VALLEY NATIONAL BANCORP ANNUAL FORECAST MODEL

($ in thousands, except per share data)

2006A 2007A
12/31/2006 12/31/2007
BALANCE SHEET
Assets
Cash and due from banks
Interest bearing deposits with banks
Investment securities
Loans held for sale at fair value
Gross loans
Less - Allowance for loan losses
Net loans
Premises and equipment net
Bank owned life insurance
Accrued interest receivable
Due from customers on acceptances outstanding
FDIC loss-share receivable
Goodwill
Other intangible assets net
Other assets
Total Assets
Liabilities
Total deposits
Short-term borrowings
Long-term borrowings
Junior subordinated debentures issued to capital trusts
Bank acceptances outstanding
Accrued expenses and other liabilities
Total Liabilities
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
Balance Check

INVESTMENT SECURITIES
Investment securities
% growth

LOANS
Gross loans (Covered and non-covered) 8,331,685 8,496,221
% growth 1.97%

Loans held for sale

Loans held for sale as % of gross loans

CREDIT LOSS RESERVE

Allowance for credit losses - BOP 75,188 74,718
Plus: Net charge-offs (enter as -) (9,740) (11,658)
Plus: Provision for credit losses (enter as +) 9,270 11,875
Plus: Acquisitions 0 0
Allowance for loan losses (reserves) - EOP 74,718 74,935
Plus: Allowance for letter of credit 2,271
Reported Allowance 74,718 72,664

Drivers
NCO to prior year provision 125.76%
Average loans 8,262,739 8,261,111
NCO / average loans (includes loans held for sale) (0.12%) (0.14%)

FDIC LOSS SHARE RECEIVABLE

FDIC loss share receivable - BOP
Net reimbursement
FDIC loss share receivable - EOP

DEPOSITS
Gross loans - EOP 8,331,685 8,496,221
Deposits - EOP 8,487,651 8,091,004
Ratio of gross loans / deposits 98.16% 105.01%

DEBT
Long-term borrowings
as a % of gross loans

NET INTEREST INCOME (NII)

Balance sheet items
Loans - EOP
Investments - EOP
Federal funds sold and other interest bearing deposits - EOP
Total interest earning assets - EOP
Total interest earning assets - Average

% of total deposits that are interest bearing 74%

Interest earning deposits - EOP
ST borrowings - EOP
LT borrowings - EOP
Junior subordinated debentures issued to capital trusts
Total interest bearing liabilities - EOP
Total interest bearing liabilities - Average

Growth rates
Investments- EOP
Deposits - EOP
ST borrowings - EOP
LT borrowings - EOP

NII drivers
Interest earning asset yield (IEA yield)
Interest bearing liability cost (IBL cost)
Net interest spread (IEA yield - IBL cost)

Net interest income (NII) calculation

Total interest income
Total interest expense
Net Interest Income (NII) - reported
Tax equivalent adjustment
NII - tax equivalent basis

Net interest margin (NIM) - NII/Average IEA

INCOME STATEMENT
Interest income
Total interest income
Total interest expense
Net Interest Income

Provision for credit losses

Non-Interest Income
Trust and investment services
Insurance commissions
Service charges on deposit accounts
Securities gains/losses
Trading (losses) gains net
Fees from loan servicing
Bank owned life insurance
Change in FDIC loss-share receivable
Other income, including gains on sale of loans, assets, and
Total non-interest income

Non-Interest Expense
Salary and employee benefits expense
Net occupancy and equipment expense
Amortization of other intangible assets
Other
Total non-interest expense

Income Before Income Taxes

Income tax expense
Net Income
Dividends on preferred stock and accretion
Net Income Available to Common Stockholders

Weighted Average Number of Common Shares Outstanding

Basic (#)
Diluted (#)

Earnings Per Common Share

Basic (actual)
Diluted (actual)

Cash dividends per common share

Cash dividends

Income Statement drivers

% growth (year-over-year)
Trust and investment services
Insurance commissions
Bank owned life insurance
 Other non-interest income

Other drivers
Service charges on deposit accounts / BOP deposits
Fees from loan servicing / BOP gross loans

As % of NII
Salary and employee benefits expense
Net occupancy and equipment expense
Amortization of other intangible assets
Other non-interest expense

Tax rate

CASH, DEPOSITS WITH BANKS, AND SHORT TERM BORROWINGS

Cash and due from banks
Cash as % of deposits

Total assets (including prior year interest bearing deposits)

Total liabilities & equity (including prior year ST borrowings)
Funding needs (surplus)

CIRCULARITY

1=Use beginning balance to calculate NII 1

2=Use average balance to calculate NII (creates circularity)

Circularity breaker: Off (Default)

CAPITAL REQUIREMENTS
Tier 1 Capital
Total stockholders' equity
Less: Goodwill
Plus: Junior subordinated debentures issued to capital trusts
Plus: Other
Tier 1 Capital

Total Capital
Tier 1 capital
Plus: Allowance for credit losses - EOP
Plus: Qualifying sub debt
Total capital

Risk weighted assets (RWA)

