EXHIBIT 2.1 TO FORM 8-K

                          AGREEMENT AND PLAN OF MERGER

      THIS  AGREEMENT  AND PLAN OF MERGER,  dated as of  September 5, 2000 (this
"Agreement"),  is among Valley National  Bancorp,  a New Jersey  corporation and
registered  bank holding  company  ("Valley"),  Valley National Bank, a national
banking  association  ("VNB"),  Merchants  New York  Bancorp,  Inc.,  a Delaware
corporation and registered bank holding company  ("Merchants") and The Merchants
Bank of New York, a New York state-chartered commercial bank (the "Bank").

                                    RECITALS

      Valley desires to acquire  Merchants and Merchants' Board of Directors has
determined,  based upon the terms and conditions hereinafter set forth, that the
acquisition  is in the best  interests of Merchants  and its  stockholders.  The
acquisition will be accomplished by merging Merchants into Valley with Valley as
the surviving  corporation and, at the same time, merging the Bank into VNB with
VNB  as  the  surviving   bank,   and  Merchants   stockholders   receiving  the
consideration  hereinafter  set forth.  The Boards of  Directors  of  Merchants,
Valley,  the Bank and VNB have duly adopted and approved this  Agreement and the
respective Boards of Directors of Valley and Merchants each has directed that it
be submitted to its stockholders for approval.

      As a condition  precedent  to  entering  into this  Agreement,  Valley has
required that Merchants  grant it an option to purchase  certain  authorized but
unissued  shares of  Merchants  common stock and, as a  consequence,  Valley and
Merchants have entered into a Stock Option Agreement, dated the date hereof (the
"Valley Stock Option").

      NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:

                                    ARTICLE I

                                   THE MERGER

      1.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as hereafter  defined),  Merchants  shall be merged with and
into Valley (the "Merger") in accordance with the Delaware  General  Corporation
Law (the  "DGCL") and the New Jersey  Business  Corporation  Act  ("NJBCA")  and
Valley  shall  be  the  surviving  corporation  (the  "Surviving  Corporation").
Immediately following the Effective Time, the Bank shall be merged with and into
VNB as provided in Section 1.7 hereof.

                  1.2.  Effect  of  the  Merger.  At  the  Effective  Time,  the
Surviving Corporation shall be considered the same business and corporate entity
as each of Valley and Merchants and thereupon and thereafter,  all the property,
rights, privileges,  powers and franchises of each of Valley and Merchants shall


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vest in the Surviving Corporation and the Surviving Corporation shall be subject
to and be deemed to have assumed all of the debts, liabilities,  obligations and
duties of each of Valley and Merchants  and shall have  succeeded to all of each
of their  relationships,  as fully and to the same  extent as if such  property,
rights, privileges, powers, franchises, debts, liabilities,  obligations, duties
and relationships had been originally acquired,  incurred or entered into by the
Surviving  Corporation.  In  addition,  any  reference  to  either  of Valley or
Merchants in any contract or document,  whether executed or taking effect before
or after the  Effective  Time,  shall be considered a reference to the Surviving
Corporation  if not  inconsistent  with the other  provisions of the contract or
document; and any pending action or other judicial proceeding to which either of
Valley or  Merchants  is a party  shall not be deemed to have  abated or to have
discontinued  by reason of the Merger,  but may be prosecuted to final judgment,
order or decree in the same  manner as if the  Merger had not  occurred;  or the
Surviving  Corporation  may  be  substituted  as  a  party  to  such  action  or
proceeding,  and any judgment, order or decree may be rendered for or against it
that might have been  rendered  for or against  either of Valley or Merchants if
the Merger had not occurred.

      1.3.  Certificate of  Incorporation.  The certificate of  incorporation of
Valley as it exists immediately prior to the Effective Time shall not be amended
by the Merger,  but shall continue as the  certificate of  incorporation  of the
Surviving Corporation until otherwise amended as provided by law.

      1.4. Bylaws.  The bylaws of Valley as they exist  immediately prior to the
Effective Date shall continue as the by-laws of the Surviving  Corporation until
otherwise amended as provided by law.

      1.5.  Directors and  Officers.  The directors and officers of Valley as of
the Effective Time shall continue as the directors and officers of the Surviving
Corporation, with the addition provided for in Section 5.20 hereof.

      1.6 Closing Date,  Closing and Effective  Time.  Unless a different  date,
time and/or place are agreed to by the parties hereto, the closing of the Merger
(the "Closing")  shall take place at 10:00 a.m., at the offices of Valley,  1455
Valley Road,  Wayne,  New Jersey,  on a date (the "Closing Date") which shall be
within ten business days  following the receipt of all necessary  regulatory and
governmental  approvals and consents and the expiration of all statutory waiting
periods  in  respect  thereof  and  the  satisfaction  or  waiver  of all of the
conditions  to the  consummation  of the Merger  specified  in Article VI hereof
(other than the delivery of  certificates,  opinions and other  instruments  and
documents to be delivered at the  Closing),  with the exact date  determined  by
Valley upon written  notice to Merchants  (the "Closing  Notice").  Simultaneous
with or immediately  following the Closing,  Valley and Merchants shall cause to
be filed  certificates of merger,  in form and substance  satisfactory to Valley
and Merchants,  with the Secretary of State of the State of New Jersey (the "New
Jersey  Certificate  of Merger") and with the Secretary of State of the State of
Delaware (the "Delaware  Certificate of Merger").  The New Jersey Certificate of
Merger and the Delaware  Certificate  of Merger shall specify as the  "Effective
Time" of the Merger a date and time  following  the Closing  agreed to by Valley
and Merchants (which date and time the parties currently  anticipate will be the
close of business on the Closing Date). In the event the parties fail to specify
the date and time in the merger certificates,  the Merger shall become effective
upon (and the  "Effective  Time"  shall  be) the later of the  filing of the New
Jersey Certificate of Merger and the Delaware


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Certificate of Merger.

      1.7. The Bank Merger.  Immediately  following the Effective Time, the Bank
shall be merged  with and into VNB (the "Bank  Merger") in  accordance  with the
provisions  of the  National  Bank Act and, to the extent  applicable,  New York
Banking  Law  (the  "NY  Banking  Law")  and the  regulations  of the  New  York
Department of Banking (the  "Department"),  and VNB shall be the surviving  bank
(the "Surviving  Bank").  Upon the consummation of the Bank Merger, the separate
existence of the Bank shall cease and the Surviving Bank shall be considered the
same  business and  corporate  entity as each of the Bank and VNB and all of the
property, rights, privileges,  powers and franchises of each of the Bank and VNB
shall vest in the Surviving  Bank and the Surviving Bank shall be deemed to have
assumed  all of the debts,  liabilities,  obligations  and duties of each of the
Bank and VNB and shall  have  succeeded  to all of each of their  relationships,
fiduciary  or  otherwise,  as fully and to the same extent as if such  property,
rights,  privileges,   powers,  franchises,   debts,  obligations,   duties  and
relationships  had been  originally  acquired,  incurred or entered  into by the
Surviving  Bank.  Upon the  consummation  of the Bank  Merger,  the  articles of
association  and bylaws of VNB shall  become the  articles  of  association  and
bylaws of the Surviving Bank, the officers and employees of VNB and the officers
and  employees of the Bank shall be the officers and  employees of the Surviving
Bank with such  additions  as  officers as the Board of  Directors  of VNB shall
determine,  and the  directors of VNB shall be the  directors  of the  Surviving
Bank, with, in the case of directors, the additions provided for in Section 5.20
hereof.  In connection  with the execution of this  Agreement,  the Bank and VNB
shall  execute  and  deliver a  separate  merger  agreement  (the  "Bank  Merger
Agreement") in substantially the form of Exhibit A, annexed hereto, for delivery
to the Office of the Comptroller of the Currency  ("OCC") and the Department for
approval of the Bank Merger.

                                   ARTICLE II
                CONVERSION OF MERCHANTS COMMON STOCK AND OPTIONS

      Each  share of common  stock,  $.001 par value  per  share,  of  Merchants
("Merchants  Common  Stock"),  issued and outstanding  immediately  prior to the
Effective  Time,  and each option to purchase  shares of Merchants  Common Stock
validly  issued  pursuant  to the  Merchants  Employee  Stock  Option  Plan (the
"Merchants  Employee  Option  Plan") and  outstanding  immediately  prior to the
Effective  Time (each a  "Merchants  Option" and  collectively,  the  "Merchants
Options")  shall,  by virtue of the Merger and without any action on the part of
the  holder  thereof,  be  converted  or  cancelled  at the  Effective  Time  in
accordance with this Article II.

      2.1 Conversion of Merchants Common Stock;  Exchange Ratio; Cash in Lieu of
Fractional  Shares.  Each share of Merchants Common Stock issued and outstanding
immediately  prior to the  Effective  Time,  other than  shares to be  cancelled
pursuant  to Section 2.4 hereof,  shall be  converted  into the right to receive
 .7634 (the  "Exchange  Ratio") shares of Common Stock,  no par value,  of Valley
("Valley  Common  Stock"),  subject to  adjustment  as set forth in Section  2.6
below. No fractional  shares of Valley Common Stock will be issued,  and in lieu
thereof,  each holder of Merchants  Common Stock who would otherwise be entitled
to  a  fractional  interest  will  receive  an  amount  in  cash  determined  by
multiplying such fractional  interest by the Average Pre-Closing Price of Valley
Common  Stock.  "Average  Pre-Closing  Price of Valley  Common  Stock" means the
average of the Closing  Prices of Valley  Common  Stock for the ten  consecutive
full trading days in which such shares are quoted on the New York Stock Exchange


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(the "NYSE") ending with (and including) the Determination Date. "Closing Price"
of Valley  Common  Stock  means the daily  closing  sales price of such stock as
reported on the NYSE (as reported in The Wall Street Journal or, if not reported
thereby, another authoritative source as chosen by Valley). "Determination Date"
means the date five business days prior to the Closing.

      2.2. Exchange of Shares.

            (a) Merchants and Valley hereby appoint  American Stock Transfer and
Trust  Company as the  exchange  agent (the  "Exchange  Agent") for  purposes of
effecting the  conversion of Merchants  Common Stock and Merchants  Options.  As
soon as practicable  after the Effective  Time, the Exchange Agent shall mail to
each  holder of record (a "Record  Holder")  of a  Certificate  or  Certificates
which, immediately prior to the Effective Time represented outstanding shares of
Merchants  Common Stock (the  "Certificates"),  a mutually agreed upon letter of
transmittal  (which shall specify that delivery  shall be effected,  and risk of
loss and  title to the  Certificates  shall  pass,  only  upon  delivery  of the
Certificates to the Exchange  Agent),  and instructions for use in effecting the
surrender of the  Certificates  in exchange for Valley Common Stock (and cash in
lieu of fractional shares) as provided in Section 2.1 hereof.

            (b) Upon surrender of Certificates  for exchange and cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed, the
Record  Holder  shall be  entitled  to  promptly  receive in  exchange  for such
Certificates  the  consideration  as  provided  in  Section  2.1  hereof and the
Certificates so surrendered  shall be canceled.  The Exchange Agent shall not be
obligated  to  deliver  or  cause  to be  delivered  to any  Record  Holder  the
consideration to which such Record Holder would otherwise be entitled until such
Record Holder  surrenders the  Certificates for exchange or, in default thereof,
an appropriate Affidavit of Loss and Indemnity Agreement and/or a bond as may be
reasonably  required  in  each  case  by  Valley.  Notwithstanding  the  time of
surrender of the  Certificates,  Record Holders shall be deemed  stockholders of
Valley for all  purposes  from the  Effective  Time,  except that  Valley  shall
withhold  the  payment of  dividends  from any Record  Holder  until such Record
Holder  effects the exchange of  Certificates  for Valley  Common  Stock.  (Such
Record Holder shall  receive such withheld  dividends,  without  interest,  upon
effecting the share exchange.)

            (c) After the  Effective  Time,  there shall be no  transfers on the
stock transfer books of Merchants of the shares of Merchants  Common Stock which
were  outstanding   immediately   prior  to  the  Effective  Time  and,  if  any
Certificates  representing such shares are presented for transfer, they shall be
canceled and exchanged for the consideration as provided in Section 2.1 hereof.

            (d) If payment of the  consideration  pursuant to Section 2.1 hereof
is to be made in a name other than that in which the Certificates surrendered in
exchange  therefor is  registered,  it shall be a condition of such payment that
the Certificates so surrendered shall be properly endorsed (or accompanied by an
appropriate  instrument  of transfer) and otherwise in proper form for transfer,
and that the person  requesting  such payment shall pay to the Exchange Agent in
advance  any  transfer  or other  taxes  required  by reason of the payment to a
person other than that of the registered holder of the Certificates surrendered,
or required for any other reason,  or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.


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<PAGE>

            (e) With respect to each outstanding  Merchants Option Valley shall,
after the Effective Time,  distribute to the Optionee an amendment to the option
grant  evidencing  the  conversion of the grant to an option to purchase  Valley
Common Stock in accordance with Section 2.7 hereof.

      2.3. No Dissenters' Rights. Consistent with the provisions of
the DGCL, no stockholder of Merchants  shall have appraisal  rights with respect
to the Merger.

      2.4.  Cancelled Shares.  Each share of Merchants Common Stock (i) which is
held by  Merchants  as  treasury  stock or (ii) which is held by the Bank or any
other  direct or  indirect  subsidiary  of the Bank  (except  as trustee or in a
fiduciary  capacity)  or (iii) which is held by Valley,  shall be  canceled  and
retired at the Effective Time.

      2.5. Valley Shares.  The shares of Valley Common Stock  outstanding at the
Effective  Time  shall  not be  affected  by the  Merger,  but  along  with  the
additional shares of Valley Common Stock to be issued as provided in Section 2.1
hereof, shall become the outstanding common stock of the Surviving Corporation.

      2.6  Anti-Dilution  Adjustments.   The  Exchange  Ratio  and  the  Average
Pre-Closing Price of Valley Common Stock shall be appropriately adjusted for any
stock split,  stock dividend,  stock  combination,  reclassification  or similar
transaction  ("Capital Change") effected by Valley with respect to Valley Common
Stock between the date hereof and the Effective Time.

      2.7.  Merchants Stock Options.  At the Effective  Time,  each  outstanding
Merchants  Option granted to an eligible  individual (an  "Optionee")  under the
Merchants  Employee  Option Plan shall be  converted  into an option to purchase
Valley Common Stock (a "Stock Option"), wherein (x) the right to purchase shares
of Merchants  Common Stock  pursuant to the Merchants  Option shall be converted
into the right to  purchase  that same number of shares of Valley  Common  Stock
multiplied by the Exchange  Ratio,  (y) the option  exercise  price per share of
Valley  Common Stock shall be the previous  option  exercise  price per share of
Merchants  Common  Stock  divided  by the  Exchange  Ratio  and (z) in all other
material  respects the option shall be subject to the same terms and  conditions
as governed the Merchants Option on which it was based,  including the length of
time within  which the option may be  exercised  and for any  options  which are
"incentive  stock  options" (as defined in Section 422 of the  Internal  Revenue
Code of 1986, as amended (the "Code"), the adjustments shall be and are intended
to be effected in a manner which is consistent  with Section 424(a) of the Code.
Shares of Valley  Common Stock  issuable upon exercise of Stock Options shall be
covered by an  effective  registration  statement  on Form S-8, and Valley shall
file a  registration  statement  on Form S-8  covering  such  shares  as soon as
practicable after the Effective Time.

                                   ARTICLE III
                   REPRESENTATIONS AND WARRANTIES OF MERCHANTS

                  References  herein to "Merchants  Disclosure  Schedule"  shall
mean all of the disclosure  schedules  required by this Article III, dated as of
the date hereof and  referenced  to the  specific  sections and  subsections  of
Article III of this  Agreement,  which have been delivered on the date hereof by
Merchants  to  Valley  or will be  delivered  pursuant  to  Section  5.11(a)  by
Merchants  to Valley.  Disclosure  of an item in one  section  of the  Merchants


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Disclosure  Schedule will be considered  disclosure for purposes of all sections
thereof,  except where this Agreement specifies that the item must be referenced
in a particular section of the Merchants Disclosure  Schedule.  Merchants hereby
represents and warrants to Valley as follows:

      3.1. Corporate Organization.

            (a) Merchants is a corporation duly organized,  validly existing and
in good  standing  under the laws of the State of  Delaware.  Merchants  has the
corporate  power and authority to own or lease all of its  properties and assets
and to carry on its business as it is now being  conducted  and is duly licensed
or  qualified  to do  business in each  jurisdiction  in which the nature of the
business  conducted  by it or the  character or location of the  properties  and
assets owned or leased by it makes such  licensing or  qualification  necessary,
except  where  the  failure  to be so  licensed  or  qualified  would not have a
material  adverse  effect  on the  business,  operations,  assets  or  financial
condition of Merchants on a  consolidated  basis.  Merchants is  registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA").

            (b) All of the Subsidiaries of Merchants are listed in the Merchants
Disclosure  Schedule.  The term  "Subsidiary",  when used in this Agreement with
respect  to  Merchants,  means  any  corporation,  joint  venture,  association,
partnership,  trust  or  other  entity  in  which  Merchants  has,  directly  or
indirectly at least a 50% interest or acts as a general partner. Each Subsidiary
of Merchants is duly organized,  validly existing and in good standing under the
laws of its state of  incorporation.  The Bank is a  commercial  bank  chartered
under the laws of the  State of New York  whose  deposits  are  insured  by Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance  Corporation ("FDIC") to
the fullest  extent  permitted by law.  Each  Subsidiary  of  Merchants  has the
corporate  power and authority to own or lease all of its  properties and assets
and to carry on its business as it is now being  conducted  and is duly licensed
or  qualified  to do  business in each  jurisdiction  in which the nature of the
business  conducted  by it or the  character or location of the  properties  and
assets owned or leased by it makes such  licensing or  qualification  necessary,
except  where  the  failure  to be so  licensed  or  qualified  would not have a
material  adverse  effect  on the  business,  operations,  assets  or  financial
condition  of  Merchants  and its  Subsidiaries  on a  consolidated  basis.  The
Merchants  Disclosure  Schedule  sets  forth  true and  complete  copies  of the
Certificates  of  Incorporation  or  Charter,  as the case may be, and Bylaws of
Merchants and each Merchants Subsidiary as in effect on the date hereof.  Except
as set forth in the Merchants  Disclosure  Schedule,  Merchants  does not own or
control,  directly  or  indirectly,  any  equity  interest  in any  corporation,
company,  association,  partnership,  joint  venture or other entity and owns no
real estate,  except (i) residential real estate acquired through foreclosure or
deed in lieu of foreclosure in each individual instance with a fair market value
less than $500,000 and (ii) real estate used for its banking premises.

      3.2. Capitalization.

      The authorized capital stock of Merchants consists of 40,000,000 shares of
Merchants Common Stock. As of the date hereof,  there were 19,978,664  shares of
Merchants Common Stock issued and  outstanding,  and 1,333,176 shares issued and
held in the  treasury.  As of the date  hereof,  there  were  127,162  shares of
Merchants Common Stock issuable upon exercise of outstanding  Merchants  Options
(the "Option Shares") granted to directors,  officers and employees of Merchants
or the Bank  pursuant to the  Merchants


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<PAGE>

Employee  Option Plan.  The  Merchants  Disclosure  Schedule  sets forth (i) all
options  which may be exercised  for issuance of Merchants  Common Stock and the
terms upon which the options may be exercised, and (ii) true and complete copies
of each of the  Merchants  Employee  Option  Plan and a specimen of each form of
agreement pursuant to which any outstanding stock option was granted,  including
a list of each outstanding stock option issued pursuant thereto.  All issued and
outstanding  shares of Merchants  Common Stock,  and all issued and  outstanding
shares of capital stock of each Merchants Subsidiary,  have been duly authorized
and validly issued,  are fully paid, and  nonassessable.  The authorized capital
stock of the Bank consists of 4,729,546 shares of common stock, $1.40 par value.
As of the  date  hereof,  there  were  2,482,172  shares  of Bank  common  stock
outstanding.  All of the  outstanding  shares of capital stock of each Merchants
Subsidiary  are  owned  by  Merchants  and are  free  and  clear  of any  liens,
encumbrances,  charges,  restrictions or rights of third parties. Except for the
Merchants  Options  and the  Valley  Stock  Option,  neither  Merchants  nor any
Merchants Subsidiary has or is bound by any outstanding subscriptions,  options,
warrants,  calls,  commitments  or agreements  of any character  calling for the
transfer,  purchase or issuance of any shares of capital  stock of  Merchants or
any Merchants Subsidiary or any securities representing the right to purchase or
otherwise receive any shares of such capital stock or any securities convertible
into or representing the right to purchase or subscribe for any such shares, and
there are no  agreements  or  understandings  with respect to voting of any such
shares.

      3.3. Authority; No Violation.

            (a) Subject to the approval of this  Agreement and the  transactions
contemplated hereby by the stockholders of Merchants, and subject to the parties
obtaining all necessary regulatory  approvals,  Merchants and the Bank have full
corporate  power and  authority  to execute and deliver  this  Agreement  and to
consummate the  transactions  contemplated  hereby in accordance  with the terms
hereof. The execution and delivery of this Agreement and the consummation of the
transactions  contemplated  hereby  have been duly and  validly  approved by the
Board of Directors of each of Merchants and the Bank. The execution and delivery
of the Bank Merger  Agreement has been duly and validly approved by the Board of
Directors of the Bank.  Except for the  approvals  described  in  paragraph  (b)
below, no other  corporate  proceedings on the part of Merchants or the Bank are
necessary to consummate the transactions contemplated hereby. This Agreement has
been duly and validly  executed and  delivered by  Merchants  and the Bank,  and
constitutes valid and binding obligations of Merchants and the Bank, enforceable
against Merchants and the Bank in accordance with its terms.

