0.14
0.11
$
0.15
0.15
0.11
0.01
0.01
0.11
Basic
Diluted
232,338,775
232,565,404
232,737,953
239,916,562
232,341,921
232,586,616
232,780,219
239,972,546
139
2016 Form 10-K
PARENT COMPANY INFORMATION (Note 21)
Condensed Statements of Financial Condition
Assets
Cash
Interest bearing deposits with banks
Investment securities available for sale
Investments in and receivables due from subsidiaries
Other assets
Total Assets
Liabilities and Shareholders’ Equity
Dividends payable to shareholders
Long-term borrowings
Junior subordinated debentures issued to capital trusts
Accrued expenses and other liabilities
Shareholders’ equity
$
$
$
December 31,
2016
2015
(in thousands)
68,927
$
63,330
82
239
2,591,982
36,188
2,697,418
29,477
236,731
41,577
12,477
2,377,156
$
$
135
806
2,398,784
61,365
2,524,420
28,054
230,573
41,414
17,288
2,207,091
2,524,420
Total Liabilities and Shareholders’ Equity
$
2,697,418
$
Condensed Statements of Income
Income
Dividends from subsidiary
Income from subsidiary
Gains on securities transactions, net
Other interest and income
Total Income
Total Expenses
Income before income tax benefit and equity in undistributed (losses)
earnings of subsidiary
Income tax benefit
Income before equity in undistributed earnings (losses) of subsidiary
Equity in undistributed earnings (losses) of subsidiary
Net Income
Dividends on preferred stock
Net Income Available to Common Shareholders
Years Ended December 31,
2015
2014
2016
(in thousands)
$
90,000
$
110,000
$
110,000
4,550
239
34
94,823
33,604
61,219
(23,349)
84,568
83,578
168,146
7,188
2,363
—
211
112,574
20,578
91,996
(21,939)
113,935
(10,978)
102,957
3,813
—
—
436
110,436
11,172
99,264
(3,245)
102,509
13,663
116,172
—
$
160,958
$
99,144
$
116,172
2016 Form 10-K
140
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net Income
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed (earnings) losses of subsidiary
Depreciation and amortization
Stock-based compensation
Net amortization of premiums and accretion of discounts on
securities
Gains on securities transactions, net
Net change in:
Other assets
Accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Investment securities available for sale:
Sales
Purchases
Cash and cash equivalents acquired in acquisitions
Capital contributions to subsidiary
Subordinated debt issued by subsidiary
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term borrowings, net
Proceeds from issuance of preferred stock, net
Dividends paid to preferred shareholders
Dividends paid to common shareholders
Purchase of common shares to treasury
Common stock issued, net
Net cash (used in) provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
BUSINESS SEGMENTS (Note 22)
Years Ended December 31,
2015
2014
2016
(in thousands)
$
168,146
$
102,957
$
116,172
(83,578)
—
10,032
163
(239)
8,007
18,381
120,912
739
—
—
(106,000)
—
(105,261)
—
—
(7,188)
(111,813)
(3,191)
112,085
(10,107)
5,544
63,465
10,978
—
7,575
162
—
(41,452)
9,604
89,824
49
—
109
(115,000)
(100,000)
(214,842)
98,897
111,590
(3,813)
(102,279)
(2,108)
7,898
110,185
(14,833)
78,298
$
69,009
$
63,465
$
(13,663)
18
7,489
163
—
6,632
(1,851)
114,960
46
(500)
14,776
—
—
14,322
—
—
—
(88,119)
(1,688)
5,096
(84,711)
44,571
33,727
78,298
Valley has four business segments that it monitors and reports on to manage Valley’s business operations. These segments
are consumer lending, commercial lending, investment management, and corporate and other adjustments. Valley’s reportable
segments have been determined based upon its 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 Valley’s operations, which may not
necessarily be comparable to any other financial institution. The accounting for each segment includes internal accounting policies
141
2016 Form 10-K
designed to measure consistent and reasonable financial reporting, and may result in income and expense measurements that differ
from amounts under U.S. GAAP. Furthermore, changes in management structure or allocation methodologies and procedures may
result in changes in reported segment financial data.
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 Valley’s income through investments in various types of
securities. These securities are mainly comprised of fixed rate investments 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 immediate changes
in market interest rates. However, a portion of the investment portfolio is invested in shorter-duration securities to maintain the
overall asset sensitivity of Valley’s balance sheet.
The amounts disclosed as “corporate and other adjustments” represent income and expense items not directly attributable
to a specific segment, including net gains and losses on securities not reported in the investment management segment above,
interest expense related to subordinated notes and income and expense from derivative financial instruments.
The following tables represent the financial data for Valley’s four business segments for the years ended December 31,
2016, 2015 and 2014:
Year Ended December 31, 2016
Average interest earning assets
(unaudited)
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
Income (loss) before income taxes
$
Return on average interest earning assets
(pre-tax) (unaudited)
Consumer
Lending
Commercial
Lending
Investment
Management
($ in thousands)
$ 5,081,798
$ 11,318,947
$ 3,428,567
$
176,929
$
509,376
$
35,175
141,754
905
140,849
63,443
62,721
71,578
69,993
78,347
431,029
10,964
420,065
3,292
70,145
160,198
$
193,014
$
89,378
23,732
65,646
—
65,646
6,694
1,281
48,475
22,584
Corporate
and Other
Adjustments
Total
$
$
$
— $ 19,829,312
(8,760) $
11,520
(20,280)
—
(20,280)
29,796
341,978
(280,251)
(52,211) $
766,923
148,774
618,149
11,869
606,280
103,225
476,125
—
233,380
1.38%
1.71%
0.66%
N/A
1.18%
2016 Form 10-K
142
Average interest earning assets
(unaudited)
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
Income (loss) before income taxes
$
Return on average interest earning
assets (pre-tax) (unaudited)
Average interest earning assets
(unaudited)
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
Income (loss) before income taxes
$
Return on average interest earning
assets (pre-tax) (unaudited)
Year Ended December 31, 2015
Consumer
Lending
Commercial
Lending
Investment
Management
($ in thousands)
Corporate
and Other
Adjustments
Total
$ 4,764,306
$
170,569
$
$
9,682,714
$ 2,978,484
39,787
130,782
1,153
129,629
45,306
59,794
72,441
42,700
463,062
$
80,861
382,201
6,948
375,253
744
68,156
146,463
$
161,378
$
$
$
$
— $ 17,425,504
(8,277) $
11,233
(19,510)
—
(19,510)
30,937
370,051
(264,364)
(94,260) $
707,023
156,754
550,269
8,101
542,168
83,802
499,075
—
126,895
81,669
24,873
56,796
—
56,796
6,815
1,074
45,460
17,077
0.90%
1.67%
0.57%
N/A
0.73%
Year Ended December 31, 2014
Consumer
Lending
Commercial
Lending
Investment
Management
($ in thousands)
Corporate
and Other
Adjustments
Total
$ 4,122,468
$
154,078
$
$
7,959,215
$ 2,959,100
41,343
112,735
438
112,297
40,611
59,051
65,477
28,380
399,192
$
79,820
319,372
1,446
317,926
(19,624)
58,142
126,465
$
113,695
$
$
$
$
— $ 15,040,783
(8,356) $
11,007
(19,363)
—
(19,363)
50,237
284,693
(239,002)
(14,817) $
636,603
161,846
474,757
1,884
472,873
77,616
403,255
—
147,234
91,689
29,676
62,013
—
62,013
6,392
1,369
47,060
19,976
0.69%
1.43%
0.68%
N/A
0.98%
143
2016 Form 10-K
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 (the "Company")
as of December 31, 2016 and 2015, 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, 2016. 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 the Company as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2016, 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, 2016, based on criteria established in Internal Control-
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated February 28, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Short Hills, New Jersey
February 28, 2017
2016 Form 10-K
144
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, 2016 (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 errors 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,
2016 that have materially affected, or are reasonably likely to materially affect, Valley’s internal control over financial reporting.
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, 2016 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 (2013),
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 Committee.
Based on this assessment, management determined that, as of December 31, 2016, 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, 2016 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, 2016. The report is included in this item
under the heading “Report of Independent Registered Public Accounting Firm.”
145
2016 Form 10-K
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Valley National Bancorp:
We have audited Valley National Bancorp’s (the "Company") internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's Management 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 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, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). 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 the Company as of December
31, 2016 and 2015, 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, 2016, and our report dated February 28, 2017
expressed an unqualified opinion on those consolidated financial statements.
Short Hills, New Jersey
February 28, 2017
2016 Form 10-K
146
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 2017 Proxy Statement is incorporated herein by reference.
Item 11.
Executive Compensation
The information set forth under the captions “Director Compensation”, “Compensation Committee Interlocks and Insider
Participation” and “Executive Compensation” in the 2017 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 2017 Proxy Statement is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information set forth under the captions “Compensation Committee Interlocks and Insider Participation”, “Certain
Transactions with Management” and “Corporate Governance” in the 2017 Proxy Statement is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information set forth under the caption “Ratification of Appointment of Independent Registered Public Accounting
Firm” in the 2017 Proxy Statement is incorporated herein by reference.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) Financial Statements and Schedules:
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
Page
72
73
74
75
76
78
144
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.
147
2016 Form 10-K
(b) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
(3) Articles of Incorporation and By-laws:
A.
B.
Restated Certificate of Incorporation of the Registrant, incorporated herein by reference to Exhibit
3.A of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2015.
By-laws of the Registrant, as amended and restated, incorporated herein by reference to Exhibit 3.1
to the Registrant’s Form 8-K Current Report filed on December 7, 2016.
(4) Instruments Defining the Rights of Security Holders:
A.
B.
C.
D.
E.
F.
Indenture, dated as of September 27, 2013, by and between Valley and The Bank of New York Mellon
Trust Company, N.A., as Trustee, incorporated herein by reference to Exhibit 4.1 to the Registrant’s
Form 8-K Current Report filed on September 27, 2013. (Valley 5.125% sub debt due September 27,
2023).
First Supplemental Indenture, dated as of September 27, 2013, by and between Valley and The Bank
of New York Mellon Trust Company, N.A., as Trustee, including the form of the Notes attached as
Exhibit A thereto, incorporated herein by reference to Exhibit 4.2 to the Registrant’s Form 8-K Current
Report filed on September 27, 2013 (Valley 5.125% sub debt due September 27, 2023).
Warrant to purchase Common Stock of Valley National Bancorp, incorporated herein by reference
to Exhibit 4.1 to the Registrant’s Form 8-K Current Report filed on January 3, 2012 (No. 001-11277)
(Warrants to purchase at $11.87, exercisable until December 5, 2018).
Specimen stock certificate of Valley National Bancorp 6.25% Fixed-to-Floating Rate Non-
Cumulative Perpetual Preferred Stock, Series A, incorporated herein by reference to Exhibit 4.2 to
the Registrant’s Form 8-A/A filed on July 9, 2015.
Indenture, dated as of June 19, 2015, by and between Valley and The Bank of New York Mellon Trust
Company, N.A., as Trustee, incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form
8-K Current Report filed on June 19, 2015. (Valley 4.55% sub debt due July 30, 2025).
First Supplemental Indenture, dated as of June 19, 2015, by and between Valley and The Bank of
New York Mellon Trust Company, N.A., as Trustee, including the form of the Notes attached as
Exhibit A thereto, incorporated herein by reference to Exhibit 4.2 to the Registrant’s Form 8-K
Current Report filed on June 19, 2015 (Valley 4.55% sub debt due July 30, 2025).
G.
Agreement to provide SEC with Indentures not filed. (Item 601(b)(4)(iii)(A).*
(10) Material Contracts:
A.
B.
C.
D.
Amended and Restated Change in Control Agreements among Valley National Bank, Valley and
Gerald H. Lipkin and Alan D. Eskow, dated June 22, 2011, incorporated herein by reference to Exhibits
10.A and 10.C to the Registrant’s Form 10-Q Quarterly Report filed on August 9, 2011 (No.
001-11277).+
Severance Agreement dated January 24, 2017 between Valley, Valley National Bank and Gerald H.
Lipkin, which replaced in full all predecessor severance and guaranteed retirement agreements,
incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form 8-K Current Report filed
on January 26, 2017.+
Severance Agreements dated January 22, 2008 between Valley, Valley National Bank and Alan D.
Eskow, incorporated herein by reference to Exhibits 10.7 to the Registrant’s Form 8-K Current Report
filed on January 28, 2008 (No. 001-11277).+
Form of Amended and Restated Change in Control Agreement applicable to Executive Vice Presidents
of Valley National Bank and Valley, incorporated herein by reference to Exhibit 10.E to the Registrant’s
Form 10-Q Quarterly Report filed on August 9, 2011 (No. 001-11277).+
2016 Form 10-K
148
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Q.
R.
S.
T.
Valley National Bancorp 2010 Executive Incentive Plan, incorporated herein by reference to Exhibit
10 to the Registrant’s Form 8-K Current Report filed on April 19, 2010 (No. 001-11277).+
The Valley National Bancorp Benefit Equalization Plan, as Amended and Restated, incorporated
herein by reference to Exhibit 10 to the Registrant’s Form 10-Q Quarterly Report filed on November
6, 2015.+
Form of Participant Agreement for the Benefit Equalization Plan, incorporated herein by reference
to Exhibit 10.J to the Registrant's Form 10-K Annual Report for the year ended December 31, 2011
(No. 001-11277).+
The Valley National Bancorp 2004 Director Restricted Stock Plan, as amended, incorporated herein
by reference to Exhibit 10.L to the Registrant’s Form 10-K Annual Report for the year ended December
31, 2013.+
Form of Restricted Stock Award Agreement used in connection with Valley National Bancorp 2004
Director Restricted Stock Plan, incorporated herein by reference to Exhibit 10.H to the Registrant’s
Form 10-K Annual Report for the year ended December 31, 2010 (No. 001-11277).+
Valley National Bancorp 2009 Long-Term Stock Incentive Plan, as amended, incorporated herein by
reference to Exhibit 10.P to the Registrant’s Form 10-K Annual Report for the year ended December
31, 2014.+
Form of Valley National Bancorp Incentive Stock Option Agreement used in connection with Valley
National Bancorp 2009 Long-Term Stock Incentive Plan, incorporated herein by reference to Exhibit
10.1 to the Registrant’s Form 8-K Current Report filed on May 27, 2009 (No. 001-11277).+
Form of Valley National Bancorp Non-Qualified Stock Option Agreement used in connection with
Valley National Bancorp 2009 Long-Term Stock Incentive Plan, incorporated herein by reference to
Exhibit 10.2 to the Registrant’s Form 8-K Current Report filed on May 27, 2009 (No. 001-11277).+
Form of Valley National Bancorp Restricted Stock Award Agreement used in connection with Valley
National Bancorp 2009 Long-Term Stock Incentive Plan, incorporated herein by reference to Exhibit
10.3 to the Registrant’s Form 8-K Current Report filed on May 27, 2009 (No. 001-11277).+
Form of Valley National Bancorp Escrow Agreement for Restricted Stock Award used in connection
with Valley National Bancorp 2009 Long-Term Stock Incentive Plan, incorporated herein by reference
to Exhibit 10.4 to the Registrant’s Form 8-K Current Report filed on May 27, 2009 (No. 001-11277)+
Form of Valley National Bancorp Agreement for Performance Based Restricted Stock Unit Award
used in connection with Valley National Bancorp 2009 Long-Term Stock Incentive Plan, incorporated
herein by reference to Exhibit 10.V to the Registrant's Form 10-K Annual Report for the year ended
December 31, 2014.+
Valley National Bancorp 2016 Long-Term Stock Incentive Plan, incorporated herein by reference to
Exhibit 10.1 to the Registrant’s Form 8-K Current Report filed on May 2, 2016.+
Form of Valley National Bancorp Agreement for Performance Based Restricted Stock Unit Award,
incorporated herein by reference to Exhibit 10.2 to the Registrant’s Form 8-K Current Report filed
on May 2, 2016.+
Form of Valley National Bancorp Agreement for Restricted Stock Award used in connection with
Valley National Bancorp 2016 Long-Term Stock Incentive Plan.+*
Valley National Bancorp Deferred Compensation Plan, dated as of January 1, 2017.+ *
Employment Agreement, dated as of May 7, 2014, by and among Rudy Schupp, Valley and Valley
National Bank, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form 8-K Current
Report filed on May 8, 2014.+
149
2016 Form 10-K
U.
V.
W.
X.
Y.
Z.
AA.
BB.
CC.
DD.
EE.
FF.
Amendment to the Employment Agreement, dated as of September 23, 2016, by and among Rudy
Schupp, Valley and Valley National Bank, incorporated by reference to Exhibit 10.1 to the Registrant’s
Form 10-Q Quarterly Report filed on November 8, 2016.+
Change in Control Agreement between Valley, Valley National Bank and Rudy Schupp, dated as of
November 18, 2014.+*
Change in Control Agreement between Valley, Valley National Bank and Robert Bardusch, dated
April 18, 2016, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Form 10-Q
Quarterly Report filed on August 8, 2016.+
Change in Control Severance Plan applicable to First Senior Vice Presidents and Senior Vice
Presidents who previously had or were eligible for change in control agreements, incorporated
herein by reference to Exhibit 10.4 to the Registrant’s Form 10-Q Quarterly Report filed on August
8, 2016.+
Severance Letter Agreement, dated as of September 21, 2016, between Valley National Bank,
Valley and Ira Robbins, incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K
Current Report filed on September 27, 2016.+
Amended and Restated Change in Control Agreement, dated as of September 21, 2016, among
Valley National Bank, Valley and Ira Robbins, incorporated herein by reference to Exhibit 10.2 to
the Registrant’s Form 8-K Current Report filed on September 27, 2016.+
Form of Change in Control Agreements for First Senior Vice Presidents and Senior Vice Presidents
who have not yet been brought into the Change in Control Plan.+*
Severance Letter Agreement, dated as of September 21, 2016, between Valley National Bank, Valley
and Thomas A. Iadanza, incorporated herein by reference to Exhibit 10.3 to the Registrant’s Form
8-K Current Report filed on September 27, 2016.+
Amended and Restated Change in Control Agreement, dated as of September 21, 2016, among
Valley National Bank, Valley and Thomas A. Iadanza, incorporated herein by reference to Exhibit
10.4 to the Registrant’s Form 8-K Current Report filed on September 27, 2016.+
Severance Letter Agreement, dated as of January 3, 2017, between Valley, Valley National Bank
and Ronald H. Janis.+*
Change in Control Agreement, dated as of January 3, 2017, between Valley, Valley National Bank
and Ronald H. Janis.+*
Consulting and Retirement Agreement, dated as of January 4, 2017, between Valley, Valley
National Bank and Peter Crocitto, incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Form 8-K Current Report filed on January 9, 2017.+
(12.1) Computation of Ratios of Earnings to Fixed Charges.*
(12.2) Computation of Ratios of Earnings to Fixed Charges Including Preferred Stock.*
2016 Form 10-K
150
(21) List of Subsidiaries:
(a)
Name
Subsidiaries of Valley:
Valley National Bank
GCB Capital Trust III
State Bancorp Capital Trust I
State Bancorp Capital Trust II
(b) Subsidiaries of Valley National Bank:
Hallmark Capital Management, Inc.
Highland Capital Corp.
Intracoastal Title Services of Florida, Inc.
Masters Coverage Corp.
New York Metro Title Agency, Inc.
Valley Commercial Capital, LLC
Valley National Title Services, Inc.
Valley Securities Holdings, LLC
VNB Loan Services, Inc.
VNB New York, LLC
(c) Subsidiaries of Masters Coverage Corp.:
Life Line Planning, Inc.
RISC One, Inc.
Subsidiaries of Valley Securities Holdings, LLC:
Shrewsbury Capital Corporation
Valley Investments, Inc.
VNB Realty, Inc.
Subsidiary of Shrewsbury Capital Corporation:
GCB Realty, LLC
Subsidiary of VNB Realty, Inc.:
VNB Capital Corp.
(d)
(e)
(f)
Jurisdiction of
Incorporation
Percentage of Voting
Securities Owned by the Parent
Directly or Indirectly
United States
Delaware
Delaware
Delaware
New Jersey
New Jersey
Florida
New York
New York
New Jersey
New Jersey
New Jersey
New York
New York
New York
New York
New Jersey
New Jersey
New Jersey
New Jersey
New York
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(23)
(24)
(31.1) Certification of Gerald H. Lipkin, Chairman of the Board and Chief Executive Officer of the Company,
Consent of KPMG LLP.*
Power of Attorney of Certain Directors and Officers of Valley.*
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,
(32)
(101)
pursuant to Securities Exchange Rule 13a-14(a).*
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 and Chief Executive Officer of the Company and Alan D.
Eskow, Senior Executive Vice President and Chief Financial Officer of the Company.*
Interactive Data File. *
*
+
Filed herewith.
Management contract and compensatory plan or arrangement.
151
2016 Form 10-K
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:
By:
/S/ GERALD H. LIPKIN
Gerald H. Lipkin, Chairman of the Board
and Chief Executive Officer
/s/ ALAN D. ESKOW
Alan D. Eskow,
Senior Executive Vice President
and Chief Financial Officer
Dated: February 28, 2017
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
/S/ GERALD H. LIPKIN
Gerald H. Lipkin
/S/ ALAN D. ESKOW
Alan D. Eskow
/S/ MITCHELL L. CRANDELL
Mitchell L. Crandell
ANDREW B. ABRAMSON*
Andrew B. Abramson
PETER J. BAUM*
Peter J. Baum
PAMELA R. BRONANDER*
Pamela R. Bronander
ERIC P. EDELSTEIN*
Eric P. Edelstein
MARY J. STEELE GUILFOILE*
Mary J. Steele Guilfoile
GRAHAM O. JONES*
Graham O. Jones
GERALD KORDE*
Gerald Korde
MICHAEL L. LARUSSO*
Michael L. LaRusso
Title
Date
Chairman of the Board and
Chief Executive Officer and
Director
Senior Executive Vice President,
Chief Financial Officer
(Principal Financial Officer) and
Corporate Secretary
First Senior Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
2016 Form 10-K
152
Signature
MARC J. LENNER*
Marc J. Lenner
BARNETT RUKIN*
Barnett Rukin
SURESH L. SANI*
Suresh L. Sani
JEFFREY S. WILKS*
Jeffrey S. Wilks
Director
Director
Director
Director
*
/S/ ALAN D. ESKOW
Alan D. Eskow, attorney-in fact.
Title
Date
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
February 28, 2017
153
2016 Form 10-K
®
ROAD
JERSEY
Y
F
NOTICE OF ANNUAL MEETING OF
WAWW YNE, NEW
W
L
Y
1455 VALLEY
VV
AA
07470
SHAREHOLDERS
TO BE HELD, THURSDAYAA , YY APRIL 27, 2017
L
TT
To Our Shareholders:
We invite you to the
WW
TT
Totowa, NJ
VV
Annual Meeting of Shareholders of Valley National Bancorp ("V
on Thursday, yy April 27, 2017 at 9:00 a.m., local time to vote on the following matters:
VV
alley") to be held at
100 Furler Street,
1. Election of 12 directors;
2. Ratification of the appointment of KPMG LLP as Valley's independent registered public accounting firm for
the fiscal year ending December 31, 2017;
3. An advisory vote on executive compensation;
4. An advisory vote on the frequency of advisory votes on executive compensation; and
5. An amendment to the Restated Certificate of Incorporation of Valley National Bancorp to increase the number
of authorized shares of common stock and preferred stock.
We WW provide access to our proxy materials to certain of our shareholders via the Internet instead of mailing paper copies of the
materials. This reduces both the amount of paper necessary to produce the materials and the costs associated with printing and
mailing the materials to all shareholders. The Notice of Internet Availability
of Proxy Materials ("E-Proxy Notice"), which
contains instructions on how to access the notice of annual meeting, proxy statement and annual report on the Internet and how
to execute your proxy,yy is first being mailed to holders of our common stock on or about March 17, 2017. This notice also contains
instructions on how to request a paper copy of the proxy materials.
AA
vote is veryy important.
Only shareholders of record at the close of business on Monday, yy February 27, 2017 are entitled to notice of, and to vote at the
meeting. YourYY
Whether or not you plan to attend the meeting, please vote in accordance with the
instructions provided in the E-Proxy Notice. If you receive paper copies of the proxy materials, please execute and return the
enclosed proxy card in the envelope provided or submit your proxy by telephone or the Internet as instructed on the enclosed
proxy card. The prompt return of your proxy will save ValleyVV
the expense of further requests for proxies.
p
guests. Only shareholders or their valid
Attendance at the meeting is limited to shareholders or their proxy holders and Valley
proxy holders may address the meeting. Please allow ample time for the admission process. See information on page 3 –
"Annual Meeting Attendance."
VV
If you accessed this proxy statement through the Internet after receiving an E-Proxy Notice, you may cast your vote by
telephone or over the Internet by following the instructions in that Notice. If you received this proxy statement by mail,
you may cast your vote by mail, by telephone or over the Internet by following the instructions on the enclosed proxy
card.
WW
We appreciate your participation and interest in
.
ValleyVV
Sincerely,yy
Alan D. Eskow
Corporate Secretary
Gerald H. Lipkin
Chairman and Chief Executive Officer
WW
Wayne, New Jersey
March 17, 2017
Important notice regarding the availability of proxy materials for the 2017 Annual Meeting of Shareholders: This Proxy
Statement for the 2017 Annual Meeting of Shareholders, our 2016 Annual Report to Shareholders and the proxy card
or voting instruction form are available on our website at: http://www.valleynationalbank.com/filings.html.
