WAYNE, N.J., April 26, 2017 /PRNewswire/ -- Valley National Bancorp (NYSE: VLY), the holding company for Valley National Bank, today reported net income for the first quarter of 2017 of $46.1 million, or $0.17 per diluted common share as compared to the first quarter of 2016 earnings of $36.2 million, or $0.14 per diluted common share and net income of $50.1 million, or $0.19 per diluted common share, for the fourth quarter of 2016. Net income for the fourth quarter of 2016 included $7.3 million in pre-tax gains realized on $170 million of seasoned 30-year fixed rate residential mortgage loans sold, as well as higher periodic loan fee income.

Key financial highlights for the first quarter:

• Net Interest Income and Margin: Net interest income on a tax equivalent basis of $164.7 million for the first quarter of 2017 increased $14.6 million as compared to the first quarter of 2016, and decreased $1.9 million as compared to the fourth quarter of 2016. Our net interest margin on a tax equivalent basis of 3.14 percent for the first quarter of 2017 increased by 6 basis points as compared to the first quarter of 2016, and decreased 13 basis points from the fourth quarter of 2016. The decrease in net interest income and margin for the first quarter of 2017 as compared to the linked fourth quarter was mainly caused by a combined $5.9 million decline in interest income from derivative swap and loan prepayment fees. See the "Net Interest Income and Margin" section below for more details.
• Loan Portfolio: Loans increased by $213.4 million, or 5.0 percent on an annualized basis, to $17.4 billion at March 31, 2017 from December 31, 2016 largely due to a $307.7 million net increase in total commercial real estate loans. The overall loan growth was partially offset by a decrease of $122.5 million in residential mortgage loans caused, in part, by the transfer of approximately $104 million of performing 30-year fixed rate mortgages to loans held for sale at March 31, 2017. The sale of these loans is expected to be completed during the second quarter of 2017 and result in a pre-tax gain greater than $3 million. Total new organic loan originations, excluding new lines of credit and purchased loans, totaled approximately $740 million mostly within the commercial loan categories during the first quarter of 2017. See additional information under the "Loans, Deposits and Other Borrowings" section below.
• Asset Quality: Non-performing assets (including non-accrual loans) increased by 4.2 percent to $51.5 million at March 31, 2017 as compared to $49.4 million at December 31, 2016 due to moderate increases in both non-accrual loans and other real estate owned. Total accruing past due and non-accrual loans as a percentage of our entire loan portfolio of $17.4 billion increased to 0.61 percent at March 31, 2017 from 0.55 percent at December 31, 2016 mostly due to an increase in commercial loans past due 30 to 59 days.
• Provision for Credit Losses: During the first quarter of 2017, we recorded a $2.5 million provision for credit losses as compared to a provision of $3.8 million and $800 thousand for the fourth quarter of 2016 and first quarter of 2016, respectively. For the first quarter of 2017, we recognized net loan charge-offs totaling $1.4 million as compared to $110 thousand and $1.5 million for the fourth quarter of 2016 and first quarter of 2016, respectively. The increase in net loan charge-offs from the fourth quarter was largely due to an increase in commercial and industrial loan charge-offs. See further details under the "Credit Quality" section below.
• Non-Interest Income: Non-interest income decreased $7.6 million, or 23.3 percent, to $25.1 million for the first quarter of 2017 from $32.7 million for the fourth quarter of 2016 mostly due to an $8.2 million decrease in net gains on sales of residential mortgage loans caused by the aforementioned sale of $170 million of residential mortgage loans during the linked fourth quarter. This decline in non-interest income was partially offset by a $1.2 million increase in non-interest income from bank owned life insurance which was largely related to death benefits received in the first quarter of 2017.
• Non-Interest Expense: Non-interest expense decreased $3.9 million, or 3.1 percent, to $121.0 million for the first quarter of 2017 from the fourth quarter of 2016 mainly due to a $8.1 million decrease in the amortization of tax credit investments. The decrease was partially offset by (i) a $2.3 million increase in salary and employee benefit expense largely driven by normal increases in payroll taxes and stock-based compensation expense and (ii) a $1.5 million increase in net occupancy and equipment expense mostly due to seasonal maintenance expense.
• Income Tax Expense: Income tax expense totaled $18.1 million for the first quarter of 2017 and remained relatively stable as a percentage of pre-tax income as compared to the linked quarter. Our effective tax rate was 28.2 percent, 26.8 percent, and 28.5 percent for the first quarter of 2017, fourth quarter of 2016, and first quarter of 2016, respectively. For the remainder of 2017, we anticipate that our effective tax rate will range from 28 percent to 31 percent primarily reflecting the impacts of tax-exempt income, tax-advantaged investments and general business credits.
• Capital Strength: Valley's regulatory capital ratios continue to reflect its strong capital position. Valley's total risk-based capital, Tier 1 capital, Tier 1 leverage capital, and Tier 1 common capital ratios were 11.96 percent, 9.76 percent, 7.70 percent and 9.12 percent, respectively, at March 31, 2017.

