-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EWyn/3PkvUNOIaxzWhPnWWZiid4U5mzCyn+E+5RxDb0SmGBt+MyXo/Ehs/oAPi/s e2xouw8NaZGF5FC26omWag== 0000714310-00-000005.txt : 20000516 0000714310-00-000005.hdr.sgml : 20000516 ACCESSION NUMBER: 0000714310-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALLEY NATIONAL BANCORP CENTRAL INDEX KEY: 0000714310 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 222477875 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11277 FILM NUMBER: 631286 BUSINESS ADDRESS: STREET 1: 1455 VALLEY RD CITY: WAYNE STATE: NJ ZIP: 07470 BUSINESS PHONE: 9733058800 MAIL ADDRESS: STREET 1: 1455 VALLEY RD CITY: WAYNE STATE: NJ ZIP: 07470 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2000 [ ] 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 0-11179 ---------------------- VALLEY NATIONAL BANCORP (Exact name of registrant as specified in its charter) New Jersey (State or other Jurisdiction of incorporation or organization) 22-2477875 (I.R.S. Employer Identification No.) 1455 Valley Road, Wayne, New Jersey 07474-0558 (Address of principal executive offices) 973-305-8800 (Registrant's telephone number, including area code) 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 X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock (No par value), of which 57,751,503 shares were outstanding as of May 3, 2000. TABLE OF CONTENTS Page Number PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition (Unaudited) March 31, 2000 and December 31, 1999 3 Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2000 and 1999 4 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2000 and 1999 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 PART I Item 1. Financial Statements VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (in thousands, except per share data)
March 31, December 31, 2000 1999 Assets Cash and due from banks $ 156,022 $ 161,561 Federal funds sold 58,000 123,000 Investment securities held to maturity, fair value of $322,433 and $318,329 in 2000 and 1999, respectively 356,652 351,501 Investment securities available for sale 966,543 1,005,419 Loans 4,585,888 4,542,567 Loans held for sale 9,676 12,185 Total loans 4,595,564 4,554,752 Less: Allowance for loan losses 55,311 (55,120) Net loans 4,540,253 4,499,632 Premises and equipment, net 85,256 84,790 Accrued interest receivable 37,244 35,504 Other assets 92,774 98,987 Total assets 6,292,744 6,360,394 Liabilities Deposits: Non-interest bearing $ 963,723 $ 931,016 Interest bearing: Savings 2,025,644 2,018,530 Time 2,028,901 2,101,709 Total deposits 5,018,268 5,051,255 Short-term borrowings 99,259 129,065 Long-term debt 591,863 564,881 Accrued expenses and other liabilities 55,220 61,693 Total liabilities 5,764,610 5,806,894 Shareholders' Equity Common stock, no par value, authorized 103,359,375 shares; issued 60,618,950 shares in 2000 and 60,621,040 shares in 1999 25,947 25,943 Surplus 325,331 325,147 Retained earnings 255,778 244,605 Unallocated common stock held by employee benefit plan (917) (965) Accumulated other comprehensive loss (19,613) (16,733) 586,526 577,997 Treasury stock, at cost (2,300,858 shares in 2000 and 927,750 shares in 1999) (58,392) (24,497) Total shareholders' equity 528,134 553,500 Total liabilities and shareholders' equity 6,292,744 6,360,394
See accompanying notes to consolidated financial statements. VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands)
Three Months Ended March 31, 2000 1999 Interest Income Interest and fees on loans $ 90,563 $ 81,822 Interest and dividends on investment securities: Taxable 18,744 18,096 Tax-exempt 1,816 1,744 Dividends 685 594 Interest on federal funds sold and other short-term investments 664 889 Total interest income 112,472 103,145 Interest Expense Interest on deposits: Savings deposits 12,074 10,006 Time deposits 26,371 24,915 Interest on short-term borrowings 1,259 580 Interest on long-term debt 8,447 4,060 Total interest expense 48,151 39,561 Net Interest Income 64,321 63,584 Provision for loan losses 1,500 2,000 Net Interest Income after Provision for Loan Losses 62,821 61,584 Non-Interest Income Trust and investment services 720 542 Service charges on deposit accounts 3,626 3,520 Gains on securities transactions, net - 1,974 Fees from loan servicing 2,730 1,932 Credit card fee income 1,949 1,990 Gains on sales of loans, net 765 664 Other 1,839 2,101 Total non-interest income 11,629 12,723 Non-Interest Expense Salary expense 15,223 14,418 Employee benefit expense 3,130 3,140 FDIC insurance premiums 263 314 Occupancy and equipment expense 5,199 4,741 Credit card expense 1,231 1,314 Amortization of intangible assets 1,659 1,324 Advertising 924 837 Other 5,957 6,177 Total non-interest expense 33,586 32,265 Income Before Income Taxes 40,864 42,042 Income tax expense 13,921 15,553 Net Income $ 26,943 $ 26,489 Earnings Per Share: Basic $ 0.44 $ 0.41 Diluted 0.43 0.41 Weighted Average Number of Shares Outstanding: Basic 61,921,667 64,560,832 Diluted 62,460,619 65,379,353 See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended March 31, 2000 1999 Cash flows from operating activities: Net income $ 26,943 $ 26,489 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,556 3,002 Amortization of compensation costs pursuant to long-term stock incentive plan 311 225 Provision for loan losses 1,500 2,000 Net amortization of premiums and accretion of discounts 566 1,193 Net gains on securities transactions - (1,974) Proceeds from sales of loans 14,626 17,513 Gain on sales of loans (765) (664) Proceeds from recoveries of previously charged-off loans 938 840 Net decrease(increase) in accrued interest receivable and other assets 2,936 (7,117) Net (decrease)increase in accrued expenses and other liabilities (4,356) 15,409 Net cash provided by operating activities 46,255 56,916 Cash flows from investing activities: Purchases and originations of mortgage servicing rights (145) (509) Proceeds from sales of investment securities available for sale - 11,116 Proceeds from maturing investment securities available for sale 38,835 135,241 Purchases of investment securities available for sale (4,845) (149,871) Purchases of investment securities held to maturity (11,719) (114,727) Proceeds from maturing investment securities held to maturity 6,335 18,248 Net decrease in federal funds sold and other short-term investments 65,000 8,700 Net increase in loans made to customers (56,920) (108,599) Purchases of premises and equipment, net of sales (2,305) (1,660) Net cash provided by (used in) investing activities 34,236 (202,061) Cash flows from financing activities: Net (decrease)increase in deposits (32,987) 5,219 Net (decrease)increase in short-term borrowings (29,806) 1,334 Advances of long-term debt 30,000 131,000 Repayments of long-term debt (3,018) (16) Dividends paid to common shareholders (15,720) (14,184) Addition of common shares to treasury (35,045) -- Common stock issued, net of cancellations 546 763 Net cash (used in) provided by financing activities 86,030 124,116 Net decrease in cash and cash equivalents (5,539) (21,029) Cash and cash equivalents at January 1 161,561 185,921 Cash and cash equivalents at March 31 $156,022 $164,892 Supplemental disclosure of cash flow information: Cash paid during the year for interest on deposits and borrowings $ 48,741 $ 38,929 Cash paid during the year for federal and state income taxes 104 486
