-----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, CZ+Hou4wIHEjqjsrGP3TI6ROR7KYIX2uHe1uyXlW4f9Fj+3trbEIzeXwRiyY9IOb ZHolJ88ANxXFQI5RS42EiQ== 0000891554-00-000572.txt : 20000307 0000891554-00-000572.hdr.sgml : 20000307 ACCESSION NUMBER: 0000891554-00-000572 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000301 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-K SEC ACT: SEC FILE NUMBER: 001-11277 FILM NUMBER: 558557 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-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-K --------- (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) [x] OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] 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 22-2477875 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1455 Valley Road 07470 Wayne, New Jersey (Zip code) (Address of principal executive office) ------------- 973-305-8800 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class Name of each exchange on which registered - -------------------------- ----------------------------------------- Common Stock, no par value New York Stock Exchange 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1.6 billion on December 31, 1999. There were 59,331,278 shares of Common Stock outstanding at February 1, 2000. Documents incorporated by reference: Certain portions of the Registrant's Definitive Proxy Statement (the "2000 Proxy Statement") for the 2000 Annual Meeting of shareholders to be held April 6, 2000 will be incorporated by reference in Part III. ================================================================================ TABLE OF CONTENTS Page PART I Item 1. Business ....................................................... 3 Item 2. Properties ..................................................... 8 Item 3. Legal Proceedings .............................................. 8 Item 4. Submission of Matters to a Vote of Security Holders ............ 8 Item 4A. Executive Officers of the Registrant ........................... 8 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Item 6. Matters ........................................................ 9 Item 7. Selected Financial Data ........................................ 10 Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..... 31 Item 8. Financial Statements and Supplementary Data: Valley National Bancorp and Subsidiaries: Consolidated Statements of Income .............................. 32 Consolidated Statements of Financial Condition ................. 33 Consolidated Statements of Changes in Shareholders' Equity ..... 34 Consolidated Statements of Cash Flows .......................... 35 Notes to Consolidated Financial Statements ..................... 36 Independent Auditors' Report ................................... 63 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................... 64 PART III Item 10. Directors and Executive Officers of the Registrant ............. 64 Item 11. Executive Compensation ......................................... 64 Item 12. Security Ownership of Certain Beneficial Owners and Management . 64 Item 13. Certain Relationships and Related Transactions ................. 64 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 65 Signatures ................................................................ 67 2 PART I Item 1. Business Valley National Bancorp ("Valley") is a New Jersey corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended ("Holding Company Act"). At December 31, 1999, Valley had consolidated total assets of $6.4 billion, total deposits of $5.1 billion, and total shareholders' equity of $553.5 million. Its principal subsidiary is Valley National Bank ("VNB"). VNB is a national banking association chartered in 1927 under the laws of the United States. VNB provides a full range of commercial and retail banking services through 117 branch offices located in northern New Jersey. These services include the following: the acceptance of demand, savings and time deposits; extension of consumer, real estate, Small Business Administration ("SBA") and other commercial credits; title insurance; investment services; and full personal and corporate trust, as well as pension and fiduciary services. VNB has several wholly-owned subsidiaries which include a mortgage servicing company, a company which holds, maintains and manages investment assets for VNB, a subsidiary which owns and services auto loans, a subsidiary which owns and services commercial mortgage loans, a title insurance company, an asset management company which is an SEC registered investment company and an Edge Act Corporation which is the holding company for a wholly-owned finance company located in Toronto, Canada. The mortgage servicing company services loans for others as well as VNB. Recent Developments On June 11, 1999, Valley acquired Ramapo Financial Corporation ("Ramapo"), parent of The Ramapo Bank headquartered in Wayne, New Jersey. At the date of acquisition, Ramapo had total assets of $344.0 million and deposits of $299.5 million, with eight branch offices. The transaction was accounted for using the pooling of interests method of accounting and resulted in the issuance of approximately 4.0 million shares of Valley common stock. Each share of common stock of Ramapo was exchanged for 0.44625 shares of Valley common stock. The consolidated financial statements of Valley have been restated to include Ramapo for all periods presented. During the second quarter of 1999, Valley received approval and a license from the New Jersey Department of Banking and Insurance to sell title insurance through a separate subsidiary, known as Wayne Title, Inc. ("Wayne Title"). After the close of the second quarter, Valley acquired the assets of an agency office of Commonwealth Land Title Insurance Company for $784 thousand and began to sell both commercial and residential title insurance policies. The transaction was accounted for as a purchase and resulted in goodwill of $728 thousand. On July 30, 1999, Valley acquired New Century Asset Management, Inc. ("New Century"), a registered investment advisor and NJ-based money manager with approximately $120 million of assets under management. At closing, Valley paid an initial consideration of $640 thousand. The balance due will be paid on an earn-out basis over a five-year period, based upon a pre-determined formula. New Century will continue its operation as a wholly-owned subsidiary of VNB. The transaction was accounted for as a purchase and resulted in goodwill of $1.3 million. Competition The market for banking and bank-related services is highly competitive. Valley and its subsidiary compete with other providers of financial services such as other bank holding companies, commercial and savings banks, savings and loan associations, credit unions, money market and mutual funds, mortgage companies, title agencies, asset managers and a growing list of other local, regional and national institutions which offer financial services. Mergers between financial institutions within New Jersey and in neighboring states have added competitive pressure. Competition is expected to intensify as a consequence of the Gramm-Leach-Bliley Act (discussed below) and interstate banking laws now in effect or that may be in effect in the future. Valley and its subsidiary compete by offering quality products and convenient services at competitive prices. In order to maintain and enhance its competitive position, Valley regularly reviews its products, 3 locations and various acquisition prospects and periodically engages in discussions regarding such possible acquisitions. Employees At December 31, 1999, VNB and its subsidiaries employed 1,863 full-time equivalent persons. Management considers relations with employees to be satisfactory. SUPERVISION AND REGULATION The banking industry is highly regulated. Statutory and regulatory controls increase a bank holding company's cost of doing business and limit the options of its management to deploy assets and maximize income. The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of such laws and regulations on the bank. It is intended only to briefly summarize some material provisions. Bank Holding Company Regulation Valley is a bank holding company within the meaning of the Holding Company Act. As a bank holding company, Valley is supervised by the Board of Governors of the Federal Reserve System ("FRB") and is required to file reports with the FRB and provide such additional information as the FRB may require. The Holding Company Act prohibits Valley, with certain exceptions, from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to subsidiary banks, except that it may, upon application, engage in, and may own shares of companies engaged in, certain businesses found by the FRB to be so closely related to banking "as to be a proper incident thereto." The Holding Company Act requires prior approval by the FRB of the acquisition by Valley of more than five percent of the voting stock of any additional bank. Satisfactory capital ratios and Community Reinvestment Act ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions. The policy of the FRB provides that a bank holding company is expected to act as a source of financial strength to its subsidiary bank and to commit resources to support the subsidiary bank in circumstances in which it might not do so absent that policy. Acquisitions through VNB require approval of the Comptroller of the Currency of the United States ("OCC"). The Holding Company Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The Gramm-Leach-Bliley Act, discussed below, allows Valley to expand into insurance, securities, merchant banking activities, and other activities that are financial in nature. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking and Branching Act") enables bank holding companies to acquire banks in states other than its home state, regardless of applicable state law. The Interstate Banking and Branching Act also authorizes banks to merge across state lines, thereby creating interstate branches. Under the legislation, each state had the opportunity to "opt out" of this provision. Furthermore, a state may "opt-in" with respect to de novo branching, thereby permitting a bank to open new branches in a state in which the bank does not already have a branch. Without de novo branching, an out-of-state commercial bank can enter the state only by acquiring an existing bank or branch. The vast majority of states have allowed interstate banking by merger but have not authorized de novo branching. New Jersey enacted legislation to authorize interstate banking and branching and the entry into New Jersey of foreign country banks. New Jersey did not authorize de novo branching into the state. However, under federal law, federal savings banks which meet certain conditions may branch de novo into a state, regardless of state law. Recent Legislation On November 12, 1999, the President signed the Gramm-Leach-Bliley Financial Modernization Act of 1999 into law. The Modernization Act will: 4 o allow bank holding companies meeting management, capital and Community Reinvestment Act standards to engage in a substantially broader range of nonbanking activities than currently is permissible, including insurance underwriting and making merchant banking investments in commercial and financial companies; if a bank holding company elects to become a financial holding company, it files a certification, effective in 30 days, and thereafter may engage in certain financial activities without further approvals; o allow insurers and other financial services companies to acquire banks; o remove various restrictions that currently apply to bank holding company ownership of securities firms and mutual fund advisory companies; and o establish the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations. This part of the Modernization Act will become effective on March 13, 2000. On January 19, 2000, the FRB adopted an interim rule allowing bank holding companies to submit certifications by February 15 to become financial holding companies on March 13, 2000. The FRB also provided regulations on procedures which would be used against financial holding companies which have depository institutions which fall out of compliance with the management or capital criteria. Only financial holding companies can own insurance companies and engage in merchant banking. On January 14, 2000, the OCC proposed rules to allow national banks to form subsidiaries to engage in financial activities allowed for financial holding companies. Electing national banks must meet the same management and capital standards as financial holding companies but may not engage in insurance underwriting, real estate development or merchant banking. Sections 23A and 23B of the Federal Reserve Act will apply to financial subsidiaries and the capital invested by a bank in its financial subsidiaries will be eliminated from the bank's capital in measuring all capital ratios. These rules may be used by national banks effective March 13, 2000. The Modernization Act also modifies other current financial laws, including laws related to financial privacy and community reinvestment. Additional proposals to change the laws and regulations governing the banking and financial services industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any such changes and the impact such changes might have on Valley cannot be determined at this time. Regulation of Bank Subsidiary VNB is subject to the supervision of, and to regular examination by, the OCC. Various laws and the regulations thereunder applicable to Valley and its bank subsidiary impose restrictions and requirements in many areas, including capital requirements, the maintenance of reserves, establishment of new offices, the making of loans and investments, consumer protection, employment practices and entry into new types of business. There are various legal limitations, including Sections 23A and 23B of the Federal Reserve Act, which govern the extent to which a bank subsidiary may finance or otherwise supply funds to its holding company or its holding company's non-bank subsidiaries. Under federal law, no bank subsidiary may, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent or the non-bank subsidiaries of its parent (other than direct subsidiaries of such bank which are not financial subsidiaries) or take their securities as collateral for loans to any borrower. Each bank subsidiary is also subject to collateral security requirements for any loans or extensions of credit permitted by such exceptions. Dividend Limitations Valley is a legal entity separate and distinct from its subsidiaries. Valley's revenues (on a parent company only basis) result in substantial part from dividends paid to Valley by VNB. Payment of dividends to Valley by its subsidiary bank, without prior regulatory approval, is subject to regulatory limitations. Under the National Bank Act, dividends may be declared only if, after payment thereof, capital would be 5 unimpaired and remaining surplus would equal 100 percent of capital. Moreover, a national bank may declare, in any one year, dividends only in an amount aggregating not more than the sum of its net profits for such year and its retained net profits for the preceding two years. Under this limitation, VNB could declare dividends in 2000 to Valley without prior approval of the OCC of up to $13.3 million plus an amount equal to VNB's net profits for 2000 to the date of such dividend declaration. In addition, the bank regulatory agencies have the authority to prohibit a bank subsidiary from paying dividends or otherwise supplying funds to Valley if the supervising agency determines that such payment would constitute an unsafe or unsound banking practice. Loans to Related Parties VNB's authority to extend credit to its directors, executive officers and 10 percent stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of the National Bank Act and Regulation O of the FRB thereunder. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the bank's capital. In addition, extensions of credit in excess of certain limits must be approved by the bank's board of directors. Community Reinvestment Under the Community Reinvestment Act ("CRA"), as implemented by OCC regulations, a national bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OCC, in connection with its examination of a national bank, to assess the association's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such association. The CRA also requires all institutions to make public disclosure of their CRA ratings. VNB received a "satisfactory" CRA rating in its most recent examination. Restrictions on Activities Outside the United States Valley's activities in Canada are conducted through VNB and in the United States are subject to Section 25 and 25A of the Federal Reserve Act, certain regulations under the National Bank Act and, primarily, Regulation K promulgated by the FRB. Under these provisions, VNB may invest no more than 10 percent of its capital in foreign banking operations. In addition to investments, VNB may extend credit or guarantee loans for these entities and such loans or guarantees are generally not subject to the loans to one person limitation, although they are subject to prudent banking limitations. The foreign banking operations of VNB are subject to supervision by the FRB, as well as the OCC. In Canada, VNB's activities also are subject to the laws and regulations of Canada and to regulation by Canadian banking authorities. Regulation K generally restricts activities by United States banks outside of the United States to activities that are permitted for banks within the United States. As a consequence, activities by VNB through its subsidiaries outside of the United States would generally be limited to banking and activities closely related to banking with certain significant exceptions. FIRREA Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. These provisions have commonly been referred to as FIRREA's "cross guarantee" provisions. Further, under FIRREA the failure to meet capital guidelines could subject a bank to a variety of enforcement remedies available to federal regulatory authorities. 6 FIRREA also imposes certain independent appraisal requirements upon a bank's real estate lending activities and further imposes certain loan-to-value restrictions on a bank's real estate lending activities. The bank regulators have promulgated regulations in these areas. FDICIA The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") required each federal banking agency to revise its risk-based capital standards to ensure that those standards take adequate account of interest rate risk, concentration of credit risk and the risks of non-traditional activities. In addition, pursuant to FDICIA, each federal banking agency has promulgated regulations, specifying the levels at which a financial institution would be considered "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized," and to take certain mandatory and discretionary supervisory actions based on the capital level of the institution. To quality to engage in financial activities, all depository institutions must be well capitalized and the financial holding company of a national bank will be put under directives to raise its capital levels or divest its activities if the depository institution falls from that level. The OCC's regulations implementing these provisions of FDICIA provide that an institution will be classified as "well capitalized" if it (i) has a total risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at least 5.0 percent, and (iv) meets certain other requirements. An institution will be classified as "adequately capitalized" if it (i) has a total risk-based capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 4.0 percent, (iii) has Tier 1 leverage ratio of (a) at least 4.0 percent or (b) at least 3.0 percent if the institution was rated 1 in its most recent examination, and (iv) does not meet the definition of "well capitalized." An institution will be classified as "undercapitalized" if it (i) has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less than 4.0 percent or (b) less than 3.0 percent if the institution was rated 1 in its most recent examination. An institution will be classified as "significantly undercapitalized" if it (i) has a total risk-based capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An institution will be classified as "critically undercapitalized" if it has a tangible equity to total assets ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be in a lower capitalization category if it receives an unsatisfactory examination. In addition, significant provisions of FDICIA required federal banking regulators to impose standards in a number of other important areas to assure bank safety and soundness, including internal controls, information systems and internal audit systems, credit underwriting, asset growth, compensation, loan documentation and interest rate exposure. BIF Premiums and Recapitalization of SAIF VNB is a member of the Bank Insurance Fund ("BIF") of the FDIC. The FDIC also maintains another insurance fund, the Savings Association Insurance Fund ("SAIF"), which primarily covers savings and loan association deposits but also covers deposits that are acquired by a BIF-insured institution from a savings and loan association ("Oakar deposits"). VNB had approximately $1.4 billion of deposits at December 31, 1999, with respect to which VNB pays SAIF insurance premiums. The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act") signed into law on September 30, 1996, included the Deposit Insurance Funds Act of 1996 (the "Funds Act") under which the FDIC was required to impose a special assessment on SAIF-assessable deposits to recapitalize the SAIF. Under the Funds Act, the FDIC charged assessments for SAIF and BIF deposits in a 5 to 1 ratio to pay Financing Corp. ("FICO") bonds until January 1, 2000, at which time the assessment became equal. During 1999 a FICO rate of approximately 1.19 basis points was charged on BIF deposits, and approximately 5.93 basis points was charged on SAIF deposits. Oaker deposits are treated as SAIF deposits for purposes of the FICO bond assessment. After the 1996 Act, SAIF deposit assessments were lowered to the BIF assessment level, except for the FICO bond assessment. The 1996 Act instituted a number of other regulatory relief provisions. 7 Item 2. Properties VNB's corporate headquarters consist of three office buildings located adjacent to each other in Wayne, New Jersey. These headquarters encompass commercial, mortgage and consumer lending, the operations and data processing center, and the executive offices of both Valley and VNB. Two of the three buildings are owned by VNB, the other building is leased. VNB provides banking services at 117 locations of which 51 locations are owned and 66 locations are leased. Item 3. Legal Proceedings There were no material pending legal proceedings to which Valley or any of its direct or indirect subsidiaries were a party, or to which their property was subject, other than ordinary routine litigations incidental to business and which had no material effect on the presentation of the financial statements contained in this report. Item 4. Submission of Matters to a Vote of Security Holders None Item 4A. Executive Officers of the Registrant Age at Executive December 31, Officer Names 1999 Since Office ----- ---- ----- ------ Gerald H. Lipkin ..... 58 1975 Chairman of the Board, President and Chief Executive Officer of Valley and VNB Peter Southway ....... 65 1965 Vice Chairman of Valley and VNB Peter Crocitto ....... 42 1991 Executive Vice President of Valley and VNB Robert M. Meyer ...... 53 1997 Executive Vice President of Valley and VNB Peter John Southway .. 39 1989 Executive Vice President of Valley and VNB Alan D. Eskow ........ 51 1993 Corporate Secretary, Senior Vice President and Controller of Valley and VNB Albert L. Engel ...... 51 1998 First Senior Vice President of VNB Robert J. Farnon ..... 61 1998 First Senior Vice President of VNB Robert E. Farrell .... 53 1990 First Senior Vice President of VNB Richard P. Garber .... 56 1992 First Senior Vice President of VNB D. Franklin Larsen ... 65 1999 First Senior Vice President of VNB Alan D. Lipsky ....... 55 1994 First Senior Vice President of VNB Robert Mulligan ...... 52 1991 First Senior Vice President of VNB John H. Prol ......... 62 1992 First Senior Vice President of VNB Jack M. Blackin ...... 57 1993 Senior Vice President of Valley and VNB All officers serve at the pleasure of the Board of Directors. 8 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters Valley's common stock trades on the New York Stock Exchange ("NYSE") under the symbol VLY. The following table sets forth for each quarter period indicated the high and low sales prices for the common stock of Valley, as reported by the NYSE, and the dividends paid per share for each quarter. The amounts shown in the table below have been adjusted for all stock dividends and stock splits. Year 1999 Year 1998 ------------------------------ ------------------------------ High Low Dividend High Low Dividend --------- --------- --------- --------- --------- -------- First Quarter .. $28 3/32 $23 21/64 $0.24 $32 3/8 $26 55/64 $0.21 Second Quarter . 29 3/8 23 29/64 0.26 32 15/32 27 7/16 0.24 Third Quarter .. 29 1/2 24 5/16 0.26 34 9/32 24 17/32 0.24 Fourth Quarter . 28 23 15/16 0.26 28 37/64 22 5/8 0.24 Federal laws and regulations contain restrictions on the ability of Valley and VNB to pay dividends. For information regarding restrictions on dividends, see Part I, Item 1, "Business -- Dividend Limitations" and Part II, Item 8, "Financial Statements and Supplementary Data -- Note 15 of the Notes to Consolidated Financial Statements." There were 8,460 shareholders of record as of December 31, 1999. 9 Item 6. Selected Financial Data The following selected financial data should be read in conjunction with Valley's Consolidated Financial Statements and the accompanying notes presented elsewhere herein.
Years ended December 31, ----------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (in thousands, except for share data) Summary of Operations: Interest income (taxable equivalent) .............. $ 431,945 $ 416,261 $ 413,206 $ 394,554 $ 385,397 Interest expense .................................. 169,177 167,658 172,182 168,595 166,382 ----------- ----------- ----------- ----------- ----------- Net interest income (taxable equivalent) .......... 262,768 248,603 241,024 225,959 219,015 Less: tax equivalent adjustment ................... 4,410 4,968 6,388 7,710 8,570 ----------- ----------- ----------- ----------- ----------- Net interest income ............................... 258,358 243,635 234,636 218,249 210,445 Provision for loan losses ......................... 9,120 12,645 13,130 3,956 3,821 ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 249,238 230,990 221,506 214,293 206,624 Gains on securities transactions, net ............. 2,532 1,419 2,136 765 1,142 Non-interest income ............................... 44,720 43,955 43,058 31,845 26,026 Non-interest expense .............................. 137,946 144,713 139,246 134,586 121,822 ----------- ----------- ----------- ----------- ----------- Income before income taxes ........................ 158,544 131,651 127,454 112,317 111,970 Income tax expense ................................ 52,220 30,380 37,303 37,757 37,818 ----------- ----------- ----------- ----------- ----------- Net income ....................................... $ 106,324 $ 101,271 $ 90,151 $ 74,560 $ 74,152 =========== =========== =========== =========== =========== Per Common Share(1)(2): Earnings per share: Basic ............................................ $ 1.75 $ 1.65 $ 1.47 $ 1.26 $ 1.23 Diluted .......................................... 1.73 1.63 1.46 1.25 1.22 Dividends ......................................... 1.02 0.93 0.81 0.72 0.69 Book value ........................................ 9.27 9.57 8.78 7.79 7.94 Weighted average shares outstanding: Basic ............................................ 60,697,186 61,360,325 61,266,111 59,341,414 60,367,087 Diluted .......................................... 61,305,673 62,185,100 61,812,546 59,791,261 60,561,514 Ratios: Return on average assets .......................... 1.75% 1.79% 1.60% 1.36% 1.40% Return on average shareholders' equity ............ 18.35 18.10 17.51 15.47 16.58 Average shareholders' equity to average assets .... 9.56 9.89 9.16 8.82 8.43 Dividend payout ................................... 56.45 52.60 50.30 51.83 50.92 Risk-based capital: Tier 1 capital ................................... 11.62 13.39 13.43 12.68 14.08 Total capital .................................... 12.75 14.61 14.54 13.96 15.28 Leverage capital ................................. 9.11 10.12 9.40 8.60 8.48 Financial Condition at Year-End: Assets ............................................ $ 6,360,394 $ 5,878,969 $ 5,646,425 $ 5,631,152 $ 5,464,416 Loans, net of allowance ........................... 4,499,632 4,093,008 3,919,370 3,730,606 3,275,564 Deposits .......................................... 5,051,255 4,970,149 4,852,081 4,985,901 4,863,017 Shareholders' equity .............................. 553,500 589,809 540,600 496,331 476,986
- ------------- (1) All per share amounts have been restated to reflect the 5 percent stock dividend issued May 18, 1999, and all prior stock splits and dividends. (2) Share and earnings per share data for the years 1996 and prior have not been restated for the acquisition of Wayne Bancorp, Inc. as the issuance of capital stock in connection with the conversion from the mutual to stock form of Wayne Savings Bank occurred on June 27, 1996. 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The purpose of this analysis is to provide the reader with information relevant to understanding and assessing Valley's results of operations for each of the past three years and financial condition for each of the past two years. In order to fully appreciate this analysis the reader is encouraged to review the consolidated financial statements and statistical data presented in this document. Cautionary Statement Concerning Forward-Looking Statements This Form 10-K, both in the MD & A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, 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. Recent Developments On June 11, 1999, Valley acquired Ramapo Financial Corporation, parent of The Ramapo Bank headquartered in Wayne, New Jersey. At the date of acquisition, Ramapo had total assets of $344.0 million and deposits of $299.5 million, with eight branch offices. The transaction was accounted for using the pooling of interests method of accounting and resulted in the issuance of approximately 4.0 million shares of Valley common stock. Each share of common stock of Ramapo was exchanged for 0.44625 shares of Valley common stock. The consolidated financial statements of Valley have been restated to include Ramapo for all periods presented. During the second quarter of 1999, Valley received approval and a license from the New Jersey Department of Banking and Insurance to sell title insurance through a separate subsidiary, known as Wayne Title, Inc. After the close of the second quarter, Valley acquired the assets of an agency office of Commonwealth Land Title Insurance Company and began to sell both commercial and residential title insurance policies. The transaction was accounted for as a purchase. On July 30, 1999, Valley acquired New Century Asset Management, Inc., a registered investment advisor and a NJ-based money manager with approximately $120 million of assets under management. New Century was purchased on an earn-out basis and will continue its operation as a wholly-owned subsidiary of VNB. The transaction was accounted for as a purchase. Earnings Summary Net income was $106.3 million, or $1.73 per diluted share, in 1999 compared with $101.3 million, or $1.63 per diluted share, in 1998. Return on average assets for 1999 was 1.75 percent compared with 1.79 percent in 1998, while the return on average equity rose to 18.35 percent in 1999 compared with 18.10 percent in 1998. The increase in net income for the year ended December 31, 1999, can be primarily attributed to an increase in net interest income of $14.7 million, a reduction in the provision for loan losses, and a decrease in credit card expense, offset by an increase in income tax expense. 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 $262.8 million for 1999 as compared to $248.6 million for 1998. The increase in net interest income is due to higher average balances of total interest earning assets, primarily loans and taxable investments, partially offset by lower average interest rates for these interest earning assets 11 and an increase in the average balances of total interest bearing liabilities. Also contributing to the increase was a decline in average interest rates on average balances of total interest bearing liabilities. The net interest margin decreased to 4.53% for 1999 compared to 4.61% for 1998. Average interest earning assets increased $402.4 million or 7.5 percent in 1999 over the 1998 amount. This was mainly the result of the increase in average balance of loans of $270.8 million or 6.8 percent and the increase in average balance of taxable investments of $196.9 million or 18.3 percent. Included in taxable investments is Valley's portfolio of trust preferred securities of $249.7 million, at December 31, 1999. Valley began purchasing these securities in the latter part of the fourth quarter of 1998 as part of a leverage strategy to increase interest earning assets and net interest income. These securities are funded by borrowings from the Federal Home Loan Bank ("FHLB") which are included in long-term debt. Average interest bearing liabilities for 1999 increased $316.7 million or 7.5 percent from 1998. Average demand deposits increased by $68.4 million or 8.3 percent over 1998 balances. Average savings deposits increased $40.7 million or 2.0 percent and average time deposits remained relatively unchanged from 1998. Average long-term debt, which includes primarily FHLB advances, increased $245.5 million, or 172.8 percent. Average interest rates, in all categories of interest earning assets, declined during 1999 compared to 1998. The average interest rate for loans declined 32 basis points to 7.94 percent. Average interest rates on total interest earning assets declined 27 basis points to 7.45 percent. Average interest rates also declined on total interest bearing liabilities by 24 basis points to 3.72 percent from 3.96 percent. Average interest rates on deposits declined by 37 basis points to 3.50 percent. The decline in the net interest margin from 4.61 percent in 1998 to 4.53 percent in 1999 resulted from a smaller increase in net interest income in relationship to the growth in average interest earning assets. 12 The following table reflects the components of net interest income for each of the three years ended December 31, 1999, 1998 and 1997. ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
1999 1998 1997 --------------------------------- --------------------------------- ------------------------------- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate ----------- ----------- ------- ----------- ----------- ------- ----------- ----------- ------ (in thousands) Assets Interest earning assets Loans(1)(2) ................ $ 4,280,426 $ 339,882 7.94% $ 4,009,604 $ 331,219 8.26% $ 3,817,092 $ 318,305 8.34% Taxable investments(3) ..... 1,270,737 76,784 6.04 1,073,794 65,376 6.09 1,188,334 74,178 6.24 Tax-exempt investments (1)(3) ....... 166,963 11,330 6.79 182,686 12,731 6.97 235,615 16,241 6.89 Federal funds sold and other short-term investments .............. 78,661 3,949 5.02 128,329 6,935 5.40 84,770 4,482 5.29 ----------- ----------- ------- ----------- ----------- ------- ----------- ----------- ------ Total interest earning assets .................... 5,796,787 $ 431,945 7.45 5,394,413 $ 416,261 7.72 5,325,811 $ 413,206 7.76 ----------- ------- ----------- ------- ----------- ------ Allowance for loan losses .. (55,154) (53,909) (52,169) Cash and due from bank ..... 152,770 143,489 163,491 Other assets ............... 172,123 169,446 182,662 Unrealized (loss)gain on securities available for sale ..................... (6,886) 7,789 (381) ----------- ----------- ----------- Total assets ............... $ 6,059,640 $ 5,661,228 $ 5,619,414 =========== =========== =========== Liabilities and Shareholders' Equity Interest bearing liabilities Savings deposits ........... $ 2,026,367 $ 41,358 2.04% $ 1,985,675 $ 46,833 2.36% $ 1,977,238 $ 47,328 2.39% Time deposits .............. 2,070,416 102,154 4.93 2,050,383 109,228 5.33 2,174,057 117,051 5.38 ----------- ----------- ------- ----------- ----------- ------- ----------- ----------- ------ Total interest bearing deposits ................. 4,096,783 143,512 3.50 4,036,058 156,061 3.87 4,151,295 164,379 3.96 Short-term borrowings ...... 69,317 2,968 4.28 58,831 2,791 4.74 46,718 2,332 4.99 Long-term debt ............. 387,571 22,697 5.86 142,087 8,806 6.20 87,611 5,471 6.24 ----------- ----------- ------- ----------- ----------- ------- ----------- ----------- ------ Total interest bearing liabilities .............. 4,553,671 169,177 3.72 4,236,976 167,658 3.96 4,285,624 172,182 4.02 ----------- ------- ----------- ------- ----------- ------ Demand deposits ............ 896,911 828,555 770,125 Other liabilities .......... 29,588 36,080 48,685 Shareholders' equity ....... 579,470 559,617 514,980 ----------- ----------- ----------- Total liabilities and shareholders' equity ..... $ 6,059,640 $ 5,661,228 $ 5,619,414 =========== =========== =========== Net interest income (tax equivalent basis) ........ 262,768 248,603 241,024 Tax equivalent adjustment .. (4,410) (4,968) (6,388) ----------- ----------- ----------- Net interest income ........ $ 258,358 $ 243,635 $ 234,636 =========== =========== =========== Net interest rate differential ............. 3.73% 3.76% 3.74% ======= ======= ====== Net interest margin(4) ..... 4.53% 4.61% 4.53% ======= ======= ======
- --------------- (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. 13 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
1999 Compared to 1998 1998 Compared to 1997 Increase (Decrease)(2) Increase (Decrease)(2) -------------------------------- -------------------------------- Interest Volume Rate Interest Volume Rate -------- -------- -------- -------- -------- -------- (in thousands) Interest income: Loans(1) ................... $ 8,663 $ 21,821 $(13,158) $ 12,914 $ 15,897 $ (2,983) Taxable investments ........ 11,408 11,904 (496) (8,802) (7,126) (1,676) Tax-exempt investments(1) .. (1,401) (1,074) (327) (3,510) (3,702) 192 Federal funds sold and other short-term investments ... (2,986) (2,523) (463) 2,453 2,373 80 -------- -------- -------- -------- -------- -------- 15,684 30,128 (14,444) 3,055 7,442 (4,387) -------- -------- -------- -------- -------- -------- Interest expense: Savings deposits ........... (5,475) 943 (6,418) (495) 186 (681) Time deposits .............. (7,074) 1,058 (8,132) (7,823) (6,600) (1,223) Short-term borrowings ...... 177 466 (289) 459 537 (78) Long-term debt ............. 13,891 14,402 (511) 3,335 3,377 (42) -------- -------- -------- -------- -------- -------- 1,519 16,869 (15,350) (4,524) (2,500) (2,024) -------- -------- -------- -------- -------- -------- Net interest income (tax equivalent basis) ..... $ 14,165 $ 13,259 $ 906 $ 7,579 $ 9,942 $ (2,363) ======== ======== ======== ======== ======== ========