Gerald H. Lipkin, Chairman & CEO commented that, "We are pleased with our earnings performance in the first quarter of 2017 which reflected a 27 percent increase in net income as compared to the first quarter of 2016 driven by a solid net interest margin of 3.14 percent despite lower commercial loan and swap fees as compared to the linked fourth quarter. Our net income for the first quarter continued to benefit from strong loan growth mainly within the commercial real estate portfolio and our ability to maintain a low overall cost of funds. The credit quality of our balance sheet remained well-controlled as net loan charge-offs to average loans totaled 0.03 percent for the first quarter of 2017."

Mr. Lipkin added, "In December 2016, Valley announced a company-wide earnings enhancement initiative called LIFT. The discovery and feasibility study phases for LIFT are currently underway and expected to be completed on schedule in the second quarter of 2017. The implementation phase of the initiative will commence in the third quarter of 2017 and is expected to be fully phased-in over a 24 month period. Although it is premature to provide specific details on LIFT at this time, we can report that we are delighted with the significant efforts by our dedicated management team and employees to ultimately make this program a success for Valley, its customers and shareholders. We fully expect this endeavor, combined with our continued growth strategies, to strongly position Valley to deliver on its future performance goals and allow us to provide the financial banking experience expected in today's rapidly changing environment."

Net Interest Income and Margin

Net interest income on a tax equivalent basis totaling $164.7 million for the first quarter of 2017 increased $14.6 million from the first quarter of 2016 and decreased $1.9 million as compared to the fourth quarter of 2016. Interest income on a tax equivalent basis decreased $2.0 million to $201.3 million for the first quarter of 2017 as compared to the fourth quarter of 2016 mainly due to a 23 basis point decline in the yield on average loans, partially offset by increases of $533.3 million and $156.1 million in average loans and taxable investments, respectively, and a 18 basis point increase in the yield on average taxable investments. The decrease in yield on average loans for the first quarter of 2017 as compared to the linked fourth quarter was mostly due to a decline of $5.9 million in periodic commercial loan fee income related to derivative interest rate swaps executed with customers and loan prepayment penalty fees. Interest expense of $36.6 million for the three months ended March 31, 2017 decreased $113 thousand as compared to the fourth quarter of 2016. During the first quarter of 2017, our interest expense on deposits and long-term borrowings declined by approximately $237 thousand and $292 thousand, respectively, from the linked fourth quarter largely due to two less days during the first quarter. The reduction in interest expense from these interest bearing liabilities was largely offset by additional interest expense from increased short-term borrowings during the first quarter of 2017. Average short-term borrowings increased $296.7 million as compared to the fourth quarter of 2016 due to new FHLB borrowings used to offset a decline in deposits and fund new loans during the first quarter of 2017.

Our net interest margin on a tax equivalent basis of 3.14 percent for the first quarter of 2017 increased by 6 basis points as compared to the first quarter of 2016, and decreased 13 basis points from the fourth quarter of 2016. The yield on average interest earning assets decreased by 15 basis points on a linked quarter basis mostly due to the lower yield on average loans. The yield on average loans decreased 23 basis points to 4.04 percent for the first quarter of 2017 and was negatively impacted by the aforementioned decreases in periodic commercial loan fees as compared to the fourth quarter of 2016. The yield on average taxable investment securities increased by 18 basis points to 2.78 percent for the first quarter of 2017 from the fourth quarter of 2016 largely due to a decline in premium amortization expense caused by lower principal repayments on residential mortgage-backed securities. The overall cost of average interest bearing liabilities decreased by 2 basis points during the first quarter of 2017 from 0.98 percent in the linked fourth quarter of 2016. The decrease was due, in part, to a 8 basis point decline in the cost of long-term borrowings mostly caused by two less days during the first quarter of 2017. Our cost of total deposits was 0.45 percent for the first quarter of 2017 as compared to 0.46 percent for the fourth quarter of 2016.

Loans, Deposits and Other Borrowings

Loans. Loans increased $213.4 million, or 5.0 percent on an annualized basis, to approximately $17.4 billion at March 31, 2017 from December 31, 2016, net of the $104 million of residential mortgage loans transferred to loans held for sale during the first quarter of 2017 and a $116.8 million decline in the PCI loan portion of the portfolio. During the first quarter of 2017, Valley also originated $112.7 million of residential mortgage loans for sale rather than investment. Loans held for sale totaled $115.1 million and $57.7 million at March 31, 2017 and December 31, 2016, respectively. See additional information regarding our residential mortgage loan activities below.

