Valley National Bancorp VLY

NEW YORK, Jan. 28, 2021 (GLOBE NEWSWIRE) -- Valley National Bancorp (NASDAQ:VLY), the holding company for Valley National Bank, today reported net income for the fourth quarter 2020 of $105.4 million, or $0.25 per diluted common share, as compared to the fourth quarter 2019 earnings of $38.1 million, or $0.10 per diluted common share, and net income of $102.4 million, or $0.25 per diluted common share, for the third quarter 2020. Excluding all non-core charges, our adjusted net income (a non-GAAP measure) was $113.4 million, or $0.27 per diluted common share, for the fourth quarter 2020, $90.7 million, or $0.24 per diluted common share, for the fourth quarter 2019, and $104.2 million, or $0.25 per diluted common share, for the third quarter 2020. See further details below, including a reconciliation of our adjusted net income in the "Consolidated Financial Highlights" tables.

Key financial highlights for the fourth quarter:

• Net Interest Income and Margin: Net interest income on a tax equivalent basis of $288.8 million for the fourth quarter 2020 increased $4.7 million and $49.2 million as compared to the third quarter 2020 and fourth quarter 2019, respectively. Our net interest margin on a tax equivalent basis increased 5 basis points to 3.06 percent in the fourth quarter 2020 as compared to 3.01 percent for the third quarter 2020. The increases were partially due to a 11 basis point decline in our costs of average interest bearing liabilities caused by the continued downward repricing of our interest bearing deposits, repayment of higher cost borrowings and growth in our non-interest bearing deposits. See the "Net Interest Income and Margin" section below for more details.
• Loan Portfolio: At December 31, 2020, loans totaled $32.2 billion, an increase of 8.5 percent as compared to one year ago. Total loans decreased $198.5 million as compared to September 30, 2020 largely due to a decrease in the residential mortgage loan portfolio driven by refinance and secondary loan sale activity, as well as tempered demand and our selective underwriting within the commercial loan portfolios during the fourth quarter 2020. Fourth quarter new and refinanced loan originations included approximately $382 million of residential mortgage loans originated for sale rather than investment. Net gains on sales of residential loans were $16.0 million and $13.4 million in the fourth quarter 2020 and third quarter 2020, respectively. See "Loans, Deposits and Other Borrowings" section below for additional information.
• Allowance and Provision for Credit Losses for Loans: The allowance for credit losses for loans totaled $351.4 million and $335.3 million at December 31, 2020 and September 30, 2020, respectively. During the fourth quarter 2020, the provision for credit losses for loans was $19.0 million as compared to $31.0 million and $5.4 million for the third quarter 2020 and fourth quarter 2019, respectively. The reserve build in the fourth quarter 2020 reflects, among other factors, the impact of the internal risk rating downgrades of certain commercial loans largely related to borrowers negatively impacted by the pandemic, lower valuations of collateral securing our non-performing taxi medallion loan portfolio, and, to a lesser extent, changes in the economic forecast component of our reserves at December 31, 2020.
• Credit Quality: Net loan charge-offs totaled $3.0 million for the fourth quarter 2020, as compared to $15.4 million for the third quarter 2020 and $5.6 million for the fourth quarter 2019. Non-accrual loans represented 0.58 percent and 0.59 percent of total loans at December 31, 2020 and September 30, 2020, respectively. See the "Credit Quality" Section below for more details.
• Non-Interest Income: Non-interest income decreased $1.7 million to $47.5 million for the fourth quarter 2020 from $49.3 million for the third quarter 2020 largely due to a $8.4 million decrease in swap fee income related to new commercial loan transactions. The fourth quarter decrease in swaps fees was partially offset by increases of $3.7 million and $2.6 million in BOLI income and net gains on sales of residential mortgage loans, respectively, as compared to the third quarter 2020.
• Loss on Extinguishment of Debt: In mid-December 2020, Valley prepaid $534 million of FHLB borrowings scheduled to mature in 2021 and 2022 with a weighted average effective interest rate of 2.48 percent. The debt prepayment was funded by excess cash liquidity. The transaction was accounted for as an early debt extinguishment resulting in a loss of $9.7 million reported within non-interest expense for the fourth quarter 2020.
• Non-Interest Expense: Non-interest expense increased $13.0 million to $173.1 million for the fourth quarter 2020 as compared to the third quarter 2020 mainly due to a $7.3 million increase in the loss on extinguishment of debt and additional severance expense of $2.1 million. Telecommunication expense and amortization of tax credit investments also increased $1.4 million and $1.2 million, respectively, during the fourth quarter 2020 as compared to the third quarter 2020.
• Efficiency Ratio: Our efficiency ratio was 51.61 percent for the fourth quarter 2020 as compared to 48.20 percent and 70.90 percent for the third quarter 2020 and fourth quarter 2019, respectively. Our adjusted efficiency ratio was 46.99 percent for the fourth quarter 2020 as compared to 46.62 percent and 52.43 percent for the third quarter 2020 and fourth quarter 2019, respectively. See the "Consolidated Financial Highlights" tables below for additional information regarding our non-GAAP measure.
• Performance Ratios: Annualized return on average assets (ROA), shareholders’ equity (ROE) and tangible ROE were 1.02 percent, 9.20 percent, and 13.45 percent for the fourth quarter 2020, respectively. Annualized ROA, ROE and tangible ROE, adjusted for non-core charges, were 1.10 percent, 9.90 percent, and 14.48 percent for the fourth quarter 2020, respectively. See the "Consolidated Financial Highlights" tables below for additional information regarding our non-GAAP measures.
  

