UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2001 [ ] 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 1-11277 ---------------------- 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 78,159,382 shares were outstanding as of May 7, 2001.
TABLE OF CONTENTS Page Number PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition (Unaudited) March 31, 2001 and December 31, 2000 3 Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2001 and 2000 4 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2001 and 2000 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 PART II OTHER INFORMATION Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURES 24
PART I Item 1. Financial Statements VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (in thousands, except for share data) <TABLE> <CAPTION> March 31, December 31, 2001 2000 <S> <C> <C> Assets Cash and due from banks $ 191,481 $ 239,105 Federal funds sold 142,000 85,000 Investment securities held to maturity, fair value of $419,592 and $543,034 in 2001 and 2000, respectively 443,911 577,450 Investment securities available for sale 1,959,213 1,626,086 Loans 5,071,491 5,171,183 Loans held for sale 42,915 17,927 Total loans 5,114,406 5,189,110 Less: Allowance for loan losses (62,547) (61,995) Net loans 5,051,859 5,127,115 Premises and equipment, net 90,571 91,215 Accrued interest receivable 48,423 49,870 Other assets 89,735 104,338 Total assets $8,017,193 $7,900,179 Liabilities Deposits: Non-interest bearing $ 1,257,068 $ 1,344,802 Interest bearing: Savings 2,359,155 2,287,793 Time 2,496,327 2,504,233 Total deposits 6,112,550 6,136,828 Short-term borrowings 302,470 426,014 Long-term debt 819,788 591,808 Accrued expenses and other liabilities 101,083 89,547 Total liabilities 7,335,891 7,244,197 Shareholders' Equity Preferred stock, no par value, authorized 30,000,000 shares, none issued - - Common stock, no par value, authorized 108,527,344 shares; issued 74,791,831 shares in 2001 and 74,792,815 shares in 2000 31,994 32,015 Surplus 320,849 321,970 Retained earnings 326,287 317,855 Unallocated common stock held by employee benefit plan (729) (775) Accumulated other comprehensive income (loss) 12,450 (2,307) 690,851 668,758 Treasury stock, at cost (375,561 shares in 2001 and 502,471 shares in 2000) (9,549) (12,776) Total shareholders' equity 681,302 655,982 Total liabilities and shareholders' equity $ 8,017,193 $ 7,900,179 See accompanying notes to consolidated financial statements. </TABLE> <TABLE> VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except for share data) <CAPTION> Three Months Ended March 31, 2001 2000 <S> <C> <C> Interest Income Interest and fees on loans $ 104,333 $ 100,429 Interest and dividends on investment securities: Taxable 34,240 31,873 Tax-exempt 2,620 2,973 Dividends 1,370 1,280 Interest on federal funds sold and other short-term investments 1,639 1,133 Total interest income 144,202 137,688 Interest Expense Interest on deposits: Savings deposits 13,805 14,340 Time deposits 33,849 30,935 Interest on short-term borrowings 5,761 5,473 Interest on long-term debt 9,762 8,447 Total interest expense 63,177 59,195 Net Interest Income 81,025 78,493 Provision for loan losses 2,100 2,450 Net Interest Income after Provision for Loan Losses 78,925 76,043 Non-Interest Income Trust and investment services 1,211 720 Service charges on deposit accounts 4,548 3,998 Gains on securities transactions, net 163 - Fees from loan servicing 2,685 2,730 Credit card fee income 997 1,949 Gains on sales of loans, net 5,638 765 Other 3,442 3,244 Total non-interest income 18,684 13,406 Non-Interest Expense Salary expense 19,448 18,424 Employee benefit expense 4,859 4,090 FDIC insurance premiums 291 313 Occupancy and equipment expense 7,838 6,070 Credit card expense 626 1,231 Amortization of intangible assets 1,818 1,688 Advertising 795 960 Merger-related charges 9,017 - Other 7,264 8,072 Total non-interest expense 51,956 40,848 Income Before Income Taxes 45,653 48,601 Income tax expense 17,090 16,607 Net Income $ 28,563 $ 31,994 Earnings Per Share: Basic $ 0.37 $ 0.40 Diluted 0.36 0.40 Weighted Average Number of Shares Outstanding: Basic 77,935,200 80,159,333 Diluted 78,643,691 80,782,279 See accompanying notes to consolidated financial statements. </TABLE>
VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 <S> <C> <C> Cash flows from operating activities: Net income $ 28,563 $ 31,994 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,433 3,852 Amortization of compensation costs pursuant to long-term stock incentive plan 488 311 Provision for loan losses 2,100 2,450 Net amortization of premiums and accretion of discounts 1,078 897 Net gains on securities transactions (163) - Proceeds from sales of loans 90,189 14,626 Gain on sales of loans (5,638) (765) Originations of loans held for sale (63,519) (11,352) Net decrease in accrued interest receivable and other assets 16,902 3,179 Net decrease in accrued expenses and other liabilities (1,243) (4,065) Net cash provided by operating activities 73,190 41,127 Cash flows from investing activities: Purchases and originations of mortgage servicing rights (2,843) (145) Proceeds from sales of investment securities available for sale 55,346 - Proceeds from maturing investment securities available for sale 128,357 105,578 Purchases of investment securities available for sale (380,753) (7,831) Purchases of investment securities held to maturity (4,035) (70,854) Proceeds from maturing investment securities held to maturity 24,752 13,833 Net(increase)decrease in federal funds sold and other short-term investments (57,000) 101,000 Net decrease (increase) in loans made to customers 52,124 (39,758) Purchases of premises and equipment, net of sales (1,971) (2,944) Net cash (used in) provided by investing activities (186,023) 98,879 Cash flows from financing activities: Net decrease in deposits (24,278) (43,824) Net decrease in short-term borrowings (123,544) (52,995) Advances of long-term debt 320,000 30,000 Repayments of long-term debt (92,020) (3,018) Dividends paid to common shareholders (15,593) (18,080) Addition of common shares to treasury - (39,944) Common stock issued, net of cancellations 644 737 Net cash provided by (used in) financing activities 65,209 (127,124) Net (decrease) increase in cash and cash equivalents (47,624) 12,882 Cash and cash equivalents at beginning of period 239,105 194,502 Cash and cash equivalents at end of period $191,481 $ 207,384 Supplemental disclosure of cash flow information: Cash paid during the year for interest on deposits and borrowings $ 59,754 $ 60,973 Cash paid during the period for federal and state income taxes 543 181 Transfer of securities from held to maturity to available for sale 162,433 - Transfer of securities from available for sale to held to maturity 50,044 - See accompanying notes to consolidated financial statements. </TABLE> VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Consolidated Financial Statements The Consolidated Statements of Financial Condition as of March 31, 2001 and December 31, 2000, the Consolidated Statements of Income for the three month periods ended March 31, 2001 and 2000 and the Consolidated Statements of Cash Flows for the three month periods ended March 31, 2001 and 2000 have been prepared by Valley National Bancorp ("Valley") without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley's financial position, results of operations, and cash flows at March 31, 2001 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, 2000 report on Form 10-K. Certain prior period amounts have been reclassified to conform to 2001 financial presentations. The consolidated financial statements of Valley have been restated to include Merchants New York Bancorp, Inc. (Merchants), acquired January 19, 2001 using the pooling of interests method of accounting. 2. Earnings Per Share Earnings per share ("EPS") amounts and weighted average shares outstanding have been restated to reflect the 5 percent stock dividend declared April 4, 2001 to Shareholders of record on May 4, 2001 and to be issued May 18, 2001. For Valley, the numerator of both the Basic and Diluted EPS is equivalent to net income. The weighted average number of shares outstanding used in the denominator for Diluted EPS is increased over the denominator used for Basic EPS by the effect of potentially dilutive common stock equivalents utilizing the treasury stock method. For Valley, common stock equivalents are common stock options outstanding. The following table shows the calculation of both Basic and Diluted EPS for the three months ended March 31, 2001 and 2000. <TABLE> <CAPTION> Three Months Ended March 31, (in thousands, except for share data) 2001 2000 <S> <C> <C> Net income $28,563 $31,994 Basic weighted-average number of shares outstanding 77,935,200 80,159,333 Plus: Common stock equivalents 708,491 622,946 Diluted weighted-average number of shares outstanding 78,643,691 80,782,279 Earnings per share: Basic $ 0.37 $ 0.40 Diluted 0.36 0.40 </TABLE> At March 31, 2001 and 2000 there were 107 thousand and 551 thousand common stock options, respectively, not included as common stock equivalents because the exercise prices exceeded the average market prices during the quarter. 3. Recent Developments On January 19, 2001, Valley acquired Merchants, parent of The Merchants Bank of New York headquartered in Manhattan. At the date of acquisition, Merchants Bank, a commercial bank, had total assets of approximately $1.5 billion and seven branch offices, all located in Manhattan. The transaction was accounted for using the pooling of interests method of accounting. Each of the 18,679,945 outstanding shares of Merchants common stock were exchanged for 0.7634 shares of Valley common stock. Valley issued approximately 14,260,270 shares of its common stock in exchange for the outstanding shares of Merchants. The consolidated financial statements of Valley have been restated to include Merchants for all periods presented. Separate results of the combining companies is as follows: <TABLE> <CAPTION> Three Months Ended March 31, 2000 (in thousands) <S> <C> Net interest income after provision for loan losses: Valley $62,821 Merchants 13,222 $76,043 Net income: Valley $26,943 Merchants 5,051 $31,994 December 31, 2000 (in thousands) Shareholders' Equity: Valley $545,074 Merchants 110,908 $655,982 </TABLE> During the first quarter of 2001, Valley recorded merger-related charges of $9.0 million related to the acquisition of Merchants. On an after tax basis, these charges totaled $7.0 million or $0.09 per diluted share. These charges include only identified direct and incremental costs associated with this acquisition. Items included in these charges include the following: personnel expenses which include severance payments for terminated directors at Merchants; professional fees which include investment banking, accounting and legal fees; and other expenses which include the disposal of data processing equipment and the write-off of supplies and other assets not considered useful in the operation of the combined entities. The major components of the merger-related charge, consisting of professional fees, personnel and the disposal of data processing equipment, totaled $4.4 million, $3.2 million and $486 thousand, respectively. Of the total merger-related charge $4.7 million, or 52.1% was paid through March 31, 2001. 