VALLEY NATIONAL BANCORP ANNUAL FORECAST MODEL

($ in thousands, except per share data)

2006A
12/31/2006

2007A
12/31/2007

8,331,685

8,496,221
1.97%

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)
% growth
Loans held for sale
Loans held for sale as % of gross loans
CREDIT LOSS RESERVE
Allowance for credit losses - BOP
Plus: Net charge-offs (enter as -)
Plus: Provision for credit losses (enter as +)
Plus: Acquisitions
Allowance for loan losses (reserves) - EOP
Plus: Allowance for letter of credit
Reported Allowance

75,188
(9,740)
9,270
0
74,718
74,718

74,718
(11,658)
11,875
0
74,935
2,271
72,664

Drivers
NCO to prior year provision
Average loans
NCO / average loans (includes loans held for sale)

8,262,739
(0.12%)

125.76%
8,261,111
(0.14%)

8,331,685
8,487,651
98.16%

8,496,221
8,091,004
105.01%

FDIC LOSS SHARE RECEIVABLE

FDIC loss share receivable - BOP
Net reimbursement
FDIC loss share receivable - EOP
DEPOSITS
Gross loans - EOP
Deposits - EOP
Ratio of gross loans / deposits
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
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

74%

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
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)
Total capital ratio (Total capital / RWA)
Leverage ratio (Tier 1 / average total assets)
Capital check
Tier 1 capital ratio (Tier 1 / RWA)
Total capital ratio (Total capital / RWA)
Leverage ratio (Tier 1 / average total assets)

10.56%
12.44%
8.10%

9.55%
11.35%
7.62%

Well capitalized

Well capitalized

Well capitalized

Well capitalized

Well capitalized

Well capitalized

2008A
12/31/2008

2009A
12/31/2009

2010A
12/31/2010

2011E
12/31/2011

2012E
12/31/2012

2013E
12/31/2013

2014E
12/31/2014

305,678
355,659
2,969,819
25,492
9,370,071
(101,990)
9,268,081
266,401
304,031
56,245
6,985
0
296,424
24,305
405,033
14,284,153

302,629
63,657
2,991,169
58,958
9,365,795
(124,704)
9,241,091
265,570
304,956
59,126
6,028
89,359
317,891
25,650
417,742
14,143,826

308,601
63,657
3,140,727
38,575
9,643,787
(120,085)
9,523,702
265,570
304,956
59,126
6,028
69,359
317,891
25,650
417,742
14,541,585

317,761
63,657
3,297,764
39,720
9,930,030
(116,085)
9,813,945
265,570
304,956
59,126
6,028
49,359
317,891
25,650
417,742
14,979,169

327,193
63,657
3,462,652
40,899
10,224,769
(113,085)
10,111,684
265,570
304,956
59,126
6,028
29,359
317,891
25,650
417,742
15,432,407

336,904
63,657
3,635,785
42,113
10,528,256
(113,085)
10,415,172
265,570
304,956
59,126
6,028
9,359
317,891
25,650
417,742
15,899,952

9,547,285
216,147
2,946,320
181,150
6,985
133,412
13,031,299
1,252,854
14,284,153
0

9,363,614
192,318
2,933,858
186,922
6,028
165,881
12,848,621
1,295,205
14,143,826
0

9,643,787
229,407
2,989,574
186,922
6,028
165,881
13,221,599
1,319,986
14,541,585
0

9,930,030
253,916
3,078,309
186,922
6,028
165,881
13,621,086
1,358,083
14,979,169
0

10,224,769
272,615
3,169,678
186,922
6,028
165,881
14,025,894
1,406,513
15,432,407
0

10,528,256
286,930
3,263,759
186,922
6,028
165,881
14,437,777
1,462,175
15,899,952
0

2,624,415

2,969,819
13.16%

2,991,169
0.72%

3,140,727
5.00%

3,297,764
5.00%

3,462,652
5.00%

3,635,785
5.00%

10,143,690
19.39%

9,370,071
(7.63%)

9,365,795
(0.05%)

9,643,787
2.97%

9,930,030
2.97%

10,224,769
2.97%

10,528,256
2.97%

74,935
(19,889)
28,282
11,410
94,738
1,494
93,244

25,492
0.27%

58,958
0.63%

38,575
0.40%

39,720
0.40%

40,899
0.40%

42,113
0.40%

94,738
(39,075)
47,992
0
103,655
1,665
101,990

103,655
(26,607)
49,456
0
126,504
1,800
124,704

126,504
(34,619)
30,000
0
121,885
1,800
120,085

121,885
(24,000)
20,000
0
117,885
1,800
116,085

117,885
(18,000)
15,000
0
114,885
1,800
113,085

114,885
(15,000)
15,000
0
114,885
1,800
113,085

167.49%
9,386,987
(0.21%)