- ------------- (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 years ended December 31, 1999, 1998 and 1997. NON-INTEREST INCOME Years ended December 31, ------------------------------- 1999 1998 1997 ------- ------- ------- (in thousands) Trust and investment services .............. $ 2,414 $ 1,813 $ 1,538 Service charges on deposit accounts ........ 14,468 14,019 13,431 Gains on securities transactions, net ...... 2,532 1,419 2,136 Fees from loan servicing ................... 8,387 7,382 5,576 Credit card fee income ..................... 8,655 10,153 12,643 Gains on sales of loans, net ............... 2,491 4,863 3,634 Other ...................................... 8,305 5,725 6,236 ------- ------- ------- Total non-interest income ................. $47,252 $45,374 $45,194 ======= ======= ======= 14 Non-interest income continues to represent a considerable source of income for Valley. Excluding gains on securities transactions, total non-interest income amounted to $44.7 million for 1999 compared with $44.0 million for 1998. 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 with approximately $120 million of assets under management. At closing, Valley paid an initial consideration of $640 thousand. The balance due will be paid on an earn-out basis over a five-year period, based upon a pre-determined formula. New Century will continue its operation as a wholly owned subsidiary of VNB. The transaction was accounted for as a purchase and resulted in goodwill of $1.3 million. New Century contributed additional fee income to the operations of Valley of $326 thousand in 1999 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 13.6 percent from $7.4 million for 1998 to $8.4 million for 1999 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.* Credit card fee income declined by $1.5 million or 14.8 percent in 1999 compared with 1998. The decrease can be attributed to a change in the co-branded credit card program which reduced cardmember rebates, and continues to result in a decline in outstanding credit card balances. The decline in balances and usage of the card caused a reduction in the volume of co-branded credit card transactions. The decline in cardmember rebates is mainly responsible for the decline in credit card expense, included in non-interest expense. Gains on the sales of loans were $2.5 million in 1999 compared to $4.9 million in 1998. Gains are recorded primarily from the sale of residential mortgage loans and SBA loans into the secondary market. The decrease of $2.4 million resulted from a decline in the volume of residential mortgage loans being sold by Valley into the secondary market during 1999. Other non-interest income increased $2.6 million to $8.3 million in 1999 as compared to 1998. This increase is primarily attributed to the gain on the sale of one OREO property and the earnings resulting from an agreement during the fourth quarter of 1998 with a third party vendor whereby all the processing related to official checks and money orders were outsourced. This increase is also the result of $946 thousand of commission revenues from the sale of title insurance policies from a new title insurance business acquired by VNB in the second quarter of 1999. VNB received approval and a license from the New Jersey Department of Banking and Insurance to sell title insurance through a separate subsidiary, known as Wayne Title, Inc. After the close of the second quarter, VNB acquired the assets of an agency office of Commonwealth Land Title Insurance Company and began to sell both commercial and residential title insurance policies. The transaction was accounted for as a purchase and resulted in goodwill of $728 thousand. 15 (in thousands) Non-Interest Expense The following table presents the components of non-interest expense for the years ended December 31, 1999, 1998 and 1997. NON-INTEREST EXPENSE Years ended December 31, ---------------------------------- 1999 1998 1997 -------- -------- -------- (in thousands) Salary expense .......................... $ 58,339 $ 56,717 $ 51,441 Employee benefit expense ................ 13,645 13,143 12,306 FDIC insurance premiums ................. 1,239 1,301 1,234 Net occupancy expense ................... 11,943 13,740 12,536 Furniture and equipment expense ......... 8,370 9,037 8,723 Credit card expense ..................... 5,070 9,066 17,520 Amortization of intangible assets ....... 5,255 5,666 3,699 Advertising ............................. 5,178 4,677 5,374 Merger-related charges .................. 3,005 4,539 -- Other ................................... 25,902 26,827 26,413 -------- -------- -------- Total non-interest expense ............. $137,946 $144,713 $139,246 ======== ======== ======== Excluding merger-related charges, non-interest expense totaled $134.9 million for 1999, a decrease of $5.2 million or 3.7 percent from the 1998 level. The largest components of non-interest expense are salaries and employee benefit expense which totaled $72.0 million in 1999 compared to $69.9 million in 1998. At December 31, 1999, full-time equivalent staff was 1,863 compared to 1,867 at the end of 1998. 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 year ended December 31, 1999 was 43.9 percent, one of the lowest in the industry, compared with an efficiency ratio for 1998 of 46.7 percent. Valley strives to control its efficiency ratio and expenses as a means of producing increased earnings for its shareholders. Both net occupancy expense and furniture and equipment expense decreased during 1999 in comparison to 1998. The reduction in these expenses can be attributed to cost savings resulting from restructuring activities conducted in connection with recent mergers. Credit card expense includes cardmember rebates, processing expenses and fraud losses. The decrease in credit card expenses is directly attributable to an amendment made to the co-branded credit card program during the fourth quarter of 1997, which has continued to reduce the amount of cardmember rebates paid by Valley. Amortization of intangible assets decreased to $5.3 million in 1999 from $5.7 million in 1998, representing a decrease of $411 thousand or 7.3 percent. The majority of this expense resulted from the amortization of residential mortgage servicing rights totaling $3.6 million during 1999, compared with $4.2 million for 1998. An increase in interest rates is responsible for the decrease in amortization expense to maintain the unamortized balance of servicing rights in line with the portfolio balance and the expected future cash flows. An impairment analysis is completed quarterly to determine the adequacy of the mortgage servicing asset valuation allowance. During 1999, Valley recorded merger-related charges of $3.0 million related to the acquisition of Ramapo. The major components of merger-related charges, consisting of real estate dispositions, professional fees, personnel expenses and other expenses totaling $300 thousand, $1.1 million, $1.1 million and $500 thousand, respectively. During 1998, Valley recorded merger-related charges of $4.5 million related to the acquisition of Wayne Bancorp, Inc. The major components of merger-related charges were for real 16 estate dispositions, professional fees, personnel expenses and other expenses that totaled $1.5 million, $1.4 million, $1.0 million and $600 thousand, respectively. All amounts expensed as merger-related charges were paid with the exception of contracts which will be paid over their remaining terms. The significant components of other non-interest expense include data processing, professional fees, postage, telephone and stationery expense which totaled approximately $13.6 million for 1999. Income Taxes Income tax expense as a percentage of pre-tax income was 32.9 percent for the year ended December 31, 1999 compared to 23.1 percent in 1998. The reduction in the effective tax rate from 1996 through 1999 is attributable to tax benefits realized that are no longer available after 1999. Valley implemented a tax strategy during the second quarter of 1999 to minimize tax expense. The effective tax rate for 2000 is expected to approximate 34 percent.* Year 2000 VNB has completed its Year 2000 ("Y2K") upgrade for compliance with computer hardware and software systems, which has resulted in a smooth transition for its computer systems. Since implementing the assessment of Y2K issues, Valley's costs to external sources have been approximately $146 thousand. 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. For financial data on the four business segments see Part II, Item 8, "Financial Statements and Supplementary Data -- Note 19 of the Notes to Consolidated Financial Statements." The consumer lending segment had a return on average interest-earning assets before taxes of 2.54 percent for the year ended December 31, 1999 compared to 2.37 percent for the year ended December 31, 1998. Average interest-earning assets increased $252.7 million, which is attributable to an increase in home equity and residential mortgage lending. Interest rates on consumer loans declined by 49 basis points. This decrease was mitigated by a decrease in the cost of funds by 19 basis points. Income before income taxes increased $10.6 million primarily as a result of an increase in average interest-earning assets. Also contributing to the increase in income before taxes was a $2.8 million decrease in the provision for loan losses due to a decrease in net charge-offs and a decline in non-interest expense due to the change in credit card rebates. The return on average interest-earning assets before taxes for the commercial lending segment, increased 16 basis points to 3.81 percent for the year ended December 31, 1999. Average interest-earning assets increased $123.2 million as a result of an increased volume of loans. Interest rates on commercial loans declined by 16 basis points, offset by a decrease in cost of funds by 19 basis points. Income before income taxes increased $7.2 million primarily as a result of an increase in average interest-earning assets, offset by a decline in fee income during the period. The investment management segment had a return on average interest-earning assets, before taxes, of 2.07 percent for the year ended December 31, 1999, 15 basis points greater than the year ended December 31, 1998. Average interest-earning assets increased by $34.5 million. The yield on interest earning assets decreased by 26 basis points to 6.29 percent, and was offset by a smaller decrease of 19 basis points in the cost of funds. Income before income taxes increased 10.6 percent to $29.1 million principally reflecting lower internal expense transfer amounts. 17 The corporate segment represents assets and income and expense items not directly attributable to a specific segment including 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 decreased to $6.3 million for the year ended December 31, 1999, mainly due to more non-interest income. 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. According to the model, over a twelve month period, an interest rate increase of 100 basis points resulted in an increase in net interest income of approximately $289.3 thousand while an interest rate decrease of 100 basis points resulted in a decrease in net interest income of approximately $287.6 thousand. Management cannot provide any assurance about the actual effect of changes in interest rates on Valley's net interest income. 18 The following table shows the financial instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair value at December 31, 1999. Market risk sensitive instruments are generally defined as on-and-off balance sheet financial instruments. INTEREST RATE SENSITIVITY ANALYSIS
Total Rate 2000 2001 2002 2003 2004 Thereafter Balance ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (in thousands) Interest sensitive assets: Federal funds sold ............ 4.63% $ 123,000 $ -- $ -- $ -- $ -- $ -- $ 123,000 Investment securities held to maturity ................. 7.89 33,687 12,784 6,318 5,300 4,475 288,937 351,501 Investment securities available for sale .......... 6.44 454,134 112,863 77,160 83,342 68,233 209,687 1,005,419 Loans: Commercial ................... 8.51 362,967 11,936 7,907 39,836 26,557 62,961 512,164 Mortgage ..................... 7.66 553,728 187,253 124,835 439,895 293,263 936,343 2,535,317 Consumer ..................... 7.93 567,469 202,075 134,403 290,424 193,616 119,284 1,507,271 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total interest sensitive assets........................ 7.55% $2,094,985 $ 526,911 $ 350,623 $ 858,797 $ 586,144 $1,617,212 $6,034,672 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Interest sensitive liabilities: Deposits: Savings ...................... 2.18% $ 390,448 $ 814,040 $ 496,340 $ 105,892 $ 105,892 $ 105,918 $2,018,530 Time ......................... 5.03 1,628,209 314,370 86,353 30,074 9,255 33,448 2,101,709 Short-term borrowings ......... 3.75 129,065 -- -- -- -- -- 129,065 Long-term debt ................ 5.98 103,074 27,080 117,086 82,060 102,016 133,565 564,881 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total interest sensitive liabilities ......... 3.91% $2,250,796 $1,155,490 $ 699,779 $ 218,026 $ 217,163 $ 272,931 $4,814,185 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Interest sensitivity gap ...... $ (155,811) $ (628,579) $ (349,156) $ 640,771 $ 368,981 $1,344,281 $1,220,487 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ratio of interes sensitive assets to interest sensitive liabilities ................... (0.93:1) (0.46:1) (0.50:1) 3.94:1 2.70:1 5.93:1 1.25:1 ---------- ---------- ---------- ---------- ---------- ---------- ----------
Fair Value ---------- (in thousands) Interest sensitive assets: Federal funds sold ............ $ 123,000 Investment securities held to maturity ................. 318,329 Investment securities available for sale .......... 1,005,419 Loans: Commercial ................... 508,648 Mortgage ..................... 2,484,101 Consumer ..................... 1,505,298 ---------- Total interest sensitive assets........................ $5,944,795 ---------- Interest sensitive liabilities: Deposits: Savings ...................... $2,018,530 Time ......................... 2,102,149 Short-term borrowings ......... 129,065 Long-term debt ................ 548,043 ---------- Total interest sensitive liabilities ......... $4,797,787 ---------- Interest sensitivity gap ...... $1,147,008 ---------- Ratio of interes sensitive assets to interest sensitive liabilities ................... 1.24:1 ---------- Expected maturities are contractual maturities adjusted for all payments of principal. Valley uses certain assumptions to estimate fair values and expected maturities. For investment securities and loans, expected maturities are based upon contractual maturity, projected repayments and prepayments of principal. The prepayment experience reflected herein is based on historical experience. The actual maturities of these instruments could vary substantially if future prepayments differ from historical experience. For deposit liabilities, in accordance with standard industry practice and Valley's own historical experience, "decay factors" were used to estimate deposit runoff for savings. Off-balance sheet items are not considered material. The total negative gap repricing within 1 year as of December 31, 1999 was $155.8 million, representing a ratio of interest sensitive assets to interest sensitive liabilities of (0.93:1). Management does not view this amount as presenting an unusually high risk potential, although no assurances can be given that Valley is not at risk from interest rate increases or decreases.* 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 $1.3 billion at both December 31, 1999 and 1998. This represents 22.0 percent and 24.2 percent of earning assets, and 20.9 percent and 22.9 percent of total assets at December 31, 1999 and 1998, 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 $3.5 billion for the year ended December 31, 1999 and $3.6 billion for the year ended December 31, 1998, representing 60.9 percent and 66.8 percent of average earning assets. Short-term and 19 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. Continued growth in this strategy is under review to determine if it will be expanded in 2000.* As of December 31, 1999, Valley had outstanding advances of $464.5 million with the FHLB and repurchase agreements of $159.4 million. Additional liquidity is derived from scheduled loan and investment payments of principal and interest, as well as prepayments received. In 1999 proceeds from the sales of investment securities available for sale were $28.3 million, and proceeds of $466.3 million were generated from investment maturities. Purchases of investment securities in 1999 were $578.3 million. Short-term borrowings and certificates of deposit over $100 thousand amounted to $637.1 million and $503.6 million, on average, for the years ended December 31, 1999 and 1998, respectively. During 1999 a substantial amount of loan growth was funded from a combination of deposit growth, maturities and normal payments of the investment portfolio, normal loan payments and prepayments, and borrowings. Valley anticipates using funds from all of the above sources to fund loan growth during 2000.* The following table lists, by maturity, all certificates of deposit of $100 thousand and over at December 31, 1999. These certificates of deposit are generated primarily from core deposit customers and are not brokered funds. (in thousands) Less than three months ................................... $515,791 Three to six months ...................................... 49,993 Six to twelve months ..................................... 21,998 More than twelve months .................................. 59,494 -------- $647,276 ======== Valley'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. 20 Investment Securities The amortized cost of securities held to maturity at December 31, 1999, 1998 and 1997 were as follows: INVESTMENT SECURITIES HELD TO MATURITY
1999 1998 1997 -------- -------- -------- (in thousands) U.S. Treasury securities and other government agencies and corporations ............................................. $ -- $ 34,451 $ 28,265 Obligations of states and political subdivisions ......... 28,729 45,550 62,832 Mortgage-backed securities ............................... 46,599 67,561 91,581 Other debt securities .................................... 249,936 115,148 195 -------- -------- -------- Total debt securities .................................... 325,264 262,710 182,873 FRB & FHLB stock ......................................... 26,237 24,180 24,180 -------- -------- -------- Total investment securities held to maturity ............. $351,501 $286,890 $207,053 ======== ======== ========
The fair value of securities available for sale at December 31, 1999, 1998 and 1997 were as follows: INVESTMENT SECURITIES AVAILABLE FOR SALE
1999 1998 1997 ---------- ---------- ---------- (in thousands) U.S. Treasury securities and other government agencies and corporations ............................................. $ 112,650 $ 154,025 $ 224,647 Obligations of states and political subdivisions ......... 133,564 118,295 144,333 Mortgage-backed securities ............................... 730,131 719,790 759,529 ---------- ---------- ---------- Total debt securities .................................... 976,345 992,110 1,128,509 Equity securities ........................................ 29,074 31,078 10,685 ---------- ---------- ---------- Total investment securities available for sale ........... $1,005,419 $1,023,188 $1,139,194 ========== ========== ==========
21 MATURITY DISTRIBUTION OF INVESTMENT SECURITIES HELD TO MATURITY AT DECEMBER 31, 1999
Obligations of States and Mortgage-Backed Other Debt Securities Total(4) Political Subdivisions Securities --------------------- ---------------------- ------------------- ------------------ Amortized Yield Amortized Amortized Amortized Cost(1) (2)(3) Cost(1) Yield(2) Cost(1) Yield(2) Cost(1) Yield(2) -------- -------- -------- -------- -------- -------- -------- ------- (in thousands) 0-1 years ...................... $ 23,270 5.09% $ 1,784 5.81% $ 110 7.72% $ 25,164 5.15% 1-5 years ...................... 4,829 8.54 44,304 7.53 60 7.23 49,193 7.63 5-10 years ..................... -- -- 511 7.46 50 7.30 561 7.45 Over 10 years .................. 630 9.49 -- -- 249,716 7.47 250,346 7.48 -------- ---- -------- ---- -------- ---- -------- ---- Total securities ............... $ 28,729 5.77% $ 46,599 7.46% $249,936 7.47% $325,264 7.32% ======== ==== ======== ==== ======== ==== ======== ====
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, 1999
US Treasury Securities and Other Government Obligations of States Agencies and and Political Mortgage-Backed Corporations Subdivisions Securities Total(4) --------------------- ---------------------- ------------------- ------------------ Amortized Amortized Yield Amortized Amortized Cost(1) Yield(2) Cost(1) (2)(3) Cost(1) Yield(2) Cost(1) Yield(2) -------- -------- -------- -------- -------- -------- -------- ------- (in thousands) 0-1 years ...................... $ 14,327 5.81% $ 25,229 6.74% $ 325,124 7.23% $ 364,680 7.14% 1-5 years ...................... 101,423 5.61 45,238 6.70 269,738 6.18 416,399 6.10 5-10 years ..................... -- -- 29,563 6.22 119,364 6.61 148,927 6.53 Over 10 years .................. -- -- 35,629 7.58 37,036 6.53 72,665 7.04 ---------- ---- ---------- ---- ---------- ---- ---------- ---- Total securities ............... $ 115,750 5.63% $ 135,659 6.83% $ 751,262 6.72% $1,002,671 6.61% ========== ==== ========== ==== ========== ==== ========== ====
- ---------- (1) Maturities are stated at cost less principal reductions, if any, and adjusted for accretion of discounts and amortization of premiums. (2) Average yields are calculated on a yield-to-maturity basis. (3) Average yields on obligations of states and political subdivisions are generally tax-exempt and calculated on a tax-equivalent basis using a statutory federal income tax rate of 35 percent. (4) Excludes equity securities which have indefinite maturities. 22 Valley's investment portfolio is comprised of U.S. government and federal agency securities, tax-exempt issues of states and political subdivisions, mortgage-backed securities, equity and other securities. There were no securities in the name of any one issuer exceeding 10 percent of shareholders' equity, except for securities issued by the United States and its political subdivisions and agencies. The portfolio generates substantial cash flow. The decision to purchase or sell securities is based upon the current assessment of long and short term economic and financial conditions, including the interest rate environment and other statement of financial condition components. At December 31, 1999, Valley had $46.6 million of mortgaged-backed securities classified as held to maturity and $730.1 million of mortgage-backed securities classified as available for sale. Substantially all the mortgage-backed securities held by Valley are issued or backed by Federal agencies. The mortgage-backed securities portfolio is a source of significant liquidity to Valley through the monthly cash flow of principal and interest. Mortgage-backed securities, like all securities, are sensitive to changes in the interest rate environment, increasing and decreasing in value as interest rates fall and rise. As interest rates fall, the increase in prepayments can reduce the yield on the mortgage-backed securities portfolio, and reinvestment of the proceeds will be at lower interest rates. Included in the mortgage-backed securities portfolio at December 31, 1999 were $206.9 million of collateralized mortgage obligations ("CMO") of which $19.5 million were privately issued. CMO's had a yield of 6.53 percent and an unrealized loss of $8.7 million at December 31, 1999. Substantially all of the CMO portfolio was classified as available for sale. As of December 31, 1999, Valley had $1.0 billion of securities available for sale, unchanged from December 31, 1998. Those securities are recorded at their fair value. As of December 31, 1999, the investment securities available for sale had an unrealized loss of $16.3 million, net of deferred taxes, compared to an unrealized gain of $4.9 million, net of deferred taxes, at December 31, 1998. This change was primarily due to an 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. In connection with the Ramapo acquisition, Valley reassessed the classification of securities held in the Ramapo portfolio and transferred $42.4 million of securities held to maturity to securities available for sale to conform with Valley's investment objectives. In 1998, in connection with the Wayne acquisition, Valley reassessed the classification of securities held in the Wayne portfolio and transferred $1.6 million of securities held to maturity to securities available for sale to conform with Valley's investment objectives. In 1997, in connection with the Midland acquisition, Valley reassessed the classification of securities held in the Midland investment portfolio and transferred $39.8 million of securities held to maturity to securities available for sale to conform to Valley's investment objectives. During 1999 and 1998, Valley purchased approximately $138.6 million and $111.8 million, respectively, of trust preferred securities, as part of a leveraging strategy to increase interest earning assets and net interest income. Loan Portfolio As of December 31, 1999, total loans were $4.6 billion, compared to $4.1 billion at December 31, 1998, an increase of 9.8 percent. The following table reflects the composition of the loan portfolio for the five years ended December 31, 1999. 23 LOAN PORTFOLIO
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (in thousands) Commercial ................. $ 512,164 $ 477,231 $ 468,947 $ 480,240 $ 426,887 ----------- ----------- ----------- ----------- ----------- Total commercial loans ... 512,164 477,231 468,947 480,240 426,887 ----------- ----------- ----------- ----------- ----------- Construction ............... 123,531 112,819 94,162 98,435 91,097 Residential mortgage ....... 1,247,721 1,055,278 1,056,436 1,060,526 1,029,551 Commercial mortgage ........ 1,164,065 1,050,420 955,052 877,617 780,099 ----------- ----------- ----------- ----------- ----------- Total mortgage loans ..... 2,535,317 2,218,517 2,105,650 2,036,578 1,900,747 ----------- ----------- ----------- ----------- ----------- Home equity ................ 276,261 226,231 225,899 230,265 235,742 Credit card ................ 92,097 108,180 146,151 150,233 23,098 Automobile ................. 1,053,457 1,033,938 931,579 813,058 673,597 Other consumer ............. 85,456 83,552 94,370 73,714 67,216 ----------- ----------- ----------- ----------- ----------- Total consumer loans ..... 1,507,271 1,451,901 1,397,999 1,267,270 999,653 ----------- ----------- ----------- ----------- ----------- Less: unearned income ...... -- -- (56) (556) (1,290) ----------- ----------- ----------- ----------- ----------- Total loans ................ $ 4,554,752 $ 4,147,649 $ 3,972,540 $ 3,783,532 $ 3,325,997 =========== =========== =========== =========== =========== As a percent of total loans: Commercial loans .......... 11.2% 11.5% 11.8% 12.7% 12.8% Mortgage loans ............ 55.7 53.5 53.0 53.8 57.1 Consumer loans ............ 33.1 35.0 35.2 33.5 30.1 ----------- ----------- ----------- ----------- ----------- Total loans .............. 100.0% 100.0% 100.0% 100.0% 100.0% =========== =========== =========== =========== ===========
The majority of the increase in loans for 1999 was divided between residential and commercial mortgage loans. It is not known if the trend of increased lending in these loan types will continue, especially if interest rates continue to increase. The commercial mortgage loan portfolio has continued its steady increase. Valley targets small-to-medium size businesses within the market area of the bank for this type of lending. During 1996, Valley issued a co-branded credit card. Of the $92.1 million of credit card loans outstanding at December 31, 1999, approximately $77.1 million were the result of this co-branded credit card program. The decrease in the credit card portfolio is primarily attributable to an amendment made to the co-branded credit card program during the fourth quarter of 1997, which also reduced the amount of cardmember rebates paid by Valley. It is expected that the decline in the co-branded credit card loans will continue.* Automobile loans comprised 23.1 percent of total loans at December 31, 1999. Approximately 66.2 percent of the automobile loan portfolio and 15.3 percent of the total loan portfolio at December 31, 1999 represented loans originated by VNB through a program with a major insurance company. These loans are subject to Valley's normal underwriting criteria. During the fourth quarter of 1997, Valley began closing loans in Florida under this program. Valley began an identical program in the State of Pennsylvania in January 1998. The addition of Florida and Pennsylvania resulted in a greater than 60 percent increase in the number of agents under this program. This expanded Valley's over 40 year relationship with the company to 11 states from Maine to Florida, as well as Canada. Valley expects to begin lending in Connecticut during early 2000 under this program with the insurance company.* VNB extended this program during the first quarter of 1996 by establishing a finance company in Toronto, Canada to make auto loans. This Canadian subsidiary had interest income of approximately $2.0 million for the year ended December 31, 1999, and auto loans of $26.8 million at December 31, 1999. These loans are funded by a capital investment by VNB of $7.4 million, with additional funding requirements 24 satisfied by lines of credit in Canadian funds. Any foreign exchange risk is limited to the capital investment by VNB. Much of Valley's lending is in northern New Jersey, with the exception of the out-of-state auto lending program. However, efforts are made to maintain a diversified portfolio as to type of borrower and loan to guard against a downward turn in any one economic sector.* The following table reflects the contractual maturity distribution of the commercial and construction loan portfolios as of December 31, 1999: 1 Yr. Over 1 Over or less to 5 Yrs. 5 Yrs. Total -------- -------- -------- -------- (in thousands) Commercial--fixed rate ............. $ 8,435 $ 89,971 $ 51,083 $149,489 Commercial--adjustable rate ........ 276,938 41,182 44,555 362,675 Construction--fixed rate ........... 16,927 6,429 -- 23,356 Construction--adjustable rate ...... 55,035 45,140 -- 100,175 -------- -------- -------- -------- $357,335 $182,722 $ 95,638 $635,695 ======== ======== ======== ======== Prior to maturity of each loan with a balloon payment and if the borrower requests an extension, Valley generally conducts a review which normally includes an analysis of the borrower's financial condition and, if applicable, a review of the adequacy of collateral. A rollover of the loan at maturity may require a principal paydown. VNB is a preferred U.S. Small Business Administration ("SBA") lender with authority to make loans without the prior approval of the SBA. VNB currently has approval to make SBA loans in New Jersey, Pennsylvania, New York, Delaware, Maryland, the District of Columbia and sections of Virginia. Between 75 percent and 80 percent of each loan is guaranteed by the SBA and may be sold into the secondary market, with the balance retained in VNB's portfolio. VNB intends to continue expanding this area of lending because it provides a good source of fee income and loans with floating interest rates tied to the prime lending rate.* During 1999 and 1998, VNB originated approximately $34.8 million and $25.8 million of SBA loans, respectively and sold $24.8 million and $22.1 million, respectively. At December 31, 1999 and 1998, $37.5 million and $31.4 million, respectively, of SBA loans were held in VNB's portfolio and VNB serviced for others approximately $89.0 million and $78.1 million, respectively, of SBA loans. 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 continued to decrease, and totaled $5.7 million at December 31, 1999, compared with $11.8 million at December 31, 1998, a decrease of $6.0 million or 51.2 percent. Non-performing assets at December 31, 1999 and 1998, respectively, amounted to 0.13 percent and 0.28 percent of loans and OREO. Non-performing assets have declined steadily over the past five years. Valley cannot predict whether or for how long that this trend will continue.* Loans 90 days or more past due and not included in the non-performing category totaled $11.7 million at December 31, 1999, compared to $7.4 million at December 31, 1998. 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 $1.5 million and $175 thousand at December 31, 1999 and 1998, respectively. 25 The allowance for loan losses as a percent of loans has declined since 1995. Valley provides additions to the allowance based upon net charge-offs. 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
1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- (in thousands) Loans past due in excess of 90 days and still accruing ............... $11,698 $ 7,418 $16,463 $10,318 $ 8,266 ------- ------- ------- ------- ------- Non-accrual loans .................. $ 3,482 $ 7,507 $10,380 $16,311 $20,817 Other real estate owned ............ 2,256 4,261 4,450 6,077 12,020 ------- ------- ------- ------- ------- Total non-performing assets ........ $ 5,738 $11,768 $14,830 $22,388 $32,837 ------- ------- ------- ------- ------- Troubled debt restructured loans ... $ 4,852 $ 6,387 $ 6,723 $ 7,116 $ 6,911 ------- ------- ------- ------- ------- Non-performing loans as a % of loans 0.08% 0.18% 0.26% 0.43% 0.63% ------- ------- ------- ------- ------- Non-performing assets as a % of loans plus other real estate owned 0.13% 0.28% 0.37% 0.59% 0.98% ------- ------- ------- ------- ------- Allowance as a % of loans .......... 1.21% 1.32% 1.34% 1.40% 1.52% ------- ------- ------- ------- -------
During 1999, recovered interest on non-accrual loans amounted to $720 thousand, compared with lost interest of $1.0 million in 1998. Although substantially all risk elements at December 31, 1999 have been disclosed in the categories presented above, management believes that for a variety of reasons, including economic conditions, certain borrowers may be unable to comply with the contractual repayment terms on certain real estate and commercial loans. As part of the analysis of the loan portfolio by management, it has been determined that there are approximately $2.0 million in potential problem loans at December 31, 1999, which have not been classified as non-accrual, past due or restructured.* Potential problem loans are defined as performing loans for which management has serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in a non-performing loan. Approximately $585 thousand has been provided for in the allowance for loan losses for these potential problem loans. There can be no assurance that Valley has identified all of its problem loans. At December 31, 1998, Valley had identified approximately $2.7 million of potential problem loans which were not classified as non-accrual, past due or restructured. Asset Quality and Risk Elements Lending is one of the most important functions performed by Valley and, by its very nature, lending is also the most complicated, risky and profitable part of Valley's business. For commercial loans, construction loans and commercial mortgage loans, a separate credit department is responsible for risk assessment, credit file maintenance and periodically evaluating overall creditworthiness of a borrower. Additionally, efforts are made to limit concentrations of credit so as to minimize the impact of a downturn in any one economic sector. These loans are diversified as to type of borrower and loan. However, most of these loans are in northern New Jersey, presenting a geographical and credit risk if there was a significant downturn of the economy within the region. Residential mortgage loans are secured primarily by 1-4 family properties located mainly within northern New Jersey. Conservative underwriting policies are adhered to and loan to value ratios are generally less than 80 percent. 26 Consumer loans are comprised of home equity loans, credit card loans and automobile loans. Home equity and automobile loans are secured loans and are made based on an evaluation of the collateral and the borrower's creditworthiness. The majority of automobile loans are originated through a program with a major insurance company, whose customer base generally has a good credit profile and generally result in delinquencies and charge-offs equal to that typically experienced from traditional sources. These automobile loans are from 11 states, including New Jersey and generally present no more risk than those made within New Jersey. All loans are subject to Valley's underwriting criteria; therefore, each loan or group of loans presents a geographical risk and credit risk based upon the economy of the region. The co-branded credit card portfolio was substantially generated through a pre-approved mailing during 1996 utilizing automated credit scoring techniques and additional underwriting standards. Management realizes that some degree of risk must be expected in the normal course of lending activities. Reserves are maintained to absorb such loan and off-balance sheet credit losses inherent in the portfolio. The allowance for loan losses and related provision are an expression of management's evaluation of the credit portfolio and economic climate. 27 The following table sets forth the relationship among loans, loans charged-off and loan recoveries, the provision for loan losses and the allowance for loan losses for the past five years:
Years ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- (in thousands) Average loans outstanding ............................ $4,280,426 $4,009,604 $3,817,092 $3,494,950 $3,244,586 ========== ========== ========== ========== ========== Beginning balance--Allowance for loan losses .......................................... $ 54,641 $ 53,170 $ 52,926 $ 50,433 $ 53,949 ---------- ---------- ---------- ---------- ---------- Loans charged-off: Commercial .......................................... 337 216 4,650 493 1,346 Construction ........................................ -- -- -- 110 3,092 Mortgage-Commercial ................................. 983 2,166 1,440 1,214 2,976 Mortgage-Residential ................................ 761 1,274 522 932 1,255 Consumer ............................................ 10,050 11,307 8,394 4,110 2,992 ---------- ---------- ---------- ---------- ---------- 12,131 14,963 15,006 6,859 11,661 ---------- ---------- ---------- ---------- ---------- Charged-off loans recovered: Commercial .......................................... 702 484 562 2,669 1,534 Construction ........................................ 218 222 89 58 -- Mortgage-Commercial ................................. 268 1,074 227 1,462 1,303 Mortgage-Residential ................................ 133 329 167 222 87 Consumer ............................................ 2,169 1,680 1,075 985 1,400 ---------- ---------- ---------- ---------- ---------- 3,490 3,789 2,120 5,396 4,324 ---------- ---------- ---------- ---------- ---------- Net charge-offs ...................................... 8,641 11,174 12,886 1,463 7,337 Provision charged to operations ...................... 9,120 12,645 13,130 3,956 3,821 ---------- ---------- ---------- ---------- ---------- Ending balance--Allowance for loan losses ............ $ 55,120 $ 54,641 $ 53,170 $ 52,926 $ 50,433 ========== ========== ========== ========== ========== Ratio of net charge-offs during the period to average loans outstanding during the period 0.20% 0.28% 0.34% 0.04% 0.23%