            (b)  Neither  the  execution  and  delivery  of  this  Agreement  by
Merchants and the Bank,  nor the  consummation  by Merchants and the Bank of the
transactions  contemplated  hereby  in  accordance  with the  terms  hereof,  or
compliance by Merchants and the Bank with any of the terms or provisions hereof,
will (i) violate any  provision  of  Merchants'  or the Bank's  Certificates  of
Incorporation or Bylaws, (ii) assuming that the consents and approvals set forth
below are duly obtained, violate any statute, code, ordinance, rule, regulation,
judgment,  order, writ, decree or injunction applicable to Merchants or the Bank
or any of their respective properties or assets, or (iii) except as set forth in
the Merchants Disclosure Schedule, violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with notice or lapse
of time, or both, would  constitute a default) under,  result in the termination
of,  accelerate  the  performance  required by, or result in the creation of any
lien, security interest,  charge or other encumbrance upon any of the respective
properties  or  assets  of  Merchants  or the  Bank  under,  any  of the  terms,
conditions or provisions of any note, bond, mortgage,  indenture, deed of trust,
license,  lease,  agreement or other instrument or obligation to which Merchants
or the  Bank is a  party,  or by  which  either  or both of them or any of their
respective


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<PAGE>

properties or assets may be bound or affected  except,  with respect to (ii) and
(iii) above,  such as individually and in the aggregate will not have a material
adverse  effect on the business,  operations,  assets or financial  condition of
Merchants  and its  Subsidiaries  on a  consolidated  basis,  and which will not
prevent  or delay the  consummation  of the  transactions  contemplated  hereby.
Except for consents and approvals of or filings or registrations with or notices
to the OCC, the Department, the Board of Governors of the Federal Reserve System
("FRB"),  the  Securities  and Exchange  Commission  ("SEC"),  applicable  state
securities  bureaus or  commissions,  the  Delaware  Secretary  of State and the
stockholders   of  Merchants,   no  consents  or  approvals  of  or  filings  or
registrations with or notices to any third party or any public body or authority
are  necessary  on behalf of Merchants  or the Bank in  connection  with (x) the
execution and delivery by Merchants  and the Bank of this  Agreement and (y) the
consummation by Merchants and the Bank of the transactions  contemplated  hereby
and (z) the execution and delivery by the Bank of the Bank Merger  Agreement and
the consummation by the Bank of the transactions contemplated thereby.

      3.4. Financial Statements.

            (a) Merchants'  Annual Reports on Form 10-K filed with the SEC under
the  Securities  and  Exchange  Act of 1934,  as amended  (the  "1934  Act") and
available on the SEC's EDGAR  system set forth the  consolidated  statements  of
condition of Merchants as of December 31, 1999,  1998 and 1997,  and the related
consolidated  statements of income,  stockholders' equity and cash flows for the
periods ended  December 31 in each of the three years 1997 through 1999, in each
case accompanied by the audit report of KPMG LLP, independent public accountants
with respect to Merchants,  and Merchants'  Quarterly Reports on Form 10-Q filed
with the SEC under the 1934 Act and  available  on the SEC's  EDGAR  system  set
forth the unaudited consolidated statements of condition of Merchants as of June
30, 2000 and related  unaudited  consolidated  statements of income,  changes in
stockholders' equity and cash flows for the six months then ended (collectively,
the  "Merchants  Financial  Statements").  The  Merchants  Financial  Statements
(including  the related  notes) have been prepared in accordance  with generally
accepted accounting  principles ("GAAP") consistently applied during the periods
involved,  and fairly present the consolidated  financial condition of Merchants
as of the  respective  dates set forth  therein,  and the  related  consolidated
statements  of income,  stockholders'  equity and cash flows fairly  present the
results of the consolidated  operations,  stockholders' equity and cash flows of
Merchants for the respective periods set forth therein.

            (b) The books and records of  Merchants  and its  Subsidiaries  have
been and are being  maintained in material  compliance with applicable legal and
accounting requirements, and reflect only actual transactions.

            (c) Except as and to the extent  reflected,  disclosed  or  reserved
against in the Merchants Financial Statements  (including the notes thereto), as
of  June  30,  2000  neither  Merchants  nor  any of its  Subsidiaries  had  any
liabilities,  whether absolute, accrued, contingent or otherwise material to the
business,  operations,  assets or financial condition of Merchants or any of its
Subsidiaries.  Since June 30, 2000 and to the date hereof, neither Merchants nor
any of its  Subsidiaries  have incurred any material  liabilities  except in the
ordinary course of business and consistent with prudent banking practice, except


                                       8
<PAGE>

as specifically contemplated by this Agreement.

      3.5. Brokerage Fees; Financial Advisor;  Fairness Opinion. Other than CIBC
World  Markets  Corp.  (the  "Broker"),   neither   Merchants  nor  any  of  its
Subsidiaries nor any of their respective  directors or officers has employed any
broker or finder or incurred any  liability for any broker's or finder's fees or
commissions  in connection  with any of the  transactions  contemplated  by this
Agreement.  Copies of Merchants' agreements with the Broker are set forth in the
Merchants Disclosure Schedule. The Broker has delivered to Merchants its written
opinion with respect to the  fairness,  from a financial  point of view,  of the
Exchange  Ratio to the  shareholders  of  Merchants  in the  Merger.  Other than
pursuant  to the  agreement  with  Broker,  there are no fees  (other  than time
charges  billed  at usual  and  customary  rates)  payable  to any  consultants,
including lawyers and accountants,  in connection with this transaction or which
would be triggered by consummation of this transaction or the termination of the
services of such consultants by Merchants or any of its Subsidiaries.

      3.6. Absence of Certain Changes or Events.

            (a) There has not been any material  adverse change in the business,
operations, assets or financial condition of Merchants and its Subsidiaries on a
consolidated basis since June 30, 2000 and to Merchants' knowledge,  no facts or
conditions exist which Merchants  believes will cause or is likely to cause such
a material adverse change in the future.

            (b)  Except  as set  forth  in the  Merchants  Disclosure  Schedule,
neither  Merchants nor any of its Subsidiaries has taken or permitted any of the
actions  set forth in Section  5.2  hereof  between  June 30,  2000 and the date
hereof  and  Merchants  and the  Merchants  Subsidiaries  have  conducted  their
business only in the ordinary course, consistent with past practice.

      3.7. Legal  Proceedings.  Except as disclosed in the Merchants  Disclosure
Schedule,  neither  Merchants nor any of its Subsidiaries is a party to any, and
there  are  no  pending  or,  to  Merchants'   knowledge,   threatened,   legal,
administrative,  arbitral or other proceedings,  claims, actions or governmental
investigations  of any  nature  against  Merchants  or any of its  Subsidiaries.
Except as disclosed in the Merchants Disclosure Schedule,  neither Merchants nor
any of its  Subsidiaries  is a party to any order,  judgment  or decree  entered
against Merchants or any Merchants Subsidiary in any lawsuit or proceeding.

      3.8. Taxes and Tax Returns.

            (a) Merchants  and each  Merchants  Subsidiary  have duly filed (and
until  the  Effective  Time will so file) all  returns,  declarations,  reports,
information returns and statements  ("Returns")  required to be filed by them in
respect of any  federal,  state and local taxes  (including  withholding  taxes,
penalties or other  payments  required) and except as set forth in the Merchants
Disclosure  Schedule,  each has duly paid (and until the Effective  Time will so
pay) all such  taxes  shown as due on such  returns,  other  than taxes or other
charges  which are being  contested  in good faith (and  disclosed  to Valley in
writing).  Merchants and each Merchants  Subsidiary have  established (and until
the Effective Time will  establish) on their books and records  reserves for the
payment  of all  federal,  state and local  taxes not yet due and  payable,  but
incurred in respect of Merchants or any Merchants  Subsidiary through such date,
which  reserves are adequate for such  purposes.  To the knowledge of Merchants,
except as set forth in the Merchants Disclosure Schedule, the federal income tax
returns of Merchants  and its  Subsidiaries  have been  examined by the Internal


                                       9
<PAGE>

Revenue  Service (the "IRS") (or are closed to examination due to the expiration
of the applicable statute of limitations) and no deficiencies were asserted as a
result of such  examinations  which have not been  resolved and paid in full. To
the  knowledge of  Merchants,  except as set forth in the  Merchants  Disclosure
Schedule, the applicable state income and local tax returns of Merchants and its
Subsidiaries have been examined by the applicable  authorities (or are closed to
examination  due to  the  expiration  of  the  statute  of  limitations)  and no
deficiencies were asserted as a result of such examinations  which have not been
resolved and paid in full. To the knowledge of Merchants, there are no audits or
other  administrative  or court  proceedings  presently  pending  nor any  other
disputes pending, or claims asserted for, taxes or assessments upon Merchants or
any of its  Subsidiaries,  nor except as set forth in the  Merchants  Disclosure
Schedule,  has  Merchants  or  any  of  its  Subsidiaries  given  any  currently
outstanding  waivers or comparable  consents  regarding the  application  of the
statute of limitations with respect to any taxes or Returns.

            (b)  Except  as set  forth  in the  Merchants  Disclosure  Schedule,
neither Merchants nor any of its Subsidiaries (i) has requested any extension of
time within  which to file any tax Return which Return has not since been filed,
(ii) is a party to any  agreement  providing  for the  allocation  or sharing of
taxes, (iii) is required to include in income any adjustment pursuant to Section
481(a)  of the  Code,  by reason of a  voluntary  change  in  accounting  method
initiated by Merchants or any Merchants  Subsidiary (nor does Merchants have any
knowledge that the IRS has proposed any such  adjustment or change of accounting
method) or (iv) has filed a consent  pursuant  to Section  341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply.

      3.9. Employee Benefit Plans.

            (a)  Except  as  disclosed  in the  Merchants  Disclosure  Schedule,
neither  Merchants nor any of its  Subsidiaries  maintains or contributes to any
"employee  pension  benefit plan",  within the meaning of Section 3(2)(A) of the
Employee  Retirement  Income  Security Act of 1974,  as amended  ("ERISA")  (the
"Merchants Pension Plans"),  "employee welfare benefit plan", within the meaning
of Section 3(1) of ERISA (the  "Merchants  Welfare  Plans"),  stock option plan,
stock purchase plan,  deferred  compensation  plan,  severance plan, bonus plan,
employment  agreement or other similar  plan,  program or  arrangement.  Neither
Merchants nor any of its Subsidiaries has, since September 2, 1974,  contributed
to any "Multiemployer Plan", within the meaning of Sections 3(37) and 4001(a)(3)
of ERISA.

            (b) Merchants  has  delivered to Valley in the Merchants  Disclosure
Schedule a complete and accurate copy of each of the  following  with respect to
each of the  Merchants  Pension  Plans and  Merchants  Welfare  Plans:  (i) plan
document,  summary plan description,  and summary of material  modifications (if
not available, a detailed description of the foregoing); (ii) trust agreement or
insurance contract,  if any; (iii) most recent IRS determination letter, if any;
(iv) most recent actuarial  report, if any; and (v) most recent annual report on
Form 5500, if any.

            (c) The  present  value of all  accrued  benefits  both  vested  and
non-vested  under each of the  Merchants  Pension  Plans  subject to Title IV of
ERISA, based upon the actuarial assumptions used for purposes of the most recent
actuarial  valuation prepared by such Merchants Pension Plan's actuary,  did not
exceed the then  current  value of the assets of such  plans  allocable  to such
accrued benefits. To the best of Merchants' knowledge, the actuarial assumptions
then  utilized for such plans were  reasonable  and  appropriate  as of the last

                                       10
<PAGE>

valuation date and reflect then current market conditions.

            (d)  During  the  last  six  years,  the  Pension  Benefit  Guaranty
Corporation  (the  "PBGC")  has not  asserted  any claim for  liability  against
Merchants or any of its Subsidiaries which has not been paid in full.

            (e) All  premiums  (and  interest  charges  and  penalties  for late
payment,  if applicable) due to the PBGC with respect to each Merchants  Pension
Plan have been paid.  All  contributions  required to be made to each  Merchants
Pension Plan under the terms  thereof,  ERISA or other  applicable law have been
timely  made,  and all  amounts  properly  accrued  to date  as  liabilities  of
Merchants  and its  Subsidiaries  which  have not been paid  have been  properly
recorded on the books of Merchants and its Subsidiaries.

            (f) Except as disclosed on the Merchants Disclosure  Schedule,  each
of the Merchants  Pension Plans, the Merchants Welfare Plans and each other plan
and  arrangement  identified  on the  Merchants  Disclosure  Schedule  has  been
operated in compliance in all material  respects with the applicable  provisions
of ERISA, the Code, all regulations,  rulings and  announcements  promulgated or
issued thereunder,  and all other applicable  governmental laws and regulations.
Furthermore,  the IRS has issued a favorable  determination  letter, which takes
into account the Tax Reform Act of 1986 and subsequent legislation, with respect
to each of the Merchants Pension Plans and Merchants is not aware of any fact or
circumstance   which  would   disqualify  any  such  plan,  that  could  not  be
retroactively corrected (in accordance with the procedures of the IRS).

            (g)  To  the  knowledge  of  Merchants,   no  non-exempt  prohibited
transaction,  within the  meaning of Section  4975 of the Code or Section 406 of
ERISA,  has  occurred  with  respect to any of the  Merchants  Welfare  Plans or
Merchants Pension Plans.

            (h) No Merchants  Pension Plan or any trust created  thereunder  has
been terminated, nor have there been any "reportable events", within the meaning
of Section 4034(b) of ERISA, with respect to any of the Merchants Pension Plans.

            (i) No  "accumulated  funding  deficiency",  within  the  meaning of
Section 412 of the Code,  has been incurred with respect to any of the Merchants
Pension Plans.

            (j)  There  are no  pending,  or,  to the  knowledge  of  Merchants,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Merchants Pension Plans or the Merchants Welfare
Plans, any trusts related thereto or any other plan or arrangement identified in
the Merchants Disclosure Schedule.

            (k) Except as disclosed in the  Merchants  Disclosure  Schedule,  no
Merchants Pension or Welfare Plan provides medical or death benefits (whether or
not insured)  beyond an employee's  retirement or other  termination of service,
other  than (i)  coverage  mandated  by law,  or (ii) death  benefits  under any
Merchants Pension Plan.

            (l) Except with respect to  customary  health,  life and  disability
benefits or as  disclosed in the  Merchants  Disclosure  Schedule,  there are no
unfunded  benefits  obligations which are not accounted for by reserves shown on
the Merchants  Financial  Statements  and  established  under GAAP, or otherwise
noted on such financial statements.


                                       11
<PAGE>

            (m) Except as disclosed in the Merchants Disclosure  Schedule,  with
respect to each  Merchants  Pension  and Welfare  Plan that is funded  wholly or
partially through an insurance  policy,  there will be no liability of Merchants
or any Merchants  Subsidiary as of the Effective  Time under any such  insurance
policy or  ancillary  agreement  with  respect to such  insurance  policy in the
nature of a  retroactive  rate  adjustment,  loss sharing  arrangement  or other
actual  or  contingent  liability  arising  wholly  or  partially  out of events
occurring prior to or at the Effective Time.

            (n)  Except as may  hereafter  be  expressly  agreed to by Valley in
writing or as disclosed on the Merchants Disclosure  Schedule,  the consummation
of the  transactions  contemplated  by this  Agreement  will not (i) entitle any
current or former employee of Merchants or any Merchants Subsidiary to severance
pay,  unemployment  compensation or any similar payment,  or (ii) accelerate the
time of  payment,  accelerate  the  vesting,  or  increase  the  amount,  of any
compensation  or benefits due to any current  employee or former  employee under
any Merchants Pension Plan or Merchants Welfare Plan.

            (o) Except for the Merchants Pension Plans and the Merchants Welfare
Plans, and except as set forth on the Merchants Disclosure  Schedule,  Merchants
has no deferred  compensation  agreements,  understandings  or  obligations  for
payments or benefits to any current or former  director,  officer or employee of
Merchants or any Merchants  Subsidiary or any  predecessor  of any thereof.  The
Merchants  Disclosure Schedule sets forth (or lists, if previously  delivered to
Valley  with  respect  to such  items and any  supplemental  retirement  plan or
arrangement):  (i)  true  and  complete  copies  of  the  deferred  compensation
agreements,  understandings  or obligations with respect to each such current or
former  director,  officer or  employee,  and (ii) the most recent  actuarial or
other calculation of the present value of such payments or benefits.

            (p)  Except  as set  forth  in the  Merchants  Disclosure  Schedule,
Merchants does not maintain or otherwise pay for life insurance  policies (other
than  group term life  policies  on  employees)  with  respect to any  director,
officer or employee. The Merchants Disclosure Schedule lists each such insurance
policy and any agreement with a party other than the insurer with respect to the
payment,  funding  or  assignment  of such  policy.  To the  best of  Merchants'
knowledge, neither Merchants nor any Merchants Pension Plan or Merchants Welfare
Plan owns any individual or group insurance  policies issued by an insurer which
has been  found to be  insolvent  or is in  rehabilitation  pursuant  to a state
proceeding.

            (q)  Except  as set  forth  in the  Merchants  Disclosure  Schedule,
Merchants  does not maintain any retirement  plan for  directors.  The Merchants
Disclosure  Schedule  sets  forth  the  complete   documentation  and  actuarial
evaluation of any such plan.

      3.10. Reports.

            (a) The  Merchants  Disclosure  Schedule  lists,  and as to item (i)
below Merchants has previously  delivered or made available to Valley a complete
copy of, each (i) final registration statement, prospectus, annual, quarterly or
special report and definitive  proxy  statement filed by Merchants since January
1, 1997 pursuant to the Securities Act of 1933, as amended (the "1933 Act"),  or
the 1934 Act and (ii) communication  (other than general advertising  materials,
press releases and dividend checks) mailed by Merchants to its shareholders as a
class since January 1, 1997.


                                       12
<PAGE>

            (b) Since  January 1, 1997 (i)  Merchants has filed all reports that
it was required to file with the SEC under the 1934 Act, and (ii)  Merchants and
the Bank each has duly filed all material  forms,  reports and  documents  which
they were required to file with each agency  charged with  regulating any aspect
of their  business,  in each case in form  which  was  correct  in all  material
respects, and, subject to permission from such regulatory authorities, Merchants
promptly will deliver or make available to Valley  accurate and complete  copies
of such  reports.  As of their  respective  dates,  each such form,  report,  or
document  referred  to in either of clauses  (i) or (ii)  above,  and each final
registration  statement,   prospectus,  annual,  quarterly  or  special  report,
definitive proxy statement or communication referred to in either of clauses (i)
or (ii) of  paragraph  (a)  above,  as of its  date,  complied  in all  material
respects with all applicable statutes, rules and regulations and did not contain
any untrue  statement  of a  material  fact or omit to state any  material  fact
required to be stated therein or necessary in order to make the statements  made
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading;  provided  that  information  contained in any such document as of a
later date shall be deemed to modify information as of an earlier date.

            (c)  The  Merchants  Disclosure  Schedule  lists  the  dates  of all
examinations  of  Merchants  or the  Bank  conducted  by the FRB or  either  the
Department  or the FDIC  since  January  1, 1997 and the dates of any  responses
thereto submitted by Merchants or the Bank.

      3.11.  Merchants  and  Bank  Information.   The  information  relating  to
Merchants,  the Bank and the  Merchants  Subsidiaries,  this  Agreement  and the
transactions   contemplated   hereby  to  be   contained   in  the  Joint  Proxy
Statement-Prospectus  (as defined in Section  5.6(a)  hereof) to be delivered to
stockholders  of Merchants and  stockholders  of Valley in connection with their
approval of the Merger, as of the date the Joint Proxy  Statement-Prospectus  is
mailed to stockholders of Merchants and Valley, and up to and including the date
of the meetings of stockholders  to which such Joint Proxy  Statement-Prospectus
relates,  will not contain any untrue  statement  of a material  fact or omit to
state a material fact necessary to make the statements  therein, in light of the
circumstances  under  which  they were made,  not  misleading.  The Joint  Proxy
Statement-Prospectus  shall comply as to form in all material  respects with the
provisions of the 1934 Act and the rules and regulations promulgated thereunder.

      3.12. Compliance with Applicable Law.

            (a) Except as set forth in the Merchants Disclosure  Schedule,  each
of Merchants and the  Merchants  Subsidiaries  holds all  licenses,  franchises,
permits and  authorizations  necessary  for the lawful  conduct of its  business
under and pursuant to each,  and has complied  with and is not in default in any
respect under any,  applicable law, statute,  order,  rule,  regulation,  policy
and/or guideline of any federal,  state or local governmental authority relating
to  Merchants  or  any  of  its  Subsidiaries,  including,  without  limitation,
consumer,  community  and fair lending  laws (other than where such  defaults or
non-compliances  will  not,  alone or in the  aggregate,  result  in a  material
adverse  effect on the business,  operations,  assets or financial  condition of
Merchants and its  Subsidiaries  on a consolidated  basis) and Merchants has not
received  notice of violation of, and does not know of any violations of, any of
the above.

            (b) Without  limiting the  foregoing,  to its knowledge (i) the Bank
has  complied in all  material  respects  with the  Community  Reinvestment  Act


                                       13
<PAGE>

("CRA") and (ii) no person or group  would  object to the  consummation  of this
Merger due to the CRA performance of or rating of the Bank.  Except as listed on
the  Merchants  Disclosure  Schedule to the  knowledge of the Bank, no person or
group has adversely commented upon the Bank's CRA performance.

      3.13. Certain Contracts.

            (a) Except as disclosed in the Merchants  Disclosure  Schedule under
this  Section,  Section  3.5 or  Section  3.9,  (i)  neither  Merchants  nor any
Merchants  Subsidiary  is a party to or bound by any  contract or  understanding
(whether  written or oral) with respect to the  employment or termination of any
present or former  officers,  employees,  directors or consultants  and (ii) the
consummation of the transactions contemplated by this Agreement will not (either
alone or upon the  occurrence of any  additional  acts or events)  result in any
payment  (whether of severance pay or otherwise)  becoming due from Merchants or
any  Merchants  Subsidiary  to any  officer,  employee,  director or  consultant
thereof. The Merchants Disclosure Schedule sets forth true and correct copies of
all employment  agreements or termination  agreements with officers,  employees,
directors,  or consultants to which  Merchants or any Merchants  Subsidiary is a
party.