Average Interest earning assets (IEA)
Average total assets

Drivers
RWA / IEA
Average total assets / IEA

Tier 1 capital ratio (Tier 1 / RWA) 10.56% 9.55%

Total capital ratio (Total capital / RWA) 12.44% 11.35%
Leverage ratio (Tier 1 / average total assets) 8.10% 7.62%

Capital check
Tier 1 capital ratio (Tier 1 / RWA) Well capitalized Well capitalized
Total capital ratio (Total capital / RWA) Well capitalized Well capitalized
Leverage ratio (Tier 1 / average total assets) Well capitalized Well capitalized
 2008A 2009A 2010A 2011E 2012E 2013E 2014E
12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014

305,678 302,629 308,601 317,761 327,193 336,904

355,659 63,657 63,657 63,657 63,657 63,657
2,969,819 2,991,169 3,140,727 3,297,764 3,462,652 3,635,785
25,492 58,958 38,575 39,720 40,899 42,113
9,370,071 9,365,795 9,643,787 9,930,030 10,224,769 10,528,256
(101,990) (124,704) (120,085) (116,085) (113,085) (113,085)
9,268,081 9,241,091 9,523,702 9,813,945 10,111,684 10,415,172
266,401 265,570 265,570 265,570 265,570 265,570
304,031 304,956 304,956 304,956 304,956 304,956
56,245 59,126 59,126 59,126 59,126 59,126
6,985 6,028 6,028 6,028 6,028 6,028
0 89,359 69,359 49,359 29,359 9,359
296,424 317,891 317,891 317,891 317,891 317,891
24,305 25,650 25,650 25,650 25,650 25,650
405,033 417,742 417,742 417,742 417,742 417,742
14,284,153 14,143,826 14,541,585 14,979,169 15,432,407 15,899,952

9,547,285 9,363,614 9,643,787 9,930,030 10,224,769 10,528,256

216,147 192,318 229,407 253,916 272,615 286,930
2,946,320 2,933,858 2,989,574 3,078,309 3,169,678 3,263,759
181,150 186,922 186,922 186,922 186,922 186,922
6,985 6,028 6,028 6,028 6,028 6,028
133,412 165,881 165,881 165,881 165,881 165,881
13,031,299 12,848,621 13,221,599 13,621,086 14,025,894 14,437,777
1,252,854 1,295,205 1,319,986 1,358,083 1,406,513 1,462,175
14,284,153 14,143,826 14,541,585 14,979,169 15,432,407 15,899,952
0 0 0 0 0 0

2,624,415 2,969,819 2,991,169 3,140,727 3,297,764 3,462,652 3,635,785

13.16% 0.72% 5.00% 5.00% 5.00% 5.00%

10,143,690 9,370,071 9,365,795 9,643,787 9,930,030 10,224,769 10,528,256

19.39% (7.63%) (0.05%) 2.97% 2.97% 2.97% 2.97%

25,492 58,958 38,575 39,720 40,899 42,113

0.27% 0.63% 0.40% 0.40% 0.40% 0.40%

74,935 94,738 103,655 126,504 121,885 117,885 114,885

(19,889) (39,075) (26,607) (34,619) (24,000) (18,000) (15,000)
28,282 47,992 49,456 30,000 20,000 15,000 15,000
11,410 0 0 0 0 0 0
94,738 103,655 126,504 121,885 117,885 114,885 114,885
1,494 1,665 1,800 1,800 1,800 1,800 1,800
 93,244 101,990 124,704 120,085 116,085 113,085 113,085

167.49% 138.16% 55.44% 70.00% 80.00% 90.00% 100.00%

9,386,987 9,705,909 9,474,994 9,553,557 9,826,056 10,117,709 10,418,019
(0.21%) (0.40%) (0.28%) (0.36%) (0.24%) (0.18%) (0.14%)

0 108,000 89,359 69,359 49,359 29,359

(18,641) (20,000) (20,000) (20,000) (20,000)
0 89,359 69,359 49,359 29,359 9,359

10,143,690 9,370,071 9,365,795 9,643,787 9,930,030 10,224,769 10,528,256

9,232,923 9,547,285 9,363,614 9,643,787 9,930,030 10,224,769 10,528,256
109.86% 98.14% 100.02% 100.00% 100.00% 100.00% 100.00%

2,946,320 2,933,858 2,989,574 3,078,309 3,169,678 3,263,759

31.44% 31.33% 31.00% 31.00% 31.00% 31.00%

9,395,563 9,424,753 9,682,362 9,969,750 10,265,668 10,570,369

2,969,819 2,991,169 3,140,727 3,297,764 3,462,652 3,635,785
355,659 63,657 63,657 63,657 63,657 63,657
12,721,041 12,479,579 12,886,746 13,331,171 13,791,977 14,269,811
12,384,625 13,031,646 12,679,756 12,683,163 13,108,959 13,561,574 14,030,894

7,106,510 6,969,795 7,178,341 7,391,406 7,610,795 7,836,695

216,147 192,318 229,407 253,916 272,615 286,930
2,946,320 2,933,858 2,989,574 3,078,309 3,169,678 3,263,759
181,150.0 186,922.0 186,922.0 186,922.0 186,922.0 186,922.0
10,450,127 10,282,893 10,584,245 10,910,553 11,240,010 11,574,307
10,355,760 10,585,800 10,363,969 10,433,569 10,747,399 11,075,282 11,407,159
10,366,510.2 10,433,568.9