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 called for in Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." VNB's allocated allowance is calculated by applying loss factors to outstanding loans as well as certain unused commitments. The formula is based on the internal risk grade of loans, pools of loans, or commitments. Any change in the risk grade of performing and/or non-performing loans affects the amount of the related allowance. Loss factors are based on VNB's historical loss experience and may be adjusted for significant circumstances that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date. Management determines the unallocated portion of the allowance based on factors that cannot be associated with a specific credit or loan category. These factors include management's evaluation of local and national economic and business conditions, changes in portfolio composition, portfolio concentrations, credit quality and delinquency trends. The unallocated portion of the allowance reflects management's 28 attempt to ensure that the overall allowance reflects a margin for the uncertainty that is inherent in estimates of expected credit losses. The underwriting, growth and delinquency experience in the credit card portfolio will substantially influence the level of the allowance needed to absorb credit losses inherent in the portfolio. Although credit card loans are generally considered more risky than other types of lending, a higher interest rate is charged to compensate for this increased risk. VNB continues to monitor the need for additions to the allowance. During 1999, 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 $9.1 million in 1999 compared to $12.6 million in 1998. The following table summarizes the allocation of the allowance for loan losses to specific loan categories for the past five years:
Years ended December 31, -------------------------------------------------------------------------- 1999 1998 1997 ----------------------- ----------------------- ------------------------ Percent of Percent of Percent of Loan Loan Loan Category Category Category Allowance to Total Allowance to Total Allowance to Total Allocation Loans Allocation Loans Allocation Loans ---------- --------- ---------- ---------- ---------- ---------- (in thousands) Loan category: Commercial .................... $15,501 11.2% $14,491 11.5% $13,525 11.8% Mortgage ...................... 13,282 55.7 14,363 53.5 16,861 53.0 Consumer ...................... 12,813 33.1 12,417 35.0 11,625 35.2 Unallocated ................... 13,524 N/A 13,370 N/A 11,159 N/A ---------- --------- ---------- ---------- ---------- ---------- $55,120 100.0% $54,641 100.0% $53,170 100.0% ========== ========= ========== ========== ========== ========== Years ended December 31, ---------------------------------------------------- 1996 1995 ------------------------ ------------------------- Percent of Percent of Loan Loan Category Category Allowance to Total Allowance to Total Allocation Loans Allocation Loans ---------- ---------- ---------- --------- (in thousands) Loan category: Commercial .................... $19,097 12.7% $16,006 12.8% Mortgage ...................... 13,743 53.8 13,428 57.1 Consumer ...................... 7,667 33.5 7,893 30.1 Unallocated ................... 12,419 N/A 13,106 N/A ---------- ---------- ---------- --------- $52,926 100.0% $50,433 100.0% ========== ========== ========== =========
At December 31, 1999 the allowance for loan losses amounted to $55.1 million or 1.21 percent of loans, as compared to $54.6 million or 1.32 percent at December 31, 1998. The allowance is adjusted by provisions charged against income and loans charged-off, net of recoveries. Net loan charge-offs were $8.6 million for the year ended December 31, 1999 compared with $11.2 million for the year ended December 31, 1998. The ratio of net charge-offs to average loans decreased to 0.20 percent for 1999 compared with 0.28 percent for 1998. While consumer loan charge-offs decreased during 1999, they were at a level less than the level reported throughout the industry on a national basis. Non-accrual loans decreased in 1999 in comparison to 1998, while loans past due 90 days and still accruing in 1999 were higher than during 1998. The impaired loan portfolio is primarily collateral dependent. Impaired loans and their related specific and general allocations to the allowance for loan losses totaled $13.4 million and $1.8 million, respectively, at December 31, 1999 and $13.4 million and $4.6 million, respectively, at December 31, 1998. The average balance of impaired loans during 1999 and 1998 was approximately $13.2 million and $15.1 million, respectively. The amount of cash basis interest income that was recognized on impaired loans during both 1999 and 1998 was $559 thousand and $1.1 million, respectively. Capital Adequacy A significant measure of the strength of a financial institution is its shareholders' equity. At December 31, 1999, shareholders' equity totaled $553.5 million or 8.7 percent of total assets, compared with $589.8 million or 10.0 percent at year-end 1998. 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 December 31, 1999 Valley had repurchased 800,300 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. 29 On June 10, 1999 Valley's Board of Directors rescinded the stock repurchase program it had announced on April 28, 1999 after 1.6 million shares of Valley common stock had been repurchased. Approximately 1.5 million treasury shares were issued in conjunction with the 5 percent stock dividend issued May 18, 1999. Rescinding the remaining authorization was undertaken in connection with Valley's acquisition of Ramapo. On May 26, 1998 Valley's Board of Directors rescinded its previously announced stock repurchase program after 220,125 shares of Valley common stock had been repurchased. Rescinding the remaining authorization was necessary to comply with certain accounting rules in connection with Valley's acquisition of Wayne. Included in shareholders' equity as components of accumulated other comprehensive income at December 31, 1999 was a $16.3 million unrealized loss on investment securities available for sale, net of tax, and a translation adjustment loss of $418 thousand related to the Canadian subsidiary of VNB, compared to an unrealized gain of $4.9 million and an $852 thousand translation adjustment loss at December 31, 1998. Risk-based guidelines define a two-tier capital framework. Tier 1 capital consists of common shareholders' equity less disallowed intangibles, while Total risk-based capital consists of Tier 1 capital and the allowance for loan losses up to 1.25 percent of risk-adjusted assets. Risk-adjusted assets are determined by assigning various levels of risk to different categories of assets and off-balance sheet activities. Valley's capital position at December 31, 1999 under risk-based capital guidelines was $565.4 million, or 11.6 percent of risk-weighted assets, for Tier 1 capital and $620.5 million, or 12.8 percent for Total risk-based capital. The comparable ratios at December 31, 1998 were 13.4 percent for Tier 1 capital and 14.6 percent for Total risk-based capital. At December 31, 1999 and 1998, Valley was in compliance with the leverage requirement having Tier 1 leverage ratios of 9.1 percent and 10.1 percent, respectively. Valley's ratios at December 31, 1999 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 $9.27 at December 31, 1999 compared with $9.57 per share at December 31, 1998. 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 43.6 percent at December 31, 1999, compared to 47.4 percent at December 31, 1998. Cash dividends declared amounted to $1.02 per share, equivalent to a dividend payout ratio of 56.4 percent for 1999, compared to 52.6 percent for the year 1998. The current quarterly dividend rate of $0.26 per share provides for an annual rate of $1.04 per share. 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.* Results of Operations--1998 Compared to 1997 Valley reported net income for 1998 of $101.3 million or $1.63 earnings per diluted share, compared to the $90.2 million, or $1.46 earnings per diluted share earned in 1997. Net interest income on a tax equivalent basis increased $7.6 million, or 3.1%, to $248.6 million in 1998. The increase in 1998 was due primarily to a small increase in the average balance of interest bearing assets and a slight decrease in the average balance of interest bearing liabilities. Average rates on interest earning assets and interest bearing liabilities decreased 4 basis points and 6 basis points, respectively. Non-interest income in 1998 amounted to $45.4 million, relatively unchanged compared with 1997. Fees from loan servicing, which includes both servicing fees from residential mortgage loans and SBA loans, increased $1.8 million or 32.4 percent. This increase can be attributed to the acquisition of several residential mortgage portfolios, and the origination of both SBA and residential mortgage loans by VNB which were sold to third-party investors with servicing retained. Credit card income declined by $2.5 million due to a change in the rebate program decreasing card usage and related fee income. 30 Non-interest expense totaled $144.7 million in 1998, an increase of $5.5 million. Non-interest expense for 1998 includes a $4.5 million merger-related charge from the acquisition of Wayne. Salary and benefit expense for 1998 increased $6.1 million or 9.6 percent and amortization of intangibles increased $2.0 million or 53.2 percent resulting from increased amortization of loan servicing rights due to a larger portfolio of loans being serviced and a declining rate environment. These increases were offset by a decrease in credit card expense of $8.5 million, directly attributable to an amendment made to Valley's co- branded credit card program during the fourth quarter of 1997, which reduced the amount of cardmember rebates paid by Valley. Income tax expense as a percentage of pre-tax income was 23.1 percent for the year ended December 31, 1998 compared to 29.3 percent in 1997. The reduced effective tax rate during 1997 and 1998 is attributable to tax benefits realized from a realignment of corporate entities. Item 7A. Quantitative and Qualitative Disclosures About Market Risk For information regarding Quantitative and Qualitative Disclosures About Market Risk, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Interest Rate Sensitivity." 31 Item 8. Financial Statements and Supplementary Data CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- (in thousands, except for share data) Interest Income Interest and fees on loans (Note 5) ............... $ 339,438 $ 330,701 $ 317,598 Interest and dividends on investment securities: Taxable .......................................... 74,381 63,430 72,489 Tax-exempt ....................................... 7,364 8,281 10,560 Dividends ........................................ 2,403 1,946 1,689 Interest on federal funds sold and other short-term investments ........................... 3,949 6,935 4,482 ----------- ----------- ----------- Total interest income ........................... 427,535 411,293 406,818 ----------- ----------- ----------- Interest Expense Interest on deposits: Savings deposits ................................. 41,358 46,833 47,328 Time deposits (Note 10) .......................... 102,154 109,228 117,051 Interest on short-term borrowings ................. 2,968 2,791 2,332 Interest on long-term debt (Note 11) .............. 22,697 8,806 5,471 ----------- ----------- ----------- Total interest expense ........................... 169,177 167,658 172,182 ----------- ----------- ----------- Net Interest Income ............................... 258,358 243,635 234,636 Provision for loan losses (Note 6) ................ 9,120 12,645 13,130 ----------- ----------- ----------- Net Interest Income after Provision for Loan Losses 249,238 230,990 221,506 ----------- ----------- ----------- Non-Interest Income Trust and investment services ..................... 2,414 1,813 1,538 Service charges on deposit accounts ............... 14,468 14,019 13,431 Gains on securities transactions, net (Note 4) .... 2,532 1,419 2,136 Fees from loan servicing (Note 7) ................. 8,387 7,382 5,576 Credit card fee income ............................ 8,655 10,153 12,643 Gains on sales of loans, net ...................... 2,491 4,863 3,634 Other ............................................. 8,305 5,725 6,236 ----------- ----------- ----------- Total non-interest income ........................ 47,252 45,374 45,194 ----------- ----------- ----------- Non-Interest Expense Salary expense (Note 12) .......................... 58,339 56,717 51,441 Employee benefit expense (Note 12) ................ 13,645 13,143 12,306 FDIC insurance premiums ........................... 1,239 1,301 1,234 Net occupancy expense (Notes 8 and 14) ............ 11,943 13,740 12,536 Furniture and equipment expense (Note 8) .......... 8,370 9,037 8,723 Credit card expense ............................... 5,070 9,066 17,520 Amortization of intangible assets (Note 7) ........ 5,255 5,666 3,699 Advertising ....................................... 5,178 4,677 5,374 Merger-related charges (Note 2) ................... 3,005 4,539 -- Other ............................................. 25,902 26,827 26,413 ----------- ----------- ----------- Total non-interest expense ........................ 137,946 144,713 139,246 ----------- ----------- ----------- Income Before Income Taxes ........................ 158,544 131,651 127,454 Income tax expense (Note 13) ...................... 52,220 30,380 37,303 ----------- ----------- ----------- Net Income ........................................ $ 106,324 $ 101,271 $ 90,151 =========== =========== =========== Earnings Per Share: Basic ............................................ $ 1.75 $ 1.65 $ 1.47 Diluted .......................................... 1.73 1.63 1.46 Weighted Average Number of Shares Outstanding: Basic ............................................ 60,697,186 61,360,325 61,266,111 Diluted .......................................... 61,305,673 62,185,100 61,812,546
See accompanying notes to consolidated financial statements. 32 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, -------------------------------- 1999 1998 ----------- ----------- (in thousands, except for share data) Assets Cash and due from banks .............................................................. $ 161,561 $ 185,921 Federal funds sold ................................................................... 123,000 108,100 Investment securities held to maturity, fair value of $318,329 and $288,312 in 1999 and 1998, respectively (Notes 3 and 11) ........................................ 351,501 286,890 Investment securities available for sale (Notes 4 and 11) ............................ 1,005,419 1,023,188 Trading account securities (Note 4) .................................................. -- 1,592 Loans (Notes 5 and 11) ............................................................... 4,542,567 4,124,194 Loans held for sale (Note 5) ......................................................... 12,185 23,455 ----------- ----------- Total loans .......................................................................... 4,554,752 4,147,649 Less: Allowance for loan losses (Note 6) ........................................... (55,120) (54,641) ----------- ----------- Net loans .......................................................................... 4,499,632 4,093,008 ----------- ----------- Premises and equipment, net (Note 8) ................................................. 84,790 82,808 Accrued interest receivable .......................................................... 35,504 32,197 Other assets (Notes 7, 9 and 13) ..................................................... 98,987 65,265 ----------- ----------- Total assets ...................................................................... $ 6,360,394 $ 5,878,969 =========== =========== Liabilities Deposits: Non-interest bearing ............................................................... $ 931,016 $ 924,217 Interest bearing: Savings ........................................................................... 2,018,530 2,037,200 Time (Note 10) .................................................................... 2,101,709 2,008,732 ----------- ----------- Total deposits ................................................................... 5,051,255 4,970,149 ----------- ----------- Short-term borrowings (Notes 3 and 11) ............................................... 129,065 57,617 Long-term debt (Note 11) ............................................................. 564,881 212,949 Accrued expenses and other liabilities (Note 12) ..................................... 61,693 48,445 ----------- ----------- Total liabilities ................................................................ 5,806,894 5,289,160 ----------- ----------- Commitments and contingencies (Note 14) Shareholders' Equity (Notes 2, 12 and 15) Common stock, no par value, authorized 103,359,375 shares; ........................... 25,943 26,079 issued 60,621,040 shares in 1999 and 58,951,593 shares in 1998 Surplus .............................................................................. 325,147 331,337 Retained earnings .................................................................... 244,605 235,879 Unallocated common stock held by employee benefit plan ............................... (965) (1,331) Accumulated other comprehensive (loss) income ........................................ (16,733) 4,031 ----------- ----------- 577,997 595,995 Treasury stock, at cost (927,750 shares in 1999 and 236,735 shares in 1998) .......... (24,497) (6,186) ----------- ----------- Total shareholders' equity ......................................................... 553,500 589,809 ----------- ----------- Total liabilities and shareholders' equity ....................................... $ 6,360,394 $ 5,878,969 =========== ===========
See accompanying notes to consolidated financial statements. 33 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unallocated Accumulated Common Other Stock Held Comprehensive Total Common Retained by Employee (Loss) Treasury Shareholders' Stock Surplus Earnings Benefit Plan Income Stock Stock --------- --------- --------- ------------ --------- --------- ----------- (in thousands) Balance-December 31, 1996 ....................... $ 25,091 $ 278,096 $ 203,018 $ (1,785) $ (206) $ (7,883) $ 496,331 Comprehensive income: Net income ....................................... -- -- 90,151 -- -- -- 90,151 Other comprehensive income, net of tax: Unrealized gains on securities available for sale, net of tax of $3,081 ........................... -- -- -- -- 5,446 -- Less reclassification adjustment for gains included in net income, net of tax of $(767) ... -- -- -- -- (1,369) -- Foreign currency translation adjustment .......... -- -- -- -- (307) -- --------- Other comprehensive income ....................... -- -- -- -- 3,770 -- 3,770 --------- --------- Total comprehensive income ....................... -- -- -- -- -- -- 93,921 Cash dividends ................................... -- -- (45,350) -- -- -- (45,350) Effect of stock incentive plan, net .............. 8 (1,705) (2,655) -- -- 5,311 959 Stock dividend ................................... 964 55,041 (56,086) -- -- -- (81) Tax benefit from exercise of stock options ....... -- 329 -- -- -- -- 329 Allocation of employee benefit plan .............. -- 177 -- 181 -- -- 358 Retirement of treasury stock ..................... (64) (230) -- -- -- 294 Common stock acquired for stock incentive plan ... -- (1,450) -- -- -- -- (1,450) Purchase of treasury stock ....................... -- -- -- -- -- (4,417) (4,417) --------- --------- --------- --------- --------- --------- --------- Balance-December 31, 1997 ....................... 25,999 330,258 189,078 (1,604) 3,564 (6,695) 540,600 Comprehensive income: Net income ....................................... -- -- 101,271 -- -- -- 101,271 Other comprehensive income, net of tax: Unrealized gains on securities available for sale, net of tax of $1,052 ....... -- -- -- -- 1,871 -- Less reclassification adjustment for gains included in net income, net of tax of $(524) ... -- -- -- -- (895) -- Foreign currency translation adjustment .......... -- -- -- -- (509) -- --------- Other comprehensive income ....................... -- -- -- -- 467 -- 467 --------- --------- Total comprehensive income ....................... -- -- -- -- -- -- 101,738 Cash dividends ................................... -- -- (53,271) -- -- -- (53,271) Effect of stock incentive plan, net .............. 56 (392) (850) -- -- 3,713 2,527 Common stock repurchased and retired ............. (65) -- (349) -- -- -- (414) Allocation of employee benefit plan shares ....... -- 381 -- 273 -- -- 654 Issuance of shares from treasury ................. 89 1,090 -- -- -- 3,454 4,633 Purchase of treasury stock ....................... -- -- -- -- -- (6,658) (6,658) --------- --------- --------- --------- --------- --------- --------- Balance-December 31, 1998 ....................... 26,079 331,337 235,879 (1,331) 4,031 (6,186) 589,809 Comprehensive income: Net income ....................................... -- -- 106,324 -- -- -- 106,324 Other comprehensive loss, net of tax: Unrealized (losses) on securities available for sale, net of tax of $(13,095) .... -- -- -- -- (19,591) -- Less reclassification adjustment for gains included in net income, net of tax of $(925) ... -- -- -- -- (1,607) -- Foreign currency translation adjustment .......... -- -- -- -- 434 -- --------- Other comprehensive loss ......................... -- -- -- -- (20,764) -- (20,764) --------- --------- Total comprehensive income ....................... -- -- -- -- -- -- 85,560 Cash dividends ................................... -- -- (60,019) -- -- -- (60,019) Effect of stock incentive plan, net .............. (8) (151) (1,522) -- -- 4,067 2,386 Stock dividend ................................... (128) (7,164) (36,057) -- -- 44,207 858 Allocation of employee benefit plan shares ....... -- 1,125 -- 366 -- 370 1,861 Purchase of treasury stock ....................... -- -- -- -- -- (66,955) (66,955) --------- --------- --------- --------- --------- --------- --------- Balance-December 31, 1999 ....................... $ 25,943 $ 325,147 $ 244,605 $ (965) $ (16,733) $ (24,497) $ 553,500 ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 34 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, ----------------------------------------- 1999 1998 1997 --------- --------- --------- (in thousands) Cash flows from operating activities: Net income ........................................................................ $ 106,324 $ 101,271 $ 90,151 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................................................... 12,877 14,897 12,934 Amortization of compensation costs pursuant to long-term stock incentive plan ............................................................ 1,091 1,036 898 Provision for loan losses ......................................................... 9,120 12,645 13,130 Net amortization of premiums and accretion of discounts ........................... 4,187 3,312 1,105 Net deferred income tax (benefit) expense ......................................... (255) (2,540) 3,238 Net gains on securities transactions .............................................. (2,532) (1,419) (2,136) Proceeds from sales of loans ...................................................... 76,113 181,020 49,972 Gain on sales of loans ............................................................ (2,491) (4,863) (3,634) Proceeds from recoveries of previously charged-off loans .......................... 3,490 3,789 2,120 Net (increase)decrease in accrued interest receivable and other assets ............ (19,960) 4,864 8,754 Net increase(decrease) in accrued expenses and other liabilities .................. 25,475 (3,334) (496) --------- --------- --------- Net cash provided by operating activities ......................................... 213,439 310,678 176,036 --------- --------- --------- Cash flows from investing activities: Purchases and originations of mortgage servicing rights ........................... (20,419) (12,101) (3,905) Proceeds from sales of investment securities available for sale ................... 28,317 113,597 186,383 Proceeds from maturing investment securities available for sale ................... 412,335 418,068 236,888 Purchases of investment securities available for sale ............................. (416,297) (416,359) (401,394) Purchases of investment securities held to maturity ............................... (161,986) (153,486) (39,402) Proceeds from maturing investment securities held to maturity ..................... 53,993 71,734 78,549 Proceeds from sales of trading account securities ................................. 1,415 -- -- Net (increase) decrease in federal funds sold and other short- term investments ...................................................................... (14,900) (63,975) 61,255 Net increase in loans made to customers ........................................... (492,856) (365,798) (250,239) Purchases of premises and equipment, net of sales ................................. (9,577) (10,698) (12,753) --------- --------- --------- Net cash used in investing activities ............................................. (619,975) (419,018) (144,618) --------- --------- --------- Cash flows from financing activities: Net increase(decrease) in deposits ................................................ 81,106 118,068 (134,660) Net increase(decrease) in short-term borrowings ................................... 71,448 (998) 18,074 Advances of long-term debt ........................................................ 402,000 120,000 92,500 Repayments of long-term debt ...................................................... (50,068) (53,063) (8,559) Dividends paid to common shareholders ............................................. (58,126) (51,189) (43,696) Addition of common shares to treasury ............................................. (66,955) (6,658) (4,417) Purchase of shares for stock incentive plan ....................................... -- -- (1,450) Common stock issued, net of cancellations ......................................... 2,771 6,931 1,194 --------- --------- --------- Net cash provided by (used in) financing activities ............................... 382,176 133,091 (81,014) --------- --------- --------- Net (decrease)increase in cash and cash equivalents ............................... (24,360) 24,751 (49,596) Cash and cash equivalents at beginning of year .................................... 185,921 161,170 210,766 --------- --------- --------- Cash and cash equivalents at end of year .......................................... $ 161,561 $ 185,921 $ 161,170 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest on deposits and borrowings $ 168,146 $ 169,081 $ 173,197 Cash paid during the year for federal and state income taxes 55,047 32,516 30,094 Transfer of securities from held to maturity to available for sale 42,387 1,592 39,833
See accompanying notes to consolidated financial statements. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Note 1) Business Valley National Bancorp ("Valley") is a bank holding company whose principal wholly-owned subsidiary is Valley National Bank ("VNB"), a national banking association providing a full range of commercial, retail and trust and investment services through its branch and ATM network throughout northern New Jersey. VNB also lends through its consumer division and SBA program to borrowers covering territories outside of its branch network and New Jersey. VNB is subject to intense competition from other financial services companies and is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by certain regulatory authorities. VNB has several wholly-owned subsidiaries which include a mortgage servicing company, a company which holds, maintains and manages investment assets for VNB, a subsidiary which owns and services auto loans, a subsidiary which owns and services commercial mortgage loans, a title insurance company, an asset management company which is an SEC registered investment advisor and an Edge Act Corporation which is the holding company for a wholly-owned finance company located in Toronto, Canada. The mortgage servicing company services loans for others as well as VNB. Basis of Presentation The consolidated financial statements of Valley include the accounts of its principal commercial bank subsidiary, VNB and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. The financial statements of prior years have been restated to include Ramapo Financial Corporation, which was acquired on June 11, 1999, in a transaction accounted for as a pooling of interests. Certain reclassifications have been made in the consolidated financial statements for 1998 and 1997 to conform to the classifications presented for 1999. In preparing the consolidated financial statements, management has made estimates and assumptions that effect the reported amounts of assets and liabilities as of the date of the statements of condition and results of operations for the periods indicated. Actual results could differ significantly from those estimates. Investment Securities Investments are classified into three categories: held to maturity; available for sale; and trading. Valley's investment portfolio consists of each of these three categories. Investment securities held to maturity, except for equity securities, are carried at cost and adjusted for amortization of premiums and accretion of discounts by using the interest method over the term of the investment. Management has identified those investment securities which may be sold prior to maturity. These investment securities are classified as available for sale in the accompanying consolidated statements of financial condition and are recorded at fair value on an aggregate basis. Unrealized holding gains and losses on such securities are excluded from earnings, but are included as a component of accumulated other comprehensive income which is included in shareholders' equity, net of deferred tax. Realized gains or losses on the sale of investment securities available for sale are recognized by the specific identification method and shown as a separate component of non-interest income. Trading securities are recorded at market value. Included in non-interest income are unrealized gains (losses) resulting from market value adjustments. Loans and Loan Fees Loan origination and commitment fees, net of related costs, are deferred and amortized as an adjustment of loan yield over the estimated life of the loans approximating the effective interest method. Loans held for sale consist of residential mortgage loans and SBA loans, and are carried at the lower of cost or estimated fair market value using the aggregate method. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Interest income is not accrued on loans where interest or principal is 90 days or more past due or if in management's judgement the ultimate collectibility of the interest is doubtful. Exceptions may be made if the loan is sufficiently collateralized and in the process of collection. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it becomes well secured and in the process of collection and all past due amounts have been collected. The value of an impaired loan is measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. Valley has defined the population of impaired loans to be all non-accrual loans and other loans considered to be impaired as to principal and interest, consisting primarily of commercial real estate loans. The impaired loan portfolio is primarily collateral dependent. Impaired loans are individually assessed to determine that each loan's carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. Valley originates loans guaranteed by the SBA. The principal amount of these loans is guaranteed between 75 percent and 80 percent, subject to certain dollar limitations. Valley generally sells the guaranteed portions of these loans and retains the unguaranteed portions as well as the rights to service the loans. Gains are recorded on loan sales based on the cash proceeds in excess of the assigned value of the loan, as well as the value assigned to the rights to service the loan. Credit card loans primarily represent revolving MasterCard credit card loans. Interest on credit card loans is recognized based on the balances outstanding according to the related card member agreements. Direct origination costs are deferred and amortized over 24 months, the term of the card member agreement, on a straight-line basis. Net direct origination costs include costs associated with credit card originations that are incurred in transactions with independent third parties and certain costs relating to loan origination programs and the preparation and processing of loan documents, net of fees received. Ineligible direct origination costs are expensed as incurred. Valley's lending is primarily in northern New Jersey, with the exception of an out-of-state auto lending program. Allowance for Loan Losses The allowance for loan losses ("allowance") is increased through provisions charged against current earnings and additionally by crediting amounts of recoveries received, if any, on previously charged-off loans. The allowance is reduced by charge-offs on loans which are determined to be a loss, in accordance with established policies, when all efforts of collection have been exhausted. 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 called for in Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan." VNB's allocated allowance is calculated by applying loss factors to outstanding loans as well as certain unused commitments. The formula is based on the internal risk grade of loans, pools of loans, or commitments. Any change in the risk grade of performing and/or non-performing loans affects the amount of the related allowance. Loss factors are based on VNB's historical loss experience and may be adjusted for 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) significant circumstances that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date. Management determines the unallocated portion of the allowance based on factors that cannot be associated with a specific credit or loan category. These factors include management's evaluation of local and national economic and business conditions, changes in portfolio composition, portfolio concentrations, credit quality and delinquency trends. The unallocated portion of the allowance reflects management's attempt to ensure that the overall allowance reflects a margin for the uncertainty that is inherent in estimates of expected credit losses. Premises and Equipment, Net Premises and equipment are stated at cost less accumulated depreciation computed using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are stated at cost less accumulated amortization computed on a straight-line basis over the term of the lease or estimated useful life of the asset, whichever is shorter. Major improvements are capitalized, while repairs and maintenance costs are charged to operations as incurred. Upon retirement or disposition, any gain or loss is credited or charged to operations. Other Real Estate Owned Other real estate owned ("OREO"), acquired through foreclosure on loans secured by real estate, is reported at the lower of cost or fair value, as established by a current appraisal, less estimated costs to sell, and is included in other assets. Any write-downs at the date of foreclosure are charged to the allowance for loan losses. An allowance for OREO has been established to record subsequent declines in estimated net realizable value. Expenses incurred to maintain these properties and realized gains and losses upon sale of the properties are included in other non-interest expense and other non-interest income, as appropriate. Intangible Assets Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and core deposit intangibles. Goodwill recorded prior to 1987 is being amortized on a straight-line basis over 25 years. Goodwill recorded in 1999 is being amortized on a straight-line basis over 10 years. Core deposit intangibles are amortized on accelerated methods over the estimated lives of the assets. Goodwill and core deposit intangibles are included in other assets. Loan Servicing Rights Loan servicing rights are generally recorded when purchased or originated loans are sold, with servicing rights retained. The cost of each loan is allocated between the servicing right and the loan (without the servicing right) based on their relative fair values. Loan servicing rights, which are classified in other assets, are amortized over the estimated net servicing life and are evaluated on a quarterly basis for impairment based on their fair value. The fair value is estimated using the present value of expected future cash flows along with numerous assumptions including servicing income, cost of servicing, discount rates, prepayment speeds, and default rates. Impairment adjustments, if any, are recognized through the use of a valuation allowance. Stock-Based Compensation Valley accounts for its stock option plan in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with APB 25, no compensation expense is recognized for stock options issued to employees since the options have an exercise price equal to the market value of the common stock on the day of the grant. Valley provides the fair market disclosure required by Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-based Compensation." 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Income Taxes Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income" established standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Valley's components of other comprehensive income include unrealized gains (losses) on securities available for sale, net of tax, and foreign currency translation adjustment. Valley provides the required disclosure in the Consolidated Statements of Changes in Shareholders' Equity. Earnings Per Share 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. All share and per share amounts have been restated to reflect the 5 percent stock dividend issued May 18, 1999, and all prior stock dividends and splits. The following table shows the calculation of both Basic and Diluted earnings per share for the years ended December 31, 1999, 1998 and 1997.