            (b) Except as disclosed  in the  Merchants  Disclosure  Schedule and
except for loan commitments,  loan agreements and loan instruments  entered into
or  issued  in the  ordinary  course  of  business,  (i) as of the  date of this
Agreement, neither Merchants nor any Merchants Subsidiary is a party to or bound
by any  commitment,  agreement  or other  instrument  which is  material  to the
business,  operations,  assets  or  financial  condition  of  Merchants  and the
Merchants Subsidiaries taken as a whole, (ii) no commitment,  agreement or other
instrument to which Merchants or any Merchants Subsidiary is a party or by which
any of them is bound limits the freedom of Merchants or any Merchants Subsidiary
to  compete  in any line of  business  or with any  person,  and  (iii)  neither
Merchants nor any Merchants  Subsidiary is a party to any collective  bargaining
agreement.

            (c)  Except  as  disclosed  in the  Merchants  Disclosure  Schedule,
neither  Merchants nor any  Merchants  Subsidiary  or, to the best  knowledge of
Merchants,  any other party thereto, is in default in any material respect under
any material lease, contract, mortgage,  promissory note, deed of trust, loan or
other  commitment  (except those under which Bank is or will be the creditor) or
arrangement.

      3.14. Properties and Insurance.

            (a) Merchants and its  Subsidiaries  have good, and as to owned real
property marketable,  title to all material assets and properties,  whether real
or  personal,  tangible or  intangible,  reflected  in  Merchants'  consolidated
balance  sheet as of June 30,  2000,  or owned and acquired  subsequent  thereto
(except to the extent that such assets and properties  have been disposed of for
fair value in the ordinary  course of business since June 30, 2000),  subject to
no encumbrances,  liens,  mortgages,  security interests or pledges,  except (i)
those items that secure  liabilities that are reflected in such balance sheet or
the notes thereto or incurred in the ordinary  course of business after the date
of such balance sheet,  (ii)  statutory  liens for amounts not yet delinquent or
which are  being  contested  in good  faith,  (iii)  such  encumbrances,  liens,
mortgages,  security interests,  pledges and title imperfections that are not in
the  aggregate  material to the  business,  operations,  assets,  and  financial
condition  of  Merchants  and its  Subsidiaries  taken as a whole  and (iv) with


                                       14
<PAGE>

respect to owned  real  property,  title  imperfections  noted in title  reports
delivered to Valley prior to the date hereof.  Merchants and its Subsidiaries as
lessees have the right under valid and subsisting leases to occupy, use, possess
and control all property  leased by them in all  material  respects as presently
occupied,  used,  possessed  and  controlled by them.  The Merchants  Disclosure
Schedule  lists  all  leases  pursuant  to  which  Merchants  or  any  Merchants
Subsidiary  occupies any real property and for each such lease lists annual base
rentals,  annual  add-ons  for  taxes,  maintenance  and the  like,  the  annual
increases to the end of the lease, the expiration date and any option terms.

            (b)  The  Merchants   Disclosure  Schedule  lists  all  policies  of
insurance covering business  operations and all insurable  properties and assets
of Merchants and its  Subsidiaries  showing all risks insured  against,  in each
case under valid,  binding and enforceable  policies or bonds, with such amounts
and such deductibles as are specified.  As of the date hereof, neither Merchants
nor any of its Subsidiaries has received any notice of cancellation or notice of
a material amendment of any such insurance policy or bond or is in default under
such policy or bond, no coverage  thereunder is being  disputed and all material
claims thereunder have been filed in a timely fashion.

      3.15.  Minute Books.  The minute books of Merchants  and its  Subsidiaries
contain  records that are accurate in all material  respects of all meetings and
other  corporate  action  held of their  respective  stockholders  and Boards of
Directors (including committees of their respective Boards of Directors).

      3.16.  Environmental  Matters.  Except  as  set  forth  in  the  Merchants
Disclosure Schedule:

            (a) Neither Merchants nor any Merchants  Subsidiary has received any
written notice, citation,  claim, assessment,  proposed assessment or demand for
abatement alleging that Merchants or such Merchants  Subsidiary (either directly
or as a trustee or fiduciary, or as a  successor-in-interest  in connection with
the  enforcement  of  remedies  to realize  the value of  properties  serving as
collateral for  outstanding  loans) is responsible for the correction or cleanup
of any condition  resulting  from the  violation of any law,  ordinance or other
governmental  regulation regarding  environmental  matters,  which correction or
cleanup  would be  material to the  business,  operations,  assets or  financial
condition  of  Merchants  and  the  Merchants  Subsidiaries  taken  as a  whole.
Merchants has no knowledge  that any toxic or hazardous  substances or materials
have been emitted,  generated,  disposed of or stored on any real property owned
or leased by Merchants or any Merchants  Subsidiary,  as OREO or  otherwise,  or
owned or  controlled  by Merchants or any  Merchants  Subsidiary as a trustee or
fiduciary  (collectively,  "Properties"),  in any manner that violates or, after
the lapse of time will violate,  any presently existing federal,  state or local
law or regulation governing or pertaining to such substances and materials.

            (b) Merchants has no knowledge  that any of the  Properties has been
operated in any manner in the three  years  prior to the date of this  Agreement
that violated any applicable federal, state or local law or regulation governing
or pertaining to toxic or hazardous  substances and materials,  the violation of
which would have a material adverse effect on the business,  operations,  assets
or financial  condition of Merchants and the Merchants  Subsidiaries  taken as a
whole.

            (c) To the  knowledge  of  Merchants,  except  as set  forth  in the


                                       15
<PAGE>

Merchants Disclosure Schedule,  there are no underground storage tanks on, in or
under any of the Properties and no underground storage tanks have been closed or
removed from any of the  Properties  while the  property was owned,  operated or
controlled by Merchants or any Merchants Subsidiary.

      3.17.  Reserves.  As of the date  hereof,  the  reserve for loan and lease
losses in the Merchants  Financial  Statements is adequate  based upon past loan
loss  experiences  and  potential  losses in the current  portfolio to cover all
known or anticipated loan losses.

      3.18. No Excess  Parachute  Payments.  No officer,  director,  employee or
agent (or former  officer,  director,  employee  or agent) of  Merchants  or any
Merchants  Subsidiary  is  entitled  now,  or  will or may be  entitled  to as a
consequence of this Agreement,  the Merger or the Bank Merger, to any payment or
benefit from Merchants,  a Merchants Subsidiary,  Valley or VNB which if paid or
provided would constitute an "excess parachute  payment",  as defined in Section
280G of the Code or regulations promulgated thereunder.

      3.19. Agreements with Bank Regulators. Neither Merchants nor any Merchants
Subsidiary is a party to any agreement or memorandum of understanding with, or a
party to any  commitment  letter,  board  resolution  submitted  to a regulatory
authority or similar undertaking to, or is subject to any order or directive by,
or is a recipient  of any  extraordinary  supervisory  letter  from,  any court,
governmental   authority  or  other  regulatory  or  administrative   agency  or
commission,   domestic  or  foreign  ("Governmental   Entity")  which  restricts
materially the conduct of its business,  or in any manner relates to its capital
adequacy, its credit or reserve policies or its management, except for those the
existence of which has been disclosed in writing to Valley by Merchants prior to
the date of this Agreement,  nor has Merchants been advised by any  Governmental
Entity that it is  contemplating  issuing or requesting (or is  considering  the
appropriateness  of issuing or requesting)  any such order,  decree,  agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar  submission,  except as  disclosed  in writing to Valley by Merchants
prior  to the  date of  this  Agreement.  Neither  Merchants  nor any  Merchants
Subsidiary  is required by Section 32 of the Federal  Deposit  Insurance  Act to
give prior notice to a Federal  banking  agency of the  proposed  addition of an
individual  to its board of directors or the  employment  of an  individual as a
senior executive officer,  except as disclosed in writing to Valley by Merchants
prior to the date of this Agreement.

      3.20.  Disclosure.  No representation or warranty contained in Article III
of this Agreement  contains any untrue  statement of a material fact or omits to
state a material fact necessary to make the statements herein not misleading.

                                   ARTICLE IV

                    REPRESENTATIONS AND WARRANTIES OF VALLEY

      References  herein to the "Valley  Disclosure  Schedule" shall mean all of
the  disclosure  schedules  required by this  Article  IV,  dated as of the date
hereof and referenced to the specific  sections and subsections of Article IV of
this  Agreement,  which  have  been  delivered  on the date  hereof by Valley to
Merchants  or will be  delivered  pursuant  to  Section  5.11(a)  by  Valley  to
Merchants.  Disclosure  of an  item  in one  section  of the  Valley  Disclosure
Schedule will be  considered  disclosure  for purposes of all sections  thereof,
except where this  Agreement  specifies  that the item must be  referenced  in a


                                       16
<PAGE>

particular section of the Valley Disclosure  Schedule.  Valley hereby represents
and warrants to Merchants as follows:

      4.1. Corporate Organization.

            (a) Valley is a corporation  duly organized and validly existing and
in good  standing  under the laws of the  State of New  Jersey.  Valley  has the
corporate  power and authority to own or lease all of its  properties and assets
and to carry on its business as it is now being conducted,  and is duly licensed
or  qualified  to do  business in each  jurisdiction  in which the nature of the
business  conducted  by it or the  character or location of the  properties  and
assets owned or leased by it makes such  licensing or  qualification  necessary,
except  where  the  failure  to be so  licensed  or  qualified  would not have a
material  adverse  effect  on the  business,  operations,  assets  or  financial
condition of Valley and its  Subsidiaries  (as defined  below) on a consolidated
basis. Valley is registered as a bank holding company under the BHCA.

            (b) All of the  Subsidiaries  of Valley  are  listed  in the  Valley
Disclosure  Schedule.  The term  "Subsidiary"  when used in this  Agreement with
reference  to  Valley,  means  any  corporation,   joint  venture,  association,
partnership,  trust or other entity in which Valley has, directly or indirectly,
at least a 50% interest or acts as a general partner.  Each Subsidiary of Valley
is duly  organized and validly  existing and in good standing  under the laws of
the jurisdiction of its incorporation. VNB is a national bank whose deposits are
insured by the BIF of the FDIC to the  fullest  extent  permitted  by law.  Each
Subsidiary of Valley has the  corporate  power and authority to own or lease all
of its  properties  and assets and to carry on its  business  as it is now being
conducted and is duly licensed or qualified to do business in each  jurisdiction
in which the nature of the business conducted by it or the character or location
of the  properties  and  assets  owned or leased by it makes such  licensing  or
qualification necessary, except where the failure to be so licensed or qualified
would not have a material adverse effect on the business,  operations, assets or
financial condition of Valley and its Subsidiaries on a consolidated basis.

      4.2.  Capitalization.  The  authorized  capital  stock of Valley  consists
solely of  108,527,344  shares of Valley Common Stock and  30,000,000  shares of
preferred stock, no par value per share (the "Valley  Preferred  Stock"),  which
may be divided into classes and into series  within any class as  determined  by
the Board of Directors.  As of June 30, 2000,  there were  60,433,231  shares of
Valley Common Stock issued and outstanding  net of treasury  stock,  and 182,746
treasury  shares and no shares of Preferred  Stock  outstanding.  Since June 30,
2000,  to and  including the date of this  Agreement,  no  additional  shares of
Valley Common Stock have been issued except in connection with the  consummation
of the  acquisition  of Hallmark  Capital  Management,  Inc. on July 6, 2000 and
exercises of options  granted under the Long-Term Stock Incentive Plan of Valley
(the "Valley  Option  Plan") or grants under the Valley Option Plan or grants or
options under any option or stock plan assumed by Valley in connection  with any
other acquisition (the "Acquired Stock Plans"). As of June 30, 2000, except for:
(a)  1,878,545   shares  of  Valley  Common  Stock  issuable  upon  exercise  of
outstanding stock options and stock appreciation  rights granted pursuant to the
Valley Option Plan or the Acquired Stock Plans,  and (b) 16,452 shares of Valley
Common Stock  issuable upon exercise of outstanding  stock options  granted to a
consultant for Valley, there were no shares of Valley Common Stock issuable upon
the  exercise  of  outstanding  stock  options  or  otherwise.  All  issued  and
outstanding shares of Valley Common Stock, and all issued and outstanding shares
of capital stock of Valley's Subsidiaries, have been duly authorized and validly
issued,  are fully paid,  nonassessable and free of preemptive  rights,  and are


                                       17
<PAGE>

free and clear of all liens,  encumbrances,  charges,  restrictions or rights of
third  parties.  All of the  outstanding  shares of  capital  stock of  Valley's
Subsidiaries  are owned by Valley  free and  clear of any  liens,  encumbrances,
charges, restrictions or rights of third parties, except as listed in the Valley
Disclosure  Schedule.  Except  for the  options  and stock  appreciation  rights
referred  to above  under the  Valley  Option  Plan,  neither  Valley nor any of
Valley's Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants,  calls,  commitments  or agreements  of any character  calling for the
transfer,  purchase  or  issuance  of any shares of  capital  stock of Valley or
Valley's  Subsidiaries  or any  securities  representing  the right to otherwise
receive any shares of such capital stock or any securities  convertible  into or
representing  the right to purchase or subscribe for any such shares,  and there
are no agreements or understandings with respect to voting of any such shares.

      4.3. Authority; No Violation.

            (a) Subject to the approval of this  Agreement and the  transactions
contemplated  hereby by the  stockholders  of  Valley,  Valley and VNB have full
corporate  power and  authority  to execute and deliver  this  Agreement  and to
consummate the  transactions  contemplated  hereby in accordance  with the terms
hereof.  Valley has a sufficient  number of  authorized  but unissued  shares of
Valley Common Stock to pay the consideration for the Merger set forth in Article
II of this  Agreement.  The  execution  and delivery of this  Agreement  and the
consummation of the transactions  contemplated hereby have been duly and validly
approved by the Board of Directors of each of Valley and VNB. The  execution and
delivery of the Bank Merger  Agreement has been duly and validly approved by the
Board of Directors of VNB.  Except for the approvals  described in paragraph (b)
below,  no  other  corporate  proceedings  on the  part  of  Valley  and VNB are
necessary to consummate the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Valley and VNB and constitutes a
valid and binding obligation of Valley and VNB,  enforceable  against Valley and
VNB in accordance with its terms.

            (b) Neither the  execution  or  delivery of this  Agreement  nor the
consummation  by  Valley  and VNB of the  transactions  contemplated  hereby  in
accordance  with  the  terms  hereof,  will (i)  violate  any  provision  of the
Certificate of  Incorporation or Bylaws of Valley or the Articles of Association
or Bylaws of VNB,  (ii) assuming that the consents and approvals set forth below
are duly  obtained,  violate any statute,  code,  ordinance,  rule,  regulation,
judgment,  order, writ, decree or injunction  applicable to Valley or VNB or any
of their  respective  properties or assets,  or (iii)  violate,  conflict  with,
result in a breach of any provision of, constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, result
in the termination of, accelerate the performance  required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the properties or assets of Valley or VNB under, any of the terms, conditions or
provisions  of any note,  bond,  mortgage,  indenture,  deed of trust,  license,
lease,  agreement or other  instrument or obligation to which Valley or VNB is a
party,  or by which  Valley or VNB or any of their  properties  or assets may be
bound or affected,  except, with respect to (ii) and (iii) above, such as in the
aggregate will not have a material  adverse effect on the business,  operations,
assets  or  financial  condition  of  Valley  and  Valley's  Subsidiaries  on  a
consolidated  basis,  or  the  ability  of  Valley  and  VNB to  consummate  the
transactions  contemplated  hereby.  Except for  consents  and  approvals  of or
filings or  registrations  with or notices to the OCC, the Department,  the FRB,
the New Jersey  Secretary  of State,  the SEC, or  applicable  state  securities
bureaus or commissions and the stockholders of Valley,  no consents or approvals


                                       18
<PAGE>

of or filings or registrations  with or notices to any third party or any public
body or authority are  necessary on behalf of Valley or VNB in  connection  with
(a) the  execution  and  delivery  by Valley or VNB of this  Agreement,  (b) the
consummation  by Valley of the  Merger and the other  transactions  contemplated
hereby and (c) the  execution  and delivery by VNB of the Bank Merger  Agreement
and  the  consummation  by  VNB  of  the  Bank  Merger  and  other  transactions
contemplated thereby.

      4.4. Financial Statements.

            (a)  Valley's  Annual  Reports on Form 10-K filed with the SEC under
the 1934 Act and available on the SEC's EDGAR system set forth the  consolidated
statements  of condition of Valley as of December 31, 1999,  1998 and 1997,  and
the related  consolidated  statements of income,  stockholders'  equity and cash
flows for the periods ended  December 31 in each of the three years 1997 through
1999,  in each case  accompanied  by the audit  report of KPMG LLP,  independent
public  accountants with respect to Valley,  and Valley's  Quarterly  Reports on
Form 10-Q filed with the SEC under the 1934 Act and available on the SEC's EDGAR
system set forth the unaudited consolidated statements of condition of Valley as
of June 30,  2000 and  related  unaudited  consolidated  statements  of  income,
changes in  stockholders'  equity  and cash flows for the six months  then ended
(collectively,   the  "Valley  Financial  Statements").   The  Valley  Financial
Statements  (including the related notes), have been prepared in accordance with
GAAP consistently  applied during the periods  involved,  and fairly present the
consolidated  financial  position of Valley as of the respective dates set forth
therein,  and  the  related  consolidated   statements  of  income,  changes  in
stockholders'  equity and of cash flows  (including  the  related  notes,  where
applicable)  fairly  present  the  results of the  consolidated  operations  and
changes in  stockholders'  equity and of cash flows of Valley for the respective
fiscal periods set forth therein.

            (b) The books and records of Valley and its  subsidiaries  have been
and are being  maintained  in  material  compliance  with  applicable  legal and
accounting requirements, and reflect only actual transactions.

            (c) Except as and to the extent  reflected,  disclosed  or  reserved
against in the Valley Financial Statements  (including the notes thereto), as of
June 30, 2000 neither Valley nor any of its Subsidiaries had or has, as the case
may be,  any  material  obligation  or  liability,  whether  absolute,  accrued,
contingent  or  otherwise,  material  to the  business,  operations,  assets  or
financial  condition of Valley or any of its Subsidiaries.  Since June 30, 2000,
neither  Valley  nor  any  of  its  Subsidiaries   have  incurred  any  material
liabilities,  except in the  ordinary  course of business  and  consistent  with
prudent banking practice, except as specifically contemplated by this Agreement.

      4.5. Brokerage Fees; Financial Advisor;  Fairness Opinion. Except for fees
to be  paid to MG  Advisors,  Inc.,  neither  Valley  nor  VNB nor any of  their
respective  directors  or officers has employed any broker or finder or incurred
any  liability for any broker's or finder's  fees or  commissions  in connection
with any of the transactions  contemplated by this Agreement.  Sandler O'Neill &
Partners,  L.P. has delivered to Valley its written  opinion with respect to the
fairness  from  a  financial  point  of  view,  of  the  Exchange  Ratio  to the
shareholders of Valley in the Merger.

      4.6. Absence of Certain Changes or Events. There has not been any material
adverse  change in the business,  operations,  assets or financial  condition of
Valley and Valley's Subsidiaries on a consolidated basis since June


                                       19
<PAGE>

30, 2000 and to Valley's  knowledge,  no fact or  condition  exists which Valley
believes will cause or is likely to cause such a material  adverse change in the
future.

      4.7.  Valley  Information.  The  information  relating  to Valley  and its
Subsidiaries,  this  Agreement and the  transactions  contemplated  hereby to be
contained in the Registration Statement and Joint Proxy Statement-Prospectus (as
defined in Section  5.6(a)  hereof),  as of the date of the mailing of the Joint
Proxy  Statement-Prospectus  to stockholders of Merchants and Valley,  and up to
and including the date of the meetings of stockholders to which such Joint Proxy
Statement-Prospectus  relates,  will  not  contain  any  untrue  statement  of a
material fact or omit to state a material fact  necessary to make the statements
therein,  in  light  of the  circumstances  under  which  they  were  made,  not
misleading.  The Registration  Statement shall comply as to form in all material
respects  with the  provisions  of the 1933 Act,  the 1934 Act and the rules and
regulations promulgated thereunder.

      4.8. Capital Adequacy. As of the date of this Agreement Valley has, and at
the  Effective  Time,  after taking into effect the Merger and the  transactions
contemplated  hereunder,  Valley  will have,  sufficient  capital to satisfy all
applicable regulatory capital requirements.

      4.9. Valley Common Stock. As of the date hereof,  Valley has available and
reserved shares of Valley Common Stock  sufficient for issuance  pursuant to the
Merger and upon the exercise of Stock  Options  subsequent  thereto.  The Valley
Common Stock to be issued hereunder pursuant to the Merger, and upon exercise of
the Stock Options,  when so issued,  will be duly authorized and validly issued,
fully paid,  nonassessable,  free of preemptive rights and free and clear of all
liens,  encumbrances  or  restrictions  created  by or through  Valley,  with no
personal liability  attaching to the ownership thereof.  The Valley Common Stock
to be issued  hereunder  pursuant to the Merger,  and upon exercise of the Stock
Options,  when so issued,  will be  registered  under the 1933 Act and issued in
accordance with all applicable  state and federal laws,  rules and  regulations,
and will be approved or listed for trading on the NYSE.

      4.10.  Legal  Proceedings.  Except as disclosed  in the Valley  Disclosure
Schedule,  neither Valley nor its  Subsidiaries is a party to any, and there are
no  pending  or,  to  Valley's  knowledge,  threatened,  legal,  administrative,
arbitral or other proceedings, claims, actions or governmental investigations of
any nature against Valley or any of its Subsidiaries which, if decided adversely
to Valley, or any of its  Subsidiaries,  would have a material adverse effect on
the  business,  operations,  assets or  financial  condition  of Valley  and its
Subsidiaries  on a  consolidated  basis.  Except  as  disclosed  in  the  Valley
Disclosure Schedule,  neither Valley nor any of Valley's Subsidiaries is a party
to any order,  judgment or decree entered  against Valley or any such Subsidiary
in any lawsuit or proceeding  which would have a material  adverse effect on the
business,   operations,   assets  or  financial  condition  of  Valley  and  its
Subsidiaries on a consolidated basis.