0.72% 5.00% 5.00% 5.00% 5.00%

(1.92%) 2.99% 2.97% 2.97% 2.97%
(11.02%) 19.29% 10.68% 7.36% 5.25%
(0.42%) 1.90% 2.97% 2.97% 2.97%

5.94% 5.51% 5.38% 5.40% 5.65% 5.90% 6.15%

2.98% 2.48% 2.07% 2.10% 2.40% 2.70% 3.00%
2.96% 3.03% 3.31% 3.30% 3.25% 3.20% 3.15%

729,694 712,184 676,812 673,897 728,101 786,539 848,207

308,895 262,870 214,060 215,941 254,022 294,585 337,200
420,799 449,314 462,752 457,957 474,079 491,954 511,006
5,459 5,227 5,590 5,500 5,500 5,500 5,500
 426,258 454,541 468,342 463,457 479,579 497,454 516,506

3.44% 3.49% 3.69% 3.65% 3.66% 3.67% 3.68%

729,694 712,184 676,812 673,897 728,101 786,539 848,207

308,895 262,870 214,060 215,941 254,022 294,585 337,200
420,799 449,314 462,752 457,957 474,079 491,954 511,006

28,282 47,992 49,456 30,000 20,000 15,000 15,000

7,161 6,906 7,665 8,125 8,612 9,129 9,677

10,053 10,224 11,334 12,014 12,735 13,499 14,309
28,274 26,778 25,691 25,282 26,038 26,811 27,607
(79,815) 1,653 6,956 0 0 0 0
3,166 (10,434) (6,897) 0 0 0 0
5,236 4,839 4,919 4,683 4,822 4,965 5,112
10,167 5,700 6,166 6,474 6,798 7,138 7,495
0 0 6,268 0 0 0 0
19,014 26,585 29,225 30,686 32,221 33,832 35,523
3,256 72,251 91,327 87,264 91,226 95,374 99,723

157,876 163,746 176,106 174,023 180,150 186,943 194,182

54,042 58,974 61,765 59,534 61,630 63,954 66,431
7,224 6,887 7,721 7,327 7,585 7,871 8,176
66,106 76,421 72,090 73,273 75,853 78,713 81,761
285,248 306,028 317,682 314,158 325,218 337,481 350,550

110,525 167,545 186,941 201,062 220,087 234,847 245,179

16,934 51,484 55,771 60,319 66,026 70,454 73,554
93,591 116,061 131,170 140,744 154,061 164,393 171,625
2,090 19,524 0 0 0 0 0
91,501 96,537 131,170 140,744 154,061 164,393 171,625

143,805,528 151,675,691 161,059,906 161,059,906 161,059,906 161,059,906 161,059,906

143,884,683 151,676,409 161,068,175 161,068,175 161,068,175 161,068,175 161,068,175

0.64 0.64 0.81 0.87 0.96 1.02 1.07

0.64 0.64 0.81 0.87 0.96 1.02 1.07

0.72 0.72 0.72 0.72 0.72 0.72 0.72

102,517 109,005 115,190 115,963 115,963 115,963 115,963

(3.56%) 10.99% 6.00% 6.00% 6.00% 6.00%

1.70% 10.86% 6.00% 6.00% 6.00% 6.00%
(43.94%) 8.18% 5.00% 5.00% 5.00% 5.00%
 39.82% 9.93% 5.00% 5.00% 5.00% 5.00%

0.35% 0.29% 0.27% 0.27% 0.27% 0.27% 0.27%

0.06% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%

37.52% 36.44% 38.06% 38.00% 38.00% 38.00% 38.00%

12.84% 13.13% 13.35% 13.00% 13.00% 13.00% 13.00%
1.72% 1.53% 1.67% 1.60% 1.60% 1.60% 1.60%
15.71% 17.01% 15.58% 16.00% 16.00% 16.00% 16.00%

15.32% 30.73% 29.83% 30.00% 30.00% 30.00% 30.00%

305,678 302,629 308,601 317,761 327,193 336,904

3.20% 3.23% 3.20% 3.20% 3.20% 3.20%

14,541,585 14,979,169 15,432,407 15,899,952

14,504,495 14,954,661 15,413,707 15,885,638
37,089 24,508 18,700 14,315

1,252,854 1,295,205 1,319,986 1,358,083 1,406,513 1,462,175

(296,424) (317,891) (317,891) (317,891) (317,891) (317,891)
176,313 176,313 176,313 176,313 176,313 176,313
5,545 (10,299) - - - -
1,138,288 1,143,328 1,178,408 1,216,505 1,264,935 1,320,597

1,138,288 1,143,328 1,178,408 1,216,505 1,264,935 1,320,597

103,655 126,504 121,885 117,885 114,885 114,885
100,000 80,000 90,000 90,000 90,000 90,000
1,341,943 1,349,832 1,390,292 1,424,390 1,469,820 1,525,482

10,698,195 10,450,896 10,400,193 10,749,346 11,120,491 11,505,333

12,384,625 13,031,646 12,679,756 12,683,163 13,108,959 13,561,574 14,030,894
13,983,882 13,758,460 13,697,816 14,157,675 14,646,500 15,153,366