4. Accumulated Other Comprehensive Income Valley's accumulated other comprehensive income consists of foreign currency translation adjustments and unrealized gains (losses) on securities. The following table shows the related tax effects on each component of accumulated other comprehensive income for the three months ended March 31, 2001 and 2000. <TABLE> <CAPTION> Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 (in thousands) <S> <C> <C> <C> <C> Net income $28,563 $31,994 Other comprehensive income, net of tax: Foreign currency translation adjustments (345) (13) Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period $15,206 $(3,106) Less reclassification adjustment for gains included in net income (104) - Net unrealized gains (losses) 15,102 (3,106) Other comprehensive income (loss) 14,757 (3,119) Comprehensive income $43,320 $ 23,264 </TABLE> Adoption of SFAS No. 133 and 140 had no material impact on the financial statements. See Recent Accounting Pronouncements discussion on page 21. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Concerning Forward-Looking Statements This Form 10-Q, both in the MD & A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by an "asterisk" (*) or such forward-looking terminology as "expect," "look," "believe," "anticipate," "may," "will," or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. These include, but are not limited to, the direction of interest rates, continued levels of loan quality and origination volume, continued relationships with major customers including sources for loans, as well as the effects of economic conditions and legal and regulatory barriers and structure. Actual results may differ materially from such forward-looking statements. Valley assumes no obligation for updating any such forward-looking statement at any time. Earnings Summary Net income for the three months ended March 31, 2001 was $28.6 million, or $0.36 per diluted share including a merger related charge of $7.0 million, net of tax or $0.09 per diluted share. These results compare with net income of $32.0 million, or $0.40 per diluted share for the same period in 2000 (2000 amounts have been restated for the Merchants merger and earnings per share amounts have been restated to give effect to the 5 percent stock dividend to be issued May 18, 2001). Excluding the merger related charges net income was $35.6 million, or $0.45 per diluted share for the quarter ended March 31, 2001. Excluding the merger related charges the annualized return on average equity increased to 21.43 percent from 20.08 percent, and the annualized return on average assets increased to 1.82 percent from 1.69 percent, for the three months ended March 31, 2001 and 2000, respectively. Net Interest Income Net interest income continues to be the largest source of Valley's operating income. Net interest income on a tax equivalent basis increased to $82.6 million, for the three months ended March 31, 2001, compared with $80.2 million for the three months ended March 31, 2000. The increase in net interest income is due to higher average balances of total interest earning assets, primarily loans, combined with higher average interest rates for all interest earning assets. This was offset by an increase in both average balances, primarily time deposits, as well as short-term borrowings and long-term debt, and an increase in average interest rates of total interest bearing liabilities. The net interest margin decreased slightly to 4.40 percent for the three months ended March 31, 2001 compared with 4.41 percent for the same period in 2000. Beginning in January 2001 the Federal Reserve decreased interest rates three times during the quarter amounting to 150 basis points. This decline in interest rates continued into the second quarter due to general weakness in the economy. Further declines in short-term interest rates are possible which may affect net interest income during the remainder of 2001.* While loans have been growing, competition for loans has caused rates on new loans and total interest earning assets to increase at a slower pace than rates on interest bearing liabilities. Average interest earning assets increased $217.8 million or 3.0 percent for the three months ended March 31, 2001 over the same period in 2000. This was mainly the result of the increase in average balance of loans of $147.1 million or 3.0 percent. Average interest bearing liabilities for the three months ended March 31, 2001 increased $224.9 million or 4.0 percent from the same period in 2000. Average savings deposits remained relatively unchanged while average time deposits increased $79.4 million. Average short-term borrowings increased $41.8 million or 10.9 percent and long-term debt, which includes primarily FHLB advances, increased $96.0 million, or 16.9 percent. Average demand deposits remained relatively unchanged from 2000 balances. During the first quarter of 2001, in conjunction with declining interest rates, Valley began to extend maturities on its short-term borrowings. The extension of maturities is part of an effort to more closely match a portion of Valley's funding sources with its mortgage portfolio and reduce interest rate risk.* Average interest rates, in all categories of interest earning assets increased during the quarter ended March 31, 2001 compared with the quarter ended March 31, 2000. The average interest rate for loans increased 8 basis points to 8.17 percent. Average interest rates on total interest earning assets increased 11 basis points to 7.77 percent. Average interest rates also increased on total interest bearing liabilities by 11 basis points to 4.29 percent from 4.18 percent. Average interest rates on deposits increased 12 basis points to 3.97 percent.
The following table reflects the components of net interest income for each of the three months ended March 31, 2001 and 2000. ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND NET INTEREST INCOME ON A TAX EQUIVALENT BASIS <TABLE> <CAPTION> Three Months Ended March 31, Three Months Ended March 31, 2000 2001 Average Average Average Average Balance Interest Rate Balance Interest Rate (in thousands) <S> <C> <C> <C> <C> <C> <C> Assets Interest earning assets Loans (1)(2) $5,116,640 $104,463 8.17% $ 4,969,582 $100,568 8.09% Taxable investments (3) 2,049,425 35,610 6.95 1,981,603 33,153 6.69 Tax-exempt investments(1)(3) 218,199 4,031 7.39 250,704 4,574 7.30 Federal funds sold and other short-term investments 116,038 1,639 5.65 1,133 5.62 80,622 Total interest earning assets 7,500,302 $145,743 7.77 7,282,511 $ 139,428 7.66 Allowance for loan losses (63,398) (64,863) Cash and due from banks 187,222 191,793 Other assets 197,662 216,722 Unrealized gain (loss) on securities available for sale 7,446 (46,024) Total assets $7,829,234 $7,580,139 Liabilities and Shareholders' Equity Interest bearing liabilities Savings deposits $2,296,661 $13,805 2.40% $2,288,903 $14,340 2.51% Time deposits 2,500,286 33,849 5.42 2,420,897 30,935 5.11 Total interest bearing deposits 4,796,947 47,654 3.97 4,709,800 45,275 3.85 Short-term borrowings 425,911 5,761 5.41 384,136 5,473 5.70 Long-term debt 662,556 9,762 5.89 566,547 8,447 5.96 Total interest bearing liabilities 5,885,414 63,177 4.29 5,660,483 59,195 4.18 Demand deposits 1,251,264 1,244,892 Other liabilities 27,805 37,343 Shareholders' equity 664,751 637,421 Total liabilities and shareholders' equity $7,829,234 $7,580,139 Net interest income (tax equivalent basis) 82,566 80,233 Tax equivalent adjustment (1,541) (1,740) Net interest income $ 81,025 $78,493 Net interest rate differential 3.48% 3.48% Net interest margin (4) 4.40% 4.41% </TABLE> (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. >PAGE> 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 <TABLE> <CAPTION> Three Months Ended March 31, 2001 Compared with 2000 Increase (Decrease) (2) Interest Volume Rate (in thousands) <S> <C> <C> <C> Interest income: Loans (1) $ 3,895 $ 2,995 $ 900 Taxable investments 2,457 1,155 1,302 Tax-exempt investments(1) (543) (600) 57 Federal funds sold and other short-term investments 506 501 5 6,315 4,051 2,264 Interest expense: Savings deposits (535) 48 (583) Time deposits 2,914 1,036 1,878 Short-term borrowings 288 575 (287) Long-term debt 1,315 1,416 (101) 3,982 3,075 907 Net $ 2,333 $ 976 $1,357 </TABLE> (1) Interest income is adjusted to a tax equivalent basis using a 35 percent tax rate. (2) Variances resulting from a combination of changes in volume and rates are allocated to the categories in proportion to the absolute dollar amounts of the change in each category. Non-Interest Income The following table presents the components of non-interest income for the three months ended March 31, 2001 and 2000. <TABLE> <CAPTION> NON-INTEREST INCOME Three Months Ended March 31, 2001 2000 (in thousands) <S> <C> <C> Trust and investment services $ 1,211 $ 720 Service charges on deposit accounts 4,548 3,998 Gains on securities transactions, net 163 - Fees from loan servicing 2,685 2,730 Credit card fee income 997 1,949 Gains on sales of loans, net 5,638 765 Other 3,442 3,244 Total non-interest income $ 18,684 $ 13,406 </TABLE> Non-interest income continues to represent a considerable source of income for Valley. Total non-interest income amounted to $18.5 million, excluding security gains, for the three months ended March 31, 2001 while the comparable amount for the prior year period was $13.4 million. Trust and investment services includes income from trust operations, brokerage commissions, and asset management fees. Trust and investment services income increased $491 thousand or 68.2% for the three months ended March 31, 2001 compared with the same period in 2000. This increase is primarily the result of the acquisition, on July 6, 2000, of Hallmark Capital Management, Inc. ("Hallmark"), a NJ-based money manager. The transaction was accounted for as a purchase accounting transaction. Service charges on deposit accounts increased 13.8 percent from $4.0 million for the three months ended March 31, 2000 to $4.5 million for the three months ended March 31, 2001 mostly due to the implementation of a new service charge. Gains on the sales of loans were $5.6 million for the three months ended March 31, 2001 compared with $765 thousand for the three months ended March 31, 2000. On January 29, 2001 Valley recorded a gain of approximately $4.9 million relating to the sale of its cobranded ShopRite MasterCard credit card portfolio. Credit card fee income decreased 48.8 percent from $1.9 million for the three months ended March 31, 2000 to $1.0 million for the three months ended March 31, 2001 due to the sale of