UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
[X] Quarter Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the Period Ended March 31,
1998
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the transition period from
__________ to __________
Commission File Number 0-11179
----------------------
VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
New Jersey
(State or other Jurisdiction of
incorporation or organization)
22-2477875
(I.R.S. Employer Identification No.)
1455 Valley Road, Wayne, New Jersey 07474-0558
(Address of principal executive offices)
973-305-8800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (No par value), of which 52,774,216 shares were outstanding as of
May 1, 1998.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
March 31, 1998 and December 31, 1997
(Unaudited)
Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 4
(Unaudited)
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 5
(Unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Matters 18
Item 6. Exhibits and Reports on Form 8-K. 18
SIGNATURES 19
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Assets
Cash and due from banks $ 144,433 $ 149,175
Federal funds sold 64,000 30,000
Securities held to maturity, fair value of $156,892
and $163,444 in 1998 and 1997, respectively 154,531 161,552
Trading account securities 1,420 --
Securities available for sale 942,371 1,017,225
Loans 3,659,498 3,622,332
Less: Allowances for possible loan losses
(46,008) (46,372)
Loans, net
3,613,490 3,575,960
Premises and equipment 75,843 74,553
Due from customers on acceptances outstanding 676 304
Accrued interest receivable 28,711 29,313
Other assets
60,205 53,573
Total assets $ 5,085,680 $ 5,090,655
Liabilities
Deposits:
Non-interest bearing deposits $ 749,361 $ 769,887
Interest bearing:
Savings 1,876,441 1,841,039
Time 1,765,671 1,792,028
Total deposits 4,391,473 4,402,954
Federal funds purchases and securities sold under
repurchase agreements 15,678 32,882
Treasury tax and loan account and other short-term
borrowings 31,627 24,056
Other borrowings 113,997 114,012
Bank acceptances outstanding 676 304
Accrued expenses and other liabilities 50,232 41,088
Total liabilities 4,603,683 4,615,296
Shareholders' Equity
Common stock, no par value, authorized 98,437,500
shares, issued 53,059,885 shares in 1998
and 53,066,174 in 1997 23,282 23,282
Surplus 291,617 291,943
Retained earnings 170,541 159,116
Accumulated other comprehensive income 4,594 3,296
490,034 477,637
Treasury stock, at cost (295,913 shares in 1998
and 116,766 shares in 1997) (8,037) (2,278)
Total shareholders' equity 481,997 475,359
Total liabilities and shareholders' equity $5,085,680 $ 5,090,655
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($ in thousands, except for per share data)
<TABLE>
<CAPTION>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Interest Income
Interest and fees on loans $ 74,841 $ 71,243
Interest and dividends on investment securities:
Taxable 14,038 15,262
Tax-exempt 2,192 2,818
Dividends 460 418
Interest on federal funds sold and other short term
investments 1,068 1,543
Total interest income 92,599 91,284
Interest Expense
Interest on deposits:
Savings 10,325 10,455
Time 25,364 27,613
Interest on federal funds purchased and securities
sold under repurchase agreements 189 281
Interest on other short-term borrowings 324 218
Interest on other borrowings 1,714 485
Total interest expense 37,916 39,052
Net interest income 54,683 52,232
Provision for possible loan losses 2,500 1,200
Net interest income after provision for possible
loan losses 52,183 51,032
Non-Interest Income
Trust income 340 258
Service charges on deposit accounts 2,819 2,909
Gains on securities transactions, net 917 1,116
Fees from loan servicing 1,575 1,335
Credit card fee income 2,523 2,896
Gains on sales of loans, net 1,064 377
Other 987 1,224
Total non-interest income 10,225 10,115
Non-Interest Expense
Salary expense 11,980 11,269
Employee benefit expense 2,546 2,911
FDIC insurance premiums 290 208
Occupancy and equipment expense 4,559 4,461
Credit card expense 3,145 4,076
Amortization of intangible assets 1,042 849
Other 5,957 5,625
Total non-interest expense 29,519 29,399
Income before income taxes 32,889 31,748
Income tax expense 9,604 10,848
Net income $ 23,285 $ 20,900
Earnings per share:
Basic $ 0.44 $ 0.40
