VALLEY NATIONAL BANCORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
FORM 10-Q

(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2003

[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________

Commission File Number 1-11277
----------------------

VALLEY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)

New Jersey
(State or other Jurisdiction of
incorporation or organization)

22-2477875
(I.R.S. Employer Identification No.)

1455 Valley Road, Wayne, New Jersey 07470
(Address of principal executive offices)

973-305-8800
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No__

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes X No__

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Common Stock (no par value), of which 93,733,188 shares were outstanding as
of May 12, 2003.

TABLE OF CONTENTS

Page Number

PART I FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
March 31, 2003 and December 31, 2002 3

Consolidated Statements of Income
Three Months Ended March 31, 2003 and 2002 4

Consolidated Statements of Cash Flows
Three months Ended March 31, 2003 and 2002 5

Notes to Consolidated Financial Statements 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10

Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25

Item 4. Controls and Procedures 25

PART II OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K 27

SIGNATURES 28

CERTIFICATIONS 29

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

See accompanying notes to consolidated financial statements.

(a) Share data reflects the 5% stock dividend declared on April 9, 2003, to be
issued May 16, 2003 to shareholders of record on May 2, 2003.

VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except for share data) Three Months Ended
March 31,
2003 2002
---------------------------------------

Interest Income
Interest and fees on loans $ 91,827 $ 90,886
Interest and dividends on investment securities:
Taxable 30,697 33,431
Tax-exempt 2,684 2,505
Dividends 1,137 699
Interest on federal funds sold and other short-term
investments 86 637
---------------------------------------
Total interest income 126,431 128,158
---------------------------------------
Interest Expense
Interest on deposits:
Savings deposits 6,710 8,088
Time deposits 11,954 18,566
Interest on short-term borrowings 1,384 827
Interest on long-term debt 13,227 12,898
---------------------------------------
Total interest expense 33,275 40,379
---------------------------------------
Net Interest Income 93,156 87,779
Provision for loan losses 3,255 3,705
---------------------------------------
Net Interest Income after Provision for Loan Losses 89,901 84,074
---------------------------------------
Non-Interest Income
Trust and investment services 2,074 1,178
Insurance fees, commissions and premiums 4,802 786
Service charges on deposit accounts 5,277 4,885
Gains on securities transactions, net 3,211 355
Fees from loan servicing 1,993 2,498
Gains on sales of loans, net 2,588 1,780
Bank owned life insurance 1,515 1,416
Other 4,182 5,146
---------------------------------------
Total non-interest income 25,642 18,044
---------------------------------------
Non-Interest Expense
Salary expense 24,419 21,081
Employee benefit expense 6,307 4,845
Net occupancy expense 8,415 6,877
Amortization of intangible assets 2,766 2,189
Advertising 1,858 1,436
Distribution on capital securities 3,932 3,932
Other 10,374 8,945
---------------------------------------
Total non-interest expense 58,071 49,305
---------------------------------------
Income Before Income Taxes 57,472 52,813
Income tax expense 19,490 14,213
---------------------------------------
Net Income $ 37,982 $ 38,600
=======================================
Weighted Average Number of Shares Outstanding:(a)
Basic 94,658,595 99,613,756
Diluted 95,098,987 100,318,558
Earnings Per Share:(a)
Basic $0.40 $0.39
Diluted 0.40 0.38
Cash dividends declared per common share(a) 0.21 0.20

See accompanying notes to consolidated financial statements.

(a) Share data reflects the 5% stock dividend declared on April 9, 2003,
to be issued May 16, 2003 to shareholders of record of May 2, 2003.

VALLEY NATIONAL BANCORP Three Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) March 31,