138.16%
9,705,909
(0.40%)

55.44%
9,474,994
(0.28%)

70.00%
9,553,557
(0.36%)

80.00%
9,826,056
(0.24%)

90.00%
10,117,709
(0.18%)

100.00%
10,418,019
(0.14%)

108,000
(18,641)
89,359

89,359
(20,000)
69,359

69,359
(20,000)
49,359

49,359
(20,000)
29,359

29,359
(20,000)
9,359

9,370,071
9,547,285
98.14%

9,365,795
9,363,614
100.02%

9,643,787
9,643,787
100.00%

9,930,030
9,930,030
100.00%

10,224,769
10,224,769
100.00%

10,528,256
10,528,256
100.00%

2,946,320
31.44%

2,933,858
31.33%

2,989,574
31.00%

3,078,309
31.00%

3,169,678
31.00%

3,263,759
31.00%

12,384,625

9,395,563
2,969,819
355,659
12,721,041
13,031,646

9,424,753
2,991,169
63,657
12,479,579
12,679,756

9,682,362
3,140,727
63,657
12,886,746
12,683,163

9,969,750
3,297,764
63,657
13,331,171
13,108,959

10,265,668
3,462,652
63,657
13,791,977
13,561,574

10,570,369
3,635,785
63,657
14,269,811
14,030,894

10,355,760

7,106,510
216,147
2,946,320
181,150.0
10,450,127
10,585,800

6,969,795
192,318
2,933,858
186,922.0
10,282,893
10,363,969
10,366,510.2

7,178,341
229,407
2,989,574
186,922.0
10,584,245
10,433,569
10,433,568.9

7,391,406
253,916
3,078,309
186,922.0
10,910,553
10,747,399

7,610,795
272,615
3,169,678
186,922.0
11,240,010
11,075,282

7,836,695
286,930
3,263,759
186,922.0
11,574,307
11,407,159

5.00%
2.99%
19.29%
1.90%

5.00%
2.97%
10.68%
2.97%

5.00%
2.97%
7.36%
2.97%

5.00%
2.97%
5.25%
2.97%

0
0

10,143,690
9,232,923
109.86%

0.72%
(1.92%)
(11.02%)
(0.42%)