0.82 0.82 0.82 0.82 0.82 0.82

1.07 1.09 1.08 1.08 1.08 1.08

11.44% 10.64% 10.94% 11.33% 11.32% 11.37% 11.48%

13.18% 12.54% 12.91% 13.37% 13.25% 13.22% 13.26%
 9.10% 8.14% 8.31% 8.60% 8.59% 8.64% 8.71%

Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized
Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized
Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized Well capitalized
Notes

See schedule
See schedule. Primarily with the NY Fed; model balancer
See schedule
See schedule
See schedule
See schedule
See schedule
Straight-line (SL) projection assumes new purchases equal depreciation/sales
SL. Assume appreciation offset by benefit proceeds. BOLI BOP + Change in surrender value (IS income) - Benefit proceeds (C
SL. Argument can be made to grow as % of total interest income (as interest increases, so would the associated receivables).
SL. Primarily used in the trade of goods. For example, a manufacturer needs to be paid by a retailer: The retailer's bank, unde
See schedule.
SL. No amortization of GW; assume no substantial new purchases or impairments
SL. Assume new purchases equal amortization/sales
SL. Comprised primarily of net deferred tax assets, federal reserve and federal home loan bank stock, derivatives, foreclosed a

See schedule
See schedule; Primarily repos for VLY; model balancer
See schedule
SL. Holding company debt.
SL. See corresponding asset description above.
SL. Argument can be made to grow as % of non-interest expense on IS

BOP + Net income - dividends = EOP

Comprised of held to maturity; available for sale; and trading securities. Banks always disclose their investment composition in
Difficult to project growth rates definitively. We use historical rates as guide,

2010 gross loans include loans covered by the FDIC in a 2010 loss-share arrangement.
We use a historical cagr to project loan growth. This projection will also affect our deposit liabilities, which are needed to suppo

Use the historical relationship as a guide

Reference prior period ending balance

Project based on ratio of NCO/prior year provision. NCO are comprised of charge-offs, net of recoveries of previously charged
Our assumption for reduction in provision assumes continued normalization of credit environment to pre-crisis levels.
Assume 0

Straight-line
During credit crisis in 2008 and 2009, NCOs were higher than prior period provisions. Larger provisions were then taken in 200

Although not used directly in our analysis, the "NCO ratio" is a sanity-check

We use historical reimbursement as a guide.

BOP + accretion and increase due to impairment of covered loans - FDIC reimbursements = EOP.

Deposits drive the amount of loans a bank can make, and VLY maintains an internal limitation on loans at 120% of deposits. Fo

Reference LHFS and Gross Loans from schedule above.

Reference Investment Securities from schedule above.
Reference from the BS; projections will be zero until this balance sheet item is filled out later

Adjust total BS deposits by interest earning deposits assumption.

Reference from the BS; projections will be zero until this balance sheet item is projected later.
Reference from the LT Debt schedule above.
Reference from the BS; projections will be zero until this balance sheet item is filled out later

Sum of NIS and IBL cost. Implies higher LT rates but at lower rate of increase than ST rates
Thesis: Fed rate hikes will lead to higher ST rates, which will translate to higher deposit rates for VLY. While VLY can determine
Thesis: Expectations of an economic slowdown will lead to slight flattening of the yield curve (spreads between LT and ST rates

Reference to IS
Reference to IS
Reference to IS
Many banks have tax exempt investments, which, due to lower yields (but lower taxes) can obfuscate comparability of NII and N
Reference from schedule
Reference from schedule

Reference from schedule

See IS drivers schedule

See IS drivers schedule
See IS drivers schedule
Gains/Losses on securities transactions, less impairment losses on securities recognized in earnings; can't predict
Under US GAAP, unrealized trading gains/losses are recorded in IS; can't predict
See IS drivers schedule
See IS drivers schedule
Change in impairment / accretion of FDIC covered loans; can't predict
See IS drivers schedule

See IS drivers schedule

See IS drivers schedule
See IS drivers schedule
See IS drivers schedule

See IS drivers schedule

Historical payments associated with TARP - VLY has repaid its obligation. Assume 0.

SL
SL

Historical trends
Historical trends
Assumption
Assumption

Declining due to stricter regulations. VLY expects trend to stabilize and possibly reverse. We use BOP to avoid circularity.
Historical trends. We use BOP to avoid circularity.

Historical trends
Historical trends
Historical trends
Historical trends

Historical trends

Project as % of deposits
Historical trends

If A>L+E, our model has projected more assets than L+E to support them. As a result, ST borrowings must increase to meet fun

Tier 1 capital consists of common shareholders’ equity excluding goodwill, plus eligible long-term borrowing related to VNB Cap
Reference from balance sheet
Reference from balance sheet
Use the face value of the securities (as opposed to the carring value of the debentures) for Tier I capital calculations. Under the
Assume 0

Total capital = Tier 1 capital, "qualifying" subordinated debt and the allowance for credit losses (up to 1.25% of RWA).

Reference from credit loss reserve schedule

Calculate historicals as a plug. Forecast by using historical trends.