Years ended December 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- (in thousands, except for share data) Net income .......................................... $ 106,324 $ 101,271 $ 90,151 =========== =========== =========== Basic weighted-average number of shares outstanding . 60,697,186 61,360,325 61,266,111 Plus: Common stock equivalents ...................... 608,487 824,775 546,435 ----------- ----------- ----------- Diluted weighted-average number of shares outstanding 61,305,673 62,185,100 61,812,546 =========== =========== =========== Earnings per share: Basic .............................................. $ 1.75 $ 1.65 $ 1.47 Diluted ............................................ 1.73 1.63 1.46
At December 31, 1999 there were 259 thousand stock options not included as common stock equivalents because the exercise prices exceeded the average market value. Treasury Stock Treasury stock is recorded using the cost method and accordingly is presented as an unallocated reduction of shareholders' equity. Impact of Future Accounting Changes 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. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) However, SFAS No. 137 extended the adoption of SFAS No. 133 to periods 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. ACQUISITIONS (Note 2) On June 11, 1999, Valley acquired Ramapo Financial Corporation ("Ramapo"), parent of The Ramapo Bank headquartered in Wayne, New Jersey. At the date of acquisition, Ramapo had total assets of $344.0 million and deposits of $299.5 million, with eight branch offices. The transaction was accounted for using the pooling of interests method of accounting and resulted in the issuance of approximately 4.0 million shares of Valley common stock. Each share of common stock of Ramapo was exchanged for 0.44625 shares of Valley common stock. The consolidated financial statements of Valley have been restated to include Ramapo for all period presented. Separate results of the combining companies for the years ended December 31, 1998 and 1997 are as follows: 1998 1997 -------- -------- (in thousands) Net interest income after provision for loan losses: Valley ................................................ $217,182 $208,549 Ramapo ................................................ 13,808 12,957 -------- -------- $230,990 $221,506 ======== ======== Net income: Valley ................................................ $ 97,348 $ 86,946 Ramapo ................................................ 3,923 3,205 -------- -------- $101,271 $ 90,151 ======== ======== During the second quarter of 1999, Valley recorded a merger-related charge of $3.0 million related to the acquisition of Ramapo. On an after tax basis, the charge totaled $2.2 million or $0.04 per diluted share. The charge includes only identified direct and incremental costs associated with this acquisition. Items included in the charge include the following: personnel expenses which include severance payments and benefits for terminated employees, principally, two senior executives of Ramapo; real estate expenses related to the closing of a duplicate branch; professional fees which include investment banking, accounting and legal fees; and other expenses which include termination of data processing service contracts and the write-off of supplies and other assets not considered useful in the operation of the combined entity. The major components of the merger-related charge, consisting of real estate dispositions, professional fees, personnel expenses and other expenses, totaled $300 thousand, $1.1 million, $1.1 million and $500 thousand, respectively. Of the total merger-related charge $2.6 million, or 89.6 percent was paid through December 31, 1999. The remaining liability represents contracts which will be paid over their remaining terms. During the second quarter of 1999, Valley National Bank received approval and a license from the New Jersey Department of Banking and Insurance to sell title insurance through a separate subsidiary, known as Wayne Title, Inc. After the close of the second quarter, Valley acquired the assets of an agency office of Commonwealth Land Title Insurance Company for $784 thousand and began to sell both commercial and residential title insurance policies. The transaction was accounted for as a purchase and resulted in goodwill of $728 thousand. On July 30, 1999, Valley acquired New Century Asset Management, Inc., a registered investment advisor and NJ-based money manager with approximately $120 million of assets under management. At closing, Valley paid an initial consideration of $640 thousand. The balance due will be paid on an earn-out basis over a five-year period, based upon a pre-determined formula. New Century will continue its operations as a wholly-owned subsidiary of Valley National Bank. The transaction was accounted for as a purchase and resulted in goodwill of $1.3 million. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) On October 16, 1998, Valley acquired Wayne Bancorp, Inc. ("Wayne"), parent of Wayne Savings Bank, F.S.B., headquartered in Wayne, New Jersey. At the date of acquisition, Wayne had total assets of $272.0 million and deposits of $206.0 million, with six branch offices. The transaction was accounted for using the pooling of interests method of accounting and resulted in the issuance of approximately 2.4 million shares of Valley common stock. Each share of common stock of Wayne was exchanged for 1.1 shares of Valley common stock. The consolidated financial statements of Valley have been restated to include Wayne for all periods presented. During 1998, Valley recorded a merger-related charge of $4.5 million, related to the acquisition of Wayne. On an after tax basis, the charge totaled $3.2 million or $0.05 per diluted share. The charge includes only identified direct and incremental costs associated with this acquisition. Items included in the charge include the following: personnel expenses which include severance payments and benefits for terminated employees, principally, ten senior executives and directors at Wayne; real estate expenses related to the closing of duplicate facilities, professional fees which include investment banking, accounting and legal fees; and other expenses which include termination of data processing service contracts and the write-off of supplies and other assets not considered useful in the operation of the combined entity. The major components of the merger-related charge are for real estate dispositions, professional fees, personnel expenses and other expenses total $1.5 million, $1.4 million, $1.0 million and $600 thousand, respectively. Of the total merger-related charge, $3.8 million or 83.9 percent was paid through December 31, 1999. The remaining liability represents contracts which will be paid over their remaining terms. On February 28, 1997, Valley acquired Midland Bancorporation, Inc. ("Midland"), parent of The Midland Bank and Trust Company ("Midland Bank"), headquartered in Paramus, New Jersey. On February 28, 1997, Midland had total assets of $418.6 million and deposits of $380.6 million, with 13 branches located in Bergen County, New Jersey. The transaction was accounted for using the pooling of interests method of accounting and resulted in the issuance of approximately 5.0 million shares of Valley common stock. Each share of common stock of Midland was exchanged for 37.5 shares of Valley common stock. The consolidated financial statements of Valley have been restated to include Midland for all periods presented. INVESTMENT SECURITIES HELD TO MATURITY (Note 3) The amortized cost, fair value and gross unrealized gains and losses of securities held to maturity at December 31, 1999 and 1998 were as follows:
December 31, 1999 ------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------- -------- -------- -------- (in thousands) Obligations of states and political subdivisions $ 28,729 $ 141 $ (4) $ 28,866 Mortgage-backed securities ..................... 46,599 174 (300) 46,473 Other debt securities .......................... 249,936 -- (33,183) 216,753 -------- -------- -------- -------- Total debt securities ......................... 325,264 315 (33,487) 292,092 FRB & FHLB stock ............................... 26,237 -- -- 26,237 -------- -------- -------- -------- Total investment securities held to maturity .. $351,501 $ 315 $(33,487) $318,329 ======== ======== ======== ========
41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1998 ------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------- -------- -------- -------- (in thousands) U.S. Treasury securities and other government agencies and corporations .................... $ 34,451 $ 281 $ (130) $ 34,602 Obligations of states and political subdivisions 45,550 641 (15) 46,176 Mortgage-backed securities ..................... 67,561 1,404 (40) 68,925 Other debt securities .......................... 115,148 86 (805) 114,429 -------- -------- -------- -------- Total debt securities ......................... 262,710 2,412 (990) 264,132 FRB & FHLB stock ............................... 24,180 -- -- 24,180 -------- -------- Total investment securities held to maturity .. $286,890 $ 2,412 $ (990) $288,312 ======== ======== ======== ========
The contractual maturities of investments in debt securities held to maturity at December 31, 1999, are set forth in the following table: December 31, 1999 ---------------------- Amortized Fair Cost Value -------- -------- (in thousands) Due in one year ...................................... $ 23,380 $ 23,428 Due after one year through five years ................ 4,889 4,975 Due after five years through ten years ............... 50 50 Due after ten years .................................. 250,346 217,166 -------- -------- 278,665 245,619 Mortgage-backed securities ........................... 46,599 46,473 -------- -------- Total debt securities .............................. 325,264 292,092 FRB & FHLB stock ..................................... 26,237 26,237 Total investment securities held to maturity ....... $351,501 $318,329 ======== ======== Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. FRB and FHLB stock do not have contractual maturities. The weighted-average remaining life for mortgage-backed securities held to maturity was 3.0 years at December 31, 1999, and 2.2 years at December 31, 1998. The amortized cost of securities pledged to secure public deposits, treasury tax and loan deposits, repurchase agreements and for other purposes required by law approximated $289.2 million and $133.0 million at December 31, 1999 and 1998, respectively. In connection with the Ramapo acquisition, Valley reassessed the classification of securities held in the Ramapo investment portfolio and transferred $42.4 million of securities held to maturity to securities available for sale to conform to Valley's investment objectives. In 1998, in connection with the Wayne acquisition, Valley reassessed the classification of securities held in the Wayne portfolio and transferred $1.6 million of securities held to maturity to securities available for sale to conform with Valley's investment objectives. In 1997, in connection with the Midland acquisition, Valley reassessed the classification of securities held in the Midland investment portfolio and transferred $39.8 million of securities held to maturity to securities available for sale to conform to Valley's investment objectives. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) INVESTMENT SECURITIES AVAILABLE FOR SALE (Note 4) The amortized cost, fair value and gross unrealized gains and losses of securities available for sale at December 31, 1999 and 1998 were as follows:
December 31, 1999 ------------------------ Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- (in thousands) U.S. Treasury securities and other government agencies and corporations ...................... $ 115,750 $ 2 $ (3,102) $ 112,650 Obligations of states and political subdivisions 135,659 505 (2,600) 133,564 Mortgage-backed securities ..................... 751,262 227 (21,358) 730,131 ---------- ---------- ---------- ---------- Total debt securities ........................ 1,002,671 734 (27,060) 976,345 Equity securities .............................. 30,172 1,252 (2,350) 29,074 ---------- ---------- ---------- ---------- Total investment securities available for sale $1,032,843 $ 1,986 $ (29,410) $1,005,419 ========== ========== ========== ==========
December 31, 1998 ------------------ Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- (in thousands) U.S. Treasury securities and other government agencies and corporations ...................... $ 153,767 $ 505 $ (247) $ 154,025 Obligations of states and political subdivisions 116,326 1,980 (11) 118,295 Mortgage-backed securities ..................... 718,926 4,242 (3,378) 719,790 ---------- ---------- ---------- ---------- Total debt securities ........................ 989,019 6,727 (3,636) 992,110 Equity securities .............................. 26,284 4,976 (182) 31,078 ---------- ---------- ---------- ---------- Total investment securities available for sale $1,015,303 $ 11,703 $ (3,818) $1,023,188 ========== ========== ========== ==========
The contractual maturities of investments in debt securities available for sale at December 31, 1999, are set forth in the following table: December 31, 1999 ------------------------ Amortized Fair Cost Value ---------- ---------- (in thousands) Due in one year .................................... $ 39,556 $ 39,509 Due after one year through five years .............. 146,661 143,600 Due after five years through ten years ............. 29,563 28,363 Due after ten years ................................ 35,629 34,742 ---------- ---------- 251,409 246,214 Mortgage-backed securities ......................... 751,262 730,131 ---------- ---------- Total debt securities ............................ 1,002,671 976,345 Equity securities .................................. 30,172 29,074 ---------- ---------- Total investment securities available for sale ... $1,032,843 $1,005,419 ========== ========== 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Actual maturities on debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. Equity securities do not have contractual maturities. The weighted-average remaining life for mortgage-backed securities available for sale at December 31, 1999 and 1998 was 5.7 years and 2.3 years, respectively. Gross gains (losses) realized on sales, maturities and other securities transactions, related to securities available for sale, and (losses) gains on trading account securities included in earnings for the years ended December 31, 1999, 1998 and 1997 were as follows: 1999 1998 1997 ------- ------- ------- (in thousands) Sales transactions: Gross gains .................................. $ 2,870 $ 724 $ 2,375 Gross losses ................................. (138) (21) (224) ------- ------- ------- 2,732 703 2,151 ------- ------- ------- Maturities and other securities transactions: Gross gains .................................. -- 124 10 Gross losses ................................. (23) -- (25) ------- ------- ------- (23) 124 (15) ------- ------- ------- (Losses)gains on trading account securities ... (177) 592 -- ------- ------- ------- Gains on securities transactions, net ........ $ 2,532 $ 1,419 $ 2,136 ======= ======= ======= Cash proceeds from sales transactions were $29.7 million, $113.6 million and $186.4 million for the years ended 1999, 1998 and 1997, respectively. For 1999 cash proceeds include $1.4 million from sales of trading account securities. LOANS (Note 5) The detail of the loan portfolio as of December 31, 1999 and 1998 was as follows: 1999 1998 ---------- ---------- (in thousands) Commercial ............................... $ 512,164 $ 477,231 ---------- ---------- Total commercial loans ................. 512,164 477,231 ---------- ---------- Construction ............................. 123,531 112,819 Residential mortgage ..................... 1,247,721 1,055,278 Commercial mortgage ...................... 1,164,065 1,050,420 ---------- ---------- Total mortgage loans ................... 2,535,317 2,218,517 ---------- ---------- Home equity .............................. 276,261 226,231 Credit card .............................. 92,097 108,180 Automobile ............................... 1,053,457 1,033,938 Other consumer ........................... 85,456 83,552 ---------- ---------- Total consumer loans ................... 1,507,271 1,451,901 ---------- ---------- Total loans ............................. $4,554,752 $4,147,649 ========== ========== Included in the table above are loans held for sale in the amount of $12.2 million and $23.5 million at December 31, 1999 and 1998, respectively. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) VNB grants loans in the ordinary course of business to its directors, executive officers and their affiliates, on the same terms and under the same risk conditions as those prevailing for comparable transactions with outside borrowers. The following table summarizes the change in the total amounts of loans and advances to directors, executive officers, and their affiliates during the year 1999: 1999 -------- (in thousands) Outstanding at beginning of year ...................... $ 24,904 New loans and advances ................................ 11,329 Repayments ............................................ (10,440) -------- Outstanding at end of year ............................ $ 25,793 ======== The outstanding balances of loans which are 90 days or more past due as to principal or interest payments and still accruing and non-performing assets at December 31, 1999 and 1998 were as follows: 1999 1998 ------- ------- (in thousands) Loans past due in excess of 90 days and still accruing ... $11,968 $ 7,418 ======= ======= Non-accrual loans ........................................ $ 3,482 $ 7,507 Other real estate owned .................................. 2,256 4,261 ------- ------- Total non-performing assets ............................ $ 5,738 $11,768 ======= ======= Troubled debt restructured loans ......................... $ 4,852 $ 6,387 ======= ======= The amount of interest income that would have been recorded on non-accrual loans in 1999, 1998 and 1997 had payments remained in accordance with the original contractual terms approximated $619 thousand, $1.4 million and $2.0 million, while the actual amount of interest income recorded on these types of assets in 1999, 1998 and 1997 totalled $1.3 million, $375 thousand and $454 thousand, resulting in (recovered) lost interest income of ($720) thousand, $1.0 million, and $1.6 million, respectively. At December 31, 1999, there were no commitments to lend additional funds to borrowers whose loans were non-accrual or contractually past due in excess of 90 days and still accruing interest. The impaired loan portfolio is primarily collateral dependent. Impaired loans and their related specific and general allocations to the allowance for loan losses totalled $13.4 million and $1.8 million, respectively, at December 31, 1999 and $13.4 million and $4.6 million, respectively, at December 31, 1998. The average balance of impaired loans during 1999 and 1998 was approximately $13.2 million and $15.1 million, respectively. The amount of cash basis interest income that was recognized on impaired loans during 1999 and 1998 was $559 thousand and $1.1 million, respectively. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ALLOWANCE FOR LOAN LOSSES (Note 6) Transactions in the allowance for loan losses during 1999, 1998 and 1997 were as follows: 1999 1998 1997 -------- -------- -------- (in thousands) Balance at beginning of year ............... $ 54,641 $ 53,170 $ 52,926 Provision charged to operating expense ..... 9,120 12,645 13,130 -------- -------- -------- 63,761 65,815 66,056 -------- -------- -------- Less net loan charge-offs: Loans charged-off ......................... (12,131) (14,963) (15,006) Less recoveries on loan charge-offs ....... 3,490 3,789 2,120 -------- -------- -------- Net loan charge-offs ....................... (8,641) (11,174) (12,886) -------- -------- -------- Balance at end of year ..................... $ 55,120 $ 54,641 $ 53,170 ======== ======== ======== LOAN SERVICING (Note 7) VNB Mortgage Services, Inc. ("MSI"), a subsidiary of VNB, is a servicer of residential mortgage loan portfolios. MSI is compensated for loan administrative services performed for mortgage servicing rights purchased in the secondary market and originated by VNB. The aggregate principal balances of mortgage loans serviced by MSI for others approximated $2.2 billion, $1.6 billion and $1.2 billion at December 31, 1999, 1998 and 1997, respectively. The outstanding balance of loans serviced for others is not included in the consolidated statements of financial condition. VNB is a servicer of SBA loans, and is compensated for loan administrative services performed for SBA loans originated and sold by VNB. VNB serviced a total of $89.0 million and $78.1 million of SBA loans as of December 31, 1999 and 1998, respectively, for third-party investors. The costs associated with acquiring loan servicing rights are included in other assets in the consolidated financial statements and are being amortized over the estimated net servicing income. The following table summarizes the change in loan servicing rights during the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 -------- -------- -------- (in thousands) Balance at beginning of year .................... $ 20,765 $ 13,514 $ 12,270 Purchase and origination of loan servicing rights 20,419 11,986 3,905 Amortization expense ............................ (4,375) (4,735) (2,661) -------- -------- -------- Balance at end of year .......................... $ 36,809 $ 20,765 $ 13,514 ======== ======== ========
Amortization expense is included in amortization of intangible assets. The table above includes $9.6 million of servicing rights purchased at the end of 1999. 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) PREMISES AND EQUIPMENT, NET (Note 8) At December 31, 1999 and 1998, premises and equipment, net consisted of:
1999 1998 --------- --------- (in thousands) Land ............................................... $ 19,531 $ 18,583 Buildings .......................................... 56,147 54,273 Leasehold improvements ............................. 16,639 14,871 Furniture and equipment ............................ 72,770 66,714 --------- --------- 165,087 154,441 Less: Accumulated depreciation and amortization .... (80,297) (71,633) --------- --------- Premises and equipment, net ........................ $ 84,790 $ 82,808 ========= =========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Depreciation and amortization included in non-interest expense for the years ended December 31, 1999, 1998 and 1997 amounted to approximately $7.6 million, $9.0 million and $9.5 million, respectively. OTHER ASSETS (Note 9) At December 31, 1999 and 1998, other assets consisted of the following: 1999 1998 ------- ------- (in thousands) Loan servicing rights ...................... $36,809 $20,765 Goodwill ................................... 4,393 2,673 Core deposit intangible .................... 1,142 1,711 Other real estate owned .................... 2,256 4,261 Deferred tax asset ......................... 31,757 17,482 Other ...................................... 22,630 18,373 ------- ------- Total other assets ......................... $98,987 $65,265 ======= ======= DEPOSITS (Note 10) Included in time deposits at December 31, 1999 and 1998 are certificates of deposit over $100 thousand of $647.3 million and $419.4 million, respectively. Interest expense on time deposits of $100 thousand or more totalled approximately $27.9 million, $20.2 million and $27.2 million in 1999, 1998 and 1997, respectively. The scheduled maturities of time deposits as of December 31, 1999 are as follows: (in thousands) 2000 ............................................ $1,628,209 2001 ............................................ 314,370 2002 ............................................ 86,353 2003 ............................................ 30,074 2004 ............................................ 9,255 Thereafter ...................................... 33,448 ---------- $2,101,709 ========== 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) BORROWED FUNDS (Note 11) Short-term borrowings at December 31, 1999 and 1998 consisted of the following: 1999 1998 -------- -------- (in thousands) Federal funds purchased .............................. $ 9,990 $ -- Securities sold under agreements to repurchase ....... 59,436 34,950 Treasury tax and loan ................................ 40,000 9,990 Bankers acceptances .................................. 19,639 12,677 -------- -------- Total short-term borrowings ........................ $129,065 $ 57,617 ======== ======== At December 31, 1999 and 1998, long-term debt consisted of the following: 1999 1998 -------- -------- (in thousands) FHLB advances ........................................ $464,500 $212,500 Securities sold under agreements to repurchase ....... 100,000 -- Other ................................................ 381 449 -------- -------- Total long-term debt ............................... $564,881 $212,949 ======== ======== The Federal Home Loan Bank (FHLB) advances had a weighted average interest rate of 5.93 percent at December 31, 1999 and 5.89 percent at December 31, 1998. These advances are secured by pledges of FHLB stock, mortgage-backed securities and a blanket assignment of qualifying mortgage loans. The advances are scheduled for repayment as follows: (in thousands) 2000 ............................................ $103,000 2001 ............................................ 27,000 2002 ............................................ 17,000 2003 ............................................ 82,000 2004 ............................................ 102,000 Thereafter ...................................... 133,500 -------- $464,500 ======== Interest expense of $21.7 million, $8.8 million and $5.4 million was recorded on FHLB advances during the years ended December 31, 1999, 1998 and 1997, respectively. The securities sold under agreements to repurchase included in long-term debt had a weighted average interest rate of 6.22 percent at December 31, 1999 and are scheduled for repayment in 2002. Interest expense of $942 thousand was recorded on this debt during the year ended December 31, 1999. At December 31, 1999, Valley maintained a floating rate revolving line of credit in the amount of $25 million, none of which was drawn. This line is available for general corporate purposes and expires June 15, 2000. Borrowings under this facility are collateralized by mortgage-backed securities of no less than 120 percent of the loan balance. BENEFIT PLANS (Note 12) Pension Plan VNB has a non-contributory benefit plan covering substantially all of its employees. The benefits are based upon years of credited service, primary social security benefits and the employee's highest average compensation as defined. It is VNB's funding policy to contribute annually the maximum amount that can be deducted for federal income tax purposes. In addition, VNB has a supplemental non-qualified, non-funded retirement plan which is designed to supplement the pension plan for key officers. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table sets forth change in projected benefit obligation, change in fair value of plan assets, funded status and amounts recognized in Valley's financial statements for the pension plans at December 31, 1999 and 1998: 1999 1998 -------- -------- (in thousands) Change in projected benefit obligation Projected benefit obligation at beginning of year .... $ 19,973 $ 18,236 Service cost ........................................ 1,590 1,346 Interest cost ....................................... 1,353 1,212 Actuarial (gain) loss ............................... (2,626) 145 Benefits paid ....................................... (1,083) (966) -------- -------- Projected benefit obligation at end of year .......... $ 19,207 $ 19,973 ======== ======== Change in fair value of plan assets Fair value of plan assets at beginning of year ....... $ 23,430 $ 21,638 Actual return on plan assets ........................ 1,504 2,758 Employer contributions .............................. 468 -- Benefits paid ....................................... (1,083) (966) -------- -------- Fair value of plan assets at end of year ............. $ 24,319 $ 23,430 ======== ======== Funded status ........................................ $ 5,112 $ 3,457 Unrecognized net asset ............................... (308) (365) Unrecognized prior service cost ...................... 262 367 Unrecognized net actuarial gain ...................... (9,158) (7,677) Intangible asset ..................................... -- (79) -------- -------- Accrued benefit cost ................................. $ (4,092) $ (4,297) ======== ======== Net periodic pension expense for 1999, 1998 and 1997 included the following components: 1999 1998 1997 ------- ------- ------- (in thousands) Service cost ............................ $ 1,590 $ 1,346 $ 1,095 Interest cost ........................... 1,353 1,212 1,191 Expected return on plan assets .......... (1,982) (1,673) (1,320) Net amortization and deferral ........... (12) (56) 71 Recognized prior service cost ........... 38 105 118 Recognized net gains .................... (631) (191) (33) ------- ------- ------- Total net periodic pension expense ...... $ 356 $ 743 $ 1,122 ======= ======= ======= The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of benefit obligations for the plan were 7.75 percent and 4.50 percent, respectively, for 1999 and 6.75 percent and 5.00 percent for 1998. The expected long-term rate of return on assets was 9.50 percent for 1999 and 9.00 percent for 1998 and the weighted average discount rate used in computing pension cost was 6.75 percent and 7.00 percent for 1999 and 1998, respectively. The pension plan held 52,333 shares of Valley National Bancorp stock at both December 31, 1999 and 1998. Bonus Plan VNB and its subsidiaries award incentive and merit bonuses to its officers and employees based upon a percentage of the covered employees' compensation and determined by the achievement of certain performance objectives. Amounts charged to salaries expense during 1999, 1998 and 1997 were $3.1 million, $2.6 million and $2.2 million, respectively. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Savings Plan Effective May 1, 1999, VNB's 401(k) Plan was amended to merge the Employee Stock Ownership Plan ("ESOP") from the acquisition of Wayne into the VNB 401(k) Plan, creating a KSOP (a 401(k) plan with an employee stock ownership feature). This plan covers eligible employees of VNB and its subsidiaries and allows employees to contribute 1 percent to 15 percent of their salary, with VNB matching a certain percentage of the employee contribution. Beginning in May 1999, the VNB match is in shares of Valley stock. In 1999, VNB matched employee contributions with 29,260 shares, of which 15,292 shares were allocated from the former Wayne ESOP Plan and 13,968 shares were issued from treasury stock. VNB charged expense for contributions to the plan, net of forfeitures, for 1999, 1998 and 1997 amounting to $944 thousand, $746 thousand and $887 thousand, respectively. At December 31, 1999 the KSOP had 112,488 unallocated shares. In 1999, 1998 and 1997, 32,117 shares, 25,428 shares and 20,856 shares, respectively, were allocated to participants of the former Wayne ESOP Plan. ESOP expense for 1999, 1998 and 1997 was $865 thousand, $607 thousand and $357 thousand, respectively. Stock Option Plan At December 31, 1999, Valley had a stock option plan which is described below. Valley applies APB Opinion No. 25 and related Interpretations in accounting for its plan. Had compensation cost for the plan been determined consistent with FASB Statement No. 123, net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ----------- ----------- ----------- (in thousands except for share data) Net income As Reported ................. $ 106,324 $ 101,271 $ 90,151 Pro forma ................... 105,279 100,246 89,383 Earnings per share As Reported: Basic ...................... $ 1.75 $ 1.65 $ 1.47 Diluted .................... 1.73 1.63 1.46 Pro forma: Basic ...................... $ 1.73 $ 1.63 $ 1.46 Diluted .................... 1.72 1.61 1.45