--------------------------------------
(in thousands)
2003 2002
--------------------------------------
Cash flows from operating activities:
Net income $37,982 $38,600
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,442 4,380
Amortization of compensation costs pursuant to
long-term stock incentive plan 762 652
Provision for loan losses 3,255 3,705
Net amortization of premiums and accretion of discounts 3,231 2,811
Net gains on securities transactions (3,211) (355)
Proceeds from sales of loans 76,335 68,837
Gains on sales of loans (2,588) (1,780)
Origination of loans held for sale (81,107) (53,172)
Purchases of trading securities (83,535) 0
Proceeds from sales of trading securities 81,078 0
Net increase in bank owned life insurance (1,515) (1,416)
Net (increase) decrease in accrued interest receivable and other assets (2,293) 4,059
Net increase (decrease) in accrued expenses and other liabilities 24,379 (5,339)
--------------------------------------
Net cash provided by operating activities 58,215 60,982
--------------------------------------
Cash flows from investing activities:
Purchase of bank owned life insurance 0 (50,000)
Proceeds from sales of investment securities available for sale 170,366 249,599
Proceeds from maturities, redemptions and prepayments of investment
securities available for sale 364,466 228,972
Purchases of investment securities available for sale (630,940) (566,767)
Purchases of investment securities held to maturity (31,737) (9,402)
Proceeds from sales of investment securities held to maturity 1,630 0
Proceeds from maturities, redemptions and prepayments of investment
securities held to maturity 9,021 7,913
Net increase in loans made to customers (200,868) (23,823)
Purchases of premises and equipment (3,676) (5,569)
--------------------------------------
Net cash used in investing activities (321,738) (169,077)
--------------------------------------
Cash flows from financing activities:
Net increase in deposits 56,327 102,581
Net increase (decrease) in short-term borrowings 297,141 (24,407)
Advances of long-term debt 23,000 0
Repayments of long-term debt (70,023) (52,021)
Dividends paid to common shareholders (20,432) (20,077)
Purchase of common shares to treasury (18,617) (43,457)
Common stock issued, net of cancellations 837 1,935
--------------------------------------
Net cash provided by (used in) financing activities 268,233 (35,446)
--------------------------------------
Net increase (decrease) in cash and cash equivalents 4,710 (143,541)
Cash and cash equivalents at January 1 243,923 311,850
--------------------------------------
Cash and cash equivalents at March 31 $248,633 $168,309
======================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest on deposits and borrowings $33,690 $42,463
Cash paid during the period for federal and state income taxes 0 0

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Consolidated Financial Statements

The Consolidated Statements of Financial Condition as of March 31, 2003 and
December 31, 2002, the Consolidated Statements of Income for the three month
periods ended March 31, 2003 and 2002 and the Consolidated Statements of Cash
Flows for the three month periods ended March 31, 2003 and 2002 have been
prepared by Valley National Bancorp ("Valley") without audit. In the opinion of
management, all adjustments (which included only normal recurring adjustments)
necessary to present fairly Valley's financial position, results of operations
and cash flows at March 31, 2003 and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted. These consolidated financial
statements are to be read in conjunction with the consolidated financial
statements and notes thereto included in Valley's December 31, 2002 report on
Form 10-K. Certain prior period amounts have been reclassified to conform to
2003 financial presentations.

2. Investment Securities

Investment securities held to maturity are carried at cost and adjusted for
amortization of premiums and accretion of discounts by using the interest method
over the term of the investment. During the first quarter of 2003, Valley sold
two securities which were downgraded to non-investment grade, for a total of
$1.5 million from the held to maturity portfolio resulting in a net gain of $33
thousand.

3. Earnings Per Share (EPS)1

For Valley, the numerator of both the Basic and Diluted EPS is equivalent
to net income. The weighted average number of shares outstanding used in the
denominator for Diluted EPS is increased over the denominator used for Basic EPS
by the effect of potentially dilutive common stock equivalents utilizing the
treasury stock method. For Valley, common stock equivalents are common stock
options outstanding.

The following table shows the calculation of both Basic and Diluted
earnings per share for the three months ended March 31, 2003 and 2002.

Three Months Ended
March 31,
2003 2002
-------------------------------

Net income (in thousands) $37,982 $38,600
===============================
Basic weighted-average number of shares
outstanding 94,658,595 99,613,756
Plus: Common stock equivalents 440,392 704,802
-------------------------------
Diluted weighted-average number
of shares outstanding 95,098,987 100,318,558
===============================
Earnings per share:
Basic $0.40 $0.39
Diluted 0.40 0.38

Common stock equivalents for the three months ended March 31, 2003 and 2002
exclude approximately 437 thousand and 2 thousand common stock options because
the exercise prices exceeded the average market value. Inclusion of these common
stock equivalents would be anti-dilutive to the diluted earnings per share
calculation.

4. Stock-Based Compensation

Valley prospectively adopted the fair value method provision of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based
Compensation", effective January 1, 2002. Under SFAS No. 123, entities recognize
stock-based employee compensation costs under the fair value method for awards
granted during the year. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model and is based on
certain assumptions including dividend yield, stock volatility, risk free rate
of return, expected term and turnover rate.