the credit card portfolio described above. Non-Interest Expense The following table presents the components of non-interest expense for the three months ended March 31, 2001 and 2000. <TABLE> <CAPTION> NON-INTEREST EXPENSE Three Months Ended March 31, ---------------------------------------------- 2001 2000 (in thousands) <S> <C> <C> Salary expense $ 19,448 $ 18,424 Employee benefit expense 4,859 4,090 FDIC insurance premiums 291 313 Occupancy and equipment expense 7,838 6,070 Credit card expense 626 1,231 Amortization of intangible assets 1,818 1,688 Advertising 795 960 Merger-related charges 9,017 - Other 7,264 8,072 Total non-interest expense $ 51,956 $ 40,848 </TABLE> Excluding merger-related charges, non-interest expense totaled $42.9 million for the three months ended March 31, 2001, an increase of $2.1 million or 5.1% from the comparable 2000 period. The largest components of non-interest expense are salaries and employee benefit expense which totaled $24.3 million for the three months ended March 31, 2001 compared with $22.5 million in the comparable period of 2000. At March 31, 2001, full-time equivalent staff was 2,063 compared with 2,096 at March 31, 2000. Salaries increased $1.0 million or 5.6%, for the three months ended March 31, 2001 compared with the prior year quarter, due to the addition of fee based services as well as increases in sales-related incentives. Benefits increased $769 thousand or 18.8%, for the three months ended March 31, 2001 compared with the three months ended March 31, 2000, due primarily to increases in health insurance costs. Occupancy and equipment expense increased $1.8 million, from $6.1 million for the three months ended March 31, 2000 to $7.8 million for the three months ended March 31, 2001. This increase can be attributed to an overall increase in the cost of operating bank facilities. Credit card expense decreased 49.1 percent from $1.2 million for the three months ended March 31, 2000 to $626 thousand for the three months ended March 31, 2001 due to the sale of the credit card portfolio described under gains on sale of loans. During the first quarter of 2001, Valley recorded merger-related charges of $9.0 million related to the acquisition of Merchants. On an after tax basis, these charges totaled $7.0 million or $0.09 per diluted share. These charges include only identified direct and incremental costs associated with this acquisition. Items included in these charges include the following: personnel expenses which include severance payments for terminated directors at Merchants; professional fees which include investment banking, accounting and legal fees; and other expenses which include the disposal of data processing equipment and the write-off of supplies and other assets not considered useful in the operation of the combined entities. The major components of the merger-related charge, consisting of professional fees, personnel and the disposal of data processing equipment, totaled $4.4 million, $3.2 million and $486 thousand, respectively. Of the total merger-related charge $4.7 million, or 52.1% was paid through March 31, 2001. The efficiency ratio measures a bank's gross operating expense as a percentage of fully-taxable equivalent net interest income and other non-interest income without taking into account security gains and losses and other non-recurring items. Valley's efficiency ratio for the three months ended March 31, 2001 was 44.6 percent, one of the lowest in the industry, compared with an efficiency ratio of 45.2 percent for the year ended December 31, 2000 and 43.6 percent for the quarter ended March 31, 2000. Valley strives to control its efficiency ratio and expenses as a means of producing increased earnings for its shareholders. The significant components of other non-interest expense include data processing, professional fees, postage, telephone and stationery expense which totaled approximately $3.1 million and $3.4 million for the three months ended March 31, 2001 and 2000, respectively. Income Taxes Income tax expense as a percentage of pre-tax income was 37.4 percent for the three months ended March 31, 2001 compared with 34.2 percent for the same period in 2000. After adjusting for the effect of non-deductible merger expenses, the effective tax rate for the three months ended March 31, 2001 would be 34.3%. The effective tax rate for 2001 is expected to approximate 34 percent.* Business Segments VNB has four business segments it monitors and reports on to manage its business operations. These segments are 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. The following table represents the financial data for the three months ended March 31, 2001 and 2000. <TABLE> <CAPTION> Three Months Ended March 31, 2001 (in thousands) Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total <S> <C> <C> <C> <C> <C> Average interest-earning assets $ 2,728,858 $ 2,423,831 $ 2,347,613 $ - $ 7,500,302 Income (loss) before income taxes $ 17,494 $ 20,748 $ 13,988 $ (6,577) $ 45,653 Return on average interest-earning assets (pre-tax) 2.56% 3.42% 2.38% - % 2.43% Three Months Ended March 31, 2000 (in thousands) Corporate Consumer Commercial Investment and Other Lending Lending Management Adjustments Total Average interest-earning assets $ 2,792,176 $ 2,214,483 $ 2,275,852 $ - $ 7,282,511 Income (loss) before income taxes $ 18,064 $ 18,895 $ 13,637 $ (1,995) $ 48,601 Return on average interest-earning assets (pre-tax) 2.59% 3.41% 2.40% - % 2.67% </TABLE> Consumer Lending The consumer lending segment had a return on average interest-earning assets before taxes of 2.56 percent for the three months ended March 31, 2001 compared to 2.59 percent for the three months ended March 31, 2000. Average interest-earning assets decreased $63.3 million, attributable to the sale of the credit card portfolio. Average interest rates on consumer loans increased by 10 basis points, while the cost of funds increased by 12 basis points. Income before income taxes decreased $570 thousand. Commercial Lending The return on average interest-earning assets before taxes decreased 1 basis point to 3.42 percent for the three months ended March 31, 2001. Average interest-earning assets increased $209.3 million as a result of an increased volume of loans. Interest rates on commercial loans decreased by 6 basis points, and the cost of funds increased by 12 basis points. Income before income taxes increased by $1.9 million as a result of an increase in average interest-earning assets. Investment Management The return on average interest earning assets before taxes decreased to 2.38 percent for the three months ended March 31, 2001 compared to 2.40 percent for the three months ended March 31, 2000. The yield on interest earning assets increased by 26 basis points to 7.00 percent, and the cost of funds increased by 12 basis points. Average interest-earning assets increased by $71.8 million and income before income taxes increased $351 thousand. Corporate Segment The corporate segment represents income and expense items not directly attributable to a specific segment which may include merger-related charges, non-recurring gains on sale of loans, service charges on deposit accounts, and certain revenues and expenses recorded by acquired banks that could not be allocated to a line of business. The loss before taxes was $6.6 million for the three months ended March 31, 2001 compared to a loss of $2.0 million for the three months ended March 31, 2000. The increase in the loss is the result of merger-related charges incurred in the first quarter of 2001. ASSET/LIABILITY MANAGEMENT Interest Rate Sensitivity Valley's success is largely dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of Valley's net interest income to the movement in interest rates. Valley does not currently use derivatives to manage market and interest rate risks. Valley's interest rate risk management is the responsibility of the Asset/Liability Management Committee ("ALCO"), which reports to the Board of Directors. ALCO establishes policies that monitor and coordinate Valley's sources, uses and pricing of funds. Valley uses a simulation model to analyze net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on various interest rate scenarios over a twelve and twenty-four month period. The model is based on the actual maturity and repricing characteristics of rate sensitive assets and liabilities. The model incorporates assumptions regarding the impact of changing interest rates on the prepayment rates of certain assets and liabilities. Liquidity Liquidity measures the ability to satisfy current and future cash flow needs as they become due. Maintaining a level of liquid funds through asset/liability management seeks to ensure that these needs are met at a reasonable cost. On the asset side, liquid funds are maintained in the form of cash and due from banks, federal funds sold, investments securities held to maturity maturing within one year, investment securities available for sale and loans held for sale. Liquid assets amounted to $2.4 billion and $2.0 billion at March 31, 2001 and December 31, 2000, respectively. This represents 31.9 percent and 26.7 percent of earning assets, and 30.5 percent and 25.3 percent of total assets at March 31, 2001 and December 31, 2000, 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 $5.1 billion and 5.0 billion for the three months ended March 31, 2001 and for the year ended December 31, 2000, representing 68.3 percent and 68.5 percent of average earning assets. Short-term and long-term borrowings through Federal funds lines, repurchase agreements, Federal Home Loan Bank ("FHLB") advances and large dollar certificates of deposit, generally those over $100 thousand, are used as supplemental funding sources. Additional liquidity is derived from scheduled loan and investment payments of principal and interest, as well as prepayments received. For the three months ended March 31, 2001 there were proceeds of $55.3 million from the sales of investment securities available for sale, and proceeds of $153.1 million were generated from investment maturities. Purchases of investment securities for the three months ended March 31, 2001 were $384.8 million. Short-term borrowings and certificates of deposit over $100 thousand amounted to $1.4 billion on average, for both the three months ended March 31, 2001 and the year ended December 31, 2000. Cash requirements for Valley's parent company consist primarily of dividends to shareholders. This cash need is routinely satisfied by dividends collected from its subsidiary bank along with cash and investments owned. Projected cash flows from this source are expected to be adequate to pay dividends, given the current capital levels and current profitable operations of its subsidiary.