Total commercial and industrial loans increased $4.1 million, or 0.6 percent on an annualized basis, from December 31, 2016 to approximately $2.6 billion at March 31, 2017. The loan volumes were largely offset by a $37.0 million decline in the PCI loan portion of the portfolio during the first quarter of 2017. Exclusive of the decline in PCI loans, the non-PCI commercial and industrial loan portfolio increased by approximately 7.0 percent on an annualized basis to $2.4 billion at March 31, 2017 from December 31, 2016. This growth in non-PCI loans was largely due to a few large customer relationships, including a secured commercial lending arrangement with a large regional auto retailer. In addition to the PCI loan repayments, the level of loan growth within this portfolio continues to be challenged by strong market competition for both new and existing commercial loan borrowers within our primary markets.

Commercial real estate loans (excluding construction loans) increased $296.8 million from December 31, 2016 to $9.0 billion at March 31, 2017 mostly due to a $322.9 million, or 16.9 percent on an annualized basis, increase in the non-PCI loan portfolio. The increase in non-PCI loans was primarily due to solid organic loan volumes in New York and New Jersey, as well as approximately $178 million of loan participations (mostly multi-family loans in New York City) purchased in the first quarter of 2017. The purchased participation loans continue to be predominantly seasoned loans with expected shorter durations. Each purchased participation loan is reviewed by Valley under its normal underwriting criteria and stress-tested 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 $26.2 million decline in the acquired PCI loan portion of the portfolio. Construction loans increased $10.9 million, or 5.3 percent on an annualized basis, to $835.9 million at March 31, 2017 from December 31, 2016. The increase was mostly due to advances on existing construction projects.

Total residential mortgage loans decreased $122.5 million, or approximately 17.1 percent on an annualized basis, to approximately $2.7 billion at March 31, 2017 from December 31, 2016 mostly due to the aforementioned mortgages transferred to loans held for sale, as well as a large percentage of new loans originated for sale rather than investment during the first quarter of 2017. Valley sold approximately $159.9 million of residential mortgage loans originated for sale (including $57.7 million of loans held for sale at December 31, 2016) during the first quarter of 2017. New and refinanced residential mortgage loan originations totaled approximately $163.7 million for the first quarter of 2017 as compared to $371.3 million and $83.6 million for the fourth quarter of 2016 and first quarter of 2016, respectively. Of the $163.7 million in total originations, $15.3 million, or 9.3 percent, represented new Florida residential mortgage loans.

Home equity loans totaling $458.9 million at March 31, 2017 decreased by $10.1 million as compared to December 31, 2016 mostly due to normal repayment activity, including a $3.1 million decline in the PCI loan portion of the portfolio. New home equity loan volumes and customer usage of existing home equity lines of credit continue to be weak, despite the relatively favorable low interest rate environment.

Automobile loans increased by $10.8 million, or 3.8 percent on an annualized basis, to $1.2 billion at March 31, 2017 as compared to December 31, 2016. Our auto volumes have continued to outpace repayments for two consecutive quarters since we introduced an automated tool to improve the decision-making process for our auto dealer network during the third quarter of 2016. The enhanced decision model and continued growth in our relatively new Florida markets are expected to continue a moderately positive growth trend in the auto portfolio during the second quarter of 2017. During the first quarter of 2017, the Florida dealership network contributed over $24 million in auto loan originations, representing approximately 17 percent of Valley's total new auto loan production for the period.

Other consumer loans increased $23.4 million, or 16.2 percent on an annualized basis, to $600.5 million at March 31, 2017 as compared to $577.1 million at December 31, 2016 mainly due to continued growth and customer usage of collateralized personal lines of credit.

Deposits. Total deposits decreased $399.6 million, or 2.3 percent, to approximately $17.3 billion at March 31, 2017 from December 31, 2016 mostly due to runoff related to one large commercial money market customer, a $68.6 million decrease in brokered money market deposit account balances and general period end fluctuations in both commercial and retail customer balances. Non-interest bearing deposits; savings, NOW, money market deposits; and time deposits represented approximately 30 percent, 51 percent and 19 percent of total deposits as of March 31, 2017. The composition of deposits based upon the period end balances remained relatively unchanged at March 31, 2017 as compared to December 31, 2016.

Other Borrowings. Short-term borrowings increased $564.0 million to $1.6 billion at March 31, 2017 as compared to December 31, 2016 largely due to new FHLB advances used as alternate funding for the aforementioned decline in money market deposits, as well as for additional liquidity and loan funding purposes. Long-term borrowings also increased $200.1 million to $1.6 billion at March 31, 2017 as compared to December 31, 2016 due to new FHLB advances with contractual terms between 13 and 15 months.

Credit Quality

Non-Performing Assets. 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 March 31, 2017, our PCI loan portfolio totaled $1.7 billion, or 9.5 percent of our total loan portfolio.