F
TABLE OF
TT
CONTENTS
General Proxy Statement Information
Item 1 – Election of Directors
Item 2 – Ratification of the Appointment of Independent Registered Public Accounting Firm
Report of Audit Committee
Corporate Governance
Board Leadership Structure and the Board’s Role in Risk Oversight
Director Independence
Executive Sessions of Non-Management Directors
Shareholder and Interested Parties Communications with Directors
Committees of the Board of Directors; Board of Directors Meetings
Compensation Consultants
Compensation as it Relates to Risk Management
Availability of Committee Charters
AA
Nomination of Directors
Code of Conduct and Ethics and Corporate Governance Guidelines
Director Compensation
Stock Ownership of Management and Principal Shareholders
Executive Compensation
VV
AA
AA
YearYY -End
Compensation Discussion and Analysis (CD&A)
Compensation Committee Report and Certification
Summary Compensation TableTT
2016 Grants of Plan-Based Awards
Outstanding Equity Awards at Fiscal
2016 Stock Vested
2016 Pension Benefits
Other Potential Post-Employment Payments
Item 3 – Advisory Vote on Executive Compensation
Item 4 – Advisory Vote on the Frequency of
Item 5 – Amendment to the Restated Certificate of Incorporation of Valley National Bancorp
Compensation Committee Interlocks and Insider Participation
Certain Transactions with Management
Advisory Votes on Executive Compensation
VV
VV
VV
VV
TT
Policy and Procedures for Review,ww Approval or Ratification of Related Person Transactions
T
Transactions
TT
Section 16(a) Beneficial Ownership Reporting Compliance
Shareholder Proposals
Other Matters
Appendix A
PAGE
1
4
9
10
11
11
11
12
12
13
14
15
15
15
17
18
20
22
22
31
32
33
35
36
37
39
44
45
46
48
48
48
48
50
50
51
52
VV
VALLEY
TIONAL
NAY
L
AA
1455 Valley Road
VV
WW
Wayne, New Jersey 07470
BANCORP
AA
PROXY STY ATT TEMENT
AA
GENERAL INFORMA
L
TION
VV
VV
We WW are providing this proxy statement in connection with the
solicitation of proxies by the Board of Directors of Valley
,"yy the "Company,"yy "we," "our" and
National Bancorp ("ValleyVV
"us") for use at Valley’
s 2017 Annual Meeting of
Shareholders (the "Annual Meeting") and at any adjournment
or postponement of the meeting. You YY are cordially invited to
attend the meeting, which will be held at 100 Furler Street,
Totowa,
NJ, on Thursday,yy April 27, 2017 at 9:00 a.m., local
TT
time. This proxy statement is first being made available to
shareholders on or about March 17, 2017.
E-PROXY
AA
Pursuant to the rules of the Securities and Exchange
Commission ("SEC"), we are furnishing our proxy materials
to certain shareholders over the Internet. Most shareholders
are receiving by mail a Notice of Internet Availability
of
Proxy Materials ("E-Proxy Notice"), which provides general
information about the annual meeting, the matters to be voted
on at the annual meeting, the website on which our proxy
statement and annual report are available for review,ww printing
and downloading, and instructions on how to submit proxy
votes. The E-Proxy Notice also provides instructions on how
to request a paper copy of the proxy materials and how to
elect to receive a paper copy of the proxy materials or
electronic copy of the proxy materials by e-mail for future
meetings.
Shareholders who are current employees of Valley
or who
have elected to receive proxy materials via electronic delivery
will receive via e-mail the proxy statement, annual report and
instructions on how to vote. Shareholders who elect to
receive paper copies of the proxy materials will receive these
materials by mail.
VV
The 2017 notice of annual meeting of shareholders, this proxy
statement, the Company’s 2016 annual report to shareholders
and the proxy card or voting instruction form are referred to
as our "proxy materials", and are available electronically at
the following website: http://www.valleynationalbank.com/
filings.html.
On the record date there were 263,833,405 shares of common
stock outstanding. Each share is entitled to one vote on each
matter properly brought before the meeting.
HOUSEHOLDING
shareholders.
When more than one holder of our common stock shares the
same address, we may deliver only one E-Proxy Notice or
set of proxy materials, as applicable, to that address unless
we have received contrary instructions from one or more of
those
and other
Similarly,yy
intermediaries holding shares of Valley
common stock in
"street name" for more than one beneficial owner with the
same address may deliver only one E-Proxy Notice or set of
proxy materials, as applicable, to that address if they have
received consent from the beneficial owners of the stock.
brokers
VV
WeWW will deliver promptly upon written or oral request a
separate copy of the E-Proxy Notice or set of proxy materials,
as applicable, to any shareholder of record at a shared address
to which a single copy of those documents was delivered. To TT
receive these additional copies, you may write or call to Tina
President, Shareholder Relations
Zarkadas, Assistant Vice VV
Specialist, Valley
Road,
VV
Wayne,WW
NJ 07470, telephone (973) 305-3380 or e-mail her
at tscortes@valleynationalbank.com. If your shares are held
in "street name", you should contact the broker or other
intermediary who holds the shares on your behalf to request
an additional copy of the E-Proxy Notice or set of proxy
materials.
National Bancorp, at 1455 ValleyVV
If you are a shareholder of record and are either receiving
multiple E-Proxy Notices or multiple paper copies of the
proxy materials, as applicable, and wish to request future
delivery of a single copy or are receiving a single E-Proxy
Notice or copy of the proxy materials, as applicable, and wish
to request future delivery of multiple copies, please contact
Ms. Zarkadas at the address or telephone number above. If
your shares are held in "street name", you should contact the
broker or other intermediary who holds the shares on your
behalf.
PROXIES AND VOTING PROCEDURES
SHAREHOLDERS ENTITLED TO VOTE
The record date for the meeting is Monday, yy February 27,
2017. Only holders of common stock of record at the close
of business on that date are entitled to vote at the meeting.
Your YY
vote is important and you are encouraged to vote your
shares promptly. Each proxy submitted will be voted as
directed. However, if a proxy solicited by the Board of
Directors does not specify how it is to be voted, it will be
voted as the Board recommends—that is:
1
2017 Proxy Statement
Item 1 – FOR the election of each of the 12 nominees
for director named in this proxy statement;
Item 2 – FOR the ratification of the appointment of
KPMG LLP;
proxy executed in your favor from the holder of record to be
able to vote at the meeting. If you submit a proxy and then
wish to change your vote or vote in person at the meeting,
you will need to revoke the proxy that you have submitted,
as described below.
•
•
•
•
•
Item 3 – FOR the approval, on an advisory basis,
of the compensation of our named executive
ff
officers;
Item 4 – that future advisory votes on executive
compensation be held EVERYRR YEAR; and
Item 5 – FOR the approval of the amendment to
s Restated Certificate of Incorporation to
Valley’
VV
s
increase the number of authorized shares of Valley’
common stock and preferred stock.
VV
We are of
ff
fering you three alternative ways to vote your
WW
shares:
BY INTERNET.TT If you wish to vote using the Internet, you
can access the web page at www.voteproxy.com and follow
the on-screen instructions or scan the QR code on your E-
Proxy Notice or proxy card with your smartphone. Have your
proxy card available when you access the web page.
BY TELEPHONE. If you wish to vote by telephone, call
toll-free 1-800-PROXIES (1-800-776-9437) in the United
States or 1-718-921-8500 from foreign countries from any
touch-tone telephone and follow instructions. Have your E-
Proxy Notice or proxy card available when you call.
BY MAIL. To TT vote your proxy by mail, please sign your
name exactly as it appears on your proxy card, date, and mail
your proxy card in the envelope provided as soon as possible.
in Person" and "Revoking Your YY
Regardless of the method that you use to vote, you will be
able to vote in person or revoke your earlier proxy if you
follow the instructions provided below in the sections entitled
"Voting
Proxy". If you are
VV
a participant in the Company’s Dividend Reinvestment Plan,
the shares that are held in your dividend reinvestment account
will be voted in the same manner as your other shares, whether
you vote by mail, by telephone or by Internet.
If you are an employee or former employee of the Company, yy
and participate in our Savings and Investment Plan (a 401(k)
plan with an employee stock ownership feature—"KSOP"),
you will receive a separate proxy card representing the total
shares you own through this plan. The proxy card will serve
as a voting instruction form for the plan trustee. The plan
trustee will vote plan shares for which voting instructions are
not received in the same proportion as the shares for which
instructions were received under the plan.
VOTING IN PERSON. The method by which you vote will
not limit your right to vote at the meeting if you later decide
to attend in person. If your shares are held in the name of a
bank, broker or other holder of record, you must obtain a
2017 Proxy Statement
2
REVOKING YOUR PROXY
YouYY can revoke your proxy at any time before it is exercised
by:
•
•
Delivery of a properly executed, later-dated proxy;
or
A written revocation of your proxy.
VV
WW
Road, Wayne,
A later-dated proxy or written revocation must be received
before the meeting by the Corporate Secretary of the
Company,yy Alan D. Eskow,ww Valley
National Bancorp, at 1455
Valley
NJ 07470, or it must be delivered to
VV
the Corporate Secretary at the meeting before proxies are
voted. YouYY may also revoke your proxy by submitting a new
proxy via telephone or the Internet. YouYY will be able to change
your vote as many times as you wish prior to the Annual
Meeting and the last vote received chronologically will
supersede any prior votes.
QUORUM REQUIRED TO HOLD THE ANNUAL
MEETING
The presence, in person or by proxy, yy of the holders of a
majority of the shares entitled to vote generally for the
election of directors is necessary to constitute a quorum at
the meeting. Abstentions and broker "non-votes" are counted
as present and entitled to vote for purposes of determining a
quorum. A broker "non-vote" occurs when a broker holding
shares for a beneficial owner does not vote on a particular
proposal because the broker does not have discretionary
power to vote with respect to that item and has not received
voting instructions from the beneficial owner. Brokers do
not have discretionary power to vote on the following items
absent instructions from the beneficial owner: the election of
the advisory vote on executive
directors (Item 1),
compensation (Item 3), the advisory vote on the frequency
of advisory votes on executive compensation (Item 4) or the
amendment to the certificate of incorportion (Item 5).
REQUIRED VOTE
•
To TT be elected to a new term, directors must receive
a majority of the votes cast (the number of shares
voted "FOR" a nominee must exceed the number of
shares voted "AGAINST" the nominee). Each
nominee for director has tendered an irrevocable
if he or she
resignation that will become effective
fails to receive a majority of the votes cast at the
annual meeting and the Board accepts the tendered
resignation. Abstentions and broker non-votes are
on the
not counted as votes cast and have no effect
ff
ff
election of a director. If there is a contested election
(which is not the case in 2017), directors would be
elected by a plurality of votes cast at the meeting.
• The ratification of the appointment of KPMG LLP
will be approved if a majority of the votes cast are
voted FOR the proposal. Abstentions and broker
non-votes are not counted as votes cast and will have
no impact on the outcome.
• The advisory vote on executive compensation will
be approved if a majority of the votes cast are voted
FOR the proposal. Abstentions and broker non-
votes are not counted as votes cast and will have no
ff
effect
on the outcome.
those persons for their solicitation activities. In accordance
with the regulations of the SEC and the New York YY
Stock
Exchange ("NYSE"), we will reimburse brokerage firms and
other custodians, nominees and fiduciaries for their expense
incurred in sending proxies and proxy materials to their
customers who are beneficial owners of Valley
common
stock. We WW are paying Laurel Hill Advisory Group, LLC - US
a fee of $8,000 plus out of pocket expenses to assist with
solicitation of proxies.
VV
•
•
The advisory vote on the option of every year, every
2 years and every 3 years that receives the highest
number of votes cast by shareholders will be the
frequency for future advisory votes on executive
compensation
selected by
shareholders. Abstentions and broker non-votes are
not counted as votes cast and will have no impact
on the outcome.
that has
been
VV
VV
The vote to approve the amendment to Valley’
s
Restated Certificate of Incorporation to increase the
s common
number of authorized shares of Valley’
stock and preferred stock will be approved if a
majority of the votes cast by the holders of Valley
common stock are voted FOR such proposal.
Abstentions and voted broker non-votes are not
on the
counted as votes cast and will have no effect
outcome.
VV
ff
ANNUAL MEETING
L
AA
ATTENDANCE
VV
Only shareholders or their proxy holders and Valley
guests
may attend the Annual Meeting. For registered shareholders
receiving paper copies or the proxy materials, an admission
ticket is attached to your proxy card. Please detach and bring
the admission ticket with you to the meeting. For other
registered shareholders, please bring your E-Proxy Notice to
be admitted to the meeting.
If your shares are held in street name, you must bring to the
meeting evidence of your stock ownership indicating that you
beneficially owned the shares on the record date for voting
and a valid form of photo identification to be allowed access.
If you wish to vote at the meeting, you must bring a proxy
executed in your favor from the holder of record.
METHOD AND COST OF PROXY SOLICITATT TION
AA
This proxy solicitation is being made by our Board of
Directors and we will pay the cost of soliciting proxies.
Proxies may be solicited by officers,
directors and employees
ff
of the Company in person, by mail, telephone, facsimile or
other electronic means. We WW will not specially compensate
3
2017 Proxy Statement
ITEM 1
ELECTION OF DIRECT
F
ORS
DIRECTOR INFORMATION
AA
We WW are asking you to vote for the election of directors. Under
our by-laws, the Board of Directors (the “Board”) fixes the
exact number of directors, with a minimum of 5 and a
maximum of 25. The number of directors has been fixed by
the Board at 12.
The persons named as proxies intend to vote the proxies FOR
the election of the 12 persons named below (unless the
shareholder otherwise directs). If, for any reason, any nominee
becomes unavailable for election and the Board selects a
substitute nominee, the proxies will be voted for the substitute
nominee selected by the Board. The Board has no reason to
believe that any of the named nominees is not available or will
not serve if elected. The Board retains the right to reduce the
number of directors to be elected if any nominee is not
available to be elected.
Each candidate for director has been nominated to serve a one-
year term until our 2018 annual meeting and thereafter until
the person’s successor has been duly elected and qualified. In
considering a candidate for director, the Board seeks to ensure
that the Board is composed of members whose particular
experience, qualifications, attributes and skills, as a whole, can
. To TT
satisfy
accomplish this, guidelines are set by the Nominating and
Corporate Governance Committee, further discussed below
under the Corporate Governance section.
supervision responsibilities
ff
effectively
its
Set forth below are the names and ages of the Board’s nominees
for election; the nominees’position with the Company (if any);
the principal occupation or employment of each nominee for
at least the past five years; the period during which each
nominee has served as our director; any other directorships
during the past five years held by the nominee with companies
registered pursuant to Section 12 of the Exchange Act of 1934,
as amended (the "Exchange Act") or subject to the
requirements of Section 15(d) of the Securities Exchange Act
or registered as an investment company under the Investment
Company Act of 1940; and other biographical information for
each individual director. In addition, described below is each
director nominee’s particular experience, qualification,
attributes or skills that has led the Board to conclude that the
.
person should serve as a director of ValleyVV
Consistent with our Corporate Governance Guidelines, Mr.
Barnett Rukin is retiring as a director after over 25 years of
service on our Board. We WW thank him for his expertise and
dedication during his service.
2017 Proxy Statement
4
Gerald H. Lipkin, 76
Chairman of the Board and
Chief Executive Officer of
Valley National Bancorp and
Valley National Bank.
Director since: 1986
Other directorships: Federal
Reserve Bank of New York
(FRBNY); Federal Home Loan
Bank of New York (FHLBNY)
VV
in 1975 as a Senior
Mr. Lipkin began his career at ValleyVV
Vice VV President and lending officer
, and has spent his entire
ff
business career directly in the banking industry. He became
CEO and Chairman of Valley
, yy
in 1989. Prior to joining ValleyVV
he spent 13 years in various positions with the Comptroller
of the Currency as a bank examiner and then Deputy Regional
Administrator for the New York YY
region. Mr. Lipkin was
elected a Class A director to the Federal Reserve Bank of
New York YY
in 2013. He serves on the Federal Home Loan
s Board as a Member Director
Bank of New York’YY
representing New Jersey for a four year term that commenced
on January 1, 2014. Mr. Lipkin is a graduate of Rutgers
University where he earned a Bachelor’s Degree in
Economics. He received a Master’s Degree in Business
Administration in Banking and Finance from New York YY
University. He is also a graduate of the Stonier School of
Banking. Mr. Lipkin’s education, his over 51 years of
experience
in
conjunction with his leadership ability make him a valuable
member of our Board of Directors.
in lending and commercial banking
Andrew B. Abramson, 63
President and Chief Executive
Officer, Value Companies, Inc.
(a real estate development and
property management firm).
Director since: 1994
Mr. Abramson is a licensed real estate broker in the States
of New Jersey and New York.YY
He graduated from Cornell
University with a Bachelor’s Degree, and a Master’s Degree,
both in Civil Engineering. WithW 37 years as a business owner,
an investor and developer in real estate, he brings
management, financial, and real estate market experience
and expertise to Valley’
s Board of Directors.
VV
Peter J. Baum, 61
Eric P. Edelstein, 67
Consultant.
Director since: 2003
ff
of Griffonff
Mr. Edelstein is a former Director of Aeroflex, Incorporated
and Computer Horizon Corp.; former Executive Vice VV
President and Chief Financial Officer
Corporation
(a diversified manufacturing and holding company), and a
former Managing Partner at Arthur Andersen LLP (an
accounting firm). Mr. Edelstein was employed by Arthur
Andersen LLP for 30 years and held various roles in the
accounting and audit division, as well as the management
consulting division. He received his Bachelor’s Degree in
Business Administration and his Master’s Degree in
Professional Accounting from Rutgers University. With W 30
years of experience as a practicing CPAPP and as a management
consultant, Mr. Edelstein brings in-depth knowledge of
generally accepted accounting and auditing standards as well
as a wide range of business expertise to our Board. He has
worked with audit committees and boards of directors in the
past and provides Valley’
s Board of Directors with extensive
experience
in auditing and preparation of financial
statements.
VV
Chief Financial Officer and
Chief Operating Officer, Essex
Manufacturing, Inc.
(manufacturer, importer and
distributor of consumer
products).
Director since: 2012
Mr. Baum joined Essex Manufacturing, Inc. in 1978 as an
Asian sourcing manager. Essex Manufacturing, Inc. has been
in business over 54 years and imports various consumer
products from Asia. Essex distributes these products to large
retail customers in the U.S. and globally. Mr. Baum graduated
from The Wharton School at the University of Pennsylvania
in 1978 with a B.S. in Economics. Mr. Baum brings over 35
years of business experience including as a business owner
for 19 years. Mr. Baum also brings financial experience and
s Board of Directors.
expertise to Valley’
VV
Pamela R. Bronander, 60
Vice President, KMC
Mechanical, Inc.; President,
Kaye Mechanical Contractors
LLC (mechanical contractor).
Director since: 1993
Ms. Bronander has full managerial responsibility for the
financial, operational, human resources, and legal aspects of
two mechanical contracting companies: K.M.C. Mechanical,
Inc and Kaye Mechanical Contractors, LLC that serve the
Tristate
of
TT
Scandia Packaging Machinery Company. She graduated
with a Bachelor’s Degree in Economics from Lafayette
College. Ms Bronander brings years of general business,
s
managerial and small business financial expertise to Valley’
Board of Directors.
area. Ms. Bronander was formerly an officer
VV
ff
5
2017 Proxy Statement
Mary J. Steele Guilfoile, 63
Graham O. Jones, 72
Chairman of MG Advisors, Inc.
(financial services merger and
acquisition advisory and
consulting firm).
Director since: 2003
Other directorships:
Interpublic Group of
Companies, Inc., CH Robinson
Worldwide
Partner and Attorney, at law
firm of Jones & Jones.
Director since: 1997
ff
ff
and Chief Operating Officer
President and
Ms. Guilfoile is the former Executive Vice VV
Corporate Treasurer
of J.P. PP Morgan Chase & Co. (a global
T
financial services firm) and a former Partner, Chief Financial
of The Beacon Group, LLC
Officer
(a private equity, yy strategic advisory and wealth management
partnership). Ms. Guilfoile is Chairman of MG Advisors, Inc.
and is also a Partner of The Beacon Group L.P.PP (a private
investment group), a CPA, PP Chairman of the Audit Committee
of Interpublic Group of Companies, Inc., and was Chairman of
the Audit Committee of Viasys
Healthcare, Inc. She received
her Bachelor’s Degree in Accounting from Boston College
Carroll School of Management and her Master’s Degree in
Business Administration with concentrations in strategic
marketing and finance from Columbia University Graduate
School of Business. With W her wide range of professional
experience and knowledge, Ms. Guilfoile brings a variety of
business experience in corporate governance, risk management,
accounting, auditing, investment and management expertise to
VV
Valley’
s Board of Directors.
VV
T
Mr. Jones has been practicing law since 1969, with an
emphasis on banking law since 1980. He has been a Partner
of Jones & Jones since 1982 and served as the former
President and Director of Hoke, Inc., (manufacturer and
distributor of fluid control products). He was a Director and
General Counsel for 12 years at Midland Bancorporation,
Inc. and Midland Bank & Trust
Company. Mr. Jones was a
partner at Norwood Associates II for 10 years and was a
President and Director for Adwildon Corporation (bank
holding company). Mr. Jones received his Bachelor’s
Degree from Brown University and his Juris Doctor Degree
from the University of North Carolina School of Law. With W
his business and banking affiliations,
including partnerships
and directorships, as well as professional and civic
affiliations,
he brings a long history of banking law expertise
ff
and a variety of business experience and professional
achievements to Valley’
s Board of Directors.
VV
ff
2017 Proxy Statement
6
Gerald Korde, 73
Marc J. Lenner, 51
President, Birch Lumber
Company, Inc. (wholesale and
retail lumber distribution
company).
Director since: 1989
Chief Executive Officer and
Chief Financial Officer of
Lester M. Entin Associates (a
real estate development and
management company).
Director since: 2007
ff
ff
in the New York YY
and Chief
Mr. Lenner became the Chief Executive Officer
Financial Officer
at Lester M. Entin Associates in January
2000 after serving in various other executive positions within
the company. He has experience in multiple areas of
commercial real estate markets throughout the country (with
a focus
tri-state area), including
management, acquisitions,
financing, development and
leasing. Mr. Lenner is the Co-Director of a charitable
foundation where he manages a multi-million dollar equity
and bond portfolio. Prior to Lester M. Entin Associates, he
was employed by Hoberman Miller Goldstein and Lesser,
P.C.,
an accounting firm. He attended Muhlenberg College
PP
where he earned a Bachelor’s Degree in both Business
Administration and Accounting. With W Mr. Lenner’s financial
and professional background, he provides management,
finance and real estate experience to Valley’
s Board of
Directors.
VV
Mr. Korde is the owner of Birch Lumber Company,yy Inc. and
has various business
including real estate
interests
investment projects with Chelsea Senior Living and
Inglemoor Care Center of Livingston. He earned a
Bachelor’s Degree in Finance from the University of
Cincinnati. Mr. Korde’s years of general business and
managerial expertise, including his background as a former
owner and manager of motels, provides a long history of
entrepreneurship and managerial knowledge that brings
value to Valley’
s Board of Directors.
VV
Michael L. LaRusso, 71
Financial Consultant.
Director since: 2004
Mr. LaRusso is a former Executive Vice VV
President and a
Director of Corporate Monitoring Group at Union Bank of
California. He held various positions as a federal bank
regulator with the Comptroller of the Currency for 23 years
and assumed a senior bank executive role for 15 years in
large regional and/or multinational banking companies
(including Wachovia,
Citicorp and Union Bank of
California). He holds a Bachelor’s Degree in Finance from
Seton Hall University and he is also a graduate of the Stonier
School of Banking. Mr. LaRusso’s extensive management
and leadership experience with these financial institutions
s Board of Directors.
positions him well to serve on Valley’
WW
VV
7
2017 Proxy Statement
Suresh L. Sani, 52
Jeffrey S. Wilks, 57
President, First Pioneer
Properties, Inc. (a commercial
real estate management
company).
Director since: 2007
Mr. Sani is a former associate at the law firm of Shea &
Gould. As president of First Pioneer Properties, Inc., he is
responsible for the acquisition, financing, developing,
leasing and managing of real estate assets. He has over 25
years of experience in managing and owning commercial
real estate in Valley’s lending market area. Mr. Sani
received his Bachelor’s Degree from Harvard College and
a Juris Doctor Degree from the New York University
School of Law. He brings a legal background, small
business network management and real estate expertise to
Valley’s Board of Directors.
Principal and Executive Vice
President of Spiegel Associates
(a real estate ownership and
development company).
Director since: 2012
Other directorships: State
Bancorp, Inc.
ff
VV
VV
Mr. WilksW served as a director of State Bancorp, Inc. from
2001 to 2011 and was appointed to Valley’
s Board of
Directors in connection with Valley’
s acquisition of State
January 1, 2012. From 1992 to 1995
Bancorp, Inc., effective
Mr. WilksW was an Associate Director of Sandler O’Neill, an
investment bank specializing in the banking industry. Prior
to that, Mr. WilksW was a Vice VV President of Corporate Finance
at NatWest WW USA and ViceVV President of NatWest WW USA Capital
Corp. and NatWest WW Equity Corp., each an investment affiliate
of NatWest WW USA. Mr. WilksW serves on the board of directors
of the New Cassell Business Association, is a member of the
Board of Trustees
is a
member of the board of the Museum at Eldridge Street, and
is a member of the Board of City Parks Foundation. Mr.
served as Director of the Banking and Finance
WilksW
Committee of the UJA - Federation of New York YY
from 1991
to 2001. Mr. WilksW earned his BSBA in Accounting and
brings
Finance from Boston University. Mr. WilksW
experience in banking, finance and investments to Valley’
s
Board of Directors.
of Central Synagogue, New York,YY
VV
TT
ff
RECOMMENDATION ON ITEM 1
THE VALLEY BOARD UNANIMOUSLY
RECOMMENDS A VOTE “FOR” THE NOMINATED
SLATE OF DIRECTORS.
2017 Proxy Statement
8
ITEM 2
RECOMMENDATION ON ITEM 2
AA
RATIFICA
AA
TION OF
THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee has appointed KPMG LLP ("KPMG")
as our independent registered public accounting firm to audit
Valley’
s financial statements for 2017. WeWW are asking you to
VV
ratify that appointment.