* In addition, Valley may repurchase, with approval from its Board of Directors, shares of its outstanding common stock. The cash required for a purchase of shares can be met by using its own funds, dividends received from its subsidiary bank as well as borrowed funds. At March 31, 2001 Valley maintained a floating rate line of credit in the amount of $35 million, of which $10 million was outstanding. This line is available for general corporate purposes and expires June 15, 2001. Borrowings under this facility are collateralized by mortgage-backed and equity securities of no less than 120 percent of the loan balance. During the quarter, the total investment portfolio increased by approximately $180.0 million. Approximately $66.6 million is the result of investing the proceeds from the sale of the credit card portfolio. In addition excess liquidity due to the slow down in the economy reflected in some of the lending areas was used to purchase securities. As of March 31, 2001, Valley had $2.0 billion of securities available for sale recorded at their fair value, compared with $1.6 billion at December 31, 2000. As of March 31, 2001, the investment securities available for sale had an unrealized gain of $13.5 million, net of deferred taxes, compared with an unrealized loss of $1.6 million, net of deferred taxes, at December 31, 2000. This change was primarily due to an increase in fair value resulting from a decreasing interest rate environment for investments and other instruments effective with the beginning of 2001 and continuing through the first quarter. Securities available for sale 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 Merchants acquisition, Valley reassessed the classification of securities held in the Merchants investment portfolio and transferred $162.4 million of securities held to maturity to securities available for sale and $50.0 million of securities available for sale to securities held to maturity to conform to Valley's investment objectives. Loan Portfolio As of March 31, 2001, total loans were $5.1 billion, compared with $5.2 billion at December 31, 2000. The following table reflects the composition of the loan portfolio as of March 31, 2001 and December 31, 2000. <TABLE> <CAPTION> LOAN PORTFOLIO March 31, December 31, 2001 2000 (in thousands) <S> <C> <C> Commercial $ 1,039,487 $ 1,026,793 Total commercial loans 1,039,487 1,026,793 Construction 166,149 160,932 Residential mortgage 1,294,160 1,301,851 Commercial mortgage 1,279,139 1,258,549 Total mortgage loans 2,739,448 2,721,332 Home equity 305,543 306,038 Credit card 22,992 94,293 Automobile 950,345 976,177 Other consumer 64,477 56,591 Total consumer loans 1,335,471 1,440,985 Total loans $5,114,406 $5,189,110 As a percent of total loans: Commercial loans 20.3 % 19.8 % Mortgage loans 53.6 52.4 Consumer loans 26.1 27.8 Total % 100.0 % 100.0 </TABLE> During the first quarter of 2001 Valley sold approximately $66.6 million of credit card loans from its cobranded ShopRite MasterCard credit card portfolio. Residential mortgage loans declined as prepayments, due to lower interest rates, were exceeding new loans. Additionally, newly originated residential mortgage loans with low long term fixed rates are being sold into the secondary market which will also maintain or reduce the residential mortgage portfolio in the near term.* Automobile lending remained slow during the quarter due to a decrease in automobile sales volume, and a reduction in State Farm applications. In addition, fewer applications are being approved than have been historically due to a decline in the credit quality of applications received. Non-performing Assets Non-performing assets include non-accrual loans and other real estate owned ("OREO"). Loans are generally placed on a non-accrual status when they become past due in excess of 90 days as to payment of principal or interest. Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of collection. OREO is acquired through foreclosure on loans secured by land or real estate. OREO is reported at the lower of cost or fair value at the time of acquisition and at the lower of fair value, less estimated costs to sell, or cost thereafter. Non-performing assets totaled $4.0 million at March 31, 2001, unchanged from December 31, 2000. Non-performing assets at March 31, 2001 and December 31, 2000, amounted to 0.08 percent of loans and OREO, respectively. Loans 90 days or more past due and not included in the non-performing category totaled $19.6 million at March 31, 2001, compared with $15.0 million at December 31, 2000. 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 $4.9 million at March 31, 2001 and $2.8 million at December 31, 2000. Total loans past due in excess of 30 days were 1.27 percent of all loans at March 31, 2001 compared to 1.30 percent at March 31, 2000 and 1.58 percent at December 31, 2000. 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. <TABLE> <CAPTION> LOAN QUALITY March 31, December 31, 2001 2000 (in thousands) <S> <C> <C> Loans past due in excess of 90 days and still accruing $ 19,627 $ 14,952 Non-accrual loans $ 3,897 $ 3,883 Other real estate owned 88 129 Total non-performing assets $ 3,985 $ 4,012 Troubled debt restructured loans $ 938 $ 949 Non-performing loans as a % of loans 0.08% 0.07% Non-performing assets as a % of loans plus other real estate owned 0.08% 0.08% Allowance as a % of loans 1.22% 1.19% </TABLE> At March 31, 2001 the allowance for loan losses amounted to $62.5 million, compared with $62.0 million at year-end 2000. The allowance is adjusted by provisions charged against income and loans charged-off, net of recoveries. Net loan charge-offs were $1.5 million for the three months ended March 31, 2001 compared with $1.7 million for the three months ended March 31, 2000. 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. VNB's methodology for evaluating the appropriateness of the allowance consists of several significant elements, which include the allocated allowance, specific allowances for identified problem loans and portfolio segments and the unallocated allowance. The allowance also incorporates the results of measuring impaired loans as required for in Statements of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." During the first quarter of 2001, continued emphasis was placed on the current economic climate and the condition of the real estate market in the northern New Jersey area and the surrounding market. 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 $2.1 million during the first quarter of 2001 compared with $2.5 million during the first quarter of 2000. We do not know at this time if lower levels of charge-offs will continue.* Capital Adequacy A significant measure of the strength of a financial institution is its shareholders' equity. At March 31, 2001, shareholders' equity totaled $681.3 million or 8.5 percent of total assets, compared with $656.0 million or 8.3 percent at year-end 2000. Included in shareholders' equity, as components of accumulated other comprehensive income, at March 31, 2001 was a $13.5 million unrealized gain on investment securities available for sale, net of tax, and a translation adjustment loss of $1.0 million related to the Canadian subsidiary of VNB, compared with an unrealized loss of $1.6 million and a $678 thousand translation adjustment loss at December 31, 2000. Valley's capital position at March 31, 2001 under risk-based capital guidelines was $663.6 million, or 11.8 percent of risk-weighted assets, for Tier 1 capital and $726.1 million, or 12.9 percent for Total risk-based capital. The comparable ratios at December 31, 2000 were 11.3 percent for Tier 1 capital and 12.3 percent for Total risk-based capital. At March 31, 2001 and 2000, Valley was in compliance with the leverage requirement having Tier 1 leverage ratios of 8.5 percent for both periods. Valley's ratios at March 31, 2001 were above the "well capitalized" requirements, which require Tier I capital to risk-adjusted assets of at least 6 percent, Total risk-based capital to risk-adjusted assets of 10 percent and a minimum leverage ratio of 5 percent. Book value per share amounted to $8.72 at March 31, 2001 compared with $8.41 per share at December 31, 2000. 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 45.4 percent at March 31, 2001, compared with 41.7 percent at March 31, 2000. Cash dividends declared amounted to $0.26 per share, for the quarter ended March 31, 2001, equivalent to a dividend payout ratio of 54.6 percent, compared with 58.3 percent for the year 2000. Valley's Board of Directors declared a five percent stock dividend on April 4, 2001, to shareholders of record on May 4, 2001, to be issued May 18, 2001. The Board also agreed to increase the annual dividend rate from $0.99 per share, on an after stock dividend basis, to $1.06 per share. The increased cash dividend would be payable quarterly beginning on July 2, 2001. 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 Pronouncements Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), was issued by the FASB in June 1998. SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial condition at fair value. Valley would have had to adopt SFAS No. 133 by January 1, 2000. However, SFAS No. 137 extended the adoption of SFAS No. 133 to fiscal years beginning after June 15, 2000. The provisions of SFAS No. 133 must be applied prospectively. The adoption of SFAS No. 133 did not have a material impact on the financial statements. The FASB issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." ("SFAS No.140"). SFAS No. 10 replaces SFAS No. 125. SFAS No. 140 resolves certain implementation issues, but it carries forward most of SFAS No. 125's provisions without change. SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The transition provisions contained in SFAS No. 133 provide that at the date of initial application, an entity may transfer any debt security classified as "held to maturity" to "available for sale" or "trading". On the initial adoption date of SFAS No. 133 as amended by SFAS No. 138, Valley did not transfer any of its securities under the transition provisions contained in SFAS No. 133. The adoption of SFAS No. 140 did not have a material impact on the financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk See page 17 for a discussion of interest rate sensitivity.
PART II Item 5. Other Information a) The Board of Directors approved a five percent stock dividend on April 4, 2001. The new stock will be issued May 18, 2001 to shareholders of record as of May 4, 2001. Item 6. Exhibits and Reports on Form 8-K a) Exhibits (3) Articles of Incorporation and By-laws A) Certificate of Incorporation of the Registrant restated to show all changes through May 7, 2001. (10) Material Contracts A) "Employment Continuation And Non-Competition Agreements" dated September 5, 2000 between Valley, VNB and Spencer B. Witty, James G. Lawrence, William J. Cardew and Eric W. Gould. B) "Change in Control Agreement" dated September 5, 2000 between Valley, VNB and James G. Lawrence. b) Reports on Form 8-K 1) Filed January 29, 2001 to report the merger, effective on January 19, 2001, between Valley National Bancorp and Merchants New York Bancorp, Inc.