Does not equal average balance sheet assets because of minor adjustments for regulatory capital calculation purposes

Use historical trends as a guide

Use historical trends as a guide
Adequacy table
Well capitali Adequate Undercapital Significant Critically Undercapitalized
6% 4% 4% 3%
10% 8% 8% 6%
5% 4% 4% 3% 2%
 income) - Benefit proceeds (CFS investing inflow) = BOLI EOP.
d the associated receivables).
ailer: The retailer's bank, under certain financial conditions between the bank and its customer, accepts to pay for the goods. The bank is s

stock, derivatives, foreclosed and other assets. (The Federal Reserve Banks issue shares of stock to member banks. However, owning Fed

heir investment composition in the footnotes; a large portion of VLY's securities are RMBS.

es, which are needed to support loan volume. VLY discloses the composition of its loan portfolio in the footnotes, so if analysts have convict

overies of previously charged off loans.

t to pre-crisis levels.
visions were then taken in 2009 and 2010, while NCOs declined as environment normalized. We are assuming normalization of provisions,

n loans at 120% of deposits. For projection purposes, we use the historical relationship, to project deposits.

VLY. While VLY can determine its own deposit rates, competition ties it to market conditions.
eads between LT and ST rates will contract). Given that deposits are ST while loans are LT, this will lead to contraction in NII margin.

scate comparability of NII and NIM. Accordingly, VLY, like most banks and consistent with SEC rules, disclose amounts related to NII and NI
ings; can't predict
 BOP to avoid circularity.

wings must increase to meet funding needs. Conversely, if A<L, our model is projecting larger sources of capital (L+E) than we are using. As

borrowing related to VNB Capital

capital calculations. Under the Dodd-Frank Act (signed 7/10), VLY's outstanding trust preferred securities will continue to count as Tier 1 ca

p to 1.25% of RWA).

al calculation purposes
he goods. The bank is substituting its creditworthiness for that of its customer in order to assure the manufacturer of payment after shippin

ks. However, owning Federal Reserve Bank stock is quite different from owning stock in a private company. The Federal Reserve Banks are

if analysts have conviction about particular loan portfolios (residential vs. commercial loans) as more detailed analysis can be performed.
malization of provisions, and thus the relationship between NCOs and prior period provisions are also expected to increase to historical, pre

tion in NII margin.

unts related to NII and NIM on a tax equivalent basis using a 35 percent tax rate for the purposes of comparability.
E) than we are using. As a result, interest-bearing deposits must increase to put the excess capital "somewhere".

nue to count as Tier 1 capital but VLY will be unable to issue replacement or additional trust preferred securities, which would count as Tier
of payment after shipping the goods. The acceptance is then sent to the manufacturer. The bank records a liability (it owes the manufactur

deral Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the sys

ysis can be performed.

ncrease to historical, pre-crisis levels.
hich would count as Tier 1 capital.
 (it owes the manufacturer $ now, but it records a corresponding asset that will be paid back by its customer, the retailer.

of membership in the system. The stock may not be sold or traded or pledged as security for a loan; dividends are, by law, limited to 6 perce
by law, limited to 6 percent per year)
VALLEY NATIONAL BANCORP DDM MODEL
($ in thousands, except per share data)

DDM GENERAL ASSUMPTIONS

DDM model type 3 stage <-- The 3 stage is common for bank DDM models, 1)
Valuation date 12/31/2010 <-- For simplicity of calculating present values, model assumes valua
Cost of equity 9.0%

DDM - MATURITY PHASE ASSUMPTIONS

ROE 9.0% <-- Should converge with cost of equity as company reaches maturity
RWA growth 4.0%
Capital ratio (Tier 1 capital / RWA) 10.0%

DDM BUILDUP
2006A 2007A 2008A 2009A
12/31/2006 12/31/2007 12/31/2008 12/31/2009
Historicals
Net income to common 91,501 96,537
% growth 5.5%
Dividends 102,517 109,005
% growth 6.3%
% payout 112.0% 112.9%

Total stockholder's equity - BOP

Plus: Net income to common
Less: Dividends
Total stockholders' equity - EOP 1,252,854
Less: Goodwill (296,424)
Plus: Junior subordinated debentures issued to capital trusts 176,313
Plus: Other 5,545
Tier 1 Capital - EOP 1,138,288

ROE (Net income to common / Shareholders' equity)

Average RWA 10,698,195
% growth
Capital ratio (Tier 1 capital / RWA) 10.64%
Minimum capital ratio

DDM PV CALCS - DEVELOPMENT AND MATURITY PHASES

Dividends
Discount factor (assumes midyear adjustment)
PV of dividends

DDM TERMINAL VALUE CALCS SHARES OUTSTANDING

Basic shares outstanding
Long term dividends growth rate 0.27% Current share price
Terminal year dividends (t+1) 129,459
Cost of equity 9.03% Options
Terminal value (TV) 1,477,094 # exercisable
PV of TV - Perpetuity approach 772,348 Tranche 1 115
Tranche 2 467
Exit multiple (P/BV) 1.3x Tranche 3 490
Terminal value (TV) 1,920,222 Tranche 4 508
PV of TV - Exit multiple approach 961,575 Tranche 5 1,145
Total options 2,724
"Intrinsic" Exit P/BV: 1.0x
Treasury stock method
VALUATION Option proceeds
Repurchased shares
Perpetuity approach Dilutive impact of stock options
Equity value of VLY 1,513,769
Implied P/BV 1.2x VLY diluted shares outstanding:
Implied P/TBV 1.3x
VLY value / share $9.37