KPMG audited our books and records for the years ended
December 31, 2016, 2015 and 2014. The fees billed for
services rendered to us by KPMG for the years ended
December 31, 2016 and 2015 were as follows:
Audit fees
Audit-related fees (1)
(2)
TT
Tax fees
All other fees (3)
Total
2016
$ 1,332,750
291,000
6,345
0
2015
$ 1,395,000
333,200
6,993
44,000
$ 1,630,095
$ 1,779,193
__________
(1) Fees paid for benefit plan audits and a review of Form S-3, Form
S-4, and S-8 registration statements and related expert consents.
(2) Includes fees rendered in connection with tax services relating to
state and local matters.
(3) Consulting fees related to non-audit services.
The Audit Committee maintains a formal policy concerning
the pre-approval of audit and non-audit services to be
provided by its independent accountants to ValleyVV
. The policy
requires that all services to be performed by KPMG,
including audit services, audit-related services and permitted
non-audit services, be pre-approved by the Audit Committee.
Specific services being provided by the independent
accountants are regularly reviewed in accordance with the
pre-approval policy. At each subsequent Audit Committee
meeting, the Audit Committee receives updates on the
services actually provided by the independent accountants,
and management may also present additional services for pre-
approval.
All services rendered by KPMG are permissible under
applicable laws and regulations, and the Audit Committee
pre-approved all audit, audit-related and non-audit services
performed by KPMG during fiscal 2016. Representatives of
KPMG will be available at the annual meeting and will have
the opportunity to make a statement and answer appropriate
questions from shareholders.
THE VALLEY BOARD UNANIMOUSLY
RECOMMENDS A VOTE “FOR” RATIFICATION
OF THE APPOINTMENT OF KPMG AS VALLEY’S
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR 2017.
9
2017 Proxy Statement
ff
During the course of 2016, management regularly discussed
the internal control review and assessment process with the
Audit Committee, including the framework used to evaluate
of such internal control, and at regular
the effectiveness
intervals updated the Audit Committee on the status of this
process and actions taken by management to respond to issues
identified during this process. The Audit Committee also
this process with KPMG. Management’s
discussed
assessment report and the auditor’s attestation report are
included as part of the 2016 Annual Report on Form 10-K.
PP
Eric P. Edelstein, Chairman
Andrew B. Abramson
Gerald Korde
Michael L. LaRusso
Barnett Rukin
Suresh L. Sani
WilksW
Jeffrey S.
ff
REPORTRR OF THE AUDIT COMMITTEE
February 28, 2017
TT
To the Board of Directors of
VV
Valley National Bancorp:
Management is responsible for the preparation, presentation
and integrity of the Company’s financial statements,
accounting and financial reporting principles,
internal
controls, and procedures designed to ensure compliance with
accounting standards, applicable laws and regulations. The
Company’s independent registered public accounting firm,
KPMG LLP ("KPMG"), performs an annual independent
audit of the financial statements and expresses an opinion on
the conformity of those financial statements with U.S.
generally accepted accounting principles.
The following is the report of the Audit Committee with
respect to the audited financial statements for fiscal year
2016. WithWW respect to fiscal year 2016, the Audit Committee
has:
•
•
•
•
•
•
reviewed and discussed Valley’
statements with management and KPMG;
VV
s audited financial
discussed with KPMG the scope of its services,
including its audit plan;
reviewed Valley’
VV
s internal control procedures;
discussed with KPMG the matters required to be
discussed by Auditing Standard No. 1301, adopted
by the Public Company Accounting Oversight
Board;
received the written disclosures and the letter from
KPMG required by applicable requirements of the
Public Company Accounting Oversight Board
regarding KPMG’s communications with the Audit
Committee
and
discussed with KPMG their independence from
management and Valley;
independence,
concerning
and
VV
approved the audit and non-audit services provided
during fiscal year 2016 by KPMG.
Based on the foregoing review and discussions, the Audit
Committee approved the audited financial statements to be
included in our Annual Report on Form 10-K for fiscal year
2016.
to Section 404 of
the Sarbanes-Oxley Act,
Pursuant
management is required to prepare as part of the Company’s
2016 Annual Report on Form 10-K, a report by management
on its assessment of the Company’s internal control over
financial reporting, including management’s assessment of
the effectiveness
of such internal control. KPMG is also
required by Section 404 to prepare and include as part of the
Company’s 2016 Annual Report on Form 10-K, the auditors’
attestation report on management’s assessment.
ff
2017 Proxy Statement
10
CORPORATE GOVERNANCE
AA
ff
ff
VV
VV
are managed under the direction of
Our business and affairs
the Board of Directors. Members of the Board are kept
s business through discussions with the
informed of Valley’
Chairman and our other officers,
by reviewing materials
provided to them and by participating in meetings of the
Board and its committees. In this regard, to further educate
directors about Valley
and assist committees in their work,
committees are encouraged to invite non-member directors
to attend committee meetings to learn about the workings of
the Board. All members of the Board also serve as directors
of our subsidiary bank, Valley
National Bank (the “Bank”).
It is our policy that all directors attend the annual meeting
absent a compelling reason, such as family or medical
emergencies. In 2016, all directors then serving attended our
annual meeting.
VV
Our Board of Directors believes that the purpose of corporate
governance is to ensure that we maximize shareholder value
in a manner consistent with legal requirements and safe and
sound banking principles. The Board has adopted corporate
governance practices which
the Board and senior
management believe promote this purpose. Periodically, yy
these governance practices, as well as the rules and listing
standards of the NYSE and the regulations of the SEC, are
reviewed by senior management, legal counsel and the Board.
BOARD LEADERSHIP STRUCTURE AND THE
BOARD’S ROLE IN RISK OVERSIGHT
Chairman and CEO Roles. Valley
is led by Mr. Gerald
Lipkin, who has served as our Chairman and CEO since 1989.
VV
Our Board is currently comprised of Mr. Lipkin and 12 other
directors, of whom ten are independent under NYSE
guidelines. The Board has three standing independent
chairpersons – an Audit
committees with separate
Committee, a Nominating and Corporate Governance
Committee, and a Compensation and Human Resources
Committee. We WW also have a Risk Committee which is
responsible for overseeing risk management. In addition, our
Audit Committee engages in oversight of financial statement
risk exposures and our full Board regularly engages in
discussions of risk management and receives reports on risk
and
from our executive management, other company officers
the chairman of the Risk Committee. Each of our other Board
committees also considers the risk within its area of
responsibilities.
ff
Lead Director. rr The Board created the position of Lead
Director and each year since 2014 has appointed Mr.
Abramson as its Lead Director. In accordance with our
corporate governance guidelines, our non-management
directors meet in executive session regularly and our
independent directors meet in executive session at least twice
a year. These meetings are chaired by Mr. Abramson in his
role as Lead Director.
Our corporate leadership structure is commonly utilized by
other public companies in the United States. We WW believe that
having a combined Chairman/CEO, a lead director and
independent chairpersons for each of the above Board
committees provides the right form of leadership for Valley
at this time. We WW have a single leader for our Company who
can present a consistent vision, and he is seen by our
and other
customers,
partners,
stakeholders as providing strong leadership for Valley
and to
our industry. We WW believe that our Chairman/CEO together
with the Lead Director, the Risk Committee, our Audit
Committee (primarily with respect to financial risks) and the
full Board of Directors, provide effective
oversight of the risk
management function.
investors
business
VV
VV
ff
DIRECTOR INDEPENDENCE
The Board has determined that a majority of the directors and
all current members of the Nominating and Corporate
Governance, Compensation and Human Resources, and
Audit Committees are “independent” for purposes of the
independence standards of the NYSE, and that all of the
members of the Audit Committee are also “independent” for
purposes of Section 10A(m)(3) of Exchange Act. The Board
based these determinations primarily on a review of the
responses of the directors to questions regarding employment
and transaction history,yy affiliations
and family and other
relationships and on discussions with the directors. Our
independent directors are: Andrew B. Abramson, Peter J.
Baum, Pamela R. Bronander, Eric P. PP Edelstein, Gerald Korde,
Michael L. LaRusso, Marc J. Lenner, Barnett Rukin, Suresh
L. Sani and Jeffrey
S. Wilks.W
ff
ff
To TT assist in making determinations of independence, the
Board has concluded that the following relationships are
immaterial and that a director whose only relationships with
the Company fall within these categories is independent:
•
•
•
ff
A loan made by the Bank to a director, his or her
immediate family or an entity affiliated
with a
director or his or her immediate family,yy or a loan
personally guaranteed by such persons if such loan
(i) complies with federal regulations on insider
loans, where applicable; and (ii) is not classified by
the Bank’s credit risk department or independent
loan review department, or by any bank regulatory
agency which supervises the Bank;
A deposit, trust, insurance brokerage, investment
advisory,yy securities brokerage or similar customer
relationship between ValleyVV
or its subsidiaries and
a director, his or her immediate family or an affiliate
of his or her immediate family if such relationship
is on customary and usual market terms and
conditions;
ff
The employment by Valley
or its subsidiaries of any
immediate family member of the director if the
VV
11
2017 Proxy Statement
family member serves below the level of a senior
vice president;
less of the equity interests of that business and do
of the business; or
not serve as an executive officer
ff
•
•
Annual contributions by Valley
or its subsidiaries to
VV
any charity or non-profit corporation with which a
director is affiliated
if the contributions do not
exceed an aggregate of $30,000 in any calendar
year;
ff
Purchases of goods or services by ValleyVV
or any of
its subsidiaries from a business in which a director
or his or her spouse or minor children is a partner,
shareholder or officer
, if the director, his or her
spouse and minor children own five percent (5%) or
ff
•
Purchases of goods or services by ValleyVV
,yy or any of
its subsidiaries, from a director or a business in
which the director or his or her spouse or minor
if the
children is a partner, shareholder or officer
annual aggregate purchases of goods or services
from the director, his or her spouse or minor children
or such business in the last calendar year does not
exceed the greater of $120,000 or five percent
(5%) of the gross revenues of the business.
ff
The Board considered the following categories of items for each director it determined was independent together with the
information set forth under "Certain Transactions
With W Management":
T
Trust Services/
TT
Assets
Under Management
r
Banking Relationship with
VNB
Professional
Services to
ValleyVV
Name
Loans*
Andrew B. Abramson
Peter J. Baum
Commercial and Residential
Mortgages, Personal and Commercial
Line of Credit
Commercial and Personal
Mortgage
Pamela R. Bronander
Eric P. Edelstein
Gerald Korde
Commercial and Personal Line of
Credit, Home Equity
Residential Mortgage
Commercial, Commercial Mortgage
and Personal Line of Credit
Michael L. LaRusso
Personal Line of Credit
Trust Services
None
None
None
None
None
Marc J. Lenner
Barnett Rukin**
Suresh L. Sani
Jeffrey S. Wilks
____________
Commercial Mortgage, Residential
Mortgage, Personal Line of Credit
and Home Equity
Commercial and Residential
Mortgages, Commercial Line of
Credit
Commercial Mortgage
Personal Line of Credit
Trust Services
Assets Under
Management
None
None
Checking, Savings,
Certificate of
Deposit
Checking
Checking, Savings,
Certificate of
Deposit
Checking
Checking, Money
Market
Checking, Money
Market
Checking, Money
Market, Certificate
of Deposit, IRA
Checking, Safe
Deposit Box
Checking, Money
Market
Checking
None
None
None
None
None
None
None
None
None
None
* In compliance with Regulation O.
** Mr. Rukin is currently a Valley director who will retire as a director after the upcoming annual meeting.
EXECUTIVE SESSIONS OF NON-MANAGEMENT
DIRECTORS
F
s Corporate Governance Guidelines require the Board
VV
Valley’
to hold separate executive sessions for both independent and
non-management directors. At least twice a year, the Board
holds an executive session including only independent
directors and an executive session including only non-
management directors in each instance with the Lead Director
as the presiding director for the session.
2017 Proxy Statement
12
SHAREHOLDER AND INTERESTED PARPP
RR
WITH DIRECTORS
COMMUNICATIONS
AA
TIES
The Board of Directors has established the following
procedures
party
communications with the Board of Directors or with the Lead
Director of the Board:
shareholder
interested
for
or
•
Shareholders or interested parties wishing to
communicate with the Board of Directors, the non-
management or independent directors, or with the
Lead Director should send any communication to
National Bancorp, c/o Alan D. Eskow, ww
VV
Valley
Corporate Secretary, yy at 1455 Valley
WW
Road, Wayne,
NJ 07470. Any such communication should state
the number of shares owned by the shareholder.
VV
• The Corporate Secretary will forward such
communication to the Board of Directors or, as
appropriate, to the particular committee chairman
or to the Lead Director, unless the communication
is a personal or similar grievance, a shareholder
proposal or related communication, an abusive or
inappropriate communication, or a communication
not related to the duties or responsibilities of the
Board of Directors in which case the Corporate
Secretary has the authority to determine the
appropriate disposition of the communication. All
such communications will be kept confidential to
the extent possible.
• The Corporate Secretary will maintain a log and
copies of all such communications for inspection
and review by any Board member or by the Lead
Director, and will regularly review all such
communications with the Board or the appropriate
committee chairman or with the Lead Director at the
next meeting.
COMMITTEES OF THE BOARD OF DIRECT
F
BOARD OF DIRECT
ORS MEETINGS
F
ORS;
In 2016,
the Board of Directors maintained an Audit
Committee, a Nominating and Corporate Governance
Committee, and a Compensation and Human Resources
Committee. Only independent directors serve on these
committees. In addition to these committees, the Company
and the Bank also maintain a number of committees to
oversee other areas of Valley’
s operations. These include an
Executive Committee, Community Reinvestment Act
("CRA") Committee, Investment Committee, Pension/
Committee, Risk Committee,
Savings & Investment Trustees
Strategic Planning Committee and a Trust
Committee, all of
which have both independent and non-independent directors,
as permitted by the SEC and the NYSE.
VV
TT
TT
Each director attended at least 85% or more of the meetings
of the Board of Directors and of each committee on which
he or she served for the year ended December 31, 2016. Our
Board met eight times during 2016 and the Bank’s Board met
eight times during 2016.
The following table presents 2016 membership information
for each of our Audit, Nominating and Corporate
Governance, and Compensation and Human Resources
Committees.
Name
Andrew B. Abramson
Peter J. Baum
Pamela R. Bronander
Audit
X
Eric P. Edelstein
PP
(Chair)
Gerald Korde
Michael L. LaRusso
Marc J. Lenner
Barnett Rukin
Suresh L. Sani
Jeffrey S.
ff
WilksW
2016 Number of
Meetings*
____________
X
X
X
X
X
5
Nominating
and
Corporate
Governance
Compensation
and
Human
Resources
X
X
X
X
(Chair)
X
X
4
X
X
X
(Chair)
X
X
X
5
* Includes telephonic meetings.
ff
ff
of ValleyVV
AUDIT COMMITTEE. The Audit Committee formally
met five times during 2016. In addition, the Committee
Chairman and Risk Committee Chairman met with the Chief
monthly
Audit Executive and Chief Risk Officer
for the purpose of communicating closely with those officers
and receiving updates on significant developments. The
Board of Directors has determined that each member of the
Audit Committee is financially literate and that more than
one member of the Audit Committee has the accounting or
related financial management expertise required by the
NYSE. The Board of Directors has also determined that
Mr. Edelstein, Mr. LaRusso, Mr. Rukin and Mr. WilksW meet
the SEC criteria of an “Audit Committee Financial Expert.”
The charter for the Audit Committee can be viewed at our
website www.valleynationalbank.com/charters. The charter
gives the Audit Committee the authority and responsibility
for the appointment, retention, compensation and oversight
of our independent registered public accounting firm,
including pre-approval of all audit and non-audit services to
be performed by our
independent registered public
accounting firm. Each member of the Audit Committee is
independent under
listing rules. Other
the NYSE
responsibilities of the Audit Committee pursuant to the
charter include:
•
•
•
Reviewing the scope and results of the audit with
Valley’
s independent registered public accounting
VV
firm;
s
Reviewing with management and Valley’
independent registered public accounting firm
Valley’
s interim and year-end operating results
VV
including SEC periodic reports and press releases;
VV
Considering the appropriateness of the internal
accounting and auditing procedures of Valley;
VV
13
2017 Proxy Statement
•
•
•
•
Considering
independent registered public accounting firm;
independence
s
of Valley’
VV
the
Overseeing the internal audit function;
the
Reviewing
and
significant
recommended action plans prepared by the internal
together with management’s
audit
response and follow-up; and
function,
findings
Reporting to the full Board on significant matters
coming to the attention of the Audit Committee.
AA
GOVERNANCE
NOMINATING
AND CORPORATE AA
COMMITTEE. The Nominating
and Corporate
Governance Committee met four times during 2016. This
Committee reviews qualifications of and recommends to the
Board candidates for election as director of ValleyVV
, yy considers
the composition of the Board, and recommends committee
assignments. The Nominating and Corporate Governance
Committee develops corporate governance guidelines which
include:
•
•
•
•
•
•
Director qualifications and standards;
Director responsibilities;
Director orientation and continuing education;
Limitations on Board members serving on other
boards of directors;
Director access to management and records; and
Criteria for the annual self-assessment of the Board,
and its effectiveness.
ff
The Nominating and Corporate Governance Committee is
also charged with overseeing adherence to our corporate
governance standards and the Code of Conduct and Ethics.
The Nominating and Corporate Governance Committee
reviews recommendations from shareholders regarding
corporate governance and director candidates. The procedure
for submitting recommendations of director candidates is set
forth below under the caption “Nomination of Directors.”
Each member of the Nominating and Corporate Governance
Committee is independent under NYSE listing rules. The
charter for the Nominating and Corporate Governance
Committee
our website
www.valleynationalbank.com/charters.
viewed
can
at
be
AA
AND HUMAN RESOURCES
COMPENSATION
COMMITTEE. The Compensation and Human Resources
Committee formally met five times during 2016. This
Committee determines CEO compensation, recommends to
the Board compensation levels for directors and sets
compensation for named executive officers
("NEOs") and
It also administers our Executive
other executive officers.
Incentive Plan and the 2016 Long-Term
Stock Incentive Plan,
and makes awards pursuant to those plans. The charter for
TT
ff
ff
2017 Proxy Statement
14
the Committee can be viewed on our website at
www.valleynationalbank.com/charters. Each member of the
is
Compensation and Human Resources Committee
independent under NYSE listing rules.
EXECUTIVE OFFICER COMPENSATION
AA
COMMITTEE PROCESSES AND PROCEDURES
The Board has delegated the responsibility for executive
compensation matters to the Compensation and Human
Resources Committee. The minutes of the Committee
meetings are provided at Board meetings and the chairman
of the Committee reports to the Board significant issues dealt
with by the Committee.
In undertaking its responsibilities, annually, yy the Committee
receives from the CEO recommendations (except those that
relate to his compensation) for salary,yy non-equity incentive
awards, restricted stock and restricted stock unit awards for
After considering the
ff
NEOs and other executive officers.
possible payments and discussing the recommendations with
the CEO, the Committee meets in executive session to make
the final decisions on these elements of compensation.
Under authority delegated by the Committee, all other
employee salaries and non-equity compensation are
determined by executive management. For stock awards,
based on operational considerations, prior awards and staff ff
numbers, a block of shares is allocated by the Committee.
The individual restricted stock and restricted stock unit
awards are then allocated by the CEO and his executive staff ff
to these non-executive officers
and employees.
ff
Under authority delegated by the Committee, during the year,
the CEO is authorized to make stock awards in specific
circumstances:
special incentive awards for non-officers,
retention awards, awards to new employees and grants on
completion of advanced degrees.
ff
All awards not specifically approved in advance by the
Committee, but awarded under the authority delegated, are
reported to the Committee at its next meeting at which time
the Committee ratifies the action taken.
COMPENSATION CONSUL
AA
TLL ANTS
TT
In 2016 the Committee in its sole discretion engaged Fredrick
W. WW Cook & Co. ("FW Cook") as its compensation consultant.
FW Cook was engaged to review compensation and
performance data of a peer group of comparable financial
organizations that had been selected by the Committee upon
the recommendation of FW Cook and in relation to this data,
provide an overview and comments on Valley’
s executive
compensation. Also, FW Cook was requested to provide
information relating
in executive
to market
compensation matters. FW Cook has reviewed and provided
comments on the compensation disclosures contained in this
proxy statement.
trends
VV
COMPENSATION
MANAGEMENT
AA
AS IT RELATES
AA
TO RISK
following the date on which public announcement of the
annual meeting is first made by the Company.
ff
evaluated all
incentive-based
The Chief Risk Officer
compensation for all employees of the Company and reported
to the Compensation and Human Resources Committee that
none of our incentive-based awards individually, yy or taken
together, was reasonably likely to have a material adverse
. None of the other forms of compensation
effect
ff
or incentives for Valley
employees were considered as
encouraging undue or unwarranted risk. The Compensation
and Human Resources Committee accepted the Chief Risk
Officer
on ValleyVV
’s report.
VV
ff
AVAA AILABILITY
VV
F
OFY
RR
COMMITTEE CHAR
TERS
The Audit Committee, Nominating and Corporate
Governance Committee, and Compensation and Human
Resources Committee each operate pursuant to a separate
written charter adopted by the Board. Each committee
reviews its charter at least annually. All of the committee
charters
website
viewed
www.valleynationalbank.com/charters. Each charter is also
available in print to any shareholder who requests it. The
information contained on the website is not incorporated by
reference or otherwise considered a part of this document.
can
our
be
at
F
NOMINATION OF
AA
DIRECT
ORS
Nominations of directors for election to the Board may only
be made at an annual meeting of shareholders, or at any
special meeting of shareholders called for the purpose of
electing directors by our Board of Directors, or, as described
in more detail below, ww by any shareholder of the Company
who meets the eligibility and notice requirements set forth in
our By-laws, as amended in December 2016.
rr
rr
Nominations Not for Inclusion in our Proxy
Shareholder
Statement. Under our By-laws, to be eligible to submit a
director nomination not for inclusion in our proxy materials
but instead to be presented directly at the annual meeting, the
shareholder must be a shareholder of record on both (i) the
date the shareholder submits the notice of the director
nomination to the Company and (ii) the record date for the
annual meeting. The notice must be in proper written form
and be timely received by the Company. ToTT be in proper
written form, the notice must meet all of the requirements
specified in Article I, Section 3 of our By-laws, including
specified information regarding the shareholder making the
nomination and the proposed nominee. To TT be timely for our
2018 annual meeting, the notice must be received by our
Secretary at our Wayne,WW
not later than
December 28, 2017 nor earlier than November 28, 2017. If
the annual meeting is called for a date that is not within 30
days before or after the anniversary date of our 2017 annual
meeting date, notice will be timely if it is received by the
Secretary no later than the close of business on the 10th day
New Jersey office
ff
rr
Shareholder
Nominations for Inclusion in our Proxy
Statement. Our By-laws provide that if certain requirements
are met, an eligible shareholder or group of eligible
shareholders may include their director nominees in the
Company’s annual meeting proxy materials. This is
commonly referred to as proxy access.
rr
The proxy access provisions of our By-Laws provide, among
other things, that a shareholder or group of up to twenty
shareholders seeking to include director nominees in our
proxy materials must own 3% or more of our outstanding
common stock continuously for at least three years. The
number of proxy access nominees appearing in any annual
meeting proxy statement cannot exceed the greater of two or
20% of the number of directors then serving on the Board.
If 20% is not a whole number, the maximum number of proxy
access nominees would be the closest whole number below
20%. A nominee who is included in our proxy materials but
withdraws from or becomes ineligible or unavailable for
election at the annual meeting, or does not receive at least
25% of the votes cast for his or her election, will not be eligible
for nomination by a shareholder for the next two annual
meetings. The nominating shareholder or group of
shareholders also must deliver the information required by
our By-laws, and each nominee must meet the qualifications
required by our By-laws.
ff
New Jersey office
Requests to include director nominees in our proxy materials
for our 2018 annual meeting must be received by our
Secretary at our Wayne,WW
no earlier than
October 18, 2017 and no later than November 17, 2017. If
the annual meeting is called for a date that is not within 30
days before or after the anniversary date of our 2017 annual
meeting date, notice will be timely if it is received by the
Secretary no later than the close of business on the 10th day
following the date on which public announcement of the
annual meeting is first made by the Company.
rr
Director
The Board of Directors has
established criteria for members of the Board. These include:
Qualifications.
•
•
The maximum age for an individual to join the
Board shall be age 60, except that such limitation is
inapplicable to a person who, when elected or
appointed, is a member of senior management, or
who was serving as a member of the Board of
Directors of another company at the time of its
acquisition by Valley;
VV
A director is eligible for reelection if the director has
not attained age 76 before the time of the annual
meeting of the Company’s shareholders. However,
the Board in its discretion may extend this age limit
for not more than one year at a time for any director,
15
2017 Proxy Statement
•
•
•
•
•
•
•
•
•
•
if the Board determines that the director’s service
for an additional year will sufficiently
benefit the
Company;
ff
Each Board member must demonstrate that he or
she is able to contribute effectively
regardless of
age;
ff
Each Board member must be a U.S. citizen and
comply with all qualifications set forth in 12 USC
§72;
Board members must maintain their principal
residences in New Jersey,yy New York,YY
Florida or 100
miles from the Bank's principal office;
ff
Board members may not stand for re-election to the
Board for more than four terms following the
establishment of a principal legal residence outside
Florida or 100 miles from
of New Jersey, yy New York,YY
the Bank's principal office;
ff
Each Board member must own a minimum of
20,000 shares of our common stock of which 5,000
shares must be in his or her own name (or jointly
with the director’s spouse) and none of these 20,000
shares may be pledged or hypothecated;
Unless there are mitigating circumstances (such as
medical or family emergencies), any Board member
who attends less than 85% of the Board and assigned
committee meetings for two consecutive years, will
not be nominated for re-election;
Each Board member must prepare for meetings by
reading information provided prior to the meeting.