Diluted $ 0.44 $ 0.39
Weighted average number of shares outstanding:
Basic 52,849,419 52,794,453
Diluted 53,325,153 53,161,080
</TABLE>
<PAGE>
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<C> <C> <C>
Cash flows from operating activities:
Net income $ 23,285 $ 20,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,638 2,626
Amortization of compensation costs pursuant to
long term stock incentive plan 199 137
Provision for possible loan losses 2,500 1,200
Net amortization of premiums and discounts 518 502
Net gains on securities transactions (917) (1,116)
Proceeds from sale of loans 25,738 7,209
Gain on sales of loans (1,064) (377)
Proceeds from recoveries on previously charged-off
loans 516 413
Net (increase)decrease in accrued interest receivable
and other assets (1,864) 1,785
Net increase in accrued expenses and other liabilities 8,355 6,639
Net cash provided by operating activities 59,904 39,918
Cash flows from investing activities:
Proceeds from maturing investment securities held
to maturity 10,772 18,096
Purchases of investment securities held to maturity (3,835) (7,034)
Proceeds from sales of investment securities available
for sale 24,367 29,206
Proceeds from maturing investment securities available
for sale 113,073 60,544
Purchases of investment securities available for sale (61,511) (133,489)
Purchases of mortgage servicing rights (5,068) (13)
Net (increase) decrease in federal funds sold and
other short term investments (34,000) 37,450
Net increase in loans made to customers (65,220) (25,529)
Purchases of premises and equipment, net of sales (2,979) (3,079)
Net decrease (increase) in due from customers on
acceptances outstanding (372) 167
Net cash used in investing activities (24,773) (23,681)
Cash flows from financing activities:
Net decrease in deposits (11,481) (16,178)
Net (decrease)increase in federal funds purchased and
other short term borrowings (9,633) 6,389
Repayments of other borrowings (15) (2,014)
Net increase (decrease) in bank acceptances outstanding 372 (167)
Dividends paid to common shareholders (11,646) (9,101)
Addition of common shares to treasury (6,658) --
Common stock issued, net of cancellations 188 552
Net cash used in financing activities (38,873) (20,519)
Net decrease in cash and due from banks (3,742) (4,282)
Cash and due from banks at January 1 148,175 196,995
Cash and due from banks at March 31 $144,433 $192,713
Supplemental cash flow disclosure:
Cash paid for interest on deposits and other borrowings $ 37,735 $ 39,084
Cash paid for federal and state income taxes 459 86
Transfer of Midland securities held to maturity to securities
available for sale -- 39,833
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Consolidated Financial Statements
The Consolidated Statements of Financial Condition as of March 31, 1998
and December 31, 1997, the Consolidated Statements of Income for the three month
periods ended March 31, 1998 and 1997 and the Consolidated Statements of Cash
Flows for the three month periods ended March 31, 1998 and 1997 have been
prepared by Valley National Bancorp ("Valley"), without audit. In the opinion of
management, all adjustments (which included only normal recurring adjustments)
necessary to present fairly Valley's financial position, results of operations,
and cash flows at March 31, 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These consolidated financial statements are to be read in
conjunction with the financial statements and notes thereto included in Valley's
December 31, 1997 Annual Report to Shareholders.
2. Earnings Per Share
Earnings per share amounts and weighted average shares outstanding have
been restated to reflect the 5 for 4 stock split declared April 9, 1998 to
Shareholders of record on May 1, 1998 to be issued May 18, 1998.
3. Comprehensive Income
On January 1, 1998, Valley adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS 130 established standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 does
not require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
SFAS 130 requires that an enterprise (1) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. This statement was effective for fiscal years beginning after December
15, 1997. The adoption of SFAS No. 130 did not have a material effect on
Valley's financial position or results of operation.