See accompanying notes to consolidated financial statements. VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Consolidated Financial Statements The Consolidated Statements of Financial Condition as of March 31, 2000 and December 31, 1999, the Consolidated Statements of Income for the three month periods ended March 31, 2000 and 1999 and the Consolidated Statements of Cash Flows for the three month periods ended March 31, 2000 and 1999 have been prepared by Valley National Bancorp ("Valley") without audit. In the opinion of management, all adjustments (which included only normal recurring adjustments) necessary to present fairly Valley's financial position, results of operations, and cash flows at March 31, 2000 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These consolidated financial statements are to be read in conjunction with the financial statements and notes thereto included in Valley's December 31, 1999 Annual Report to Shareholders. Certain prior period amounts have been reclassified to conform to 2000 financial presentations. The consolidated financial statements of Valley have been restated to include Ramapo Financial Corporation, acquired on June 11, 1999 using the pooling of interests method of accounting. 2. Earnings Per Share Earnings per share amounts and weighted average shares outstanding have been restated to reflect the 5 percent stock dividend declared April 6, 2000 to Shareholders of record on May 5, 2000 and to be issued May 16, 2000. For Valley, the numerator of both the Basic and Diluted EPS is equivalent to net income. The weighted average number of shares outstanding used in the denominator for Diluted EPS is increased over the denominator used for Basic EPS by the effect of potentially dilutive common stock equivalents utilizing the treasury stock method. For Valley, common stock equivalents are common stock options outstanding. The following table shows the calculation of both Basic and Diluted earnings per share for the three months ended March 31, 2000 and 1999. Three Months ended March 31, (in thousands, except for share data) 2000 1999
Net income $ 26,943 $ 26,489 Basic weighted-average number of shares outstanding 61,921,667 64,560,832 Plus: Common stock equivalents 538,952 818,521 Diluted weighted-average number of shares outstanding 62,460,619 65,379,353 Earnings per share: Basic $ 0.44 $ 0.41 Diluted 0.43 0.41
At March 31, 2000 there were 525 thousand stock options not included as common stock equivalents because the exercise prices exceeded the average market value. 3. Accumulated Other Comprehensive Income Valley's accumulated other comprehensive income consists of foreign currency translation adjustments and unrealized gains (losses) on securities. The following table shows the related tax effects on each component of accumulated other comprehensive income for the three months ended March 31, 2000 and 1999. Three Months Ended Three Months Ended March 31, 2000 March 31, 1999 (in thousands)
Net income $26,943 $26,489 Accumulated other comprehensive income, net of tax: Foreign currency translation adjustments (13) 142 Unrealized gains(losses) on securities: Unrealized holding losses arising during period $(2,867) $(1,388) Less: reclassification adjustment for gains realized in net income -- 1,254 Net unrealized losses (2,867) (2,642) Other comprehensive loss (2,880) (2,500) Comprehensive income $24,063 $23,989
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Concerning Forward-Looking Statements This Form 10-Q, 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, relationships, opportunities, technology and market conditions. These statements may be identified by an "asterisk" (*) or such forward-looking terminology as "expect," "look," "believe," "anticipate," "may," "will," or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, as well as the effects of economic conditions and legal and regulatory barriers and structure. Actual results may differ materially from such forward-looking statements. Valley assumes no obligation for updating any such forward-looking statement at any time. Earnings Summary Net income for the three months ended March 31, 2000 was $26.9 million, or $0.43 per diluted share. These results compare with net income of $26.5 million, or $0.41 per diluted share for the same period in 1999 (1999 amounts have been restated for the Ramapo Financial Corp. merger and earnings per share amounts have been restated to give effect to a 5 percent stock dividend to be issued May 16, 2000). The annualized return on average equity increased to 19.88 percent from 17.81 percent, while the annualized return on average assets decreased to 1.73 percent from 1.80 percent, for the three months ended March 31, 2000 and 1999, respectively. Net Interest Income Net interest income continues to be the largest source of Valley's operating income. Net interest income on a tax equivalent basis increased to $65.4 million compared to $64.6 million for the three months ended March 31, 1999. The increase in net interest income is due to higher average balances of total interest earning assets, primarily loans, combined with higher average interest rates for these interest earning assets. This was offset by an increase in both average balances, primarily long-term debt, and interest rates of total interest bearing liabilities. The net interest margin decreased to 4.38 percent for the three months ended March 31, 2000 compared to 4.60 percent for the same period in 1999. Assuming a rising interest rate environment, the net interest margin is expected to continue to decline.* While loans have been growing, the rates charged have increased less, due to competition, than interest rates on funding costs. Average interest earning assets increased $360.3 million or 6.4 percent for the three months ended March 31, 2000 over the same period in 1999. This was mainly the result of the increase in average balance of loans of $404.7 million or 9.8 percent offset partly by the decrease in average balance of taxable investments of $23.9 million or 1.9 percent and federal funds sold and other short-term investments of $28.4 million or 37.7 percent. Average interest bearing liabilities for the three months ended March 31, 2000 increased $340.1 million or 7.7 percent from the same period in 1999. Average savings deposits decreased $23.2 million or 1.1 percent while average time deposits increased $38.6 million. Average short-term borrowings increased $44.5 million or 77.9 percent and long-term debt, which includes primarily FHLB advances, increased $280.1 million, or 97.8 percent. Average demand deposits increased $70.3 million or 8.1 percent over 1999 balances. Average interest rates, in all categories of interest earning assets, with the exception of non-taxable investments, increased during the quarter ended March 31, 2000 compared with the quarter ended March 31, 1999. The average interest rate for loans increased 6 basis points to 7.98 percent. Average interest rates on total interest earning assets increased 18 basis points to 7.60 percent. Average interest rates also increased on total interest bearing liabilities by 47 basis points to 4.07 percent from 3.60 percent. Average interest rates on deposits increased by 33 basis points to 3.78 percent. The decline in the net interest margin from 4.60 percent for the three months ended March 31, 1999 to 4.38 percent in 2000 resulted from an increase in the volume and rates on total interest bearing liabilities offset by an equal increase in the volume and a smaller increase in rates on total interest earning assets. The following table reflects the components of net interest income for each of the three months ended March 31, 2000 and 1999. ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999 Average Average Average Average Balance Interest Rate Balance Interest Rate (in thousands) Assets Interest earning assets Loans (1)(2) $4,543,732 $90,683 7.98% $ 4,139,019 $81,930 7.92% Taxable investments(3) 1,223,103 19,429 6.35 1,247,044 18,690 5.99 Tax-exempt investments (1)(3) 164,725 2,794 6.78 156,817 2,680 6.84 Federal funds sold and other short-term investments 46,872 664 5.67 75,240 889 4.73 Total interest earning assets 5,978,432 $113,570 7.60 5,618,120 $ 104,189 7.42 Allowance for loan losses (55,691) (55,541) Cash and due from banks 146,157 149,862 Other assets 175,807 176,847 Unrealized (loss) gain on securities available for sale (29,700) 5,755 Total assets $6,215,005 $5,895,043 Liabilities and Shareholders' Equity Interest bearing liabilities Savings deposits $2,004,400 $12,074 2.41% $2,027,553 $ 10,006 1.97% Time deposits 2,061,258 26,371 5.12 2,022,610 24,915 4.93 Total interest bearing deposits 4,065,658 38,445 3.78 4,050,163 34,921 3.45 Short-term borrowings 101,497 1,259 4.96 57,038 580 4.07 Long-term debt 566,547 8,447 5.96 286,444 4,060 5.67 Total interest bearing liabilities 4,733,702 48,151 4.07 4,393,645 39,561 3.60 Demand deposits 933,208 862,901 Other liabilities 5,873 43,636 Shareholders' equity 542,222 594,861 Total liabilities and shareholders' equity $6,215,005 $ 5,895,043 Net interest income (tax equivalent basis) 65,419 64,628 Tax equivalent adjustment (1,098) (1,044) Net interest income $ 64,321 $63,584 Net interest rate differential 3.53% 3.82% Net interest margin (4) 4.38% 4.60% (1 ) Interest income is presented on a tax equivalent basis using a 35 percent 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) Net interest income on a tax equivalent basis as a percentage of earning assets.
The following table demonstrates the relative impact on net interest income of changes in volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by Valley on such assets and liabilities. CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Three Months ended March 31, 2000 Compared to 1999 Increase(Decrease)(2) Interest Volume Rate (in thousands) Interest income: Loans (1) $ 8,753 $ 8,072 $ 681 Taxable investments 739 (364) 1,103 Tax-exempt investments(1) 114 134 (20) Federal funds sold and other short-term investments (225) (379) 154 9,381 7,463 1,918 Interest expense: Savings deposits 2,068 (116) 2,184 Time deposits 1,456 482 974 Short-term borrowings 679 530 149 Long-term debt 4,387 4,166 221 8,590 5,062 3,528 Net interest income (tax equivalent basis) $ 791 $ 2,401 $ (1,610) (1) Interest income is adjusted to a tax equivalent basis using a 35 percent tax rate. (2) 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.
Non-Interest Income The following table presents the components of non-interest income for the three months ended March 31, 2000 and 1999. NON-INTEREST INCOME
Three Months ended March 31, 2000 1999 (in thousands) Trust and investment services $ 720 $ 542 Service charges on deposit accounts 3,626 3,520 Gains on securities transactions, net - 1,974 Fees from loan servicing 2,730 1,932 Credit card fee income 1,949 1,990 Gains on sales of loans, net 765 664 Other 1,839 2,101 Total non-interest income $11,629 $12,723
Non-interest income continues to represent a considerable source of income for Valley. Total non-interest income amounted to $11.6 million for the three months ended March 31, 2000 while the comparable amount for the prior year period, excluding security gains, was $10.7 million. Trust and investment services includes income from trust operations, brokerage commissions, and asset management fees. On July 30, 1999, VNB acquired New Century Asset Management, Inc. ("New Century"), a NJ-based money manager. The transaction was accounted for as a purchase. New Century contributed additional fee income to the operations of Valley of $233 thousand in 2000 which is included in trust and investment services. Included in fees from loan servicing are fees for servicing residential mortgage loans and SBA loans. Fees from loan servicing increased by 41.3 percent from $1.9 million for the three months ended March 31, 1999 to $2.7 million for the three months ended March 31, 2000 due to an increase in the size of the servicing portfolio. The increase in the servicing portfolio was due to the acquisition of servicing of several residential mortgage portfolios, the origination of new loans by VNB and their subsequent sale with servicing retained, offset by principal paydowns and prepayments. Residential mortgage servicing portfolios, with an unpaid principal balance of approximately $668.2 million, were acquired at the end of 1999 which are expected to increase loan servicing revenue during 2000.* Gains on the sales of loans were $765 thousand for the three months ended March 31, 2000 compared with $664 thousand for the three months ended March 31, 1999. Gains in 2000 were recorded primarily from the sale of SBA loans into the secondary market. Other non-interest income decreased $262 thousand to $1.8 million for the three months ended March 31, 2000 compared with $2.1 million for the three months ended March 31, 1999. This decrease is primarily attributable to the gain of $623 thousand realized on the sale of OREO properties during the three months ended March 31, 1999 offset by the $394 thousand of commission revenues from the sale of title insurance policies from the title insurance business acquired by VNB in the second quarter of 1999. Non-Interest Expense The following table presents the components of non-interest expense for the three months ended March 31, 2000 and 1999. NON-INTEREST EXPENSE
Three Months ended March 31, 2000 1999 (in thousands) Salary expense $ 15,223 $ 14,418 Employee benefit expense 3,130 3,140 FDIC insurance premiums 263 314 Occupancy and equipment expense 5,199 4,741 Credit card expense 1,231 1,314 Amortization of intangible assets 1,659 1,324 Advertising 924 837 Other 5,957 6,177 Total non-interest expense $ 33,586 $ 32,265