Each Board member should participate in meetings,
for example, by asking questions and by inquiring
about policies, procedures or practices of Valley;
VV
Each Board member should be available for
continuing education opportunities throughout the
year;
Each Board member is expected to be above
reproach in their personal and professional lives and
their financial dealings with ValleyVV
,yy the Bank and
the community;
If a Board member (a) has his or her integrity
challenged by a governmental agency (indictment
or conviction), (b) files for personal or business
bankruptcy, yy (c) materially violates Valley’
s Code of
Conduct and Ethics, or (d) has a loan made to or
guaranteed by the director classified as doubtful, the
Board member shall resign upon the request of the
Board. If a loan made to a director or guaranteed
by a director is classified as substandard and not
VV
2017 Proxy Statement
16
repaid within six months, the Board may ask the
director to resign;
No Board member may serve on the board of any
other bank or financial institution or on more than
two boards of other public companies while a
s Board without the approval of
member of Valley’
VV
Valley’
s Board of Directors;
VV
Board members should understand basic financial
principles and represent a variety of areas of
expertise and diversity in personal and professional
backgrounds and experiences;
Each Board member should be an advocate for the
Bank within the community; and
It is expected that the Bank will be utilized by the
Board member for his or her personal and business
ff
affiliations.
•
•
•
•
the
provide
shareholder must
The Nominating and Corporate Governance Committee has
adopted a policy regarding director candidates recommended
by shareholders. The Nominating and Corporate Governance
Committee will consider nominations recommended by
shareholders. In order for a shareholder to recommend a
nomination,
the
recommendation along with the additional information and
supporting materials to our Corporate Secretary no later than
180 days and no earlier than 150 days prior to the anniversary
of the date of the preceding year’s mailing of the proxy
statement for the annual meeting. The shareholder wishing
to propose a candidate for consideration by the Nominating
and Corporate Governance Committee must own at least 1%
of Valley’
s outstanding common stock. In addition, the
VV
Nominating and Corporate Governance Committee has the
right to require any additional background or other
information
the
recommending shareholder as it may deem appropriate. For
Valley’
s annual meeting in 2018, we must receive this notice
VV
on or after October 17, 2017, and on or before November 17,
2017.
director candidate
from any
or
The following factors, at a minimum, are considered by the
Nominating and Corporate Governance Committee as part
of its review of all director candidates and in recommending
potential director candidates to the Board:
•
•
Appropriate mix of educational background,
professional background and business experience to
make a significant contribution to the overall
composition of the Board;
If the Nominating and Corporate Governance
it applicable, whether the
Committee deems
candidate would be considered a financial expert or
financially literate as described in SEC and NYSE
rules;
•
•
If the Nominating and Corporate Governance
Committee deems
it applicable, whether the
candidate would be considered independent under
NYSE
additional
independence guidelines set forth in the Company’s
Corporate Governance Guidelines;
the Board’s
rules
and
Demonstrated character and reputation, both
personal and professional, consistent with that
required for a bank director;
• Willingness
W
business judgment;
to apply sound and independent
•
•
Ability to work productively with the other
members of the Board;
Availability
AA
responsibilities of a Valley
the substantial
VV
for
director; and
duties
and
s
• Meets the additional criteria set forth in Valley’
VV
Corporate Governance Guidelines.
Diversity is one of the factors that the Nominating and
Corporate Governance Committee considers in identifying
nominees for a director. In selecting director nominees the
Nominating and Corporate Governance Committee
considers, among other factors, (1) the competencies and
skills that the candidate possesses and the candidate’s areas
of qualification and expertise that would enhance the
composition of the Board, and (2) how the candidate would
contribute to the Board’s overall balance of expertise,
perspectives, backgrounds and experiences in substantive
the Company’s business. The
matters pertaining
Nominating and Corporate Governance Committee has not
adopted a formal diversity policy with regard to the selection
of director nominees.
to
CODE OF CONDUCT
F
AA
CORPORATE GOVERNANCE GUIDELINES
AND ETHICS AND
ff
ff
ff
We WW have adopted a Code of Conduct and Ethics which applies
, principal financial officer
to our chief executive officer
,
principal accounting officer
and to all of our other directors,
and employees. The Code of Conduct and Ethics is
officers
ff
available
at
and can be viewed on our website
of
www.valleynationalbank.com/charters. The Code
Conduct and Ethics is also available in print to any
shareholder who requests it. We WW will disclose any substantive
amendments to or waiver from provisions of the Code of
Conduct and Ethics made with respect to the chief executive
or principal accounting
officer
ff
ff
officer
or a director on that
ff
website.
, principal financial officer
or any other executive officer
ff
We WW have also adopted Corporate Governance Guidelines,
which are intended to provide guidelines for the governance
by the Board and its committees. The Corporate Governance
at
Guidelines
our website
available
are
on
www.valleynationalbank.com/charters.
The Corporate
Governance Guidelines are also available in print to any
shareholder who requests them.
17
2017 Proxy Statement
COMPENSATION
AA
OF DIRECTORS
DIRECTOR COMPENSATION
AA
The total 2016 compensation of our non-employee directors is shown in the following table. Each of these compensation
components is described in detail below.
Also described below, ww the Compensation Committee adopted the following changes to our non-employee director compensation
program effective
after the annual meeting on April 27, 2017:
ff
•
•
•
A $25,000 reduction in the annual cash retainer from $50,000 to $25,000;
Non-employee directors will receive an annual $50,000 restricted stock unit award; and
Non-employee directors may attend meetings by phone on a paid basis only once per year.
2016 DIRECTOR COMPENSATION
AA
Name
Andrew B. Abramson (1)
Peter J. Baum
Pamela R. Bronander
PP
Eric P. Edelstein
Mary J. Steele Guilfoile
(1)
Graham O. Jones
Gerald Korde (1)
Michael L. LaRusso
Marc J. Lenner (1)
Barnett Rukin (2)
Suresh L. Sani
ff
Jeffrey S.
WilksW
____________
Fees Earned
or Paid in
r
Cash (3)
Stock
AA
Awards
(4)
$
187,000 $
0 $
130,000
135,000
154,500
145,000
147,500
157,000
136,500
140,000
124,000
138,250
132,000
0
0
0
0
0
0
0
0
0
0
0
Change in Pension
Value and Non-
VV
Qualified
Deferred
Compensation
Earnings (5)
All Other
Compensation (6)
7,003
15,020 $
1,434
14,344
7,902
7,401
14,018
20,717
7,375
3,635
3,388
3,711
1,362
0
0
0
93,236 (7)
0
0
3,599
0
7,199
0
3,599
$
TotalTT
209,023
131,434
149,344
162,402
245,637
161,518
177,717
147,474
143,635
134,587
141,961
136,961
(1) Lead Director or Bancorp Committee Chairman (see Committees of the Board on page 13 in this Proxy Statement).
(2) Mr. Rukin is currently a Valley director who will retire as a director after the upcoming annual meeting.
(3)
Includes annual retainer, meeting fees and committee fees and fees for serving as lead director and chairing board committees earned and paid for
2016.
VV
(4) The Board of Directors has terminated the Directors Restricted Stock Plan and any outstanding shares will be distributed when they vest. The aggregate
number of restricted shares of common stock outstanding at December 31, 2016, for each of the following participants were: Mr. Abramson 15,783
shares; Mrs. Guilfoile 7,281 shares; Mr. LaRusso 8,111 shares; Mr. Rukin 16,224 shares; and Mr. WilksW 8,111 shares.
(5) Represents the change in the present value of pension benefits year to year under the Directors Retirement Plan for 2016 taking into account the age of
each director, a present value factor, an interest discount factor and time remaining until retirement. As disclosed below, ww the Board of Directors pension
plan was frozen for purposes of benefit accrual in 2013. The annual change in the present value of the accumulated benefits was a net increase of $100,307
in total from the present value reported as of December 31, 2015. This increase is attributable to the passage of time and the decrease in the discount
rate from 4.325% to 4.110%.
(6) Except as noted in the next footnote for Ms. Guilfoile, this column reflects only the cash dividend and interest on deferred dividends earned on outstanding
restricted stock during 2016, under the 2004 Directors Restricted Stock Plan.
(7) This includes $90,000 in consulting fees pursuant to a long-standing investment banking retainer consulting agreement, paid to MG Advisors, Inc. in
2016. Ms. Guilfoile is the Chairperson of MG Advisors. The amount also includes $3,236 in cash dividends and interest on deferred dividends earned
on outstanding restricted stock during 2016, under the 2004 Directors Restricted Stock Plan.
2017 Proxy Statement
18
ANNUAL BOARD RETAINER
TT
Non-employee directors received an annual retainer of
$50,000 per year, paid quarterly. Following our 2017 annual
meeting, our non-employee directors will receive an annual
retainer of $25,000 per year, paid quarterly, yy plus an equity
award of $50,000 (see below).
This retainer is paid to recognize expected ongoing dialogue
of Board members with our executives and employees, for
being available to provide their professional expertise as
needed, for attending various Bank functions, for undertaking
continuing education, and for interfacing with customers as
appropriate.
BOARD MEETING FEES
In recognition of the preparation time, travel time, attendance
and providing professional expertise at the Board meetings,
non-employee directors receive a Board meeting fee of
$2,500 for each meeting attended of the Bank and Bancorp
combined attended in person, by video conference or
conference call. Following our 2017 annual meeting, our
non-employee directors will be paid meeting fees for
attendance by telephone of in person board and committee
meetings for no more than one meeting per year.
BOARD COMMITTEE FEES AND COMMITTEE
CHAIRMEN RETAINER
TT
The Chairman of the Audit Committee receives an annual
retainer of $15,000. The Chairman of the Compensation and
Human Resources Committee receives an annual retainer of
$15,000. The Chairman of the Nominating and Corporate
Governance Committee receives an annual retainer of
$7,500. The Lead Director receives an annual retainer of
$30,000. These retainers are to recognize the extensive time
that is devoted to serve as Committee Chairman or Lead
Director and to attend to committee matters including
meetings with management, auditors, attorneys
and
consultants and preparing committee agendas.
All members of these committees are paid for attending each
committee meeting as follows: $2,500 for Audit, $2,500 for
Compensation and Human Resources, and $2,500 for
Nominating and Corporate Governance.
The Company and the Bank also have a number of
committees (in addition to the corporate governance
committees listed on page 13). These committees generally
s
deal with oversight of various operating matters. Valley’
Risk Committee Chairman receives a $15,000 retainer. All
other committee chairmen receive a retainer of $7,500. There
is an attendance fee of $2,500 for each committee meeting.
VV
Following our annual meeting, the fees described above will
be increased to those set forth below:
Lead Director Annual Retainer
Committee Chair Retainers
Audit Chair
Compensation & HR Chair
Nominating & Governance Chair
Investment Chair
Risk Chair
Trust Chair
CRA Chair
DIRECTOR EQUITY AWAA ARDS
WW
$50,000
$20,000
$20,000
$12,500
$12,500
$20,000
$12,500
$12,500
TT
Our 2016 Long-Term
Stock Incentive Plan (the “2016 Plan”)
provides for our non-employee directors to be eligible
recipients of limited equity awards. The 2016 Plan was
approved by our shareholders.
Commencing with our 2017 annual meeting, each non-
employee director will receive a $50,000 restricted stock unit
award (“RSU”) as part of their annual retainer. The RSUs
will be granted on the date of the annual shareholders’
meeting, with the number of RSUs to be determined using
the closing market price on the date prior to grant. The RSUs
vest on the earlier of the next annual shareholders’ meeting
or the first anniversary of the grant date, with acceleration
upon a change in control, death or disability, yy but not
resignation from the board.
DIRECTORS RETIREMENT PLAN
WeWW maintain a retirement plan for non-employee directors
which was frozen to new participants and for additional
benefit accruals in 2013. The plan provides 10 years of annual
benefits to participating directors with five or more years of
service. The benefits commence after a director has retired
from the Board and reached age 65. The annual benefit is
equal to the director’s years of service, multiplied by 5%,
multiplied by the final annual retainer paid to the director at
the time of retirement. In the event of the death of the director
prior to receipt of all benefits, the payments continue to the
director’s beneficiary or estate. As a result of amendments
to the plan adopted in 2013, participants no longer accrue
further benefits.
19
2017 Proxy Statement
STOCK OWNERSHIP OFP
F
L
AND PRINCIPALPP
SHAREHOLDERS
MANAGEMENT
STOCK OWNERSHIP OF DIRECTORS AND
EXECUTIVE OFFICERS. The following table contains
information about the beneficial ownership of our common
stock at December 31, 2016 by each director and by each of
("NEOs") named in this proxy
our named executive officers
statement, and by directors and all executive officers
as a
group.
ff
ff
Number ofr
Shares
Beneficially
Owned (1)
240,823
40,267
34,275
568,481
28,388
494,228
396,237
963,667
2,329,147
43,585
209,590
1,250,338
192,450
125,976
58,351
286,964
420,508
(3)(3)
(4)(4)
(5)(5)
(6)(6)
(7)(7)
(8)(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
8,208,047
(19)
Percent of
Class (2)
0.09%
0.02
0.01
0.21
0.01
0.18
0.15
0.36
0.87
0.02
0.08
0.47
0.07
0.05
0.02
0.11
0.16
3.07
Name of Beneficial Owner
Directors and Named
Executive Officers:
Andrew B. Abramson
Peter J. Baum
Pamela R. Bronander
Peter Crocitto
Eric P. Edelstein
Alan D. Eskow
Mary J. Steele Guilfoile
Graham O. Jones
Gerald Korde
Michael L. LaRusso
Marc J. Lenner
Gerald H. Lipkin
Ira D. Robbins
Barnett Rukin
Suresh L. Sani
Rudy E. Schupp
Jeffrey S. Wilks
Directors and Executive
Officers as a group (26
persons)
ff
____________
(1) Beneficially owned shares include shares over which the named
person exercises either sole or shared voting power or sole or shared
investment power. It also includes shares owned (i) by a spouse,
minor children or by relatives sharing the same home, (ii) by entities
owned or controlled by the named person, and (iii) by the named
person if he or she has the right to acquire such shares within 60
days by the exercise of any right or option. Unless otherwise noted,
all shares are owned of record and beneficially by the named person.
Unvested performance based RSUs do not carry voting rights and
are non-transferable.
(2) The number of shares of our common stock used in calculating the
percentage of the class owned includes 263,638,830 shares of our
common stock outstanding as of December 31, 2016. For purposes
of calculating each individual’s percentage of the class owned, the
number of shares underlying stock options held by that individual
are also taken into account to the extent such options were
exercisable at December 31, 2016 or became exercisable within 60
days of December 31, 2016.*
2017 Proxy Statement
20
(3) This total includes 14,074 shares held by Mr. Abramson’s wife,
12,379 shares held by his wife in trust for his children, 9 shares held
by a family trust of which Mr. Abramson is a trustee, 40,157 shares
held by a family foundation, 10,197 shares held in self-directed IRA,
2,583 shares in a self-directed IRA held by his wife and 15,783
restricted shares pursuant to the director restricted stock plan.
Mr. Abramson disclaims beneficial ownership of shares held by his
wife and shares held for his children.
(4) This total includes 6,150 shares held by a trust for the benefit of
Mr. Baum’s children of which Mr. Baum is the trustee.
(5) This total includes 5,992 shares held by Ms. Bronander’s children,
and of this total, 972 shares are pledged as security by her adult son.
(6) This total includes 39,702 shares held by Mr. Crocitto’s wife, 5,042
shares held in Mr. Crocitto’s KSOP, PP 2,913 shares held by
Mr. Crocitto as custodian for his child, 83,797 restricted shares,
153,089 performance based restricted stock units (at maximum) and
42,229 shares purchasable pursuant to stock options exercisable
within 60 days of December 31, 2016*.
(7) This total includes 51,796 shares held by Mr. Eskow’s wife, 5,303
shares held in Mr. Eskow’s KSOP, PP 10,578 shares held in his Roth
IRA, 1,471 shares held in his IRA, 6,249 shares held jointly with
his wife, 1,435 shares in an IRA held by his wife, 83,797 restricted
shares, 153,089 performance based restricted stock units (at
maximum) and 42,229 shares purchasable pursuant to stock options
exercisable within 60 days of December 31, 2016*.
(8) This total includes 141,606 shares held by Ms. Guilfoile’s spouse
and 7,281 restricted shares pursuant to the director restricted stock
plan.
(9) This total includes 7,124 shares owned by trusts for the benefit of
Mr. Jones’ children of which his wife is co-trustee.
(10) This total includes 72,133 shares held jointly with Mr. Korde’s wife,
342,697 shares held in the name of Mr. Korde’s wife, 893,352 shares
held by his wife as custodian for his children, 315,378 shares held
by a trust of which Mr. Korde is a trustee and 126,438 shares held
in Mr. Korde’s self-directed IRA.
(11) This total includes 14,506 shares held jointly with Mr. LaRusso’s
wife and 8,111 restricted shares pursuant to the director restricted
stock plan.
(12) This total includes 18,694 shares held in a retirement pension, 567
shares held by Mr. Lenner’s wife, 29,092 shares held by his children,
122,150 shares held by a trust of which Mr. Lenner is 50% trustee
(Mr. Lenner is an indirect beneficiary of only 25% of the trust and
disclaims any pecuniary interest in the ownership of the other portion
of the trust), and 18,392 shares held by a charitable foundation.
(13) This total includes 324,760 shares held in the name of Mr. Lipkin’s
wife, 6,946 shares held in Mr. Lipkin’s wife’s Roth IRA, 154 shares
held jointly with his wife, 68,889 shares held in a Roth IRA, 55
shares held in his KSOP,PP and 38,519 shares held by a family
charitable foundation of which Mr. Lipkin is a co-trustee. This total
also includes Mr. Lipkin’s 173,642 restricted shares, 325,918
performance based restricted stock units (at maximum) and 135,591
shares purchasable pursuant to stock options exercisable within 60
days of December 31, 2016*.
(14) This total includes 2,000 shares held by Mr. Robbins' wife, 285
shares held in trusts for benefit of Mr. Robbins' children, 46,766
restricted shares, 109,902 performance based restricted stock units
(at maximum) and 5,045 shares purchasable pursuant to stock
options exercisable within 60 days of December 31, 2016*.
(15) This total includes 6,000 shares held in Mr. Rukin’s IRA, 27,683
shares held by Mr. Rukin’s wife, as custodian and Mr. Rukin, as
trustee, in various accounts for their children, 12,624 shares held by
and 16,224
a private foundation of which Mr. Rukin is an officer
restricted shares pursuant to the director restricted stock plan.
Mr. Rukin disclaims beneficial ownership of the shares held by his
wife, shares held by his wife as custodian for their children, and
shares held by a private foundation.
ff
(16) This total includes 5,705 shares held in Mr. Sani’s Keogh Plan, 5,705
shares held in trusts for benefit of his children, and 44,390 shares
held in pension trusts of which Mr. Sani is co-trustee.
(17) This total includes 12,814 shares held in Mr. Schupp's IRA, 1,780
shares held by Mr. Schupp's wife's IRA, 1,048 shares as custodian
for his children, 33,174 restricted shares and 109,902 performance
based restricted stock units (at maximum).
(18) This total includes 74,026 shares held by Mr. Wilks’W
wife, 10,058
shares held by his wife in trust for one of their children, 2,747 shares
held jointly with his wife for a family foundation, 20,346 shares as
trustee for the benefit of their children, 12,187 shares as trustee for
the benefit of his wife, 266,804 shares held by the estates of his
mother and father-in-law, ww of which Mr. Wilks' W wife is a beneficiary
and is one of three executors. This total also includes Mr. Wilks’W
8,111 restricted shares pursuant to the director restricted stock plan.
Mr. WilksW disclaims beneficial ownership of shares held by his
mother and father-in-law’s estates.
ff
(19) This total includes 524,772 shares owned by 9 executive officers
who are not directors or named executive officers,
which total
includes 12,692 shares in KSOP and/or IRA, 149 indirect shares,
125,611 restricted shares, 177,092 performance based restricted
stock units (at maximum) and 28,100* shares purchasable pursuant
to stock options exercisable within 60 days of December 31, 2016.
The total does not include shares held by the Bank’s trust department
in fiduciary capacity for third parties.
ff
__________
* All exercisable options outstanding have exercise prices that are higher
s market price at December 31, 2016 of $11.64. See the
VV
than Valley’
Outstanding Equity Awards
table below for each of the NEO’s outstanding
awards; and as of the record date of February 27, 2017, some exercisable
options outstanding have exercise prices that are higher than Valley’
s market
price of $12.46.
VV
AA
PRINCIPALPP
SHAREHOLDERS. The following table
contains information about the beneficial ownership at
December 31, 2016 by persons or groups that beneficially
own 5% or more of our common stock.
Name and Address of
Beneficial Owner
Number of
r
Shares
Beneficially
Owned
Percent of
Class(1)
YY
BlackRock, Inc.(2)
55 East 52nd Street,
Y
New York, NY
10022
(3)
The Vanguard Group
100 Vanguard Blvd.,
A
Malvern, PAPP 19355
VV
VV
30,278,754
11.48%
19,801,278
7.51%
____________
(1) For purposes of calculating these percentages, there were
263,638,830 shares of our common stock outstanding as of
December 31, 2016.
(2) Based on a Schedule 13G/AInformation Statement filed January 17,
2017 by BlackRock, Inc. The Schedule 13G/A discloses that
BlackRock has sole voting power as to 29,778,648 shares, shared
voting power as to 0 shares, sole dispositive power as to 30,278,754
shares, and shared dispositive power as to 0 shares.
(3) Based on a Schedule 13G/A Information Statement filed
Group. The Schedule 13G/A
February 10, 2017 by The Vanguard
VV
discloses that The Vanguard
Group has sole voting power as to
297,474 shares, shared voting power as to 24,530 shares, sole
dispositive power as to 19,491,474 shares, and shared dispositive
power as to 309,804 shares.
VV
21
2017 Proxy Statement
EXECUTIVE COMPENSATION
AA
COMPENSATION DISCUSSION
AA
AND ANALYSIS ("CD&A")
LL
EXECUTIVE SUMMARYRR
Say-on-Pay V
y oteVV
y
At the 2016 Annual Meeting of Shareholders, approximately
94% of the votes cast were in favor of the advisory vote to
approve executive compensation. This result is an increase
from the results of the 2015 Annual Meeting at which 91%
of the votes were cast in favor of the advisory vote and a
substantial increase from the results of the 2014 Annual
Meeting at which 71% of the votes were case in favor of the
advisory vote. WeWW believe that the 2015 and 2016 results
reflect our commitment to providing our executives with
compensation that is in alignment with our shareholders’
short and long term interests. The results also reflected
favorably on our outreach program over the past several years
to certain large institutional shareholders and the significant
changes that we made to our compensation program as a
result of those conversations.
the
Compensation and Human Resources Committee (the
"Committee") made compensation decisions based on 2016
results with a mind toward the input we received from
shareholders over the past three years. In addition, the
Committee reviewed the reports of major proxy advisory
firms on the say on pay vote and again asked the Committee’s
independent compensation consultant, Frederic W. WW Cook &
Co., Inc. (“FW Cook”), to provide an analysis of the executive
compensation program.
In January 2017,
quality performance, and the fact that his base salary
did not increase for the sixth straight year;
The CEO's
increased moderately ($75,000) from last year;
time based equity compensation
No increase in the salary of our CEO for the sixth
year in a row;
No increase in the total direct compensation of our
COO and CFO in 2016;
Increased the compensation of Ira D. Robbins and
Rudy E. Schupp to reflect their recent promotions;
Continued to provide the majority of compensation
in the form of short and long term incentive
compensation, and the majority of long term
incentive compensation in the form of performance
equity awards;
Continued to grant performance equity awards that
cliff ff vest at the end of three years based on our
growth in tangible book value;
Continued to limit the maximum payout on the TSR
portion of the performance equity awards to target
if the relative TSR is negative.
•
•
•
•
•
•
•
Key Compensation Decisions and
p
y
Actions
As discussed below under "Our Company's Performance,"
we believe that benefits derived from some of the difficult
choices our management made in 2015 were realized in 2016
and will continue to improve financial performance in 2017
and beyond. The Company’s net income and diluted earnings
per share for 2016 increased 63.2% and 50.0%, respectively,yy
over 2015 results, which included a $51.1 million charge
related to the extinguishment of high-cost debt.
ff
The following is a brief summary of how we approached our
compensation program based on 2016 results and the
shareholder feedback listed above:
to
The Company’s “TSR” refers to the Company’s share price
performance (and dividends) ranked relative
the
performance of our peer group during the relevant period. In
reviewing compensation, the Committee did not take into
consideration, and the preceding bullet points exclude the
change, in the pension value and “all other compensation”
which is included in compensation for each NEO as
determined under SEC rules and set forth in the Summary
on page 32. ToTT highlight the difference,
Compensation TableTT
the Summary Compensation Table
shows all our NEOs’total
TT
compensation both with and without the change in pension
value.
ff
Our Company’
f
y s’’ Performance
p
•
•
The CEO’s total direct compensation increased
11.5% over 2015 levels. 40% of such increase was
long-term
structured
the form of
performance based equity awards
to ensure
alignment with our pay for performance philosophy;
to be
in
The CEO's cash bonus awarded represented a
s
$150,000 increase from last year in light of Valley’
overall
the
strengthening of our earnings, our strong asset
financial performance,
including
VV
Valley’
s net income in 2016 was $168.1 million, or $0.63 per
VV
diluted common share, compared to 2015 net income of
$103.0 million, or $0.42 per diluted common share, which
represented an increase of 63.2% and 50.0%, respectively,yy
over 2015 amounts. In 2015, management made the decision
the
to take a $51.1 million pre-tax charge in order to effect
extinguishment of $845 million of high-cost debt. The
Committee believes that these charges were in the best
interests of the Company and sets up the Company for
continued improvement in financial performance for 2017
ff
2017 Proxy Statement
22
•
•
•
•
•
•
•
and beyond. The dramatic increases in earnings and EPS in
2016 reflect that charge in 2015.