Ira Robbins, CEO and President commented, "Valley reported strong fourth quarter 2020 results, finishing up a chaotic year where we demonstrated the significant earnings power and strength of our franchise and dedicated employees. For the year, we generated approximately $391 million in net income despite our provision for credit losses of $126 million driven by the pandemic and the impact of CECL. Our ability to manage our funding costs, generate loan related gains and fee income and remain laser-focused on our operating expenses, resulted in an adjusted efficiency ratio of approximately 47 percent for both the fourth quarter and the full year of 2020." Robbins continued, "Reflecting on 2020, I am very proud of how our customer facing and back office teams worked together and quickly mobilized to support our customers and communities during the pandemic, and our continued ability to innovate new products, services and technology which we believe will firmly position Valley for the future. We have made significant progress as a firm, and I'm excited to build on Valley's strong foundation and realize its boundless potential for all its stakeholders."

Net Interest Income and Margin

Net interest income on a tax equivalent basis totaling $288.8 million for the fourth quarter 2020 increased $4.7 million and $49.2 million as compared to the third quarter 2020 and fourth quarter 2019, respectively. The increase compared to the third quarter 2020 was mainly due to lower rates on our deposit products combined with a shift in customer preference towards deposits without stated maturities, as well as a reduction in average short-term and long-term borrowings funded by excess liquidity. Interest expense of $46.1 million for the three months ended December 31, 2020 decreased $8.1 million as compared to the third quarter 2020. Overall, average interest-bearing liabilities decreased $354.6 million and average non-interest bearing deposits increased $323.1 million in the fourth quarter 2020 as compared to the third quarter 2020. Interest income on a tax equivalent basis decreased $3.4 million to $335.0 million for the fourth quarter 2020 as compared to the third quarter 2020 mainly due to a 3 basis point decrease in the yield on average loans, as well as a moderate decline in interest and dividends from investment securities. The decrease was mostly attributable to principal repayments on securities, and a decline in our reinvestment activity within the available for sale investment securities portfolio largely due to the low interest rate environment.

The net interest margin on a tax equivalent basis of 3.06 percent for the fourth quarter 2020 increased 5 basis points as compared to 3.01 percent for the third quarter 2020, and increased 10 basis points from 2.96 percent for the fourth quarter 2019. The yield on average interest earning assets decreased by 4 basis points on a linked quarter basis mostly due to the impact of the lower interest rate environment. The yield on average loans decreased to 3.86 percent for the fourth quarter 2020 from 3.89 percent for the third quarter 2020 largely due to the continued repayment of higher yielding loans, partially offset by a $2.2 million increase in interest and fees from SBA Paycheck Protection Program (PPP) loans. The increase in interest and fees on SBA PPP loans was mostly caused by a moderate level of loan forgiveness activity and acceleration of net unamortized deferred loan fees during the fourth quarter 2020. The overall cost of average interest-bearing liabilities decreased by 11 basis points to 0.69 percent for the fourth quarter 2020 as compared to the linked third quarter 2020 due to the lower rates offered on deposit products and the shift to lower cost deposits as well as lower average short- and long-term borrowing balances with repayments funded by excess liquidity. This includes our prepayment of $534 million in higher cost long-term borrowings during December 2020 that is expected to positively impact our average cost of funds for the full first quarter 2021. Our cost of total average deposits was 0.33 percent for the fourth quarter 2020 as compared to 0.41 percent for the three months ended September 30, 2020.

Loans, Deposits and Other Borrowings

Loans. Loans decreased $198.5 million to approximately $32.2 billion at December 31, 2020 from September 30, 2020 largely due to a $100.9 million decrease in the residential mortgage loan portfolio and principal repayments, including SBA PPP loan forgiveness, outpacing new loan originations in the commercial loan categories. SBA PPP loans reported within commercial and industrial loans decreased $125.3 million to approximately $2.2 billion at December 31, 2020 from September 30, 2020. Auto and other consumer loans increased 4.3 percent and 9.3 percent, respectively, on an annualized basis during the fourth quarter 2020. The decline in residential mortgage loans during the fourth quarter 2020 was mainly due to significant refinance activity and approximately $382 million of new and refinanced loans originated for sale rather than investment during the fourth quarter 2020. Loans held for sale totaled $301.4 million and $209.3 million at December 31, 2020 and September 30, 2020.