Non-interest expense totaled $33.6 million for the three months ended March 31, 2000, an increase of $1.3 million or 4.1 percent from the 1999 level. The largest components of non-interest expense are salaries and employee benefit expense which totaled $18.4 million for the three months ended March 31, 2000 compared with $17.6 million in the comparable period of 1999. At March 31, 2000, full-time equivalent staff was 1,853 compared with 1,829 at March 31, 1999. The efficiency ratio measures a bank's gross operating expense as a percentage of fully-taxable equivalent net interest income and other non-interest income without taking into account security gains and losses and other non-recurring items. Valley's efficiency ratio for the three months ended March 31, 2000 was 43.6 percent, one of the lowest in the industry, compared with an efficiency ratio of 43.9 percent for the year ended December 31, 1999 and 41.8 percent for the quarter ended March 31, 1999. Valley strives to control its efficiency ratio and expenses as a means of producing increased earnings for its shareholders. Amortization of intangible assets increased to $1.7 million for the three months ended March 31, 2000 from $1.3 million in 1999, representing an increase of $335 thousand or 25.3 percent. The majority of this expense resulted from the amortization of residential mortgage servicing rights totaling $1.3 million during 2000, compared with $937 thousand for 1999. An increase in the servicing portfolio is responsible for the increase in amortization expense. An impairment analysis is completed quarterly to determine the adequacy of the mortgage servicing asset valuation allowance. The significant components of other non-interest expense include data processing, professional fees, postage, telephone and stationery expense which totaled approximately $3.2 million and $3.0 million for the three months ended March 31, 2000 and 1999 respectively. Income Taxes Income tax expense as a percentage of pre-tax income was 34.1 percent for the three months ended March 31, 2000 compared with 37.0 percent for the same period in 1999. The reduction in the effective tax rate is attributable to a business plan implemented during the second quarter of 1999. The effective tax rate for 2000 is expected to approximate 34 percent.* Business Segments VNB has four business segments it monitors and reports on to manage its business operations. These segments are commercial lending, consumer lending, investment management and corporate and other adjustments. Lines of business and actual structure of operations determine each segment. Each is reviewed routinely for its asset growth, contribution to pretax net income and return on assets. Expenses related to the branch network, all other components of retail banking, along with the back office departments of the bank are allocated from the corporate and other adjustments segment to each of the other three business segments. The financial reporting for each segment contains allocations and reporting in line with VNB's operations, which may not necessarily be compared to any other financial institution. The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting. The following table represents the financial data for the three months ended March 31, 2000 and 1999. Three Months Ended March 31, 2000 (in thousands)
Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total Average interest- earning assets $2,792,176 $1,788,633 $ 1,397,623 $ -- $ 5,978,432 Income (loss) before income taxes $ 18,272 $ 16,320 $ 7,233 $ (961) $ 40,864 Return on average interest-earning assets (pre-tax) 2.62% 3.65% 2.07% --% 2.73%
Three Months Ended March 31, 1999 (in thousands)
Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total Average interest- earning assets $2,531,715 $1,637,270 $ 1,449,135 $ -- $ 5,618,120 Income before income taxes $ 18,222 $ 15,440 $ 7,327 $ 1,053 $ 42,042 Return on average interest-earning assets (pre-tax) 2.88% 3.77% 2.02% --% 2.99%
Consumer Lending The consumer lending segment had a return on average interest-earning assets before taxes of 2.62 percent for the three months ended March 31, 2000 compared to 2.88 percent for the three months ended March 31, 1999. Average interest-earning assets increased $260.5 million, attributable to an increase in residential lending. Average interest rates on consumer loans decreased by 10 basis points, while the cost of funds increased by 38 basis points. Income before income taxes remained relatively unchanged. Commercial Lending The return on average interest-earning assets before taxes decreased 12 basis points to 3.65 percent for the three months ended March 31, 2000. Average interest-earning assets increased $151.4 million as a result of an increased volume of loans. Interest rates on commercial loans increased by 27 basis points, offset by an increase in the cost of funds by 38 basis points. Income before income taxes increased by $880 thousand as a result of an increase in average interest-earning assets. Investment Management The return on average interest earning assets before taxes increased to 2.07 percent for the three months ended March 31, 2000 compared to 2.02 percent for the three months ended March 31, 1999. The yield on interest earning assets increased by 15 basis points to 6.30 percent, partially offset by an increase in the cost of funds. Average interest-earning assets decreased by $52 million and income before income taxes decreased $94 thousand. Corporate Segment The corporate segment represents income and expense items not directly attributable to a specific segment which may include merger-related charges, gains on sales of securities, service charges on deposit accounts, and certain revenues and expenses recorded by acquired banks that could not be allocated to a line of business. The loss before taxes was $961 thousand for the three months ended March 31, 2000 compared to a gain of $1.1 million for the three months ended March 31, 1999. ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity Valley's success is largely dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of Valley's net interest income to the movement in interest rates. Valley does not currently use derivatives to manage market and interest rate risks. Valley's interest rate risk management is the responsibility of the Asset/Liability Management Committee ("ALCO"), which reports to the Board of Directors. ALCO establishes policies that monitor and coordinate Valley's sources, uses and pricing of funds. Valley uses 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 repricing characteristics of rate sensitive assets and liabilities. The model incorporates assumptions regarding the impact of changing interest rates on the prepayment rates of certain assets and liabilities. Liquidity Liquidity measures the ability to satisfy current and future cash flow needs as they become due. Maintaining a level of liquid funds through asset/liability management seeks to ensure that these needs are met at a reasonable cost. On the asset side, liquid funds are maintained in the form of cash and due from banks, federal funds sold, investments securities held to maturity maturing within one year, securities available for sale and loans held for sale. Liquid assets amounted to $1.2 billion and $1.3 billion at March 31, 2000 and December 31, 1999, respectively. This represents 22.0 percent and 20.4 percent of earning assets, and 20.9 percent and 19.4 percent of total assets at March 31, 2000 and December 31, 1999, respectively. On the liability side, the primary source of funds available to meet liquidity needs is Valley's core deposit base, which generally excludes certificates of deposit over $100 thousand. Core deposits averaged approximately $4.4 billion for both the three months ended March 31, 2000 and for the year ended December 31, 1999, representing 73.5 percent and 73.3 percent