5.94%
2.98%
2.96%

5.51%
2.48%
3.03%

5.38%
2.07%
3.31%

5.40%
2.10%
3.30%

5.65%
2.40%
3.25%

5.90%
2.70%
3.20%

6.15%
3.00%
3.15%

729,694
308,895
420,799
5,459
426,258

712,184
262,870
449,314
5,227
454,541

676,812
214,060
462,752
5,590
468,342

673,897
215,941
457,957
5,500
463,457

728,101
254,022
474,079
5,500
479,579

786,539
294,585
491,954
5,500
497,454

848,207
337,200
511,006
5,500
516,506

3.44%

3.49%

3.69%

3.65%

3.66%

3.67%

3.68%

729,694
308,895
420,799

712,184
262,870
449,314

676,812
214,060
462,752

673,897
215,941
457,957

728,101
254,022
474,079

786,539
294,585
491,954

848,207
337,200
511,006

28,282

47,992

49,456

30,000

20,000

15,000

15,000

7,161
10,053
28,274
(79,815)
3,166
5,236
10,167
0
19,014
3,256

6,906
10,224
26,778
1,653
(10,434)
4,839
5,700
0
26,585
72,251

7,665
11,334
25,691
6,956
(6,897)
4,919
6,166
6,268
29,225
91,327

8,125
12,014
25,282
0
0
4,683
6,474
0
30,686
87,264

8,612
12,735
26,038
0
0
4,822
6,798
0
32,221
91,226

9,129
13,499
26,811
0
0
4,965
7,138
0
33,832
95,374

9,677
14,309
27,607
0
0
5,112
7,495
0
35,523
99,723

157,876
54,042
7,224
66,106
285,248

163,746
58,974
6,887
76,421
306,028

176,106
61,765
7,721
72,090
317,682

174,023
59,534
7,327
73,273
314,158

180,150
61,630
7,585
75,853
325,218

186,943
63,954
7,871
78,713
337,481

194,182
66,431
8,176
81,761
350,550

110,525
16,934
93,591
2,090
91,501

167,545
51,484
116,061
19,524
96,537

186,941
55,771
131,170
0
131,170

201,062
60,319
140,744
0
140,744

220,087
66,026
154,061
0
154,061

234,847
70,454
164,393
0
164,393

245,179
73,554
171,625
0
171,625

143,805,528
143,884,683

151,675,691
151,676,409

161,059,906
161,068,175

161,059,906
161,068,175

161,059,906
161,068,175

161,059,906
161,068,175

161,059,906
161,068,175

0.64
0.64

0.64
0.64

0.81
0.81

0.87
0.87

0.96
0.96

1.02
1.02

1.07
1.07

0.72
102,517

0.72
109,005

0.72
115,190

0.72
115,963

0.72
115,963

0.72
115,963

0.72
115,963

(3.56%)
1.70%
(43.94%)
39.82%

10.99%
10.86%
8.18%
9.93%

6.00%
6.00%
5.00%
5.00%

6.00%
6.00%
5.00%
5.00%

6.00%
6.00%
5.00%
5.00%

6.00%
6.00%
5.00%
5.00%

0.29%
0.05%

0.27%
0.05%

0.27%
0.05%

0.27%
0.05%

0.27%
0.05%

0.27%
0.05%

0.35%
0.06%

37.52%
12.84%
1.72%
15.71%

36.44%
13.13%
1.53%
17.01%

38.06%
13.35%
1.67%
15.58%

38.00%
13.00%
1.60%
16.00%

38.00%
13.00%
1.60%
16.00%

38.00%
13.00%
1.60%
16.00%

38.00%
13.00%
1.60%
16.00%

15.32%

30.73%

29.83%

30.00%

30.00%

30.00%

30.00%

305,678
3.20%

302,629
3.23%

308,601
3.20%

317,761
3.20%

327,193
3.20%

336,904
3.20%

14,541,585
14,504,495
37,089

12,384,625

11.44%
13.18%
9.10%

14,979,169
14,954,661
24,508

15,432,407
15,413,707
18,700

15,899,952
15,885,638
14,315

1,252,854
(296,424)
176,313
5,545
1,138,288

1,295,205
(317,891)
176,313
(10,299)
1,143,328

1,319,986
(317,891)
176,313
1,178,408

1,358,083
(317,891)
176,313
1,216,505

1,406,513
(317,891)
176,313
1,264,935

1,462,175
(317,891)
176,313
1,320,597

1,138,288
103,655
100,000
1,341,943

1,143,328
126,504
80,000
1,349,832

1,178,408
121,885
90,000
1,390,292

1,216,505
117,885
90,000
1,424,390

1,264,935
114,885
90,000
1,469,820

1,320,597
114,885
90,000
1,525,482

10,698,195
13,031,646
13,983,882

10,450,896
12,679,756
13,758,460

10,400,193
12,683,163
13,697,816

10,749,346
13,108,959
14,157,675

11,120,491
13,561,574
14,646,500

11,505,333
14,030,894
15,153,366

0.82
1.07

0.82
1.09

0.82
1.08

0.82
1.08

0.82
1.08

0.82
1.08

10.64%
12.54%
8.14%

10.94%
12.91%
8.31%

11.33%
13.37%
8.60%

11.32%
13.25%
8.59%

11.37%
13.22%
8.64%

11.48%
13.26%
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 (CF
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, under
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 an

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 t
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 suppor

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 o
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 2009
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 capitalized
Adequate
6%
4%
10%
8%
5%
4%

Undercapitalized
SignificantlyCritically
Undercapitalized
Undercapitalized
4%
3%
8%
6%
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 su

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 convictio

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, a

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 NIM

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 cap

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 shipping

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 1

of payment after shipping the goods. The acceptance is then sent to the manufacturer. The bank records a liability (it owes the manufacture

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 syst

ysis can be performed.

ncrease to historical, pre-crisis levels.

ich 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 percen

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
Valuation date
Cost of equity
DDM - MATURITY PHASE ASSUMPTIONS
ROE
RWA growth
Capital ratio (Tier 1 capital / RWA)

3 stage <-- The 3 stage is common for bank DDM models, 1) Development: R
12/31/2010 <-- For simplicity of calculating present values, model assumes valua
9.0%