Deposits. Total deposits increased $747.6 million, or 2.4 percent, to approximately $31.9 billion at December 31, 2020 from September 30, 2020 driven by increases of $448.3 million and $1.1 billion in the non-interest bearing, and the saving, NOW, money market deposit categories, respectively, which were partially offset by a decrease of $822.9 million in time deposits. The increase in deposits without stated maturities was mainly attributable to higher retail and government deposit balances within our branch network, as well as continued migration of maturing high cost retail CDs to more liquid deposit product categories during the fourth quarter 2020. Total brokered deposits (consisting of both time and money market deposit accounts) were $3.1 billion at December 31, 2020 as compared to $3.3 billion at September 30, 2020. Non-interest bearing deposits; savings, NOW, money market deposits; and time deposits represented approximately 29 percent, 50 percent and 21 percent of total deposits as of December 31, 2020, respectively.

Other Borrowings. Short-term borrowings and long term borrowings decreased $282.8 million and $556.9 million to approximately $1.1 billion and $2.3 billion, respectively, at December 31, 2020 as compared to September 30, 2020, as we redeployed excess liquidity from deposit growth to the repayment of borrowings during the fourth quarter 2020. The reduction in long-term borrowings included the December prepayment of $534.0 million of FHLB borrowings with a weighted average interest rate of 2.48 percent. The prepayment resulted in a $9.7 million prepayment penalty charge recognized in non-interest expense during the fourth quarter 2020.

Credit Quality

Non-Performing Assets (NPAs). Total NPAs, consisting of non-accrual loans, other real estate owned (OREO), other repossessed assets and non-accrual debt securities decreased $9.1 million to $194.6 million at December 31, 2020 compared to $203.6 million at September 30, 2020. The decrease in NPAs was largely due to a $9.0 million decline in non-accrual commercial and industrial loans, which was mainly caused by loan repayments during the fourth quarter 2020. Non-accrual loans represented 0.58 percent of total loans at December 31, 2020 as compared to 0.59 percent of total loans at September 30, 2020.

Non-performing Taxi Medallion Loan Portfolio. We continue to closely monitor our non-performing New York City and Chicago taxi medallion loans totaling $90.6 million and $6.9 million, respectively, within the commercial and industrial loan portfolio at December 31, 2020. At December 31, 2020, non-accrual taxi medallion loans totaling $97.5 million had related reserves of $66.4 million, or 68.1 percent of such loans, within the allowance for loan losses.

Accruing Past Due Loans. Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) increased $15.1 million to $99.0 million, or 0.31 percent of total loans, at December 31, 2020 as compared to $83.9 million, or 0.26 percent of total loans, at September 30, 2020. The higher level of accruing past due loans at December 31, 2020 was partially caused by a $12.3 million matured commercial real estate loan (in the process of restructuring its terms) reported within the 30 to 59 day category, as well as an increase in later stage residential mortgage loan delinquencies. Residential mortgage loans 60 to 89 days past due and 90 or more days past due increased $6.6 million and $2.3 million, respectively, at December 31, 2020 mostly due to a few larger borrowers, including the migration of certain loans reported within the 30 to 59 day category at September 30, 2020.

Forbearance. In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant, when requested by customers. Generally, the modification terms allow for a deferral of payments for up to 90 days, which Valley may extend for an additional 90 days. Any extensions beyond this period were done in accordance with applicable regulatory guidance. As of December 31, 2020, Valley had approximately $361 million of outstanding loans remaining in their payment deferral period under short-term modifications.

Allowance for Credit Losses for Loans and Unfunded Commitments. The following table summarizes the allocation of the allowance for credit losses to specific loan categories and the allocation as a percentage of each loan category (including PCD loans) at December 31, 2020, September 30, 2020, and December 31, 2019:

Our loan portfolio, totaling $32.2 billion at December 31, 2020, had net loan charge-offs of $3.0 million for the fourth quarter 2020 as compared to $15.4 million and $5.6 million for the third quarter 2020 and the fourth quarter 2019, respectively. Net charge-offs were elevated in the linked third quarter partially due to the full charge-off of a $6.0 million non-performing commercial and industrial loan relationship. Additionally, partial charge-offs of taxi medallions declined to $2.3 million during the fourth quarter 2020 as compared to $6.1 million and $2.9 million for the third quarter 2020 and fourth quarter 2019, respectively.