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 11, 2001 /s/ Peter Southway PETER SOUTHWAY VICE CHAIRMAN Date: May 11, 2001 /s/ Alan D. Eskow ALAN D. ESKOW EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Exhibit (3) A) 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(3) and Section 9-2(2), does hereby certify as follows: (a) The name of the Corporation is: Valley National Bancorp. (b) A five percent (5%) stock dividend was declared by the Corporation on April 4, 2001, pursuant to which one share of Common Stock, no par value, will be distributed for each twenty (20) shares of Common Stock, no par value, held by shareholders on the record date of May 4, 2001 and payable May 18, 2001. A resolution approving the stock dividend was adopted by the Board of Directors of the Corporation at its special meeting held on April 4,2001. (c) The stock dividend will not adversely affect the rights or preferences of the holders of any of the outstanding shares and will not result in the percentage of authorized shares that remains unissued after the stock dividend exceeding the percentage of authorized shares that was unissued before the stock dividend. (d) There were issued and outstanding, as of the record date of May 4, 2001, 74,437,507 shares of Common Stock without par value, which are the shares subject to the stock dividend. Pursuant to the 5% stock dividend, the number of shares of Common Stock without par value to be issued is 3,721,875. (e) The Corporation is hereby amending its Certificate of Incorporation in connection with the stock dividend as follows: The first sentence of Article V shall be amended to read: "The total authorized capital stock of the Corporation shall be 143,953,711 shares, consisting of 113,953,711 shares of Common Stock and 30,000,000 shares of Preferred Stock which may be issued in one or more classes or series." IN WITNESS WHEREOF, Alan D. Eskow, Executive Vice President, Chief Financial Officer and Corporate Secretary of Valley National Bancorp has executed this Certificate on behalf of Valley National Bancorp on this seventh day of May, 2001. VALLEY NATIONAL BANCORP By: Alan D. Eskow, Executive Vice President, Chief Financial Officer and Corporate Secretary
Exhibit (10) A-1 EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT BY AND BETWEEN SPENCER B. WITTY VALLEY NATIONAL BANCORP, a New Jersey Corporation and VALLEY NATIONAL BANK, a national bank DATED: As of September 5, 2000
EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT THIS EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT (this "Agreement"), is entered into as of September 5, 2000 by and among Valley Bancorp, a New Jersey corporation ("Valley"), Valley National Bank, a national bank (the "Bank"), (Valley and the Bank are jointly hereinafter referred to as the "Company") and Spencer B. Witty (hereinafter referred to as the "Executive"). BACKGROUND WHEREAS, the Executive is currently employed by The Merchants Bank of New York ("Merchants Bank") and Merchants New York Bancorp, Inc. ("Merchants"); and WHEREAS, Valley and the Bank have entered into an Agreement and Plan of Merger, dated September 5, 2000 (the "Merger Agreement") pursuant to which Merchants will be merged into Valley and Merchants Bank will be merged into the Bank, and the Executive will become an employee of the Bank; WHEREAS, the Boards of Directors of the Bank and Valley each are of the opinion that it would be of substantial value to the Company to continue the employment of the Executive and obtain from the Executive covenants not to compete during the term of his employment by Valley and for a period of up to two (2) years thereafter; and WHEREAS, to achieve such a goal, the Boards of Directors of the Company and the Executive have agreed to enter into this Agreement; NOW, THEREFORE, for good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby, agree as follows: ARTICLE I TERM OF AGREEMENT The term of this Agreement shall commence on the date hereof and shall terminate on the date which is two (2) years following the termination (for any reason whatsoever) of Executive's employment with the Company (hereinafter the "Term"), unless this Agreement expressly provides for a shorter period. Notwithstanding the foregoing, this Agreement shall be void and of no force and effect unless the Merger contemplated by the Merger Agreement is consummated and the Executive is employed by Merchants Bank at the Effective Time (as such term is defined in the Merger Agreement) and shall not take effect until such time. ARTICLE II CONTINUED EMPLOYMENT; ADDITIONAL COMPENSATION As consideration for the covenants of the Executive hereunder, the Company agrees to employ the Executive and the Executive agrees to be employed by the Company through May 1, 2003 with the same salary (excluding Board of Director fees from Merchants and Merchants Bank) and substantially the same benefits as are enjoyed by the Executive currently as an employee of Merchants Bank. The Company shall pay to the Executive an annual bonus equal to 12.5% of his base salary, in the same manner and with the same timing as is the current practice of Merchants or, if the Company terminates that practice, it shall increase the Executive's base salary to cover the foregone bonus. In addition, the Company shall pay the Executive an additional $24,000 per year for each of the two years of the employment period and shall provide the Executive with medical and hospital insurance supplemental to his Medicare benefits. The Executive shall also be eligible to participate in the Company's annual incentive plan for executives. The Executive agrees with the Company that he will serve as Vice Chairman of Valley and of the Bank and have the additional title "Chairman- Merchants Division" of Valley National Bank. He will also be appointed as a director of Valley and the Bank, pursuant to the Merger Agreement. The Company's obligation to employ and compensate the Executive shall cease if he dies or is permanently disabled. The Executive shall have the discretion to determine the amount of time per week he devotes to his duties, provided that he continues to devote an amount of time which is comparable to his current time commitments to Merchants. Following termination of the Executive's employment by the Company, the Company shall continue during the Executive's lifetime: (a) to supply the Executive with medical and hospital insurance supplemental to his Medicare benefits, and (b) to supply the Executive with use of his office at 275 Madison Avenue, New York, NY so long as that remains part of the premises used by the Bank, and if the Bank no longer uses that space, then at another Bank location in Manhattan between the Battery and 59th Street that is reasonably acceptable to the Bank and the Executive. ARTICLE III NON-COMPETITION COVENANTS 3.1 Non-Competition. In consideration for his continued employment with the Bank and the compensation set forth in Article II, the Executive agrees that while he is employed by the Bank and for a period of two years following his termination of employment with the Bank for any reason whatsoever (the "Two Year Post-Employment Period"), the Executive will not, directly or indirectly, as shareholder, employee, director, officer, principal or agent, or in any other capacity (other than on behalf of the Company and in pursuit of Company business): (i) own, manage, operate, consult with or be employed by, directly or indirectly, through a holding company or affiliate, any bank, savings bank, savings and loan, trust company or lending organization which maintains a branch office or a lending office within 25 miles of New York City, or any bank, savings bank, savings and loan, trust company or lending organization which conducts substantially all of its business over the internet, or (ii) solicit the Banking Business (as defined herein) of persons or entities who are known to the Executive to be customers of the Company or any of its subsidiaries ("Company Customers"), or encourage any Company Customers to terminate or reduce the amount of Banking Business they do with the Company or any of its subsidiaries, or (iii) solicit, induce or encourage any employee of the Bank to leave the employment of the Bank; provided, however, that this provision shall not prohibit the Executive from owning common stock of Valley (in any amount) or from owning bonds, preferred stock or up to two percent (2%) of the outstanding common shares of any such institution or its parent holding company if the shares of the parent holding company or of the institution are publicly traded. "Banking Business" means the traditional depository and loan relationships between banks and their customers and shall not include ancillary businesses such as the sale of mutual funds or life insurance products. If at any time while Executive remains employed by the Bank (i) there is a Change in Control, as that term is defined in the Valley National Bancorp 1999 Long-Term Stock Incentive Plan, (the "Plan"), as interpreted by the Valley National Bancorp Board of Directors in connection with the Plan, and (ii) within 6 months after the date on which the Change in Control occurs, the Executive's employment with the Bank is terminated for any reason other than for Cause, as that term is defined in the Plan, the covenants not to compete contained in this Section 3.1 shall terminate on the same day as the termination of Executive's employment. 3.2 Reasonableness of Restraints. Executive acknowledges that he has carefully read and considered all of the terms and conditions of the foregoing covenants in Section 3.1, including the restraints imposed upon him thereby, the Executive agrees that such restraints are necessary for the reasonable and proper protection of Valley and the Bank and that such restraints are reasonable with respect to subject matter, length of time and area covered. However, both the Company and the Executive agree that if a court finds this agreement unenforceable due to restrictions unreasonable in scope, duration or geographical area, then such court may reform this agreement so that the restrictions in it are reasonable and this agreement is enforceable. 3.3 Specific Performance. In the event of an actual or threatened breach by Executive of any of the covenants contained in Section 3.1, it is agreed that the remedies at law of Valley and the Bank would be inadequate and Valley and the Bank and their respective successors shall be entitled to injunctive relief restraining Executive from committing or attempting such breach. The remedy set forth in this Section 3.3 shall be in addition to any other remedies available to Valley and the Bank for such breach or threatened breach. 3.4 Jurisdiction. Executive consents to and agrees to the exclusive jurisdiction of the courts of New Jersey with respect to the enforcement of these provisions. 3.5 Survival. This Article II shall survive the termination or expiration of the Term of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Changes. This Agreement may not be modified, changed, amended, or altered except in a writing signed by the Executive and by the Chief Executive Officer of Valley. 4.2 Notices. All notices given or required to be given herein shall be in writing and be hand-delivered or sent by United States first-class certified or registered mail, return receipt requested, postage prepaid, to the Executive at the last-known address for the Executive, and to Valley at the principal executive office for Valley (or any successor thereto), to the attention of the Chief Executive Officer. All such notices shall be effective when received or open refusal of the addressee to accept delivery. Either party by a notice in writing to the other party may change or designate the place for receipt of such notices. 4.3 Successors. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors, including any company with or into which the Company may be consolidated or merged, and this provision shall apply in the event of any subsequent merger or consolidation. 4.4 Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the matters contemplated hereby, and supersedes all prior negotiations, arrangements or understandings, written or oral, with respect thereto. 4.5 Governing Law. This Agreement shall be governed in all respects and be interpreted by and under the laws of the State of New Jersey, without reference to the conflict of laws provisions of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date and year first written above. ATTEST: VALLEY NATIONAL BANCORP By: _________________________ By: ____/s/ Gerald H. Lipkin ATTEST: VALLEY NATIONAL BANK By: ________________________ By: ____/s/ Gerald H. Lipkin WITNESS: ____________________________ _______/s/ Spencer B. Witty SPENCER B. WITTY