      4.11. Taxes and Tax Returns.

            (a) Valley and each Valley Subsidiary have duly filed (and until the
Effective Time will so file) all Returns required to be filed by them in respect
of any federal, state and local taxes (including withholding taxes, penalties or
other  payments  required)  and  except  as set forth in the  Valley  Disclosure
Schedule, each has duly paid (and until the Effective Time will so pay) all such
taxes shown as due on such returns,  other than taxes or other


                                       20
<PAGE>

charges which are being  contested in good faith (and  disclosed to Merchants in
writing).  Valley and each Valley  Subsidiary  have  established  (and until the
Effective  Time will  establish)  on their  books and records  reserves  for the
payment  of all  federal,  state and local  taxes not yet due and  payable,  but
incurred in respect of Valley or any Valley Subsidiary  through such date, which
reserves are adequate for such purposes.  To the knowledge of Valley,  except as
set forth in the Valley Disclosure  Schedule,  the federal income tax returns of
Valley  and its  Subsidiaries  have been  examined  by the IRS (or are closed to
examination due to the expiration of the applicable  statute of limitations) and
no deficiencies  were asserted as a result of such  examinations  which have not
been resolved and paid in full. To the knowledge of Valley,  except as set forth
in the Valley  Disclosure  Schedule,  the applicable  state income and local tax
returns of Valley and its  Subsidiaries  have been  examined  by the  applicable
authorities  (or are closed to examination  due to the expiration of the statute
of  limitations)  and  no  deficiencies  were  asserted  as  a  result  of  such
examinations  which have not been resolved and paid in full. To the knowledge of
Valley,  there  are no  audits  or other  administrative  or  court  proceedings
presently pending nor any other disputes pending,  or claims asserted for, taxes
or assessments upon Valley or any of its  Subsidiaries,  nor except as set forth
in the Valley Disclosure  Schedule,  has Valley or any of its Subsidiaries given
any  currently   outstanding   waivers  or  comparable  consents  regarding  the
application of the statute of limitations with respect to any taxes or Returns.

            (b) Except as set forth in the Valley Disclosure  Schedule,  neither
Valley nor any of its  Subsidiaries  (i) has  requested  any  extension  of time
within which to file any tax Return which Return has not since been filed,  (ii)
is a party to any agreement  providing  for the  allocation or sharing of taxes,
(iii) is required to include in income any adjustment pursuant to Section 481(a)
of the Code, by reason of a voluntary  change in accounting  method initiated by
Valley or any Valley Subsidiary (nor does Valley have any knowledge that the IRS
has proposed any such  adjustment  or change of  accounting  method) or (iv) has
filed a consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.

      4.12. Employee Benefit Plans.

            (a) Valley and its  Subsidiaries  maintain or  contribute to certain
"employee  pension benefit plans" (the "Valley Pension Plans"),  as such term is
defined in Section 3 of ERISA, and "employee welfare benefit plans" (the "Valley
Welfare Plans"),  as such term is defined in Section 3 of ERISA. Since September
2,  1974,   neither  Valley  nor  its  Subsidiaries   have  contributed  to  any
"Multiemployer Plan", as such term is defined in Section 3(37) of ERISA.

            (b) Valley  has  delivered  to  Merchants  in the Valley  Disclosure
Schedule a complete  and accurate  copy of each of the summary plan  description
with respect to each of the Valley Pension Plans and Valley Welfare Plans.

            (c) The  present  value of all  accrued  benefits  both  vested  and
non-vested  under each of the Valley Pension Plans subject to Title IV of ERISA,
based  upon the  actuarial  assumptions  used for  purposes  of the most  recent
actuarial  valuation  prepared by such Valley  Pension Plan's  actuary,  did not
exceed the then  current  value of the assets of such  plans  allocable  to such
accrued benefits.  To the best of Valley's knowledge,  the actuarial assumptions
then  utilized for such plans were  reasonable  and  appropriate  as of the last
valuation date and reflect then current market conditions.

            (d) During the last six years,  the PBGC has not  asserted any


                                       21
<PAGE>

claim for liability against Valley or any of its Subsidiaries which has not been
paid in full.

            (e) All  premiums  (and  interest  charges  and  penalties  for late
payment, if applicable) due to the PBGC with respect to each Valley Pension Plan
have been paid.  All  contributions  required to be made to each Valley  Pension
Plan under the terms  thereof,  ERISA or other  applicable  law have been timely
made, and all amounts  properly accrued to date as liabilities of Valley and its
Subsidiaries  which have not been paid have been properly  recorded on the books
of Valley and its Subsidiaries.

            (f) Except as disclosed on the Valley Disclosure  Schedule,  each of
the Valley  Pension  Plans and the Valley  Welfare  Plans has been  operated  in
compliance in all material respects with the applicable provisions of ERISA, the
Code,  all  regulations,   rulings  and  announcements   promulgated  or  issued
thereunder,   and  all  other  applicable  governmental  laws  and  regulations.
Furthermore,  the IRS has issued a favorable  determination  letter, which takes
into account the Tax Reform Act of 1986 and subsequent legislation, with respect
to each of the  Valley  Pension  Plans  and  Valley  is not aware of any fact or
circumstance   which  would   disqualify  any  such  plan,  that  could  not  be
retroactively corrected (in accordance with the procedures of the IRS).

            (g)  To  the   knowledge  of  Valley,   no   non-exempt   prohibited
transaction,  within the  meaning of Section  4975 of the Code or Section 406 of
ERISA,  has occurred  with respect to any of the Valley  Welfare Plans or Valley
Pension Plans.

            (h) No Valley Pension Plan or any trust created  thereunder has been
terminated,  nor have there been any "reportable events",  within the meaning of
Section 4034(b) of ERISA, with respect to any of the Valley Pension Plans.

            (i) No  "accumulated  funding  deficiency",  within  the  meaning of
Section 412 of the Code,  has been  incurred  with  respect to any of the Valley
Pension Plans.

            (j) There are no pending, or, to the knowledge of Valley, threatened
or anticipated  claims (other than routine claims for benefits) by, on behalf of
or against any of the Valley  Pension  Plans or the Valley  Welfare  Plans,  any
trusts related thereto or any other plan or arrangement identified in the Valley
Disclosure Schedule.

            (k) Except as set forth in the Valley  Disclosure  Schedule,  Valley
does not maintain any retirement plan for directors.

            (l) Except with respect to  customary  health,  life and  disability
benefits  or as  disclosed  on the  Valley  Disclosure  Schedule,  there  are no
unfunded  benefit  obligations  which are not accounted for by reserves shown on
the financial statements of Valley and established under GAAP or otherwise noted
on such financial statements.

      4.13. Reports.

            (a) Each  communication  mailed by Valley to its stockholders  since
January 1, 1997, and each annual,  quarterly or special report,  proxy statement
or  communication,  as of its date,  complied in all material  respects with all
applicable  statutes,  rules and  regulations  enforced  or  promulgated  by the
applicable  regulatory  agency and did not  contain  any untrue  statement  of a


                                       22
<PAGE>

material fact or omit to state any material  fact required to be stated  therein
or  necessary  in order to make the  statements  made  therein,  in light of the
circumstances  under  which  they  were  made,  not  misleading;  provided  that
disclosures  as of a later date shall be deemed to modify  disclosures  as of an
earlier date. The Valley  Disclosure  Schedule lists all SEC 1933 Act filings by
Valley that currently are subject to review.

            (b) Valley and VNB have,  since January 1, 1997, duly filed with the
OCC and, where applicable, the FDIC, and the FRB in correct form in all material
respects the monthly,  quarterly and annual  reports  required to be filed under
applicable  laws  and  regulations,   and  Valley,  upon  written  request  from
Merchants,  promptly  will deliver or make  available to Merchants  accurate and
complete copies of such reports.  The Valley Disclosure Schedule lists the dates
of all examinations of Valley or VNB conducted by either the OCC, the FRB or the
FDIC since January 1, 1997.

      4.14. Compliance with Applicable Law. Valley and its Subsidiaries hold all
material  licenses,  franchises,  permits and  authorizations  necessary for the
lawful conduct of their  respective  businesses  under and pursuant to each, and
has  complied  with and is not in default in any respect  under any,  applicable
law, statute,  order, rule, regulation,  policy and/or guideline of any federal,
state or local  governmental  authority  relating to Valley and its Subsidiaries
(other than where such default or  non-compliance  will not result in a material
adverse  effect on the business,  operations,  assets or financial  condition of
Valley and its Subsidiaries on a consolidated basis) and Valley has not received
notice of  violations  of,  and does not know of any  violations  of, any of the
above. Without limiting the foregoing,  to its knowledge (i) VNB has complied in
all material  respects  with the CRA and (ii) no person or group would object to
the  consummation  of the Merger due to the CRA performance or rating of VNB. To
the knowledge of Valley,  except as listed on the Valley Disclosure Schedule, no
person or group has adversely commented upon VNB's CRA performance.

      4.15. Properties and Insurance.

            (a)  Valley  and its  Subsidiaries  have good and,  as to owned real
property,  marketable title to all material assets and properties,  whether real
or personal, tangible or intangible,  reflected in Valley's consolidated balance
sheet as of June 30, 2000, or owned and acquired  subsequent  thereto (except to
the extent that such assets and properties  have been disposed of for fair value
in the  ordinary  course  of  business  since  June  30,  2000),  subject  to no
encumbrances,  liens, mortgages, security interests or pledges, except (i) those
items that secure  liabilities  that are  reflected in such balance sheet or the
notes thereto or incurred in the ordinary  course of business  after the date of
such balance sheet, (ii) statutory liens for amounts not yet delinquent or which
are being contested in good faith,  (iii) such encumbrances,  liens,  mortgages,
security  interests,  pledges  and  title  imperfections  that  are  not  in the
aggregate material to the business,  operations, assets, and financial condition
of Valley and its  subsidiaries  taken as a whole and (iv) with respect to owned
real  property,  title  imperfections  which are noted in the most recent  title
reports with respect to such property.  Valley and its  Subsidiaries  as lessees
have the right under valid and  subsisting  leases to occupy,  use,  possess and
control  all  property  leased by them in all  material  respects  as  presently
occupied, used, possessed and controlled by them.

            (b) The business operations and all insurable  properties and assets
of Valley and its  Subsidiaries  are insured for their benefit against all


                                       23
<PAGE>

risks which,  in the  reasonable  judgment of the management of Valley should be
insured against, in each case under valid,  binding and enforceable  policies or
bonds,  with such  deductibles  and against  such risks and losses as are in the
opinion of the  management  of Valley  adequate for the  business  engaged in by
Valley and its  Subsidiaries.  As of the date hereof,  neither Valley nor any of
its Subsidiaries has received any notice of cancellation or notice of a material
amendment  of any such  insurance  policy or bond or is in  default  under  such
policy or bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion.

      4.16.  Minute  Books.  The  minute  books of Valley  and its  Subsidiaries
contain  records that are accurate in all material  respects of all meetings and
other  corporate  action  held of their  respective  stockholders  and Boards of
Directors (including committees of their respective Boards of Directors).

      4.17.  Environmental Matters. Except as disclosed in the Valley Disclosure
Schedule,  neither Valley nor any of its  Subsidiaries  has received any written
notice, citation, claim, assessment, proposed assessment or demand for abatement
alleging  that  Valley  or any  of its  Subsidiaries  (either  directly  or as a
successor-in-interest  in connection with the enforcement of remedies to realize
the  value of  properties  serving  as  collateral  for  outstanding  loans)  is
responsible  for the  correction  or clean-up of any  condition  material to the
business,   operations,   assets  or  financial   condition  of  Valley  or  its
Subsidiaries.  Except as disclosed in the Valley Disclosure Schedule, Valley has
no knowledge  that any toxic or  hazardous  substances  or  materials  have been
emitted,  generated,  disposed of or stored on any  property  owned or leased by
Valley or any of its  Subsidiaries  in any manner that  violates  or,  after the
lapse of time may violate, any presently existing federal, state or local law or
regulation  governing  or  pertaining  to such  substances  and  materials,  the
violation  of which  would  have a  material  adverse  effect  on the  business,
operations,  assets or financial  condition of Valley and its  Subsidiaries on a
consolidated basis.

      4.18.  Reserves.  As of the date  hereof,  the  reserve for loan and lease
losses in the Valley Financial  Statements is, to Valley's  knowledge,  adequate
based  upon past loan  loss  experiences  and  potential  losses in the  current
portfolio to cover all known or anticipated loan losses.

      4.19.  Agreements  with Bank  Regulators.  Neither  Valley  nor any Valley
Subsidiary is a party to any agreement or memorandum of understanding with, or a
party to any  commitment  letter,  board  resolution  submitted  to a regulatory
authority or similar undertaking to, or is subject to any order or directive by,
or is a recipient of any extraordinary supervisory letter from, any Governmental
Entity which restricts materially the conduct of its business,  or in any manner
relates  to  its  capital  adequacy,  its  credit  or  reserve  policies  or its
management,  nor has Valley been advised by any  Governmental  Entity that it is
contemplating  issuing or requesting (or is considering the  appropriateness  of
issuing  or  requesting)  any  such  order,  decree,  agreement,  memorandum  of
understanding,  extraordinary  supervisory letter,  commitment letter or similar
submission,  except as  disclosed in writing to Merchants by Valley prior to the
date of this  Agreement.  Neither VNB nor any Valley  Subsidiary  is required by
Section  32 of the  Federal  Deposit  Insurance  Act to give  prior  notice to a
Federal banking agency of the proposed addition of an individual to its board of
directors or the  employment  of an individual  as a senior  executive  officer,
except as  disclosed in writing to Merchants by Valley prior to the date of this
Agreement.


                                       24
<PAGE>

      4.20.  Disclosures.  No representation or warranty contained in Article IV
of this Agreement  contains any untrue  statement of a material fact or omits to
state a material fact necessary to make the statements herein not misleading.

                                    ARTICLE V

                            COVENANTS OF THE PARTIES

      5.1. Conduct of the Business of Merchants. During the period from the date
of this Agreement to the Effective Time,  Merchants  shall, and shall cause each
of  its  Subsidiaries  to,  conduct  its  respective   business  and  engage  in
transactions permitted hereunder only in the ordinary course and consistent with
prudent banking practice, except with the prior written consent of Valley, which
consent will not be  unreasonably  withheld.  Merchants  also shall use its best
efforts to (i)  preserve its business  organization  and that of each  Merchants
Subsidiary  intact,  (ii) keep  available to itself the present  services of its
employees and those of its Subsidiaries, provided that neither Merchants nor any
of its Subsidiaries  shall be required to take any unreasonable or extraordinary
act or any action which would  conflict  with any other term of this  Agreement,
and (iii) preserve for itself and Valley the goodwill of its customers and those
of its Subsidiaries and others with whom business relationships exist.

      5.2. Negative Covenants and Dividend Covenants.

            (a)  Merchants  agrees  that from the date  hereof to the  Effective
Time,  except as  otherwise  approved  by Valley in writing or as  permitted  or
required  by this  Agreement,  it  will  not,  nor  will  it  permit  any of its
Subsidiaries to:

                  (i) change any provision of its  Certificate of  Incorporation
            or Bylaws or any similar governing documents;

                  (ii)  except  for  the  issuance  of  Merchants  Common  Stock
            pursuant to the present terms of the outstanding  Merchants  Options
            and the  Valley  Stock  Option  and as  disclosed  in the  Merchants
            Disclosure  Schedule,  change the number of shares of its authorized
            or issued  common or  Preferred  Stock or issue or grant any option,
            warrant,  call,  commitment,  subscription,  right  to  purchase  or
            agreement  of any  character  relating to the  authorized  or issued
            capital  stock  of  Merchants  or any  Merchants  Subsidiary  or any
            securities  convertible into shares of such stock, or split, combine
            or  reclassify  any  shares  of its  capital  stock,  or  redeem  or
            otherwise acquire any shares of such capital stock, or declare,  set
            aside or pay any dividend,  or other distribution  (whether in cash,
            stock or  property  or any  combination  thereof)  in respect of its
            capital stock, other than its regular quarterly dividend of $0.125;

                  (iii)  grant any  severance  or  termination  pay (other  than
            pursuant to policies of  Merchants  in effect on the date hereof and
            disclosed in the  Merchants  Disclosure  Schedule or as agreed to by
            Valley  in  writing)  to,  or  enter  into or amend  any  employment
            agreement with, any of its directors,  officers or employees,  adopt
            any new employee  benefit plan or  arrangement  of any type or amend
            any such existing benefit plan or arrangement; or award any increase
            in


                                       25
<PAGE>

            compensation  or benefits to its  directors,  officers or employees,
            except for increases in  compensation  to officers (other than those
            entering into the Non-Competition  Agreements  referenced in Section
            5.15) and  employees in the usual and  ordinary  course of business,
            not to exceed 5%;

                  (iv) sell or  dispose of any  substantial  amount of assets or
            incur any significant  liabilities other than in the ordinary course
            of business consistent with past practices and policies;

                  (v) make any capital  expenditures in excess of $100,000 other
            than pursuant to binding commitments existing on the date hereof and
            expenditures  necessary to maintain  existing  assets in good repair
            and expenditures  described in business plans or budgets  previously
            furnished  to  Valley,  except  as set forth in  Section  5.2 of the
            Merchants Disclosure Schedule;

                  (vi) file any  applications  or make any contract with respect
            to branching or site location or relocation;

                  (vii) agree to acquire in any manner whatsoever (other than to
            foreclose  on  collateral  for a  defaulted  loan) any  business  or
            entity;

                  (viii) make any material  change in its accounting  methods or
            practices, other than changes required in accordance with GAAP;

                  (ix)  take  any  action  that  would  result  in  any  of  the
            representations  and  warranties  contained  in Article  III of this
            Agreement not being true and correct in any material  respect at the
            Effective  Time or that would cause any of its conditions to Closing
            not to be satisfied; or

                  (x) agree to do any of the foregoing.

            (b) Valley agrees that from the date hereof to the  Effective  Time,
except as otherwise approved by Merchants in writing or as permitted or required
by this Agreement, it will not, nor will it permit any of its Subsidiaries to:

                  (i) take any action  that is  intended  or may  reasonably  be
            expected to result in any of its  representations and warranties set
            forth in Article IV of this  Agreement not being true and correct in
            any material  respect at the Effective  Time or that would cause any
            of its conditions to Closing not to be satisfied;

                  (ii) consolidate with or merge with any other person or entity
            in which Valley is not the surviving entity, or convey,  transfer or
            lease its properties and assets  substantially as an entirety to any
            person or entity unless such person or entity shall expressly assume
            the obligations of Valley under this Agreement; or

                  (iii)  authorize or enter into any  agreement or commitment to
            do any of the foregoing.

      5.3. No Solicitation. So long as this Agreement remains in effect, neither
Merchants nor the Bank shall,  directly or  indirectly,  encourage or solicit or
hold  discussions  or  negotiations  with,  or provide any  information


                                       26
<PAGE>

to, any person,  entity or group  (other than Valley)  concerning  any merger or
sale of shares of capital stock or sale of substantial assets or liabilities not
in the ordinary course of business, or similar transactions  involving Merchants
or the Bank  (an  "Acquisition  Transaction").  Notwithstanding  the  foregoing,
Merchants may enter into  discussions or negotiations or provide  information in
connection with an unsolicited possible Acquisition  Transaction if the Board of
Directors  of  Merchants,  after  consulting  with  counsel,  determines  in the
exercise of its fiduciary responsibilities that such discussions or negotiations
should be commenced or such  information  should be furnished.  Merchants  shall
promptly  communicate  to Valley the terms of any proposal,  whether  written or
oral,  which it may receive in respect of any such  Acquisition  Transaction and
the fact that it is having  discussions or negotiations with a third party about
an Acquisition Transaction.

      5.4.  Current  Information.  During  the  period  from  the  date  of this
Agreement  to the  Effective  Time,  Merchants  will  cause  one or  more of its
designated  representatives  to confer on a monthly or more frequent  basis with
representatives of Valley regarding Merchants' business, operations, properties,
assets and  financial  condition and matters  relating to the  completion of the
transactions contemplated herein. Without limiting the foregoing, Merchants will
send to Valley a monthly list of each new loan or extension of credit,  and each
renewal of an existing loan or extension of credit, in excess of $250,000,  made
during such month,  and provide  Valley with a copy of the loan offering for any
such loan,  extension of credit, or renewal upon request.  As soon as reasonably
available,  but in no  event  more  than 45 days  after  the end of each  fiscal
quarter  (other than the last fiscal  quarter of each fiscal  year) ending after
the date of this  Agreement  and prior to the  Effective  Time,  Merchants  will
deliver to Valley the Bank's call reports filed with the Department and FDIC and
Merchants'  quarterly  reports on Form 10-Q as filed with the SEC under the 1934
Act,  and Valley will deliver to Merchants  Valley's  quarterly  reports on Form
10-Q,  as filed with the SEC under the 1934 Act,  and VNB's call  reports  filed
with the OCC and the FDIC. As soon as reasonably available, but in no event more
than 90 days after the end of each  fiscal  year  ending  after the date of this
Agreement and prior to the Effective Time,  Merchants will deliver to Valley and
Valley will deliver to Merchants their respective  Annual Reports,  in each case
as filed on Form 10-K with the SEC under the 1934 Act.