For the three months ended March 31, 2003, Valley recorded stock-based
employee compensation expense of $77 thousand, net of tax and will continue to
amortize approximately $988 thousand, net of tax, of the remaining cost of these
grants over the vesting period of approximately five years. Stock-based employee
compensation cost under the fair value method was measured using the following
weighted-average assumptions for options granted from the date of adoption to
March 31, 2003: dividend yield of 3.35 percent, risk-free interest rate of 3.08
percent, expected volatility of 24.97 percent, expected term of 5.29 years and
turnover rate of 7.27 percent.

Prior to January 1, 2002, Valley applied APB Opinion No. 25 and related
Interpretations in accounting for its stock option plan. Had compensation cost
for the options issued prior to January 1, 2002, been

______________________________

1 Share data reflects the 5 percent stock dividend declared on April 9, 2003 to
be issued May 16, 2003 to shareholders of record on May 2, 2003.

determined consistent with SFAS No. 123 for those periods, net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:

Three Months Ended
March 31,

2003 2002
____________________________________
(in thousands, except for share data)
Net income
As reported $ 37,982 $ 38,600
Stock-based compensation cost, net of tax (206) (280)
________ ________
Pro forma net income $ 37,776 $ 38,320
======== ========

Earnings per share
As reported:
Basic $ 0.40 $ 0.39
Diluted 0.40 0.38
Pro forma:
Basic $ 0.40 $ 0.38
Diluted 0.40 0.38

5. Recent Developments

On May 14, 2003, Valley announced that its Board of Directors authorized
the company to repurchase up to 2.5 million shares of the company's outstanding
common stock. Purchases may be made from time to time in the open market or in
privately negotiated transactions generally at prices not exceeding prevailing
market rates. Valley presently has an existing stock repurchase program in place
authorized by its Board of Directors in August 2001 to repurchase 10.5 million
shares. Valley expects to continue its existing repurchase program until all
10.5 million shares are purchased before the newly authorized program becomes
effective.

On April 9, 2003, the Board of Directors approved a five percent stock
dividend to be issued May 16, 2003 to shareholders of record on May 2, 2003 and
also agreed to maintain the annual cash dividend at $0.90 per share, on an
after-stock-dividend basis, representing an increase of 5 percent in the cash
payout.

On January 1, 2003, Valley National Bank ("VNB") completed its acquisition
of Glen Rauch Securities, Inc. ("Glen Rauch"), a Wall Street brokerage firm
specializing in municipal securities with more than $1 billion in assets in its
customer accounts. The purchase of Glen Rauch was a cash acquisition with
subsequent earn-out payments.

6. Comprehensive Income

Valley's comprehensive income consists of unrealized gains (losses) on
securities available for sale and until May 2002, foreign currency translation
adjustments (on May 1, 2002, Valley sold its subsidiary VNB Financial Services,
Inc., a Canadian finance company). The following table shows each component of
comprehensive income for the three months ended March 31, 2003 and 2002.

Three Months Ended
March 31,
-------------------------------------------------------
2003 2002
-------------------------- --------------------------
(in thousands)

Net income $37,982 $38,600
Other comprehensive income, net of tax:
Foreign currency:
Translation adjustment 0 (8)
Unrealized gains on securities:
Change in unrealized gains arising during the period ($4,083) ($647)
Reclassification adjustment for gains realized in net
income (2,007) (224)
-------------- -------------
Net change in unrealized gains (6,090) (871)
------------- --------------
Other comprehensive income (6,090) (879)
------------- --------------
Comprehensive income $31,892 $37,721
============= ==============

7. Business Segments

The information under the caption "Business Segments" in Management's
Discussion and Analysis is incorporated herein by reference.

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Cautionary Statement Concerning Forward-Looking Statements

This Form 10-Q, both in the MD & A and elsewhere, contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are not historical facts and include expressions about
management's confidence and strategies and management's expectations about new
and existing programs and products, acquisitions, relationships, opportunities,
taxation, technology and market conditions. These statements may be identified
by an (*) or such forward-looking terminology as "expect," "anticipate," "look,"
"view," "opportunities," "allow," "continues," "reflects," "believe," "may,"
"will" or similar statements or variations of such terms. Such forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, but are not limited to, unanticipated
changes in the direction of interest rates, loan prepayment assumptions, cash
flows, deposit growth, the direction of the economy in New Jersey and New York,
continued levels of loan quality and origination volume, continued relationships
with major customers, as well as the effects of general economic conditions and
legal and regulatory barriers and the development of new tax strategies or the
disallowance of prior tax strategies. Actual results may differ materially from
such forward-looking statements. Valley assumes no obligation for updating any
such forward-looking statement at any time.