The related tax effects to each component of comprehensive income for the
three months March 31, 1998 and 1997 are as follows:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Net income $ 23,285 $ 20,900
Other comprehensive income, net of tax
Foreign currency translation adjustments 51 (73)
Unrealized gains(losses) on securities:
Unrealized holding gains(losses)
arising during period $ 1,830 $ (6,288)
Less:reclassification adjustment for
gains realized in Net income 583 708
Net unrealized gains(losses) 1,247 (5,580)
Other comprehensive income (loss) 1,298 (5,623)
Comprehensive income $ 24,583 $ 15,277
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Concerning Forward-Looking Statements
This Form 10-Q 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 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,
successful completion of the implementation of Year 2000 technology changes, as
well as the effects of economic conditions and legal and regulatory barriers and
structure. Actual results may differ materially from such forward-looking
statements. Valley assumes no obligation for updating any such forward-looking
statement at any time.
Earnings Summary
Net income was $23.3 million, or $0.44 diluted earnings per share for the three
month period ended March 31, 1998, compared with $20.9 million, or $0.40 diluted
earnings per share for the same period in 1997 (per share amounts have been
restated to give effect to a 5 for 4 stock split to be issued May 18, 1998). The
annualized return on average assets increased to 1.85% from 1.64%, while the
annualized return on average equity also increased to 19.52% from 19.34%, for
the quarters ended March 31, 1998 and 1997, respectively.
The increase in net income for the quarter ended March 31, 1998, can be
primarily attributed to an increase in net interest income of $2.5 million and a
$1.2 million reduction in income tax expense, offset by an increase of $1.3
million in the provision for possible loan losses.
Net Interest Income
Net interest income is the largest source of Valley's operating income. Net
interest income on a tax equivalent basis increased to $56.0 million from $53.9
million for the quarter ended March 31, 1998 as compared to the quarter ended
March 31, 1997. The increase in net interest income is due to a widening spread
between the yield earned on interest-earning assets and funding costs, and the
movement of earning assets out of the investment portfolio and into higher
yielding loans. The net interest margin increased to 4.67% for the quarter ended
March 31, 1998 compared to 4.46% for the same quarter in 1997.
Average interest earning assets decreased slightly in 1998 over the 1997 amount.
Average loans increased by $149.5 million or 4.3% over the 1997 amount. The
average rate on loans also increased from 8.31% to 8.36%. The increase in
average loan volume and interest rate caused interest income on loans for 1998
to increase by $3.6 million over 1997. Offsetting this increase was a decline of
$148.4 million in average investment securities or 11.6% from the amount in the
portfolio during 1997.
Average interest-bearing liabilities for 1998 decreased $161.7 million or 4.1%
from 1997. Average savings deposits decreased by $44.9 million or 2.5%, and
average time deposits, mostly rate sensitive municipal deposits, decreased by
$199.0 million or 9.5%. Average demand deposits continued to grow and increased
by $48.9 million or 7.3% over 1997 balances.
<PAGE>
The following table reflects the components of net interest income for each
of the three months ended March 31, 1998 and 1997.
ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET
INTEREST EARNINGS ON A TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
<CAPTION>
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
Average Average Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets
Loans (1) (2) $3,589,284 $ 74,982 8.36 % $3,439,764 $ 71,425 8.31 %
Taxable investments (3) 932,641 14,498 6.22 1,018,858 15,680 6.16
Tax-exempt investments (1)(3) 192,956 3,373 6.99 255,104 4,336 6.80
Federal funds sold and other
short-term investments 5.39 119,937 5.15
79,216 1,068 1,543
Total interest earnings assets 4,794,097 $ 93,921 7.84 % 4,833,663 $ 92,984 7.69 %
Allowance for possible loan
losses (46,809) (46,237)
Cash and due from banks 130,638 166,878
Other assets 150,998 156,298
Unrealized gain (loss) on
securities available for sale
6,965 (2,497)
Total assets $5,035,889 $5,108,105
Liabilities and Shareholders'
Equity
Interest bearing liabilities
Savings deposits $1,747,625 $ 10,325 2.36 % $1,792,488 $ 10,455 2.33 %
Time deposits 1,897,852 5.35 2,096,869 5.27
25,364 27,613
Total interest bearing deposits 3,645,477 35,689 3.92 3,889,357 38,068 3.92
Federal funds purchased and other
short-term borrowings 42,886 513 4.78 26,237 281 4.28
Other borrowings 114,077 6.01 48,583 5.79
1,714 703
Total interest bearing liabilities 3,802,440 3.99 3,964,177 3.94
37,916 39,052
Demand deposits 718,869 669,967
Other liabilities 37,435 41,706
Shareholders' equity 477,145 432,255
Total liabilities and
shareholders' equity $5,035,889 $5,108,105
Net interest income
(tax equivalent basis) 56,005 53,932
Tax equivalent adjustment
(1,322) (1,700)
Net interest income $ 54,683 $ 52,232
Net interest rate differential 3.85 % 3.75 %
Net interest margin (4) 4.67 % 4.46 %
(1) Interest income is presented on a tax equivalent basis using a 35% 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.
