Valley National Bancorp (VLY) 2004 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS] Ladies and Gentleman, thanks for standing by.

Welcome to the fourth quarter of 2004 earnings release conference call.

At this time I would like to hand the meeting over to our host Gerald Lipkin.

Please go ahead.

Thank you and good morning, everybody.

Before we get started I’m going to call on Diane Grenz to read our forward-looking statement.

Today’s presentation may contain forward-looking statements regarding the financial conditions, results of operation, and business of Valley.

Those statements are not historical facts and may include expressions of Valley’s confidence and strategies, management’s expectations about earnings, the direction of interest rates, effective tax rates, new and existing programs and products, relationships, opportunities, technology, the economy and market conditions.

These forward-looking statements involve certain risks and uncertainties.

Actual results may differ materially from the results the forward-looking statements contemplate.

Written information on factors that can cause results to differ materially from the results the forward-looking statement contemplate can be found in Valley’s press release for today’s conference call, Valley’s form 10K for the year ending December 31, 2003 as well as in Valley’s other recent SEC filings.

Valley assumes no obligation for stating its forward-looking statements.

Thank you, Diane.

And again welcome everybody.

Well, we are pleased to report that diluted earnings per share for the quarter came in at 40 cents, an increase of 2.56% percent above the fourth quarter of last year, when we came in at 39 cents.

For the year to date, we came in at $1.56 versus $1.55.

Our net income was $39,851,000; 3.86% above last year’s $38,369,000.

And for the year we came in at 154,398 vs. 153,415.

We were very pleased to report that during the course of the year our net interest income grew by 6.8%, or $23.7 million year over year.

And that was mainly attributable to an increase in loan volume.

Our net interest income declined by $24 million dollars during the year and that was part of the hurdle that we had to overcome.

That was the result primarily of a drop in residential mortgage home sales, of lower corresponding title insurance company sales and lower security gains.

Just as an aside - it’s quite interesting - last year we were fortunate that another bank purchased a bank that we owned stock in.

Most of you know that we own stock in a number of banks in this area that we would like to own.

As a result of that acquisition we had a $5.5 million dollar security gain.

This year we – and we’ll discuss it a little bit later, we are purchasing Shrewsbury – we also owned a sizeable block of Shrewsbury stock, which would have, if somebody else had bought the bank, produced a sizeable security gain.

But because we bought the bank we can’t take the gains through earnings, we take it through a reduced purchase price of the company.

So in the long run it will have a material benefit to us but it will not have the same bottom line effect on a single year basis.

Our non-interest expense increased $3.8 million or 1.7% over the year 2003 and that is pretty much because we tightly controlled our expenses, as we normally do.

During the year we had to absorb the cost of running our customer service on a 24 by 7 basis.

We opened 45 of our branches on Sundays.

That did have a very positive effect in another area.

The Sunday openings-- we’ve actually experienced a decrease of over 50% in the closing of accounts.

So while we may not be opening greatly more accounts than we did prior to opening on Sundays, our customer retainage has gone up significantly.

Our increased costs associated with Sarbanes-Oxley and compliance with the Patriot Act, AMLBSA and ‘Know your Customer’ all had a significant impact on our expenses.

And again, as I say we were able to control our expenses overall.

We’ve added five new branches and we expanded our business development staff.

All of these resulted in significant increases in our non-interest expense.

The bottom line change reflected we only went up by $3.8 million.

The bank continues to remain sensitive to interest rate increases.

The bank remains asset sensitive.

The decline in net interest margin, primarily a reflection of a flattening of the yield curve.

As I mentioned in the past, 48% of our loans re-price annually.

Half of those loans - 25% of our loans - change immediately with primary rates.

Unfortunately, we were hurt with the flat yield curve, as many other institutions have, in that, while our short term rates have gone up those loans which have re-priced to a longer term rate, such as our commercial mortgages, which are pretty much all run on a 5 year ARM basis, are not showing the same rate of increase as our short term rates.