of average earning assets. Short-term and long-term borrowings through Federal funds lines, repurchase agreements, Federal Home Loan Bank ("FHLB") advances and large dollar certificates of deposit, generally those over $100 thousand, are used as supplemental funding sources. Valley borrowed from the FHLB as part of a leverage strategy and matched funding to increase earning assets and net interest income. As of March 31, 2000, Valley had outstanding advances of $461.5 million with the FHLB and repurchase agreements of $130.0 million. Additional liquidity is derived from scheduled loan and investment payments of principal and interest, as well as prepayments received. For the three months ended March 31, 2000 there were no proceeds from the sales of investment securities available for sale, and proceeds of $6.3 million were generated from investment maturities. Purchases of investment securities for the three months ended March 31, 2000 were $16.6 million. Short-term borrowings and certificates of deposit over $100 thousand amounted to $705.2 million and $637.1 million, on average, for the three months ended March 31, 2000 and the year ended December 31, 1999, respectively. Valley National Bancorp's cash requirements consist primarily of dividends to shareholders. This cash need is routinely satisfied by dividends collected from its subsidiary bank. Projected cash flows from this source are expected to be adequate to pay dividends, given the current capital levels and current profitable operations of its subsidiary. In addition, Valley National Bancorp may repurchase shares of its outstanding common stock. The cash required for a purchase of shares can be met by using the Bancorp's own funds, dividends received from its subsidiary bank as well as borrowed funds. At March 31, 2000 Valley maintained a floating rate line of credit in the amount of $25 million, of which $20 million was drawn. This line is available for general corporate purposes and expires June 15, 2001. Borrowings under this facility are collateralized by mortgage-backed and equity securities. As of March 31, 2000, Valley had $1.0 billion of securities available for sale recorded at their fair value, unchanged from December 31, 1999. As of March 31, 2000, the investment securities available for sale had an unrealized loss of $19.2 million, net of deferred taxes, compared to an unrealized loss of $16.3 million, net of deferred taxes, at December 31, 1999. This change was primarily due to a decrease in prices resulting from an increasing interest rate environment. These securities are not considered trading account securities, which may be sold on a continuous basis, but rather are securities which may be sold to meet the various liquidity and interest rate requirements of Valley. Loan Portfolio As of March 31, 2000, total loans were $4.6 billion, unchanged from December 31, 1999. The following table reflects the composition of the loan portfolio as of March 31, 2000 and December 31, 1999. LOAN PORTFOLIO
March 31, December 31, 2000 1999 (in thousands) Commercial $ 543,237 $ 512,164 Total commercial loans 543,237 512,164 Construction 110,899 123,531 Residential mortgage 1,296,149 1,247,721 Commercial mortgage 1,172,406 1,164,065 Total mortgage loans 2,579,454 2,535,317 Home equity 275,559 276,261 Credit card 77,596 92,097 Automobile 1,039,606 1,053,457 Other consumer 80,112 85,456 Total consumer loans 1,472,873 1,507,271 Total loans $4,595,564 $ 4,554,752 As a percent of total loans: Commercial loans 11.8 % 11.2 % Mortgage loans 56.1 55.7 Consumer loans 32.1 33.1 Total 100.0 % 100.0 %
Non-performing Assets Non-performing assets include non-accrual loans and other real estate owned ("OREO"). Loans are generally placed on a 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 is reported at the lower of cost or fair value at the time of acquisition and at the lower of fair value, less estimated costs to sell, or cost thereafter. Non-performing assets totaled $8.3 million at March 31, 2000, compared with $5.7 million at December 31, 1999, an increase of $2.5 million or 44.1 percent. Non-performing assets at March 31, 2000 and December 31, 1999, respectively, amounted to 0.18 percent and 0.13 percent of loans and OREO, respectively. Loans 90 days or more past due and not included in the non-performing category totaled $16.7 million at March 31, 2000, compared with $11.7 million at December 31, 1999. These loans are primarily residential mortgage loans, commercial mortgage loans and commercial loans which are generally well-secured and in the process of collection. Also included are matured commercial mortgage loans in the process of being renewed, which totaled $2.2 million at March 31, 2000 and $175 thousand at December 31, 1999, respectively. The following table sets forth non-performing assets and accruing loans which were 90 days or more past due as to principal or interest payments on the dates indicated, in conjunction with asset quality ratios for Valley. LOAN QUALITY
March 31, December 31, 2000 1999 (in thousands) Loans past due in excess of 90 days and still accruing $ 16,746 $ 11,698 Non-accrual loans $ 6,478 $ 3,482 Other real estate owned 1,791 2,256 Total non-performing assets $ 8,269 $ 5,738 Troubled debt restructured loans $ 4,804 $ 4,852 Non-performing loans as a % of loans 0.14% 0.08% Non-performing assets as a % of loans plus other real estate owned 0.18% 0.13% Allowance as a % of loans 1.20% 1.21%
At March 31, 2000 the allowance for loan losses amounted to $55.3 million, relatively unchanged from the $55.1 million at year-end 1999. The allowance is adjusted by provisions charged against income and loans charged-off, net of recoveries. Net loan charge-offs were $1.3 million for the three months ended March 31, 2000 compared with $1.6 million for the three months ended March 31, 1999. The allowance for loan losses is maintained at a level estimated to absorb loan 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 loan portfolio and unused commitments to provide financing. VNB's methodology for evaluating the appropriateness of the allowance consists of several significant elements, which include the allocated allowance, specific allowances for identified problem loans and portfolio segments and the unallocated allowance. The allowance also incorporates the results of measuring impaired loans as required for in Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." During the first quarter of 2000, continued emphasis was placed on the current economic climate and the condition of the real estate market in the northern New Jersey area. Management addressed these economic conditions and applied that information to changes in the composition of the loan portfolio and net charge-off levels. The provision charged to operations was $1.5 million during the first quarter of 2000 compared to $2.0 million during the first quarter of 1999. Capital Adequacy A significant measure of the strength of a financial institution is its shareholders' equity. At March 31, 2000, shareholders' equity totaled $528.1 million or 8.4 percent of total assets, compared with $553.5 million or 8.7 percent at year-end 1999. On December 14, 1999 Valley's Board of Directors authorized the repurchase of up to 3,000,000 