Under the Employee Stock Option Plan, Valley may grant options to its employees for up to 2.6 million shares of common stock in the form of stock options, stock appreciation rights and restricted stock awards. The exercise price of options equal 100 percent of the market price of Valley's stock on the date of grant, and an option's maximum term is ten years. The options granted under this plan are exercisable not earlier than one year after the date of grant, expire not more than ten years after the date of the grant, and are subject to a vesting schedule. Non-qualified options granted by Midland and assumed by Valley have no vesting period and a maximum term of fifteen years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997: dividend yield of 3.71 percent for 1999 and 3.50 percent for 1998 and 1997; weighted-average risk-free interest rate of 6.44 percent for 1999, 5.00 percent for 1998 and 5.75 percent for 1997; and expected volatility of 21.8 percent for 1999, 18.5 percent for 1998 and 23.9 percent for 1997. The effects of applying SFAS No. 123 on the pro forma net income may not be representative of the effects on pro forma net income for future years. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of the status of qualified and non-qualified stock options as of December 31, 1999, 1998 and 1997 and changes during the years ended on those dates is presented below:
1999 1998 1997 ------------------------- ------------------------ --------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Stock Options Shares Price Shares Price Shares Price - ------------------------------- ---------- -------- ---------- -------- ---------- ----------- Outstanding at beginning of year ....................... 2,021,597 $15 1,910,513 $14 1,541,421 $11 Granted ....................... 252,264 27 264,323 26 611,848 19 Exercised ..................... (448,599) 10 (131,755) 12 (219,687) 10 Forfeited ..................... (20,475) 24 (21,484) 21 (23,069) 17 ---------- ---------- ---------- Outstanding at end of year .... 1,804,787 18 2,021,597 15 1,910,513 14 ========== ========== ========== Options exercisable at year-end 988,304 14 1,105,217 12 918,115 11 ========== ========== ========== Weighted-average fair value of options granted during the year ....................... $6.40 $5.34 $5.24
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable -------------------------------------------------------- -------------------------------- Weighted- Average Remaining Weighted- Weighted- Number Contractual Average Number Average Range of Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price - ------------------------ ----------- ----------- -------------- ----------- -------------- $ 4-12 .................... 348,222 9.7 years $7 348,222 $7 12-19 .................... 701,927 5.8 16 487,902 16 19-24 .................... 225,836 7.8 23 86,742 23 24-29 .................... 528,802 9.2 26 65,438 26 --------- ------- 4-29 .................... 1,804,787 7.8 18 988,304 14 ========= =======
During 1998 and 1997, stock appreciation rights granted in tandem with stock options were 10,894 and 11,439, respectively. There were 48,151, 48,151 and 37,257 stock appreciation rights outstanding as of December 31, 1999, 1998 and 1997, respectively. Restricted stock is awarded to key employees providing for the immediate award of Valley's common stock subject to certain vesting and restrictions. The awards are recorded at fair market value and amortized into salary expense over the vesting period. The following table sets forth the changes in restricted stock awards outstanding for the years ended December 31, 1999, 1998 and 1997. Restricted Stock Awards 1999 1998 1997 - -------------------------------------- -------- -------- -------- Outstanding at beginning of year ..... 207,578 203,342 109,145 Granted .............................. 58,477 58,299 133,965 Vested ............................... (55,788) (51,977) (33,180) Forfeited ............................ (3,185) (2,086) (6,588) -------- -------- -------- Outstanding at end of year ........... 207,082 207,578 203,342 ======== ======== ======== The amount of compensation costs related to restricted stock awards included in salary expense in 1999, 1998 and 1997 amounted to $1.1 million, $1.0 million and $717 thousand, respectively. 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) INCOME TAXES (Note 13) Income tax expense (benefit) included in the financial statements consisted of the following: 1999 1998 1997 -------- -------- -------- (in thousands) Income tax from operations: Current: Federal ........................... $ 50,434 $ 29,520 $ 32,292 State ............................ 2,041 3,400 1,773 -------- -------- -------- 52,475 32,920 34,065 Deferred: Federal and State ................. (255) (2,540) 3,238 -------- -------- -------- Total income tax expense ......... $ 52,220 $ 30,380 $ 37,303 ======== ======== ======== The tax effects of temporary differences that gave rise to deferred tax assets and liabilities as of December 31, 1999 and 1998 are as follows: 1999 1998 ------- ------- (in thousands) Deferred tax assets: Allowance for loan losses .......................... $22,270 $21,970 Investment securities available for sale .......... 11,017 -- State privilege year taxes ........................ 277 472 Non-accrual loan interest ......................... 317 506 Other ............................................. 7,054 6,099 ------- ------- Total deferred tax assets ........................ 40,935 29,047 ------- ------- Deferred tax liabilities: Tax over book depreciation ......................... 2,969 3,102 Purchase accounting adjustments ................... 443 496 Unearned discount on investments .................. 428 502 Investment securities available for sale .......... -- 3,003 Other ............................................. 5,338 4,462 ------- ------- Total deferred tax liabilities ................... 9,178 11,565 ------- ------- Net deferred tax assets .......................... $31,757 $17,482 ======= ======= A reconciliation between the reported income tax expense and the amount computed by multiplying income before taxes by the statutory federal income tax rate is as follows: 1999 1998 1997 -------- -------- -------- (in thousands) Tax at statutory federal income tax rate .... $ 55,490 $ 46,078 $ 44,609 Increases (decreases) resulted from: Tax-exempt interest, net of interest incurred to carry tax-exempts ............ (2,693) (2,903) (3,707) State income tax, net of federal tax benefit 1,985 1,916 1,729 Realignment of corporate entities .......... (2,615) (15,406) (6,215) Other, net ................................. 53 695 887 -------- -------- -------- Income tax expense .......................... $ 52,220 $ 30,380 $ 37,303 -------- -------- -------- 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) COMMITMENTS AND CONTINGENCIES (Note 14) Lease Commitments Certain bank facilities are occupied under non-cancelable long-term operating leases which expire at various dates through 2047. Certain lease agreements provide for renewal options and increases in rental payments based upon increases in the consumer price index or the lessor's cost of operating the facility. Minimum aggregate lease payments for the remainder of the lease terms are as follows: (in thousands) 2000 .............................................. $ 5,418 2001 .............................................. 5,080 2002 .............................................. 4,592 2003 .............................................. 4,319 2004 .............................................. 3,695 Thereafter ........................................ 14,013 ------- Total lease commitments ........................... $37,117 ======= Net occupancy expense for 1999, 1998 and 1997 included approximately $2.3 million, $3.2 million and $2.7 million, respectively, of rental expenses for leased bank facilities. Financial Instruments With Off-balance Sheet Risk In the ordinary course of business of meeting the financial needs of its customers, Valley, through its subsidiary VNB, is a party to various financial instruments which are properly not reflected in the consolidated financial statements. These financial instruments include standby and commercial letters of credit, unused portions of lines of credit and commitments to extend various types of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated financial statements. The commitment or contract amount of these instruments is an indicator of VNB's level of involvement in each type of instrument as well as the exposure to credit loss in the event of non-performance by the other party to the financial instrument. VNB seeks to limit any exposure of credit loss by applying the same credit underwriting standards, including credit review, interest rates and collateral requirements or personal guarantees, as for on-balance sheet lending facilities. The following table provides a summary of financial instruments with off-balance sheet risk at December 31, 1999 and 1998: 1999 1998 ---------- ---------- (in thousands) Standby and commercial letters of credit ............... $ 85,430 $ 66,168 Commitments under unused lines of credit-credit card ... 867,230 808,760 Commitments under unused lines of credit-other ......... 549,405 501,931 Outstanding loan commitments ........................... 460,607 351,350 ---------- ---------- Total financial instruments with off-balance sheet risk $1,962,672 $1,728,209 ========== ========== Standby letters of credit represent the guarantee by VNB of the obligations or performance of a customer in the event the customer is unable to meet or perform its obligations to a third party. Obligations to advance funds under commitments to extend credit, including commitments under unused lines of credit, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have specified expiration dates, which may be extended upon request, or other termination clauses and generally require payment of a fee. At December 31, 1999, VNB had commitments to sell residential mortgage loans and SBA loans totaling $3.9 million. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The amounts set forth above do not necessarily represent future cash requirements as it is anticipated that many of these commitments will expire without being fully drawn upon. Most of VNB's lending activity is to customers within the state of New Jersey, except for automobile loans, which are to customers from 11 states, including New Jersey, and Canada. Litigation In the normal course of business, Valley may be a party to various outstanding legal proceedings and claims. In the opinion of management, the consolidated financial position or results of operations of Valley will not be materially affected by the outcome of such legal proceedings and claims. SHAREHOLDERS' EQUITY (Note 15) Capital Requirements Valley is subject to the regulatory capital requirements administered by the Federal Reserve Bank. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Valley's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Valley must meet specific capital guidelines that involve quantitative measures of Valley's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require Valley to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets, as defined in the regulations. As of December 31, 1999, Valley exceeded all capital adequacy requirements to which it was subject. The most recent notification received from the Federal Reserve Bank categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized Valley must maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. Valley's actual capital amounts and ratios as of December 31, 1999 and 1998 are presented in the following table:
To Be Well Capitalized Under Prompt Minimum Capital Corrective Action Actual Requirements Provisions ---------------------- --------------------- --------------------- Amount Ratio Amount Ratio Amount Ratio -------- ----- -------- ----- -------- ----- (in thousands) As of December 31, 1999 Total Risk-based Capital ............... $620,514 12.7% $389,421 8.0% $486,776 10.0% Tier I Risk-based Capital ............. 565,394 11.6 194,710 4.0 292,065 6.0 Tier I Leverage Capital ............... 565,394 9.1 248,126 4.0 310,158 5.0 As of December 31, 1998 Total Risk-based Capital ............... 632,278 14.6 346,297 8.0 432,872 10.0 Tier I Risk-based Capital ............. 579,627 13.4 173,170 4.0 259,755 6.0 Tier I Leverage Capital ............... 579,627 10.1 229,162 4.0 286,452 5.0
Dividend Restrictions VNB, a national banking association, is subject to a limitation in the amount of dividends it may pay to Valley, VNB's only shareholder. Prior approval by the Comptroller of the Currency ("OCC") is required to the extent that the total of all dividends to be declared by VNB in any calendar year exceeds net profits, as defined, for that year combined with its retained net profits from the preceding two calendar years, less any 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) transfers to capital surplus. Under this limitation, VNB could declare dividends in 2000 to Valley without prior approval of the OCC of up to $13.3 million plus an amount equal to VNB's net profits for 2000 to the date of such dividend declaration. Shares of Common Stock The following table summarizes the share transactions for the three years ended December 31, 1999: Shares in Shares Issued Treasury ------------- ----------- Balance, December 31, 1996 ................ 56,484,867 (343,461) Stock dividend (5 percent) ................ 2,511,465 -- Effect of stock incentive plan, net ........ (30,132) 226,695 Purchase of treasury stock ................. -- (239,316) ----------- ----------- Balance, December 31, 1997 ................ 58,966,200 (356,082) Effect of stock incentive plan, net ........ (14,607) 152,472 Purchase of treasury stock ................. -- (220,125) Issuance of stock from treasury ............ -- 187,000 ----------- ----------- Balance, December 31, 1998 ................ 58,951,593 (236,735) Stock dividend (5 percent) ................ 1,236,450 1,537,876 Effect of stock incentive plan, net ........ 432,997 168,366 Purchase of treasury stock ................. -- (2,397,257) ----------- ----------- Balance, December 31, 1999 ................ 60,621,040 (927,750) =========== =========== Treasury Stock 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. Reacquired shares are held in treasury and are expected to be used for employee benefit programs, stock dividends and other corporate purposes. On June 10, 1999 Valley's Board of Directors rescinded the stock repurchase program it had announced on April 28, 1999 after 1.6 million shares of Valley common stock had been repurchased. Approximately 1.5 million treasury shares were issued in conjunction with the 5 percent dividend issued May 18, 1999. Rescinding the remaining authorization was undertaken in connection with Valley's acquisition of Ramapo. On May 26, 1998 Valley's Board of Directors rescinded its previously announced stock repurchase program after 220,125 shares of Valley common stock had been repurchased. Rescinding the remaining authorization was undertaken in connection with Valley's acquisition of Wayne. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (Note 16)
Quarters ended 1999 ----------------------------------------------------- March 31 June 30 Sept 30 Dec 31 ----------- ----------- ----------- ----------- (in thousands, except for share data) Interest income ........... $ 103,145 $ 105,794 $ 107,906 $ 110,690 Interest expense .......... 39,561 41,537 42,434 45,645 Net interest income ....... 63,584 64,257 65,472 65,045 Provision for loan losses . 2,000 1,775 2,320 3,025 Non-interest income ....... 12,723 11,799 11,331 11,399 Non-interest expense ...... 32,265 35,236 33,923 36,522 Income before income taxes 42,042 39,045 40,560 36,897 Income tax expense ........ 15,553 13,648 13,281 9,738 Net income ................ 26,489 25,397 27,279 27,159 Earnings per share: Basic .................... 0.43 0.42 0.45 0.45 Diluted .................. 0.43 0.41 0.45 0.45 Cash dividends per share .. 0.24 0.26 0.26 0.26 Average shares outstanding: Basic .................... 61,486,501 60,885,740 60,229,700 60,206,005 Diluted .................. 62,266,050 61,558,760 60,864,460 60,796,087
Quarters ended 1998 ----------------------------------------------------- March 31 June 30 Sept 30 Dec 31 ----------- ----------- ----------- ----------- (in thousands, except for share data) Interest income ........... $ 102,413 $ 102,828 $ 103,671 $ 102,381 Interest expense .......... 42,193 42,043 42,219 41,203 Net interest income ....... 60,220 60,785 61,452 61,178 Provision for loan losses . 2,645 3,460 3,145 3,395 Non-interest income ....... 10,974 11,619 11,365 11,416 Non-interest expense ...... 33,711 33,761 36,199 41,042 Income before income taxes 34,838 35,183 33,473 28,157 Income tax expense ........ 10,359 9,313 7,577 3,131 Net income ................ 24,479 25,870 25,896 25,026 Earnings per share: Basic .................... 0.40 0.42 0.42 0.41 Diluted .................. 0.39 0.42 0.42 0.40 Cash dividends per share .. 0.21 0.24 0.24 0.24 Average shares outstanding: Basic .................... 61,400,145 61,341,156 61,353,791 61,346,306 Diluted .................. 62,239,892 62,218,153 62,179,568 62,102,890
56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) PARENT COMPANY INFORMATION (Note 17) Condensed Statements of Income
Years ended December 31, ---------------------------------- 1999 1998 1997 --------- --------- --------- (in thousands) Income Dividends from subsidiary ....................................... $ 120,326 $ 89,320 $ 50,471 Income from subsidiary ......................................... 1,313 1,291 854 Gains on securities transactions, net .......................... 2,591 743 1,849 Other interest and dividends ................................... 2,741 683 1,475 --------- --------- --------- 126,971 92,037 54,649 Expenses ........................................................ 3,271 3,976 3,135 --------- --------- --------- Income before income taxes and equity in undistributed earnings of subsidiary .................................................. 123,700 88,061 51,514 Income tax expense .............................................. 1,580 118 201 --------- --------- --------- Income before equity in undistributed earnings of subsidiary .... 122,120 87,943 51,313 Equity in undistributed earnings of subsidiary (excess dividends) (15,796) 13,328 38,838 --------- --------- --------- Net income ...................................................... $ 106,324 $ 101,271 $ 90,151 ========= ========= ========= Condensed Statements of Financial Condition December 31, ---------------------- 1999 1998 --------- --------- (in thousands) Assets Cash .................................................. $ 3,242 $ 1,359 Interest bearing deposits with banks ................. 36,127 21,682 Investment securities available for sale ............. 55,909 71,174 Trading account securities ........................... -- 1,592 Investment in subsidiary ............................. 474,462 505,110 Loan to subsidiary bank employee benefit plan ........ 1,071 1,250 Other assets ......................................... 4,195 4,930 --------- --------- Total assets ........................................ $ 575,006 $ 607,097 ========= ========= Liabilities Dividends payable to shareholders ..................... $ 15,724 $ 13,831 Other liabilities .................................... 5,782 3,457 --------- --------- Total liabilities ................................... 21,506 17,288 --------- --------- Shareholders' Equity Common stock .......................................... 25,943 26,079 Surplus .............................................. 325,147 331,337 Retained earnings .................................... 244,605 235,879 Unallocated common stock held by employee benefit plan (965) (1,331) Accumulated other comprehensive (loss) income ........ (16,733) 4,031 --------- --------- 577,997 595,995 Treasury stock, at cost .............................. (24,497) (6,186) --------- --------- Total shareholders' equity .......................... 553,500 589,809 --------- --------- Total liabilities and shareholders' equity .......... $ 575,006 $ 607,097 ========= =========
57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Statements of Cash Flows
Years ended December 31, 1999 1998 1997 --------- --------- --------- (in thousands) Cash flows from operating activities: Net income .................................................... $ 106,324 $ 101,271 $ 90,151 Adjustments to reconcile net income to net cash provided by operating activities: Excess dividends (equity in undistributed earnings) of subsidiary ................................................... 15,796 (13,328) (38,838) Depreciation and amortization ................................. 365 479 618 Amortization of compensation costs pursuant to long-term stock incentive plan ........................................ 1,091 1,036 898 Net accretion of discounts .................................... (49) (360) (838) Net gains on securities transactions .......................... (2,591) (743) (1,849) Net decrease(increase) in other assets ........................ 317 (342) 490 Net increase(decrease) in other liabilities ................... 4,576 (1,250) (1,155) --------- --------- --------- Net cash provided by operating activities ..................... 125,829 86,763 49,477 --------- --------- --------- Cash flows from investing activities: Proceeds from sales of investment securities available for sale 8,735 16,918 6,050 Proceeds from maturing investment securities available for sale 81,146 15,000 -- Purchases of investment securities available for sale ......... (78,666) (71,809) (22,264) Proceeds from sales of trading account securities ............. 1,415 -- -- Net (increase)decrease in short-term investments .............. (14,445) 1,422 6,865 Decrease in advance to subsidiary ............................. -- 3,409 5,204 Payment of employee benefit plan loan ......................... 179 178 181 Purchases of premises and equipment ........................... -- (141) -- --------- --------- --------- Net cash used in investing activities ......................... (1,636) (35,023) (3,964) --------- --------- --------- Cash flows from financing activities: Purchases of common shares added to treasury .................. (66,955) (6,658) (4,417) Dividends paid to common shareholders ......................... (58,126) (51,189) (43,696) Common stock issued, net of cancellations ..................... 2,771 6,931 1,194 --------- --------- --------- Net cash used in financing activities ......................... (122,310) (50,916) (46,919) --------- --------- --------- Net increase (decrease) in cash and cash equivalents .......... 1,883 824 (1,406) Cash and cash equivalents at beginning of year ................ 1,359 535 1,941 --------- --------- --------- Cash and cash equivalents at end of year ...................... $ 3,242 $ 1,359 $ 535 ========= ========= =========
58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Fair Values of Financial Instruments (Note 18) Limitations: The fair value estimates made at December 31, 1999 and 1998 were based on pertinent market data and relevant information on the financial instruments at that time. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation and trust and investment department) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of each class of financial instruments and mortgage servicing rights: Cash and short-term investments: For such short-term investments, the carrying amount is considered to be a reasonable estimate of fair value. Investment securities held to maturity, investment securities available for sale, and trading account securities: Fair values are based on quoted market prices. Loans: Fair values are estimated by obtaining quoted market prices, when available. The fair value of other loans is estimated by discounting the future cash flows using market discount rates that reflect the credit and interest-rate risk inherent in the loan. Deposit liabilities: Current carrying amounts approximate estimated fair value of demand deposits and savings accounts. The fair value of time deposits is based on the discounted value of contractual cash flows using estimated rates currently offered for deposits of similar remaining maturity. Short-term borrowings: Current carrying amounts approximate estimated fair value. Long-term debt: The fair value is estimated by discounting future cash flows based on rates currently available for debt with similar terms and remaining maturity. 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The carrying amounts and estimated fair values of financial instruments were as follows at December 31, 1999 and 1998:
1999 1998 ----------------------- ----------------------- Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ---------- (in thousands) Financial assets: Cash and due from banks ................ $ 161,561 $ 161,561 $ 185,921 $ 185,921 Federal funds sold ..................... 123,000 123,000 108,100 108,100 Investment securities held to maturity . 351,501 318,329 286,890 288,312 Investment securities available for sale 1,005,419 1,005,419 1,023,188 1,023,188 Trading account securities ............. -- -- 1,592 1,592 Net loans .............................. 4,499,632 4,442,927 4,093,008 4,135,216 Financial liabilities: Deposits with no stated maturity ....... 2,949,546 2,949,546 2,961,417 2,961,417 Deposits with stated maturities ........ 2,101,709 2,102,149 2,008,732 2,019,371 Short-term borrowings .................. 129,065 129,065 57,617 57,617 Long-term debt ......................... 564,881 548,043 212,949 214,958
The estimated fair value of financial instruments with off-balance sheet risk, consisting of unamortized fee income at December 31, 1999 and 1998 is not material. Business Segments (Note 19) VNB has four major business segments it monitors and reports on to manage its business operations. These segments are consumer lending, commercial 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. Consumer lending delivers loan and banking products and services mainly to individuals and small businesses through its branches, ATM machines, PC banking and sales, service and collection force within each lending department. The products and services include residential mortgages, home equity loans, automobile loans, credit card loans, trust and investment services and mortgage servicing for investors. Automobile lending is generally available throughout New Jersey, but is also currently available in eleven states and Canada as part of a referral program with a major insurance company. The commercial lending division provides loan products and services to small and medium commercial establishments throughout northern New Jersey. These include lines of credit, term loans, letters of credit, asset-based lending, construction, development and permanent real estate financing for owner occupied and leased properties and Small Business Administration ("SBA") loans. The SBA loans are offered through a sales force covering New Jersey and a number of surrounding states and territories. The commercial lending division serves numerous businesses through departments organized into product or specific geographic divisions. The investment function handles the management of the investment portfolio, asset/liability management and government banking for VNB. The objectives of this department are production of income and liquidity through the investment of VNB's funds. The bank purchases and holds a mix of bonds, notes, U.S. and other governmental securities and other investments. 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The corporate and other adjustments segment represents assets and income and expense items not directly attributable to a specific segment. The following table represents the financial data for the four business segments for the years ended 1999, 1998 and 1997.