And the automobile portfolio, which is rather significant in this bank, is experiencing the same rates today on new car production as we did a year ago.

So that also had a negative dampening effect on our net interest margin.

The emphasis in 2005 will be to continue to control expenses as well as an increased emphasis on fee income.

We do see an opportunity to pass some of the compliance costs on to our customers, mainly through wire transfer and deposit fees.

Overall the year came in, as I say, satisfactorily.

The return on assets came in at 1.50% versus- and for the entire year was 1.51%.

The return on average equity for the quarter was 22.7%.

That compares to 22.77% for the year.

The efficiency ratio, despite, as I mentioned, the increased cost for Sarbanes-Oxley and compliance, still remained relatively low at 48.91% for the quarter and for the year it was 48.19%.

Net interest margin on a fully factored equivalent basis was 3.90% for the quarter and for 3.94% year to date.

The credit quality of the bank continues to remain excellent.

We had a moderate increase in total actual dollars of non-performing assets for the year.

They came in at the end of the year at $30,754,000 versus a year ago when they were $23,135,000.

But as a percentage of total loans they actually had a slight decrease.

It went from 0.92% to 0.90%.

Net chargeoffs came in at $2,829,000.

The provision was $3,204,000 for a slight excess of $375,000.

We did see a nice increase in our lending activity, as I mentioned before, throughout the bank.

Our commercial loans grew to $1261b compared to $1.184b one year or 6.52%.

Our construction loans also showed a modest increase going to $368 million up from $222 million, or 65.26%.

The residential mortgages closed the year at $1.853b compared to $1.596b for a 16.0% increase.

The commercial mortgages closed the year at $1.745b compared to year ago when they were $1.553b or 12.37% increase.

Home equity loans also showed an increase going to $517 million, up from $476 million or 8.65%.

Automobile loans showed an increase also going to $1.079b compared to $1.013b or 6.42%.

In total the loans closed the year at $6.934b compared to $6.172b an increase of $761 million or 12.34%.

On our deposit side, we also showed a nice increase.

For the year as a whole our deposits closed the year at $7.518b compared to $7.162b more than 5% increase.

Municipal pilot deposits continue to grow and closed the year at approximately $508 million dollars.

The bank continued to open up branches during the year.

We opened up Winaukee, Caldwell, Bound Brook, Edgewater, Jersey City and the branches are averaging over $30 million in deposits during deposits in their first year of operation.

So we are quite pleased with progress there.

We have nine other offices that are scheduled to open by the end of this year.

The highlight of the quarter, of course, was the signing of the merger agreement with NorCrown, which is headquartered in Essex County with 15 offices and approximately $600m in assets and Shrewsbury State Bank which is headquartered in Monmouth County, with 12 offices and approximately $500m in assets.

This will bring Valley to approximately $12 billion in total assets and our total offices to 162 offices, not counting the nine de novos we expect to open later this year.

NorCrown will enable us to quickly fill in the number of communities in Essex County that we would very much like to be in, while Shrewsbury will open up new territory for us as we expand into the highly desirable center of New Jersey in Monmouth County.

Each of these fine companies come with a fine reputation of rendering excellent customer service and dealing on a very close relationship with their customers in the same manner that we try to deal with our customers.

We anticipate the closing of NorCrown in the next month or so and Shrewsbury to come shortly thereafter.

That ends my presentation today.

If anybody has any questions I’d be happy to entertain them.

[OPERATOR INSTRUCTIONS] John Kline, Sandler O’Neil

Just a couple of questions on- I was that residential mortgages were up-- that’s what drove your loan growth for the quarter, I should say.

And just curious, does that exacerbate the margin compression issue in terms of the flattening of the yield curve?

Obviously, I would think that maybe those loans are of longer duration than the rest of your portfolio.

Well, we don’t hold the extreme loans.

Normally we don’t hold many of the 30 years.