Earnings Summary2

For the three months ended March 31, 2003, net income was $38.0 million or
$0.40 per diluted share compared with $38.6 million or $0.38 per diluted share
for the same period in 2002, an increase of 5.3 percent per diluted share. Net
income was lower due to an increased effective tax rate for the first quarter of
2003 compared with the same period in 2002. The effective tax rate for the first
quarter 2003 increased to 33.9 percent compared with 26.9 percent for the first
quarter 2002 primarily due to a $3.5 million tax benefit recorded in the first
quarter of 2002 associated with the restructuring of a subsidiary into a Real
Estate Investment Trust ("REIT"). In addition, under Valley's share repurchase
program approved by the Board of Directors in August 2001, a total of 9.5
million of the 10.5 million common shares authorized for repurchase had been
acquired through the close of the 2003 first quarter at a total cost of $233
million, funds that would otherwise have been invested to contribute to net
income.

The annualized return on average shareholders' equity increased to 24.06
percent for the three months ended March 31, 2003 compared with 23.19 percent
for the same period in 2002 while the annualized return on average assets
decreased to 1.67 percent for the three months ended March 31, 2003 compared
with 1.84 percent recorded in the first quarter of 2002.

Net interest income for the first quarter of 2003 increased over the prior
year due to a combination of increased loan volume and lower interest cost on
deposits partly offset by a decrease in loan rates. Non-interest income
increased for the three months ended March 31, 2003 compared with the three
months ended March 31, 2002, due to gains on the sales of securities and income
from Valley's new acquisitions of Masters Coverage Corp. ("Masters"), an
all-line insurance agency; NIA/Lawyers Title Agency, LLC ("NIA/Lawyers"), a
title insurance agency; and Glen Rauch Securities, Inc. ("Glen Rauch"), a Wall
Street brokerage firm.

_______________________________
2 Share data reflects the 5 percent stock dividend declared on April 9, 2003 to
be issued May 16, 2003 to shareholders of record on May 2, 2003.

Net Interest Income

Net interest income continues to be the largest component of Valley's
operating income, a long-standing traditional source of income. For the three
month period ended March 31, 2003, net interest income on a tax equivalent basis
increased to $94.7 million or 6.1 percent, compared with $89.2 million for the
three months ended March 31, 2002. This increase was mainly due to increased
loan volume and investment activity. Average loans increased $536.0 million or
10.1 percent as the consumer and commercial lending business segments reflected
strong growth during the period, while average investments, primarily consisting
of mortgage-backed securities increased $127.5 million or 5.1 percent over the
comparable 2002 period. The increase in interest income on loans was a result of
new loan volume which helped offset the decline in interest income due to
falling rates by $928 thousand while the decline in interest income on taxable
investments was greater than the increase in interest income from higher
investment balances by $2.3 million.

Savings deposits continue to provide a low cost source of funding and
increased on average $436.2 million or 17.1 percent for the first quarter of
2003 compared with the same period in 2002. This increase was attributed to the
addition of new branches, increased customer activity and relatively new savings
products, including Valley's Kids First Savings Club(SM) program, as well as a
shift from longer-term certificates of deposit to savings accounts. Average
non-interest bearing demand deposits also increased $117.9 million or 8.4
percent for the same period, mainly due to increased customer activity. Average
time deposits decreased $270 million or 11.3 percent for the three month period
ended March 31, 2003 compared with the same period in 2002. The decline in
interest rates on deposits caused a net decrease in interest expense on deposits
by $8.0 million.

Average long and short-term debt, consisting primarily of Federal Home Loan
Bank ("FHLB") advances, increased $141.6 million or 14.8 percent and $276.1 or
141.1 percent, respectively, for the first quarter of 2003 compared with the
first quarter of 2002, as Valley took advantage of lower rate intermediate-term
financing in the latter part of 2002 and lower rate short-term financing in
2003. The impact on interest expense was an increase of $886 thousand over the
prior year first quarter.

For the three months ended March 31, 2003, net interest margin on a tax
equivalent basis was 4.46 percent compared with 4.49 percent for the three
months ended March 31, 2002 and 4.39 percent for the three months ended December
31, 2002. In November 2002, the Federal Reserve lowered short-term interest
rates in an effort to stimulate the economy. Efforts by management to lower
interest rates and increase loan volume contributed to the increase in net
interest margin for the three months ended March 31, 2003 compared with the
three months ended December 31, 2002. Valley has been able to maintain the net
interest margin at its current level but cannot guarantee the effects future
changes in interest rates may have on net interest margin.*

The following table reflects the components of net interest income for each
of the three months ended March 31, 2003 and 2002.

ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
NET INTEREST INCOME ON A TAX EQUIVALENT BASIS
Three Months Ended March 31,
----------------------------------------------------------------------------------

2003 2002
----------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------------------
(in thousands)

Assets
Interest earning assets:
Loans (1)(2) $5,856,965 $91,887 6.28% $5,320,959 $90,959 6.84%
Taxable investments (3) 2,364,693 31,834 5.38% 2,261,095 34,130 6.04%
Tax-exempt investments(1)(3) 245,695 4,129 6.72% 221,839 3,854 6.95%
Federal funds sold and other short-
term investments 15,930 86 2.16% 149,920 637 1.70%
----------------------------------------------------------------------------------
Total interest earning assets 8,483,283 $127,936 6.03% 7,953,813 $129,580 6.52%
Allowance for loan losses (65,760) (65,774)
Cash and due from banks 198,033 185,464
Other assets 403,697 302,688
Unrealized gain on securities available
for sale 60,547 31,169
----------------- ----------------
Total assets $9,079,800 $8,407,360
================= ================

Liabilities and Shareholders' Equity
Interest bearing liabilities:
Savings deposits $2,982,239 $ 6,710 0.90% $2,546,034 $ 8,088 1.27%
Time deposits 2,123,387 11,954 2.25% 2,393,362 18,566 3.10%
----------------------------------------------------------------------------------
Total interest bearing deposits 5,105,626 18,664 1.46% 4,939,396 26,654 2.16%
Short-term borrowings 471,856 1,384 1.17% 195,713 827 1.69%
Long-term debt 1,097,673 13,227 4.82% 956,034 12,898 5.40%
----------------------------------------------------------------------------------
Total interest bearing liabilities 6,675,155 33,275 1.99% 6,091,143 40,379 2.65%
Demand deposits 1,528,428 1,410,534
Other liabilities 44,734 39,761
Capital securities 200,000 200,000
Shareholders' equity 631,483 665,922
Total liabilities and ----------------- ----------------
shareholders' equity $9,079,800 $8,407,360
================= ================
Net interest income
(tax equivalent basis) 94,661 89,201
Tax equivalent adjustment (1,505) (1,422)
-------------- --------------
Net interest income $93,156 $87,779
============== ==============
Net interest rate differential 4.04% 3.87%
------------- ------------
Net interest margin (4) 4.46% 4.49%
============= ============

(1) Interest income is presented on a tax equivalent basis using a 35
percent federal tax rate.
(2) Loans are stated net of unearned income and include non-accrual loans.
(3) The yield for securities that are classified as available for sale is
based on the average historical amortized cost.
(4) Net interest income on a tax equivalent basis as a percentage of total
average interest earning assets.

The following table demonstrates the relative impact on net interest income
of changes in volume of interest earning assets and interest bearing liabilities
and changes in rates earned and paid by Valley on such assets and liabilities.

CHANGE IN NET INTEREST INCOME ON A TAX EQUIVALENT BASIS

Three Months Ended March 31,
2003 Compared with 2002
Increase (Decrease) (1)
-----------------------------------------------
Interest Volume Rate
---------- -------- ------
(in thousands)

Interest income:
Loans (2) $ 928 $8,748 ($7,820)
Taxable investments (2,296) 1,513 (3,809)
Tax-exempt investments (2) 275 404 (129)
Federal funds sold and other
short-term investments (551) (688) 137
-----------------------------------------------
(1,644) 9,977 (11,621)
-----------------------------------------------

Interest expense:
Savings deposits (1,378) 1,236 (2,614)
Time deposits (6,612) (1,927) (4,685)
Short-term borrowings 557 874 (317)
Long-term debt 329 1,792 (1,463)
-----------------------------------------------
(7,104) 1,975 (9,079)
-----------------------------------------------

-----------------------------------------------
Net interest income (tax equivalent basis) $5,460 $8,002 ($2,542)
-----------------------------------------------

(1) Variances resulting from a combination of changes in volume and
rates are allocated to the categories in proportion to the absolute dollar
amounts of the change in each category.
(2) Interest income is adjusted to a tax equivalent basis using a 35 percent
federal tax rate.

Non-Interest Income

The following table presents the components of non-interest income for the
three months ended March 31, 2003 and 2002.