Other highlights of 2016 include:
The commencement of our “LIFT” program which
seeks to identify operating expense savings and
revenue enhancement opportunities;
The $110 million common stock offering
in
December 2016 at a price well in excess of the
Company’s tangible book value;
ff
A 12.3% increase in net interest income in 2016
compared to 2015;
OUR COMPENSATION
AA
PHILOSOPHY
VV
s executive compensation should be
WeWW believe that Valley’
structured so as to balance the expectations of our
shareholders, our regulators and our executives. We WW have
adopted a compensation philosophy that seeks to achieve this
balance by taking into consideration the following:
Pay-for
-Performance: Rewarding qualitative achievements
y
by management which contribute to our operational and
strategic performance;
Benchmarking:g Making compensation awards after taking
into account the executive compensation programs and
practices of our peer group; and
An increase in tangible book value on an as reported
basis of 8.21% in 2016 compared to 2015;
Balanced Pay y Mix: Providing a mixture of short-term and
long-term financial rewards to our executives.
A total shareholder return in 2016 of 23.55%
compared to 6.12% in 2015;
Over $19 million in cost savings derived from the
and cost reduction plan; and
2015 branch efficiency
ff
The $22.0 million gain on the sale of residential
mortgage loans in 2016 compared to $4.2 million
in 2015.
The Committee uses a balanced approach in making
compensation-related decisions. The important factors the
Committee considered this year include:
•
•
Our year over year increase in earnings per share,
after considering core earnings;
Our growth in tangible book value plus dividends;
Key y Governance Features
We WW have implemented the following governance features:
p
compensation
Independent
consultant. FW Cook, our
compensation consultant, reports directly to the Committee
VV
and provides no services to Valley
or management.
p
g
Risk management.
We WW focus on risk management and
design our plans to discourage unnecessary or excessive risk
taking.
No hedging
p
g g or pledging.
VV
pledging of Valley
securities by executive officers.
ff
g g We WW do not allow hedging or
p
Clawback policy
y.yy WeWW have a clawback policy that allows
for the recovery of unvested cash and equity-based incentive
compensation in the event of a material financial restatement
or material misconduct by an executive and recovery of both
vested and unvested awards in the event of intentional fraud
or intentional misconduct by an executive. Our equity awards
to executives include other clawback provisions.
Hold-pastp
termination. If an NEO terminates employment
for any reason and such termination results in the acceleration
of equity awards, 50% of the shares of common stock
underlying the equity awards must be held for a period of 18
months following the date of termination.
Stock ownershipp guidelines
g
. We WW impose ownership
guidelines on our executives.
• Maintaining Valley’
VV
s strong commitment to credit
quality;
•
Development of a long term strategic plan which
s franchise growth;
supports Valley’
VV
• Maintaining Valley’
VV
s dividend;
• Meeting or exceeding regulatory requirements,
including regulatory capital requirements, in all
facets of our business; and
•
and developing staff ff
Training
for succession
TT
planning purposes and for maintaining business
continuity.
OUR COMPENSATION
AA
PROCESS
Our Committee sets the compensation of our CEO and all
We WW met four
our NEOs, as well as all executive officers.
times during 2016 and early 2017 to discuss NEO
compensation for 2016. At almost all meetings
the
Committee holds in-depth executive sessions at which our
independent compensation consultant is present and provides
advice.
ff
The Committee has the authority to directly retain the services
of independent compensation consultants and other experts
to assist in fulfilling its responsibilities. The Committee
engaged the services of FW Cook, a national executive
compensation consulting firm, to review and provide
recommendations concerning all of the components of the
Company’s executive compensation program. FW Cook
23
2017 Proxy Statement
performs services solely on behalf of the Committee and has
no relationship with the Company or management except as
it may relate to performing such services. FW Cook assists
the Committee in defining Valley's
peer companies for
VV
executive compensation and practices and in benchmarking
our executive compensation program against the peer group.
The Committee assessed the independence of FW Cook and
concluded that no conflict of interest existed that prevented
FW Cook from independently representing the Committee.
TT
prior to the publicly announced termination of the pending
merger with, and into New York YY
Community Bancorp, Inc..
Bancorp, Private Bancorp, Inc., Prosperity
PacWest WW
Bancshares and Texas
Capital Bancshares, Inc. were added.
The peer group consists of companies with assets between
$6 billion and $50 billion and market capitalization between
ranked in the 61st and
$800 million and $8 billion. Valley
VV
33rd percentile in asset size and market capitalization,
respectively, yy against the peer group.
The Committee compares the salaries, equity compensation
and non-equity incentive compensation we pay to our NEOs
with the same compensation elements paid to executives of
the peer group companies available from public data. The
Committee refers to this peer group information when setting
our CEO compensation and that of our other NEOs and
generally targets setting CEO and NEO total compensation
at levels that are at the median of our peer group.
A representative of FW Cook was present and provided
advice at all our meetings, including executive sessions. Pre-
meetings were held with the Chairman of the Committee to
establish the agenda for each meeting. The compensation
consultant attended the pre-meetings.
The CEO and other NEOs attended portions of the meetings.
The CEO presented and discussed with the Committee his
recommendations for compensation for the NEOs and the
executive team without the other NEOs present. The CEO
did not make a recommendation to the Committee with regard
to his own compensation. The CEO was not present when his
compensation was discussed or set by the Committee. The
Committee sought input from other directors with experience
in executive compensation and from internal and external
counsel. The Committee sets executive compensation with
only Committee members, consultants and internal and
external counsel present.
OUR PEER GROUP
VV
VV
In setting compensation for our executives, we compare total
s
compensation, each compensation element, and Valley’
financial performance to a peer group. For purposes of
determining 2015 compensation, our peer group consisted of
17 bank holding companies in the NY/NJ/CT metropolitan
area plus Florida with assets within a reasonable range above
and below Valley’
s asset size. In 2016, we modified the peer
group to remove three bank holding companies that were
either acquired or in the process of being acquired by larger
institutions. We WW replaced these companies with four
companies which are located in metropolitan locations
throughout the country,yy with sizes and business models
. The Committee believes that this new peer
similar to ValleyVV
group is an appropriate group for comparison with Valley
for
two primary reasons:
VV
•
•
The companies in the peer group are all located in
our market areas or comparable metropolitan
locations; and
The companies in the peer group are, on average,
.
similar in size and complexity to ValleyVV
Appendix A, on page 52 lists all financial institutions in the
peer group. First Niagara Financial Group, Inc. and National
Penn Bancshares, Inc. were removed from the peer group due
to their acquisitions by, yy and merger into other institutions
during 2016. Astoria Financial was also removed in 2016
2017 Proxy Statement
24
ELEMENTS OF PF APP YAA
The following table summarizes the key components of our compensation program for our NEOs and the purpose of each
component:
Component
Salary
EIP Cash Awards
Key features
Certain cash payment based on position,
responsibilities and experience.
Annual cash awards which are tied to
achievement of both company and
individual goals.
EIP Time Vested Equity Awards
Equity incentives earned based on time.
2016 Stock Plan Performance Equity
AA
Awards
Equity incentives earned based upon
meeting performance targets.
Purpose
a stable source of income.
Offers
ff
Intended
reward
to motivate and
executives for achievements of short-term
(one year) company and individual goals.
Intended
shareholders and promote retention.
to create alignment with
Intended to focus on achievement of
company performance objectives, relative
TSR and growth in tangible book value (as
defined below).
Salaryy
Salaries are determined by an evaluation of individual NEO
responsibilities, compensation history, yy as well as peer
comparison.
)
Executive Incentive Plan (EIP)
(
The Executive Incentive Plan ("EIP") provides for awards,
payable in cash and time vested restricted stock awards, from
a pool equal to 5% of our net income before income taxes.
Allocations of the percentages under the EIP among the
NEOs from the 5% pool (discussed below) are made by the
Committee within the first 90 days of each calendar year with
respect to the current year. EIP awards are determined after
the year-end financial results are finalized. The Committee
awards less than the entire amount of the 5% pool as permitted
by the EIP.PP We WW intend to maximize our tax deductible awards
under the EIP.PP
EIP Cash Awards
We WW award the cash bonus under the EIPin January or February
and pay the initial 50% portion of cash EIP awards at the time
of award. The 50% balance is paid in eight equal quarterly
installments, to allow time for possible clawback of cash
awards if necessary.
TT
EIP Time
VV
Vested
Equity Awards
WeWW award time vested restricted stock awards under the EIP
in January or February. Awards
granted in January 2017 are
scheduled to vest pro rata on an annual basis over a three year
period.
AA
Performance
f
Based Equity
y Awards
q
Stock Incentive Plan (the
TT
The Company’s 2016 Long-Term
“2016 Stock Plan”) includes provisions for performance
awards.
WeWW awarded performance based restricted stock unit awards
under the Company’s 2016 Stock Plan. The 2016 Stock Plan
provides for certain performance based awards, which allows
for these awards to be qualified under Internal Revenue Code
Section 162(m) for tax deductibility. Consistent with prior
years, the performance based awards granted in 2017 (for
2016 performance) vest based on the Company’s adjusted
Growth in Tangible
and TSR performance.
VV
Book Value
TT
25
2017 Proxy Statement
OVERALL DESIGN AND MIX OF EQUITY GRANTS
Consistent with 2014 and 2015 awards, the following table summarizes the overall design and mix of our annual long-term
equity incentives granted for 2016:
Percentage of Total
Target Equity
Award Value for
Mr. Lipkin
25.7%
Percentage of Total
Target Equity
Award Value for
Other NEOs
33.3%
55.7%
50%
18.6%
16.7%
Form of Award
Time Vested Award
(time-vested restricted
stock)
Growth in Tangible
Book Value
Performance Award
(restricted stock units)
TSR Performance
Award (restricted
stock units)
The percentage mixes described in the chart above are based
on the dollar value of the awards granted. The dollar value is
translated into number of shares using the closing price the
day before the Committee makes the grant.
2016 TIME VESTED AWAA ARDS
WW
For Mr. Lipkin, 25.7% of the aggregate dollar value of his
target annual equity awards granted for 2016 was in the form
of time-based vesting restricted stock awards. For the other
NEOs, 33.3% of the aggregate dollar value of our NEOs’
target annual equity awards granted for 2016 was in the form
of time-based vesting restricted stock awards. Once granted,
the awards vest based solely on continued service with the
Company, yy with one third vesting on each anniversary of the
grant date.
2016 GROWTH IN TANGIBLE BOOK
TT
AWAA ARDS
WW
VV
VALUE
TT
TT
VV
Book Value
Growth in Tangible
when used in this CD&A
means year over year growth in tangible book value, plus
dividends on common stock declared during the year,
excluding other comprehensive income ("OCI") recorded
during the year. The Committee chose Growth in Tangible
Book Value
over a three year period because it believes that
VV
this metric is a good indicator of the performance of a
commercial bank. The adjustment for dividends allows the
Committee to compare our performance to our peers which
pay different
amounts of dividends. The exclusion of OCI
ff
avoids changes in tangible book value not viewed as related
to financial performance. Consistent with the terms of the
award agreements for the restricted stock and the 2016 Stock
Plan, the Committee adjusted the calculation of the Growth
in Tangible
for the Company's acquisitions of 1st
United Bancorp and CNL Bancorp in 2014 and 2015,
VV
Book Value
TT
Purpose
Encourages retention.
Fosters shareholder
mentality among the
executive team.
Encourages retention and
ties executive
compensation to our
operational performance.
Encourages retention and
ties executive
compensation to our
long-term market
performance.
Performance
Measured
N/A
Growth in Tangible
TT
Book Value (as defined)
VV
Relative TSR
Earned and Vesting
Periods
Vests on the first,
second, and third
anniversaries of the
grant date.
Earned and vests after
three-year performance
period based on Growth
in Tangible Book Value.
Earned and vests after
three-year performance
period based on TSR.
respectively, yy the prepayment incurred for the prepayment of
in 2016.
high cost debt in 2015 and the common stock offering
ff
TT
TT
TT
Performance Award).
Book ValueVV
AA
TT
VV
Book Value
For Mr. Lipkin, 55.7% of the aggregate dollar value of his
equity awards granted for 2016 were in the form of
performance restricted stock units ("RSUs") to be earned
(each, a Growth
based upon Growth in Tangible
in Tangible
For the other
NEOs, 50.0% of the aggregate dollar value of our NEOs’
target equity awards granted for 2016 were in the form of
VV
Book Value
The
Growth in Tangible
are
Growth in Tangible
Book ValueVV
earned based on average annual Growth in Tangible
Book
against target during the years 2017 through 2019.
ValueVV
Performance Awards
Book ValueVV
Earned Growth in Tangible
vest at the end of the 3-year performance period and will be
settled as soon as administratively feasible thereafter
following Committee certification of performance results.
The number of shares that can be earned may range from 0%
to 150% of the target, depending on performance (with linear
interpolation between performance levels) as follows:
Performance Awards.
Performance Awards
TT
AA
AA
AA
TT
Average Annual Growth in
Tangible Book Value 2017-2019
Percentage of Target
Shares Earned
Below 9.5%
9.5% (Threshold)
11% (Target)
12.5% or higher (Maximum)
None
50%
100%
150%
TT
Book ValueVV
Growth in Tangible
are
settled in the form of common stock with cash for any
dividend equivalents accrued during the performance period
to the extent earned.
Performance Awards
AA
2017 Proxy Statement
26
TT
The table below shows the status of the performance based
equity awards subject to vesting based on Growth in Tangible
reflecting the adjustments described above,
VV
Book Value,
granted in 2014 (for 2013 performance), in 2015 (for 2014
performance), and in 2016 (for 2015 performance) based on
fiscal 2016 financial performance. Please note that the status
reported in the below tables for other than 2014 awards is not
necessarily indicative of what will ultimately be paid out to
our NEOs as these awards are based on cumulative
performance results for the respective full
three-year
performance periods. The 2014 awards vested in January
2017 at above TarTT get performance due to the three year
Growth in Tangible
Book ValueVV
of 11.54%.
TT
Growth in Tangible Book V
alueVV
TT
Grant
Date
Performance
in 2014
Performance
in 2015
Performance
in 2016
Cumulative
Perfor-
mance
Measured
to Date
10.82%
11.28%
12.51%
11.54%
TSR
Below 25th percentile of peer group
25th percentile of peer group (Threshold)
50th percentile of peer group (TarTT get)
75th percentile of peer group (Maximum)
Percentage of
Target Shares
Earned
None
50%
100%
150%
In the event that the Company has a negative TSR on an
absolute basis at the end of the three-year performance period,
then the maximum number of shares that could be earned,
regardless of the Company’s TSR relative to its peer group,
would be 100% of target. TSR Performance Awards
will settle
in the form of common stock with cash with any dividend
equivalents accrued during the performance period, to the
extent earned.
AA
The Company’s cumulative TSR was 20.29% for the three
year period ended December 31, 2016. The percentile rank
s peer group was 12.2% for that time period.
VV
against Valley’
Accordingly,yy none of the NEOs’ 2014 TSR Performance
AA
Awards
vested in 2017.
N/A
N/A
11.28%
12.51%
11.90%
PAPP YAA DETERMINATIONS
AA
N/A
12.51%
12.51%
Summaryy
*11
1/31/2014
1/30/2015
1/28/2016
__________
(*)
The terms of the awards granted in 2014 provided for an annual
payout of a certain portion of the award based on achievement of
Growth in Tangible
performance goals measured
annually. This feature allowing for potential annual payout was
eliminated from performance based awards commencing with
those granted in 2015.
VV
Book Value
TT
2016 RELATIVE
AA
TSR PERFORMANCE AWAA ARDS
WW
For Mr. Lipkin, 18.6% of the aggregate dollar value of his
target annual equity awards granted for 2016 was in the form
of RSUs to be earned based on the Company’s relative TSR
for the 3-year performance period from January 2017 through
December 2019 against the KRX (a TSR Performance
For the other NEOs, 16.7% of the aggregate dollar
AA
Award).
value of our NEOs’ target annual equity awards granted for
2016 was in the form of a TSR Performance Award.
The KRX
is used instead of our compensation peer group to provide a
relative market performance
broader indication of Valley's
and because similar size and geography are less relevant
criteria
than
performance
compensation comparisons. Earned TSR Performance
vest at the end of the 3-year performance period and
AA
Awards
will be settled as soon as administratively feasible thereafter
following Committee certification of performance results.
The number of shares that may be earned may range from
0% to 150% of the target, depending on performance (with
linear interpolation between performance levels) as follows:
comparisons
for TSR
AA
VV
The Committee increased Mr. Lipkin’s
total direct
compensation (i.e., salary,yy target equity awards and target EIP
cash awards) by $373,500, or approximately 11.5%, from last
year. Of the increase in the CEO's total compensation from
2015, $148,500, or 40%, was the result of an increase in his
performance based equity awards. More specifically, yy the
Committee made the following compensation determinations
with respect to Mr. Lipkin:
• Maintained his salary of $1,123,500 for the sixth
consecutive year;
•
•
Increased his
total
$1,750,000 from $1,526,500 for 2015;
target equity awards
to
Increased his target EIP cash award to $750,000 for
2016 from $600,000 for 2015.
The Committee and Mr. Lipkin believe that, as Chairman and
CEO, Mr. Lipkin’s compensation, more than any other NEO,
should reflect the overall performance of the Company rather
than individual achievements. The Committee believes that
the compensation determination that it made reflects the
Company’s financial performance. Given the improvement
in the Company’s earnings and EPS the Committee believed
it appropriate to increase Mr. Lipkin’s compensation by
approximately 11.5%. However, the Committee determined
a significant portion of the increase in compensation over
2015 (40%) should be in the form of performance based
equity awards.
27
2017 Proxy Statement
EIP Cash
P
Awards
Named Executive
Officer
2016 Base
Salary
P
EIP Cash
Awards for
AA
2016
P
EIP Cash
AA
Award as %
of 2016
Base Salary
Gerald H. Lipkin
Alan D. Eskow
Peter Crocitto
Ira D. Robbins
Rudy E. Schupp
$ 1,123,500 $
545,750
545,750
525,000
525,000
750,000
200,000
200,000
250,000
250,000
66.8%
36.6
36.6
47.6
47.6
VV
VV
The cash EIP award for Mr. Lipkin was higher than last year’s
award by $150,000, or 25%. The Committee believes that
this award was appropriate given Valley’
s increased net
income and EPS performance, as well as by the maintenance
of Valley’
s strong credit culture and quality,yy as well as the
continued expansion of the franchise into a strong growth
area. The cash awards for Messrs. Eskow and Crocitto were
consistent with 2015. The cash awards for Messrs. Robbins
and Schupp were $50,000, or 25%, higher than last year. The
Committee believed that Messrs. Robbins and Schupp were
instrumental
profits and overall
VV
financial performance and thus were deserving of a
substantially increased EIP cash award.
in increasing Valley's
EIP - Time Vested
VV
Equity
y Awards
AA
q
In January 2017, the Committee granted equity awards to our
NEOs under the EIP.PP These awards consisted of time-vested
shares of restricted stock. The time vested awards are granted
under the EIP and the 2016 Stock Plan. The following table
shows the time-vested restricted stock issued to our NEOs in
2017 and the grant date fair value of each award.
Named Executive Officer
Gerald H. Lipkin
Alan D. Eskow
Peter Crocitto
Ira D. Robbins
Rudy E. Schupp
Time Based
Restricted
Shares
Value of Shares
at Grant Date
39,858
19,929
19,929
22,143
22,143
$
450,000
225,000
225,000
250,000
250,000
WithW respect to our other NEOs, the Committee made the
following determinations:
• Maintained the total direct compensation of Messrs.
Eskow and Crocitto (including all elements of
compensation) consistent with 2015;
•
Increased Mr. Eskow's salary in 2017 for the first
time in five years to $575,000 from $545,750, a
5.4% increase;
• Maintained Messrs. Eskow and Crocitto at the
that are
proportion of
performance based at two-thirds of the total;
target equity awards
•
•
•
Increased the total direct compensation for Ira
Robbins and Rudy Schupp to $1,525,000 from
$1,281,250 and increased their base salary in 2017
to $750,000 from $525,000 in 2016;
Set the EIP cash awards for Messrs. Robbins and
Schupp at $250,000 compared to $200,000 in the
prior year; and
time vested ($250,000) and
target
AA
Awarded
performance based ($500,000) equity awards for
Messrs. Robbins and Schupp which means that two-
thirds of equity awards are performance based.
Discussion
Salaries. For the sixth consecutive year, the Committee
determined not to increase the base salary for Mr. Lipkin.
Mr. Eskow's salary in 2017 increased for the first time in five
years to $575,000 from $545,750, a 5.4% increase. Messrs.
Robbins’ and Schupp’s salaries were increased by 43% to
$750,000 in recognition of their promotions in 2017 to
National Bank and President and Chief
President of Valley
Banking Officer
of the Company, yy respectively.
VV
ff
AA
VV
EIP Cash Awards.
may pay incentive
Under the EIP, PP Valley
compensation to its NEOs in an aggregate amount equal to
5% of its net income before taxes for the calendar year with
the exact amounts to be determined by the Committee. In
January 2016, the Committee began the process of
determining awards under the EIP by: identifying the NEOs
as the EIP participants; and allocating a share of the EIP pool
to each participant, as shown in the first column of the table
AA
"EIP Awards
for 2016".
In January 2017, the Committee certified the amount of the
2016 pool as $11,669,000, which was 5% of 2016 net income
before taxes. Based on Valley’
s 2016 financial results and
the 2016 goals accomplished by each NEO, the Committee
granted cash awards to the NEOs.
VV
The following table shows the EIP cash awards for each NEO
and as a percentage of base salary.
2017 Proxy Statement
28
The aggregate total EIP award (both cash and equity) to all
NEOs was $3,050,000, or approximately 26.1% of the total
maximum amount available for grant under the EIP to the
five NEOs. Mr. Lipkin received a total award of $1,200,000,
or approximately 29.4% of his maximum award under the
EIP.PP
TT
Total
AA
EIP Awards
The table below shows the maximum EIP awards permitted
for 2016 as well as the actual cash, time vested equity and
total EIP award made to each NEO for 2016 performance.
EIP Awards for 2016
Allo-
cation
of
EIP
Pool
Maximum
Permitted
Aggregate
EIP Award
Cash
Award
AA
Paid
Time
Vested
Equity
Award
Granted
TT
Total
Aggre-
gate
Award
AA
Granted
NEO
Lipkin
35% $ 4,084,150 $ 750,000 $ 450,000 $ 1,200,000
Eskow 17.5%
2,042,075
200,000
225,000
Crocitto 17.5%
2,042,075
200,000
225,000
Robbins 15%
1,750,350
250,000
250,000
Schupp
15%
1,750,350
250,000
250,000
425,000
425,000
500,000
500,000
$11,669,000 $1,650,000 $ 1,400,000 $ 3,050,000
Performance Based Equity
y Awards
AA
q
In January 2017, the Committee granted performance based restricted stock units to our NEOs under our 2016 Stock Plan. Of
these performance based units, 75% are subject to vesting based on the attainment of adjusted Growth in Tangible
VV
Book Value
and the remaining 25% are based on relative total shareholder return, or TSR, as discussed more detail above under “Overall
Design and Mix of Equity Grants.” The following table shows the performance based equity awards that were made under the
2016 Stock Plan:
TT
Performance Based Stock Awards at Target
Performance Based Stock Awards at Maximum
Based on
TSR
Based on
Growth in
TBV
Total
Based on
TSR
$
325,000
$
975,000
$ 1,300,000
$
487,500
112,500
112,500
125,000
125,000
337,500
337,500
375,000
375,000
450,000
450,000
500,000
500,000
168,750
168,750
187,500
187,500
Based on
Growth in
TBV
$ 1,462,500
506,250
506,250
562,500
562,500
Total
$ 1,950,000
675,000
675,000
750,000
750,000
Named Executive Officer
Gerald H. Lipkin
Alan D. Eskow
Peter Crocitto
Ira D. Robbins
Rudy E. Schupp
Peter Crocitto Retirement
ff
On January 4, 2017, the Company announced the retirement
of Peter Crocitto effective
as of February 28, 2017. Following
his retirement, Mr. Crocitto has agreed to serve as a consultant
to the Company for a period of two years pursuant to the
terms of a Consulting and Retirement Agreement dated
January 4, 2017 (the “Agreement”).
Pursuant to the Agreement, and subject to the limitations set
forth therein; (i) as permitted under the terms of the applicable
grant agreements, all of Mr. Crocitto's previously unvested
time-based awards of restricted stock vested upon retirement
and his performance based restricted stock units remain
outstanding and vest in accordance with the terms of the
awards including performance based vesting conditions; (ii)
Mr. Crocitto was provided with, consistent with normal
practice, the cash and equity awards described above based
on 2016 performance; (iii) the Company will pay Mr.
Crocitto $48,000 per month during the period he provides
consulting services to the Company; and (iv) the Company
will provide other reasonable benefits and reimbursements
to Mr. Crocitto. Under the Agreement, Mr. Crocitto agreed
to
non-
disparagement and confidentiality provisions for the period
of his two year consulting agreement.
expanded non-competition, non-solicitation,
Pension and Other Compensation
p
r
Until 2014, our NEOs participated in two pension plans, a
tax-qualified plan and a non-tax qualified plan. The latter plan
is a supplemental, non-tax qualified pension plan, known as
the Benefit Equalization Plan. We WW provided these benefits in
order to make available to the recipients an income stream
that will assist in meeting post-retirement expenses. Each of
29
2017 Proxy Statement
these plans were frozen as of December 31, 2013 as described
in more detail in “2014 Pension Benefits - Pension Plan” and
“2014 Pension Benefits - Benefit Equalization Plan”.
On January 24, 2017, we entered into an amended and
restated severance letter agreement with Gerald H. Lipkin.
The amended letter agreement clarifies Mr. Lipkin’s pension
benefit by conforming the actuarial conversion factor that is
used to determine his annuity to the Company’s qualified
pension plan. The result is an estimated increase in the
present value of Mr. Lipkin’s pension benefit of $460,662 as
of December 31, 2016.
ff
ff
We WW also provide perquisites to all senior officers.
ff
We WW offer
them the use of a company-owned automobile, and in limited
instances, use of a driver, primarily for business use. The
automobile facilitates NEO travel between our offices,
to
business meetings with customers and vendors and to
investor presentations. NEOs may use the automobile for
personal transportation. Personal use of the automobile or
driver, if not reimbursed by the NEO, results in taxable
income to the NEO, and we include this in the amounts of
income we report to the NEO and the Internal Revenue
Service. Commencing in 2017, the Committee determined
that going forward executives will receive a car stipend, not
use of a company owned car.