We do hold occasionally some of them.

We end up upholding mostly the 15 and the biweeklies, which as you know, have a much shorter duration.

You are correct, though; it affect us on the margin.

The rate that the 15-year mortgage is going on today is almost identical to where it was a year ago.

So we haven’t seen movement there.

The same thing applies, as I mentioned, in the automobile area where we’ve continued to experience nice growth.

But there is no increase in rates, so we’ve actually backed off a little bit on some of our automobile efforts because we are not anxious to put on long-term, low-rate loans.

John, just let me add to that a couple of things.

One is that during the course of the year, and maybe not so much during in the last quarter, we added about 17% of our loans, which were tied to the prime rate.

So that really helped us during a lot of the year but in the fourth quarter we also begin to see a decline in a lot of our New York City lines of credit and what that does, at least on the linked quarter basis - it hurts us a little bit because those are tied to prime and are on the rise and we do see a traditional drop off during the fourth quarter and into the first quarter.

So that won’t again begin to accelerate until probably the end of the first quarter.

And we probably lost about $50 million or so of line pay-downs during that portion of the quarter.

So that, probably in conjunction with an increase in costing of funds – we’ve seen a lot of competition, a lot of cost of funds rise, and that’s probably what caused some of that margin compression.

I want to point out that if those commercial loans in New York didn’t pay down than we’d really have a problem.

It’s seasonal borrowing that we experience there usually begins to rise during the second quarter, peaks at the end of the third quarter and then begins to tail down.

Ok, that answers one of my questions.

In terms of new account openings for business relationships, are you seeing any traction there?

Yes.

We, as I mentioned earlier, in the year we started a group of business development officers and we’ve been extremely pleased with the volume of new business they’ve been able to bring into the bank.

So we have been seeing positive growth in all areas of the bank, particularly in the commercial lending area.

We’ve had one of our best years in the commercial lending area as far as growth is concerned.

Are you seeing that, you know, I guess, in the last quarter as well?

Yes.

A lot of that growth, though, in the commercial area, remember aligns with credit, so you don’t necessarily see it all come on the day we close the loan.

Last question.

You mentioned that car rates were the same as a year ago.

I just thought - looking at the chart in the “Journal” the other day - that they haven’t been improving.

Is this because you’re focusing more on the prime end – not necessarily sacrificing your underwriting—

You are talking about the credit quality?

We only lend to the top tier– at least we try to only lend to the top tier.

We do not go for any of the sub-prime lending in this bank at all, in any category.

Ok, thanks a lot.

Bartley Parker, RBC Capital Markets

A question on the deposits.

On a linked quarter basis, a slightly lower amount of time deposits.

Are you guys looking to get rid of those?

I think that’s been kind of traditional.

We only push that depending on funding needs, more so than we would on the savings and demand.

I think what you saw was that the demand and the savings both went up and a decline on the term side.

It’s my intent in managing our cost of funds versus our needs for funds.

Could you comment a little bit about the deposit environment in terms of, I guess, overall yields that you earn and rates that you’re going to have to pay to maintain your deposits?

We monitor that on a daily basis.

We have not seen a dramatic increase in the rates that we have to pay to maintain our deposits.

We utilize all funding sources.

We use other borrowings.

If Wall Street is cheaper, if the Federal Home Loan Bank is cheaper, we look at our deposits where we can attract the money we need to cover our asset growth at the lowest possible cost.

We also look to get as long a duration on certain deposits in certain funding areas so we can have a better asset-liability match.

I think there is no doubt that those costs have been rising somewhat, and we have been attentive to it.

And have you seen an increase in competition from other products like money market mutual funds?

Not particularly.

Ok, great, that’s all I had.

Thank you.

[OPERATOR INSTRUCTIONS]

Well, thank you all for turning in today.

I look forward to speaking to you all again at the end of this quarter.

This conference will be available for replay after 2.30pm today [OPERATOR INSTRUCTIONS]