</TABLE>
<PAGE>
The following table demonstrates the relative impact on net interest income of
changes in volume of earning assets and interest bearing liabilities and changes
in rates earned and paid by Valley on such assets and liabilities.
CHANGE IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
<CAPTION>
Three Months Ended March 31,
1998 Compared to 1997
Increase(Decrease)(2)
Interest Volume Rate
(in thousands)
<S> <C> <C> <C>
Interest income:
Loans (1) 3,557 3,121 436
Taxable investments (1,182) (1,339) 157
Tax-exempt investments(1) (963) (1,083) 120
Federal funds sold and other short term
investments (475) (546) 71
937 153 784
Interest expense:
Savings deposits (130) (264) 134
Time deposits (2,249) (2,654) 405
Federal funds purchased and other
short-term borrowings 14 (2) 16
Other borrowings 1,229 1,238 (9)
(1,136) (1,682) 546
Net interest income (tax equivalent basis) 2,073 1,835 238
</TABLE>
(1) Interest income is adjusted to a tax equivalent basis using a 35% 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.
<PAGE>
Non-Interest Income
The following table presents the components of non-interest income for three
months ended March 31, 1998 and 1997.
NON-INTEREST INCOME
<TABLE>
<CAPTION>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Trust income $ 340 $ 258
Service charges on deposit accounts 2,819 2,909
Gains on securities transactions, net 917 1,116
Fees from loan servicing 1,575 1,335
Credit card fee income 2,523 2,896
Gains on sales of loans, net 1,064 377
Other 987 1,224
Total $ 10,225 $ 10,115
</TABLE>
Non-interest income continues to represent a considerable source of income for
Valley. Excluding gains on securities transactions, total non-interest income
amounted to $9.3 million for the quarter ended March 31, 1998 compared with $9.0
million for the quarter ended March 31, 1997.
Included in fees from loan servicing are fees for servicing residential mortgage
loans and SBA loans, which increased by 18.0% from $1.3 million for the quarter
ended March 31, 1997 to $1.6 million for the quarter ended March 31, 1998. This
reflects the increase in the size of the serviced portfolios.
Credit card fee income declined during the quarter by $373 thousand or 12.9%.
The decrease was the result of the sale of the merchant processing operation
during 1997 and the reduced volume of co-branded credit card transactions.
Gains on the sales of loans were $1.1 million for the three months ended March
31, 1998 compared to $377 thousand for the three months ended March 31, 1997.
The gains recorded are primarily from increased mortgage banking activity and
the increased volume of SBA loans which resulted in increased sales of the
guaranteed portion of SBA loans.
The significant components of other non-interest income include safe deposit
rentals which totaled $225 thousand for the first quarter of 1998. Other
non-interest income decreased $237 thousand to $987 thousand for the three
months ended March 31, 1998 in comparison to the same period in 1997. The
decrease resulted from the gain on the sale of REO property which occurred
during the first quarter of 1997.
<PAGE>
Non-Interest Expense
The following table presents the components of non-interest expense for the
three months ended March 31, 1998 and 1997.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(in thousands)
<S> <C> <C>
Salary expense $ 11,980 $ 11,269
Employee benefit expense 2,546 2,911
FDIC insurance premiums 290 208
Occupancy and equipment expense 4,559 4,461
Credit card expense 3,145 4,076
Amortization of intangible assets 1,042 849
Other $ 5,957 $ 5,625
$
$ 29,519 $ 29,399
</TABLE>
Non-interest expense totaled $29.5 million for the three month period ended
March 31, 1998, relatively unchanged from the 1997 level. The largest components
of non-interest expense are salaries and employee benefit expense which totaled
$14.5 million in 1998 compared to $14.2 million in 1997. At March 31, 1998,
full-time equivalent staff was 1,661 compared to 1,560 at March 31, 1997.