We WW also support and encourage our NEOs to hold a
membership in a local country club for which we pay
admission costs, dues and other business related expenses.
We WW find that the club membership is an effective
means of
obtaining business as it allows NEOs to interact with present
informal
and prospective customers
environment. We WW require that any personal use of the country
club facilities for golf or food be paid directly by the NEO.
Because the club memberships are used at our expense only
for business entertainment, we do not include them as
perquisites in our Summary Compensation Table.
relaxed,
in a
TT
ff
Clawback: Under our “clawback” policy,yy if there is a
material restatement of our financial statements, or material
misconduct by the executive which harms the Company
financially,yy the Committee may “clawback” unvested equity
awards and unpaid cash bonus awards and in the event of
intentional fraud or misconduct by the executive previously
paid or vested awards, as well as unvested awards may be
clawed back. Our equity grants to executive officers
include
another “clawback” provision that allows recapture of the
award for certain reasons within specified time periods.
ff
ff
VV
g g or Pledgingg gg: Valley
adopted a policy
No Hedging
from entering into hedging and
prohibiting executive officers
pledging transactions involving Valley’
s common stock. The
Board believes that such transactions, which have the effect
of mitigating the risks and rewards of ownership, may result
in the interests of management and shareholders of Valley
being misaligned.
VV
VV
ff
Stock Ownershipp: ToTT better align the interests of our NEOs
with those of our common shareholders, we require each
NEO to own a minimum number of shares of our common
stock. The table below shows the minimum holdings. Each
NEO owns a substantial number of shares in excess of the
minimums.
NEO Minimum Stock Ownership Requirements
Title (Name)
CEO (Mr. Lipkin)
Senior EVP (Messrs. Eskow,
Crocitto, Robbins and Schupp)
____________
Minimum Required
Common Stock
Ownership*
200,000
50,000
* Includes all shares each NEO is required under SEC rules to report
as beneficially owned.
AA
INCOME TAX CONSIDERA
TT
TIONS
We WW also provide change in control agreements to our NEOs,
which provide for “double trigger” cash payments in the event
of a change of control of ValleyVV
. These severance benefits
provide the NEOs with a reasonable range of income
protection in the event employment is terminated without
cause following a change in control, support our executive
retention goals and encourage their independence and
objectivity in considering potential change in control
transactions. The terms of these agreements are described
more fully in this Proxy Statement under “Other Potential
Post-Employment Payments.”
OTHER PROGRAM FEATURES
AA
: If an NEO terminates employment
TT
Hold Past Termination
for any reason and such termination results in the acceleration
of equity awards, 50% of the shares of common stock
underlying those equity awards must be held for a period of
18 months following the date of termination.
2017 Proxy Statement
30
Our federal income tax deduction for non-performance based
compensation paid to certain of our NEOs is limited by
Section 162(m) of the Internal Revenue Code (IRC) to $1
million annually. Compensation paid to any of them
exceeding $1 million is non-deductible for federal income
tax purposes unless paid under a performance based plan pre-
approved by our shareholders. At our annual shareholders
meeting in 2010, the EIP was adopted, which allows the
Committee to grant awards under the EIP which are intended
to comply with the restrictions of Section 162(m).
In
addition, the 2016 Stock Plan allows the Committee to grant
awards which are also intended to comply with the
restrictions of Section 162(m) and the Committee has granted
performance based equity awards under the 2016 Stock Plan.
However, the Compensation Committee retains the authority
to authorize payments that may not qualify under Section 162
(m). With W the exception of a small portion of Mr. Lipkin’s
salary, yy we believe that all compensation granted to our NEOs
in 2017 is deductible for federal income tax purposes.
COMPENSATION COMMITTEE REPOR
AA
CERTIFICA
TION
AA
RR
TRR AND
The Compensation and Human Resources Committee has
reviewed and discussed the Compensation Discussion and
Analysis with management and, based on that review and
those discussions, it has recommended to the Board of
Directors that the Compensation Discussion and Analysis be
included in this Proxy Statement.
Gerald Korde, Committee Chairman
Andrew B. Abramson
Pamela R. Bronander
Eric P. Edelstein
Michael L. LaRusso
Marc J. Lenner
Suresh L. Sani
AA
EQUITY COMPENSA
Y
AA
TION PLAN INFORMA
TION
Weighted
WW
average
exercise
price
on out-
standing
options
and
rights
Number of shares
remaining
available for future
issuance under
equity
compensation
plans (excluding
shares
reflected in the
first column)
r
Number of
shares to
be issued
upon
exercise of
outstanding
options and
rights*
1,848,911 $
14.01
8,334,305
—
—
—
1,848,911 $
14.01
8,334,305
Plan Category
Equity
compensation plans
approved by
security holders
Equity
compensation plans
not approved by
security holders
Total
____________
* Amount includes 732,489 options outstanding with a weighted
average exercise price of $14.01 and 1,116,422 performance-based
restricted stock units at maximum at December 31, 2016. Amount
does not include 2,090,165 outstanding restricted shares.
31
2017 Proxy Statement
AA
SUMMARYRR COMPENSA
Y
TION
TT
TABLE
The following table summarizes all compensation in 2016, 2015 and 2014 earned by our chief executive officer
ff
officer
subsidiaries.
and the three most highly paid executive officers
(NEOs) for services performed in all capacities for Valley
, chief financial
and its
VV
ff
ff
Name and Principal
Position
Year
Salary
AA
Awards
Stock
(1)
VV
Change in
Pension Value
and Non-
Qualified
Deferred
Compen-
sation
Earnings (3)
Non-
Equity
Incentive
Plan
Compen-
sation (2)
All Other
Compen-
sation (4)
Total
Total
Without
Change in
Pension
Value*
Gerald H. Lipkin
2016 $
1,123,500 $
1,750,000 $
750,000 $
909,924 $
188,536 $ 4,721,960 $
3,812,036
Chairman of the
Board and CEO
Alan D. Eskow
PP
Senior EVP, CFO and
Corporate Secretary
Peter Crocitto
P
Senior EVP and COO
Ira D. Robbins
Senior EVP, PP Valley and
VV
President, Valley National
VV
Bank
Rudy E. Schupp
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2016
545,750
545,750
545,750
545,750
545,750
545,750
525,000
425,000
525,000
1,123,500
1,123,500
1,526,500
1,125,000
600,000
550,000
200,000
200,000
200,000
200,000
200,000
200,000
250,000
513,382
156,389
3,919,771
1,159,621
153,129
4,111,250
0
118,714
1,539,464
45,342
107,034
1,573,126
178,041
94,518
1,693,309
0
0
445,076
45,718
108,107
1,528,857
91,891
1,512,641
78,494
1,944,320
77,757
1,648,475
3,406,389
2,951,629
1,539,464
1,527,784
1,515,268
1,528,857
1,512,641
1,499,244
1,602,757
675,000
675,000
675,000
675,000
675,000
675,000
750,000
VV
ff
President, Valley and Chief
Banking Officer
National Bank
___________
VV
, Valley
2015
425,000
656,250
200,000
656,250
750,000
200,000
250,000
0
0
0
48,295
1,329,545
69,392
1,594,392
1,329,545
1,594,392
37,478
1,318,728
1,318,728
* The amounts reported in this column differ,rr in certain cases substantially,yy from the amounts reported in the “Total”
TT
SEC rules and should not be considered a substitute for the “Total”
TT
column of the Summary Compensation Table.
TT
column required under
TT
No. 718, Compensation-Stock Compensation ("ASC Topic
(1) Stock awards reported in 2017 reflect the grant date fair value of the restricted stock and performance based restricted stock unit awards under Accounting
Standards Codification Topic
718") granted by the Compensation Committee based on 2016
results. The grant date fair value of time based restricted stock awards reported in this column for each of our NEOs was as follows: Mr. Lipkin, $450,000;
Mr. Eskow, ww $225,000; Mr. Crocitto, $225,000; Mr. Robbins, $250,000; Mr. Schupp, $250,000. Restrictions on time based restricted stock awards lapse
at the rate of 33% per year. Restrictions on performance based awards lapse based on achievement of the performance goals set forth in the performance
restricted stock unit award agreement. Any shares earned based on achievement of the specific performance goals vest when the Compensation Committee
certifies the payout level as a result of such performance achievement following the three-year performance period. The value on grant date of the
performance based restricted stock unit awards based upon performance goal achievement at target and maximum would be as follows:
TT
Name
TT
Target
Gerald H. Lipkin $
Alan D. Eskow
Peter Crocitto
Ira D. Robbins
Rudy E. Schupp
VV
Value at Grant Date
Maximum Value at Grant Date
VV
1,300,000 $
450,000
450,000
500,000
500,000
1,950,000
675,000
675,000
750,000
750,000
(2) Non-Equity awards earned for the year ended 2016 were, or will be distributed as follows: 50% of the non-equity award was paid in February 2017 and
the remaining balance will be paid in eight equal quarterly installments, beginning April 2017 to January 2019, subject to our clawback policy.
(3) Represents the change in the present value of pension benefits from year to year, taking into account the age of each NEO, a present value factor, and
interest discount factor based on their remaining time until retirement. For Mr. Lipkin, the increase in value under the Pension Plan and BEP is attributable
to the following sources: 1) actuarial increases received for late retirement past age 70 ½ and 2) a decrease in the discount rate from 4.325% to 4.110%,
and 3) changes made pursuant to the pension section of his severance agreement (see "2016 Pension Benefits" below). The annual change in the present
value of Messrs. Crocitto and Eskow accumulated benefits as of December 31, 2016 was a net decrease of $12,166 and $31,705 from the present value
reported as of December 31, 2015, respectively; therefore, the amount reported for 2016 is zero. This increase is attributable to an update in the mortality
table basis and passage of time.
(4) All other compensation includes perquisites and other personal benefits paid in 2016 including automobile and driver (if applicable), accrued dividends
on nonvested restricted stock, 401(k) contribution payments by Valley
VV
and group term life insurance (see table below).
2017 Proxy Statement
32
Name
Gerald H. Lipkin
Alan D. Eskow
Peter Crocitto
Ira D. Robbins
Rudy E. Schupp
____________
Accrued Dividends &
Interest Earned on
Nonvested Stock
AA
Awards
(2)
Auto (1)
401(k) (3)
GTL (4)
Other
TotalTT
$
15,365 $
159,921 $
13,250 $
0 $
0 $
14,035
12,978
11,066
2,572
76,977
76,977
51,245
46,905
13,224
13,250
13,250
13,250
14,478
4,902
1,119
6,665
0
0
1,077
0
188,536
118,714
108,107
77,757
69,392
(1) Auto represents the portion of personal use of a company-owned vehicle by the NEO and driving services (if applicable), during 2016.
(2) Accrued dividends and interest on non-vested time and performance based restricted stock awards and performance based restricted stock units until
such time as the vesting takes place. Performance based awards and units are accrued at target.
(3) The Company provides up to 100% of the first 4% of pay contributed 50% of the next 2% of pay contributed and one must save at least 6% to get the
full match (5%) under the 401(k) Plan to all full time employees in the plan including our NEOs.
(4) GTL or Group Term
TT
Life Insurance represents the taxable amount for over $50,000 of life insurance for benefits equal to two times salary.
This benefit is provided to all full time employees. Mr. Lipkin has a $50,000 life insurance policy with the Company and is not subject to a taxable
amount.
F
2016 GRANTS OF PLAN-BASED
AWAA ARDS
WW
The following table represents the grants of awards to the NEOs in 2017 for 2016 performance under the Executive Incentive
Plan and Long-Term Stock Incentive Plan.
TT
Estimated Possible Payouts Under
Non-Equity Incentive Plan
AA
Awards
(1)
Estimated Possible Payouts
Under Equity Incentive Plan
r
AA
Awards (#)
(1)
All Other
Stock
Awards:
AA
Number ofr
Shares of
Stock(1)
Grant Date
Fair Value of
VV
Stock
AA
Awards
(2)
Name
Gerald H. Lipkin
Alan D. Eskow
Peter Crocitto
Ira D. Robbins
Rudy E. Schupp
____________
Grant
Date
1/24/2017
1/24/2017
1/24/2017
1/24/2017
1/24/2017
1/24/2017
1/24/2017
1/24/2017
1/24/2017
1/24/2017
Threshold
TT
Target
Maximum Threshold Target
TT
Maximum
$
561,750 $
1,123,500
57,573
115,146
172,719
$
1,300,000
191,013
382,025
19,929
39,858
59,787
191,013
382,025
19,929
39,858
59,787
131,250
262,500
22,144
44,287
66,431
131,250
262,500
22,144
44,287
66,431
39,858
19,929
19,929
22,143
22,143
450,000
450,000
225,000
450,000
225,000
500,000
250,000
500,000
250,000
(1) As discussed in the Compensation Discussion and Analysis, in January 2016, the Compensation Committee assigned a percentage share of the 2016 EIP
bonus pool of 5% of our 2016 net income before income taxes to each of our NEOs. The EIP permits the Compensation Committee to determine to pay
earned awards, in whole or in part, in the form of cash or equity awards granted under our Long-Term Stock Incentive Plan. For 2016, the Compensation
Committee determined that any cash awards that may be earned under the 2016 EIP bonus pool would be limited to a pre-established range set as a
percentage of the particular NEO’s base salary. Each NEO could earn between 0% to 200% of his target cash award as reported under “Estimated Possible
Payouts Under Non-Equity Incentive Plan Awards”
in the Compensation Discussion and Analysis for information
regarding the salary amount used to determine the range of each NEO’s potential cash awards under the 2016 EIP bonus pool. The Compensation
Committee awarded each NEO the cash amount reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation
Table for 2016. The Compensation Committee also granted each NEO an award of time-based restricted stock out of the 2016 EIP bonus pool (reported
above under “All Other Stock Awards:
Number of Shares of Stock”). The Compensation Committee also made grants to the NEOs under the 2016 Long-
Term Incentive Stock Plan in the form of performance based restricted stock units (reported above under “Estimated Possible Payouts Under Equity
Incentive Plan Awards”).
The threshold amounts reported above for the performance based restricted stock unit awards represent the number of shares
that would be earned based on achievement of threshold amounts under both the growth in tangible book value and relative TSR performance metrics
measured over the cumulative three-year performance period. See our Compensation Discussion and Analysis for information regarding these time-
based restricted stock and performance based restricted stock unit awards.
above. See table (“EIP Cash Award”)
AA
AA
AA
AA
(2) See grant date fair value details under footnote (1) of the Summary Compensation Table
TT
above.
Restrictions on performance based awards lapse based on achievement of the performance goals set forth in the performance
restricted stock unit award agreement. Any shares earned based on achievement of the specific performance goals vest when
33
2017 Proxy Statement
the Compensation Committee certifies the payout level as a result of such performance achievement. Restrictions on time based
restricted stock awards lapse at the rate of 33% per year.
Dividends are credited on restricted stock and restricted stock units at the same time and in the same amount as dividends paid
to all other common shareholders. Credited dividends are accumulated and paid upon vesting, and are subject to the same time
based and performance based restrictions as the underlying restricted stock and units. Upon a “change in control,” as defined
in that plan, all restrictions on shares of time based restricted stock will lapse and restrictions on shares of performance based
restricted stock units will lapse at target.
The per share grant date fair values under ASC Topic
718 of each share of time based restricted stock and performance based
restricted stock units (with no market condition vesting requirement) was $11.29 per share awarded on January 24, 2017.
Performance based restricted stock units with market condition vesting requirements (i.e., TSR) awarded on January 24, 2017
had a $10.34 per share grant date fair value.
TT
2017 Proxy Statement
34
OUTSTANDING EQUITY
TT
AWAA ARDS
WW
ATAA FISCAL YEAR-END
The following table represents stock option, restricted stock and restricted stock unit awards outstanding for each NEO as of
All awards have been adjusted for stock dividends and stock splits, as applicable.
December 31, 2016.
AA
Option Awards
(1)
AA
Stock Awards
(2)
Name
Grant Date
Number ofr
Securities
Underlying
Unexercised
Options
Exercisable
Number ofr
Securities
Underlying
Unexercised
Options
Unexercisable
Option
Exercise
Price
Option
Expiration
Date
Gerald H. Lipkin
1/24/2017
1/29/2016
1/27/2016
1/30/2015
1/31/2014
11/15/2010
2/12/2008
2/13/2007
TT
Total awards (#)
Market value of in-the-money
options ($) (3)
Alan D. Eskow
1/24/2017
$
1/29/2016
1/27/2016
1/30/2015
1/31/2014
11/15/2010
2/12/2008
TT
Total awards (#)
Market value of in-the-money
options ($) (3)
ocitto
r
Peter Cr
1/24/2017
1/29/2016
1/27/2016
1/30/2015
1/31/2014
11/15/2010
2/12/2008
TT
Total awards (#)
Market value of in-the-money
options ($) (3)
Ira D. Robbins
1/24/2017
1/29/2016
1/27/2016
1/30/2015
1/31/2014
11/17/2008
11/14/2007
TT
Total awards (#)
Market value of in-the-money
options ($) (3)
Rudy E. Schupp
1/24/2017
1/29/2016
1/27/2016
1/30/2015
TT
Total awards (#)
44,015
44,671
46,904
135,590
0
21,170
21,059
42,229
0
21,170
21,059
42,229
0
1,216
3,829
5,045
0
0
11.91
14.65
19.36
11/15/2020
2/12/2018
2/13/2017
11.91
14.65
11/15/2020
2/12/2018
11.91
14.65
11/15/2020
2/12/2018
14.24
14.93
11/17/2018
11/14/2017
0 $
0
0
0
0
0 $
0
0
0
0 $
0
0
0
0 $
0
0
0
0
Number of
r
Shares
or Units of
r
Stock
That Have
Not
VV
Vested
Market ValueVV
of Shares or
Units of
Stock That
Have Not
VV
Vested(3)
39,858 $
463,947
44,379
27,323
25,202
516,572
318,040
293,351
Equity
Incentive
Plan Awards:
AA
Number ofr
Unearned
Shares
That
r
or Units
Have Not
VV
Vested
Equity Incentive
Plan Awards:
AA
Market Value of
VV
Unearned
Shares or Units
That Have Not
VV
Vested(3)
r
172,719 $
202,967
2,010,449
2,362,536
122,951
76,738
1,431,150
893,230
136,762 $
1,591,910
575,375 $
6,697,365
19,929 $
231,974
26,627
16,393
10,081
309,938
190,815
117,343
59,787 $
79,319
73,770
30,696
695,921
923,273
858,683
357,301
73,030 $
850,070
243,572 $
2,835,178
19,929 $
231,974
26,627
16,393
10,081
309,938
190,815
117,343
59,787 $
79,319
73,770
30,696
695,921
923,273
858,683
357,301
73,030 $
850,070
243,572 $
2,835,178
22,143 $
257,745
25,888
7,286
3,360
301,336
84,809
39,110
66,431 $
77,115
32,787
10,232
773,257
897,619
381,641
119,100
58,677 $
683,000
186,565 $
2,171,617
22,143
257,745
25,888
7,286
55,317 $
301,336
84,809
643,890
66,431 $
77,115
773,257
897,619
32,787
381,641
176,333 $
2,052,517
35
2017 Proxy Statement
____________
(1) All stock option awards are currently exercisable, however, exercise prices are higher than Valley's
(2) Restrictions on time based restricted stock awards (reported above under “Number of Shares or Units of Stock That Have Not Vested”)
market price at December 31, 2016 of $11.64.
VV
VV
commencing with the first anniversary of the date of grant. The 2017 awards represent the time-based restricted stock granted out of the 2016 EIP bonus pool.
lapse at the rate of 33% per year
Number of Unearned Shares or Units That Have Not
Restrictions on performance based restricted stock unit awards (reported above under “Equity Incentive Plan Awards:
Vested”)
lapse based on achievement of the performance goals set forth in the award agreement. Dividends are credited on these awards at the same time and in the same
VV
amount as dividends paid to all other common shareholders. Credited dividends are accumulated and paid upon vesting, and are subject to the same time based or performance
based restrictions as the underlying restricted stock unit.
AA
The award amount in the "Equity Incentive Plan Awards:
column, represents the number of shares that may be
earned based on maximum performance achievement over the cumulative three-year performance period with respect to both the growth in tangible book value and total
shareholder return performance metrics, for the 1/30/2015 award, 1/29/2016 award and 1/24/2017 award.
Number of Unearned Shares or Units That Have Not Vested"
AA
VV
(3) At per share closing market price of $11.64 as of December 31, 2016.
2016 STOCK VESTED
The following table shows the restricted stock that vested by NEOs in 2016 and the value realized upon vesting. None of our
NEOs exercised any options in 2016.
AA
Stock Awards
Name
Gerald H. Lipkin
Alan D. Eskow
Peter Crocitto
Ira D. Robbins
Rudy E. Schupp
____________
r
Number of
Shares Acquired
Upon Vesting (#)
VV
VV
Value Realized on
VV
Vesting ($)(*)
91,847 $
38,857
38,857
11,825
3,643
808,254
341,942
341,942
104,060
32,058
* The value realized on vesting of restricted stock represents the aggregate dollar amount realized upon vesting by multiplying the number of shares of
restricted stock that vested by the fair market value of the underlying shares on the vesting date. Included above is the vesting of a portion of the
performance-based awards granted on 1/31/2014 for Mr. Lipkin (18,902 shares), Mr. Eskow (7,560 shares), Mr. Crocitto (7,560 shares) and Mr. Robbins
(2,520 shares). These shares vested based on achievement of the performance goals set forth in the award agreement based on the applicable growth
in tangible book value conditions measured over the three-year performance period ending December 31, 2016. Dividends are credited on these awards
at the same time and in the same amount as dividends paid to all other common shareholders. Credited dividends are accumulated and paid upon
vesting, and are subject to the same time based or performance based restrictions as the underlying restricted stock. The performance based awards
granted on 1/31/2014 subject to vesting based on relative TSR performance lapsed without any vesting.
2017 Proxy Statement
36
2016 PENSION BENEFITS
PENSION PLAN
ff
average
security wage
Valley
maintains a non-contributory,yy defined benefit pension
VV
plan (the "Pension Plan") for all eligible employees which
January 1, 2014. The annual retirement
was frozen effective
benefit under the Pension Plan was (i) 0.85% of the
employee’s average final compensation up to the employee’s
average social security wage base plus (ii) 1.15% of the
employee’s average final compensation in excess of the
employee’s
base,
social
(iii) multiplied by the years of credited service (up to a
maximum of 35 years). Employees who were participants in
the Pension Plan on December 31, 1988 are entitled to the
higher of the foregoing or their accrued benefit as of
December 31, 1988 under the terms of the plan then in effect.
ff
An employee’s “average final compensation” is
the
employee’s highest consecutive five-year average of the
employee’s
non-equity
compensation, overtime pay and other special pay), i.e., the
amount listed as “Salary” in the Summary Compensation
Table,
subject to each year’s annual compensation limit.
TT
Employees hired on or after July 1, 2011, including Mr.
Schupp, are not eligible to participate in the Pension Plan.
As a result of amendments to the Pension Plan adopted in
2013, participants will not accrue further benefits and their
pension benefits will be determined based on their
compensation and service up to December 31, 2013. Plan
benefits will not increase for any pay or service earned after
such date.
(excluding
annual
salary
BENEFIT EQUALIZATION
AA
PLAN
ff
ff
ff
ff
VV
of Valley
ValleyVV
maintains a Benefit Equalization Plan ("BEP") which
provides retirement benefits in excess of the amounts payable
from the Pension Plan for certain highly compensated
The BEP was first adopted January 1,
executive officers.
1989 and was frozen effective
January 1, 2014. Benefits were
determined as follows: (i) the benefit calculated under Valley
prior to January 1, 1989 and
pension plan formula in effect
without regard to the limits on recognized compensation and
maximum benefits payable from a qualified defined benefit
plan, minus (ii) the individual’s pension plan benefit. In
who are participants in the Pension
general, officers
Plan and who received annual compensation in excess of the
compensation limits under the qualified plan were eligible to
participate in the BEP. PP Mr. Lipkin, Mr. Crocitto, Mr. Eskow
and Mr. Robbins were participants in the BEP. PP Four other
executive officers
participated in the BEP.PP Executives hired
on or after July 1, 2011, including Mr. Schupp, are not eligible
to participate in the BEP. PP As a result of amendments to the
BEP adopted in 2013, participants will not accrue further
benefits and their benefits will be determined based on their
compensation for service and years of service up to
December 31, 2013. Benefits under the BEP will not increase
for any pay or service earned after such date except
VV
ff
participants may be granted up to three additional years of
service if employment is terminated in the event of a change
in control. The following table shows each pension plan that
the NEO participates in, the number of years of credited
service and the present value of accumulated benefits as of
December 31, 2016.
Name
Plan Name
Gerald H. Lipkin VNB Pension Plan
VNB BEP
Alan D. Eskow VNB Pension Plan
VNB BEP
Peter Crocitto
VNB Pension Plan
VNB BEP
Ira D. Robbins
VNB Pension Plan
VNB BEP
# of
YearsYY
Credited
Service
35
37
22
22
32
37
16
16
Present
Value of
VV
Accu-
mulated
Benefits ($)
$ 1,960,529
7,938,441
763,939
1,603,017
1,318,879
3,578,187
376,672
154,637
Present values of the accumulated benefits under the BEP
and Pension Plan were determined as of January 1, 2017
based upon the accrued benefits under each plan as of
December 31, 2016 and valued in accordance with the
following principal actuarial assumptions:
(i) post-
retirement mortality in accordance with the RP-2014 White
rolled back to 2006, projected generationally
TT
Collar Tables,
with Scale MP-2016, (ii) interest at an annual effective
rate
of 4.11% compounded annually,yy (iii) retirement at the earliest
age (subject to a minimum age of 55 and a maximum age
equal to the greater of 65 and the participant’s age on
January 1, 2017) at which unreduced benefits would be
payable assuming continuation of employment and (iv) for
the BEP payment is based on an election by the participant
and for the Pension Plan it is assumed that 50% of participants
will elect a joint and two-thirds survivor annuity and 50%
will elect a straight life annuity (except for Mr. Lipkin whose
benefits are assumed to be payable in the form of a joint and
two-thirds survivor annuity as described below).
ff
p
Gerald H. Lipkin.