      5.5. Access to Properties and Records; Confidentiality.

            (a)   Merchants   and  the  Bank   shall   permit   Valley  and  its
representatives,   and  Valley   and  VNB  shall   permit   Merchants   and  its
representatives,  accompanied by an officer of the respective party,  reasonable
access to their respective properties,  and shall disclose and make available to
Valley and its  representatives or Merchants and its representatives as the case
may be, all books, papers and records relating to their respective assets, stock
ownership, properties, operations,  obligations and liabilities,  including, but
not  limited  to, all books of  account  (including  the  general  ledger),  tax
records, minute books of directors' and stockholders'  meetings,  organizational
documents,   bylaws,  material  contracts  and  agreements,   filings  with  any
regulatory authority,  independent auditors' work papers (subject to the receipt
by such auditors of a standard access representation letter),  litigation files,
plans  affecting  employees,  and any other business  activities or prospects in
which Valley and its  representatives or Merchants and its  representatives  may
have a reasonable interest. Neither party shall be required to provide access to
or to disclose  information  where such access or  disclosure  would  violate or
prejudice  the  rights  of any  customer  or would  contravene  any  law,  rule,
regulation, order or judgment. The parties will use their best efforts to obtain


                                       27
<PAGE>

waivers of any such  restriction  and in any event make  appropriate  substitute
disclosure  arrangements  under  circumstances  in which the restrictions of the
preceding sentence apply.  Merchants acknowledges that Valley may be involved in
discussions    concerning   potential    acquisitions   of   other   banks   and
financial-related  institutions  and Valley  shall not be  obligated to disclose
such information to Merchants  except as such information is publicly  disclosed
by Valley.

            (b) All  information  furnished by the parties hereto  previously in
connection with  transactions  contemplated by this Agreement or pursuant hereto
shall be used  solely for the  purpose  of  evaluating  the Merger  contemplated
hereby and shall be treated as the sole  property  of the party  delivering  the
information until  consummation of the Merger  contemplated  hereby and, if such
Merger shall not occur, each party and each party's advisors shall return to the
other party all documents or other materials containing, reflecting or referring
to such information,  will not retain any copies of such information,  shall use
its best  efforts  to keep  confidential  all such  information,  and  shall not
directly  or  indirectly  use  such  information  for any  competitive  or other
commercial  purposes.  In the  event  that the  Merger  contemplated  hereby  is
abandoned, all documents, notes and other writings prepared by a party hereto or
its advisors based on information furnished by the other party shall be promptly
destroyed.  The obligation to keep such information  confidential shall continue
for five  years from the date the  proposed  Merger is  abandoned  but shall not
apply to (i) any  information  which (A) the party receiving the information can
establish  by  convincing  evidence was already in its  possession  prior to the
disclosure thereof to it by the other party; (B) was then generally known to the
public;  (C) became known to the public through no fault of the party  receiving
such  information;  or (D) was disclosed to the party receiving such information
by a  third  party  not  bound  by an  obligation  of  confidentiality;  or (ii)
disclosures  pursuant to a legal requirement or in accordance with an order of a
court of competent jurisdiction.

            (c) Without limiting the rights provided under Section 5.5(a),  each
of Valley and Merchants,  for a period of 45 calendar days following the date of
this Agreement,  shall have the right to conduct a full and complete acquisition
audit and to perform such due diligence as it deems  appropriate,  using its own
officers and employees or third  parties,  for purposes of  determining  whether
there is a material  breach of any  representation  or warranty  hereunder  or a
material  adverse  change in the  business or  financial  condition of the other
party.  Such  acquisition  audit  or  due  diligence  shall  not be  limited  or
restricted  by virtue of any audit or due  diligence  performed  before the date
hereof or for any other reason, but shall not unduly interfere with the business
of the other party.

      5.6. Regulatory Matters.

            (a) For the  purposes  of  holding  the  Shareholders  Meetings  (as
referred to in Section 5.7 hereof),  and qualifying under applicable federal and
state  securities  laws the  Valley  Common  Stock  to be  issued  to  Merchants
shareholders in connection  with the Merger,  the parties hereto shall cooperate
in the preparation and filing by Valley with the SEC of a Registration Statement
including a joint proxy  statement  and  prospectus  satisfying  all  applicable
requirements of applicable  state and federal laws,  including the 1933 Act, the
1934 Act and  applicable  state  securities  laws and the rules and  regulations
thereunder  (such proxy statement and prospectus in the form mailed by Merchants
and Valley to their respective shareholders together with any and all amendments
or  supplements   thereto,   being  herein  referred  to  as  the  "Joint  Proxy


                                       28
<PAGE>

Statement-Prospectus"  and the various documents to be filed by Valley under the
1933 Act with the SEC to register the Valley  Common  Stock for sale,  including
the  Joint   Proxy   Statement-Prospectus,   are   referred  to  herein  as  the
"Registration Statement").

            (b) Valley shall furnish Merchants with such information  concerning
Valley  and  its  Subsidiaries  (including,   without  limitation,   information
regarding  other  transactions  which  Valley is  required  to  disclose)  as is
necessary in order to cause the Joint Proxy Statement-Prospectus,  insofar as it
relates to such  corporations,  to comply with  Section  5.6(a)  hereof.  Valley
agrees  promptly to advise  Merchants if at any time prior to the  Shareholders'
Meetings   any   information   provided   by   Valley   in   the   Joint   Proxy
Statement-Prospectus becomes incorrect or incomplete in any material respect and
promptly  to provide  Merchants  with the  information  needed to  correct  such
inaccuracy  or  omission.  Valley shall  promptly  furnish  Merchants  with such
supplemental  information  as may be necessary in order to cause the Joint Proxy
Statement-Prospectus,   insofar   as  it   relates  to  Valley  and  the  Valley
Subsidiaries,  to comply with Section  5.6(a)  after the mailing  thereof to the
parties' respective shareholders.

            (c) Merchants shall furnish Valley with such information  concerning
Merchants    as   is   necessary   in   order   to   cause   the   Joint   Proxy
Statement-Prospectus, insofar as it relates to Merchants, to comply with Section
5.6(a) hereof.  Merchants  agrees promptly to advise Valley if at any time prior
to the  Shareholders'  Meetings,  any  information  provided by Merchants in the
Joint Proxy Statement-Prospectus becomes incorrect or incomplete in any material
respect and promptly to provide  Valley with the  information  needed to correct
such inaccuracy or omission.  Merchants shall promptly  furnish Valley with such
supplemental  information  as may be necessary in order to cause the Joint Proxy
Statement-Prospectus,  insofar as it relates to Merchants and the Bank to comply
with  Section  5.6(a)  after the  mailing  thereof  to the  parties'  respective
shareholders.

            (d) Valley shall as promptly as practicable make such filings as are
necessary  in  connection  with the  offering  of the Valley  Common  Stock with
applicable  state  securities  agencies and shall use all reasonable  efforts to
qualify the offering of such stock under applicable state securities laws at the
earliest  practicable  date.  Merchants shall promptly  furnish Valley with such
information regarding the Merchants shareholders as Valley requires to enable it
to determine what filings are required hereunder. Merchants authorizes Valley to
utilize  in such  filings  the  information  concerning  Merchants  and the Bank
provided  to Valley  in  connection  with,  or  contained  in,  the Joint  Proxy
Statement-Prospectus. Valley shall furnish Merchants' counsel with copies of all
such  filings  and keep  Merchants  advised  of the status  thereof.  Valley and
Merchants  shall as  promptly as  practicable  file the  Registration  Statement
containing the Joint Proxy Statement-Prospectus with the SEC, and each of Valley
and Merchants  shall promptly  notify the other of all  communications,  oral or
written, with the SEC concerning the Registration  Statement and the Joint Proxy
Statement-Prospectus.

            (e) Valley shall cause the Valley Common Stock issuable  pursuant to
the Merger to be listed on the NYSE at the  Effective  Time.  Valley shall cause
the Valley  Common  Stock which shall be issuable  pursuant to exercise of Stock
Options to be accepted for listing on the NYSE when issued.

            (f) The parties  hereto will cooperate with each other and use their
reasonable  best efforts to prepare all necessary  documentation,  to effect


                                       29
<PAGE>

all necessary filings and to obtain all necessary permits,  consents,  approvals
and  authorizations of all third parties and Governmental  Entities necessary to
consummate the transactions  contemplated by this Agreement as soon as possible,
including,  without  limitation,  those  required  by  the  OCC,  the  FRB,  the
Department,  and the FDIC. Without limiting the foregoing, the parties shall use
reasonable  business  efforts to file for approval or waiver by the  appropriate
bank regulatory agencies within 40 days after the date hereof. The parties shall
each have the right to review in advance (and shall do so promptly)  all filings
with,  including all information  relating to the other, as the case may be, and
any of their respective subsidiaries,  which appears in any filing made with, or
written  material  submitted  to,  any  third  party or  Governmental  Entity in
connection with the transactions contemplated by this Agreement.

            (g) Each of the parties will promptly furnish each other with copies
of  written  communications   received  by  them  or  any  of  their  respective
subsidiaries  from, or delivered by any of the  foregoing  to, any  Governmental
Entity in respect of the transactions contemplated hereby.

            (h)  Merchants  acknowledges  that  Valley  is in or  may  be in the
process of acquiring other banks and financial-related  institutions and that in
connection  with such  acquisitions,  information  concerning  Merchants  may be
required to be included in the registration statements,  if any, for the sale of
securities  of Valley or in SEC reports in  connection  with such  acquisitions.
Merchants agrees to provide Valley with any information, certificates, documents
or other materials about Merchants as are reasonably necessary to be included in
such  other SEC  reports  or  registration  statements,  including  registration
statements  which may be filed by Valley prior to the Effective Time.  Merchants
shall use its  reasonable  efforts to cause its  attorneys  and  accountants  to
provide  Valley and any  underwriters  for  Valley  with any  consents,  comfort
letters, opinion letters, reports or information which are necessary to complete
the  registration  statements  and  applications  for any  such  acquisition  or
issuance of securities. Valley shall reimburse Merchants for reasonable expenses
thus incurred by Merchants should this transaction be terminated for any reason.
Valley  shall  not file with the SEC any  registration  statement  or  amendment
thereto or supplement thereof containing  information regarding Merchants unless
Merchants  shall have  consented in writing to such filing,  which consent shall
not be unreasonably delayed or withheld.

            (i)  Between  the date of this  Agreement  and the  Effective  Time,
Merchants shall cooperate with Valley to reasonably conform Merchants'  policies
and procedures  regarding  applicable  regulatory matters, to those of Valley as
Valley may reasonably identify to Merchants from time to time.

      5.7. Approval of Shareholders.

            (a) Merchants will (i) take all steps  necessary duly to call,  give
notice of,  convene and hold a meeting of the  shareholders  of  Merchants  (the
"Merchants  Shareholders  Meeting")  for the purpose of securing the approval of
shareholders of this Agreement,  (ii) subject to the  qualification set forth in
Section 5.3 hereof and the right not to make a  recommendation  or to withdraw a
recommendation if Merchants' Board of Directors,  after consulting with counsel,
determines  in the  exercise of its  fiduciary  duties that such  recommendation
should not be made or should be  withdrawn,  recommend  to the  shareholders  of
Merchants  the  approval of this  Agreement  and the  transactions  contemplated
hereby  and  use  its  reasonable  best  efforts  to  obtain,   as  promptly  as
practicable,  such  approval,  and (iii)  cooperate and consult with Valley with
respect to each of the  foregoing  matters.  The directors of Merchants in their


                                       30
<PAGE>

capacity as shareholders  have agreed,  by signing a certificate to that effect,
to vote in favor of the Agreement.

            (b)  Valley  will (i) take all steps  necessary  duly to call,  give
notice of, convene and hold a meeting of the shareholders of Valley (the "Valley
Shareholders  Meeting") for the purpose of securing the approval of shareholders
of this Agreement,  (ii) recommend to the shareholders of Valley, subject to any
fiduciary  duties it determines it may have after  consulting with counsel,  the
approval of this Agreement and the transactions  contemplated hereby and use its
reasonable best efforts to obtain,  as promptly as  practicable,  such approval,
and (iii)  cooperate  and consult  with  Merchants  with  respect to each of the
foregoing matters.

      5.8.  Further  Assurances.  Subject  to the  terms and  conditions  herein
provided,  each of the parties hereto agrees to use its best efforts to take, or
cause to be  taken,  all  actions  and to do,  or cause to be done,  all  things
necessary,  proper or advisable under applicable laws and regulations to satisfy
the conditions to Closing and to consummate and make effective the  transactions
contemplated by this Agreement,  including, without limitation, using reasonable
efforts to lift or rescind any  injunction or  restraining  order or other order
adversely  affecting the ability of the parties to consummate  the  transactions
contemplated  by this Agreement and using its best efforts to prevent the breach
of any representation,  warranty,  covenant or agreement of such party contained
or referred to in this  Agreement  and to promptly  remedy the same.  Valley and
Merchants  will  cooperate  to take the  necessary  actions to cure  appropriate
tainted  treasury  shares so that the Merger meets the treasury stock  condition
for  pooling-of-interests  accounting.  Valley  shall  determine  whether  it or
Merchants  or both shall take such  action.  Nothing  in this  section  shall be
construed to require any party to participate in any threatened or actual legal,
administrative  or  other  proceedings  (other  than  proceedings,   actions  or
investigations  to which it is otherwise a party or subject or  threatened to be
made a party or subject) in connection  with  consummation  of the  transactions
contemplated by this Agreement unless such party shall consent in advance and in
writing  to such  participation  and the other  party  agrees to  reimburse  and
indemnify  such  party for and  against  any and all costs and  damages  related
thereto.

      5.9.  Public  Announcements.  The parties hereto shall cooperate with each
other in the development,  distribution and filing with governmental agencies as
required under applicable law, of all news releases and other public disclosures
with respect to this Agreement or any of the transactions  contemplated  hereby,
except as may be  otherwise  required  by law or  regulation  or as to which the
party  releasing such  information has used its best efforts to discuss with the
other party in advance.

      5.10. Failure to Fulfill Conditions. In the event that Valley or Merchants
determines  that a  material  condition  to its  obligation  to  consummate  the
transactions  contemplated  hereby  cannot be fulfilled on or prior to April 30,
2001 (the  "Cutoff  Date")  and that it will not waive that  condition,  it will
promptly  notify  the  other  party.   Except  for  any  acquisition  or  merger
discussions Valley may enter into with other parties,  Merchants and Valley will
promptly  inform  the other of any facts  applicable  to  Merchants  or  Valley,
respectively, or their respective directors or officers, that would be likely to
prevent or materially delay approval of the Merger by any governmental authority
or which would otherwise prevent or materially delay completion of the Merger.

      5.11.  Disclosure  Supplements.  From time to time prior to the


                                       31
<PAGE>

Effective Time, each party hereto will promptly  supplement or amend (by written
notice to the other) its  respective  Disclosure  Schedules  delivered  pursuant
hereto  with  respect  to any  matter  hereafter  arising  which,  if  existing,
occurring or known at the date of this Agreement, would have been required to be
set forth or  described  in such  Schedules or which is necessary to correct any
information  in such  Schedules  which has been rendered  materially  inaccurate
thereby.  If the  disclosure  contained  in any such  supplement  (i) relates to
events  occurring  before  execution of this Agreement or (ii) alone or together
with  other   supplements  or  amendments   materially   adversely  affects  the
representation to which the amendment or supplement relates, the party receiving
the amendment or supplement may determine not to accept it as a modification  of
the relevant  representation.  Notice of such  determination,  if made, shall be
given by the receiving  party to the other party not later than 15 days after it
received the disclosure in question.  If such notice is not timely given,  or if
the disclosure in question did not contain any matter of the nature specified in
clause (i) or (ii) of the second preceding sentence, the relevant representation
shall be deemed  modified by the disclosure in the amendment or supplement  with
the same  effect as though that  disclosure  had been  included in the  relevant
Disclosure Schedule as furnished prior to execution of this Agreement.

      5.12 Transaction Expenses of Merchants.

            (a) For planning purposes,  Merchants shall, within 30 days from the
date hereof,  provide  Valley with its estimated  budget of  transaction-related
expenses  reasonably  anticipated to be payable by Merchants in connection  with
this transaction based on facts and circumstances currently known, including the
fees  and  expenses  of  counsel,  accountants,  investment  bankers  and  other
professionals.  Merchants  shall promptly notify Valley if or when it determines
that it will  expect to exceed  its  budget.  Prior to signing  this  Agreement,
Merchants has disclosed to Valley the method by which the fees of its investment
bankers and counsel in connection  with this  transaction  are to be determined,
and has  disclosed  to Valley the fees of its  counsel in  connection  with this
transaction through a recent date.

            (b) Promptly,  but in any event within 30 days,  after the execution
of  this  Agreement,  Merchants  shall  ask  all  of  its  attorneys  and  other
professionals  to render current and correct  invoices for all unbilled time and
disbursements.  Merchants shall accrue and/or pay all of such amounts as soon as
possible.

            (c)  Merchants  shall  cause its  professionals  to  render  monthly
invoices  within 30 days after the end of each  month.  Merchants  shall  notify
Valley monthly of all  out-of-pocket  expenses  which  Merchants has incurred in
connection with this transaction.

            (d) Valley, in reasonable  consultation  with Merchants,  shall make
all  arrangements  with  respect to the  printing and mailing of the Joint Proxy
Statement-Prospectus.

      5.13.  Closing.  The parties  hereto shall  cooperate  and use  reasonable
efforts  to try to cause the  Effective  Time to occur  between  January  15 and
January 31, 2001.

      5.14.  Indemnification.  After the Effective Time, to the extent permitted
by  applicable  law and/or the  Certificate  of  Incorporation  or  Articles  of
Association,  Valley agrees that it will,  or will cause VNB to,  provide to the
directors and officers of Merchants and the Bank indemnification with respect to


                                       32
<PAGE>

acts or omissions  occurring  prior to the  Effective  Time,  including  without
limitation,   the   authorization   of  this  Agreement  and  the   transactions
contemplated  hereby,  for a period of six years from the Effective  Time, or in
the case of matters  occurring  prior to the Effective  Time which have not been
resolved  prior to the sixth  anniversary  of the  Effective  Time,  until  such
matters are finally  resolved.  To the extent permitted by applicable law and/or
the Certificate of Incorporation  or Articles of Association,  Valley or VNB (as
applicable)   shall   advance   expenses  in   connection   with  the  foregoing
indemnification.

      5.15. Employment Matters and Other Post-Closing Items.

            (a)  Following  consummation  of the  Merger,  Valley will honor the
existing  written  employment and pension  benefit  agreements with officers and
employees  of Merchants  and the Bank that exist on the date  hereof,  which are
included in Section  5.15(a) of the Merchants  Disclosure  Schedule (as the same
are modified by those  agreements  between  Valley and each of Spencer B. Witty,
James G.  Lawrence,  William J.  Cardew and Eric W. Gould (the  "Non-Competition
Agreements") entered into on the date hereof).

            (b)  Valley  intends,  to the  extent  practical,  to  continue  the
employment  of all  officers  and  employees  of the  Bank,  at or near the same
location, with the same or equivalent salary and benefits.

            (c)  Following  the  consummation  of the  Merger  and for one  year
thereafter,  VNB  shall,  to the  extent  not  duplicative  of  other  severance
benefits,  pay one week of severance  for each year of service  completed  while
employed by Merchants  and/or the Bank, with a maximum benefit of 26 weeks and a
minimum of four (4) weeks.

            (d) Before or  following  consummation  of the  Merger,  Valley will
decide  whether to  continue  each of the Bank  and/or  Merchants'  pension  and
welfare plans for the benefit of employees of the Bank and Merchants, or to have
such employees become covered under a Valley Pension and Welfare Plan. If Valley
decides to cover Bank and Merchants employees under a Valley Pension and Welfare
Plan,  such  employees  will receive  credit for prior years of service with the
Bank and/or  Merchants for purposes of determining  eligibility to  participate,
and vesting,  if applicable  (but not for the accrual of benefits under Valley's
pension plan).  No prior  existing  condition  limitation  shall be imposed with
respect to any medical coverage plan as a result of the Merger and Merchants and
Bank employees shall get credit for any deductibles  already paid under existing
plans for the year in which the Merger occurs.

            (e)  Merchants  and the Bank may continue to  administer  such bonus
programs and  arrangements as are disclosed  pursuant to this Agreement  through
the Effective Time,  provided that bonuses shall be paid only to the extent they
have been  previously  accrued  and  their  payment  will not  cause  Merchants'
earnings to fall below budgeted amounts.

            (f) Valley shall create a New York advisory  board and following the
Closing the  directors of Merchants who are not on the Valley Board of Directors
shall be  invited  to become  members of the  advisory  board,  along with other
prominent customers and associates of Merchants selected by Valley.

            (g) Valley  shall honor the  existing  director  retirement  plan of
Merchants contained in the Merchants Disclosure Schedule.


                                       33
<PAGE>

            (h) After the  Closing,  Valley  shall  operate the branches of Bank
using the name of the Bank and noting that it is a division of VNB.

            (i) Valley and Merchants  shall cooperate with each other before the
Closing to designate those Merchants officers who after the Closing will receive
three year cliff  vesting stock  options and  restricted  stock under the Valley
Option Plan and other benefits appropriate to retain the officers of Merchants.

      5.16. Pooling and Tax-Free  Reorganization  Treatment.  Neither Valley nor
Merchants  shall  intentionally  take,  fail to take or cause to be taken or not
taken,  any action within its control,  which would  disqualify  the Merger as a
"pooling of interests" for accounting  purposes or as a "reorganization"  within
the meaning of Section 368(a) of the Code.

      5.17.  Merchants  Option Plan.  From and after the  Effective  Time,  each
Merchants Option which is converted to an option to purchase Valley Common Stock
under  Section  2.1(b)  shall be  administered,  operated and  interpreted  by a
committee  comprised of members of the Board of Directors of Valley appointed by
the Board of Directors of Valley.  Valley shall  reserve for issuance the number
of shares of Valley  Common  Stock  necessary to satisfy  Valley's  obligations.
Valley shall also register,  if not previously  registered  pursuant to the 1933
Act,  the  shares  authorized  for  issuance  under  the  Merchants  Options  so
converted.

      5.18. Affiliates.

            (a) Promptly,  but in any event within 14 days,  after the execution
and delivery of this  Agreement,  (i)  Merchants  shall  deliver to Valley (x) a
letter identifying all persons who, to the knowledge of Merchants, may be deemed
to be affiliates of Merchants under Rule 145 of the 1933 Act,  including without
limitation  all directors  and executive  officers of Merchants and (y) a letter
identifying all persons who, to the knowledge of Merchants,  may be deemed to be
affiliates  of  Merchants  as that  term  (affiliate)  is used for  purposes  of
qualifying for pooling-of-interests  accounting treatment; and (ii) Valley shall
identify to Merchants all persons who, to the knowledge of Valley, may be deemed
affiliates  of  Valley  as that  term  (affiliates)  is  used  for  purposes  of
qualifying for pooling-of-interests accounting treatment.