Exhibit (10) A-2 EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT BY AND BETWEEN JAMES G. LAWRENCE VALLEY NATIONAL BANCORP, a New Jersey Corporation and VALLEY NATIONAL BANK, a national bank DATED: As of September 5, 2000
EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT THIS EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT (this "Agreement"), is entered into as of September 5, 2000 by and among Valley Bancorp, a New Jersey corporation ("Valley"), Valley National Bank, a national bank (the "Bank"), (Valley and the Bank are jointly hereinafter referred to as the "Company") and James G. Lawrence (hereinafter referred to as the "Executive"). BACKGROUND WHEREAS, the Executive is currently employed by The Merchants Bank of New York ("Merchants Bank") and Merchants New York Bancorp, Inc. ("Merchants"); and WHEREAS, Valley and the Bank have entered into an Agreement and Plan of Merger, dated September 5, 2000 (the "Merger Agreement") pursuant to which Merchants will be merged into Valley and Merchants Bank will be merged into the Bank, and the Executive will become an employee of the Bank; WHEREAS, the Boards of Directors of the Bank and Valley each are of the opinion that it would be of substantial value to the Company to continue the employment of the Executive and obtain from the Executive covenants not to compete during the term of his employment by Valley and for a period of up to two (2) years thereafter; and WHEREAS, to achieve such a goal, the Boards of Directors of the Company and the Executive have agreed to enter into this Agreement; NOW, THEREFORE, for good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby, agree as follows: ARTICLE I TERM OF AGREEMENT The term of this Agreement shall commence on the date hereof and shall terminate on the date which is two (2) years following the termination (for any reason whatsoever) of Executive's employment with the Company (hereinafter the "Term"), unless this Agreement expressly provides for a shorter period. Notwithstanding the foregoing, this Agreement shall be void and of no force and effect unless the Merger contemplated by the Merger Agreement is consummated and the Executive is employed by Merchants Bank at the Effective Time (as such term is defined in the Merger Agreement) and shall not take effect until such time. ARTICLE II CONTINUED EMPLOYMENT; ADDITIONAL COMPENSATION As consideration for the covenants of the Executive hereunder, the Company agrees to employ the Executive and the Executive agrees to be employed by the Company with the same salary (excluding Board of Director fees from Merchants and Merchants Bank) and substantially the same benefits as are enjoyed by the Executive currently as an employee of Merchants Bank. The Company will continue to pay to the Executive an annual bonus equal to 12.5% of his base salary, in the same manner and with the same timing as is the current practice of Merchants or, if the Company terminates that practice, it shall increase the Executive's base salary to cover the foregone bonus. In addition, the Company shall pay the Executive an additional $24,000 per year for each year that he continues as an employee of the Company. The Executive will also be eligible to participate in the Company's annual incentive plan for executives. The Company and the Executive will on the date hereof enter into a Change in Control Agreement. The Company agrees, except as otherwise provided in the Change in Control Agreement, to be bound by and honor the employment agreement dated January 25, 2000, between the Executive and Merchants (the "Employment Agreement") and the special pension benefits arrangements the Executive has with Merchants Bank, evidenced to the Executive by a letter dated August 21, 1998, (the "Special Pension Benefits"). Provided however, that the Executive agrees with the Company that his Employment Agreement is hereby amended to provide that he will serve as an Executive Vice-President of the Bank, with the additional title, "President-Merchants Division" of the Bank, reporting to the Chief Executive Officer of the Bank, and will not serve as a director of Merchants, Merchants Bank, Valley or the Bank. ARTICLE III NON-COMPETITION COVENANTS 3.1 Non-Competition. The Executive agrees that while he is employed by the Bank and for a period of two years following his termination of employment with the Bank for any reason whatsoever (the "Two Year Post-Employment Period"), the Executive will not, directly or indirectly, as shareholder, employee, director, officer, principal or agent, or in any other capacity (other than on behalf of the Company and in pursuit of Company business): (i) own, manage, operate, consult with or be employed by, directly or indirectly, through a holding company or affiliate, any bank, savings bank, savings and loan, trust company or lending organization which maintains a branch office or a lending office within 25 miles of New York City, or any bank, savings bank, savings and loan, trust company or lending organization which conducts substantially all of its business over the internet, or (ii) solicit the Banking Business (as defined herein) of persons or entities who are known to the Executive to be customers of the Company or any of its subsidiaries ("Company Customers"), or encourage any Company Customers to terminate or reduce the amount of Banking Business they do with the Company or any of its subsidiaries, or (iii) solicit, induce or encourage any employee of the Bank to leave the employment of the Bank; provided, however, that this provision shall not prohibit the Executive from owning common stock of Valley (in any amount) or from owning bonds, preferred stock or up to two percent (2%) of the outstanding common shares of any such institution or its parent holding company if the shares of the parent holding company or of the institution are publicly traded. "Banking Business" means the traditional depository and loan relationships between banks and their customers and shall not include ancillary businesses such as the sale of mutual funds or life insurance products. Commencing with the fourth anniversary of the date of the execution of this Agreement, the Two Year Post-Employment Period shall be reduced to one year. If at any time while Executive remains employed by the Bank (i) there is a Change in Control, as that term is defined in the Valley National Bancorp 1999 Long-Term Stock Incentive Plan, (the "Plan"), as interpreted by the Valley National Bancorp Board of Directors in connection with the Plan, and (ii) within 6 months after the date on which the Change in Control occurs, the Executive's employment with the Bank is terminated for any reason other than for Cause , as that term is defined in the Plan, the covenants not to compete contained in this Section 3.1 shall terminate on the same day as the termination of Executive's employment. 3.2 Reasonableness of Restraints. Executive acknowledges that he has carefully read and considered all of the terms and conditions of the foregoing covenants in Section 3.1, including the restraints imposed upon him thereby, the Executive agrees that such restraints are necessary for the reasonable and proper protection of Valley and the Bank and that such restraints are reasonable with respect to subject matter, length of time and area covered. However, both the Company and the Executive agree that if a court finds this agreement unenforceable due to restrictions unreasonable in scope, duration or geographical area, then such court may reform this agreement so that the restrictions in it are reasonable and this agreement is enforceable. 3.3 Specific Performance. In the event of an actual or threatened breach by Executive of any of the covenants contained in Section 3.1, it is agreed that the remedies at law of Valley and the Bank would be inadequate and Valley and the Bank and their respective successors shall be entitled to injunctive relief restraining Executive from committing or attempting such breach. The remedy set forth in this Section 3.3 shall be in addition to any other remedies available to Valley and the Bank for such breach or threatened breach. 3.4 Jurisdiction. Executive consents to and agrees to the exclusive jurisdiction of the courts of New Jersey with respect to the enforcement of these provisions. 3.5 Survival. This Article II shall survive the termination or expiration of the Term of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Changes. This Agreement may not be modified, changed, amended, or altered except in a writing signed by the Executive and by the Chief Executive Officer of Valley. 4.2 Notices. All notices given or required to be given herein shall be in writing and be hand-delivered or sent by United States first-class certified or registered mail, return receipt requested, postage prepaid, to the Executive at the last-known address for the Executive, and to Valley at the principal executive office for Valley (or any successor thereto), to the attention of the Chief Executive Officer. All such notices shall be effective when received or open refusal of the addressee to accept delivery. Either party by a notice in writing to the other party may change or designate the place for receipt of such notices. 4.3 Successors. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors, including any company with or into which the Company may be consolidated or merged, and this provision shall apply in the event of any subsequent merger or consolidation. 4.4 Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the matters contemplated hereby, and supersedes all prior negotiations, arrangements or understandings, written or oral, with respect thereto. 4.5 Governing Law. This Agreement shall be governed in all respects and be interpreted by and under the laws of the State of New Jersey, without reference to the conflict of laws provisions of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date and year first written above. ATTEST: VALLEY NATIONAL BANCORP By: _________________________ By: _____/s/ Gerald H. Lipkin ATTEST: VALLEY NATIONAL BANK By: ________________________ By: _____/s/ Gerald H. Lipkin WITNESS: __/s/ Spencer B. Witty___________ ________/s/ James G. Lawrence
Exhibit (10) A-3 EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT BY AND BETWEEN WILLIAM J. CARDEW VALLEY NATIONAL BANCORP, a New Jersey Corporation and VALLEY NATIONAL BANK, a national bank DATED: As of September 5, 2000
EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT THIS EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT (this "Agreement"), is entered into as of September 5, 2000 by and among Valley Bancorp, a New Jersey corporation ("Valley"), Valley National Bank, a national bank (the "Bank"), (Valley and the Bank are jointly hereinafter referred to as the "Company") and William J. Cardew (hereinafter referred to as the "Executive"). BACKGROUND WHEREAS, the Executive is currently employed by The Merchants Bank of New York ("Merchants Bank") and Merchants New York Bancorp, Inc. ("Merchants"); and WHEREAS, Valley and the Bank have entered into an Agreement and Plan of Merger, dated September 5, 2000 (the "Merger Agreement") pursuant to which Merchants will be merged into Valley and Merchants Bank will be merged into the Bank, and the Executive will become an employee of the Bank; WHEREAS, the Boards of Directors of the Bank and Valley each are of the opinion that it would be of substantial value to the Company to continue the employment of the Executive and obtain from the Executive covenants not to compete during the term of his employment by Valley and for a period of up to two (2) years thereafter; and WHEREAS, to achieve such a goal, the Boards of Directors of the Company and the Executive have agreed to enter into this Agreement; NOW, THEREFORE, for good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby, agree as follows: ARTICLE I TERM OF AGREEMENT The term of this Agreement shall commence on the date hereof and shall terminate on the date which is two (2) years following the termination (for any reason whatsoever) of Executive's employment with the Company (hereinafter the "Term"), unless this Agreement expressly provides for a shorter period. Notwithstanding the foregoing, this Agreement shall be void and of no force and effect unless the Merger contemplated by the Merger Agreement is consummated and the Executive is employed by Merchants Bank at the Effective Time (as such term is defined in the Merger Agreement) and shall not take effect until such time. ARTICLE II CONTINUED EMPLOYMENT; ADDITIONAL COMPENSATION As consideration for the covenants of the Executive hereunder, the Company agrees to employ the Executive and the Executive agrees to be employed by the Company, through May 1, 2003, with the same salary (excluding Board of Director fees from Merchants and Merchants Bank) and substantially the same benefits as are enjoyed by the Executive currently as an employee of Merchants Bank. The Company shall pay to the Executive an annual bonus equal to 12.5% of his base salary, in the same manner and with the same timing as is the current practice of Merchants or, if the Company terminates that practice, it shall increase the Executive's base salary to cover the foregone bonus. In addition, the Company shall pay the Executive an additional $24,000 per year for each year that he continues as an employee of the Company. The Executive shall also be eligible to participate in the Company's annual incentive plan for executives. The Company agrees to be bound by and honor the employment agreement dated January 31, 2000, between the Executive and Merchants (the "Employment Agreement"); provided however, that the Executive agrees with the Company that his Employment Agreement is hereby amended to provide that he will serve as a First Senior Vice-President of the Bank, with the additional title, "Vice Chairman, Merchants Division" of the Bank, and will not serve as a director of Merchants, Merchants Bank, Valley or the Bank. The Company's obligation to employ and compensate the Executive shall cease if he dies, is permanently disabled or is removed for "cause," as defined in the Employment Agreement.
ARTICLE III NON-COMPETITION COVENANTS 3.1 Non-Competition. The Executive agrees that while he is employed by the Bank and for a period of two years following his termination of employment with the Bank for any reason whatsoever (the "Two Year Post-Employment Period"), the Executive will not, directly or indirectly, as shareholder, employee, director, officer, principal or agent, or in any other capacity (other than on behalf of the Company and in pursuit of Company business): (i) own, manage, operate, consult with or be employed by, directly or indirectly, through a holding company or affiliate, any bank, savings bank, savings and loan, trust company or lending organization which maintains a branch office or a lending office within 25 miles of New York City, or any bank, savings bank, savings and loan, trust company or lending organization which conducts substantially all of its business over the internet, or (ii) solicit the Banking Business (as defined herein) of persons or entities who are known to the Executive to be customers of the Company or any of its subsidiaries ("Company Customers"), or encourage any Company Customers to terminate or reduce the amount of Banking Business they do with the Company or any of its subsidiaries, or (iii) solicit, induce or encourage any employee of the Bank to leave the employment of the Bank; provided, however, that this provision shall not prohibit the Executive from owning common stock of Valley (in any amount) or from owning bonds, preferred stock or up to two percent (2%) of the outstanding common shares of any such institution or its parent holding company if the shares of the parent holding company or of the institution are publicly traded. "Banking Business" means the traditional depository and loan relationships between banks and their customers and shall not include ancillary businesses such as the sale of mutual funds or life insurance products. If at any time while Executive remains employed by the Bank (i) there is a Change in Control, as that term is defined in the Valley National Bancorp 1999 Long-Term Stock Incentive Plan, (the "Plan"), as interpreted by the Valley National Bancorp Board of Directors in connection with the Plan, and (ii) within 6 months after the date on which the Change in Control occurs, the Executive's employment with the Bank is terminated for any reason other than for Cause, as that term is defined in the Plan, the covenants not to compete contained in this Section 3.1 shall terminate on the same day as the termination of Executive's employment. 3.2 Reasonableness of Restraints. Executive acknowledges that he has carefully read and considered all of the terms and conditions of the foregoing covenants in Section 3.1, including the restraints imposed upon him thereby, the Executive agrees that such restraints are necessary for the reasonable and proper protection of Valley and the Bank and that such restraints are reasonable with respect to subject matter, length of time and area covered. However, both the Company and the Executive agree that if a court finds this agreement unenforceable due to restrictions unreasonable in scope, duration or geographical area, then such court may reform this agreement so that the restrictions in it are reasonable and this agreement is enforceable. 3.3 Specific Performance. In the event of an actual or threatened breach by Executive of any of the covenants contained in Section 3.1, it is agreed that the remedies at law of Valley and the Bank would be inadequate and Valley and the Bank and their respective successors shall be entitled to injunctive relief restraining Executive from committing or attempting such breach. The remedy set forth in this Section 3.3 shall be in addition to any other remedies available to Valley and the Bank for such breach or threatened breach. 3.4 Jurisdiction. Executive consents to and agrees to the exclusive jurisdiction of the courts of New Jersey with respect to the enforcement of these provisions. 3.5 Survival. This Article II shall survive the termination or expiration of the Term of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Changes. This Agreement may not be modified, changed, amended, or altered except in a writing signed by the Executive and by the Chief Executive Officer of Valley. 4.2 Notices. All notices given or required to be given herein shall be in writing and be hand-delivered or sent by United States first-class certified or registered mail, return receipt requested, postage prepaid, to the Executive at the last-known address for the Executive, and to Valley at the principal executive office for Valley (or any successor thereto), to the attention of the Chief Executive Officer. All such notices shall be effective when received or open refusal of the addressee to accept delivery. Either party by a notice in writing to the other party may change or designate the place for receipt of such notices. 4.3 Successors. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors, including any company with or into which the Company may be consolidated or merged, and this provision shall apply in the event of any subsequent merger or consolidation. 4.4 Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the matters contemplated hereby, and supersedes all prior negotiations, arrangements or understandings, written or oral, with respect thereto. 4.5 Governing Law. This Agreement shall be governed in all respects and be interpreted by and under the laws of the State of New Jersey, without reference to the conflict of laws provisions of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date and year first written above. ATTEST: VALLEY NATIONAL BANCORP By: __/s/ Peter Southway________ By: ____/s/ Gerald H. Lipkin________ ATTEST: VALLEY NATIONAL BANK By: __/s/ Peter Southway________ By: ____/s/ Gerald H. Lipkin________ WITNESS: _/s/ Robinson Markel___________ _______/s/ William J. Cardew_______ WILLIAM J. CARDEW
Exhibit (10) A-4 EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT BY AND BETWEEN ERIC W. GOULD VALLEY NATIONAL BANCORP, a New Jersey Corporation and VALLEY NATIONAL BANK, a national bank DATED: As of September 5, 2000
EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT THIS EMPLOYMENT CONTINUATION AND NON-COMPETITION AGREEMENT (this "Agreement"), is entered into as of September 5, 2000 by and among Valley Bancorp, a New Jersey corporation ("Valley"), Valley National Bank, a national bank (the "Bank"), (Valley and the Bank are jointly hereinafter referred to as the "Company") and Eric W. Gould (hereinafter referred to as the "Executive"). BACKGROUND WHEREAS, the Executive is currently employed by The Merchants Bank of New York ("Merchants Bank") and Merchants New York Bancorp, Inc. ("Merchants"); and WHEREAS, Valley and the Bank have entered into an Agreement and Plan of Merger, dated September 5, 2000 (the "Merger Agreement") pursuant to which Merchants will be merged into Valley and Merchants Bank will be merged into the Bank, and the Executive will become an employee of the Bank; WHEREAS, the Boards of Directors of the Bank and Valley each are of the opinion that it would be of substantial value to the Company to continue the employment of the Executive and obtain from the Executive covenants not to compete during the term of his employment by Valley and for a period of up to two (2) years thereafter; and WHEREAS, to achieve such a goal, the Boards of Directors of the Company and the Executive have agreed to enter into this Agreement; NOW, THEREFORE, for good and valuable consideration, the Company and the Executive, each intending to be legally bound hereby, agree as follows: ARTICLE I TERM OF AGREEMENT The term of this Agreement shall commence on the date hereof and shall terminate on the date which is two (2) years following the termination (for any reason whatsoever) of Executive's employment with the Company (hereinafter the "Term"), unless this Agreement expressly provides for a shorter period. Notwithstanding the foregoing, this Agreement shall be void and of no force and effect unless the Merger contemplated by the Merger Agreement is consummated and the Executive is employed by Merchants Bank at the Effective Time (as such term is defined in the Merger Agreement) and shall not take effect until such time. ARTICLE II CONTINUED EMPLOYMENT; ADDITIONAL COMPENSATION As consideration for the covenants of the Executive hereunder, the Company agrees to employ the