Pursuant to an amended and restated
agreement dated January 24, 2017, an annual combined
benefit from the Pension Plan, the BEP and, to the extent
necessary,yy from the Company,yy in the form of a joint and two-
thirds survivor annuity (the “Annual Combined Benefit”)
will be provided to Mr. Lipkin upon his retirement and will
continue for as long as Mr. Lipkin survives. The Annual
Combined Benefit is estimated to be $801,170 as of
December 31, 2016. The agreement provides that, should
Mr. Lipkin survive past the tenth anniversary of his retirement
(the “Initial Ten TT Year YY Period”), and should his spouse survive
him, she will be entitled to a survivor benefit of two-thirds
of the Annual Combined Benefit per year for the remainder
of her life (the “Annual Post 10 Year YY
Spousal Survivor
Benefit”), which is estimated to be $534,113 as of December
31, 2016. If Mr. Lipkin dies (i) before commencing receipt
37
2017 Proxy Statement
Period (the “Annual 10 Year YY
of benefits under the Pension Plan or (ii) before the end of
the Initial Ten TT Year YY Period, and, in either case, if his spouse
survives him, she will be entitled to an annual survivor benefit
equal to the Annual Combined Benefit through the end of the
Initial TenTT Year YY
Spousal
Survivor Benefit”) and, thereafter, the Annual Post 10 Year YY
Spousal Survivor Benefit. In the event that both Mr. Lipkin
and his spouse die prior to the end of the Initial Ten TT Year YY
Period, the estate of the last surviving of Mr. Lipkin and his
spouse will be entitled to a lump sum payment equal to the
Annual Combined Benefit multiplied by the number of years
(including fractional years) from the date of decease to the
end of the Initial Ten TT Year YY
Estate
Benefit”). The foregoing description assumes that pension
benefits under the Pension Plan and the BEP are paid to Mr.
Lipkin in the form of a joint and two-thirds survivor annuity
with his current wife. The agreement provides that for both
the Pension Plan and the BEP the actuarial adjustment from
the single life annuity to the joint and two-thirds survivor
annuity in the BEP will be made using the actuarial factor
defined in the Pension Plan.
Period (the “10 Year YY
The agreement also specifies the manner in which Mr.
Lipkin’s annuity payments are to be actuarially converted
into a lump sum in the event of a change in control. Mr.
Lipkin elected to take his BEP benefits as a lump sum in the
event of a change in control and is the only participant to have
made that election. Under the BEP, PP the lump sum is to be
calculated using the lesser of 6% or the applicable interest
rate under the Pension Plan. Under the agreement the
actuarial assumptions used to convert the guaranteed annuity
benefit specified above are more fully defined and instead of
the BEP assumption on interest rates the agreement uses the
lesser of 6% or the Pension Benefit Guaranty Corporation
immediate interest rate used to determine lump sum payments
for the calendar month immediately preceding the month the
lump sum payments is made. Assuming the current interest
rate environment, the agreement provides for a greater lump
sum benefit payable upon a change in control than would
otherwise be provided using the BEP formula.
EARLYLL RETIREMENT BENEFITS
An NEO’s accrued benefits under the Pension Plan and BEP
are payable at age 65, the individual’s normal retirement age.
If an executive terminates employment after both attainment
of age 55 and completion of 10 years of service, he is eligible
for early retirement. Upon early retirement, an executive may
elect to receive his accrued benefit unreduced at age 65 or,
alternatively, yy to receive a reduced benefit commencing on the
first day of any month following termination of employment
and prior to age 65. The amount of reduction is 0.5% for each
of the first 60 months and 0.25% for each of the next 60
months that benefits commence prior to the executive’s
normal retirement date (resulting in a 45% reduction at age
55, the earliest retirement age under the plans). However,
there is no reduction for early retirement prior to the normal
retirement date if the sum of the executive’s age and years of
2017 Proxy Statement
38
credited service at the benefit commencement date equals or
exceeds 80.
Mr. Crocitto was eligible for early retirement with unreduced
benefits and retired effective
as of February 28, 2017.
ff
LATE AA
RETIREMENT BENEFITS
ff
Effective
December 31, 2013, the BEP was amended to
specify the manner in which actuarial increases would be
applied to benefits for executives postponing retirement
beyond April 1st of the year in which the executive reaches
age 70 1/2. The only NEO who has currently postponed
retirement beyond April 1st of the year in which he reached
age 70 1/2 is Mr. Lipkin.
DEFERRED COMPENSATION
AA
PLAN
ff
VV
January 1, 2017, Valley
Effective
established the Valley
VV
National Bancorp Deferred Compensation Plan (the "Plan")
for the benefit of certain eligible employees. The Plan is
intended to constitute a nonqualified, unfunded plan for
federal tax purposes and for purposes of Title I of ERISA.
The Plan is maintained for the purpose of providing deferred
compensation for selected employees participating in the 401
(k) Plan whose contributions are limited as a result of the
limitations under section 401(a)(17) of the Code on the
amount of compensation which can be taken into account
under the 401(k) Plan and who elect to defer a portion of their
income pursuant to this Plan. Each of our NEOs participates
in the Plan.
ff
Participant Deferral Contributions. Each participant in
the Plan is permitted to defer, for that calendar year, up to
five percent (5%) of the portion of the participant’s salary
for that calendar year
and cash bonus above the limit in effect
The
the Company's Section 401(k) Plan.
under
Compensation Committee has the authority to change the
deferral percentage, but any such change only applies to
calendar years beginning after such action is taken by the
Compensation Committee. No deferrals may be taken until
a participant’s salary and bonus for such calendar year is in
under the Company's 401(k) Plan.
excess of the limit in effect
ff
Company Matching Contributions. Each calendar year,
the Company will match 100% of a participant’deferral
contributions under the Plan or matching contribution will
not be made on participant deferrals that exceed five percent
(5%) of the participant’s salary and bonus unless the
Compensation Committee provides otherwise.
Earnings on Deferrals. Participants’ deferral contributions
and company matching contributions will be adjusted at the
end of each calendar year by an amount equal to one-month
LIBOR average for the applicable calendar year plus 200
basis points, multiplied by the balance in the participant’s
notional account at the end of the calendar year. The
Compensation Committee may adjust the earnings rate
prospectively.
severance under a change in control agreement (described
below).
Amount, Form and Time of Payment. The amount payable
to the participant will equal the amount credited to the
participant’s account as of his or her separation from service
,yy net all applicable employment and income tax
with ValleyVV
withholdings. The benefit will be paid to the participant in
a single lump sum within thirty days following the earlier of
the participant’s separation from service with Valley
or the
date on which a change in control occurs, and will represent
a complete discharge of any obligation under the Plan.
VV
401(k) PLAN
matches the first four percent
Under the 401(k) plan, ValleyVV
(4%) of salary contributed by an employee each pay period,
and 50% of the next 2% of salary contributed, for a maximum
matching contribution of five percent (5%), with an annual
limit of $13,250 in 2016.
OTHER POTENTIAL POST
TT
PAPP YMENTS
AA
L
-EMPLOYMENT
EMPLOYMENT CONTRACTS AND TERMINATION
OF EMPLOYMENT
ARRANGEMENTS
AND CHANGE IN CONTROL
AA
F
VV
Valley
and the Bank are parties to severance and change in
VV
control arrangements with Messrs. Lipkin, Eskow, ww Robbins
and Schupp. Valley
and the Bank were previously parties to
severance and change in control arrangements with Mr.
Crocitto; however, in connection with his retirement in
February 2017, Valley
and the Bank entered into a Consulting
and Retirement Agreement with Mr. Crocitto which provides
for payments and benefits in connection with his departure
from the Company. The following discussion describes the
agreements currently in place with each of our named
executive officers.
VV
ff
SEVERANCE AGREEMENT PROVISIONS
ff
In the event of termination of employment without cause, the
severance agreements with Mr. Lipkin and Mr. Eskow
provide for a lump sum payment equal to twelve months of
base salary as in effect
on the date of termination, plus a
fraction of the NEO’s most recent annual cash bonus, which
is equal to (a) the number of months which have elapsed in
the current calendar year divided by (b) 12. Mr. Robbins’
severance agreement, entered into in September 2016,
provides for, in the event of termination of employment
without cause, a lump sum payment equal to twenty four
months of base salary as in effect
on the date of termination,
plus the sum of one times his most recent annual cash bonus
and a fraction of his most recent annual cash bonus calculated
in the same manner referenced above. No severance payment
is made under the severance agreements if the NEO receives
ff
For the purpose of the severance agreements, “cause” means
willful and continued failure to perform employment duties
after written notice specifying the failure, willful misconduct
causing material injury to us that continues after written
notice specifying the misconduct, or a criminal conviction
(other than a traffic
violation), drug abuse or, after a written
warning, alcohol abuse or excessive absence for reasons other
than illness, except in the case of Mr. Lipkin, whose
severance agreement defines “cause” as gross misconduct in
connection with our business or otherwise.
ff
Under the severance agreements with Messrs. Lipkin, Eskow
and Robbins, we provide the NEOs with a lump sum cash
payment in place of medical benefits. The payment is 125%
of total monthly premium payments under COBRA reduced
by the amount of the employee contribution normally made
for the health-related benefits the NEO was receiving at
termination of employment, multiplied by 36. COBRA
provides temporary continuation of health coverage at group
rates after termination of employment. Under the severance
agreements with these NEOs, we also provide a lump sum
life insurance benefit equal to 125% of our share of the
premium for three years of coverage, based on the coverage
and rates in effect
on the date of termination.
ff
Under these agreements, each NEO is required to keep
confidential all confidential information that he obtained in
the course of his employment with us and is also restricted
from competing with us in certain states during the term of
his employment with us and for a period after termination of
his employment.
VV
In connection with the acquisition of 1st United Bank, where
entered into an
Mr. Schupp served as CEO, Valley
employment agreement with Mr. Schupp for him to serve as
the President of the Florida Division of the Bank. The
agreement has a three year term, expiring on November 1,
2017. The agreement, as amended, provides for a minimum
base salary,yy subject to increase from time to time in the
discretion of the Compensation Committee. Under the
agreement if Mr. Schupp is terminated without cause or
terminates his employment for good reason, he will continue
to receive his base salary for the greater of 12 months or the
end of the employment term. Under the agreement, Mr.
Schupp is required to keep confidential all confidential
information that he obtained in the course of his employment
with us and is restricted from competing with us in certain
states during the term of his employment with us and for three
years after termination of his employment.
CONSULTING
LL
AND RETIREMENT AGREEMENT
Mr. Crocitto retired from ValleyVV
2017, but continues to serve as a consultant to Valley
as of February 28,
for a
,yy effective
VV
ff
39
2017 Proxy Statement
two year term pursuant to a Consulting and Retirement
Agreement.
Pursuant to the Agreement, and subject to the limitations set
forth therein: (i) as permitted under the terms of the applicable
grant agreements, all of Mr. Crocitto’s previously unvested
time-based awards of restricted stock vested upon his
retirement and his performance based restricted stock units
remain outstanding and will vest in accordance with the terms
of the awards including performance based vesting criteria;
(ii) Mr. Crocitto was provided with, consistent with normal
practice, the cash and equity awards described above based
on 2016 performance; (iii) the Company will pay Mr. Crocitto
$48,000 per month during the period he provides consulting
services to the Company; and (iv) the Company will provide
other reasonable benefits and reimbursements to Mr.
Crocitto.
ff
Under the Agreement, Mr. Crocitto agreed to expanded non-
competition, non-solicitation, non-disparagement and
confidentiality provisions for the period of his two year
consulting agreement. Mr. Crocitto was a party to severance
and change in control agreements with generally the same
terms as are described above for Mr. Eskow. These
agreements terminated upon the effective
date of Mr.
Crocitto’s retirement at the end of February. The material
benefits and reimbursements included in Mr. Crocitto’s
retirement Agreement included 3 years of additional service
under the BEP upon a CIC during the consulting term;
reimbursement of COBRA premium payments reduced by
the applicable employee contribution rate for 18 months
following retirement, and thereafter up to $25,000 annually
for reimbursement of health insurance premiums for himself,
his wife and dependents, until the earlier Mr. Crocitto’s
eligibility for Medicare or obtaining other health insurance;
s group life
life insurance retirement benefits under Valley’
plan as he was entitled to under the plan; and payment of
annual charges for 2017 club membership.
VV
Upon his retirement, Mr. Crocitto returned his Company
owned car. To TT facilitate required automobile travel for his
consulting service, in lieu of travel expenses, he was given
a $1,200 car allowance for the term of the consulting
agreement.
CHANGE IN CONTROL ("CIC")
PROVISIONS
L
AGREEMENT
Each of our current NEOs is a party to a CIC Agreement. If
a NEO is terminated without cause or resigns for good reason
following a CIC during the contract period (which is defined
as the period beginning on the day prior to the CIC and ending
on the earlier of (i) the third anniversary of the CIC or (ii) the
NEO’s death), the NEO would receive three times the highest
annual salary and non-equity incentive received in the three
years prior to the CIC, except for Mr. Schupp who would
receive three times annual base salary plus a pro rated bonus
2017 Proxy Statement
40
for the year of termination. The NEOs would also receive
payments for medical and life insurance identical to the
benefits described above under “Severance Agreement
Provisions.” Certain of the CIC Agreements also provide for
a lump sum cash payment upon termination due to death or
disability during the contract period equal to, for Mr. Eskow, ww
the highest annual salary paid to him during any calendar year
in the three years preceding the CIC, and for Messrs. Lipkin
and Robbins, one-twelfth of this amount.
Payments under the CIC Agreements are triggered by the
specified termination events following a “change in control.”
The events defined in the agreements as changes of control
are:
•
•
•
•
•
•
•
Outsider stock accumulation. We WW learn, or one of
our subsidiaries learns, that a person or business
entity has acquired 25% or more of Valley’
s
common stock, and that person or entity is neither
(meaning someone who is controlled
ff
our “affiliate”
by, yy or under common control with, Valley)
nor one
of our employee benefit plans;
VV
VV
ff
. The first purchase
Outsider tender/exchange offer
of our common stock is made under a tender offer
by a person or entity that is neither
or exchange offer
ff
our “affiliate”
nor one of our employee benefit
ff
plans;
ff
Outsider subsidiary stock accumulation. The sale of
our common stock to a person or entity that is neither
our “affiliate”
nor one of our employee benefit plans
ff
that results in the person or entity owning more than
50% of the Bank’s common stock;
Business combination transaction. We WW complete a
merger or consolidation with another company, yy or
we become another company’s subsidiary (meaning
that the other company owns at least 50% of our
common stock), unless, after the happening of either
event, 60% or more of the directors of the merged
company,yy or of our new parent company,yy are people
who were serving as our directors on the day before
the first public announcement about the event;
Asset sale. We WW sell or otherwise dispose of all or
substantially all of our assets or the Bank’s assets;
Dissolution/Liquidation. We WW adopt a plan of
dissolution or liquidation; and
Board turnover. We WW experience a substantial and
rapid turnover in the membership of our Board of
Directors. This means
in board
membership occurring within any period of two
consecutive years that result in 40% or more of our
board members not being “continuing directors.” A
“continuing director” is a board member who was
serving as a director at the beginning of the two-
changes
year period, or one who was nominated or elected
by the vote of at least 2/3 of the “continuing
directors” who were serving at the time of his/her
nomination or election.
(ii) his change in control payment and benefits cut back to
the amount that would not result in 280G excise tax. Mr.
Schupp has a cut back provision bringing his total 280G
parachute payment to the Section 280G limit.
“Cause” for termination of an NEO’s employment under the
CIC Agreements means his willful and continued failure to
perform employment duties, willful misconduct in office
causing material injury to the company, yy a criminal conviction,
drug or alcohol abuse or excessive absence. “Good reason”
for a NEO’s voluntary termination of employment under the
CIC Agreements means any of the following actions by us
or our successor:
ff
• We WW change the NEO’s employment duties to include
duties not in keeping with his position within Valley
or the Bank prior to the change in control;
VV
• We demote the NEO or reduce his authority;
WW
PENSION PLAN PAPP YMENTS
AA
The present value of the benefits to be paid to each NEO who
is a participant in our pension plans following termination of
employment over his estimated lifetime is set forth in the
table below. Each such NEO receives three years additional
service under the BEP upon termination without cause or
resignation for good reason occurring during their contract
period. Present values of the BEP and Pension Plan were
determined as of January 1, 2017 based on RP-2014 White
projected generationally with Scale MP-2015,
TT
Collar Tables
and interest at an annual effective
rate of 4.11% compounded
annually for the pension plan and the BEP.PP
ff
• We reduce the NEO’
WW
s annual base compensation;
• We WW terminate the NEO’s participation in any non-
equity incentive plan in which the NEO participated
before the change in control, or we terminate any
employee benefit plan
the NEO
participated before the change in control without
providing another plan that confers benefits similar
to the terminated plan;
in which
• We WW relocate the NEO to a new employment location
that is outside of New Jersey or more than 25 miles
away from his former location;
• We WW fail to get the person or entity who took control
to assume our obligations under the NEO’s
VV
of Valley
CIC Agreement; and
• We WW terminate the NEO’s employment before the end
of the contract period, without complying with all
the provisions in the NEO’s CIC Agreement.
PP
PARACHUTE
PAPP YMENT
AA
REIMBURSEMENT
VV
VV
Mr. Lipkin and Mr. Eskow are entitled to receive a tax “gross-
up” payment in the event that payments to such executive
exceed the limit
following a change in control of Valley
provided under Section 280G of the Internal Revenue Code.
Since the execution of the change in control agreements of
these NEOs, Valley
adopted a policy prohibiting tax “gross-
up” payments. The tax “gross-up” payment provisions for
prior to adoption of such policy
these NEOs were in effect
and thus remain in effect.
Mr. Robbins and Mr. Schupp are
not entitled to receive tax gross-up payments under their
agreements. Mr. Robbins has a net best provision in his
change in control agreement whereby he would be entitled
to the greater after-tax benefit of either (i) his full change in
control payment and benefits less any 280G excise tax, the
payment of which would be Mr. Robbins’ responsibility,yy or
ff
ff
EQUITY AWAA ARD
WW
ACCELERATION
AA
In the event of a change in control or termination of
employment as a result of death, all restrictions on an NEO’s
equity awards will immediately lapse (for performance based
restricted stock units, all restrictions will lapse with respect
to the target amount of shares). In the case of retirement, all
restrictions will lapse on outstanding time based restricted
stock awards, and performance based restricted stock unit
awards will remain outstanding and vest in accordance with
the original vesting schedule based on actual performance.
For awards made under the 2016 and 2009 LTSIP
,PP a minimum
of 50% of any accelerated equity award must be retained by
the NEO for a period of 18 months or in some cases 24
months. Upon termination of employment for any other
reason (other than termination due to disability which may
be treated differently),
NEOs will forfeit all shares whose
ff
restrictions have not lapsed.
LL
41
2017 Proxy Statement
SEVERANCE BENEFITS TABLE
TT
The table set forth below illustrates the severance amounts and benefits that would be paid to each of the current NEOs, if he
had terminated employment with the Bank on December 31, 2016, the last business day of the most recently completed fiscal
year, under each of the following retirement or termination circumstances: (i) death; (ii) retirement or resignation; (iii) dismissal
without cause; and (iv) dismissal without cause or resignation for good reason following a change in control of Valley
on
December 31, 2016. Upon dismissal for cause, the NEOs would receive only their salary through the date of termination and
their vested BEP and pension benefits. These payments are considered estimates as of specific dates as they contain some
assumptions regarding stock price, life expectancy,yy salary and non-incentive compensation amounts and income tax rates and
laws. Mr. Crocitto retired effective
February 28, 2017, and the benefits he received are specified on pages 39-40 (Consulting
ff
and Retirement Agreement).
VV
Executive Benefits and Payments Upon Termination
Death
Retirement or
Resignation
Dismissal
Without Cause (3)
Dismissal without
Cause or
Resignation for Good
r
Reason
(Following a Change in
Control) (5)
rr
Mr. Lipkin
Amounts payable in full on indicated date of termination:
Severance – Salary component (1)
Severance – Non-equity incentive (1)
Restricted stock awards
Performance Restricted stock/unit awards (2)
Welfare benefits continuation
WW
“Parachute Penalty” Tax gross-up
TT
Sub TotalTT
Present value of annuities commencing on indicated date of termination:
Benefit equalization plan (3)
Pension plan (3)
TotalTT
rr
Mr. Eskow
Amounts payable in full on indicated date of termination:
Severance – Salary component
Severance – Non-equity incentive
Restricted stock awards
Performance Restricted stock/unit awards (2)
Welfare benefits continuation
WW
“Parachute Penalty” Tax gross-up
TT
$
$
Sub TotalTT
Present value of annuities commencing on indicated date of termination:
Benefit equalization plan (3)
Pension plan (3)
Total
rr
Mr. Robbins
Amounts payable in full on indicated date of termination:
Severance – Salary component
Severance – Non-equity incentive
Restricted stock awards
Performance Restricted stock/unit awards (2)
WW
Welfare benefits continuation
“Parachute Penalty” Tax gross-up
TT
$
$
Sub TotalTT
Present value of annuities commencing on indicated date of termination:
Benefit equalization plan (3)
Pension plan (3)
TotalTT
$
$
1,123,500 $
0
1,127,963
2,529,116
48,971
N/A
4,829,550
8,890,978
2,197,918
15,918,446 $
0 $
0
618,096
1,187,967
11,250
N/A
1,817,313
1,852,978
876,420
4,546,711 $
0 $
0
425,260
852,840
75,493
N/A
1,353,593
0
332,315
1,685,908 $
0 $
0
1,127,963
2,529,116
48,971
N/A
3,706,050
8,890,978
2,197,918
14,794,946 $
0 $
0
618,096
1,187,967
0
N/A
1,806,063
1,852,978
876,420
4,535,461 $
0 $
0
0
0
0
N/A
0
0
332,315
332,315 $
1,123,500 $
0
0
0
48,971
N/A
1,172,471
8,890,978
2,197,918
12,261,367 $
545,740 $
0
0
0
11,250
N/A
556,990
1,852,978
876,420
3,286,388 $
1,050,000 $
250,000
0
0
75,493
N/A
1,375,493
0
332,315
1,707,808 $
3,370,500
2,250,000
1,127,963
2,529,116
46,385
4,513,869
13,837,833
9,493,431
2,197,918
25,529,182
1,637,250
600,000
618,096
1,187,967
11,250
1,955,719
6,010,282
2,226,397
876,420
9,113,099
1,575,000
750,000
425,260
852,840
77,403
N/A
3,680,503
240,016
332,315
4,252,834
2017 Proxy Statement
42
Executive Benefits and Payments Upon Termination
TT
Death
Retirement or
Resignation
Dismissal
Without Cause (3)
Dismissal without
Cause or
Resignation for Good
r
Reason
(Following a Change in
Control) (5)
rr
Mr. Schupp
Amounts payable in full on indicated date of termination:
Severance – Salary component
Severance – Non-equity incentive
Restricted stock awards
Performance Restricted stock/unit awards (2)
Welfare benefits continuation (4)
WW
“Parachute Penalty” Tax gross-up
TT
$
Sub TotalTT
Present value of annuities commencing on indicated date of termination:
Benefit equalization plan
Pension plan
TotalTT
$
0 $
0
386,145
852,840
336,962
N/A
1,575,947
N/A
N/A
1,575,947 $
0 $
0
0
0
336,962
N/A
336,962
N/A
N/A
336,962 $
525,000 $
0
0
0
336,962
N/A
861,962
N/A
N/A
861,962 $
1,575,000
250,000
386,145
852,840
336,962
N/A
3,400,947
N/A
N/A
3,400,947
N/A – Not applicable (a parachute penalty tax gross up is payable only upon a CIC).
(1) Upon death, 12 months salary, offset by qualified and non-qualified retirement benefits payable in 12 months following death.
(2) Upon death, dismissal without cause upon a change in control or resignation for good reason upon a change in control, unearned performance restrict
stock awards immediately vest at the target amount. Upon retirement, performance restricted stock awards continue to vest according to the schedules
set forth in their respective award agreements, therefore the same amounts is shown in all columns assuming the target amount is earned.
(3) Upon dismissal for cause, Messrs. Lipkin, Eskow and Crocitto would receive BEP benefits.
(4) Mr. Schupp's welfare benefits continuation is equal to fifteen years of medical and dental coverage assuming cost remains at rates as of 12/31/2016
plus a lump sum payment of $23,277 in lieu of life insurance.
(5) Neither Mr. Schupp or Mr. Robbins have tax gross-up provision.
43
2017 Proxy Statement
ITEM 3
RECOMMENDATION ON ITEM 3
THE VALLEY BOARD UNANIMOUSLY
RECOMMENDS A VOTE “FOR” THE NON-
BINDING APPROVAL OF THE COMPENSATION
OF THE NAMED EXECUTIVE OFFICERS
DETERMINED BY THE COMPENSATION AND
HUMAN RESOURCES COMMITTEE AS
DISCLOSED PURSUANT TO THE SEC’S
COMPENSATION DISCLOSURE RULES
(INCLUDING THE COMPENSATION
DISCUSSION AND ANALYSIS, COMPENSATION
TABLES AND RELATED NARRATIVE
DISCUSSION).