            (b)  Merchants  shall  cause  each  director  of  Merchants  to, and
Merchants  shall  use its  best  efforts  to cause  each  executive  officer  of
Merchants  and each other  person who may be deemed an  affiliate  of  Merchants
(under either Rule 145 of the 1933 Act or the  accounting  treatment  rules) to,
execute and deliver to Valley within 14 days after the execution and delivery of
this  Agreement,  a letter  substantially  in the form of  Exhibit  5.18  hereto
agreeing to be bound by the restrictions of Rule 145 and agreeing to be bound by
the rules which  permit the Merger to be treated as a pooling of  interests  for
accounting purposes. In addition, Valley shall cause each director and executive
officer of Valley to, and Valley  shall use its best efforts to cause each other
person  who may be  deemed  an  affiliate  of  Valley  (as that term is used for
purposes of  qualifying  for pooling of  interests)  to,  execute and deliver to
Valley  within 14 days after the  execution  and delivery of this  Agreement,  a
letter  substantially in the form of Exhibit 5.18.1 hereto in which such persons
agree to be bound by the  rules  which  permit  the  Merger to be  treated  as a
pooling of interests for accounting treatment.

      5.19.  Bank  Policies and Bank  Mergers.  Notwithstanding  that


                                       34
<PAGE>

Merchants believes that it has established all reserves and taken all provisions
for  possible  loan  losses  required  by GAAP and  applicable  laws,  rules and
regulations,  Merchants  recognizes that Valley may have adopted different loan,
accrual and  reserve  policies  (including  loan  classifications  and levels of
reserves for possible loan losses). From and after the date of this Agreement to
the  Effective  Time and in order to formulate the plan of  integration  for the
Bank Mergers,  Merchants and Valley shall consult and cooperate  with each other
with  respect  to (i)  conforming  to the  extent  appropriate,  based upon such
consultation, Merchants' loan, accrual and reserve policies and Merchants' other
policies and  procedures  regarding  applicable  regulatory  matters,  including
without  limitation Federal Reserve,  the Bank Secrecy Act and FDIC matters,  to
those  policies of Valley as Valley may  reasonably  identify to Merchants  from
time to time,  (ii) new  extensions  of credit by the Bank  where the  aggregate
exposure exceeds $5,000,000, and (iii) conforming, based upon such consultation,
the  composition  of  the  investment  portfolio  and  overall   asset/liability
management  position  of  Merchants  and  the  Bank to the  extent  appropriate;
provided that any required change in Merchants' practices in connection with the
matters  described  in clause (i) or (iii) above need not be  effected  (A) more
than  five  days  prior to the  Effective  Time and (B)  unless  and  until  all
necessary  regulatory,  governmental and shareholder approvals and consents have
been received,  all statutory  waiting  periods in respect thereof have expired,
Valley  agrees in writing  that all  conditions  precedent  to the Closing  have
occurred  (other  than  the  delivery  of   certificates,   opinions  and  other
instruments  and  documents  to be  delivered  at the  Closing),  and Valley has
provided  the Closing  Notice.  No accrual or reserve  made by  Merchants or any
Merchants  Subsidiary  pursuant  to  this  subsection,   or  any  litigation  or
regulatory  proceeding  arising  out of  any  such  accrual  or  reserve,  shall
constitute  or be  deemed  to be a breach or  violation  of any  representation,
warranty,  covenant,  condition  or  other  provision  of this  Agreement  or to
constitute a termination  event within the meaning of Section  7.1(d) or Section
7.1(f) hereof.

      5.20. New Valley  Directors.  As of the Effective Time, Valley shall cause
its Board of Directors  and the VNB Board of Directors to take action to appoint
Spencer B. Witty,  Robinson Markel and Charles Baum to the Board of Directors of
Valley and Spencer B. Witty to the Board of Directors of VNB,  respectively,  at
the Effective Time.

                                   ARTICLE VI

                               CLOSING CONDITIONS

      6.1.  Conditions of Each Party's  Obligations  Under this  Agreement.  The
respective  obligations  of each party under this  Agreement to  consummate  the
Merger  shall  be  subject  to the  satisfaction  or,  where  permissible  under
applicable  law,  waiver  at or prior  to the  Effective  Time of the  following
conditions:

            (a) Approval of Stockholders;  SEC Registration.  This Agreement and
the transactions  contemplated  hereby shall have been approved by the requisite
vote of the  stockholders  of  Merchants  and the  stockholders  of Valley.  The
Registration  Statement shall have been declared  effective by the SEC and shall
not be subject to a stop order or any threatened stop order, and the issuance of
the Valley  Common  Stock  shall have been  qualified  in every state where such
qualification is required under the applicable state securities laws. The Valley
Common Stock to be issued in connection with the Merger, including Valley Common
Stock to be issued  for the  Merchants  Options,  shall have been


                                       35
<PAGE>

approved for listing on the New York Stock Exchange.

            (b) Regulatory  Filings.  All necessary  regulatory or  governmental
approvals and consents  (including  without  limitation any required approval of
the OCC and any approval or waiver  required by the FRB)  required to consummate
the transactions  contemplated  hereby shall have been obtained without any term
or condition which would materially  impair the value of Merchants and the Bank,
taken as a whole,  to Valley.  All conditions  required to be satisfied prior to
the Effective  Time by the terms of such  approvals and consents shall have been
satisfied;  and all  statutory  waiting  periods in respect  thereof  shall have
expired.  Both VNB and the  Bank  shall  have  taken  all  necessary  action  to
consummate the Bank Merger immediately after the Effective Time.

            (c) Suits and  Proceedings.  No order,  judgment or decree  shall be
outstanding  against a party  hereto or a third party that would have the effect
of preventing  completion of the Merger or the Bank Merger;  no suit,  action or
other  proceeding  shall be pending or  threatened by any  governmental  body in
which it is sought to restrain or prohibit the Merger or the Bank Merger; and no
suit,  action  or  other  proceeding  shall  be  pending  before  any  court  or
governmental  agency in which it is sought to restrain or prohibit the Merger or
the Bank Merger or obtain other substantial monetary or other relief against one
or more parties  hereto in  connection  with this  Agreement and which Valley or
Merchants  determines in good faith,  based upon the advice of their  respective
counsel,  makes it inadvisable to proceed with the Merger because any such suit,
action or proceeding has a significant potential to be resolved in such a way as
to deprive the party electing not to proceed of any of the material  benefits to
it of the Merger or the Bank Merger.

            (d) Tax Free Exchange.  Valley and Merchants  shall have received an
opinion,  satisfactory to Valley and Merchants,  of Pitney, Hardin, Kipp & Szuch
LLP, counsel for Valley, to the effect that the transactions contemplated hereby
will result in a reorganization  (as defined in Section 368(a) of the Code), and
accordingly  no gain or loss will be recognized  for federal income tax purposes
to Valley,  Merchants,  VNB or the Bank or to the  stockholders of Merchants who
exchange their shares of Merchants for Valley Common Stock (except to the extent
that cash is received in lieu of fractional shares of Valley Common Stock).

            (e)  Pooling of  Interests.  The  Merger  shall be  qualified  to be
treated by Valley as a  pooling-of-interests  for accounting purposes and Valley
shall  have  received  a letter  from KPMG LLP to the  effect  that based upon a
review of this Agreement and the facts and circumstances known to it, the Merger
shall be  qualified  to be  treated  by  Valley  as a  pooling-of-interests  for
accounting purposes.

      6.2.  Conditions to the  Obligations of Valley Under this  Agreement.  The
obligations  of Valley  under this  Agreement  shall be  further  subject to the
satisfaction  or waiver,  at or prior to the  Effective  Time,  of the following
conditions:

            (a)  Representations  and Warranties;  Performance of Obligations of
Merchants and Bank. The representations and warranties of Merchants contained in
this Agreement shall be true and correct in all material respects on the Closing
Date  as  though  made  on and as of the  Closing  Date.  Merchants  shall  have
performed in all material  respects the  agreements,  covenants and  obligations
necessary to be performed by it prior to the Closing  Date.  With respect to any
representation  or warranty which as of the Closing Date has been the subject of


                                       36
<PAGE>

a  supplement  or  amendment  to  the  Merchants   Disclosure   Schedule,   that
representation or warranty shall be deemed modified by the disclosure  contained
in such  supplement  or  amendment  only  under the  circumstances  set forth in
Section 5.11.

            (b) Consents. Valley shall have received the written consents of any
person whose consent to the transactions  contemplated  hereby is required under
the applicable instrument.

            (c) Opinion of  Counsel.  Valley  shall have  received an opinion of
counsel  to  Merchants,  dated the date of the  Closing,  in form and  substance
reasonably  satisfactory  to Valley,  covering the matters set forth on Schedule
6.2 hereto and any other matters reasonably requested by Valley.

            (d)  Fairness  Opinion.  Valley  shall have  received  from  Sandler
O'Neill & Partners,  L.P.  an updated  opinion as of the date of the Joint Proxy
Statement-Prospectus with respect to the fairness from a financial point of view
of the Exchange Ratio to the stockholders of Valley in the Merger.

            (e) Non-Competition  Agreements. All of the directors or officers of
Merchants  identified in Section 5.15(a) as having executed the  Non-Competition
Agreements  shall continue to be employed by Merchants  (unless their employment
was terminated due to death or disability)  and none of them shall have notified
either  Merchants  or Valley  of his  intention  to  voluntarily  terminate  his
employment with Valley following the Closing.

            (f)  Certificates.  Merchants shall have furnished  Valley with such
certificates of its officers or other  documents to evidence  fulfillment of the
conditions set forth in this Section 6.2 as Valley may reasonably request.

      6.3. Conditions to the Obligations of Merchants Under this Agreement.  The
obligations of Merchants  under this Agreement  shall be further  subject to the
satisfaction  or waiver,  at or prior to the  Effective  Time,  of the following
conditions:

            (a)  Representations  and Warranties;  Performance of Obligations of
Valley. The representations and warranties of Valley contained in this Agreement
shall be true and correct in all material respects on the Closing Date as though
made on and as of the Closing Date.  Valley shall have performed in all material
respects, the agreements,  covenants and obligations to be performed by it prior
to the Closing Date. With respect to any  representation or warranty which as of
the Closing Date has been the subject of a supplement or amendment to the Valley
Disclosure Schedule, that representation or warranty shall be deemed modified by
the  disclosure  contained  in such  supplement  or  amendment  only  under  the
circumstances set forth in Section 5.11.

            (b) Opinion of Counsel to Valley.  Merchants  shall have received an
opinion  of  counsel  to  Valley,  dated  the date of the  Closing,  in form and
substance reasonably  satisfactory to Merchants,  covering the matters set forth
on Schedule 6.3 hereto and any other matter reasonably requested by Merchants.

            (c)  Fairness  Opinion.  Merchants  shall have  received  an updated
opinion  from  CIBC  World  Markets  Corp.,  as of the date of the  Joint  Proxy
Statement-Prospectus  with respect to the  fairness,  from a financial  point of
view, of the Exchange Ratio to the shareholders of Merchants in the Merger.


                                       37
<PAGE>

            (d)  Certificates.  Valley shall have furnished  Merchants with such
certificates  of its  officers  or others and such other  documents  to evidence
fulfillment  of the  conditions  set forth in this Section 6.3 as Merchants  may
reasonably request.

                                   ARTICLE VII

                        TERMINATION, AMENDMENT AND WAIVER

      7.1. Termination.  This Agreement may be terminated prior to the Effective
Time,  whether before or after approval of this Agreement by the stockholders of
Merchants, based upon any of the following:

            (a) By mutual written consent of the parties hereto.

            (b) By Valley or Merchants (i) if the Effective  Time shall not have
occurred on or prior to the Cutoff Date or (ii) if a vote of the stockholders of
Merchants  or Valley is taken and the  stockholders  of either  company  fail to
approve this Agreement at the meeting (or any adjournment thereof) held for such
purpose,  unless in each case the failure of such occurrence shall be due to the
failure of the party seeking to terminate  this  Agreement to perform or observe
its  agreements  set forth herein to be performed or observed by such party (or,
in the case of  Merchants,  to be  performed  or  observed by the  directors  of
Merchants) at or before the Effective Time.

            (c) By Valley or Merchants  upon written  notice to the other if any
application for regulatory or governmental  approval necessary to consummate the
Merger and the other transactions  contemplated hereby shall have been denied or
withdrawn at the request or recommendation  of the applicable  regulatory agency
or  governmental  authority or by Valley upon written notice to Merchants if any
such application is approved with conditions  which materially  impair the value
of Merchants and the Bank, taken as a whole, to Valley.

            (d) By Valley if (i) there  shall have  occurred a material  adverse
change in the business,  operations, assets, or financial condition of Merchants
or the Bank,  taken as a whole,  from that disclosed by Merchants on the date of
this  Agreement;  or (ii)  there was a  material  breach in any  representation,
warranty, covenant, agreement or obligation of Merchants hereunder.

            (e) By  Merchants,  if (i) there  shall  have  occurred  a  material
adverse  change in the business,  operations,  assets or financial  condition of
Valley or VNB from that  disclosed by Valley on the date of this  Agreement;  or
(ii)  there was a material  breach in any  representation,  warranty,  covenant,
agreement or obligation of Valley hereunder.

            (f) By Valley or  Merchants if any  condition  to Closing  specified
under Article VI hereof  applicable to such party cannot reasonably be met on or
before the Cutoff Date after giving the other party a reasonable  opportunity to
cure any such condition.

      7.2.  Effect  of  Termination.   In  the  event  of  the  termination  and
abandonment of this Agreement by either Valley or Merchants  pursuant to Section
7.1, this Agreement shall forthwith become void and have no effect,  without any
liability on the part of any party or its officers,  directors or  stockholders,
except that Sections 5.5(b) and 8.1 hereof shall have  continuing


                                       38
<PAGE>

effect as set forth therein.  Nothing contained herein,  however,  shall relieve
any party from any liability for any willful breach of this Agreement.

      7.3.  Amendment.  This  Agreement may be amended by mutual action taken by
the parties hereto at any time before or after adoption of this Agreement by the
stockholders  of Merchants but, after any such adoption,  no amendment  shall be
made  which  reduces or changes  the amount or form of the  consideration  to be
delivered  to the  stockholders  of  Merchants  without  the  approval  of  such
stockholders.  This  Agreement  may not be amended  except by an  instrument  in
writing signed on behalf of Valley and Merchants.

      7.4.  Extension;  Waiver.  The  parties  may,  at any  time  prior  to the
Effective Time of the Merger,  (i) extend the time for the performance of any of
the  obligations  or other  acts of the other  parties  hereto;  (ii)  waive any
inaccuracies in the  representations  and warranties  contained herein or in any
document delivered  pursuant thereto;  or (iii) waive compliance with any of the
agreements  or  conditions  contained  herein.  Any agreement on the part of any
party to any such  extension  or waiver  shall be valid  only if set forth in an
instrument in writing signed on behalf of such party against which the waiver is
sought to be enforced.

                                  ARTICLE VIII

                                  MISCELLANEOUS

      8.1.  Expenses.  All costs and expenses  incurred in connection  with this
Agreement and the transactions  contemplated hereby (including legal, accounting
and investment  banking fees and expenses) shall be borne by the party incurring
such costs and expenses,  except that the cost of printing and mailing the Joint
Proxy  Statement-Prospectus  shall be borne equally by the parties hereto if the
transaction is terminated.

      8.2. Notices.  All notices or other  communications  which are required or
permitted  hereunder shall be in writing and sufficient if delivered  personally
or sent by telecopier  with  confirming  copy sent the same day by registered or
certified mail, postage prepaid, as follows:

      (a)      If to Valley, to:

               Valley National Bancorp
               1455 Valley Road
               Wayne, New Jersey  07470
               Attn.:  Gerald H. Lipkin
                  Chairman and Chief Executive Officer
               Telecopier No. (973) 305-0024

               Copy to:

               Pitney, Hardin, Kipp & Szuch LLP
               Attn.:  Ronald H. Janis, Esq.
               Delivery:
               --------
               200 Campus Drive
               Florham Park, New Jersey  07932
               Mail:
               ----
               P.O. Box 1945


                                       39
<PAGE>

               Morristown, New Jersey  07962-1945
               Telecopier No. (973) 966-1550

      (b)      If to Merchants, to:

               Merchants New York Bancorp, Inc.
               275 Madison Avenue
               New York, New York 10022
               Attn.:  William J. Cardew,
                 Vice Chairman and Chief Financial Officer
               Telecopier No. (212) 973-6663

               Copy to:

               Rosenman & Colin LLP
               Attn.:  Robinson Markel, Esq.
               575 Madison Avenue
               New York, New York  10022-2585
               Telecopier No. (212) 940-8776

or such other  addresses as shall be furnished in writing by any party,  and any
such notice or communications  shall be deemed to have been given as of the date
so delivered or telecopied and mailed.

      8.3.  Parties in Interest.  This Agreement shall be binding upon and shall
inure  to the  benefit  of  Valley,  Merchants,  the Bank  and  VNB,  and  their
respective  successors.  Nothing  in  this  Agreement  is  intended  to  confer,
expressly or by implication,  upon any other person any rights or remedies under
or by reason of this Agreement, except for the rights conferred upon indemnitees
pursuant to Section 5.14 hereof.

      8.4. Entire Agreement. This Agreement, the Disclosure Schedules hereto and
the other documents,  agreements and instruments executed and delivered pursuant
to or in connection with this Agreement, contains the entire agreement among the
parties hereto with respect to the  transactions  contemplated by this Agreement
and supersedes all prior negotiations,  arrangements or understandings,  written
or oral,  with respect  thereto.  If any  provision  of this  Agreement is found
invalid,  it shall be considered  deleted and shall not invalidate the remaining
provisions.

      8.5.  Counterparts.  This  Agreement  may  be  executed  in  one  or  more
counterparts,  all of which shall be considered  one and the same  agreement and
each of which shall be deemed an original.

      8.6.  Governing Law. This  Agreement  shall be governed by the laws of the
State of New Jersey,  without  giving  effect to the  principles of conflicts of
laws thereof.

      8.7. Descriptive Headings.  The descriptive headings of this Agreement are
for convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.

      8.8. Survival.  All representations,  warranties and, except to the extent
specifically  provided  otherwise herein,  agreements and covenants,  other than
those agreements and covenants set forth in Sections 5.14 and Section 5.16 which
shall survive the Merger, shall terminate as of the Effective Time.


                                       40
<PAGE>

      8.9.  Knowledge.  Representations  made herein which are  qualified by the
phrase to the  knowledge of Merchants,  to the best of  Merchants'  knowledge or
similar  phrases  refer  as of the date  hereof  to the  best  knowledge  of the
Chairman of the Board,  the  President  and Chief  Executive  Officer,  the Vice
Chairman  and  Chief  Operating  Officer,  and the  Senior  Vice  President  and
Treasurer of Merchants and thereafter  refer to the best knowledge of any senior
officer of Merchants or any Merchants  subsidiary.  Representations  made herein
which are  qualified by the phrase to the  knowledge  of Valley,  to the best of
Valley's  knowledge or similar  phrases  refer as of the date hereof to the best
knowledge of the  President and Chief  Executive  Officer,  the  Executive  Vice
President/Legal  and the Chief Financial  Officer of Valley and thereafter refer
to the best knowledge of any senior officer of Valley or any Valley subsidiary.

      [The remainder of this page is intentionally left blank.]

      IN WITNESS WHEREOF,  Valley,  VNB, the Bank and Merchants have caused this
Agreement  to be  executed by their duly  authorized  officers as of the day and
year first above written.

ATTEST:                                              VALLEY NATIONAL BANCORP

/s/  Alan D. Eskow                              By: /s/ Gerald H. Lipkin
------------------------------------               -----------------------------
Alan D. Eskow, Senior Vice President                 Gerald H. Lipkin
                                                     Chairman, President and
                                                     Chief Executive Officer


ATTEST:                                         MERCHANTS NEW YORK BANCORP, INC.

/s/ Eric W. Gould                               By: /s/ Spencer B. Witty
------------------------------------               -----------------------------
Eric W. Gould, Senior Vice President                 Spencer B. Witty
                                                     Chairman of the Board

and

                                                By: /s/ James G. Lawrence
                                                   -----------------------------
                                                     James G. Lawrence
                                                     President and Chief
                                                     Executive Officer


ATTEST:                                              VALLEY NATIONAL BANK

/s/ Alan D. Eskow                               By: /s/ Gerald H. Lipkin
------------------------------------               -----------------------------
Alan D. Eskow, Senior Vice President                 Gerald H. Lipkin, Chairman,
                                                         President and Chief
                                                         Executive Officer


ATTEST:                                          THE MERCHANTS BANK OF NEW YORK


                                       41
<PAGE>

/s/ Eric W. Gould                               By: /s/ Spencer B. Witty
------------------------------------               -----------------------------
Eric W. Gould, Senior Vice President                 Spencer B. Witty
                                                     Chairman of the Board

and

                                                By: /s/ James G. Lawrence
                                                   -----------------------------
                                                     James G. Lawrence
                                                     President and Chief
                                                      Executive Officer


                         CERTIFICATE OF THE DIRECTORS OF
                      MERCHANTS NEW YORK BANCORP, INC. AND
                         THE MERCHANTS BANK OF NEW YORK

                  Reference is made to the Agreement  and Plan of Merger,  dated
as of September 5, 2000 (the "Agreement"), among Valley National Bancorp, Valley
National  Bank,  Merchants New York Bancorp,  Inc. and The Merchants Bank of New
York.  Capitalized  terms used  herein  have the  meanings  given to them in the
Agreement.