Exit multiple approach

Equity value of VLY 1,702,997
P/BV 1.3x
P/TBV 1.5x
VLY value / share $10.54

DDM SENSITIVITY

Share price sensitivity to cost of equity (vertical) and ROE (horizontal)

ROE
$9.37 7.0% 8.0% 9.0%
10.0% $7.28 $7.87 $8.45
9.5% $7.63 $8.26 $8.89
Cost of equity 9.0% $8.02 $8.70 $9.38
8.5% $8.45 $9.19 $9.93
8.0% $8.94 $9.74 $10.55

Share price sensitivity to cost of equity (vertical) and perpetuity growth rate (horizontal)
Perpetuity growth rate
$9.37 0.0% 1.0% 2.0%
10.0% $8.90 $9.43 $10.10
9.5% $9.06 $9.64 $10.37
Cost of equity 9.0% $9.23 $9.86 $10.67
8.5% $9.39 $10.08 $10.99
8.0% $9.56 $10.32 $11.34

Share price sensitivity to cost of equity (vertical) and exit multiple (horizontal)
Exit multiple
$10.54 1.00x 1.25x 1.50x
10.0% $8.82 $9.89 $10.96
9.5% $9.00 $10.10 $11.21
Cost of equity 9.0% $9.18 $10.32 $11.47
8.5% $9.36 $10.55 $11.74
8.0% $9.55 $10.79 $12.02
k DDM models, 1) Development: Reference the operating model, 2) Maturity: Mature ROE and RWA assumptions, and 3) Terminal: A final phase
sent values, model assumes valuation date = last fiscal year end date. Analysts should adjust the present value calculations to handle other dates .

quity as company reaches maturity. When ROE is significantly higher than cost of equity at the maturity phase, analyst needs to justify or change

2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E

12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
Development phase (from op model) Maturity phase
131,170 140,744 154,061 164,393 171,625 164,225 153,856 143,462
35.9% 7.3% 9.5% 6.7% 4.4% (4.3%) (6.3%) (6.8%)
115,190 115,963 115,963 115,963 115,963 160,788 150,153 139,596
5.7% 0.7% 0.0% 0.0% 0.0% 38.7% (6.6%) (7.0%)
87.8% 82.4% 75.3% 70.5% 67.6% 97.9% 97.6% 97.3%

1,252,854 1,295,205 1,319,986 1,358,083 1,406,513 1,462,175 1,465,613 1,469,316

131,170 140,744 154,061 164,393 171,625 164,225 153,856 143,462
(115,190) (115,963) (115,963) (115,963) (115,963) (160,788) (150,153) (139,596)
1,295,205 1,319,986 1,358,083 1,406,513 1,462,175 1,465,613 1,469,316 1,473,182
(317,891) (317,891) (317,891) (317,891) (317,891) (317,891) (317,891) (317,891)
176,313 176,313 176,313 176,313 176,313 176,313 176,313 176,313
(10,299) 0 0 0 0 0 0 0
1,143,328 1,178,408 1,216,505 1,264,935 1,320,597 1,324,035 1,327,738 1,331,604

10.3% 10.8% 11.5% 11.9% 12.0% 11.2% 10.5% 9.8%

10,450,896 10,400,193 10,749,346 11,120,491 11,505,333 11,919,007 12,363,625 12,841,500
(2.3%) (0.5%) 3.4% 3.5% 3.5% 3.6% 3.7% 3.9%
10.94% 11.33% 11.32% 11.37% 11.48% 11.11% 10.74% 10.37%
11.11% 10.74% 10.37%

115,963 115,963 115,963 115,963 160,788 150,153 139,596

96% 88% 81% 74% 68% 62% 57%
741,421.1

STANDING 1=Use beginning balance to calculate NII

161,589 Front cover of latest filing 2=Use average balance to calculate NII (creates circularity)
$13.70 Share price as of valuation date

exercise price # in the $

$15 0
$17 0
 $18 0
$19 0
$21 0
0

$0
0
of stock options 0

hares outstanding: 161,589

ROE
10.0% 11.0% 12.0%
$9.03 $9.61 $10.20
$9.52 $10.14 $10.77
$10.06 $10.74 $11.41
$10.66 $11.40 $12.14
$11.35 $12.15 $12.95

te (horizontal)
rpetuity growth rate
3.0% 4.0% 5.0%
$10.95 $12.09 $13.68
$11.33 $12.63 $14.52
$11.75 $13.27 $15.54
$12.23 $14.01 $16.82
$12.77 $14.91 $18.47

Exit multiple
1.75x 2.00x 2.25x
$12.02 $13.09 $14.15
$12.31 $13.42 $14.53
$12.62 $13.76 $14.91
$12.93 $14.12 $15.31
$13.26 $14.49 $15.72
 2018E
12/31/2018
phase
133,028 NI = Average Equity * ROE. Circularity created because NI affects equity, which in turn determines NI.
(7.3%)
129,116 Forecast as the excess of available capital over a minimum capital base defined by the Tier I capital ratio
(7.5%)
97.1%

1,473,182
133,028
(129,116)
1,477,094
(317,891)
176,313
0
1,335,516 Tier 1 capital sets the base floor for capital in this model. Dividends will be distributed until the tier I capital level reaches its minimum assu

9.0% Maturity phase formula "smooths" shift to the maturity phase assumption.
13,355,160
4.0% Maturity phase formula "smooths" shift to the maturity phase assumption.
10.00%
10.00% Maturity phase formula "smooths" shift to the maturity phase assumption.