NON-INTEREST INCOME

Three Months Ended
March 31,
--------------------------------
2003 2002
--------------------------------
(in thousands)
Trust and investment services $ 2,074 $ 1,178
Insurance fees, commissions and premiums 4,802 786
Service charges on deposit accounts 5,277 4,885
Gains on securities transactions, net 3,211 355
Fees from loan servicing 1,993 2,498
Gains on sales of loans, net 2,588 1,780
Bank owned life insurance ("BOLI") 1,515 1,416
Other 4,182 5,146
--------------------------------
Total non-interest income $25,642 $18,044
================================

Non-interest income continues to represent a considerable source of income
for Valley, representing 16.9 percent of total income for the three months ended
March 31, 2003. Excluding gains on securities transactions, net, total
non-interest income increased to $22.4 million for the three months ended March
31, 2003, a $4.7 million increase, compared with $17.7 million recorded for the
three months ended March 31, 2002. This increase was primarily attributed to
income from Valley's recent acquisitions of Masters, NIA/Lawyers and Glen Rauch.

Trust and investment services income increased to $2.1 million for the
three months ended March 31, 2003, as compared with the same period in 2002,
primarily due to additional revenues from the newly acquired Glen Rauch
operations.

Insurance fees, commissions and premiums increased to $4.8 million for the
three months ended March 31, 2003, compared with the same period in 2002, due to
Valley's recent acquisitions of Masters and NIA/Lawyers.

Gains on securities transactions, net, increased $2.9 million to $3.2
million for the three months ended March 31, 2003, compared with $355 thousand
for the same period in 2002. The bond market has continued to display
significant strength resulting in record refinancing rates over the past six
months. During the first quarter of 2003, Valley identified many individual
bonds which experienced fast prepayment speeds. Many of these securities had
substantial unrealized gains, low give-up yields and if not sold, had a strong
likelihood of paying off at par within a very short time. Management made the
decision to sell selected positions to realize these gains and will continue to
monitor its inventory for more opportunities as part of its program of active
portfolio management. The majority of these gains were generated from
mortgage-backed securities. Included in the total of $79.0 million sold, Valley
sold two securities which were downgraded to non-investment grade, totaling $1.5
million from the held to maturity portfolio, resulting in a net gain of $33
thousand.

Fees from loan servicing decreased $505 thousand or 20.2 percent for the
three month period ended March 31, 2003, compared with the same period in 2002.
This decrease was mainly attributed to a reduction

in fee income on a lower volume of serviced mortgages, due to heavy refinancing
and payoff activity, as borrowers took advantage of lower interest rates.

Gains on sales of loans, net for the three months ended March 31, 2003 were
$2.6 million, an increase of $808 thousand or 45.4 percent compared with gains
of $1.8 million for the three months ended March 31, 2002. This increase was
primarily attributed to the sale of $70.1 million in residential mortgage loans.

Other non-interest income decreased $964 thousand or 18.7 percent, mainly
due to a settlement of a lawsuit of approximately $800 thousand recorded during
the first quarter of 2002.

Non-Interest Expense

The following table presents the components of non-interest expense for the
three months ended March 31, 2003 and 2002.

NON-INTEREST EXPENSE
Three Months Ended
March 31,
-----------------------------------
2003 2002
-----------------------------------

(in thousands)
Salary expense $24,419 $21,081
Employee benefit expense 6,307 4,845
Net occupancy expense 8,415 6,877
Amortization of intangible assets 2,766 2,189
Advertising 1,858 1,436
Distribution on capital securities 3,932 3,932
Other 10,374 8,945
-----------------------------------
Total non-interest expense $58,071 $49,305
===================================

Non-interest expense increased by $8.8 million or 17.8 percent for the
three months ended March 31, 2003 compared with March 31, 2002. The increase was
due largely to increased salary expense for the recently acquired subsidiaries,
business expansion including new and refurbished branches, and higher expenses
and depreciation charges in connection with recent investments in technology
systems. The largest components of non-interest expense were salaries and
employee benefit expense representing 52.9 percent of total non-interest expense
for the three months ended March 31, 2003.

The efficiency ratio measures a bank's total non-interest expense as a
percentage of net interest income plus total non-interest income. Valley's
efficiency ratio for the three months ended March 31, 2003 increased to 48.89
percent, compared with an efficiency ratio of 46.59 percent for the same period
in 2002. The additional expenses incurred as mentioned in the above paragraph,
resulted in the increase in the efficiency ratio. Valley strives to control its
efficiency ratio and expenses as a means of producing increased earnings for its
shareholders.* In accordance with recent changes in SEC rules, Valley's
efficiency ratio calculation above differs from its previously disclosed
efficiency ratio calculations or the traditional efficiency ratio calculation.
The traditional ratio allowed for the inclusion of tax equivalent adjustments on
net interest income and the exclusion of certain items of income and expense.