                  Each of the following  persons,  being all of the directors of
Merchants  and the  Bank,  intends  to vote or cause to be  voted,  at a special
meeting of stockholders  called to adopt the Agreement,  all shares of Merchants
Common Stock which are held by such person,  or over which such person exercises
sole voting power,  or over which such person  shares  voting power  exclusively
with other individuals who are signing this certificate, in favor of adoption of
the Agreement.

---------------------------------           -----------------------------------


---------------------------------           -----------------------------------


---------------------------------           -----------------------------------


---------------------------------           -----------------------------------


---------------------------------           -----------------------------------


---------------------------------           -----------------------------------


---------------------------------           -----------------------------------


                                       42
<PAGE>

                                    EXHIBIT A

                           AGREEMENT TO MERGE BETWEEN
                              VALLEY NATIONAL BANK
                                       AND
                         THE MERCHANTS BANK OF NEW YORK
                   UNDER THE CHARTER OF VALLEY NATIONAL BANK,
                     UNDER THE TITLE OF VALLEY NATIONAL BANK

                  THIS AGREEMENT made between Valley National Bank  (hereinafter
referred to as "VNB"), a national banking  association  organized under the laws
of the United  States,  being located at 615 Main Street,  Passaic,  New Jersey,
with a capital of  $17,960,310  divided into  3,592,062  shares of common stock,
each of $5.00 par  value,  $83,738,452  of  surplus,  and  undivided  profits of
$371,396,236,  as of  June  30,  2000,  and  The  Merchants  Bank  of  New  York
(hereinafter referred to as "TMB"), a state-chartered  commercial bank organized
under the laws of New York, being located at  _________________________________,
County of ________,  in the State of New York, with a capital of  $____________,
divided into ________ shares of common stock, each of $______ par value, surplus
of $___________,  and undivided profits of $_________, as of September 30, ____,
each acting  pursuant to a resolution of its board of directors,  adopted by the
vote of a majority of its directors,  pursuant to the authority  given by and in
accordance  with the  provisions  of the Act of November 7, 1918, as amended (12
U.S.C. Section 215(a)), and the New York Banking Law, as amended,  witnesseth as
follows:

      Section 1. TMB shall be merged into VNB under the charter of VNB.

      Section 2. The name of the receiving association  (hereinafter referred to
as the "Association") shall be Valley National Bank.

      Section 3. The  business  of the  Association  shall be that of a national
banking Association.  This business shall be conducted by the Association at its
main office which shall be located at 615 Main Street,  Passaic, New Jersey, and
at its legally established branches.

      Section  4.  The  amount  of  capital  stock of the  Association  shall be
$______________, divided into ____________ shares of common stock, each of $5.00
par value,  and at the time the merger shall become  effective,  the Association
shall have a surplus of $____________,  and undivided profits, including capital
reserves,  which when combined with the capital and surplus will be equal to the
combined  capital  structures  of the merging banks as stated in the preamble of
this  Agreement,  adjusted  however,  for normal  earnings and expenses  between
September 30, ____, and the effective time of the merger.

      Section 5. All assets of each of the merging  banks,  as they exist at the
effective time of the merger,  shall pass to and vest in the Association without
any conveyance or other transfer.  The Association  shall be responsible for all
of the liabilities of every kind and description, including


                                       43
<PAGE>

liabilities arising from the operation of their respective trust Departments, of
each of the merging banks existing as of the effective time of the merger.

      Section 6. TMB shall  contribute to the  Association its capital set forth
in the preamble,  adjusted, however, for normal earnings, expenses and dividends
between June 30, 2000, and the effective time of the merger.

      VNB shall have on hand at the effective  time of the merger its capital as
set forth in the preamble,  adjusted, however, for normal earnings, expenses and
dividends between June 30, 2000 and the effective date of the merger.

      Section 7. The  stockholder  of VNB shall retain its rights in the capital
stock presently  outstanding,  which shall immediately and automatically  become
____________  shares of common  stock of the  Association,  each with  $5.00 par
value, and the stockholder of TMB in exchange for the excess  acceptable  assets
contributed  by its  bank  to the  Association  shall  be  entitled  to  receive
___________  shares  of common  stock of the  Association,  each with  $5.00 par
value.

      Section 8. Neither of the banks shall  declare nor pay any dividend to its
stockholder  between the date of this Agreement and the time at which the merger
shall  become  effective,  nor dispose of any of its assets in any other  manner
except in the  ordinary  course of  business  consistent  with  prudent  banking
practice.  Provided, however, that VNB shall be entitled to pay dividends to its
parent without  restriction and TMB may pay dividends to its parent,  consistent
with past practice,  so long as the payment of such dividends  shall thereby not
cause a breach of any representation,  covenant, agreement or condition to which
the  Bank is  subject  under  the  Agreement  and  Plan of  Merger,  dated as of
September 5, 2000 among Valley  National  Bancorp,  Merchants  New York Bancorp,
Inc., VNB and TMB (the "Merger Agreement").

      Section 9. The present  board of  directors  of VNB (with the  addition of
_____________)  shall serve as the board of directors of the  Association  until
the next annual meeting or until such time as their successors have been elected
and have qualified.

      Section 10. Effective as of the time this merger shall become effective as
specified in the merger  approval to be issued by the Office of the  Comptroller
of the Currency (the "OCC"),  the articles of  association of the resulting bank
shall read in their entirety as set forth in Schedule 1 annexed hereto.

      Section 11. This Agreement shall be terminated automatically if the Merger
Agreement is terminated as provided in the Merger Agreement.

      Section  12.  This  Agreement  shall  be  ratified  and  confirmed  by the
affirmative  vote of the  stockholders  of each of the merging  banks  owning at
least  two-thirds of its capital stock  outstanding,  at a meeting to be held on
the call of the  directors;  and the merger shall  become  effective at the time
specified in the merger approval to be issued by the OCC.

      Section 13. Each of the  representations,  warranties and covenants of the
parties  hereto shall  terminate as of the effective  time of the merger,  other
than Section 5 hereof which shall survive the effective time of the merger.


                                       44
<PAGE>

      Section 14. This Agreement may be executed in any number of  counterparts,
and each  counterpart  shall  constitute  an original  instrument,  but all such
separate counterparts shall constitute only one and the same instrument.

      Section 15. Except as governed by federal law, the validity,  construction
and  enforceability  of this Agreement  shall be governed in all respects by the
laws of the  State of New  Jersey  without  regard to its  conflicts  of laws or
rules.

      WITNESS,  the  signatures and seals of the merging banks this _____ day of
___________,  2000, each set by its chairman,  president or a vice president and
attested to by its cashier or  secretary,  pursuant to a resolution of its board
of directors, acting by a majority.

ATTEST:                                              VALLEY NATIONAL BANK

-------------------------------------            By:----------------------------
Alan D. Eskow, Controller                            Gerald H. Lipkin, Chairman,
                                                      President and Chief
                                                      Executive Officer

ATTEST:                                          THE MERCHANTS BANK OF NEW YORK

-----------------------------------              By:----------------------------
____________, Senior Vice President                  Spencer B. Witty
                                                     Chairman of the Board

and

                                                 By:----------------------------
                                                     James G. Lawrence
                                                     President and Chief
                                                     Executive Officer


STATE OF NEW JERSEY             )
                                :  ss.
COUNTY OF ________________)

      On this _____ day of  _____________,  ____, before me, a Notary Public for
this state and county,  personally came Gerald H. Lipkin,  as Chairman and Chief
Executive Officer, and Alan D. Eskow, as Controller of Valley National Bank, and
each of his capacity  acknowledged  this  instrument  to the act and deed of the
association and the seal affixed to it to be its seal.


                                       45
<PAGE>

      WITNESS my official seal and signature this day and year.

                                                  ----------------------------
(Seal of Notary)

STATE OF NEW YORK )
                                         :ss.
COUNTY OF ________________)

      On this _____ day of  ____________,  ____,  before me, a Notary Public for
this state and county,  personally came  __________________,  as Chairman of the
Board,  __________________,  as  President  and  Chief  Executive  Officer,  and
_____________________,  as Secretary of The Merchants Bank of New York, and each
of his/her  capacity  acknowledged  this  instrument  to the act and deed of the
corporation and the seal affixed to it to be its seal.

      WITNESS my official seal and signature this day and year.

                                                  ----------------------------

(Seal of Notary)


                                                                  Schedule 1

                             ARTICLES OF ASSOCIATION
                                       OF
                             VALLEY NATIONAL BANK1

                                      NAME

      FIRST. The title of the Association shall be "Valley National Bank".

                                   MAIN OFFICE

      SECOND.  The  main  office  of the  Association  shall  be in the  City of
Passaic,  County of Passaic,  State of New Jersey.  The general  business of the
Association shall be conducted at its main office and its branches.

                                    DIRECTORS

      THIRD.  The Board of Directors of this  Association  shall  consist of not
less than five nor more than twenty-five  directors the exact number to be fixed
and  determined  from time to time by resolution of a majority of the full Board
of  Directors  or by  resolution  of the  shareholders  at any annual or special
meeting  thereof.  Each  director  shall  own  $1,000  equity  interest  in this
Association or in a company which has control of the Association.  The amount of
the  equity  interest  shall  meet  this  requirement  if  it  conforms  to  the
requirements  of 12 U.S.C.  72, as amended on March 31, 1980, or


                                       46
<PAGE>

as amended from time to time  thereafter.  Any vacancy in the Board of Directors
may be filled by action of the Board of Directors.

                         ANNUAL MEETING OF STOCKHOLDERS

      FOURTH. There shall be an annual meeting of the stockholders,  the purpose
of which shall be the  election of  Directors  and the  transaction  of whatever
other business may be brought  before the meeting.  The meeting shall be held at
the main office of the Association or any other convenient place as the Board of
Directors  may  designate,  on the date of each year  specified  therefor in the
By-laws,  but if no  election  is  held  on  that  day,  it may be  held  on any
subsequent  day according to such lawful rules as may be prescribed by the Board
of Directors.

      Nominations  for  election  to the Board of  Directors  may be made by the
Board of Directors or by any  stockholder  of any  outstanding  class of capital
stock of the Association entitled to vote for election of directors. Nominations
other  than  those  made  by or on  behalf  of the  existing  management  of the
Association,  shall be made in writing and shall be  delivered  or mailed to the
President of the Association and to the Comptroller of the Currency, Washington,
D.C.,  not less  than 14 days  nor more  than 50 days  prior to any  meeting  of
stockholders called for the election of directors;  provided,  however,  that if
less  than 21  days'  notice  of the  meeting  is given  to  shareholders,  such
nominations shall be mailed or delivered to the President of the Association and
to the  Comptroller  of the Currency not later than the close of business on the
seventh day  following  the day on which the notice of meeting was mailed.  Such
notification shall contain the following  information to the extent known to the
notifying  shareholder:  (a) the name and address of each proposed nominee;  (b)
the  principal  occupation  of each  proposed  nominee;  (c) the total number of
shares of capital stock of the Association  that will be voted for each proposed
nominee;  (d) the name and residence address of the notifying  shareholder;  and
(e) the  number of  shares  of  capital  stock of the  Association  owned by the
notifying  shareholder.  Nominations  not  made in  accordance  herewith  may be
disregarded  by the Chairman of the  meeting,  in his  discretion,  and upon his
instructions  the vote  tellers  may  disregard  all  votes  cast for each  such
nominee.

                                     CAPITAL

      FIFTH. The authorized amount of capital stock of this Association shall be
[___________]  shares of common stock of the par value of five  dollars  ($5.00)
each; but said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.

      No holder of shares of the capital  stock of any class of the  Association
shall have any  pre-emptive or  preferential  right of  subscription  to (i) any
shares  of any  class of  stock of the  Association,  whether  now or  hereafter
authorized,   or  (ii)  to  any  obligations   convertible  into  stock  of  the
Association,  or (iii) to any  right of  subscription  to any of the  foregoing;
except any of the  foregoing  rights which the Board of  Directors,  in its sole
discretion  may from time to time  determine  and at such  price as the Board of
Directors may from time to time fix.

      The  Association,  at any time and from time to time,  may  authorize  and
issue debt obligations, whether or not subordinated, without the approval of the
stockholders.


                                       47
<PAGE>

                                    OFFICERS

      SIXTH.  The Board of Directors shall appoint one of its members  President
of this  Association,  who shall be  Chairman  of the  Board,  unless  the Board
appoints another director to be the Chairman.  The Board of Directors shall have
the power to appoint one or more Vice  Presidents;  and to appoint a Cashier and
such other officers and employees as may be required to transact the business of
this Association.

      The Board of  Directors  shall  have the power to define the duties of the
officers  and  employees of the  Association;  to fix the salaries to be paid to
them;  to  dismiss  them;  to  require  bonds  from them and to fix the  penalty
thereof;  to  regulate  the manner in which any  increase  of the capital of the
Association  shall be made; to manage and administer the business and affairs of
the Association; to make all By-Laws that it may be lawful for them to make; and
generally  to do and  perform  all  acts  that it may be  legal  for a Board  of
Directors to do and perform.

                         CHANGE OF MAIN OFFICE; BRANCHES

      SEVENTH.  The Board of Directors shall have the power, without shareholder
approval,  to change the  location  of the main  office to any other  authorized
branch  location  within the limits of the City of Passaic and to  establish  or
change the location of any branch or branches of the Association.  Any change in
the location of the main office to another authorized branch location within the
City of Passaic shall be effected upon written notice to the  Comptroller of the
Currency. Any change in the location of the Main Office, except to an authorized
branch location  within the City of Passaic,  shall require both the approval of
the  Comptroller  of the  Currency  and  the  approval  of  stockholders  owning
two-thirds  of the stock of the  Association  and any such change  shall be to a
place not more than 30 miles from the city limits of the City of Passaic.

                                    EXISTENCE

      EIGHTH.  The corporate  existence of this Association shall continue until
terminated in accordance with the laws of the United States.

              SPECIAL MEETINGS OF SHAREHOLDERS; NOTICE OF MEETINGS

      NINTH.  The Board of  Directors  of this  Association,  or any one or more
shareholders owning, in the aggregate, not less than ten percent of the stock of
this Association, may call a special meeting of shareholders at any time. Unless
otherwise  provided  by the laws of the  United  States,  a notice  of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each  shareholder  of record at his address as shown
upon the books of this Association.

                                 INDEMNIFICATION

      TENTH.  Any  person,  his  heirs,  executors  or  administrators,  may  be
indemnified  or reimbursed  by the  Association  for  liability  and  reasonable
expenses,  including  amounts paid in settlement or in satisfaction of judgments
or as fines and/or  penalties,  actually incurred in connection with any action,
suit or proceeding,  civil or criminal, to which he or they shall be involved or


                                       48
<PAGE>

threatened to be involved,  as a party, or otherwise,  by reason of his being or
having been a director,  officer, or employee of the Association or of any firm,
corporation or organization  which he served in any such capacity at the request
of the Association. Provided, however, that no person shall be so indemnified or
reimbursed  in relation to any matter in such action,  suit or  proceeding as to
which he shall  finally be  adjudged  to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to  the  Association;  and,  provided  further,  that  no  person  shall  be  so
indemnified  or  reimbursed  in relation to any matter in such action,  suit, or
proceeding  which has been made the subject of a  compromise  settlement  except
with: (i) the approval of a court of competent jurisdiction or; (ii) the holders
of record of a majority of the outstanding voting shares of the Association;  or
(iii) the Board of Directors acting by vote of directors not parties to the same
or substantially the same action,  suit, or proceeding,  constituting a majority
of the whole number of directors.  The  foregoing  right of  indemnification  or
reimbursement shall not be exclusive of other rights to which such persons,  his
heirs, executors or administrators, may be entitled as a matter of law.

                  The Association  may, upon the affirmative  vote of a majority
of its Board of Directors,  purchase  insurance for the purpose of  indemnifying
its   directors,   officers  and  other   employees  to  the  extent  that  such
indemnifications are allowed in the preceding paragraph. Such insurance may, but
need not, be for the benefit of all directors, officers or employees.

                                   AMENDMENTS

                  ELEVENTH.  These Articles of Association may be amended at any
regular or special meeting of the  shareholders  by the affirmative  vote of the
holders of a majority of the stock of this  Association,  unless the vote of the
holders of a greater amount of stock is required by law, and in that case by the
vote of the holders of such greater amount.


                                  EXHIBIT 5.18

                           MERCHANTS AFFILIATE LETTER

                                                              __________, 2000

Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07470

Gentlemen:

      I am delivering  this letter to you in connection with the proposed merger
(the  "Merger") of Merchants  New York Bancorp,  Inc., a New Jersey  corporation
(the "Company") with and into Valley National Bancorp,  a New Jersey corporation
("Valley"),  pursuant to the  Agreement and Plan of Merger dated as of September
5, 2000 (the "Agreement")  among the Company,  Valley, The Merchants Bank of New
York and Valley  National  Bank. I currently own shares of the Company's  common
stock, par value $.001 per share ("Merchants Common Stock").  As a result of the
Merger, I will receive shares of Valley's common stock, no par


                                       49
<PAGE>

value  ("Valley  Common  Stock") in exchange for my Merchants  Common Stock.  In
addition,  to the extent I own options to acquire Merchants Common Stock,  those
options will be converted  in the Merger into options to acquire  Valley  Common
Stock.

      I have been  advised that as of the date of this letter I may be deemed to
be an  "affiliate"  of the  Company,  as the term  "affiliate"  is  defined  for
purposes  of  paragraphs  (c) and (d) of Rule 145 of the rules  and  regulations
promulgated  under the  Securities  Act of 1933,  as amended  (the "Act") by the
Securities  and  Exchange   Commission  (the   "Commission")  and  as  the  term
"affiliate"  is used for  purposes  of the  Commission's  rules and  regulations
applicable  to the  determination  of whether a merger can be accounted for as a
"pooling of  interests"  as  specified  in the  Commission's  Accounting  Series
Release  135,  as amended by Staff  Accounting  Bulletins  Nos.  65 and 76 ("ASR
135").

      I represent to and covenant with Valley that:

      A. Transfer  Restrictions Prior to Merger Consummation.  During the period
beginning on the date hereof and ending 30 days prior to the consummation of the
Merger,  I shall not sell,  transfer or otherwise  dispose of  ("transfer")  any
Merchants  Common  Stock  owned by me, and I shall not permit any  relative  who
shares  my  home,  or any  person  or  entity  whom  or  which I  control,  from
transferring any Merchants Common Stock owned by such person or entity,  without
notifying  Valley in  advance  of the  proposed  transfer  and  giving  Valley a
reasonable  opportunity  to object  to the  transfer  before it is  consummated.
Valley, upon advice of its independent public  accountants,  may instruct me not
to make or permit the  transfer  because it may  interfere  with the "pooling of
interests" treatment of the Merger. I shall abide by any such instructions.

      B. Post-Consummation Transfer Restrictions. During the period beginning 30
days  prior to the  consummation  of the Merger  and  ending  immediately  after
financial results covering at least 30 days of post-Merger  combined  operations
have been  published by Valley by means of the filing of a Form 10-Q or Form 8-K
under the  Securities  Exchange  Act of 1934,  as  amended,  the  issuance  of a
quarterly  earnings  report,  or any other public  issuance which  satisfies the
requirements  of ASR 135, I shall not transfer any Merchants  Common Stock owned
by me, and I shall not permit any relative who shares my home,  or any person or
entity whom or which I control,  to transfer any Merchants Common Stock owned by
such person or entity. For purposes of this paragraph,  "Merchants Common Stock"
includes  the  Valley  Common  Stock into which the  Merchants  Common  Stock or
Options is converted.

      C. Need for Registration or Exemption in Connection with Transfers. I have
been  advised  that the  issuance of Valley  Common  Stock to me pursuant to the
Merger will be registered  with the  Commission  under the Act on a Registration
Statement on Form S-4.  However,  I have also been advised that,  since I may be
deemed to be an affiliate of the Company at the time the Merger is submitted for
a vote of the Company's stockholders,  any transfer by me of Valley Common Stock
received by me in the Merger is  restricted  under Rule 145  promulgated  by the
Commission  under the Act. I may not transfer Valley Common Stock received by me
or by any relative who shares my home or by any person or entity whom or which I
control,  unless  (i) such  transfer  is  registered  under  the Act,  (ii) such
transfer is made in conformity with the volume and other limitations of Rule 145
promulgated by the Commission  under the Act, or (iii) in the opinion of counsel
reasonably  acceptable  to  Valley,  such  transfer  is  otherwise  exempt  from
registration under the Act.


                                       50
<PAGE>

      D. Stop Transfer Instructions;  Legend on Certificates.  I also understand
that stop transfer  instructions  will be given to Valley's transfer agents with
respect  to the  Valley  Common  Stock  and that  there  will be  placed  on the
certificates  of the Valley  Common  Stock  issued to me or to any  relative who
shares  my home or to any  person  or  entity  whom or which I  control,  or any
substitutions therefor, a legend stating in substance:

      Such legend and the stock transfer  restrictions  shall be removed as soon
as permissible under Rule 145.

      "THE SHARES  REPRESENTED BY THIS  CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145  PROMULGATED  UNDER THE  SECURITIES  ACT OF 1933 APPLIES.  THE
SHARES  REPRESENTED  BY THIS  CERTIFICATE  MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT  DATED  SEPTEMBER 5, 2000 BETWEEN THE  REGISTERED
HOLDER HEREOF AND Valley National Bancorp,  A COPY OF WHICH AGREEMENT IS ON FILE
AT THE PRINCIPAL OFFICE OF Valley National Bancorp."

      E.  Consultation  with Counsel.  I have carefully read this letter and the
Agreement and discussed the  requirements of such documents and other applicable
limitations upon my ability to transfer Valley Common Stock to the extent I felt
necessary with my counsel or counsel for the Company.

      [The  following  paragraph  will  be  included  in  letters  from  persons
beneficially owning more than 1,000,000 shares of Merchants Common Stock:]

      By  countersigning  this letter,  Valley covenants that it will provide me
with "piggyback  registration rights" with respect to any secondary offering for
the  account  of a person or  persons  other  than  Valley,  which  offering  is
registered by Valley by filing a Form S-3 or its equivalent  during the one-year
period following closing of the Merger.  These  registration  rights shall be on
customary terms and  conditions,  including terms and conditions with respect to
indemnification and payment of expenses.