The efficiency ratio measures a bank's gross operating expense as a percentage
of fully-taxable equivalent net interest income and other non-interest income
without taking into account security gains and losses and other non-recurring
items. Valley's efficiency ratio for the three months end March 31, 1998 was
45.1%, one of the lowest in the industry, compared with an efficiency ratio of
47.7% for the year ended December 31, 1997 and 46.3% for the quarter ended March
31, 1997. The efficiency ratio during 1997 had been impacted by the acquisition
of Midland and net expenses incurred from the credit card program that began
during 1996. Valley strives to control its efficiency ratio and expenses as a
means of producing increased earnings for its shareholders.
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 reduced the amount of cardmember rebates paid by Valley.
Amortization of intangible assets increased to $1.0 million for the three months
ended March 31, 1998 from $849 thousand for the same period in 1997,
representing an increase of $193 thousand or 22.7%. The majority of this
increase resulted from the additional amortization of purchased and originated
loan servicing rights, due to growth in the serviced portfolio.
The significant components of other non-interest expense include advertising,
professional fees, stationery and postage, and telephone expense which total
approximately $3.2 million for the first quarter of 1998.
Income Taxes
Income tax expense as a percentage of pre-tax income was 29.2% for the three
months ended March 31, 1998 compared to 34.2% for the same period in 1997. The
reduction in the effective tax rate is attributable to a realignment of
corporate entities and a lower effective tax rate for state taxes. The reduction
in the effective tax rate is limited in duration, but may have a continued
impact on some future periods.
<PAGE>
Year 2000
Valley has established an overall plan to address system-related Year 2000
issues. The plan calls for either system modification to, or replacement of
existing business systems applications. The cost of this Year 2000 compliance
program related to system modifications is not expected to be material to
Valley's earnings in 1998 or thereafter. Such costs will be charged to expense
as incurred. As of March 31, 1998, Valley anticipates that substantially all of
the remaining work under this program, including the testing of critical
systems, which will be initially completed by the end of 1998, with further
testing to be performed during 1999.
Valley continues to bear some risk related to the Year 2000 issues and could be
adversely affected, if other entities (i.e., vendors) not affiliated with Valley
do not appropriately address their own Year 2000 compliance issues.
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. Management cannot provide any assurance about
the actual effect of changes in interest rates on Valley's net interest income.
The total negative gap repricing within 1 year as of March 31, 1997 is $(277.5)
million or (0.85:1). 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 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, trading account securities and loans held
for sale. At March 31, 1998, liquid assets amounted to $1.2 billion, unchanged
from December 31, 1997. This represents 24.7 % and 25.6% of earning assets, and
23.4 and 24.3% of total assets at March 31, 1998 and year-end 1997,
respectively.
<PAGE>
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 $3.18 billion
and $3.25 billion for the three months ended March 31, 1998 and year ended
December 31, 1997, respectively, representing 66.3% and 67.4% of average earning
assets. Short term borrowings through Federal funds lines and Federal Home Loan
Bank advances and large dollar certificates of deposit, generally those over
$100 thousand, are used as supplemental funding sources. As of March 31, 1998,
Valley had outstanding advances of $113.5 million with the FHLB. Additional
liquidity is derived from scheduled loan and investment payments of principal
and interest, as well as prepayments received. During the three months ended
March 31, 1998 proceeds from the sales of investment securities available for
sale were $24.4 million, proceeds of $123.8 million were generated from
investment maturities, and purchases of investment securities were $65.3
million. Short term borrowings and certificates of deposit over $100 thousand
amounted to $507.4 million and $592.0 million, on average, for the three months
ended March 31, 1998 and year ending December 31, 1997, respectively.
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.