Salary expense increased by $3.3 million or 15.8 percent for the three
months ended March 31, 2003 compared with the same period in the prior year. The
increase was primarily due to the acquisition of Masters, NIA/Lawyers and Glen
Rauch, as well as increased branch and lending staff. At March 31, 2003,
Valley's full-time equivalent staff was 2,284 compared with 2,101 at March 31,
2002.

Employee benefit expense increased by $1.5 million or 30.2 percent for the
three month period ended March 31, 2003 compared with the same period last year.
The increase was primarily due to recent acquisitions and business expansion
discussed above, which attributed to increased insurance and retirement benefit
costs. In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," an expense of $119 thousand was recorded on the fair value of
stock options granted for the three month period ended March 31, 2003, while no
expense was recorded in the same period of 2002.

Net occupancy expense for the three months ended March 31, 2003 increased
by $1.5 million or 22.4 percent as compared with the same period in 2002. The
increase was largely due to business expansion including new branches and the
recent acquisitions of Masters, NIA/Lawyers and Glen Rauch; larger snow-related
cleanup costs; higher machinery rental and repair costs; and increased
depreciation charges in connection with recent investments in technology
systems.

Amortization of intangible assets consisting primarily of amortization of
loan servicing rights, increased $577 thousand or 26.4 percent to $2.8 million
for the three month period ended March 31, 2003 compared with the same period in
2002. Amortization expense includes $2.3 million recorded for the first quarter
of 2003 compared with $1.9 million for the first three months of 2002 as a
result of a large volume of prepayments on higher interest rate mortgages and
additional amortization expense of $183 thousand on identified intangibles
recorded in connection with Valley's recent acquisitions. Under new accounting
rules effective January of 2002, amortization of goodwill ceased; instead,
Valley reviews the goodwill asset for impairment annually. During 2002,
management evaluated the goodwill in each segment and determined that an
impairment expense was not required to be recorded.

Advertising expense increased $422 thousand or 29.4 percent for the three
months ended March 31, 2003 over the same period last year. The increase was due
to increased promotional programs and various branch-related incentives.

Distribution on capital securities consists of amounts paid or accrued on
the $200 million of 7.75 percent trust preferred securities issued in November
of 2001. The cost for the three month period ended March 31, 2003 and 2002 was
$3.9 million. The Financial Accounting Standards Board ("FASB") is expected to
issue during the second quarter of 2003, a final statement requiring that Valley
report in future periods its Mandatorily Redeemable Preferred Capital Securities
as long-term debt and related distributions on these securities as interest
expense.*

Other non-interest expense increased $1.4 million to $10.4 million for the
three months ended March 31, 2003 over the same period last year. The
significant components of other non-interest expense include data processing,
professional fees, postage, telephone, stationery, insurance, title search fees,
service fees and appraisal fees totaling approximately $8.2 million and $7.3
million for the three months ended March 31, 2003 and 2002, respectively.

Income Taxes

Income tax expense as a percentage of pre-tax income was 33.9 percent for
the three months ended March 31, 2003, compared with 26.9 percent for the same
period in 2002. The increase in the effective tax rate reflected a tax benefit
of $3.5 million recorded in the first quarter of 2002, as a result of the
restructuring of an existing subsidiary into a REIT.

Business Segments

VNB has four business segments it monitors and reports on to manage its
business operations. These segments are consumer lending, commercial lending,
investment management and corporate and other adjustments. Lines of business and
actual structure of operations determine each segment. Each is reviewed
routinely for its asset growth, contribution to pre-tax net income and return on
average interest earning assets. Expenses related to the branch network, all
other components of retail banking, along with the back office departments of
the bank are allocated from the corporate and other adjustments segment to each
of the other three business segments. Valley's consumer lending segment
currently is inclusive of the Financial Services Division. The financial
reporting for each segment contains allocations and reporting in line with VNB's
operations, which may not necessarily be compared with any other financial
institution. The accounting for each segment includes internal accounting
policies designed to measure consistent and reasonable financial reporting.

The following table presents the financial data for the three months ended
March 31, 2003 and 2002.