      Execution  of this  letter  is not an  admission  on my part  that I am an
"affiliate" of the Company as described in the second  paragraph of this letter,
or a waiver of any  rights I may have to  object to any claim  that I am such an
affiliate  on or after the date of this  letter.  This  letter  shall  terminate
concurrently with any termination of the Agreement in accordance with its terms.

                                             Very truly yours,

                                             Name: (Sign)
                                             (Print)

Accepted this ____ day of
_______________, ________ by

VALLEY NATIONAL BANCORP

By:
   --------------------------------
    Name:
    Title:


                                       51
<PAGE>

                                 EXHIBIT 5.18.1

                             VALLEY AFFILIATE LETTER

                                                             _______, 2000

Valley National Bancorp
1455 Valley Road
Wayne, New Jersey 07470

Gentlemen:

      I am delivering  this letter to you in connection with the proposed merger
(the  "Merger") of Merchants  New York Bancorp,  Inc., a New Jersey  corporation
("Merchants")  with and into Valley National Bancorp,  a New Jersey  corporation
("Valley"),  pursuant to the  Agreement and Plan of Merger dated as of September
5, 2000 (the "Agreement") among Valley, Merchants,  Valley National Bank and The
Merchants Bank of New York. I currently own shares of Valley's  common stock, no
par value ("Valley Common Stock").

      I have been  advised that as of the date of this letter I may be deemed to
be an "affiliate" of Valley, as the term "affiliate" is used for purposes of the
rules  and   regulations  of  the  Securities  and  Exchange   Commission   (the
"Commission")  applicable  to the  determination  of  whether  a  merger  can be
accounted  for as a "pooling of  interests"  as  specified  in the  Commission's
Accounting Series Release 135, as amended by Staff Accounting  Bulletins Nos. 65
and 76 ("ASR 135").

      I represent to and covenant with Valley and Merchants that:

      A. Transfer  Restrictions Prior to Merger Consummation.  During the period
beginning on the date hereof and ending 30 days prior to the consummation of the
Merger,  I shall not sell,  transfer or otherwise  dispose of  ("transfer")  any
Valley  Common Stock owned by me, and I shall not permit any relative who shares
my home, or any person or entity whom or which I control,  from transferring any
Valley Common Stock owned by such person or entity,  without notifying Valley in
advance of the proposed  transfer and giving Valley a reasonable  opportunity to
object to the  transfer  before it is  consummated.  Valley,  upon advice of its
independent  public  accountants,  may  instruct  me not to make or  permit  the
transfer  because it may interfere with the "pooling of interests"  treatment of
the Merger. I shall abide by any such instructions.

      B. Post-Consummation Transfer Restrictions. During the period beginning 30
days  prior to the  consummation  of the Merger  and  ending  immediately  after
financial results covering at least 30 days of post-Merger  combined  operations
have  been  published  by  Valley  by means of filing of a Form 10-Q or Form 8-K
under the Securities  Exchange Act of 1934, the issuance of a quarterly earnings
report,  or any other public  issuance which  satisfies the  requirements of ASR
135, I shall not transfer  any Valley  Common Stock owned by me, and I shall not
permit any relative who shares my home,  or any person or entity whom or which I
control, to transfer any Valley Common Stock owned by such person or entity.


                                       52
<PAGE>

      C.  Consultation  with Counsel.  I have carefully read this letter and the
Agreement and discussed the  requirements of such documents and other applicable
limitations upon my ability to transfer Valley Common Stock to the extent I felt
necessary with my counsel or counsel for Valley.

      Execution  of this  letter  is not an  admission  on my part  that I am an
"affiliate" of Valley as described in the second paragraph of this letter,  or a
waiver  of any  rights  I may  have to  object  to any  claim  that I am such an
affiliate  on or after the date of this  letter.  This  letter  shall  terminate
concurrently with any termination of the Agreement in accordance with its terms.

                                            Very truly yours,

                                            -----------------------------
                                            Name: (Sign)
                                            (Print)

Accepted this ___ day of
____________, ____ by

VALLEY NATIONAL BANCORP

By: ___________________________
   Name:
   Title:


                                  SCHEDULE 6.2

                          FORM OF OPINION OF COUNSEL TO
                          MERCHANTS TO BE DELIVERED TO
                          VALLEY AT THE EFFECTIVE TIME

   (Capitalized terms used herein and not otherwise defined have the meanings
                          given them in the Agreement)

      (a) Merchants is a corporation validly existing and in good standing under
the laws of the  State of New  Jersey.  Merchants  has the  corporate  power and
authority to own or lease all of its  properties  and assets and to carry on its
business as described in the Joint Proxy  Statement-Prospectus  on page __ under
the caption _________________. Merchants is registered as a bank holding company
under the BHCA.

      (b)  Each  Subsidiary  of  Merchants  listed  as  such  in  the  Merchants
Disclosure  Schedule is validly  existing and in good standing under the laws of
the jurisdiction of its incorporation.  The Bank is a state-chartered commercial
bank under the laws of the State of New York.  The Bank has the corporate  power
and authority to own or lease all of its  properties  and assets and to carry on
its  business as described  in the Joint Proxy  Statement-Prospectus  on page __
under the caption _________________.

      (c) The authorized  capital stock of Merchants consists of


                                       53
<PAGE>

_______________  shares of  Merchants  Common  Stock.  Except for any  Merchants
Common Stock issuable upon exercise of  outstanding  Merchants  Options  granted
pursuant to the Merchants  Employee Option Plan and the Valley Stock Option,  we
have not become aware  (through our  representation  of Merchants in  connection
therewith or in the course of our representation of Merchants in connection with
the  Agreement,  or through  Merchants'  representations  to us in the  attached
certificate) of any outstanding subscription rights, options, conversion rights,
warrants or other  agreements or  commitments of any nature  whatsoever  (either
firm or conditional) obligating Merchants to issue, deliver or sell, cause to be
issued,  delivered or sold, or restricting Merchants from selling any additional
Merchants  Common Stock or obligating  Merchants to grant,  extend or enter into
any such agreement or commitment.

      (d) The Agreement has been authorized, executed and delivered by Merchants
and the Bank and constitutes the valid and binding  obligations of Merchants and
the Bank,  respectively,  enforceable in accordance with its terms,  except that
the  enforceability  of the obligations of Merchants and the Bank may be limited
by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, or
laws affecting bank holding  companies or institutions the deposits of which are
insured by the FDIC or other laws heretofore or hereafter enacted relating to or
affecting the  enforcement of creditors'  rights  generally and by principles of
equity (regardless of whether such  enforceability is considered in a proceeding
in equity or at law). In addition,  certain remedial and other provisions of the
Agreement may be limited by implied covenants of good faith,  fair dealing,  and
commercially  reasonable  conduct,  by judicial  discretion,  in the instance of
equitable remedies, and by applicable public policies and laws.

      (e) The  execution  and  delivery  of the  Agreement  and the Bank  Merger
Agreement and the consummation of the transactions contemplated thereby will not
(i) violate any  provision  of or result in the breach of any  provision  of the
respective  certificates of  incorporation  or by-laws of Merchants or the Bank;
(ii) conflict with or violate in any material  respect,  or result in a material
breach or  violation  of the terms or  provisions  of, or  constitute  a default
under, or result in (whether upon or after the giving of notice or lapse of time
or both) any material obligation under, any indenture,  mortgage,  deed of trust
or  loan  agreement  or  any  other  agreement,   instrument,  judgment,  order,
arbitration award or decree of which we are aware (through our representation of
Merchants  in  connection  therewith or in the course of our  representation  of
Merchants   in   connection   with  the   Agreement,   or   through   Merchants'
representations to us in the attached certificate) and to which Merchants or the
Bank is a party  or by which  Merchants  or the Bank is  bound;  or (iii)  cause
Merchants  or the Bank to violate  any law,  rule or  regulation  applicable  to
Merchants or the Bank:  except with respect to (ii) and (iii) above,  such as in
the  aggregate  will  not have a  material  adverse  effect  on the  ability  of
Merchants  and the  Bank to  consummate  the  transactions  contemplated  by the
Agreement.

      (f) All actions of the directors and  stockholders of Merchants and of the
Bank  required by Delaware law,  federal  banking law or New York law, or by the
respective  certificate of incorporation or by-laws of Merchants or the Bank, to
be taken by  Merchants  or the Bank to  authorize  the  execution,  delivery and
performance of the Agreement and consummation of the Merger have been taken.

      (g) No  approvals,  authorizations,  consents or other  actions or filings
under  Delaware  law,  federal  banking  law or New York law  ("Approvals")  are
required  to be  obtained  by  Merchants  or the  Bank in order  to  permit  the


                                       54
<PAGE>

execution  and  delivery  of the  Agreement  by  Merchants  and the Bank and the
performance by Merchants and the Bank of the transactions  contemplated  thereby
without  violation  of such laws  other  than  those  Approvals  which have been
obtained or those  Approvals  or  consents  required to be obtained by Valley or
VNB, or Approvals not required or necessary to be obtained on the date hereof in
order to permit such execution,  delivery and performance  without  violation of
such laws.

      (h)  Except  as set  forth  in the  Merchants  Disclosure  Schedule  or in
Merchants'  certificate  addressed  to us and  attached  hereto,  and other than
ordinary  routine  litigation  incidental  to the  business of  Merchants or its
Subsidiaries,  we are not aware of any material  action,  suit or  proceeding or
investigation  pending  or  threatened  in  writing  against  or  affecting  the
business, operations, property or financial condition of Merchants or any of its
Subsidiaries,  at law or in equity,  in any court or before any Federal,  state,
municipal or other governmental Department, commission, board, bureau, agency or
instrumentality, except those which, if decided adversely to Merchants or any of
its Subsidiaries,  would not have a material adverse effect on Merchants and its
Subsidiaries,  taken  as a  whole;  provided,  however,  we are not  counsel  to
Merchants or its  Subsidiaries  in any litigation and with respect to litigation
we are relying upon the representation and warranty of Merchants made in Section
3.7 of the  Agreement  with  respect to material  litigation  and on  Merchants'
certificate addressed to us and attached hereto.

                                  * * * * * * *

      We are not  passing  upon and do not  assume  any  responsibility  for the
accuracy,  completeness or fairness of the statements and information  contained
in the Joint Proxy  Statement-Prospectus and make no representation that we have
independently verified the accuracy, completeness or fairness of such statements
and  information,  but,  without  in any  way  limiting  the  generality  of the
foregoing, based upon our review of the Joint Proxy Statement-Prospectus (i) the
Joint Proxy  Statement-Prospectus  (except for  financial  statements  and other
tabular  financial  information,  and other financial and  statistical  data and
information,  as to which we  express  no  opinion)  complies  as to form in all
material  respects  with the 1934 Act and the  applicable  laws and  regulations
thereunder,  (ii) no facts have come to our attention  that caused us to believe
that (except for financial  statements and other tabular financial  information,
as to which we do not express  any belief) the Joint Proxy  Statement-Prospectus
on  the  date  of  the  mailing  thereof  and on the  date  of  the  meeting  of
stockholders  of Merchants at which the Agreement  was  approved,  contained any
untrue  statement  of a material  fact with  respect to  Merchants or omitted to
state a material  fact with respect to Merchants  necessary in order to make the
statements  therein with  respect to  Merchants,  in light of the  circumstances
under which they were made, not misleading.

                                  * * * * * * *

      In rendering  their  opinion,  counsel to Merchants (A) may, to the extent
they deem proper and so specify in their opinion, rely upon the opinion of other
counsel as to matters  involving  the  application  of laws of any  jurisdiction
other than the United  States,  or may exclude from their  opinion the substance
included in the opinions of other counsel  given  directly to Valley and (B) may
rely,  as to  matters  of fact,  on  certificates  of  responsible  officers  of
Merchants,  the Bank,  or other  Subsidiaries  of Valley and  public  officials;
provided copies of any such opinions or certificates  are delivered to Merchants
together  with the opinion to be  rendered  hereunder  by counsel to  Merchants.


                                       55
<PAGE>

Counsel to  Merchants  may assume  that any  agreement  is the valid and binding
obligation of any parties to such  agreement  other than Merchants and the Bank.
As  to  matters  of  fact,   counsel  to  Merchants   may  also  rely  upon  the
representations  and warranties  made by Merchants to Valley in the Agreement as
though  such  representations  and  warranties  were made  directly  to counsel.
Counsel to Merchants may also rely upon the  genuineness  of signatures  and the
authenticity of copies.


                                  SCHEDULE 6.3

                          FORM OF OPINION OF COUNSEL TO
                            VALLEY TO BE DELIVERED TO

                         MERCHANTS AT THE EFFECTIVE TIME

   (Capitalized terms used herein and not otherwise defined have the meanings
                          given them in the Agreement)

      (a) Valley is a corporation  validly  existing and in good standing  under
the  laws of the  State  of New  Jersey.  Valley  has the  corporate  power  and
authority to own or lease all of its  properties  and assets and to carry on its
business as described in the Joint Proxy  Statement-Prospectus  on page __ under
the caption  _________________.  Valley is registered as a bank holding  company
under the BHCA.

      (b) Each  Subsidiary  of Valley  listed as such in the  Valley  Disclosure
Schedule  is  validly  existing  and in  good  standing  under  the  laws of the
jurisdiction  of  its  incorporation.  VNB  is a  national  banking  association
chartered  under the laws of the United States.  VNB has the corporate power and
authority to own or lease all of its  properties  and assets and to carry on its
business as described in the Joint Proxy  Statement-Prospectus  on page __ under
the caption _________________.

      (c) The authorized  capital stock of Valley consists of ___________ shares
of common stock, no par value per share ("Valley Common Stock").  Except for any
Valley  Common Stock  issuable upon  exercise of  outstanding  stock options and
stock  appreciation  rights granted  pursuant to the Valley Option Plan, we have
not become aware (through our  representation of Valley in connection  therewith
or in the  course  of our  representation  of  Valley  in  connection  with  the
Agreement,   or  through  Valley's   representations   to  us  in  the  attached
certificate) of any outstanding subscription rights, options, conversion rights,
warrants or other  agreements or  commitments of any nature  whatsoever  (either
firm or conditional)  obligating  Valley to issue,  deliver or sell, cause to be
issued,  delivered or sold, or  restricting  Valley from selling any  additional
Valley Common Stock or obligating Valley to grant, extend or enter into any such
agreement or commitment  except as may be provided in any acquisition  agreement
Valley may enter into after the date of execution of the  Agreement.  The Valley
Common  Stock to be issued in  connection  with the  Merger in  accordance  with
Article II of the  Agreement,  when so issued in accordance  therewith,  will be
duly  authorized,  validly  issued,  fully  paid  and  non-assessable,  free  of
preemptive rights and free and clear of all liens,


                                       56
<PAGE>

encumbrances or restrictions created by Valley.

      (d) The  Agreement has been  authorized,  executed and delivered by Valley
and VNB and  constitutes  the valid and binding  obligations  of Valley and VNB,
respectively,  enforceable  in  accordance  with  its  terms,  except  that  the
enforceability  of  the  obligations  of  Valley  and  VNB  may  be  limited  by
bankruptcy, fraudulent conveyance,  insolvency,  reorganization,  moratorium, or
laws  affecting  institutions  the  deposits of which are insured by the FDIC or
other  laws  heretofore  or  hereafter  enacted  relating  to or  affecting  the
enforcement  of  creditors'   rights  generally  and  by  principles  of  equity
(regardless  of whether such  enforceability  is  considered  in a proceeding in
equity or at law).  In addition,  certain  remedial and other  provisions of the
Agreement may be limited by implied covenants of good faith,  fair dealing,  and
commercially  reasonable  conduct,  by judicial  discretion,  in the instance of
equitable remedies, and by applicable public policies and laws.

      (e) The  execution  and  delivery  of the  Agreement  and the Bank  Merger
Agreement and the consummation of the transactions contemplated thereby will not
(i) violate any  provision  of or result in the breach of any  provision  of the
respective  certificates  of  incorporation  or by-laws  of Valley or VNB;  (ii)
conflict with or violate in any material respect, or result in a material breach
or violation of the terms or provisions  of, or constitute a default  under,  or
result in (whether  upon or after the giving of notice or lapse of time or both)
any material  obligation under, any indenture,  mortgage,  deed of trust or loan
agreement or any other agreement, instrument, judgment, order, arbitration award
or  decree  of which we are  aware  (through  our  representation  of  Valley in
connection  therewith  or in the  course  of our  representation  of  Valley  in
connection with the Agreement, or through Valley's  representations to us in the
attached  certificate)  and to which Valley or VNB is a party or by which Valley
or VNB is bound;  or (iii)  cause  Valley  or VNB to  violate  any law,  rule or
regulation  applicable  to Valley or VNB:  except with respect to (ii) and (iii)
above,  such as in the aggregate will not have a material  adverse effect on the
ability of Valley and VNB to consummate  the  transactions  contemplated  by the
Agreement.

      (f) All actions of the  directors  and  stockholders  of Valley and of VNB
required  by federal  banking  law,  New York law or New Jersey  law,  or by the
respective  certificates  of  incorporation  or by-laws of Valley or VNB,  to be
taken by Valley or VNB to authorize the execution,  delivery and  performance of
the Agreement and consummation of the Merger have been taken.

      (g) Assuming  that there has been due  authorization  of the Merger by all
necessary  corporate and  governmental  proceedings on the part of Merchants and
that  Merchants  has taken all  action  required  to be taken by it prior to the
Effective  Time, upon the  appropriate  filing of the  Certificates of Merger in
respect of the Merger with the  Delaware  and New Jersey  Secretary  of State in
accordance with Section 1.6 of the Agreement,  the Merger will become  effective
at the time of such filings,  and upon effectiveness of the Merger each share of
Merchants  Common  Stock  will be  converted  as  provided  in Article II of the
Agreement.

      (h) No  approvals,  authorizations,  consents or other  actions or filings
under  federal  banking  law,  Delaware  law,  New  York law or New  Jersey  law
("Approvals")  are  required  to be obtained by Valley or VNB in order to permit
the  execution  and  delivery  of the  Agreement  by  Valley  and  VNB  and  the
performance by Valley and VNB of the transactions  contemplated  thereby without
violation of such laws other than those  Approvals  which have been  obtained or


                                       57
<PAGE>

those  Approvals  or consents  required to be obtained by Merchants or the Bank,
and  Approvals  not  required or  necessary to be obtained on the date hereof in
order to permit such execution,  delivery and performance  without  violation of
such laws.

      (i) Except as set forth in the Valley  Disclosure  Schedule or in Valley's
certificate addressed to us and attached hereto, and other than ordinary routine
litigation incidental to the business of Valley or its Subsidiaries,  we are not
aware of any material  action,  suit or proceeding or  investigation  pending or
threatened in writing against or affecting the business, operations, property or
financial  condition of Valley or any of its Subsidiaries,  at law or in equity,
in any court or before  any  Federal,  state,  municipal  or other  governmental
Department,  commission, board, bureau, agency or instrumentality,  except those
which, if decided adversely to Valley or any of its Subsidiaries, would not have
a  material  adverse  effect on Valley and its  Subsidiaries,  taken as a whole;
provided,  however,  we are not counsel to Valley or its Subsidiaries in certain
litigation  and with  respect to any such  litigation  we are  relying  upon the
representation and warranty of Valley made in Section 4.10 of the Agreement with
respect to material litigation and on Valley's  certificate  addressed to us and
attached hereto.

      (j) The  Registration  Statement  has been  declared  effective by the SEC
under  the 1933 Act and we are not  aware  that any stop  order  suspending  the
effectiveness  has  been  issued  under  the 1933  Act or  proceedings  therefor
initiated or threatened by the SEC.

                                  * * * * * * *

      We are not  passing  upon and do not  assume  any  responsibility  for the
accuracy,  completeness or fairness of the statements and information  contained
in the Joint Proxy  Statement-Prospectus and make no representation that we have
independently verified the accuracy, completeness or fairness of such statements
and  information,  but,  without  in any  way  limiting  the  generality  of the
foregoing, based upon our review of the Joint Proxy Statement-Prospectus (i) the
Joint Proxy  Statement-Prospectus  (except for  financial  statements  and other
tabular  financial  information,  and other financial and  statistical  data and
information,  as to which we  express  no  opinion)  complies  as to form in all
material  respects  with the 1933 Act and the  applicable  laws and  regulations
thereunder,  (ii) no facts have come to our attention  that caused us to believe
that (except for financial  statements and other tabular financial  information,
as to which we do not express  any belief) the Joint Proxy  Statement-Prospectus
on  the  date  of  the  mailing  thereof  and on the  date  of  the  meeting  of
stockholders  of Merchants at which the Agreement  was  approved,  contained any
untrue statement of a material fact with respect to Valley or omitted to state a
material fact with respect to Valley  necessary in order to make the  statements
therein with respect to Valley, in light of the  circumstances  under which they
were made, not misleading.

                                  * * * * * * *

      In rendering their opinion,  counsel to Valley (A) may, to the extent they
deem  proper  and so specify in their  opinion,  rely upon the  opinion of other
counsel as to matters  involving  the  application  of laws of any  jurisdiction
other than the United  States or the State of New Jersey,  or may  exclude  from
their  opinion the  substance  included in the opinions of other  counsel  given
directly to Merchants and (B) may rely,  as to matters of fact, on  certificates
of  responsible  officers of Valley,  VNB, or other  Subsidiaries  of


                                       58
<PAGE>

Valley  and  public   officials;   provided  copies  of  any  such  opinions  or
certificates are delivered to Merchants together with the opinion to be rendered
hereunder by counsel to Valley.  Counsel to Valley may assume that any agreement
is the valid and binding  obligation of any parties to such agreement other than
Valley and VNB. As to matters of fact,  counsel to Valley may also rely upon the
representations  and warranties  made by Valley to Merchants in the Agreement as
though  such  representations  and  warranties  were made  directly  to counsel.
Counsel  to Valley  may also rely upon the  genuineness  of  signatures  and the
authenticity of copies.

1 As will be in effect after the merger.