9.0% <-- Should converge with cost of equity as company reaches maturity
4.0%
10.0%

DDM BUILDUP

Net income to common

% growth
Dividends
% growth
% payout

2006A
2007A
2008A
2009A
12/31/2006 12/31/2007 12/31/2008 12/31/2009
Historicals
91,501
96,537
5.5%
102,517
109,005
6.3%
112.0%
112.9%

Total stockholder's equity - BOP

Plus: Net income to common
Less: Dividends
Total stockholders' equity - EOP
Less: Goodwill
Plus: Junior subordinated debentures issued to capital trusts
Plus: Other
Tier 1 Capital - EOP

1,252,854
(296,424)
176,313
5,545
1,138,288

ROE (Net income to common / Shareholders' equity)

Average RWA
% growth
Capital ratio (Tier 1 capital / RWA)
Minimum capital ratio

10,698,195
10.64%

DDM PV CALCS - DEVELOPMENT AND MATURITY PHASES

Dividends
Discount factor (assumes midyear adjustment)
PV of dividends
DDM TERMINAL VALUE CALCS
Long term dividends growth rate
Terminal year dividends (t+1)
Cost of equity
Terminal value (TV)
PV of TV - Perpetuity approach
Exit multiple (P/BV)

0.27%
129,459
9.03%
1,477,094
772,348
1.3x

SHARES OUTSTANDING
Basic shares outstanding
Current share price
Options
# exercisable

Tranche 1
Tranche 2
Tranche 3

115
467
490

Terminal value (TV)

PV of TV - Exit multiple approach
"Intrinsic" Exit P/BV:

1,920,222
961,575

Tranche 4
Tranche 5
Total options

508
1,145
2,724

1.0x
Treasury stock method
Option proceeds
Repurchased shares
Dilutive impact of stock options

VALUATION
Perpetuity approach
Equity value of VLY
Implied P/BV
Implied P/TBV
VLY value / share

1,513,769
1.2x
1.3x
$9.37

Exit multiple approach

Equity value of VLY
P/BV
P/TBV
VLY value / share

1,702,997
1.3x
1.5x
$10.54

VLY diluted shares outstanding:

DDM SENSITIVITY

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

ROE

Cost of equity

$9.37
10.0%
9.5%
9.0%
8.5%
8.0%

7.0%
$7.28
$7.63
$8.02
$8.45
$8.94

8.0%
$7.87
$8.26
$8.70
$9.19
$9.74

9.0%
$8.45
$8.89
$9.38
$9.93
$10.55

Share price sensitivity to cost of equity (vertical) and perpetuity growth rate (horizontal)

Perpetuity growth rate

Cost of equity

$9.37
10.0%
9.5%
9.0%
8.5%
8.0%

0.0%
$8.90
$9.06
$9.23
$9.39
$9.56

1.0%
$9.43
$9.64
$9.86
$10.08
$10.32

2.0%
$10.10
$10.37
$10.67
$10.99
$11.34

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

Exit multiple

Cost of equity

$10.54
10.0%
9.5%
9.0%
8.5%
8.0%

1.00x
$8.82
$9.00
$9.18
$9.36
$9.55

1.25x
$9.89
$10.10
$10.32
$10.55
$10.79

1.50x
$10.96
$11.21
$11.47
$11.74
$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
131,170
(115,190)
1,295,205
(317,891)
176,313
(10,299)
1,143,328

1,295,205
140,744
(115,963)
1,319,986
(317,891)
176,313
0
1,178,408

1,319,986
154,061
(115,963)
1,358,083
(317,891)
176,313
0
1,216,505

1,358,083
164,393
(115,963)
1,406,513
(317,891)
176,313
0
1,264,935

1,406,513
171,625
(115,963)
1,462,175
(317,891)
176,313
0
1,320,597

1,462,175
164,225
(160,788)
1,465,613
(317,891)
176,313
0
1,324,035

1,465,613
153,856
(150,153)
1,469,316
(317,891)
176,313
0
1,327,738

1,469,316
143,462
(139,596)
1,473,182
(317,891)
176,313
0
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
96%

115,963
88%

115,963
81%

115,963
74%

160,788
68%

150,153
62%

139,596
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

$15
$17
$18

# in the $

0
0
0

$19
$21

0
0
0

$0
0
0

of stock options

hares outstanding:

161,589

ROE
10.0%
$9.03
$9.52
$10.06
$10.66
$11.35

11.0%
$9.61
$10.14
$10.74
$11.40
$12.15

12.0%
$10.20
$10.77
$11.41
$12.14
$12.95

4.0%
$12.09
$12.63
$13.27
$14.01
$14.91

5.0%
$13.68
$14.52
$15.54
$16.82
$18.47

2.00x
$13.09
$13.42
$13.76
$14.12
$14.49

2.25x
$14.15
$14.53
$14.91
$15.31
$15.72

ate (horizontal)

rpetuity growth rate

3.0%
$10.95
$11.33
$11.75
$12.23
$12.77

Exit multiple
1.75x
$12.02
$12.31
$12.62
$12.93
$13.26

2018E
12/31/2018

phase
133,028
(7.3%)
129,116
(7.5%)
97.1%
1,473,182
133,028
(129,116)
1,477,094
(317,891)
176,313
0
1,335,516
9.0%
13,355,160
4.0%
10.00%
10.00%

129,116
52%

creates circularity)

NI = Average Equity * ROE. Circularity created because NI affects equity, which in turn determines NI.
Forecast as the excess of available capital over a minimum capital base defined by the Tier I capital ratio

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
Maturity phase formula "smooths" shift to the maturity phase assumption.
Maturity phase formula "smooths" shift to the maturity phase assumption.
Maturity phase formula "smooths" shift to the maturity phase assumption.

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
Valuation date
Cost of equity
RI - MATURITY PHASE ASSUMPTIONS
ROE
RWA growth
Capital ratio (Tier 1 capital / RWA)

3 stage <-- The 3 stage is common for bank RI models, 1) Development: Refe
12/31/2010 <-- For simplicity of calculating present values, model assumes valua
9.0%

9.0% <-- Should converge with cost of equity as company reaches maturity
4.0%
10.0%

RI BUILDUP

Net income to common

% growth
Dividends
% growth
% payout

2006A
2007A
2008A
2009A
12/31/2006 12/31/2007 12/31/2008 12/31/2009
Historicals
91,501
96,537
5.5%
102,517
109,005
6.3%
112.0%
112.9%

Total stockholder's equity - BOP

Plus: Net income to common
Less: Dividends
Total stockholders' equity - EOP
Less: Goodwill
Plus: Junior subordinated debentures issued to capital trusts
Plus: Other
Tier 1 Capital - EOP

1,252,854
(296,424)
176,313
5,545
1,138,288

ROE (Net income to common / Shareholders' equity)

Average RWA
% growth
Capital ratio (Tier 1 capital / RWA)
Minimum capital ratio

10,698,195
10.64%

RI PV CALCS - DEVELOPMENT AND MATURITY PHASES

Residual Income
Discount factor (assumes midyear adjustment)
PV of RI
TERMINAL VALUE (TV)
Terminal year net income (t+1)
Terminal year RI
Cost of equity
Long term RI growth rate
Terminal value (TV)
PV of TV

133,382
0
9.03%
0.00%
0
0.0

SHARES OUTSTANDING
Basic shares outstanding
Current share price
Options
# exercisable

Tranche 1
Tranche 2

115
467

VALUATION
Book value of equity (last historical year)
PV of RI
PV of TV
Fair equity value of VLY
Implied P/BV
Implied P/TBV
VLY value / share

Tranche 3
Tranche 4
Tranche 5
Total options

1,295,205
154,747
0
1,449,952
1.1x
1.3x
$8.97

490
508
1,145
2,724

Treasury stock method

Option proceeds
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

Cost of equity

$8.97
10.0%
9.5%
9.0%
8.5%
8.0%

7.0%
$6.89
$7.25
$7.66
$8.11
$8.61

8.0%
$7.46
$7.87
$8.32
$8.83
$9.39

9.0%
$8.03
$8.48
$8.99
$9.55
$10.17

Share price sensitivity to cost of equity (vertical) and perpetuity growth rate (horizontal)

Perpetuity growth rate

Cost of equity

$8.97
10.0%
9.5%
9.0%
8.5%
8.0%

(2.0%)
$8.99
$9.16
$9.33
$9.50
$9.68

(1.0%)
$9.53
$9.75
$9.97
$10.21
$10.46

0.0%
$10.21
$10.49
$10.80
$11.13
$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
131,170
(115,190)
1,295,205
(317,891)
176,313
(10,299)
1,143,328