As of March 31, 1998, Valley had $942 million of securities available for sale
compared with $1.0 billion at December 31, 1997. Those securities are recorded
at their fair value on an aggregate basis. As of March 31, 1998, the investment
securities available for sale had an unrealized gain of $4.9 million, net of
deferred taxes, compared to an unrealized gain of $3.6 million, net of deferred
taxes, at December 31, 1997. This change was primarily due to an increase in
prices resulting from a decreasing 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.
<PAGE>
Loan Portfolio
As of March 31, 1998, total loans were $3.7 billion, compared to $3.6 billion at
December 31, 1997, an increase of 1.0%.
The following table reflects the composition of the loan portfolio as of March
31, 1998 and December 31, 1997.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Commercial $ 471,917 $ 450,015
Total commercial loans 471,917 450,015
Construction 92,327 80,923
Residential mortgage 919,208 929,525
Commercial mortgage 841,897 828,324
Total mortgage loans 1,853,432 1,838,772
Home equity 163,957 168,888
Credit card 115,436 145,485
Automobile 967,665 930,247
Other consumer 87,091 88,925
Total consumer loans 1,334,149 1,333,545
Loans $ 3,659,498 $ 3,622,332
As a percent of total loans:
Commercial loans 12.9% 12.4%
Mortgage loans 50.7 50.8
Consumer loans 36.4 36.8
Total loans 100.00% 100.00%
100.0
</TABLE>
Non-Performing Assets
Non-performing assets include non-accrual loans and other real estate owned
(OREO). Non-performing assets continued to decrease, and totaled $8.1 million at
March 31, 1998, compared with $9.5 million at December 31, 1997, a decrease of
$1.4 million or 15.1%. Non-performing assets at March 31, 1998 and December 31,
1997, respectively, amounted to 0.22% and 0.26% of loans and OREO.
Loans 90 days or more past due and not included in the non-performing category
totaled $15.5 million at March 31, 1998, compared to $16.4 million at December
31, 1997. 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 $3.5 million and $2.0 million at
March 31, 1998 and December 31, 1997, respectively.
The following table sets forth non-performing assets and accruing loans which
are 90 days or more past due as to principal or interest payments on the dates
indicated, in conjunction with asset quality ratios for Valley.
<PAGE>
LOAN QUALITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Loans past due in excess of 90 days and
still accruing $ 15,519 $ 16,351
Non-accrual loans $ 5,654 $ 7,307
Other real estate owned 2,398 2,178
Total non-performing assets $ 8,052 $ 9,485
Troubled debt restructured loans $ 5,219 $ 5,248
Non-performing loans as a % of loans 0.15% 0.20%
Non-performing assets as a % of loans plus
other real estate owed 0.22% 0.26%
Allowance as a % of loans 1.26% 1.28%
Allowance as a % of non-performing assets 571% 489%
</TABLE>
At March 31, 1998 the allowance for loan losses amounted to $46.0 million or
1.26% of loans, as compared to $46.4 million or 1.28% at year-end 1997.
The allowance is adjusted by provisions charged against income and loans
charged-off, net of recoveries. Net loan charge-offs were $2.9 million for the
three months ended March 31, 1998 compared with $1.3 million for the three
months ended March 31, 1997.
Capital Adequacy
A significant measure of the strength of a financial institution is its
shareholders' equity, which should expand in close proportion to asset growth.
At March 31, 1998, shareholders' equity totaled $482.0 million or 9.5% of total
assets, compared with $475.4 million or 9.3% at year-end 1997. Valley has
achieved steady internal capital generation throughout the past five years.
In January 1998 Valley's Board of Directors announced it had authorized the
purchase of up to 1,000,000 shares of the company's outstanding common stock.
Purchases may be made from time to time in the open market or in privately
negotiated transactions at prices not exceeding prevailing market rates.
Reacquired shares are expected to be held in treasury to be used for employee
benefit programs. Approximately 220,000 shares of Valley common stock were
repurchased during the first quarter of 1998.
Included in shareholders equity at March 31, 1998 was a $4.9 million unrealized
gain on investment securities available for sale, net of tax, compared to an
unrealized gain of $3.6 million at December 31, 1997. Also included in
shareholders equity at March 31, 1998 is a translation adjustment of ($292)
thousand related to the Canadian subsidiary of Valley National Bank.