Total non-performing assets (NPAs), consisting of non-accrual loans, other real estate owned (OREO) properties, other repossessed assets, and non-accrual debt securities increased $2.1 million, or 4.2 percent, to $51.5 million at March 31, 2017 as compared to $49.4 million at December 31, 2016 mostly due to moderate increases in non-accrual loans and other real estate owned during the first quarter of 2017. However, non-accrual loans continued to represent only 0.22 percent of our total loans at both March 31, 2017 and December 31, 2016.

Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) increased $11.4 million to $68.1 million, or 0.39 percent of total loans, at March 31, 2017 as compared to $56.7 million, or 0.33 percent of total loans, at December 31, 2016. The higher level of accruing past due loans was primarily caused by increases of $23.0 million and $5.7 million in commercial and industrial loans and commercial real estate loans past due 30 to 59 days at March 31, 2017, respectively, as compared to December 31, 2016. The increase in the past due commercial and industrial loans was mainly due to loans collateralized by New York City (NYC) taxi cab medallions totaling $21.6 million, of which $15.3 million represented performing matured loans in the normal process of renewal. The $5.7 million increase in past due commercial real estate loans was largely due to one internally classified relationship totaling $5.9 million. Partially offsetting these increases, loans past due 60 to 89 days and loans 90 days or more past due categories declined by $12.7 million and $1.4 million at March 31, 2017, respectively, mostly due to the renewal of matured loans reported in such categories at December 31, 2016.

At March 31, 2017, our entire taxi medallion loan portfolio totaled $150.2 million, consisting of $139.4 million and $10.8 million of NYC and Chicago taxi medallion loans, respectively. At March 31, 2017, the Chicago medallion portfolio included impaired loans of $6.3 million with related reserves of $2.6 million within the allowance for loan losses. Loans past due 30 to 59 days included the aforementioned $21.6 million of NYC taxi medallion loans at March 31, 2017 which are mostly in the process of renewal. 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. Despite the slight increase in our total delinquent loans, we believe our credit quality metrics continued to reflect our solid underwriting standards at March 31, 2017. However, we can provide no assurances as to the future level of our loan delinquencies.

Allowance for Credit Losses. 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 PCI loans) at March 31, 2017, December 31, 2016, and March 31, 2016:

Our loan portfolio, totaling $17.4 billion at March 31, 2017, had net loan charge-offs of $1.4 million for the first quarter of 2017 as compared to $110 thousand and $1.5 million for the fourth quarter of 2016 and the first quarter of 2016, respectively. The linked quarter over quarter increase in net loan charge-offs was mainly due to the full charge-off of one loan relationship totaling $1.5 million within the commercial and industrial loan portfolio. During the first quarter of 2017, we recorded a $2.5 million provision for credit losses as compared to $3.8 million and $800 thousand for the fourth quarter of 2016 and the first quarter of 2016, respectively. The quarter over quarter increase in the provision was mostly due to solid first quarter loan growth and an increase in allocated reserves for internally classified loans at March 31, 2017.

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 0.67 percent at March 31, 2017 as compared to 0.68 percent and 0.67 percent of total loans at December 31, 2016 and March 31, 2016, respectively. At March 31, 2017, our allowance allocations for losses as a percentage of total loans remained relatively stable in most loan categories as compared to December 31, 2016, but declined 0.19 percent for construction loans primarily due to the continued low level of recent loss experience in this portfolio. There were no construction loan charge-offs in the first quarter of 2017 and the year ended December 31, 2016.

Our allowance for credit losses as a percentage of total non-PCI loans (excluding PCI loans with carrying values totaling approximately $1.7 billion) was 0.75 percent at both March 31, 2017 and December 31, 2016, as compared to 0.77 percent at March 31, 2016. PCI loans 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 March 31, 2017, December 31, 2016 and March 31, 2016.

About Valley

Valley National Bancorp is a regional bank holding company headquartered in Wayne, New Jersey with over $23 billion in assets. Its principal subsidiary, Valley National Bank, currently operates over 200 branch locations in northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn, Queens and Long Island, and Florida. Valley National Bank is one of the largest commercial banks headquartered in New Jersey with Executive Offices in Manhattan and West Palm Beach. Helping communities grow and prosper is the heart of Valley's corporate citizenship philosophy. For more information about Valley National Bank and its products and services, please visit a convenient branch location, www.valleynationalbank.com or call our 24/7 Customer Service Team 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 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:

• 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 its 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, employment related claims, and other matters;
• the loss of or decrease in lower-cost funding sources within our deposit base may adversely impact our net interest income and net income;
• 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;
• our inability to pay dividends at current levels, or at all, because of inadequate future earnings, regulatory restrictions or limitations, and changes in our capital requirements;
• higher than expected loan losses within one or more segments of our loan portfolio;
• 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.

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, 2016.

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-

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