Year ended December 31, 1999 Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total ---------- ---------- ---------- ---------- ---------- (in thousands) Average interest-earning assets .......................... $2,696,100 $1,696,582 $1,404,105 $-- $5,796,787 ========== ========== ========== ========== ========== Interest income .......................................... $ 199,484 $ 142,725 $ 88,316 $ (2,990) $ 427,535 Interest expense ......................................... 78,685 49,514 40,978 -- 169,177 ---------- ---------- ---------- ---------- ---------- Net interest income (loss) ............................... 120,799 93,211 47,338 (2,990) 258,358 Provision for loan losses ................................ 7,826 1,294 -- -- 9,120 ---------- ---------- ---------- ---------- ---------- Net interest income (loss) after provision for loan losses 112,973 91,917 47,338 (2,990) 249,238 Non-interest income ...................................... 13,992 4,751 28 28,481 47,252 Non-interest expense ..................................... 27,019 9,679 113 101,135 137,946 Internal expense transfer ................................ 31,360 22,300 18,176 (71,836) -- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes ........................ $ 68,586 $ 64,689 $ 29,077 $ (3,808) $ 158,544 ========== ========== ========== ========== ========== Return on average interest-bearing assets (pre-tax) ...... 2.54% 3.81% 2.07% -- 2.74%
Year ended December 31, 1998 Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total ---------- ---------- ---------- ---------- ---------- (in thousands) Average interest-earning assets .......................... $2,443,388 $1,573,351 $1,369,640 $ 8,034 $5,394,413 ========== ========== ========== ========== ========== Interest income .......................................... $ 192,830 $ 134,899 $ 89,761 $ (6,197) $ 411,293 Interest expense ......................................... 75,940 48,900 42,568 250 167,658 ---------- ---------- ---------- ---------- ---------- Net interest income (loss) ............................... 116,890 85,999 47,193 (6,447) 243,635 Provision for loan losses ................................ 10,586 1,939 -- 120 12,645 ---------- ---------- ---------- ---------- ---------- Net interest income (loss) after provision for loan losses ............................... 106,304 84,060 47,193 (6,567) 230,990 Non-interest income ...................................... 16,310 6,040 20 23,004 45,374 Non-interest expense ..................................... 29,973 9,208 111 105,421 144,713 Internal expense transfer ................................ 34,650 23,424 20,820 (78,894) -- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes ........................ $ 57,991 $ 57,468 $ 26,282 $ (10,090) $ 131,651 ========== ========== ========== ========== ========== Return on average interest-bearing assets (pre-tax) ........................................ 2.37% 3.65% 1.92% -- 2.44%
61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total ---------- ---------- ---------- ---------- ---------- (in thousands) Average interest-earning assets .......................... $2,321,381 $1,478,624 $1,496,088 $ 29,718 $5,325,811 ========== ========== ========== ========== ========== Interest income .......................................... $ 185,396 $ 129,636 $ 98,994 $ (7,208) $ 406,818 Interest expense ......................................... 75,050 47,804 48,368 960 172,182 ---------- ---------- ---------- ---------- ---------- Net interest income (loss) ............................... 110,346 81,832 50,626 (8,168) 234,636 Provision for loan losses ................................ 11,162 1,693 -- 275 13,130 ---------- ---------- ---------- ---------- ---------- Net interest income (loss) after provision for loan losses 99,184 80,139 50,626 (8,443) 221,506 Non-interest income ...................................... 19,737 6,092 -- 19,365 45,194 Non-interest expense ..................................... 39,588 8,248 -- 91,410 139,246 Internal expense transfer ................................ 24,900 20,805 19,122 (64,827) -- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes ........................ $ 54,433 $ 57,178 $ 31,504 $ (15,661) $ 127,454 ========== ========== ========== ========== ========== Return on average interest-bearing assets (pre-tax) ...... 2.34% 3.87% 2.11% -- 2.39%
62 INDEPENDENT AUDITORS' REPORT KPMG KPMG LLP Certified Public Accountants New Jersey Headquarters 150 John F. Kennedy Parkway Short Hills, NJ 07078 The Board of Directors and Shareholders Valley National Bancorp: We have audited the accompanying consolidated statements of financial condition of Valley National Bancorp and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Valley National Bancorp and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ KPMG LLP January 19, 2000 63 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant The information which will be set forth under the caption "Director Information" in the 2000 Proxy Statement is incorporated herein by reference. Certain information on Executive Officers of the registrant is included in Part I, Item 4A of this report, which is also incorporated herein by reference. Item 11. Executive Compensation The information which will be set forth under the caption "Executive Compensation" in the 2000 Proxy Statement is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information which will be set forth under the caption "Stock Ownership of Management and Principal Shareholders" in the 2000 Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information which will be set forth under the captions "Certain Transactions with Management" and "Human Resource and Compensation Committee Interlocks and Insider Participation" in the 2000 Proxy Statement is incorporated herein by reference. 64 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Schedules: The financial statements listed on the index of this Annual Report on Form 10-K are filed as part of this Annual Report. All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto. (b) Reports on Form 8-K: On January 3, 2000 to report the authorization by the Board of Directors to purchase up to 3,000,000 shares of outstanding common stock to be used for employee benefit programs, stock dividends and other corporate purposes. (c) Exhibits (numbered in accordance with Item 601 of Regulation S-K): (3) Articles of Incorporation and By-laws: A. Restated Certificate of Incorporation of the Registrant as in effect on May 11, 1999 is incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. B. By-laws of the Registrant adopted as of March 14, 1989 and amended March 19, 1991 is incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1998. (10) Material Contracts: A. Restated and amended "Change in Control Agreements" dated January 1, 1999 between Valley, VNB and Gerald H. Lipkin, Peter Southway, Peter John Southway, Robert Meyer, and Peter Crocitto is incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1998. B. "Change in Control Agreements" dated January 1, 1995 between Valley, VNB and Robert Farrell, Richard Garber and Robert Mulligan. C. "Change in Control Agreement" dated February 1, 1996 between Valley, VNB and Jack Blackin is incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1996. D. "Change in Control Agreement" dated April 15, 1996 between Valley, VNB and John Prol is incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1996. E. "The Valley National Bancorp Long-term Stock Incentive Plan" dated January 19, 1999. F. "Severance Agreements" dated August 17, 1994 between Valley, VNB and Gerald H. Lipkin and Peter Southway are incorporated by reference to Registrant's Registration Statement on Form S-4 (No. 33-55765) filed with the Securities and Exchange Commission on October 4, 1994. G. "Stock Option Agreement" dated April 1, 1992 between Valley and Michael Guilfoile. H. "Split-Dollar Agreement" dated July 7, 1995 between Valley, VNB, and Gerald H. Lipkin is incorporated by reference to Registrant's Report on Form 10-K Annual Report for the year ended December 31, 1995. I. "Employment Arrangement" dated June 6, 1996 between Valley, VNB and Peter Southway is incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1996. 65 J. "Severance Agreements" as of January 1, 1998 between Valley, VNB and Peter Crocitto, Robert M. Meyer and Peter John Southway are incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1997. K. "Change in Control Agreement" dated January 1, 1998 between Valley, VNB and Alan Lipsky is incorporated herein by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. L. "Change in Control Agreements" dated January 1, 1999 between Valley, VNB and Alan D. Eskow and Robert J. Farnon are incorporated herein by reference to the Registrant's Form 10-K Annual Report for the year ended December 31, 1998. M. "Change in Control Agreement" dated January 3, 2000 between Valley, VNB and Albert L. Engel. (21) List of Subsidiaries: (a) Subsidiary of Valley:
Percentage of Voting Securities Name Jurisdiction of Incorporation Owned by the Parent --------- -------------------------------- -------------------------------- Valley National Bank (VNB) United States 100% (b) Subsidiaries of VNB: VNB Mortgage Services, Inc. New Jersey 100% BNV Realty Incorporated (BNV) New Jersey 100% VNB Financial Advisors, Inc. New Jersey 100% VNB Loan Services, Inc. New York 100% VNB RSI, Inc. New Jersey 100% Wayne Ventures, Inc. New Jersey 100% Wayne Title, Inc. New Jersey 100% VNB International Services, Inc. (ISI) New Jersey 100% New Century Asset Management, Inc. New Jersey 100% Valley CMC, Inc. (CMC) New Jersey 100% (c) Subsidiary of ISI: VNB Financial Services, Inc. Canada 100% (d) Subsidiaries of BNV SAR I, Inc. New Jersey 100% SAR II, Inc. New Jersey 100% (e) Subsidiary of CMC: VN Investments, Inc. New Jersey 100% (23) Consents of Experts and Counsel Consent of KPMG LLP (24) Power of Attorney of Certain Directors and Officers of Valley (27) Financial Data Schedule
66 SIGNATURES Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VALLEY NATIONAL BANCORP By: /s/ GERALD H. LIPKIN ----------------------------------------- Gerald H. Lipkin, Chairman of the Board, President and Chief Executive Officer Dated: February 25, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.
Signature Title Date --------- ----- ---- /s/ GERALD H. LIPKIN Chairman of the Board, President and - ------------------------------- Chief Executive Officer and Director Gerald H. Lipkin February 25, 2000 /s/ PETER SOUTHWAY Vice Chairman (Principal Financial February 25, 2000 - ------------------------------- Officer) and Director Peter Southway /s/ ALAN D. ESKOW Corporate Secretary, Senior Vice February 25, 2000 - ------------------------------- President and Controller Alan D. Eskow (Principal Accounting Officer) ANDREW B. ABRAMSON* Director February 25, 2000 - ------------------------------- Andrew B. Abramson PAMELA BRONANDER* Director February 25, 2000 - ------------------------------- Pamela Bronander JOSEPH COCCIA, JR.* Director February 25, 2000 - ------------------------------- Joseph Coccia, Jr. HAROLD P. COOK, III* Director February 25, 2000 - ------------------------------- Harold P. Cook, III AUSTIN C. DRUKKER* Director February 25, 2000 - ------------------------------- Austin C. Drukker WILLARD L. HEDDEN* Director February 25, 2000 - ------------------------------- Willard L. Hedden GRAHAM O. JONES* Director February 25, 2000 - ------------------------------- Graham O. Jones WALTER H. JONES, III* Director February 25, 2000 - ------------------------------- Walter H. Jones, III
67
Signature Title Date --------- ----- ---- GERALD KORDE* Director February 25, 2000 - ------------------------------- Gerald Korde JOLEEN J. MARTIN* Director February 25, 2000 - ------------------------------- Joleen J. Martin ROBERT E. MCENTEE* Director February 25, 2000 - ------------------------------- Robert E. McEntee RICHARD S. MILLER* Director February 25, 2000 - ------------------------------- Richard S. Miller SAM P. PINYUH* Director February 25, 2000 - ------------------------------- Sam P. Pinyuh ROBERT RACHESKY* Director February 25, 2000 - ------------------------------- Robert Rachesky BARNETT RUKIN* Director February 25, 2000 - ------------------------------- Barnett Rukin RICHARD F. TICE* Director February 25, 2000 - ------------------------------- Richard F. Tice LEONARD J. VORCHEIMER* Director February 25, 2000 - ------------------------------- Leonard J. Vorcheimer JOSEPH L. VOZZA* Director February 25, 2000 - ------------------------------- Joseph L. Vozza
*By Gerald H. Lipkin, as attorney-in-fact. 68 EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT DESCRIPTION - ------ ------------------- (10)B Change in Control Agreements - Robert Farrell, Richard Garber, Robert Mulligan (10)E The Valley National Bancorp Long-term Stock Incentive Plan (10)G Stock Option Agreement - Michael Guilfoile (10)M Change in Control Agreement - Albert L. Engel (23) Consent of KPMG LLP (24) Power of Attorney (27) Financial Data Schedule EX-10.B(1) 2 CHANGE-IN-CONTROL AGREEMENT Exhibit (10) B(1) CHANGE-IN-CONTROL AGREEMENT (First Senior Vice President) THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of January, 1995, among VALLEY NATIONAL BANK ("Bank"), a national banking association with its principal office at 615 Main Avenue, Passaic, New Jersey, VALLEY NATIONAL BANCORP ("Valley"), a New Jersey Corporation which maintains its principal office at 1445 Valley Road, Wayne, New Jersey (Valley and the Bank collectively are the "Company") and ROBERT FARRELL (the "Executive"). BACKGROUND WHEREAS, the Executive has been continuously employed by the Bank for at least three full years; WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Valley; WHEREAS, the Board of Directors of the Bank and Valley believe that the future services of the Executive are of great value to the Bank and Valley and that it is important for the growth and development of the Bank that the Executive continue in his position; WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its 1 shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal; WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined. NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows: 1. Definitions a. Base Salary. "Base Salary", as used in Section 9 hereof, means the annual cash base salary (excluding any bonus and the value of any fringe benefits) paid to the Executive at the time of the termination of employment unless such amount has been reduced after a Change in Control, in which case such amount shall be the highest base salary in effect during the 18 months prior to the Change in Control. b. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least 2 one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company. c. Change in Control. "Change in Control" means any of the following events: (i) when Valley or a Subsidiary acquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of Valley or a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities of Valley representing more than twenty-five percent (25%) of the combined voting power of Valley's then outstanding securities (a "Control Person"), (ii) upon the first purchase of Valley's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by Valley, a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates), (iii) upon the approval by Valley's stockholders of (A) a merger or consolidation of Valley with or into 3 another corporation (other than a merger or consolidation which is approved by at least two-thirds of the Continuing Directors (as hereinafter defined) or the definitive agreement for which provides that at least two-thirds of the directors of the surviving or resulting corporation immediately after the transaction are Continuing Directors (in either case, a "Non-Control Transaction")), (B) a sale or disposition of all or substantially all of Valley's assets or (C) a plan of liquidation or dissolution of Valley, (iv) if during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof or, following a Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Valley, an employee benefit plan established or maintained by Valley or a Subsidiary, or an affiliate of Valley or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Valley's then outstanding securities if the acquisition of all voting securities in excess of ten 4 percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Valley's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law. d. Continuously Employed. "Continuously employed", as used in Section 9, means continuously employed by the Bank but excludes any period of employment by a bank or financial institution acquired by or merged into the Bank and excludes any period of employment by the Bank if such period is separated from the current employment with the Bank by a break in service (other a break in service resulting solely from illness, disability or family leave). e. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the first anniversary of the Change in Control or (ii) the date the Executive would attain age 65 or (iii) the death of the Executive. For the purpose of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control. f. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. g. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent: 5 (1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, duties, responsibilities and status with the Company immediately prior to a Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph; (2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith; (3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control; (4) The Company's transfer of Executive to another geographic location more than 35 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control; (5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability 6 plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; (6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or (7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective. h. Pro-rata Bonus Amount. "Pro-rata Bonus Amount", as used in Section 9, means an amount equal to a "portion" of the highest cash bonus paid to the Executive in the three calendar years immediately prior to the Change in Control. The "portion" of such cash bonus shall be a fraction, the numerator of which is the number of calendar months or part thereof which the 7 Executive has worked in the calendar year in which the termination occurs and the denominator of which is 12. i. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Valley, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein. 3. Position. During the Contract Period the Executive shall be employed by the bank as a Senior Officer, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments. 4. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows: a. Base Salary. A base annual salary equal to the annual salary in 8 effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method. b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control. c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors. 5. Expenses and Fringe Benefits. a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control. b. Benefit Equalization Plan. During the Contract Period, if the Executive was entitled to benefits under the Company's Benefit Equalization Plan ("BEP") prior to the Change in Control, the Executive shall be entitled to continued benefits under the BEP after the Change in Control and such BEP may not be modified to reduce or eliminate such benefits during 9 the Contract Period. c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control. d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), then no such change shall be deemed to be contrary to this paragraph. 6. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement. 7. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 10 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement. 8. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement. 9. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to section 12 hereof: a. Within 20 business days of the termination of employment pay the Executive a lump sum equal to: (i), if the Executive has been continuously employed by the Bank for 6 full years or more, two (2) years of Base Salary plus a Pro-rata Bonus Amount or (ii), if the Executive has been continuously employed by the Bank for less than 6 full years but more than three years, then one (1) year of Base Salary plus a Pro-rata Bonus Amount; and b. Continue to provide the Executive with medical, dental and life insurance 11 for the period equal to the equivalent lump sum payment (e.g. 1 or 2 years) as were provided at the time of termination of his employment with the Company, at the Company's cost. Upon expiration of benefit coverages, full COBRA benefits (18 months) will be made available to Executive. The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or to provide him with the health, hospitalization and insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause. 10. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contact Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof. 11. Non-Disclosure of Confidential Information. a. Non-Disclosure of Confidential Information. Except in the course of 12 his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information. b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions. c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement. 12. Certain Reduction of Payments by the Company. a. Anything in this Agreement to the contrary notwithstanding, prior to the payment of any lump sum amount payable hereunder, the certified public accountants of the Company immediately prior to a Change of Control (the "Certified Public Accountants) shall determine as promptly as practical and in any event within 20 business days following the termination of employment of Executive whether any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would more likely than not be 13 nondeductible by the Company for Federal income purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and if it is then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are thereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of said Section 280G of the Code. b. If under paragraph (a) of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present Value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants 14 shall be binding upon the Company and Executive shall be made within 20 business days of a termination of employment of Executive. With the consent of the Executive, the Company may suspend part or all of the lump sum payment due under Section 9 hereof and any other payments due to the Executive hereunder until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement. c. As a result of the uncertainty in the application of Section 280G of the Code, it is possible that Agreement Payments may have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Certified Public Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or Executive which said Certified Public Accountants believe has a high probability of success, determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and for the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. 15 In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 13. Term and Effect Prior to Change in Control. a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Personnel and Compensation Committee of the Bank notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) twenty-four months after the date of such written notice. Notwithstanding anything to the contrary contained herein, the Initial Term shall cease when the Executive attains age 65. b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect. 16 14. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policy for officers and directors. 15. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Valley. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change in control benefits. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 17 IN WITNESS WHEREOF, Valley National Bank and Valley National Bancorp each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above. ATTEST: VALLEY NATIONAL BANCORP /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - ------------------------------- --------------------------- Alan D. Eskow, Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer ATTEST: VALLEY NATIONAL BANK /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - ------------------------------- --------------------------- Alan Eskow, Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer WITNESS: /s/ Peter Verbout /s/ Robert Farrell - ------------------------------- ------------------------------- Robert Farrell, Executive December 17, 1990 - ------------------------------- "Executive" Valley National Bank Service Date 18 EX-10.B(2) 3 CHANGE-IN-CONTROL AGREEMENT EXHIBIT (10) B(2) CHANGE-IN-CONTROL AGREEMENT (First Senior Vice President) THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of January, 1995, among VALLEY NATIONAL BANK ("Bank"), a national banking association with its principal office at 615 Main Avenue, Passaic, New Jersey, VALLEY NATIONAL BANCORP ("Valley"), a New Jersey Corporation which maintains its principal office at 1445 Valley Road, Wayne, New Jersey (Valley and the Bank collectively are the "Company") and RICHARD GARBER (the "Executive"). BACKGROUND WHEREAS, the Executive has been continuously employed by the Bank for at least three full years; WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Valley; WHEREAS, the Board of Directors of the Bank and Valley believe that the future services of the Executive are of great value to the Bank and Valley and that it is important for the growth and development of the Bank that the Executive continue in his position; WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its 1 shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal; WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined. NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows: 1. Definitions a. Base Salary. "Base Salary", as used in Section 9 hereof, means the annual cash base salary (excluding any bonus and the value of any fringe benefits) paid to the Executive at the time of the termination of employment unless such amount has been reduced after a Change in Control, in which case such amount shall be the highest base salary in effect during the 18 months prior to the Change in Control. b. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least 2 one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company. c. Change in Control. "Change in Control" means any of the following events: (i) when Valley or a Subsidiary acquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of Valley or a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities of Valley representing more than twenty-five percent (25%) of the combined voting power of Valley's then outstanding securities (a "Control Person"), (ii) upon the first purchase of Valley's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by Valley, a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates), (iii) upon the approval by Valley's stockholders of (A) a merger or consolidation of Valley with or into 3 another corporation (other than a merger or consolidation which is approved by at least two-thirds of the Continuing Directors (as hereinafter defined) or the definitive agreement for which provides that at least two-thirds of the directors of the surviving or resulting corporation immediately after the transaction are Continuing Directors (in either case, a "Non-Control Transaction")), (B) a sale or disposition of all or substantially all of Valley's assets or (C) a plan of liquidation or dissolution of Valley, (iv) if during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof or, following a Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Valley, an employee benefit plan established or maintained by Valley or a Subsidiary, or an affiliate of Valley or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Valley's then outstanding securities if the acquisition of all voting securities in excess of ten 4 percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Valley's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law. d. Continuously Employed. "Continuously employed", as used in Section 9, means continuously employed by the Bank but excludes any period of employment by a bank or financial institution acquired by or merged into the Bank and excludes any period of employment by the Bank if such period is separated from the current employment with the Bank by a break in service (other a break in service resulting solely from illness, disability or family leave). e. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the first anniversary of the Change in Control or (ii) the date the Executive would attain age 65 or (iii) the death of the Executive. For the purpose of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control. f. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. g. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent: 5 (1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, duties, responsibilities and status with the Company immediately prior to a Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph; (2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith; (3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control; (4) The Company's transfer of Executive to another geographic location more than 35 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control; (5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability 6 plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; (6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or (7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective. h. Pro-rata Bonus Amount. "Pro-rata Bonus Amount", as used in Section 9, means an amount equal to a "portion" of the highest cash bonus paid to the Executive in the three calendar years immediately prior to the Change in Control. The "portion" of such cash bonus shall be a fraction, the numerator of which is the number of calendar months or part thereof which the 7 Executive has worked in the calendar year in which the termination occurs and the denominator of which is 12. i. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Valley, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein. 3. Position. During the Contract Period the Executive shall be employed by the bank as a Senior Officer, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments. 4. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows: a. Base Salary. A base annual salary equal to the annual salary in 8 effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method. b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control. c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors. 5. Expenses and Fringe Benefits. a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control. b. Benefit Equalization Plan. During the Contract Period, if the Executive was entitled to benefits under the Company's Benefit Equalization Plan ("BEP") prior to the Change in Control, the Executive shall be entitled to continued benefits under the BEP after the Change in Control and such BEP may not be modified to reduce or eliminate such benefits during 9 the Contract Period. c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control. d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), then no such change shall be deemed to be contrary to this paragraph. 6. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement. 7. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 10 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement. 8. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement. 9. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to section 12 hereof: a. Within 20 business days of the termination of employment pay the Executive a lump sum equal to: (i), if the Executive has been continuously employed by the Bank for 6 full years or more, two (2) years of Base Salary plus a Pro-rata Bonus Amount or (ii), if the Executive has been continuously employed by the Bank for less than 6 full years but more than three years, then one (1) year of Base Salary plus a Pro-rata Bonus Amount; and b. Continue to provide the Executive with medical, dental and life insurance 11 for the period equal to the equivalent lump sum payment (e.g. 1 or 2 years) as were provided at the time of termination of his employment with the Company, at the Company's cost. Upon expiration of benefit coverages, full COBRA benefits (18 months) will be made available to Executive. The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or to provide him with the health, hospitalization and insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause. 10. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contact Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof. 11. Non-Disclosure of Confidential Information. a. Non-Disclosure of Confidential Information. Except in the course of 12 his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information. b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions. c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement. 12. Certain Reduction of Payments by the Company. a. Anything in this Agreement to the contrary notwithstanding, prior to the payment of any lump sum amount payable hereunder, the certified public accountants of the Company immediately prior to a Change of Control (the "Certified Public Accountants) shall determine as promptly as practical and in any event within 20 business days following the termination of employment of Executive whether any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would more likely than not be 13 nondeductible by the Company for Federal income purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and if it is then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are thereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of said Section 280G of the Code. b. If under paragraph (a) of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present Value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants 14 shall be binding upon the Company and Executive shall be made within 20 business days of a termination of employment of Executive. With the consent of the Executive, the Company may suspend part or all of the lump sum payment due under Section 9 hereof and any other payments due to the Executive hereunder until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement. c. As a result of the uncertainty in the application of Section 280G of the Code, it is possible that Agreement Payments may have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Certified Public Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or Executive which said Certified Public Accountants believe has a high probability of success, determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and for the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. 15 In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 13. Term and Effect Prior to Change in Control. a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Personnel and Compensation Committee of the Bank notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) twenty-four months after the date of such written notice. Notwithstanding anything to the contrary contained herein, the Initial Term shall cease when the Executive attains age 65. b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect. 16 14. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policy for officers and directors. 15. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Valley. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change in control benefits. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 17 IN WITNESS WHEREOF, Valley National Bank and Valley National Bancorp each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above. ATTEST: VALLEY NATIONAL BANCORP /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - ------------------------------------ ------------------------------- Alan D. Eskow, Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer ATTEST: VALLEY NATIONAL BANK /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - ------------------------------------ ------------------------------- Alan Eskow, Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer WITNESS: /s/ Peter Verbout /s/ Richard Garber - ------------------------------------ ----------------------------- Richard Garber, Executive 4/6/92 - ------------------------------------ "Executive" Valley National Bank Service Date 18 EX-10.B(3) 4 CHANGE-IN-CONTROL AGREEMENT EXHIBIT (10) B(3) CHANGE-IN-CONTROL AGREEMENT (First Senior Vice President) THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 1st day of January, 1995, among VALLEY NATIONAL BANK ("Bank"), a national banking association with its principal office at 615 Main Avenue, Passaic, New Jersey, VALLEY NATIONAL BANCORP ("Valley"), a New Jersey Corporation which maintains its principal office at 1445 Valley Road, Wayne, New Jersey (Valley and the Bank collectively are the "Company") and ROBERT J. MULLIGAN (the "Executive"). BACKGROUND WHEREAS, the Executive has been continuously employed by the Bank for at least three full years; WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Valley; WHEREAS, the Board of Directors of the Bank and Valley believe that the future services of the Executive are of great value to the Bank and Valley and that it is important for the growth and development of the Bank that the Executive continue in his position; WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive and rely upon his advice, if they request it, as to the best interests of the Company and its 1 shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal; WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined. NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows: 1. Definitions a. Base Salary. "Base Salary", as used in Section 9 hereof, means the annual cash base salary (excluding any bonus and the value of any fringe benefits) paid to the Executive at the time of the termination of employment unless such amount has been reduced after a Change in Control, in which case such amount shall be the highest base salary in effect during the 18 months prior to the Change in Control. b. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued failure by the Executive to perform his duties for the Company under this Agreement after at least 2 one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company. c. Change in Control. "Change in Control" means any of the following events: (i) when Valley or a Subsidiary acquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of Valley or a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities of Valley representing more than twenty-five percent (25%) of the combined voting power of Valley's then outstanding securities (a "Control Person"), (ii) upon the first purchase of Valley's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by Valley, a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates), (iii) upon the approval by Valley's stockholders of (A) a merger or consolidation of Valley with or into 3 another corporation (other than a merger or consolidation which is approved by at least two-thirds of the Continuing Directors (as hereinafter defined) or the definitive agreement for which provides that at least two-thirds of the directors of the surviving or resulting corporation immediately after the transaction are Continuing Directors (in either case, a "Non-Control Transaction")), (B) a sale or disposition of all or substantially all of Valley's assets or (C) a plan of liquidation or dissolution of Valley, (iv) if during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof or, following a Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Valley, an employee benefit plan established or maintained by Valley or a Subsidiary, or an affiliate of Valley or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of Valley's then outstanding securities if the acquisition of all voting securities in excess of ten 4 percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Valley's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law. d. Continuously Employed. "Continuously employed", as used in Section 9, means continuously employed by the Bank but excludes any period of employment by a bank or financial institution acquired by or merged into the Bank and excludes any period of employment by the Bank if such period is separated from the current employment with the Bank by a break in service (other a break in service resulting solely from illness, disability or family leave). e. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the first anniversary of the Change in Control or (ii) the date the Executive would attain age 65 or (iii) the death of the Executive. For the purpose of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control. f. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. g. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, if taken without Executive's express written consent: 5 (1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, duties, responsibilities and status with the Company immediately prior to a Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph; (2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith; (3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control; (4) The Company's transfer of Executive to another geographic location more than 35 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control; (5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability 6 plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; (6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or (7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective. h. Pro-rata Bonus Amount. "Pro-rata Bonus Amount", as used in Section 9, means an amount equal to a "portion" of the highest cash bonus paid to the Executive in the three calendar years immediately prior to the Change in Control. The "portion" of such cash bonus shall be a fraction, the numerator of which is the number of calendar months or part thereof which the 7 Executive has worked in the calendar year in which the termination occurs and the denominator of which is 12. i. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Valley, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein. 3. Position. During the Contract Period the Executive shall be employed by the bank as a Senior Officer, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments. 4. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows: a. Base Salary. A base annual salary equal to the annual salary in 8 effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method. b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control. c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors. 5. Expenses and Fringe Benefits. a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control. b. Benefit Equalization Plan. During the Contract Period, if the Executive was entitled to benefits under the Company's Benefit Equalization Plan ("BEP") prior to the Change in Control, the Executive shall be entitled to continued benefits under the BEP after the Change in Control and such BEP may not be modified to reduce or eliminate such benefits during 9 the Contract Period. c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control. d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), then no such change shall be deemed to be contrary to this paragraph. 6. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement. 7. Disability. During the Contract Period if the Executive becomes permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 10 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement. 8. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement. 9. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to section 12 hereof: a. Within 20 business days of the termination of employment pay the Executive a lump sum equal to: (i), if the Executive has been continuously employed by the Bank for 6 full years or more, two (2) years of Base Salary plus a Pro-rata Bonus Amount or (ii), if the Executive has been continuously employed by the Bank for less than 6 full years but more than three years, then one (1) year of Base Salary plus a Pro-rata Bonus Amount; and b. Continue to provide the Executive with medical, dental and life insurance 11 for the period equal to the equivalent lump sum payment (e.g. 1 or 2 years) as were provided at the time of termination of his employment with the Company, at the Company's cost. Upon expiration of benefit coverages, full COBRA benefits (18 months) will be made available to Executive. The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or to provide him with the health, hospitalization and insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause. 10. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contact Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof. 11. Non-Disclosure of Confidential Information. a. Non-Disclosure of Confidential Information. Except in the course of 12 his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information. b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions. c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement. 12. Certain Reduction of Payments by the Company. a. Anything in this Agreement to the contrary notwithstanding, prior to the payment of any lump sum amount payable hereunder, the certified public accountants of the Company immediately prior to a Change of Control (the "Certified Public Accountants) shall determine as promptly as practical and in any event within 20 business days following the termination of employment of Executive whether any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would more likely than not be 13 nondeductible by the Company for Federal income purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and if it is then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are thereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of said Section 280G of the Code. b. If under paragraph (a) of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present Value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants 14 shall be binding upon the Company and Executive shall be made within 20 business days of a termination of employment of Executive. With the consent of the Executive, the Company may suspend part or all of the lump sum payment due under Section 9 hereof and any other payments due to the Executive hereunder until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement. c. As a result of the uncertainty in the application of Section 280G of the Code, it is possible that Agreement Payments may have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Certified Public Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or Executive which said Certified Public Accountants believe has a high probability of success, determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and for the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. 15 In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 13. Term and Effect Prior to Change in Control. a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Personnel and Compensation Committee of the Bank notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) twenty-four months after the date of such written notice. Notwithstanding anything to the contrary contained herein, the Initial Term shall cease when the Executive attains age 65. b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason prior to a Change in Control, this Agreement shall thereafter be of no further force and effect. 16 14. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policy for officers and directors. 15. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Valley. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change in control benefits. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 17 IN WITNESS WHEREOF, Valley National Bank and Valley National Bancorp each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above. ATTEST: VALLEY NATIONAL BANCORP /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - --------------------------------- -------------------- Alan Eskow, Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer ATTEST: VALLEY NATIONAL BANK /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - --------------------------------- --------------------- Alan Eskow, Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer WITNESS: /s/ Peter Verbout /s/ Robert J. Mulligan - --------------------------------- -------------------------------- Robert J. Mulligan, Executive May 1, 1991 - --------------------------------- "Executive" Valley National Bank Service Date 18 EX-10.E 5 1999 LONG-TERM STOCK INCENTIVE PLAN VALLEY NATIONAL BANCORP 1999 LONG-TERM STOCK INCENTIVE PLAN (Adopted by Directors January 19, 1999) (Adopted by Shareholders April 7, 1999) 1. Purpose. The purpose of the Plan is to provide additional incentive to those officers and key employees of the Company and its Subsidiaries whose substantial contributions are essential to the continued growth and success of the Company's business in order to strengthen their commitment to the Company and its Subsidiaries, to motivate such officers and employees to faithfully and diligently perform their assigned responsibilities and to attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes, the Plan provides that the Company may grant Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Awards and Stock Appreciation Rights. 2. Definitions. For purposes of this Plan: (a) "Agreement" means the written agreement between the Company and an Optionee or Grantee evidencing the grant of an Option or Award and setting forth the terms and conditions thereof. (b) "Award" means a grant of Restricted Stock or Stock Appreciation Rights, or either or both of them. (c) "Bank" means Valley National Bank, a Subsidiary. (d) "Board" means the Board of Directors of the Company. (e) "Cause" means the willful failure by an Optionee or Grantee to perform his duties with the Company or with any Subsidiary or the willful engaging in conduct which is injurious to the Company or any Subsidiary, monetarily or otherwise. (f) "Change in Capitalization" means any increase, reduction, change or exchange of Shares for a different number or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise. (g) "Change in Control" means any of the following events: (i) when the Company or a Subsidiary acquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of the Company or a Subsidiary or an employee benefit plan established or maintained by the Company, a Subsidiary or any of their respective affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities of the Company representing more than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities (a "Control Person"), (ii) upon the first purchase of the Company's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by the Company, a Subsidiary or an employee benefit plan established or maintained by the Company, a Subsidiary or any of their respective affiliates), (iii) upon the approval by the Company's shareholders of (A) a merger or consolidation of the Company with or into another corporation (other than a merger or consolidation which is approved by at least two-thirds of the Continuing Directors (as hereinafter defined) or the definitive agreement for which provides that at least two-thirds of the directors of the surviving or resulting corporation immediately after the transaction are Continuing Directors (in either case, a "Non-Control Transaction")), (B) a sale or disposition of all or substantially all of the Company's assets or (C) a plan of liquidation or dissolution of the Company, (iv) if during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof or, following a Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board 1 of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than the Company, an employee benefit plan established or maintained by the Company or a Subsidiary, or an affiliate of the Company or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power of the Company's then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of the Company's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law. (h) "Code" means the Internal Revenue Code of 1986, as amended. (i) "Committee" means a committee consisting solely of two (2) or more directors who are Non-Employee Directors (as defined in Rule 16b-3 of the Exchange Act as it may be amended from time to time) of the Company and outside directors as defined pursuant to Section 162(m) of the Code (as it may be amended from time to time) appointed by the Board to administer the Plan and to perform the functions set forth herein. Directors appointed by the Board to the Committee shall have the authority to act notwithstanding the failure to be so qualified. (j) "Company" means Valley National Bancorp, a New Jersey corporation. (k) "Disability" means the condition which results when an individual has become permanently and totally disabled within the meaning of Section 105(d)(4) of the Code. (l) "Eligible Employee" means any officer or other key employee of the Company or a Subsidiary designated by the Committee as eligible to receive Options or Awards subject to the conditions set forth herein. (m) "Escrow Agent" means the escrow agent under the Escrow Agreement, designated by the Committee. (n) "Escrow Agreement" means an agreement between the Company, the Escrow Agent and a Grantee, in the form specified by the Committee, under which shares of Restricted Stock awarded pursuant hereto shall be held by the Escrow Agent until either (a) the restrictions relating to such shares expire and the shares are delivered to the Grantee or (b) the Company reacquires the shares pursuant hereto and the shares are delivered to the Company. (o) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (p) "Fair Market Value" means the fair market value of the Shares as determined by the Committee in its sole discretion; provided, however, that (A) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, Fair Market Value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on NASDAQ and have not been designated a NMS security, Fair Market Value on any date shall be the average of the highest bid and lowest asked prices of the Shares on such system on such date, or (C) if the Shares are admitted to trading on a national securities exchange, Fair Market Value on any date shall be the last sale price reported for the Shares on such exchange on such date or on the last date preceding such date on which a sale was reported. (q) "Grantee" means a person to whom an Award has been granted under the Plan. 2 (r) "Incentive Stock Option" means an Option within the meaning of Section 422 of the Code. (s) "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. (t) "Option" means an Incentive Stock Option, a Nonqualified Stock Option, or either or both of them. (u) "Optionee" means a person to whom an Option has been granted under the Plan. (v) "Parent" means any corporation in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock of one of the other corporations in such chain. (w) "Plan" means the Valley National Bancorp 1999 Long-Term Stock Incentive Plan as set forth in this instrument and as it may be amended from time to time. (x) "Restricted Stock" means Shares issued or transferred to an Eligible Employee which are subject to restrictions as provided in Section 8 hereof. (aa) "Retirement" means the retirement from active employment by the Company of an employee or officer but only if such person meets all of the following requirements: (i) he has a minimum combined total of years of service and age equal to eighty (80), (ii) he is age sixty-two (62) or older, and (iii) he provides six (6) months prior written notice to the Company of the retirement. An employee or officer who retires but fails to meet such conditions shall not be deemed to be within the definition of "Retirement" for any purpose under this Plan or any Award or Option granted thereunder. (ab) "Shares" means the common stock, no par value, of the Company (including any new, additional or different stock or securities resulting from a Change in Capitalization). (ac) "Stock Appreciation Right" means a right to receive all or some portion of the increase in the value of shares of Common Stock as provided in Section 7 hereof. (ad) "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (ae) "Successor Corporation" means a corporation, or a parent or subsidiary thereof, which issues or assumes a stock option in a transaction to which Section 425(a) of the Code applies. (af) "Ten-Percent Shareholder" means an eligible Employee, who, at the time an Incentive Stock Option is to be granted to him, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, a Parent or a Subsidiary within the meaning of Section 422(b)(6) of the Code. 3 3. Administration. (a) The Plan shall be administered by the Committee which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A majority of the Committee shall constitute a quorum and a majority of a quorum may authorize any action. Each member of the Committee shall be a Non-Employee Director (as defined in Rule 16b-3 of the Exchange Act as it may be amended from time to time) and an outside director as defined pursuant to Section 162(m) of the Code as it may be amended from time to time. No failure to be so qualified shall invalidate any Option or Award or any action or inaction under the Plan. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, the Options or the Awards, and all members of the Committee shall be fully indemnified by the Company with respect to any such action, determination or interpretation. Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time: (1) to determine those Eligible Employees to whom Options shall be granted under the Plan and the number of Incentive Stock Options and/or Nonqualified Options to be granted to each eligible Employee and to prescribe the terms and conditions (which need not be identical) of each Option, including the purchase price per share of each Option; (2) to select those Eligible Employees to whom Awards shall be granted under the Plan and to determine the number of shares of Restricted Stock and/or Stock Appreciation Rights to be granted pursuant to each Award, the terms and conditions of each Award, including the restrictions or performance criteria relating to such shares or rights, the purchase price per share, if any, of Restricted Stock and whether Stock Appreciation Rights will be granted alone or in conjunction with an Option; (3) to construe and interpret the Plan and the Options and Awards granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final and binding upon the Company or a Subsidiary, the Optionees and the Grantees, as the case may be; (4) to determine the duration and purposes for leaves of absence which may be granted to an Optionee or Grantee without constituting a termination of employment or service for purposes of the Plan; and (5) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to Plan. (a) The maximum number of Shares that may be issued or transferred pursuant to all Options and Awards under this Plan is 2,500,000 of which not more than 250,000 Shares may be issued or transferred pursuant to Options and/or Awards to any one Eligible Employee. Subject to the foregoing aggregate limitations, the maximum number of Shares (i) that may be issued or transferred pursuant to Options or Awards for Incentive Stock Options, Non-Qualified Stock Options and Stock Appreciation Rights shall be 2,000,000 and (ii) that may be issued or transferred pursuant to Awards of Restricted Stock shall be 500,000. In each case, upon a Change in Capitalization after the adoption of this Plan by the Board on January 19, 1999, the Shares shall be adjusted to the number and kind of Shares of stock or other securities existing after such Change in Capitalization. The number of Shares set forth herein includes Shares awarded pursuant to all Options and Awards issued or transferred under this Plan prior to the date of the amendment to this section and the number of Shares takes into account all Changes in Capitalization prior to January 18, 1999. 4 (b) Whenever any outstanding Option or portion thereof expires, is cancelled or is otherwise terminated (other than by exercise of the Option or any related Stock Appreciation Right), the shares of Common Stock allocable to the unexercised portion of such Option may again be the subject of Options and Awards hereunder. (c) Whenever any Shares subject to an Award or Option are resold to the Company, or are forfeited for any reason pursuant to the terms of the Plan, such Shares may again be the subject of Options and Awards hereunder. 5. Eligibility. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Employees who will receive Options and/or Awards but no person shall receive any Options or Awards unless he is an employee of the Company or a Subsidiary at the time the Option or Award is granted. 6. Stock Options. The Committee may grant Options in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. Each Option and Option Agreement shall be subject to the following conditions: (a) Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Option shall be set forth in the Agreement, provided that the purchase price per Share under each Incentive Stock Option shall not be less than 100% of the Fair Market Value of a Share at the time the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder) and under each Nonqualified Stock Option shall not be less than 80% of the Fair Market Value of a Share at the time the Option is granted. (b) Duration. Options granted hereunder shall be for such term as the Committee shall determine, provided that (i) no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Shareholder) and (ii) no Nonqualified Stock Option shall be exercisable after the expiration of ten (10) years and one (1) day from the date it is granted. The Committee may, subsequent to the granting of any Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. (c) Non-Transferability. No Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his guardian or legal representative. The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. (d) Stock Options; Vesting. Subject to Section 6(h) hereof, each Option shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Option Agreement. Unless otherwise provided in the Agreement, to the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. Upon the death, Disability or Retirement of an Optionee, all Options shall become immediately exercisable. Notwithstanding the foregoing, the Committee may accelerate the exercisability of any Option or portion thereof at any time. (e) Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise in cash, by check, or, at the discretion of the Committee and upon such terms and conditions as the Committee shall approve, by transferring Shares to the Company. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option and the Agreement evidencing any related Stock Appreciation Right to the 5 Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. Not less than 100 Shares may be purchased at any time upon the exercise of an Option unless the number of Shares so purchased constitutes the total number of Shares then purchasable under the Option. (f) Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a shareholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares. (g) Termination of Employment. In the event that an Optionee ceases to be employed by the Company or any Subsidiary, any outstanding Options held by such Optionee shall, unless the Option Agreement evidencing such Option provides otherwise, terminate as follows: (i) If the Optionee's termination of employment is due to his death or Disability, the Option shall be exercisable for a period of one (1) year following such termination of employment, and shall thereafter terminate; (ii) If the Optionee's termination of employment is by the Company or a Subsidiary for Cause or is by the Optionee (other than due to the Optionee's Retirement), the Option shall terminate on the date of the Optionee's termination of employment; (iii) If the termination of employment is due to the Optionee's Retirement, the Option shall be exercisable (to the extent exercisable at the time of the Optionee's termination of employment due to retirement) for a period of 18 months following such termination of employment, and shall thereafter terminate. (An Optionee who exercises his or her Options more than 90 days after the termination of employment due to Retirement shall acknowledge that the Options so exercised will not be Incentive Stock Options.); and (iv) If the Optionee's termination of employment is for any other reason (including an Optionee's ceasing to be employed by a Subsidiary as a result of the sale of such Subsidiary or an interest in such Subsidiary), the Option (to the extent exercisable at the time of the Optionee's termination of employment) shall be exercisable for a period of ninety (90) days following such termination of employment, and shall thereafter terminate. Notwithstanding the foregoing, the Committee may provide, either at the time an Option is granted or thereafter, that the Option may be exercised after the periods provided for in this Section 6(g), but in no event beyond the term of the Option. (h) Effect of Change in Control. In the event of a Change in Control, all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable. (i) Substitution and Modification. Subject to the terms of the Plan, the Committee may modify outstanding Options or accept the surrender of outstanding Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Option shall alter or impair any rights or obligations under the Option without the Optionee's consent, except as provided for in this Plan or the Agreement. 7. Stock Appreciation Rights. The Committee may, in its discretion, either alone or in connection with the grant of an Option, grant Stock Appreciation Rights in accordance with the Plan, the terms and conditions of which shall be set forth in an Agreement. If granted in connection with an Option, a Stock Appreciation Right shall cover the same shares covered by the Option (or such lesser number of shares as the Committee may determine) and shall, except as provided in this Section 7, be subject to the same terms and conditions as the related Option. (a) Time of Grant. A Stock Appreciation Right may be granted: 6 (i) at any time if unrelated to an Option; or (ii) if related to an Option, either at the time of grant, or at any time thereafter during the term of the Option. (b) Stock Appreciation Rights Related to an Option. (i) Payment. A Stock Appreciation Right granted in connection with an Option shall entitle the holder thereof, upon exercise of the Stock Appreciation Right or any portion thereof, to receive payment of an amount computed pursuant to Section 7(b)(iii). (ii) Exercise. Subject to Section 7(f), a Stock Appreciation Right granted in connection with an Option shall be exercisable at such time or times and only to the extent that the related Option is exercisable, and will not be transferable except to the extent the related Option may be transferable. A Stock Appreciation Right granted in connection with an Incentive Stock Option shall be exercisable only if the Fair Market Value of a Share on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option. (iii) Amount Payable. Except as otherwise provided in Section 7(g), upon the exercise of Stock Appreciation Right related to an Option, the Grantee shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over the per Share purchase price under the related Option, by (B) the number of Shares as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the Agreement evidencing the Stock Appreciation Right at the time it is granted. (iv) Treatment of Related Options and Stock Appreciation Rights Upon Exercise. Except as provided in Section 7(b)(v), (A) upon the exercise of a Stock Appreciation Right granted in connection with an Option, the Option shall be cancelled to the extent of the number of Shares as to which the Stock Appreciation Right is exercised and (B) upon the exercise of an Option granted in connection with a Stock Appreciation Right or the surrender of such Option pursuant to Section 6(h), the Stock Appreciation Right shall be cancelled to the extent of the number of Shares as to which the Option is exercised or surrendered. (v) Simultaneous Exercise of Stock Appreciation Right and Option. The Committee may provide, either at the time a Stock Appreciation Right is granted in connection with a Nonqualified Stock Option or thereafter during the term of the Stock Appreciation Right, that, subject to Section 7(f), upon exercise of such Option or the surrender of the Option pursuant to Section 6(h), the Stock Appreciation Right shall automatically be deemed to be exercised to the extent of the number of Shares as to which the Option is exercised or surrendered. In such event, the Grantee shall be entitled to receive the amount described in Section 7(b)(iii) or 7(g) hereof, as the case may be (or some percentage of such amount if so provided in the Agreement evidencing the Stock Appreciation Right), in addition to the Shares acquired or cash received pursuant to the exercise or surrender of the Option. If a Stock Appreciation Right Agreement contains an automatic exercise provision described in this Section 7(b)(v) and the Option or any portion thereof to which it relates is exercised within six (6) months from the date the Stock Appreciation Right is granted, such automatic exercise provision shall not be effective with respect to that exercise of the Option. The inclusion in an Agreement evidencing a Stock Appreciation Right of a provision described in this Section 7(b)(v) may be in addition to and not in lieu of the right to exercise the Stock Appreciation Right as otherwise provided herein and in the Agreement. (c) Stock Appreciation Rights Unrelated to an Option. The Committee may grant to Eligible Employees Stock Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated to Options shall contain such terms and conditions as to exercisability, vesting and duration as the Committee shall determine, but in no event shall they have a term of greater than ten (10) years. Upon the death, Disability or Retirement of a Grantee, all Stock Appreciation Rights shall become immediately exercisable. Upon the death or Disability of a Grantee, the Stock Appreciation Rights held by that Grantee shall be exercisable for a period of one (1) year following such termination of 7 employment, and shall thereafter terminate. Upon the Retirement of a Grantee, the Stock Appreciation Rights held by that Grantee shall be exercisable for a period of ninety (90) days following such termination of employment, and shall thereafter terminate. Except as otherwise provided in Section 7(g), the amount payable upon exercise of such Stock Appreciation Rights shall be determined in accordance with Section 7(b)(iii), except that "Fair Market Value of a Share on the date of the grant of the Stock Appreciation Right" shall be substituted for "purchase price under the related Option." (d) Method of Exercise. Stock Appreciation Rights shall be exercised by a Grantee only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Grantee shall deliver the Agreement evidencing the Stock Appreciation Right being exercised and the Agreement evidencing any related Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreements to the Grantee. (e) Form of Payment. Payment of the amount determined under Sections 7(b)(iii) or 7(c), may be made solely in whole shares of Common Stock in a number determined at their Fair Market Value on the date of exercise of the Stock Appreciation Right or, alternatively, at the sole discretion of the Committee, solely in cash, or in a combination of cash and Shares as the Committee deems advisable. In the event that a Stock Appreciation Right is exercised within the sixty-day period following a Change in Control, any amount payable shall be solely in cash. If the Committee decides to make full payment in Shares, and the amount payable results in a fractional Share, payment for the fractional Share will be made in cash. Notwithstanding the foregoing, no payment in the form of cash may be made upon the exercise of a Stock Appreciation Right pursuant to Section 7(b)(iii) or 7(c) to an officer of the Company or a Subsidiary who is subject to Section 16(b) of the Exchange Act, unless the exercise of such Stock Appreciation Right is made during the period beginning on the third business day and ending on the twelfth business day following the date of release for publication of the Company's quarterly or annual statements of earnings. (f) Restrictions. No Stock Appreciation Right may be exercised before the date six (6) months after the date it is granted, except in the event that the death or Disability of the Grantee occurs before the expiration of the six-month period. (g) Effect of Change in Control. In the event of a Change in Con~~ol, subject to Section 7(f), all Stock Appreciation Rights shall become immediately and fully exercisable. 8. Restricted Stock. The Committee may grant Awards of Restricted Stock which shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, terms and conditions as the Committee may require and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Restricted Stock shall be subject to the following terms and provisions: (a) Rights of Grantee. (i) Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted and the purchase price, if any, is paid by the Grantee, provided that the Grantee has executed an Agreement evidencing the Award, an Escrow Agreement, appropriate blank stock powers and any other documents which the Committee, in its absolute discretion, may require as a condition to the issuance of such Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted Stock Award, an Escrow Agreement or appropriate blank stock powers or shall fail to pay the purchase price, if any, for the Restricted Stock, the Award shall be null and void. Shares issued in connection with a Restricted Stock Award, together with the stock powers, shall be deposited with the Escrow Agent. Except as restricted by the terms of the Agreement, upon the delivery of the Shares to the Escrow Agent, the Grantee shall have all of the rights of a shareholder with respect to such Shares, including the right to vote the shares and to receive, subject to Section 8(d), all dividends or other distributions paid or made with respect to the Shares. 8 (ii) If a Grantee receives rights or warrants with respect to any Shares which were awarded to him as Restricted Stock, such rights or warrants or any Shares or other securities he acquires by the exercise of such rights or warrants may be held, exercised, sold or otherwise disposed of by the Grantee free and clear of the restrictions and obligations provided by this Plan. (b) Non-Transferability. Until any restrictions upon the Shares of Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth in Section 8(c), such Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Grantee. Upon the termination of employment of the Grantee, all of such Shares with respect to which restrictions have not lapsed shall be resold by the Grantee to the Company at the same price paid by the Grantee for such Shares or shall be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company if no purchase price had been paid for such Shares. The Committee may also impose such other restrictions and conditions on the Shares as it deems appropriate. (c) Lapse of Restrictions. (i) Restrictions upon Shares of Restricted Stock awarded hereunder shall lapse at such time or times and on such terms, conditions and satisfaction of performance criteria as the Committee may determine; provided, however, that the restrictions upon such Shares shall lapse only if the Grantee on the date of such lapse is then and has continuously been an employee of the Company or a Subsidiary from the date the Award was granted. (ii) In the event of a Change in Control, all restrictions upon any Shares of Restricted Stock shall lapse immediately and all such Shares shall become fully vested in the Grantee thereof. (iii) In the event of termination of employment as a result of death, Disability or Retirement of a Grantee, all restrictions upon Shares of Restricted Stock awarded to such Grantee shall thereupon immediately lapse. The Committee may also decide at any time in its absolute discretion and on such terms and conditions as it deems appropriate, to remove or modify the restrictions upon Shares of Restricted Stock awarded hereunder. (d) Treatment of Dividends. At the time of an Award of Shares of Restricted Stock, the Committee may, in its discretion, determine that the payment to the Grantee of dividends, or a specified portion thereof, declared or paid on Shares of Restricted Stock by the Company shall be deferred until the earlier to occur of (i) the lapsing of the restrictions imposed upon such Shares, in which case such dividends shall be paid over to the Grantee, or (ii) the forfeiture of such Shares under Section 8(b) hereof, in which case such dividends shall be forfeited to the Company, and such dividends shall be held by the Company for the account of the Grantee until such time. In the event of such deferral, interest shall be credited on the amount of such dividends held by the Company for the account of the Grantee from time to time at such rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends, together with interest accrued thereon as aforesaid, shall be made upon the earlier to occur of the events specified in (i) and (ii) of the immediately preceding sentence, in the manner specified therein. (e) Delivery of Shares. When the restrictions imposed hereunder and in the Plan expire or have been cancelled with respect to one or more shares of Restricted Stock, the Company shall notify the Grantee and the Escrow Agent of same. The Escrow Agent shall then return the certificate covering the Shares of Restricted Stock to the Company and upon receipt of such certificate the Company shall deliver to the Grantee (or such Grantee's legal representative, beneficiary or heir) a certificate for a number of shares of Common Stock, without any legend or restrictions (except those required by any federal or state securities laws), equivalent to the number of Shares of Restricted Stock for which restrictions have been cancelled or have expired. A new certificate covering Shares of Restricted Stock previously awarded to the Grantee which remain restricted shall be issued to the Grantee and held by the Escrow Agent and the Agreement, as it relates to such shares, shall remain in effect. 9. Loans. 9 (a) The Company or any Subsidiary may make loans to a Grantee or Optionee in connection with the purchase of Shares pursuant to an Award or in connection with the exercise of an Option, subject to the following terms and conditions and such other terms and conditions not inconsistent with the Plan, including the rate of interest, if any, as the Committee shall impose from time to time. (b) No loan made under the Plan shall exceed the sum of (i) the aggregate purchase price payable pursuant to the Option or Award with respect to which the loan is made, plus (ii) the amount of the reasonably estimated income taxes payable by the Optionee or Grantee with respect to the Option or Award. In no event may any such loan exceed the Fair Market Value, at the date of exercise, of any such Shares. (c) No loan shall have an initial term exceeding ten (10) years; provided, that loans under the Plan shall be renewable at the discretion of the Committee; and provided, further, that the indebtedness under each loan shall become due and payable, as the case may be, on a date no later than (i) one (1) year after termination of the Optionee's or Grantee's employment due to death, retirement or Disability, or (ii) the date of termination of the Optionee's or Grantee's employment for any reason other than death, retirement or Disability. (d) Loans under the Plan may be satisfied by an Optionee or Grantee, as determined by the Committee, in cash or, with the consent of the Committee, in whole or in part by the transfer to the Company of Shares whose Fair Market Value on the date of such payment is equal to the cash amount for which such Shares are transferred. (e) A loan shall be secured by a pledge of Shares with a Fair Market Value of not less than the principal amount of the loan. After partial repayment of a loan, pledged shares no longer required as security may be released to the Optionee or Grantee. (f) Every loan shall meet all applicable laws, regulations and rules of the Federal Reserve Board and any other governmental agency having jurisdiction. 10. Adjustment Upon Changes in Capitalization. (a) In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the maximum number and class of shares of stock with respect to which Options or Awards may be granted under the Plan, the number and class of shares as to which Options or Awards have been granted under the Plan, and the purchase price therefor, if applicable. (b) Any such adjustment in the Shares or other securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 425(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 425 of the Code. (c) If, by reason of a Change in Capitalization, a Grantee of an Award shall be entitled to new, additional or different shares of stock or securities (other than rights or warrants to purchase securities), such new additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares or units pursuant to the Award prior to such Change in Capitalization. 11. Effect of Certain Transactions. In the event of (i) the liquidation or dissolution of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) the sale or disposition of all or substantially all of the Company's assets, provision shall be made in connection with such transaction for the assumption of the Plan and the Options or Awards theretofore granted under the Plan, or the substitution for such Options or Awards of new options or awards of the Successor Corporation, with appropriate adjustment as to the number and kind of shares and the purchase price for shares thereunder. 12. Release of Financial Information. A copy of the Company's annual report to shareholders shall be delivered to each Optionee and Grantee at the time such report is distributed to the Company's shareholders. Upon 10 request the Company shall furnish to each Optionee and Grantee a copy of its most recent annual report and each quarterly report and current report filed under the Exchange Act, since the end of the Company's prior fiscal year. 13. Termination and Amendment of the Plan. The Plan shall terminate on the day preceding the tenth anniversary of its effective date and no Option or Award may be granted thereafter. The Board may sooner terminate or amend the Plan at any time, and from time to time; provided, however, that, except as provided in Sections 10 and 11 hereof, no amendment shall be effective unless approved by the shareholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of Shares as to which Options or Awards may be granted under the Plan; or (b) change the class of persons eligible to participate in the Plan. The following amendments shall not require Shareholder approval unless required by law or regulation to preserve the intended benefits of the Plan to the Company or the participants: (a) change the minimum purchase price of Shares pursuant to Options or Awards as provided herein; (b) extend the maximum period for granting or exercising Options provided herein; or (c) otherwise materially increase the benefits accruing to Eligible Employees under the Plan. Except as provided in Sections 10 and 11 hereof, rights and obligations under any Option or Award granted before any amendment of the Plan shall not be altered or impaired by such amendment, except with the consent of the Optionee or Grantee, as the case may be. 14. Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 15. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to; (a) give any person any right to be granted an Option or Award other than at the sole discretion of the Committee; (b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (c) limit in any way the right of the Company to terminate the employment of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person in any particular position at any particular rate of compensation or for any particular period of time. 11 16. Regulations and Other Approvals; Governing Law. (a) This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of New Jersey without giving effect to the choice of law principles thereof, except to the extent that such law is preempted by federal law. (b) The obligation of the Company to sell or deliver Shares with respect to Options and Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (c) The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code (each as amended from time to time) and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith to the extent necessary. Any provisions inconsistent with such Rule or Section shall be inoperative but shall not affect the validity of the Plan or any grants thereunder. (c) Except as otherwise provided in Section 13, the Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. (d) Each Option and Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions unacceptable to the Committee. (e) In the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, or regulations thereunder, and the Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares (including upon exercise of an Option), to represent to the Company in writing that the Shares acquired by such individual are acquired for investment only and not with a view to distribution. 17. Miscellaneous. (a) Multiple Agreements. The terms of each Option or Award may differ from other Options or Awards granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option or Award to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options or Awards previously granted to that Eligible Employee. The grant of multiple Options and/or Awards may be evidenced by a single Agreement or multiple Agreements, as determined by the Committee. (b) Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to any Optionee or Grantee an amount equal to the federal, state and local income taxes and other amounts required by law to be withheld with respect to any Option or Award. Notwithstanding anything to the contrary contained herein, if an Optionee or Grantee is entitled to receive Shares upon exercise of an Option or pursuant to an Award, the Company shall have the right to require such Optionee or Grantee, prior to the delivery of such Shares, to pay to the Company the amount of any federal, state or local income taxes and other amounts which the Company is required by law to withhold. The Agreement evidencing any Incentive Stock Options granted under this Plan shall provide that if the Optionee makes a disposition, within the meaning of Section 425(c) of the Code and regulations promulgated thereunder, of any Share or 12 Shares issued to him or her pursuant to his or her exercise of the Incentive Stock Option within the two-year period commencing on the day after the date of grant of such Option or within the one-year period commencing on the day after the date of transfer of the Share or Shares to the Optionee pursuant to the exercise of such Option, he or she shall, within ten (10) days of such disposition, notify the Company thereof and immediately deliver to the Company any amount of federal income tax withholding required by law. (c) Designation of Beneficiary. Each Optionee and Grantee may, with the consent of the Committee, designate a person or persons to receive in the event of his/her death, any Option or Award or any amount payable pursuant thereto, to which he/she would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If an Optionee fails effectively to designate a beneficiary, then his/her estate will be deemed to be the beneficiary. 18. Effective Date. The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative vote of a majority of the votes cast at a meeting of shareholders at which a quorum is present to be held within twelve (12) months of such adoption. No Options or Awards shall vest hereunder unless such Shareholder approval is obtained. 13 EX-10.G 6 STOCK OPTION AGREEMENT EXHIBIT (10)G VALLEY NATIONAL BANCORP STOCK OPTION AGREEMENT VALLEY NATIONAL BANCORP, a New Jersey corporation (the "Company"), this 1st day of April, 1992, (the "Option Date") hereby grants to MICHAEL GUILFOILE, residing at 369 Rowayton Avenue, Rowayton, Connecticut 06853 ("Guilfoile") an option to purchase shares of the Common Stock, no par value, of the Company ("Common Stock") in the amount and on the terms and conditions hereinafter set forth. 1. Grant of Option. The Company hereby grants to Guilfoile the option (the "Option") to purchase all or any part of an aggregate of 5,000 shares of Common Stock ("Shares") on the terms and conditions herein set forth. 2. Purchase Price. The purchase price of the shares of Common Stock subject to the Option shall be $26.00 per share subject to adjustment as provided in Section (a) below. 3. Final Termination. This Option shall be exercisable from the date hereof until November 18, 2001 or such shorter as is prescribed in this Agreement. 4. Restrictions. This Option is subject to all the following conditions: a. This Option is not assignable or transferable by Guilfoile; b. This Option may be exercised only by the legal representative of Guilfoile in the event of his death or mental disability. 5. Exercise. This Option shall be exercised by notice to the Company, accompanied by full payment in cash or check. 6. Securities Law Restrictions. The Company is under no obligation to file a registration statement under the Securities Act of 1933 with respect to the Shares to be received upon exercise of the Option. Unless a registration statement under the Act has been filed and remains effective with respect to the Shares, the Company shall require that the offer and sale of such Shares be exempt from the registration provisions of the Act. As a condition of such exemption, the Company shall require a representation and undertaking, in form and substance satisfactory to counsel for the Company, that the optionee is acquiring the Shares for his own account for investment and not with a view to the distribution or resale thereof and shall otherwise require such representations and impose such conditions as shall establish to the Company's satisfaction that the offer and sale of the Shares issuable upon the exercise of the Option will not constitute a violation of the Act or any similar state act affecting the offer and sale. If the shares are issued in an exempt transaction, the Shares shall bear the following restrictive legend: THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR TRANSFER OF THE SHARES MAY BE AFFECTED WITHOUT AN OPINION OF COUNSEL TO THE COMPANY STATING THAT THE TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THAT THE SALE OR TRANSFER OF THE SHARES IS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THE SHARES. 7. Restrictions on Transfer. This Option shall not be transferred, assigned, pledged or hypothecated by Guilfoile and shall not be subject to execution, attachment or similar process. In the event the terms of this paragraph are not complied with by Guilfoile, or if the Option is subject to execution, attachment or similar process, this Option shall immediately become null and void. 8. Anti-Dilution Provisions. If prior to expiration of the Option there shall occur any change in the outstanding Common Stock of the Company by reason of any stock dividend, stock split, combination or exchange of shares, merger, consolidation, recapitalization, reorganization, liquidation, subscription rights offering, or the like, and as often as the same shall occur, then the kind and number of shares subject to the Option, or the purchase price per share of Common Stock, or both, shall be adjusted by the Board of Directors in such manner as it may deem equitable, the determination of which shall be binding and conclusive. Failure of the Board to provide for any such adjustment shall be conclusive evidence that no adjustment is required. The Company shall notify Guilfoile of any change. 9. Acceleration of Option Period. Notwithstanding anything to the contrary specified herein, if there is a Change-in-Control of the Company as defined in the Company's Long-Term Stock Incentive Plan (the "Incentive Plan"), the Company, upon prior written notice to Guilfoile, may terminate the Option 60 days after giving Guilfoile notice of the Change-in-Control and the earlier termination date. During any sixty (60) day period following a Change-in-Control, Guilfoile may (i) exercise the Option, to the extent not previously exercised, or (ii) surrender this Option for cancellation and receive, to the extent the Option was not previously exercised, a cash payment equal to the Adjusted Fair Market Value (as defined in the Incentive Plan) of the Shares subject to the Option or portion thereof surrendered, over the aggregate purchase price for such Shares under this Option. This provision is intended to, and shall be interpreted to, give Guilfoile the same treatment as optionees under the Incentive Plan. 10. Acceptance of Provisions. The execution of this Agreement by Guilfoile shall constitute Guilfoile's acceptance of and agreement to all of the terms and conditions of this Agreement. 11. Notices. All notices and other communications required or permitted under this Agreement shall be in writing and shall be given either by (i) personal delivery or regular mail, in each case against receipt, or (ii) first class registered or certified mail, return receipt requested. Any such communication shall be deemed to have been given (i) on the date of receipt in the cases referred to in clause (i) of the preceding sentence and (ii) on the second day after the date of mailing in the cases referred to in clause (ii) of the preceding sentence. All such communications to the Company shall be addressed to it, to the attention of its Secretary or Treasurer, at its then principal office and to Guilfoile at his last address appearing on the records of the Company or, in each case, to such other person or address as may be designated by like notice hereunder. 12. Miscellaneous. This Agreement contains a complete statement of all the arrangements between the parties with respect to their subject matter, and this Agreement cannot be changed except by in writing executed by both parties. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements made and to be performed exclusively in New Jersey. The headings in this Agreement are solely for convenience of reference and shall not affect its meaning or interpretation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. VALLEY NATIONAL BANCORP By: /s/ Gerald H. Lipkin --------------------------- Gerald H. Lipkin /s/ Michael Guilfoile --------------------------- Michael Guilfoile EX-10.M 7 CHANGE-IN-CONTROL AGREEMENT EXHIBIT (10) M CHANGE-IN-CONTROL AGREEMENT (First Senior Vice President) THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 3rd day of January, 2000, among VALLEY NATIONAL BANK ("Bank"), a national banking association with its principal office at 1455 Valley Road, Wayne, New Jersey, VALLEY NATIONAL BANCORP ("Valley"), a New Jersey Corporation which maintains its principal office at 1455 Valley Road, Wayne, New Jersey (Valley and the Bank collectively are the "Company") and ALBERT L. ENGEL (the "Executive"). BACKGROUND WHEREAS, the Executive has been continuously employed by the Bank for at least three full years; WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of the Bank and Valley; WHEREAS, the Board of Directors of the Bank and Valley believe that the future services of the Executive are of great value to the Bank and Valley and that it is important for the growth and development of the Bank that the Executive continue in his position; WHEREAS, if the Company receives any proposal from a third person concerning a possible business combination with, or acquisition of equities securities of, the Company, the Board of Directors of the Company (the "Board") believes it is imperative that the Company and the Board be able to rely upon the Executive to continue in his position, and that they be able to receive 1 and rely upon his advice, if they request it, as to the best interests of the Company and its shareholders, without concern that the Executive might be distracted by the personal uncertainties and risks created by such a proposal; WHEREAS, to achieve that goal, and to retain the Executive's services prior to any such activity, the Board of Directors and the Executive have agreed to enter into this Agreement to govern the Executive's termination benefits in the event of a Change in Control of the Company, as hereinafter defined. NOW, THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat or occurrence of a bid to take over control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby agree as follows: 1. Definitions a. Base Salary. "Base Salary", as used in Section 9 hereof, means the annual cash base salary (excluding any bonus and the value of any fringe benefits) paid to the Executive at the time of the termination of employment unless such amount has been reduced after a Change in Control, in which case such amount shall be the highest base salary in effect during the 18 months prior to the Change in Control. b. Cause. For purposes of this Agreement "Cause" with respect to the termination by the Company of Executive's employment shall mean (i) willful and continued 2 failure by the Executive to perform his duties for the Company under this Agreement after at least one warning in writing from the Company's Board of Directors identifying specifically any such failure; (ii) the willful engaging by the Executive in misconduct which causes material injury to the Company as specified in a written notice to the Executive from the Board of Directors; or (iii) conviction of a crime, other than a traffic violation, habitual drunkenness, drug abuse, or excessive absenteeism other than for illness, after a warning (with respect to drunkenness or absenteeism only) in writing from the Board of Directors to refrain from such behavior. No act or failure to act on the part of the Executive shall be considered willful unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interest of the Company. c. Change in Control. "Change in Control" means any of the following events: (i) when Valley or a Subsidiary acquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), other than an affiliate of Valley or a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities of Valley representing more than twenty-five percent (25%) of the combined voting power of Valley's then outstanding securities (a "Control Person"), (ii) upon the first purchase of Valley's common stock pursuant to a tender or exchange offer (other than a tender or exchange offer made by Valley, a Subsidiary or an employee benefit plan established or maintained by Valley, a Subsidiary or any of their respective affiliates), (iii) 3 upon the approval by Valley's stockholders of (A) a merger or consolidation of Valley with or into another corporation (other than a merger or consolidation which is approved by at least two-thirds of the Continuing Directors (as hereinafter defined) or the definitive agreement for which provides that at least two-thirds of the directors of the surviving or resulting corporation immediately after the transaction are Continuing Directors (in either case, a "Non-Control Transaction")), (B) a sale or disposition of all or substantially all of Valley's assets or (C) a plan of liquidation or dissolution of Valley, (iv) if during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board (the "Continuing Directors") cease for any reason to constitute at least two-thirds thereof or, following a Non-Control Transaction, two-thirds of the board of directors of the surviving or resulting corporation; provided that any individual whose election or nomination for election as a member of the Board (or, following a Non-Control Transaction, the board of directors of the surviving or resulting corporation) was approved by a vote of at least two-thirds of the Continuing Directors then in office shall be considered a Continuing Director, or (v) upon a sale of (A) common stock of the Bank if after such sale any person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) other than Valley, an employee benefit plan established or maintained by Valley or a Subsidiary, or an affiliate of Valley or a Subsidiary, owns a majority of the Bank's common stock or (B) all or substantially all of the Bank's assets (other than in the ordinary course of business). No person shall be considered a Control Person for purposes of clause (i) above if (A) such person is or becomes the beneficial owner, directly or indirectly, of more than ten percent (10%) but less than twenty-five percent (25%) of the combined voting power 4 of Valley's then outstanding securities if the acquisition of all voting securities in excess of ten percent (10%) was approved in advance by a majority of the Continuing Directors then in office or (B) such person acquires in excess of ten percent (10%) of the combined voting power of Valley's then outstanding voting securities in violation of law and by order of a court of competent jurisdiction, settlement or otherwise, disposes or is required to dispose of all securities acquired in violation of law. d. Continuously Employed. "Continuously employed", as used in Section 9, means continuously employed by the Bank but excludes any period of employment by a bank or financial institution acquired by or merged into the Bank and excludes any period of employment by the Bank if such period is separated from the current employment with the Bank by a break in service (other a break in service resulting solely from illness, disability or family leave). e. Contract Period. "Contract Period" shall mean the period commencing the day immediately preceding a Change in Control and ending on the earlier of (i) the first anniversary of the Change in Control or (ii) the date the Executive would attain age 65 or (iii) the death of the Executive. For the purpose of this Agreement, a Change in Control shall be deemed to have occurred at the date specified in the definition of Change-in-Control. f. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. g. Good Reason. When used with reference to a voluntary termination by Executive of his employment with the Company, "Good Reason" shall mean any of the following, 5 if taken without Executive's express written consent: (1) The assignment to Executive of any duties inconsistent with, or the reduction of powers or functions associated with, Executive's position, duties, responsibilities and status with the Company immediately prior to a Change in Control. A change in title or positions resulting merely from a merger of the Company into or with another bank or company which does not downgrade in any way the Executive's powers, duties and responsibilities shall not meet the requirements of this paragraph; (2) A reduction by the Company in Executive's annual base compensation as in effect immediately prior to a Change in Control or the failure to award Executive annual increases in accordance herewith; (3) A failure by the Company to continue any bonus plan in which Executive participated immediately prior to the Change in control or a failure by the Company to continue Executive as a participant in such plan on at least the same basis as Executive participated in such plan prior to the Change in Control; (4) The Company's transfer of Executive to another geographic location more than 35 miles from his present office location, except for required travel on the Company's business to an extent substantially consistent with Executive's business travel obligations immediately prior to such Change in Control; (5) The failure by the Company to continue in effect any employee benefit plan, program or arrangement (including, without limitation the Company's 6 retirement plan, benefit equalization plan, life insurance plan, health and accident plan, disability plan, deferred compensation plan or long term stock incentive plan) in which Executive is participating immediately prior to a Change in Control (except that the Company may institute or continue plans, programs or arrangements providing Executive with substantially similar benefits); the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under, any of such plans, programs or arrangements; the failure to continue, or the taking of any action which would deprive Executive, of any material fringe benefit enjoyed by Executive immediately prior to such Change in Control; or the failure by the Company to provide Executive with the number of paid vacation days to which Executive was entitled immediately prior to such Change in Control; (6) The failure by the Company to obtain an assumption in writing of the obligations of the Company to perform this Agreement by any successor to the Company and to provide such assumption to the Executive prior to any Change in Control; or (7) Any purported termination of Executive's employment by the Company during the term of this Agreement which is not effected pursuant to all of the requirements of this Agreement; and, for purposes of this Agreement, no such purported termination shall be effective. h. Pro-rata Bonus Amount. "Pro-rata Bonus Amount", as used in Section 9, means an amount equal to a "portion" of the highest cash bonus paid to the Executive in the three calendar years immediately prior to the Change in Control. The "portion" of such cash bonus shall 7 be a fraction, the numerator of which is the number of calendar months or part thereof which the Executive has worked in the calendar year in which the termination occurs and the denominator of which is 12. i. Subsidiary. "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with Valley, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment, during the Contract Period upon the terms and conditions set forth herein. 3. Position. During the Contract Period the Executive shall be employed by the bank as a Senior Officer, or such other corporate or divisional profit center as shall then be the principal successor to the business, assets and properties of the Company, with substantially the same title and the same duties and responsibilities as before the Change in Control. The Executive shall devote his full time and attention to the business of the Company, and shall not during the Contract Period be engaged in any other business activity. This paragraph shall not be construed as preventing the Executive from managing any investments of his which do not require any service on his part in the operation of such investments. 4. Cash Compensation. The Company shall pay to the Executive compensation for his services during the Contract Period as follows: 8 a. Base Salary. A base annual salary equal to the annual salary in effect as of the Change in Control. The annual salary shall be payable in installments in accordance with the Company's usual payroll method. b. Annual Bonus. An annual cash bonus equal to at least the average of the bonuses paid to the Executive in the three years prior to the Change in Control. The bonus shall be payable at the time and in the manner which the Company paid such bonuses prior to the Change in Control. c. Annual Review. The Board of Directors of the Company during the Contract Period shall review annually, or at more frequent intervals which the Board determines is appropriate, the Executive's compensation and shall award him additional compensation to reflect the Executive's performance, the performance of the Company and competitive compensation levels, all as determined in the discretion of the Board of Directors. 5. Expenses and Fringe Benefits. a. Expenses. During the Contract Period, the Executive shall be entitled to reimbursement for all business expenses incurred by him with respect to the business of the Company in the same manner and to the same extent as such expenses were previously reimbursed to him immediately prior to the Change in Control. b. Benefit Equalization Plan. During the Contract Period, if the Executive was entitled to benefits under the Company's Benefit Equalization Plan ("BEP") prior to the Change in Control, the Executive shall be entitled to continued benefits under the BEP after the 9 Change in Control and such BEP may not be modified to reduce or eliminate such benefits during the Contract Period. c. Club Membership and Automobile. If prior to the Change in Control, the Executive was entitled to membership in a country club and/or the use of an automobile, he shall be entitled to the same membership and/or use of an automobile at least comparable to the automobile provided to him prior to the Change in Control. d. Other Benefits. The Executive also shall be entitled to vacations and sick days, in accordance with the practices and procedures of the Company, as such existed immediately prior to the Change in Control. During the Contract Period, the Executive also shall be entitled to hospital, health, medical and life insurance, and any other benefits enjoyed, from time to time, by senior officers of the Company, all upon terms as favorable as those enjoyed by other senior officers of the Company. Notwithstanding anything in this paragraph 5(d) to the contrary, if the Company adopts any change in the benefits provided for senior officers of the Company, and such policy is uniformly applied to all officers of the Company (and any successor or acquiror of the Company, if any), then no such change shall be deemed to be contrary to this paragraph. 6. Termination for Cause. The Company shall have the right to terminate the Executive for Cause, upon written notice to him of the termination which notice shall specify the reasons for the termination. In the event of termination for Cause the Executive shall not be entitled to any further benefits under this Agreement. 7. Disability. During the Contract Period if the Executive becomes 10 permanently disabled, or is unable to perform his duties hereunder for 4 consecutive months in any 12 month period, the Company may terminate the employment of the Executive. In such event, the Executive shall not be entitled to any further benefits under this Agreement. 8. Death Benefits. Upon the Executive's death during the Contract Period, his estate shall not be entitled to any further benefits under this Agreement. 9. Termination Without Cause or Resignation for Good Reason. The Company may terminate the Executive without Cause during the Contract Period by written notice to the Executive providing four weeks notice. The Executive may resign for Good Reason during the Contract Period upon four weeks' written notice to the Company specifying facts and circumstances claimed to support the Good Reason. The Executive shall be entitled to give a Notice of Termination that his or her employment is being terminated for Good Reason at any time during the Contract Period, not later than twelve months after any occurrence of an event stated to constitute Good Reason. If the Company terminates the Executive's employment during the Contract Period without Cause or if the Executive Resigns for Good Reason, the Company shall, subject to section 12 hereof: a. Within 20 business days of the termination of employment pay the Executive a lump sum equal to: (i), if the Executive has been continuously employed by the Bank for 6 full years or more, two (2) years of Base Salary plus a Pro-rata Bonus Amount or (ii), if the Executive has been continuously employed by the Bank for less than 6 full years but more than three years, then one (1) year of Base Salary plus a Pro-rata Bonus Amount; and 11 b. Continue to provide the Executive with medical, dental and life insurance for the period equal to the equivalent lump sum payment (e.g. 1 or 2 years) as were provided at the time of termination of his employment with the Company, at the Company's cost. Upon expiration of benefit coverages, full COBRA benefits (18 months) will be made available to Executive. The Executive shall not have a duty to mitigate the damages suffered by him in connection with the termination by the Company of his employment without Cause or a resignation for Good Reason during the Contract Period. If the Company fails to pay the Executive the lump sum amount due him hereunder or to provide him with the health, hospitalization and insurance benefits due under this section, the Executive, after giving 10 days' written notice to the Company identifying the Company's failure, shall be entitled to recover from the Company all of his reasonable legal fees and expenses incurred in connection with his enforcement against the Company of the terms of this Agreement. The Executive shall be denied payment of his legal fees and expenses only if a court finds that the Executive sought payment of such fees without reasonable cause. 10. Resignation Without Good Reason. The Executive shall be entitled to resign from the employment of the Company at any time during the Contact Period without Good Reason, but upon such resignation the Executive shall not be entitled to any additional compensation for the time after which he ceases to be employed by the Company, and shall not be entitled to any of the other benefits provided hereunder. No such resignation shall be effective unless in writing with four weeks' notice thereof. 11. Non-Disclosure of Confidential Information. 12 a. Non-Disclosure of Confidential Information. Except in the course of his employment with the Company and in the pursuit of the business of the Company or any of its subsidiaries or affiliates, the Executive shall not, at any time during or following the Contract Period, disclose or use, any confidential information or proprietary data of the Company or any of its subsidiaries or affiliates. The Executive agrees that, among other things, all information concerning the identity of and the Company's relations with its customers is confidential information. b. Specific Performance. Executive agrees that the Company does not have an adequate remedy at law for the breach of this section and agrees that he shall be subject to injunctive relief and equitable remedies as a result of the breach of this section. The invalidity or unenforceability of any provision of this Agreement shall not affect the force and effect of the remaining valid portions. c. Survival. This section shall survive the termination of the Executive's employment hereunder and the expiration of this Agreement. 12. Certain Reduction of Payments by the Company. a. Anything in this Agreement to the contrary notwithstanding, prior to the payment of any lump sum amount payable hereunder, the certified public accountants of the Company immediately prior to a Change of Control (the "Certified Public Accountants) shall determine as promptly as practical and in any event within 20 business days following the termination of employment of Executive whether any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant 13 to the terms of this Agreement or otherwise) (a "Payment") would more likely than not be nondeductible by the Company for Federal income purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and if it is then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are thereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of said Section 280G of the Code. b. If under paragraph (a) of this section the Certified Public Accountants determine that any Payment would more likely than not be nondeductible by the Company because of Section 280G of the Code, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Executive may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his election within 20 business days of his receipt of notice. If no such election is made by the Executive within such 20-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the Aggregate present Value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present Value shall be determined in accordance with 14 Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants shall be binding upon the Company and Executive shall be made within 20 business days of a termination of employment of Executive. With the consent of the Executive, the Company may suspend part or all of the lump sum payment due under Section 9 hereof and any other payments due to the Executive hereunder until the Certified Public Accountants finish the determination and the Executive (or the Company, as the case may be) elect how to reduce the Agreement Payments, if necessary. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement. c. As a result of the uncertainty in the application of Section 280G of the Code, it is possible that Agreement Payments may have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Certified Public Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or Executive which said Certified Public Accountants believe has a high probability of success, determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Executive to the Company in and for the extent such 15 payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 13. Term and Effect Prior to Change in Control. a. Term. Except as otherwise provided for hereunder, this Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the date hereof (the "Initial Term") or until the end of the Contract Period, whichever is later. The Initial Term shall be automatically extended for an additional one year period on the anniversary date hereof (so that the Initial Term is always 3 years) unless, prior to a Change in Control, the Personnel and Compensation Committee of the Bank notifies the Executive in writing at any time that the Contract is not so extended, in which case the Initial Term shall end upon the later of (i) 3 years after the date hereof, or (ii) twenty-four months after the date of such written notice. Notwithstanding anything to the contrary contained herein, the Initial Term shall cease when the Executive attains age 65. b. No Effect Prior to Change in Control. This Agreement shall not effect any rights of the Company to terminate the Executive prior to a Change in Control or any rights of the Executive granted in any other agreement or contract or plan with the Company. The rights, duties and benefits provided hereunder shall only become effective upon and after a Change in Control. If the full-time employment of the Executive by the Company is ended for any reason 16 prior to a Change in Control, this Agreement shall thereafter be of no further force and effect. 14. Severance Compensation and Benefits Not in Derogation of Other Benefits. Anything to the contrary herein contained notwithstanding, the payment or obligation to pay any monies, or granting of any benefits, rights or privileges to Executive as provided in this Agreement shall not be in lieu or derogation of the rights and privileges that the Executive now has or will have under any plans or programs of or agreements with the Company, except that if the Executive received any payment hereunder, he shall not be entitled to any payment under the Company's severance policy for officers and directors. 15. Miscellaneous. This Agreement is the joint and several obligation of the Bank and Valley. The terms of this Agreement shall be governed by, and interpreted and construed in accordance with the provisions of, the laws of New Jersey. This Agreement supersedes all prior agreements and understandings with respect to the matters covered hereby, including expressly any prior agreement with the Company concerning change in control benefits. The amendment or termination of this Agreement may be made only in a writing executed by the Company and the Executive, and no amendment or termination of this Agreement shall be effective unless and until made in such a writing. This Agreement shall be binding upon any successor (whether direct or indirect, by purchase, merge, consolidation, liquidation or otherwise) to all or substantially all of the assets of the Company. This Agreement is personal to the Executive and the Executive may not assign any of his rights or duties hereunder but this Agreement shall be enforceable by the Executive's legal representatives, executors or administrators. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary 17 in making proof of this Agreement to produce or account for more than one such counterpart. IN WITNESS WHEREOF, Valley National Bank and Valley National Bancorp each have caused this Agreement to be signed by their duly authorized representatives pursuant to the authority of their Boards of Directors, and the Executive has personally executed this Agreement, all as of the day and year first written above. ATTEST: VALLEY NATIONAL BANCORP /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - ------------------------------ ----------------------------- Alan D. Eskow, Secretary Gerald H. Lipkin, Chairman of the Board, President & CEO ATTEST: VALLEY NATIONAL BANK /s/ Alan D. Eskow By: /s/ Gerald H. Lipkin - ------------------------------ ----------------------------- Alan D. Eskow, Secretary Gerald H. Lipkin, Chairman of the Board, President & CEO WITNESS: /s/ Janet Maloy /s/ Albert L. Engel - ------------------------------ --------------------------------- Albert L. Engel, Executive Dated: 1/27/00 October 1, 1996 - ----------------------- "Executive" Valley National Bank Service Date 18 EX-23 8 INDEPENDENT AUDITORS' CONSENT EXHIBIT (23) INDEPENDENT AUDITORS' CONSENT The Board of Directors Valley National Bancorp: We consent to incorporation by reference in the registration statements No. 33-52809, No. 33-61547 and No. 33-56933, No. 33-65933, No. 33-65993 and No. 333-25419 on Forms S-8 of Valley National Bancorp of our report dated January 19, 2000 relating to the consolidated statements of financial condition of Valley National Bancorp and subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of income, change in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of Valley National Bancorp. /s/ KPMG LLP Short Hills, New Jersey March 1, 2000 EX-24 9 POWER OF ATTORNEY EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Gerald H. Lipkin and Peter Southway and each of them, his attorney-in-fact, each with power of substitution, for him in any and all capacities, to sign the Annual Report on Form 10-K of Valley National Bancorp for the fiscal year ended December 31, 1999 and any and all amendments, and to file the same, with exhibits thereto with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof. Signature Date - --------- ---- /s/ GERALD H. LIPKIN January 18, 2000 - -------------------------------------- Gerald H. Lipkin, Chairman, President, Chief Executive Officer and Director /s/ PETER SOUTHWAY January 18, 2000 - -------------------------------------- Peter Southway, Vice Chairman and Director /s/ ALAN D. ESKOW January 18, 2000 - -------------------------------------- Alan D. Eskow, Senior Vice President Controller and Corporate Secretary /s/ ANDREW A. ABRAMSON January 18, 2000 - -------------------------------------- Andrew A. Abramson, Director /s/ PAMELA BRONANDER January 18, 2000 - -------------------------------------- Pamela Bronander, Director /s/ JOSEPH COCCIA, JR. January 18, 2000 - -------------------------------------- Joseph Coccia, Jr., Director /s/ HAROLD P. COOK, III January 18, 2000 - -------------------------------------- Harold P. Cook, III, Director /s/ AUSTIN C. DRUKKER January 18, 2000 - -------------------------------------- Austin C. Drukker, Director /s/ WILLARD L. HEDDEN January 18, 2000 - -------------------------------------- Willard L. Hedden, Director /s/ GRAHAM O. JONES January 18, 2000 - -------------------------------------- Graham O. Jones, Director /s/ WALTER H. JONES, III January 18, 2000 - -------------------------------------- Walter H. Jones, III, Director /s/ GERALD KORDE January 18, 2000 - -------------------------------------- Gerald Korde, Director /s/ JOLEEN J. MARTIN January 18, 2000 - -------------------------------------- Joleen J. Martin, Director /s/ ROBERT E. McENTEE January 18, 2000 - -------------------------------------- Robert E. McEntee, Director /s/ RICHARD S. MILLER January 18, 2000 - -------------------------------------- Richard S. Miller, Director /s/ SAM P. PINYUH January 18, 2000 - -------------------------------------- Sam P. Pinyuh, Director /s/ ROBERT RACHESKY January 18, 2000 - -------------------------------------- Robert Rachesky, Director 2 /s/ BARNETT RUKIN January 18, 2000 - -------------------------------------- Barnett Rukin, Director /s/ RICHARD F. TICE January 18, 2000 - -------------------------------------- Richard F. Tice, Director /s/ LEONARD J. VORCHEIMER January 18, 2000 - -------------------------------------- Leonard J. Vorcheimer, Director /s/ JOSEPH L. VOZZA January 18, 2000 - -------------------------------------- Joseph L. Vozza, Director 3 EX-27 10 FDS
9 12-MOS DEC-31-1999 DEC-31-1999 161,561 0 123,000 0 1,005,419 351,501 318,329 4,554,752 55,120 6,360,394 5,051,255 129,065 61,693 564,881 0 0 25,943 527,557 6,360,394 339,438 84,148 3,949 427,535 143,512 169,177 258,358 9,120 2,532 137,946 158,544 158,544 0 0 106,324 1.75 1.73 4.53 3,482 11,698 4,852 2,000 54,641 12,131 3,490 55,120 41,454 142 13,524
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