shares of the company's outstanding common stock. As of March 31, 2000 Valley had repurchased 2.2 million shares of its stock under this plan. Reacquired shares are held in treasury and are expected to be used for employee benefit programs, stock dividends and other corporate purposes. Included in shareholders' equity as components of accumulated other comprehensive income at March 31, 2000 was a $19.2 million unrealized loss on investment securities available for sale, net of tax, and a translation adjustment loss of $431 thousand related to the Canadian subsidiary of VNB, compared to an unrealized loss of $16.3 million and a $418 thousand translation adjustment loss at December 31, 1999. Valley's capital position at March 31, 2000 under risk-based capital guidelines was $543.0 million, or 11.1 percent of risk-weighted assets, for Tier 1 capital and $598.3 million, or 12.2 percent for Total risk-based capital. The comparable ratios at December 31, 1999 were 11.6 percent for Tier 1 capital and 12.8 percent for Total risk-based capital. At March 31, 2000 and 1999, Valley was in compliance with the leverage requirement having Tier 1 leverage ratios of 8.7 percent and 9.1 percent, respectively. Valley's ratios at March 31, 2000 were above the "well capitalized" requirements, which require Tier I capital to risk-adjusted assets of at least 6 percent, Total risk-based capital to risk-adjusted assets of 10 percent and a minimum leverage ratio of 5 percent. Book value per share amounted to $8.63 at March 31, 2000 compared with $9.27 per share at December 31, 1999. The primary source of capital growth is through retention of earnings. Valley's rate of earnings retention, derived by dividing undistributed earnings by net income, was 41.7 percent at March 31, 2000, compared to 46.5 percent at March 31, 1999. Cash dividends declared amounted to $0.26 per share, for the quarter ended March 31, 2000, equivalent to a dividend payout ratio of 58.3 percent, compared to 53.5 percent for the year 1999. Valley declared a five percent stock dividend on April 6, 2000 to shareholders of record on May 5, 2000, to be issued May 16, 2000. The annual dividend rate will be increased from $0.99 per share, on an after stock dividend basis, to $1.04 per share. The increased cash dividend will be payable quarterly beginning on July 3, 2000. Valley's Board of Directors continues to believe that cash dividends are an important component of shareholder value and that, at its current level of performance and capital, Valley expects to continue its current dividend policy of a quarterly distribution of earnings to its shareholders.* Recent Accounting Pronouncement Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), was issued by the FASB in June 1998. SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial condition at fair value. Valley would have had to adopt SFAS No. 133 by January 1, 2000. However, SFAS No. 137 extended the adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000. Upon adoption, the provisions of SFAS No. 133 must be applied prospectively. Valley anticipates that the adoption of SFAS No. 133 will not have a material impact in the financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk See page 13 for a discussion of interest rate sensitivity. PART II Item 4. Submission of Matters to a Vote of Security Holders a) On April 6, 2000 the Annual Meeting of Shareholders of Valley National Bancorp was held. The Shareholders voted upon the election of 18 persons, named in the Proxy Statement, to serve as directors of the Corporation for the ensuing year. All directors were elected and there was no solicitation in opposition to management's nominees as listed in the Proxy Statement. b) Shareholders also voted upon approval of the Valley National Bancorp Executive Incentive Plan, which generally provides an incentive mechanism to senior executives to maximize the performance of Valley and its subsidiaries, and to attract and retain achievement-oriented senior executives. Number of Votes For Withheld Abstain 30,774,624 7,098,575 1,009,621 c) Shareholders also voted upon approval of the amendment to the Certificate of Incorporation of Valley National Bancorp authorizing the issuance of 30,000,000 shares of a new class of "blank check" preferred stock to maximize Valley's ability to expand its capital base. Number of Votes For Withheld Abstain 30,245,811 9,898,804 805,719 Item 5. Other Information a) The Board of Directors approved a five percent stock dividend on April 6, 2000. The new stock will be issued May 16, 2000 to shareholders of record as of May 5, 2000. Item 6. Exhibits and Reports on Form 8-K a) Exhibits (3) Articles of Incorporation and By-laws A) Certificate of Incorporation of the Registrant restated to show all changes through May 9, 2000. B) By-laws as incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1998. (10) Material Contracts A) "The Valley National Bancorp Executive Incentive Plan" effective January 1, 2000. b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VALLEY NATIONAL BANCORP (Registrant) Date: May 12, 2000 /s/ PETER SOUTHWAY PETER SOUTHWAY VICE CHAIRMAN Date: May 12, 2000 /s/ ALAN D. ESKOW ALAN D. ESKOW SENIOR VICE PRESIDENT AND CONTROLLER FINANCIAL ADMINISTRATION EXHIBIT (3)A RESTATED CERTIFICATE OF INCORPORATION OF VALLEY NATIONAL BANCORP The Board of Directors of Valley National Bancorp pursuant to the provisions of Section 14A:95-5(2) has adopted this Restated Certificate of Incorporation to restate and integrate in a single certificate the provisions of its certificate of incorporation as heretofore amended. Valley National Bancorp does hereby certify as follows: ARTICLE I CORPORATE NAME The name of the Corporation is Valley National Bancorp (hereinafter the "Corporation"). ARTICLE II CURRENT REGISTERED OFFICE AND CURRENT REGISTERED AGENT The address of the Corporation's current registered office is 1455 Valley Road, Wayne, New Jersey. The name of the current registered agent at that address is Gerald H. Lipkin. ARTICLE III NUMBER OF DIRECTORS The number of directors shall be governed by the by-laws of the Corporation. ARTICLE IV CORPORATE PURPOSE The purpose for which the Corporation is organized is to engage in any activities for which corporations may be organized under the New Jersey Business Corporation Act, subject to any restrictions which may be imposed from time to time by the laws of the United States or the State of New Jersey with regard to the activities of a bank holding company. ARTICLE V CAPITAL STOCK (A) The total authorized capital stock of the Corporation shall be 138,527,344 shares, consisting of 108,527,344 shares of Common Stock and 30,000,000 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. (B) The Board of Directors of the Corporation is expressly authorized from time to time to adopt and to cause to be executed and filed without further approval of the shareholders amendments to this Certificate of Incorporation authorizing the issuance of one or more classes or series of Preferred Stock for such consideration as the Board of Directors may fix. In an amendment authorizing any class or series of Preferred Stock, the Board of Directors is expressly authorized to determine: (a) The distinctive designation