1,295,205
140,744
(115,963)
1,319,986
(317,891)
176,313
0
1,178,408

1,319,986
154,061
(115,963)
1,358,083
(317,891)
176,313
0
1,216,505

1,358,083
164,393
(115,963)
1,406,513
(317,891)
176,313
0
1,264,935

1,406,513
171,625
(115,963)
1,462,175
(317,891)
176,313
0
1,320,597

1,462,175
164,225
(160,788)
1,465,613
(317,891)
176,313
0
1,324,035

1,465,613
153,856
(150,153)
1,469,316
(317,891)
176,313
0
1,327,738

1,469,316
143,462
(139,596)
1,473,182
(317,891)
176,313
0
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
96%

33,146
88%

39,572
81%

42,104
74%

32,036
68%

21,344
62%

10,608
57%

154,747.4
1=Use beginning balance to calculate NII
2=Use average balance to calculate NII (creates circularity)

STANDING
161,589 Front cover of latest filing
$13.70 Share price as of valuation date

exercise price

$15
$17

# in the $

0
0

$18
$19
$21

0
0
0
0

$0
0
0

of stock options

hares outstanding:

161,589

ROE
10.0%
$8.60
$9.10
$9.65
$10.26
$10.95

11.0%
$9.17
$9.71
$10.31
$10.98
$11.73

12.0%
$9.74
$10.32
$10.97
$11.70
$12.51

2.0%
$12.23
$12.79
$13.45
$14.21
$15.13

3.0%
$13.85
$14.71
$15.76
$17.07
$18.77

ate (horizontal)

rpetuity growth rate

1.0%
$11.07
$11.47
$11.90
$12.39
$12.95

2018E
12/31/2018

phase
133,028
(7.3%)
129,116
(7.5%)
97.1%
1,473,182
133,028
(129,116)
1,477,094
(317,891)
176,313
0
1,335,516
9.0%
13,355,160
4.0%
10.00%
10.00%

creates circularity)

(177)
52%
1

NI = Average Equity * ROE. Circularity created because NI affects equity, which in turn determines NI.
Forecast as the excess of available capital over a minimum capital base defined by the Tier I capital ratio

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
Maturity phase formula "smooths" shift to the maturity phase assumption.
Maturity phase formula "smooths" shift to the maturity phase assumption.
Maturity phase formula "smooths" shift to the maturity phase assumption.

I capital level reaches its minimum assumption.

VALLEY NATIONAL BANCORP COST OF EQUITY

($ in thousands, except per share data)

10-Year US Treasury (Risk-Free Rate):

Market risk premium
Beta
Cost of equity (using VLY's historical beta)

3.50%
7.00%
0.79
9.03%

Date
3/1/2011
3/1/2011
3/1/2011

Source
Bloomberg
Morningstar - Ibbotson and Sinquefield Yearbook
Bloomberg

Building a football field

52 week high/low
DDM - 7%-12% ROE
DDM - 8%-10% Cost of equity
DDM - 1-2.25x exit P/B multiple
RI - 8-10% cost of equity
RI - (2%) to 2% perpetuity growth
Trading comparables - P/BV

Low
Average High
$12.01
$13.60
$15.19
$8.02
$9.72
$11.41
$8.45
$9.50
$10.55
$9.18
$12.04
$14.91
$8.03
$9.10
$10.17
$9.33
$12.54
$15.76
$13.12
$14.84
$16.56

Low
$12.01
$8.02
$8.45
$9.18
$8.03
$9.33
$13.12

VLY Football Field

$19.00

$17.00

$15.00

$13.00

$11.00

$9.00

$7.00

$5.00
52 week high/low DDM - 7%-12%
ROE

DDM - 8%-10% DDM - 1-2.25x RI - 8-10% cost of RI - (2%) to 2%

Cost of equity exit P/B multiple
equity
perpetuity growth

0-50th percentile
50-100th percentile
$1.59
$1.59
$1.70
$1.70
$1.05
$1.05
$2.87
$2.87
$1.07
$1.07
$3.22
$3.22
$1.72
$1.72

Comments
The football field is a valuation matrix that identifies a value range across multiple
valuation methods. In addition to the RI and DDM methods, we also include a 52
week trading high and low range, as well as a peer-group derived valuation using
an LTM P/B range.
To create a football field, we reference the valuation ranges from the appropriate
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.

RI - (2%) to 2%
Trading
perpetuity growth comparables P/BV

across multiple
o include a 52
valuation using

he appropriate
uation method.

m the low