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 1.09 percent, 1.03 percent and 0.55 percent at December 31, 2020, September 30, 2020 and December 31, 2019, respectively. During the fourth quarter 2020, we recorded a provision for credit losses totaling $19.0 million as compared to $31.0 million for the third quarter 2020 and $5.4 million for the fourth quarter 2019. The reserve build in the fourth quarter 2020 reflects several factors, including the impact of the internal risk rating downgrades of certain commercial loans largely related to borrowers negatively impacted by the pandemic, lower valuations of collateral securing our non-performing taxi medallion loan portfolio, and, to a lesser extent, changes in the economic forecast component of our reserves at December 31, 2020.

Capital Adequacy

Valley's regulatory capital ratios continue to reflect its well capitalized position. Valley's total risk-based capital, Tier 1 capital, common equity Tier 1 capital and Tier 1 leverage capital ratios were 12.64 percent, 10.66 percent, 9.94 percent and 8.06 percent, respectively, at December 31, 2020.

For regulatory capital purposes, in connection with the Federal Reserve Board’s final interim rule as of April 3, 2020, 100 percent of the CECL Day 1 impact to shareholders' equity equaling $28.2 million after-tax will be deferred for a two-year period ending January 1, 2022, at which time it will be phased in on a pro-rata basis over a three-year period ending January 1, 2025. Additionally, 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) for the year ended December 31, 2020 will be phased in over the same time frame.

Investor Conference Call

Valley will host a conference call with investors and the financial community at 11:00 AM Eastern Standard Time, today to discuss the fourth quarter 2020 earnings. Those wishing to participate in the call may dial toll-free (866) 354-0432 (Conference ID: 3626439). The teleconference will also be webcast live: https://edge.media-server.com/mmc/p/n3ghj44s and archived on Valley’s website through Monday, March 1, 2021. Investor presentation materials will be made available prior to the conference call at www.valley.com.

About Valley

As the principal subsidiary of Valley National Bancorp, Valley National Bank is a regional bank with approximately $42 billion in assets. Valley is committed to giving people and businesses the power to succeed. Valley operates many convenient branch locations across New Jersey, New York, Florida and Alabama, and is committed to providing the most convenient service, the latest innovations and an experienced and knowledgeable team dedicated to meeting customer needs. Helping communities grow and prosper is the heart of Valley’s corporate citizenship philosophy. To learn more about Valley, go to www.valley.com or call our Customer Care Center at 800-522-4100.

Forward Looking Statements

The foregoing contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about our business, 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. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:

• the impact of COVID-19 on the U.S. and global economies, including business disruptions, reductions in employment and an increase in business failures, specifically among our clients;
• the impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases of COVID-19 may arise in our primary markets;
• potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic or as a result of our actions in response to, or failure to implement or effectively implement, federal, state and local laws, rules or executive orders requiring that we grant forbearances or not act to collect our loans;
• the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral;
• damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;
• a prolonged downturn in the economy, mainly in New Jersey, New York, Florida and Alabama, as well as an unexpected decline in commercial real estate values within our market areas;
• higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
• the inability to grow customer deposits to keep pace with loan growth;
• a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;
• the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
• greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
• the loss of or decrease in lower-cost funding sources within our deposit base, including our inability to achieve deposit retention targets under Valley's branch transformation strategy;
• cyber-attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
• results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank (FRB), the Consumer Financial Protection Bureau (CFPB) and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
• our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;
• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, the COVID-19 pandemic or other external events;
• unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors; and
• the failure of other financial institutions with whom we have trading, clearing, counterparty and other financial relationships.

A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Item 1A of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.

We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

-Tables to Follow-

VALLEY NATIONAL BANCORP
CONSOLIDATED FINANCIAL HIGHLIGHTS

SELECTED FINANCIAL DATA

NOTES TO SELECTED FINANCIAL DATA

SHAREHOLDERS RELATIONS
Requests for copies of reports and/or other inquiries should be directed to Tina Zarkadas, Assistant Vice President, Shareholder Relations Specialist, Valley National Bancorp, 1455 Valley Road, Wayne, New Jersey, 07470, by telephone at (973) 305-3380, by fax at (973) 305-1364 or by e-mail at tzarkadas@valley.com.

VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)

VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
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VALLEY NATIONAL BANCORP
Quarterly Analysis of Average Assets, Liabilities and Shareholders' Equity and
Net Interest Income on a Tax Equivalent Basis

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(1) Interest income is presented on a tax equivalent basis using a 21 percent federal tax rate.
(2) Loans are stated net of unearned income and include non-accrual loans.
(3) The yield for securities that are classified as available for sale is based on the average historical amortized cost.
(4) Includes junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of condition.
(5) Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(6) Net interest income as a percentage of total average interest earning assets.