Executive for two years and the Executive agrees to be employed by the Company with the same salary (excluding Board of Director fees from Merchants and Merchants Bank) and substantially the same benefits as are enjoyed by the Executive currently as an employee of Merchants Bank. The Company shall pay to the Executive an annual bonus equal to 12.5% of his base salary, in the same manner and with the same timing as is the current practice of Merchants or, if the Company terminates that practice, it shall increase the Executive's base salary to cover the foregone bonus. In addition, the Company shall pay the Executive an additional $45,000 per year for each year that he continues as an employee of the Company. The Executive shall also be eligible to participate in the Company's annual incentive plan for executives. The Executive agrees with the Company that he will serve as a First Senior Vice-President of the Bank, and will not serve as a director of Merchants, Merchants Bank, Valley or the Bank. The Company's obligation to employ and compensate the executive shall cease if he dies, or is currently disabled, or is terminated for cause as defined in the Company's employee manual. ARTICLE III NON-COMPETITION COVENANTS 3.1 Non-Competition. The Executive agrees that while he is employed by the Bank and for a period of two years following his termination of employment with the Bank for any reason whatsoever (the "Two Year Post-Employment Period"), the Executive will not, directly or indirectly, as shareholder, employee, director, officer, principal or agent, or in any other capacity (other than on behalf of the Company and in pursuit of Company business): (i) own, manage, operate, consult with or be employed by, directly or indirectly, through a holding company or affiliate, any bank, savings bank, savings and loan, trust company or lending organization which maintains a branch office or a lending office within 25 miles of New York City, or any bank, savings bank, savings and loan, trust company or lending organization which conducts substantially all of its business over the internet, or (ii) solicit the Banking Business (as defined herein) of persons or entities who are known to the Executive to be customers of the Company or any of its subsidiaries ("Company Customers"), or encourage any Company Customers to terminate or reduce the amount of Banking Business they do with the Company or any of its subsidiaries, or (iii) solicit, induce or encourage any employee of the Bank to leave the employment of the Bank; provided, however, that this provision shall not prohibit the Executive from owning common stock of Valley (in any amount) or from owning bonds, preferred stock or up to two percent (2%) of the outstanding common shares of any such institution or its parent holding company if the shares of the parent holding company or of the institution are publicly traded. "Banking Business" means the traditional depository and loan relationships between banks and their customers and shall not include ancillary businesses such as the sale of mutual funds or life insurance products. Commencing on April 30, 2003, the Two Year Post-Employment Period shall be reduced to one year. If at any time while Executive remains employed by the Bank (i) there is a Change in Control, as that term is defined in the Valley National Bancorp 1999 Long-Term Stock Incentive Plan, (the "Plan"), as interpreted by the Valley National Bancorp Board of Directors in connection with the Plan, and (ii) within 6 months after the date on which the Change in Control occurs, the Executive's employment with the Bank is terminated for any reason other than for Cause , as that term is defined in the Plan, the covenants not to compete contained in this Section 3.1 shall terminate on the same day as the termination of Executive's employment. 3.2 Reasonableness of Restraints. Executive acknowledges that he has carefully read and considered all of the terms and conditions of the foregoing covenants in Section 3.1, including the restraints imposed upon him thereby, the Executive agrees that such restraints are necessary for the reasonable and proper protection of Valley and the Bank and that such restraints are reasonable with respect to subject matter, length of time and area covered. However, both the Company and the Executive agree that if a court finds this agreement unenforceable due to restrictions unreasonable in scope, duration or geographical area, then such court may reform this agreement so that the restrictions in it are reasonable and this agreement is enforceable. 3.3 Specific Performance. In the event of an actual or threatened breach by Executive of any of the covenants contained in Section 3.1, it is agreed that the remedies at law of Valley and the Bank would be inadequate and Valley and the Bank and their respective successors shall be entitled to injunctive relief restraining Executive from committing or attempting such breach. The remedy set forth in this Section 3.3 shall be in addition to any other remedies available to Valley and the Bank for such breach or threatened breach. 3.4 Jurisdiction. Executive consents to and agrees to the exclusive jurisdiction of the courts of New Jersey with respect to the enforcement of these provisions. 3.5 Survival. This Article II shall survive the termination or expiration of the Term of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Changes. This Agreement may not be modified, changed, amended, or altered except in a writing signed by the Executive and by the Chief Executive Officer of Valley. 4.2 Notices. All notices given or required to be given herein shall be in writing and be hand-delivered or sent by United States first-class certified or registered mail, return receipt requested, postage prepaid, to the Executive at the last-known address for the Executive, and to Valley at the principal executive office for Valley (or any successor thereto), to the attention of the Chief Executive Officer. All such notices shall be effective when received or open refusal of the addressee to accept delivery. Either party by a notice in writing to the other party may change or designate the place for receipt of such notices. 4.3 Successors. This Agreement shall inure to the benefit of and be binding upon the Company, and its successors, including any company with or into which the Company may be consolidated or merged, and this provision shall apply in the event of any subsequent merger or consolidation. 4.4 Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the matters contemplated hereby, and supersedes all prior negotiations, arrangements or understandings, written or oral, with respect thereto. 4.5 Governing Law. This Agreement shall be governed in all respects and be interpreted by and under the laws of the State of New Jersey, without reference to the conflict of laws provisions of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the date and year first written above. ATTEST: VALLEY NATIONAL BANCORP By: ___/s/ Peter Southway_______ By: ____/s/ Gerald H. Lipkin ______ ATTEST: VALLEY NATIONAL BANK By: ___/s/ Peter Southway __ By: ____/s/ Gerald H. Lipkin ______ WITNESS: ___/s/ Spencer B. Witty__________ _______/s/ Eric W. Gould___________ ERIC W. GOULD
Exhibit (10) B CHANGE-IN-CONTROL AGREEMENT (Executive Vice President) THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of this 5th day of September, 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 1445 Valley Road, Wayne, New Jersey (Valley and the Bank collectively are the "Company") and James G. Lawrence (the "Executive"). BACKGROUND WHEREAS, the Executive entered into an Employment Agreement with Merchants New York Bancorp, Inc. ("Merchants") dated January 25, 2000 (the "Employment Agreement") pursuant to which he works for Merchants and The Merchants Bank of New York ("Merchants Bank"); WHEREAS, Valley and the Bank have entered into an Agreement and Plan of Merger (the "Merger Agreement") with Merchants and Merchants Bank pursuant to which Merchants will be merged into Valley, and Merchants Bank will be merged into The Bank, and Executive will become an Executive of the Bank upon the closing of the transactions contemplated by the Merger Agreement; WHEREAS, the Executive has been continuously employed by Merchants Bank for many years; WHEREAS, the Executive throughout his tenure has worked diligently in his position in the business of Merchants and Merchants Bank and is expected to work for the Bank; 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 annual base salary in effect during the shorter of 18 months prior to the Change in Control or the period he was working for the Bank (excluding any period he worked for Merchants and Merchants Bank). 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. 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. e. Exchange Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended. f. 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. g. 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 an Executive 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. 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 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), 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 three (3) times the Executive's Base Salary; 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. This Agreement shall commence on the date hereof and shall remain in effect for a period of 3 years from the Effective Time (as such term is defined in the Merger Agreement) (the "Initial Term") or until the end of the Contract Period, whichever is later. Notwithstanding the foregoing, this Agreement shall be void and of no force and effect unless the Merger contemplated by the Merger Agreement is consummated and the Executive is employed by Merchants Bank at the Effective Time and shall not take effect until such time. 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 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) 3 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, Employment Agreement. a. 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 and if he elects to have this Agreement be applicable under paragraph b below then he shall not be entitled to any payment under his Employment Agreement. b. Valley shall give written notice of a Change in Control to Executive within 30 days of the occurrence of a Change in Control. Executive shall elect by written notice to Valley given within 60 days after receipt by him of such written notice from Valley whether his continued employment shall be governed by this Agreement or his Employment Agreement. Anything to the contrary in this Agreement or his Employment Agreement notwithstanding, the employment terms of the Executive shall be governed by his election. Valley and Executive shall treat this Change in Control Agreement as applicable and the Employment Agreement as being terminated and of no further force and effect if the Executive elects to have this Change in Control Agreement be applicable. If the Executive elects to have the Employment Agreement applicable then this Change in Control Agreement shall be of no further force and effect. If the Executive fails to give Valley written notice of his election within the applicable 60 day period then this Change in Control Agreement shall apply and the Employment Agreement shall be of no further force and effect. 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/ Peter Southway_____________ By: /s/ Gerald H. Lipkin , Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer ATTEST: VALLEY NATIONAL BANK __/s/ Peter Southway_____________ By: /s/ Gerald H. Lipkin , Secretary Gerald H. Lipkin, Chairman and Chief Executive Officer WITNESS: __/s/ Spency B. Witty_____________ /s/ James G. Lawrence James G. Lawrence, Executive