129,116
52%

1
creates circularity)
I capital level reaches its minimum assumption.
VALLEY NATIONAL BANCORP RESIDUAL INCOME MODEL
($ in thousands, except per share data)

RI GENERAL ASSUMPTIONS
RI model type 3 stage <-- The 3 stage is common for bank RI models, 1)
Valuation date 12/31/2010 <-- For simplicity of calculating present values, model assumes valua
Cost of equity 9.0%

RI - MATURITY PHASE ASSUMPTIONS

ROE 9.0% <-- Should converge with cost of equity as company reaches maturity
RWA growth 4.0%
Capital ratio (Tier 1 capital / RWA) 10.0%

RI BUILDUP
2006A 2007A 2008A 2009A
12/31/2006 12/31/2007 12/31/2008 12/31/2009
Historicals
Net income to common 91,501 96,537
% growth 5.5%
Dividends 102,517 109,005
% growth 6.3%
% payout 112.0% 112.9%

Total stockholder's equity - BOP

Plus: Net income to common
Less: Dividends
Total stockholders' equity - EOP 1,252,854
Less: Goodwill (296,424)
Plus: Junior subordinated debentures issued to capital trusts 176,313
Plus: Other 5,545
Tier 1 Capital - EOP 1,138,288

ROE (Net income to common / Shareholders' equity)

Average RWA 10,698,195
% growth
Capital ratio (Tier 1 capital / RWA) 10.64%
Minimum capital ratio

RI PV CALCS - DEVELOPMENT AND MATURITY PHASES

Residual Income
Discount factor (assumes midyear adjustment)
PV of RI

TERMINAL VALUE (TV) SHARES OUTSTANDING

Terminal year net income (t+1) 133,382 Basic shares outstanding
Terminal year RI 0 Current share price
Cost of equity 9.03%
Long term RI growth rate 0.00% Options
Terminal value (TV) 0 # exercisable
PV of TV 0.0 Tranche 1 115
 Tranche 2 467
VALUATION Tranche 3 490
Book value of equity (last historical year) 1,295,205 Tranche 4 508
PV of RI 154,747 Tranche 5 1,145
PV of TV 0 Total options 2,724
Fair equity value of VLY 1,449,952
Implied P/BV 1.1x Treasury stock method
Implied P/TBV 1.3x Option proceeds
VLY value / share $8.97 Repurchased shares
Dilutive impact of stock options

VLY diluted shares outstanding:

DDM SENSITIVITY

Share price sensitivity to cost of equity (vertical) and ROE (horizontal)

ROE
$8.97 7.0% 8.0% 9.0%
10.0% $6.89 $7.46 $8.03
9.5% $7.25 $7.87 $8.48
Cost of equity 9.0% $7.66 $8.32 $8.99
8.5% $8.11 $8.83 $9.55
8.0% $8.61 $9.39 $10.17

Share price sensitivity to cost of equity (vertical) and perpetuity growth rate (horizontal)
Perpetuity growth rate
$8.97 (2.0%) (1.0%) 0.0%
10.0% $8.99 $9.53 $10.21
9.5% $9.16 $9.75 $10.49
Cost of equity 9.0% $9.33 $9.97 $10.80
8.5% $9.50 $10.21 $11.13
8.0% $9.68 $10.46 $11.50
k RI models, 1) Development: Reference the operating model, 2) Maturity: Mature ROE and RWA assumptions, and 3) Terminal: A final phase
sent values, model assumes valuation date = last fiscal year end date. Analysts should adjust the present value calculations to handle other dates .

quity as company reaches maturity. When ROE is significantly higher than cost of equity at the maturity phase, analyst needs to justify or change

2010A 2011E 2012E 2013E 2014E 2015E 2016E 2017E

12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017
Development phase (from op model) Maturity phase
131,170 140,744 154,061 164,393 171,625 164,225 153,856 143,462
35.9% 7.3% 9.5% 6.7% 4.4% (4.3%) (6.3%) (6.8%)
115,190 115,963 115,963 115,963 115,963 160,788 150,153 139,596
5.7% 0.7% 0.0% 0.0% 0.0% 38.7% (6.6%) (7.0%)
87.8% 82.4% 75.3% 70.5% 67.6% 97.9% 97.6% 97.3%