of the class or series and the number of shares which will constitute the class or series, which number may be increased or decreased (but not below the number of shares then outstanding in that class or above the total shares authorized herein) from time to time by action of the Board of Directors; (b) The dividend rate on the shares of the class or series, whether dividends will be cumulative, and, if so, from what date or dates; (c) The price or prices at which, and the terms and conditions on which, the shares of the class or series may be redeemed at the option of the Corporation; (d) Whether or not the shares of the class or series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if so entitled, the amount of such fund and the terms and provisions relative to the operation thereof; (e) Whether or not the shares of the class or series will be convertible into, or exchangeable for, any other shares of stock of the Corporation or other securities, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (f) The rights of the shares of the class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (g) Whether or not the shares of the class or series will have priority over, parity with, or be junior to the shares of any other class or series in any respect, whether or not the shares of the class or series will be entitled to the benefit of limitations restricting the issuance of shares of any other class or series having priority over or on parity with the shares of such class or series and whether or not the shares of the class or series are entitled to restrictions on the payment of dividends on, the making of other distributions in respect of, and the purchase or redemption of shares of any other class or series of Preferred Stock or Common Stock ranking junior to the shares of the class or series; (h) Whether the class or series will have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; and (i) Any other preferences, qualifications, privileges, options and other relative or special rights and limitations of that class or series. ARTICLE VI INDEMNIFICATION The Corporation shall indemnify its officers, directors, employees and agents and former officers, directors, employees and agents, and any other persons serving at the request of the Corporation as an officer, director, employee or agent of another corporation, association, partnership, joint venture, trust, or other enterprise, against expenses (including attorney's fees, judgments, fines, and amounts paid in settlement) incurred in connection with any pending or threatened action, suit, or proceeding, whether civil, criminal, administrative or investigative, with respect to which such officer, director, employee, agent or other person is a party, or is threatened to be made a party, to the full extent permitted by the New Jersey Business Corporation Act. The indemnification provided herein shall not be deemed exclusive of any other right to which any person seeking indemnification may be entitled under any by-law, agreement, or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity, and shall inure to the benefit of the heirs, executors, and the administrators of any such person. The Corporation shall have the power to purchase and maintain insurance on behalf of any persons enumerated above against any liability asserted against him and incurred by him in any such capacity, arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provision of this Article. ARTICLE VII LIMITATION OF LIABILITY A director or officer of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders, except that such provision shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (i) in breach of such person's duty of loyalty to the Corporation or its shareholders, (ii) not in good faith or involving a knowing violation of law, or (iii) resulting in receipt by such person of an improper personal benefit. If the New Jersey Business Corporation Act is amended after approval by the shareholders of this provision to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director and/or officer of the Corporation shall be eliminated or limited to the fullest extent permitted by the New Jersey Business Corporation Act as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation or otherwise shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification. IN WITNESS WHEREOF, Gerald H. Lipkin, Chairman, President and Chief Executive Officer of the Valley National Bancorp, has executed this Restated Certificate of Incorporation on behalf of Valley National Bancorp, as restated. /s/ GERALD H. LIPKIN Gerald H. Lipkin, Chairman President & Chief Executive Officer EXHIBIT (10)A VALLEY NATIONAL BANCORP EXECUTIVE INCENTIVE PLAN 1. Purpose. The purposes of this Valley National Bancorp Executive Incentive Plan (the "Plan") are (i) to provide an incentive mechanism to senior executives to maximize the performance of the Company and its subsidiaries, and (ii) to attract and retain achievement oriented senior executives. 2. Definitions. For purposes of the Plan, the following terms shall have the defined meanings as set forth below: "Board" shall mean the Board of Directors of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor thereto. "Committee" shall mean the committee of the Board described in Section 4 hereof. "Company" shall mean Valley National Bancorp, a corporation organized under the laws of the State of New Jersey (or any successor corporation). "Disability" shall mean a physical or mental condition of a Participant resulting from a bodily injury, disease, or mental disorder which renders him or her incapable of continuing in the employment of the Company. Such disability shall be determined by the Committee, based upon appropriate medical advice and examination. "Participant" shall mean an officer of the Company or a subsidiary thereof who is awarded rights under the Plan. "Performance Goal" shall mean the performance goal set by the Committee in accordance with Section 6 of the Plan. "Retirement" shall mean retirement from active employment with the Company on or after attainment of age 62, unless an earlier retirement is approved by the Committee. 3. Effective Date. The Plan shall be effective on January 1, 2000, provided, however, that the effectiveness of this Plan is conditioned on its approval by an affirmative vote of the holders of Company stock represented at a meeting duly held in accordance with applicable law within twelve (12) months after the date this Plan is adopted by the Board. All awards under this Plan shall be null and void if the Plan is not approved by such stockholders within such twelve-month period. 