Valley's capital position at March 31, 1998 under risk-based capital guidelines
was $472.4 million, or 12.8% of risk-weighted assets, for Tier 1 capital and
$518.4 million, or 14.0% for Total risked-based capital. The comparable ratios
at December 31, 1997 were 12.9% for Tier 1 capital and 14.1% for Total
risk-based capital. Valley's ratios at March 31, 1998 are above the "well
capitalized" requirements, which require Tier I capital of at least 6% and Total
risk-based capital of 10%. The Federal Reserve Board requires "well capitalized"
bank holding companies to maintain a minimum leverage ratio of 5.0%. At March
31, 1998 and December 31, 1997, Valley was in compliance with the leverage
requirement having a Tier 1 leverage ratio of 9.4% and 9.2%, respectively.
Book value per share amounted to $9.14 at March 31, 1998 compared with $8.98 per
share at December 31, 1997.
<PAGE>
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 49.9% for the three month period ended March 31, 1998, compared to
51.9% for the three month period ended March 31, 1997. Cash dividends declared
amounted to $0.275 per share for the quarter ended March 31, 1998 equivalent to
a dividend payout ratio of 50.1%, compared to 48.1% for the same quarter in
1997. Valley declared a five for four stock split on April 9, 1998 to
shareholders of record on May 1, 1998, to be issued May 18, 1998. The annual
dividend rate will be increased from $0.88 per share on an after split basis to
$1.00 per share. The cash dividend increase will be payable quarterly beginning
on July 1, 1998. Valley's Board of Directors continues to believe that cash
dividends are an important component of shareholder value and that at its
current level of performance and capital, Valley expects to continue its current
dividend policy of a quarterly distribution of earnings to its shareholders.
Recent Accounting Pronouncement
In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits. This
statement is effective for fiscal years beginning after December 15, 1997. The
adoption is not expected to materially affect the financial statements.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available.
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
a) On April 9, 1998 the Annual Meeting of Shareholders of Valley National
Bancorp was held. The Shareholders voted upon the election of 19 persons, named
in the Proxy Statement, to serve as directors of the Corporation for the ensuing
year. All directors were elected and there was no solicitation in opposition to
management's nominees as listed in the proxy statement. The following is a list
of directors elected at the Annual Meeting with the number of votes "For" and
"Withheld". There were no abstentions.
Name Number of Votes For Withheld
Andrew B. Abramson 33,027,024 205,457
Pamela Bronander 33,150,872 81,614
Joseph Coccia, Jr. 33,154,879 77,606
Austin C. Drukker 33,156,524 75,960
Willard L. Hedden 33,154,598 77,888
Graham O. Jones 33,155,772 76,713
Walter H. Jones, III 33,155,745 76,740
Gerald Korde 33,155,056 77,429
Gerald H. Lipkin 33,151,284 81,201
Joleen Martin 33,156,631 75,854
Robert E. McEntee 33,156,631 75,854
William McNear 33,152,876 79,609
Sam P. Pinyuh 33,147,170 85,315
Robert Rachesky 33,156,524 75,960
Barnett Rukin 33,152,460 80,025
Peter Southway 33,096,081 136,405
Richard F. Tice 33,144,049 88,436
Leonard Vorcheimer 33,156,249 76,237
Joseph L. Vozza 33,151,287 81,198
<PAGE>
Item 5. Other Matters
a) The Board of Directors approved a five for four stock split on
April 9, 1998. The new stock will be issued May 18,1998 to
shareholders of record as of May 1, 1998.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(3) Article of Incorporation and Bylaws
Amendment to the Certificate of Incorporation of the Registrant
dated May 1, 1998
(10) Material Contracts
"Change in Control Agreement" dated January 1, 1998 between
Valley, VNB and Alan D. Lipsky.