ADVISORYRR VOTE ON EXECUTIVE
COMPENSATION
AA
VV
(the
Under the Dodd-Frank Wall WW Street Reform and Consumer
Protection Act
s
“Dodd-Frank Act”), Valley’
shareholders are entitled to vote at the Annual Meeting to
approve the compensation of our named executive officers,
as disclosed in this proxy statement, commonly referred to
as a "say-on-pay vote." Pursuant to the Dodd-Frank Act, the
shareholder vote on executive compensation is an advisory
vote only and is not binding on Valley
or the Board of
Directors. We WW currently hold an annual say-on-pay vote. At
this year’s annual meeting, we will hold a “say-on-frequency”
vote to determine our shareholders’ preference for the
frequency of future say-on-pay votes. See Item 4 below.
VV
ff
The Company’s goal for its executive compensation program
is to reward executives who provide leadership for and
contribute to our financial success. The Company seeks to
accomplish this goal in a way that is aligned with the long-
term interests of the Company’s shareholders. The Company
believes that its executive compensation program satisfies
this goal.
The Compensation Discussion and Analysis beginning on
page 22 of this Proxy Statement, describes the Company’s
executive compensation program and the decisions made by
the Compensation and Human Resources Committee in 2016
and early 2017.
shareholder approval of
the
The Company requests
compensation of the Company’s named executive officers
as
disclosed pursuant to the SEC’s compensation disclosure
rules
the Compensation
Discussion and Analysis, the compensation tables and related
narrative discussion).
(which disclosure
includes
ff
As an advisory vote, this proposal is not binding upon the
Board of Directors or the Company. However,
the
Compensation and Human Resources Committee, which is
responsible for designing and administering the Company’s
executive compensation program, values the opinions
expressed by shareholders in their vote on this proposal, and
will consider the outcome of the vote when making future
compensation decisions for named executive officers.
In
2016, approximately 94% of the shares voted on the proposal
voted in favor of the Company’s executive compensation
program.
ff
2017 Proxy Statement
44
ITEM 4
RECOMMENDATION ON ITEM 4
ADVISORYRR VOTE ON THE FREQUENCY
Q
ADVISORYRR VOTES ON
EXECUTIVE COMPENSATION
AA
OFY
We WW are providing shareholders with the opportunity to cast
an advisory vote regarding the frequency of future advisory
votes on executive compensation, commonly known as a
“say-on-frequency” vote. Shareholders may vote on whether
the advisory say-on-pay vote should occur every year, every
two years or every three years.
We WW are required to hold an advisory say-on-frequency vote
every six years. The Company’s shareholders were last
provided with the opportunity to vote on the frequency of
“say-on-pay” vote in 2011. At that time, our shareholders
voted in favor of holding say-on-pay votes annually and the
Board of Directors adopted this standard.
Although we recognize the potential benefits of having less
frequent advisory votes on executive
compensation
(including allowing the Company additional time to conduct
a more detailed review of its pay practices in response to the
outcome of shareholder advisory votes), we recognize that
the widely adopted standard, both among Valley's
peer
companies as well as outside our industry, yy is to hold say-on-
pay votes annually. WeWW also acknowledge current shareholder
expectations regarding having the opportunity to express
their views on the Company’s compensation of its executive
on an annual basis. In light of investor expectations
officers
ff
the Board of Directors
and prevailing market practice,
recommends that the advisory say-on-pay vote occur every
year.
VV
The proxy card provides for four choices and shareholders
are entitled to vote on whether the advisory vote on executive
compensation should be held every year, every two years or
every three years, or to abstain from voting.
The result of this advisory say-on-pay vote is not binding on
the Company, yy or the Board of Directors, and will not be
construed as overruling a decision by, yy or creating or implying
any additional fiduciary duty for, the Company, yy the Board of
Directors or the Compensation Committee. However, the
Board of Directors values the opinions that shareholders
express in their votes and will consider the outcome of the
vote and shareholder feedback when deciding how frequently
to conduct the advisory say-on-pay vote. Notwithstanding
the Board’s recommendation and the outcome of the
shareholder vote, the Board may in the future decide to
conduct say-on-pay votes on a more or less frequent basis
and may vary its practice based on factors such as discussions
with shareholders and the adoption of material changes to its
executive compensation programs.
Y
THE VALLEY
VV
BOARD UNANIMOUSL
YLL
RECOMMENDS YOU VOTE TO HOLD THE
ADVISORYRR VOTE ON EXECUTIVE
COMPENSATION
AA
EVERY YEAR.
45
2017 Proxy Statement
ITEM 5
RR
AMENDMENT TO THE RESTATT TED CER
AA
NAY
OF INCORPORA
AA
F
BANCORP TO INCREASE THE NUMBER OF
AND
AUTHORIZED SHARES OF COMMON
TIFICA
TIONAL
TION OF
VV
VALLEY
AA
F
TE AA
PREFERRED STOCK
We WW are asking our shareholders to approve an amendment to
our certificate of incorporation to increase our authorized
capital stock to 500,000,000 shares and thereby increase the
number of authorized shares of our common and preferred
stock. Our Restated Certificate of Incorporation currently
authorizes the issuance of 362,023,233 shares of capital
stock, consisting of 332,023,233 shares of common stock, no
par value, and 30,000,000 shares of preferred stock, no par
value. On January 24, 2017, our Board of Directors approved
a proposal to amend our Restated Certificate of Incorporation
to increase the number of shares of capital stock that we are
authorized to issue from 362,023,233 shares to 500,000,000
shares, consisting of 450,000,000 shares of common stock
and 50,000,000 shares of preferred stock, which is subject to
shareholder approval to become effective.
Shareholder
approval of the proposed amendment will result in an increase
of 117,976,767 shares of common stock and an increase of
20,000,000 shares of preferred stock.
ff
Our Board believes the proposed amendment to be advisable
and in the best interests of the Company and our shareholders
and is accordingly submitting the proposed amendment to be
voted on by the shareholders. The amendment gives the
Company more flexibility in mergers and acquisitions,
equity
capital
compensation
corporate
and other general
transactions.
If the authorization of an increase in the
available capital stock is not approved, there may be delay
and expense related to the need to obtain future approval of
shareholders for more authorized shares and this delay could
impair our ability to address our corporate needs.
transactions,
raising
under
grants
plans,
remaining available for issuance in the future. Based on these
issued and reserved shares of common stock, shareholder
result in
approval of the proposed amendment will
180,687,934 shares of common stock remaining available for
issuance in the future.
As of January 31, 2017, of the 30,000,000 currently
authorized shares of preferred stock, 4,600,000 are issued and
outstanding. All of the unissued preferred stock is “blank
check” preferred stock under the provisions of our Restated
Incorporation which provisions were
Certificate of
previously approved by our shareholders. Our Board has the
authority to set all of the terms and conditions of the preferred
stock prior to issuance. The additional authorized preferred
stock would also be “blank check” preferred stock. We WW
currently have approximately 25,400,000 shares of preferred
stock remaining available for issuance in the future.
Shareholder approval of the proposed amendment would
result in 45,400,000 shares of preferred stock remaining
available for issuance.
of the Amendment
Text TT
Our Board proposes to amend Article V(A) of our Restated
Certificate of Amendment to that it would read in its entirety
as follows (with the changes underlined):
,
,
,
,
shares, consisting of 450,000,000
“The total authorized capital stock of the Corporation shall
shares of
,
be 500,000,000
,
common stock and 50,000,000
shares of preferred stock
which may be issued in one or more classes or series. The
shares of common stock shall constitute a single class and
shall be without nominal or par value. The shares of preferred
stock of each class or series shall be without nominal or par
value, except that the amendment authorizing the initial
issuance of any class or series, adopted by the Board of
Directors as provided herein, may provide that shares of any
class or series shall have a specified par value per share, in
which event all of the shares of such class or series shall have
the par value per share so specified.”
We WW have no present plans to issue any capital stock in a
mergers or acquisitions, capital raising transactions, or other
corporate transactions, other than to directors, officers
and
employees under our equity compensation plans in the
ordinary course of business.
ff
As of January 31, 2017, of the 332,023,233 currently
authorized shares of common stock, 263,642,819 are issued
and outstanding and 5,669,247 are reserved for issuance
under our long term equity incentive plans and outstanding
warrants. Shares reserved for issuance include 715,830
shares to be issued upon the exercise of outstanding stock
options, 3,280,974 shares to be issued upon the exercise of
outstanding warrants, and up to 1,672,443 to be issued upon
vesting of restricted stock units. Based on these issued and
reserved shares of common stock, we currently have
approximately 62,711,167 shares of common stock
2017 Proxy Statement
46
Purpose of the Amendment
Our Board is recommending this increase in the number of
authorized shares of capital stock primarily to have additional
shares available for use as our Board deems appropriate or
necessary. As such, the primary purpose of the proposed
amendment is to provide us with greater flexibility with
respect to issuing common or preferred stock in connection
with such corporate purposes as may, yy from time to time, be
considered advisable by our Board.
As stated previously,yy the newly authorized shares of capital
stock would be issuable for any proper corporate purpose
including, but not limited to, mergers and acquisitions, capital
raising transactions, or grants under equity compensation
plans. We WW have no immediate plans to issue any common or
preferred stock other than issuing common stock to officers,
ff
Vote VV required
ff
vote of a majority of the votes cast by the
The affirmative
holders of shares of the Company’s common stock at the
meeting is required for the approval of the proposed
amendment to our Restated Certificate of Incorporation.
RECOMMENDATION ON ITEM 5
THE VALLEY BOARD UNANIMOUSLY
RECOMMENDS A VOTE “FOR” THE APPROVAL
OF THE PROPOSED AMENDMENT TO OUR
RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON
STOCK AND PREFERRED STOCK.
directors, and employees under our equity compensation
plans, which were previously approved by our shareholders
and are limited in terms of the number of shares that may be
issued.
Our Board has determined that having an increased number
of authorized but unissued shares of capital stock would allow
us to take prompt action with respect to corporate
opportunities that develop, without the delay and expense of
convening a special meeting of shareholders for the purpose
of approving an increase in our capitalization.
Rights of Additional Authorized Shares
Any authorized shares of common stock, if and when issued,
would be part of the Company’s existing class of common
stock, and would have the same rights and privileges as the
shares of common stock currently outstanding. Current
shareholders do not have preemptive rights with respect to
common stock, nor do they have cumulative voting rights.
Should the Board issue additional shares of common stock,
existing shareholders would not have any preferential rights
to purchase any of such shares, and their percentage
ownership of the Company’s then outstanding common stock
would be reduced.
Any preferred stock issued in the future will have the rights
and preferences designated by our Board which may have
rights and preferences with respect to dividends and other
matters which are greater than the rights of our holders of
common stock.
Potential Adverse Effects
ff
Future issuances of either common stock or preferred stock
could have a dilutive effect
on the Company’s earnings per
share, book value per share and the voting power and interest
of current shareholders.
In addition, the availability of
additional shares of common stock and preferred stock for
issuance could, under certain circumstances, discourage or
to obtain control of the
make more difficult
Company. The Board is not aware of any attempt, or
contemplated attempt, to acquire control of the Company, yy nor
is this proposal being presented with the intent that it be used
to prevent or discourage any acquisition attempt. However,
nothing would prevent the Board from taking any such
actions that it deems to be consistent with its fiduciary duties.
ff
any efforts
ff
Effectiveness of Amendment
If the proposed amendment is adopted, it will become
effective
upon the filing of a certificate of amendment to our
ff
Restated Certificate of Incorporation with the New Jersey
,yy which the Company expects to file
Department of Treasury
promptly after the Annual Meeting.
If the proposed
amendment is not approved by the Company’s shareholders,
the number of authorized shares of capital stock will remain
unchanged.
TT
47
2017 Proxy Statement
COMPENSATION COMMITTEE INTERLOCKS
AA
RR
AND INSIDER PARPP
TICIP
APP TION
AA
The members of the Compensation and Human Resources
Committee are Gerald Korde, Andrew B. Abramson, Pamela
Bronander, Eric P.PP Edelstein, Michael L. LaRusso, Marc J.
Lenner, and Suresh L. Sani. All of the members of the
Compensation and Human Resources Committee, or their
have engaged in loan transactions with the Bank,
affiliates,
ff
as discussed below, ww in “Certain Transactions
with
Management”. No other relationships required to be reported
rules
under
promulgated by the Securities and Exchange Commission
exist with respect to members of our Compensation and
Human Resources Committee.
the compensation
committee
interlock
TT
CERTRR AINTT
TRANSACTIONS WITH MANAGEMENT
ff
AA
AA
PARPP
TYRR
TION
POLICY AND PROCEDURES FOR REVIEW, APPROVALVV
OR
TRANSACTIONS. Our
OF RELATED
AA
RATIFICA
or any of its
VV
related party transactions between Valley
subsidiaries and an executive officer
, director or an
immediate family member and the companies such persons
may own or control or have a substantial ownership interest
in (collectively "insiders") are governed by our written
related party transaction policy. Insiders may use Valley's
services or may provide services to ValleyVV
. We WW require our
directors and executive officers
to complete a questionnaire,
annually,yy to provide information specific to related party
transactions. We WW expect our directors and officers
to use the
National Bank.
services of Valley
VV
VV
ff
ff
WithW respect to the use of the Bank’s services by insiders,
most loans to insiders by the Bank are governed by
Regulation O. Regulation O requires that such loans (i) be
made on the same or substantially similar terms and
conditions, including interest rates and collateral, as those
prevailing at the time for comparable loans to third parties,
and (ii) not involve more than the normal risk of collectability.
Regulation O also requires that such loans be approved by a
majority of the directors with the director who is the borrower,
or related to the borrower, not present or voting.
WithW respect to other bank services provided to insiders, those
services are provided on the same terms and conditions as
provided to third parties, with no Board approval required.
WithW respect to insiders providing services, Valley
engages
in such transactions with insiders only when the Board
outweighs
through a committee believes the benefit to Valley
the detriment of a conflict of interest transaction and the
.
transaction is believed to be in the best interests of ValleyVV
VV
VV
Under the related party transactions Policy, yy applicable
transactions are referred for review and approval to the
Nominating and Corporate Governance Committee at least
annually. If the transaction presents a continuing relationship
the activity is reviewed and, if appropriate, approved by the
2017 Proxy Statement
48
Committee. If the transaction is new,ww the Committee is
charged with reviewing it and approving it if it is believed to
If a transaction is not
.
be in the best interests of ValleyVV
approved, the services offered
will not be used. If an ongoing
transaction fails to be ratified it will, if possible, be cancelled
in accordance with any contractual rights. The Audit
Committee oversees compliance with the related party
transaction policy.
ff
ff
TRANSACTIONS. The Bank has made loans to its directors
and their associates and, assuming
and executive officers
continued compliance with generally applicable credit
standards, it expects to continue to make such loans. All of
these loans (i) were made in the ordinary course of business,
(ii) were made on the same terms, including interest rates and
collateral, as those available to other persons not related to
ValleyVV
, yy and (iii) did not involve more than the normal risk of
collectability or present other unfavorable features.
VV
made payments for services to insider
During 2016, Valley
entities with which at least one director is affiliated;
except
as indicated, the payments were less than 5% of the entity’s
gross revenue. Each of the following payments were
approved, under our related party transaction policy.
ff
•
•
VV
During 2016, Valley
and its borrowers made
payments totaling approximately $402,000 (more
than 5% of the entity’s gross revenue) for legal
services to a law firm in which director Graham O.
Jones is the sole equity partner. The fees represented
33% of the firm's gross revenues.
VV
and its borrowers to
Of the fees paid by Valley
Jones & Jones, $276,400 were for loan review
services and approximately $74,650 thousand were
for collection proceedings.
VV
sets the fees to
With W respect to loan closings, Valley
be paid by a borrower when Jones & Jones acts as
its review counsel in commercial real estate loan
transactions which fees are subject to the acceptance
by the borrower. In collection actions, the fee must
currently utilizes 145 legal
be reasonable. Valley
firms for loan closings and collection efforts.
Jones
and Jones’ fees are comparable.
VV
ff
VV
made payments totaling
During 2016, Valley
$90,000 (more than 5% of the entity’s gross
revenue) for fees pursuant to a long-standing
consulting agreement with MG Advisors, Inc. MG
Advisors is 100% owned by Michael Guilfoile, the
spouse of Mary Guilfoile.
The fees paid by ValleyVV
represented approximately
13% of MG Advisors, Inc.’s gross revenues. The
income from MG Advisors is not material to the
overall financial position of Mr. Guilfoile or
Ms. Guilfoile.
with the insurance company. The aggregate amount
of commissions paid to date (from 2001 to 2016) to
the son-in-law totaled approximately $795,303 and
the anticipated aggregate amount of commissions
he will receive over the next 15 years
is
approximately $300,000 (the compensation was
structured as a declining revenue stream; for
example, he would earn approximately $11,000 in
year 2031).
VV
VV
WW
WW
, yy New York YY
, yy effeff ctive January 1, 2012, ValleyVV
acquired State Bancorp, Inc. At the
In 2011 Valley
time of acquisition, State Bancorp leased a branch
located in Westbury
In connection with
, yy New York.YY
the acquisition of State Bancorp, the Boards of State
Bancorp and Valley
agreed that Mr. WilksW was to be
VV
National Bancorp. In
elected to the Board of Valley
connection with the merger of State Bancorp into
assumed
ValleyVV
the lease for the Westbury
branch. The
lease provides for fixed rental payments of
approximately $190,000 per year with no additional
rent, such as real estate taxes, insurance and parking
lot maintenance. The lease may be terminated at
any time by the landlord upon not less than 130 days
written notice. The landlord, Westbury
Plaza
Associates, L.P., PP is a limited partnership which is
controlled by the Estate of Mr. Wilks’W father-in-law
and beneficially owned by both the Estate and a trust
for the benefit of Mr. Wilks’W spouse. Westbury
Plaza
Associates is a limited partnership which is part of
a larger organization. Valley’
s rental payment in
2016 represented approximately 0.42% of the
annual gross revenue of the larger organization.
WW
WW
VV
Valley
pays MG Advisors a monthly retainer under
VV
an agreement first entered into in 1993. The monthly
fees paid are considered comparable to other
professional fees which are available to ValleyVV
.
Mr. Guilfoile’s 39 years of consulting and
investment banking experience in the financial
through
services sector and his knowledge of Valley
his over 30 year association with the Company is
the basis for the belief that the agreement is in the
best interest of the Company. The retainer
agreement also provides for additional mutually
agreed upon fees to MG Advisors if a transaction
Mr. Guilfoile works on is consummated. No such
fees were paid in 2016.
VV
•
Under the monthly retainer Mr. Guilfoile, is
available to all senior management and the board of
directors for strategic advisory matters, merger and
acquisition
financial
transaction, and other
transactions related to the Company’s activities.
Ms. Guilfoile, does not provide any advice to Valley
through MG Advisors. Ms. Guilfoile joined the
Valley
Board in 2003 after serving in various full
VV
time positions in the financial services industry, yy
most recently as Treasurer
of JP Morgan Chase.
VV
TT
•
In 2001, ValleyVV
National Bank purchased $150
million of bank-owned life insurance ("BOLI")
from a nationally known life insurance company
after a lengthy competitive selection process and
substantial negotiations over policy costs and terms.
The amount of the premiums and the terms of the
policies are substantially the same as those
prevailing for comparable policies with other
insurance companies and brokers. During 2007, the
Bank purchased $75 million of additional BOLI
from the same life insurance company. This
purchase was also completed after a competitive
selection process with other vendors. The son-in-
law of Mr. Lipkin is a licensed insurance broker who
by this
introduced Valley
nationally recognized life insurance company.
Mr. Lipkin’s son-in-law was introduced to an
insurance broker for the life insurance company
sometime in 2000 or 2001 by a mutual friend. The
son-in-law introduced the broker to Valley
National
Bank and provided assistance during the BOLI
proposal and selection process. As is customary
among brokers who introduce a client to another
broker, Mr. Lipkin’s
receives
commissions (with a percentage dollar amount and
time period for payment which are each typical for
such referral services) for the life of the policy.
to the program offered
son-in-law
VV
VV
ff
In 2016, Mr. Lipkin’s son-in-law received $35,547
in insurance commissions relating to the Bank’s
BOLI purchases, pursuant to the arrangement he
entered into with the insurance broker associated
49
2017 Proxy Statement
SECTION 16(a) BENEFICIAL
L
( )
RR
REPORTING COMPLIANCE
OWNERSHIP
ff
Section 16(a) of the Securities Exchange Act of 1934 requires
our directors, executive officers
and any beneficial owners
of more than 10% of our common stock to file reports relating
to their ownership and changes in ownership of our common
stock with the SEC and NYSE by certain deadlines. Based
on information provided by our directors and executive
officers,
Thomas A. Iadanza failed to timely file a Form 4 (to
ff
report shares withheld for taxes) due to administrative error;
Gerald Lipkin, Alan Eskow, ww Ira Robbins, Rudy Schupp,
Thomas Iadanza, Dianne Grenz, Melissa Scofield, Peter
Crocitto, Andrea Onorato, Bernadette Mueller and Albert
Engel each filed a Form 4 (to report a grant of shares) one
day late due to administrative error and Kevin Chittenden
filed a Form 4 (to report a grant of shares) three days late
due to administrative error.
We WW believe all our other directors and executive officers
complied with their Section 16(a) reporting requirements in
2016.
ff
SHAREHOLDER PROPOSALS
New Jersey corporate law requires that the notice of
shareholders’meeting (for either a regular or special meeting)
specify the purpose or purposes of the meeting. Thus any
substantive proposal, including shareholder proposals, must
be referred to in our Notice of Annual Meeting of
Shareholders in order for the proposal to be considered at a
meeting of Valley's
shareholders.
VV
VV
An SEC rule requires certain shareholder proposals be
included in the notice of meeting. Proposals of shareholders
which are eligible under the SEC rule to be included in our
year 2018 proxy material must be received by the Corporate
Secretary of Valley
National Bancorp no later than
November 17, 2017. If we change our 2018 annual meeting
date to a date more than 30 days from the anniversary of our
2017 annual meeting, then the deadline will be changed to a
reasonable time before we begin to print and mail our proxy
materials. If we change the date of our 2018 annual meeting
by more than 30 days from the anniversary of this annual
meeting, we will so state in first quarterly report on Form 10-
Q we file with the SEC after the date change, or will notify
our shareholders by another reasonable method.
2017 Proxy Statement
50
OTHER MATTERS
AA
The Board of Directors is not aware of any other matters that may come before the annual meeting. However, in the event such
other matters come before the meeting, it is the intention of the persons named in the proxy to vote on any such matters in
accordance with the recommendation of the Board of Directors.
Shareholders are urged to vote by Internet or telephone or sign the enclosed proxy and return it in the enclosed envelope or vote
by telephone or Internet. The proxy is solicited on behalf of the Board of Directors.
By Order of the Board of Directors,
Alan D. Eskow
Corporate Secretary
Wayne, New Jersey
WW
March 17, 2017
2016 filed with the
A copy of our Annual Report on Form 10-K (without exhibits) for the year ended December 31,
Securities and Exchange Commission will be furnished to any shareholder upon written request addressed to Tina
Zarkadas, Assistant ViceVV President, Shareholder Relations Specialist, Valley
WW
Road, Wayne,
New Jersey 07470. Our Annual Report on Form 10-K (without exhibits) is also available on our website at the following
link: http://www.valleynationalbank.com/filings.html
National Bancorp, 1455 Valley
VV
VV
ww
r
51
2017 Proxy Statement
APPENDIX A
Market
Capitalization
(in mil.)
3,926.1
2,745.8
752.9
2,470.9
841.5
3,272.0
4,316.8
1,811.9
7,749.1
6,602.7
6,116.6
4,327.0
4,988.1
1,870.1
8,202.5
3,165.0
3,881.1
4,986.6
3,068.8
L
TIONAL
NAY
AA
VALLEY
VV
Valley Peer
18r
VV
2016 Size Comparisons
BANCORP
Company
BankUnited, Inc.
Community Bank System, Inc.
Dime Community Bancshares, Inc.
EverBank Financial Corp.
Flushing Financial Corporation
Fulton Financial Corporation
Investors Bancorp, Inc.
NBT Bancorp Inc.
New York Community Bancorp, Inc.
YY
PacWest Bancorp
WW
People's United Financial, Inc.
PrivateBancorp, Inc.
Prosperity Bancshares
Provident Financial Services, Inc.
Signature Bank
Sterling Bancorp
TT
Texas Capital Bancshares, Inc.
WW
Webster Financial Corporation
VV
Valley National Bancorp
Ticker
BKU
CBU
DCOM
EVER
FFIC
FULTLL
ISBC
NBTB
NYCB
PACWPP
PBCT
PVTB
PB
PFS
SBNY
STL
TCBI
WBS
VLYLL
Net Income
(in thous.)
TT
Total Revenue
(in thous.)
Assets
TT
Total
(in thous.)
$
225,741 $
973,802 $
27,880,151 $
103,812
72,514
144,931
64,916
161,625
192,125
78,409
495,401
352,166
281,000
208,357
274,466
87,802
396,324
139,972
155,119
207,127
429,847
219,380
897,415
224,622
710,950
677,290
380,154
1,432,954
1,073,766
1,314,900
730,184
751,045
313,960
1,189,992
475,256
700,594
982,991
8,667,564
6,005,430
27,838,086
6,058,487
18,944,247
23,174,675
8,867,268
48,926,555
21,869,767
40,609,800
20,053,773
22,331,072
9,500,465
39,047,611
14,178,447
21,697,134
26,064,664
$
168,146 $
721,374 $
22,864,439 $
2017 Proxy Statement
52
HELPING PEOPLE AND BUSINESSES
To Our Customers
A customer experience based
on convenient, courteous service
with prompt, excellent and
accurate execution.
To Our Employees
A respectful and engaging workplace
that encourages opportunity,
development and ownership by
rewarding ambition, creativity,
sound judgement and
superior service.
Our Promise
To Our Shareholders
A consistent and superior
return on investment based
on sound judgement and
long-term profitability.
To Our Communities
A responsible corporate
citizen which makes a concerted
effort to assist its communities
through financial and employee
involvement in social,
charitable, religious and
service organizations.
®
1455 Valley Road
Wayne, NJ 07470
973-305-3380
valleynationalbank.com
© 2017 Valley National Bank®. Member FDIC. Equal Opportunity Lender. All Rights Reserved.