4. Administration. (a) The Plan shall be administered by the Compensation Committee ("Committee") of the Board, which shall consist solely of two or more directors each of whom is an outside director within the meaning of the applicable regulations under Section 162(m) of the Code or any successor thereto. The members of the Committee shall be appointed by, and may be changed from time to time at the discretion of, the Board. (b) The Committee shall have the authority (i) to exercise all of the powers granted to it under the Plan; (ii) to construe, interpret, and implement the Plan; (iii) to prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to make all determinations necessary or advisable in administering the Plan; and (v) to correct any defect, supply any omission, and reconcile any inconsistency in the Plan. (c) The Committee shall maintain written minutes of its meetings, including minutes regarding the Performance Goals established by the Committee pursuant to Section 6 hereof, and any certification regarding the satisfaction of Performance Goals made pursuant to Section 7 hereof. (d) Solely for purposes of satisfying the shareholder approval requirement of Section 162(m) of the Code, the Committee shall cause the material terms under which awards are to be paid to be disclosed to shareholders for approval by a majority of the vote in a separate shareholder vote before the payment of the award. In order to prevent the disclosure of confidential competitive information, such disclosure shall be limited to the disclosure of only those material terms necessary to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder. (e) All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Participants. (f) No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan. (g) To the extent allowable under the regulations under Section 162(m) of the Code, the Committee may, in its sole discretion, revise the amount payable under an award downward, if, in the business judgment of the Committee, it is in the best interests of the Company and its shareholders, and an unintended windfall, or inequitable payment will otherwise result. 5. Eligibility and Participation. The class of officers who are eligible to receive payments under the Plan shall consist of such members of the officers of the Company or a subsidiary thereof as the Committee shall in its sole discretion select. The Committee annually shall determine the officers who shall be eligible to receive awards under the Plan. 6. Awards. The Committee shall, prior to or during the first quarter of each calendar year, establish Performance Goals for determining the incentive awards for such calendar year for Participants in the Plan. The Committee, in determining such Performance Goals, may consider appropriate recommendations made by the Compensation Committees of any subsidiary of the Company. In establishing the Performance Goals, the Committee may, in its discretion, consider one or more business criteria that apply to the Participant, the Company as a whole, or any designated subsidiary or business unit of the Company or a subsidiary thereof. Such business criteria may include, inter alia, revenues of the Company or any subsidiary, pre-tax profits of the Company or any subsidiary, stock price, market share, earnings per share, return on equity, or costs, as well as projected Company and industry performance, and such other factors it may deem appropriate, including conditions in the general economy and in the industry. As soon as practicable after the close of each calendar year, the Committee shall determine the actual incentive awards to be made to the Participants, provided, however, that prior to the close of such calendar year, the Committee may estimate the actual incentive awards to be made to all or certain of the Participants and may authorize the immediate distribution of all or any portion thereof to such Participants, and provided further, however, that during any such calendar year the Committee may, in its discretion, determine incentive awards for the portion of the year preceding such determination and may authorize the immediate distribution of such awards to all or certain of the Participants. In determining such awards, the Committee may consider, inter alia, the following: (i) the salary of each Participant; (ii) the level of executive or managerial responsibility; and (iii) the performance of each Participant. 7. Committee Certification. Prior to the payment of the value of any award, the Committee will certify in writing that the Performance Goals set forth in Section 6 and any other material terms within the meaning of the regulations under Section 162(m) of the Code were in fact satisfied. 8. Payment of Awards. As soon as practicable after the Committee certification pursuant to Section 7 hereof, the Company shall pay to each Participant, in cash, a lump sum equal to the value of his or her award. 9. Termination of Employment. (a) If a Participant's employment with the Company terminates prior to payment for any reason other than (i) death; (ii) Disability; or (iii) Retirement, then the Participant shall not be entitled to any payment with respect to any award granted, unless otherwise provided by the terms of an employment contract. (b) If a Participant's employment is terminated due to (i) death; (ii) Disability; or (iii)Retirement, then within the twelve months following such death, Disability or Retirement, the Committee, in its sole discretion, may authorize payment to the estate of the Participant of all or any portion of the amount attributable to awards granted to the Participant. 10. Amendment of the Plan. The Board may from time to time alter, amend, suspend, or discontinue the Plan. However, no such amendment or modification shall adversely affect any Participant's rights with regard to outstanding awards. 11. Assignability. No awards granted under the Plan shall be pledged, assigned or transferred by any Participant except by a will or by the laws of descent and distribution. Any estate of any Participant receiving any award under the Plan shall be subject to the terms and conditions of the Plan. 12. Tax Withholding. Under the Plan, payments made to Participants shall be made in cash, except as otherwise provided in Section 8. However, such payments shall be made net of any amounts necessary to satisfy federal, state and local withholding tax requirements, where required by law. 13. No Contract of Employment. Neither the action of the Company in establishing this Plan, nor any provisions hereof, nor any action taken by the Company, nor the Committee or Board pursuant to such provisions, shall be construed as giving to any employee or participant the right to be retained in the employ of the Company. 14. Other Provisions. The following miscellaneous terms and conditions are also in effect under the Plan: (a) Any expenses and liability incurred by the Board, the Committee or the Company in administering the Plan shall be paid by the Company. Any benefits received or amounts paid to a Participant with respect to awards under the Plan shall have no effect on the level of benefits provided to or received by such Participant, or the Participant's estate or beneficiaries, as a part of any other employee benefit plan or similar arrangement provided by the Company, except as provided under the terms of such other employee benefit plan or similar arrangement. EX-27 2 FDS --
9 0000714310 DIANNE M. GRENZ 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 156,022 0 58,000 0 966,543 356,652 322,433 4,595,564 55,311 6,292,744 5,018,268 99,259 55,220 591,863 0 0 25,947 502,187 6,292,744 90,563 21,245 664 112,472 38,445 48,151 64,321 1,500 0 33,586 40,864 40,864 0 0 26,943 0.44 0.43 4.38 6,478 16,746 4,804 0 55,120 2,247 938 55,311 41,733 151 13,427
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