1,252,854 1,295,205 1,319,986 1,358,083 1,406,513 1,462,175 1,465,613 1,469,316

131,170 140,744 154,061 164,393 171,625 164,225 153,856 143,462
(115,190) (115,963) (115,963) (115,963) (115,963) (160,788) (150,153) (139,596)
1,295,205 1,319,986 1,358,083 1,406,513 1,462,175 1,465,613 1,469,316 1,473,182
(317,891) (317,891) (317,891) (317,891) (317,891) (317,891) (317,891) (317,891)
176,313 176,313 176,313 176,313 176,313 176,313 176,313 176,313
(10,299) 0 0 0 0 0 0 0
1,143,328 1,178,408 1,216,505 1,264,935 1,320,597 1,324,035 1,327,738 1,331,604

10.3% 10.8% 11.5% 11.9% 12.0% 11.2% 10.5% 9.8%

10,450,896 10,400,193 10,749,346 11,120,491 11,505,333 11,919,007 12,363,625 12,841,500
(2.3%) (0.5%) 3.4% 3.5% 3.5% 3.6% 3.7% 3.9%
10.94% 11.33% 11.32% 11.37% 11.48% 11.11% 10.74% 10.37%
11.11% 10.74% 10.37%

22,668 33,146 39,572 42,104 32,036 21,344 10,608

96% 88% 81% 74% 68% 62% 57%
154,747.4
1=Use beginning balance to calculate NII
STANDING 2=Use average balance to calculate NII (creates circularity)
161,589 Front cover of latest filing
$13.70 Share price as of valuation date

exercise price # in the $

$15 0
 $17 0
$18 0
$19 0
$21 0
0

$0
0
of stock options 0

hares outstanding: 161,589

ROE
10.0% 11.0% 12.0%
$8.60 $9.17 $9.74
$9.10 $9.71 $10.32
$9.65 $10.31 $10.97
$10.26 $10.98 $11.70
$10.95 $11.73 $12.51

te (horizontal)
rpetuity growth rate
1.0% 2.0% 3.0%
$11.07 $12.23 $13.85
$11.47 $12.79 $14.71
$11.90 $13.45 $15.76
$12.39 $14.21 $17.07
$12.95 $15.13 $18.77
 2018E
12/31/2018
phase
133,028 NI = Average Equity * ROE. Circularity created because NI affects equity, which in turn determines NI.
(7.3%)
129,116 Forecast as the excess of available capital over a minimum capital base defined by the Tier I capital ratio
(7.5%)
97.1%

1,473,182
133,028
(129,116)
1,477,094
(317,891)
176,313
0
1,335,516 Tier 1 capital sets the base floor for capital in this model. Dividends will be distributed until the tier I capital level reaches its minimum assu

9.0% Maturity phase formula "smooths" shift to the maturity phase assumption.
13,355,160
4.0% Maturity phase formula "smooths" shift to the maturity phase assumption.
10.00%
10.00% Maturity phase formula "smooths" shift to the maturity phase assumption.

(177)
52%

1
creates circularity)
I capital level reaches its minimum assumption.
VALLEY NATIONAL BANCORP COST OF EQUITY
($ in thousands, except per share data)

Date
10-Year US Treasury (Risk-Free Rate): 3.50% 3/1/2011
Market risk premium 7.00% 3/1/2011
Beta 0.79 3/1/2011
Cost of equity (using VLY's historical beta) 9.03%
Source
Bloomberg
Morningstar - Ibbotson and Sinquefield Yearbook
Bloomberg
Building a football field
Low Average High Low
52 week high/low $12.01 $13.60 $15.19 $12.01
DDM - 7%-12% ROE $8.02 $9.72 $11.41 $8.02
DDM - 8%-10% Cost of equity $8.45 $9.50 $10.55 $8.45
DDM - 1-2.25x exit P/B multiple $9.18 $12.04 $14.91 $9.18
RI - 8-10% cost of equity $8.03 $9.10 $10.17 $8.03
RI - (2%) to 2% perpetuity growth $9.33 $12.54 $15.76 $9.33
Trading comparables - P/BV $13.12 $14.84 $16.56 $13.12

$19.00
VLY Football Field

$17.00

$15.00

$13.00

$11.00

$9.00

$7.00

$5.00
52 week high/low DDM - 7%-12% DDM - 8%-10% DDM - 1-2.25x RI - 8-10% cost of RI - (2%) to 2% Trading
ROE Cost of equity exit P/B multiple equity perpetuity growth comparabl
P/BV
 0-50th perc50-100th percentile
$1.59 $1.59 Comments
The football field is a valuation matrix that identifies a value range across multiple
$1.70 $1.70 valuation methods. In addition to the RI and DDM methods, we also include a 52 week
$1.05 $1.05 trading high and low range, as well as a peer-group derived valuation using an LTM P/B
$2.87 $2.87 range.
$1.07 $1.07
$3.22 $3.22 To create a football field, we reference the valuation ranges from the appropriate
$1.72 $1.72 areas of the model and calculate an average valuation for each valuation method.
Next, we lay out the ranges in a way that will be Excel chart friendly:
Starting with the low valuation as a baseline, we calculate two percentiles:
0-50% and 50-100%, representing the tails around the average value.

We can now insert a stacked column bar chart. Remove the fill from the low valuation
stack and you have a football field.

st of RI - (2%) to 2% Trading
perpetuity growth comparables -
P/BV
across multiple
include a 52 week
n using an LTM P/B

e appropriate
ation method.

entiles:
e.

m the low valuation