(27) Financial Data Schedule
b) Reports on Form 8-K
1) Filed January 23, 1998 to report the authorization by the Board
of Directors to purchase up to 1,000,000 shares of its
outstanding common stock to be used for employee benefit
programs.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALLEY NATIONAL BANCORP
(Registrant)
Date: May 14, 1998
/s/PETER SOUTHWAY
VICE CHAIRMAN
Date: May 14, 1998
/s/ ALAN D. ESKOW
SENIOR VICE PRESIDENT
FINANCIAL ADMINISTRATION
<PAGE>
Exhibit (3)
AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
VALLEY NATIONAL BANCORP
Valley National Bancorp, a New Jersey corporation, pursuant to
N.J.S.A. 14A:7-15.1 and Section 9.2(2), does hereby certify as follows:
(a) The name of the corporation is: Valley National
Bancorp (the "Corporation").
(b) A twenty-five percent (25%) stock split was declared by
the Corporation on April 9, 1998, pursuant to which one share of Common Stock,
no par value, will be distributed for each four shares of Common Stock, no par
value, held by shareholders on the record date of May l, 1998, effective May 18,
1998. A resolution approving the share division was adopted by the Board of
Directors of the Corporation at its regular meeting held on the 9th day of
April, 1998.
(c) The share division will not adversely affect the rights or
preferences of the holders of outstanding shares and will not result in the
percentage of authorized shares that remains unissued after the share division
exceeding the percentage of authorized shares that was unissued before the share
division.
(d) There were issued and outstanding, as of the record date
of May l, 1998, 42,219,308 shares of Common Stock without par value which are
the shares subject to the share division. As a result of the share division, in
which one share will be issued for every four shares issued and outstanding,
those 42,219,308 will be divided into 52,774,135 shares issued and outstanding.
(e) The Corporation is hereby amending its certificate
of incorporation in connection with the share division as follows:
The existing "Article V" is deleted in its entirety. In lieu
thereof, the following Article V is added to the certificate of incorporation:
"The Corporation is authorized to issue 98,437,500 shares of
common stock without nominal or par value."
(f) The share division and amendment are to become
effective as of May 18, 1998.
IN WITNESS WHEREOF, Gerald H. Lipkin, Chairman, President, and
Chief Executive Officer of Valley National Bancorp, has executed this
Certificate on behalf of Valley National Bancorp on this lst day of May, 1998.
VALLEY NATIONAL BANCORP
By /s/ Gerald H. Lipkin
Gerald H. Lipkin,
Chairman,President and
Chief Executive Officer
<PAGE>
Exhibit (10)
CHANGE-IN-CONTROL AGREEMENT
(ALAN D. LIPSKY)
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of
this 1st day of January, 1998, 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 ALAN D. LIPSKY (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 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:
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 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 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 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
third 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:
(1) The assignment to Executive of any duties inconsistent with, or
the reduction of powers or functions associated with, Executive's position,
title, duties, responsibilities and status with the Company immediately prior
to a Change in Control; any removal of Executive from, or any failure to
re-elect Executive to, any position(s) or office(s) Executive held immediately
prior to such 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 outside of New Jersey or more than 25 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 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 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 as a
First Senior Vice President of the Bank, 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
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. 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.
c. 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), including the chief executive officer
of such entities, 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 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, then one (1) year of Base Salary plus a
Pro-rata Bonus Amount; and
b. Continue to provide the Executive during the remainder of the Contract
Period with health, hospitalization and medical insurance, as were provided at
the time of the termination of his employment with the Company, at the Company's
cost.
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 medical
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 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 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 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. 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 2
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 2 years) unless, prior to a Change in Control,
the Chief Executive Officer 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) 2 years after the date hereof, or (ii) nine
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.
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.
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/ Robert E. McEntee
Alan D. Eskow, Secretary Robert E. McEntee, Chairman, Personnel
and Compensation Committee
ATTEST: VALLEY NATIONAL BANK
/s/ Alan D. Eskow By: /s/ Robert E. McEntee
Alan D. Secretary Robert E. McEntee, Chairman, Personnel
and Compensation Committee
WITNESS:
/s/ Peter Verbout /s/ Alan D. Lipsky
Alan D. Lipsky, Executive
Executive Seniority date from Rock
Bank Acquisition: 1/3/78.
Date of Acquisition of Rock Bank: 12/1/94
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