Three Months Ended March 31, 2003
-----------------------------------------------------------------------------
(in thousands)
-----------------------------------------------------------------------------
Corporate
Consumer Commercial Investment and other
Lending Lending Management adjustments Total
-----------------------------------------------------------------------------

Average interest earning assets $2,975,786 $2,901,345 $2,606,152 $0 $8,483,283

Income (loss) before income taxes $22,775 $19,178 $23,521 ($8,002) $57,472

Return on average interest-earning
assets (pre-tax) 3.06% 2.64% 3.61% 0% 2.71%
-----------------------------------------------------------------------------

Three Months Ended March 31, 2002
-----------------------------------------------------------------------------
(in thousands)
-----------------------------------------------------------------------------
Corporate
Consumer Commercial Investment and other
Lending Lending Management adjustments Total
-----------------------------------------------------------------------------

Average interest earning assets $2,662,319 $2,694,740 $2,596,754 $0 $7,953,813

Income (loss) before income taxes $20,132 $19,098 $16,761 ($3,178) $52,813

Return on average interest earning
assets (pre-tax) 3.02% 2.83% 2.58% 0% 2.66%
-----------------------------------------------------------------------------

Consumer Lending

The consumer lending segment had a return on average interest earning
assets before taxes of 3.06 percent for the three months ended March 31, 2003
compared with 3.02 percent for the three months ended March 31, 2002. Average
interest earning assets increased $313 million or 11.8 percent, attributed to
volume gains in residential mortgages, home equity and automobile loans.
Increases in residential mortgage and home equity loans were driven by favorable
interest rates and ongoing marketing efforts. Increases in automobile loans were
achieved primarily as a result of increased indirect auto lending through
continued expansion of Valley's auto loan dealer base. Average interest rates on
consumer loans decreased 88 basis points, while the expenses associated with
funding sources decreased 46 basis points to 1.57 percent.

Income before income taxes increased $2.6 million to $22.8 million mainly due to
additional fee income from Masters, NIA/Lawyers and Glen Rauch; increased
residential mortgage fees and an increase in net interest income.

Commercial Lending

The return on average interest earning assets before taxes decreased 19
basis points to 2.64 percent for the three months ended March 31, 2003, compared
with 2.83 percent for the three months ended March 31, 2002. Average interest
earning assets increased $206.6 million or 7.7 percent as a result of increased
loan volume, particularly in commercial loans and commercial mortgages. Interest
rates on commercial loans decreased by 59 basis points and the expenses
associated with funding sources decreased by 46 basis points to 1.57 percent.
Income before income taxes remained relatively the same at $19.2 million and
$19.1 million for the three months ended March 31, 2003 and 2002, respectively.
The increase in net interest income was offset by the increase in allocation of
the internal expense transfer resulting from increased average volume.

Investment Management

The return on average interest earning assets before taxes increased 103
basis points to 3.61 percent for the three months ended March 31, 2003 compared
with 2.58 percent for the three months ended March 31, 2002. The yield on
interest earning assets, which includes federal funds sold, remained the same at
5.76 percent and the expenses associated with funding sources decreased 46 basis
points to 1.57 percent. Average interest earning assets increased by $9.4
million. Income before income taxes increased $6.8 million primarily as a result
of a lower cost of funds, larger amount of net gains on securities sold and
increased average balances of investments. The investment portfolio is comprised
predominantly of mortgage-backed securities that have generated significant cash
flow over the course of the first quarter, as low mortgage rates have triggered
record refinancing activity. During the first quarter 2003, Valley continued to
add high quality mortgage-backed paper that provides a liquid, short duration
based on the current interest rate environment and an attractive spread.

Corporate Segment

The corporate segment represents income and expense items not directly
attributable to a specific segment such as distributions on capital securities
and service charges on deposit accounts. The loss before taxes for the corporate
segment was $8.0 million for the three months ended March 31, 2003, compared
with a loss of $3.2 million for the three months ended March 31, 2002. This
increase was primarily the result of higher back-office operating expenses.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

Valley's success is largely dependent upon its ability to manage interest
rate risk. Interest rate risk can be defined as the exposure of Valley's net
interest income to the movement in interest rates. Valley does not currently use
derivatives to manage market and interest rate risks. Valley's interest rate
risk management is the responsibility of the Asset/Liability Management
Committee ("ALCO"). ALCO establishes policies that monitor and coordinate
Valley's sources, uses and pricing of funds.

Valley uses a simulation model to analyze net interest income sensitivity
to movements in interest rates. The simulation model projects net interest
income based on various interest rate scenarios over a twelve and twenty-four
month period. The model is based on the actual maturity and re-pricing
characteristics of rate sensitive assets and liabilities. The model incorporates
certain assumptions which management believes to be reasonable regarding the
impact of changing interest rates on the prepayment assumptions of certain
assets and liabilities as of March 31, 2003. The model assumes changes in
interest rates without any proactive change in the balance sheet by management.
According to the model run for the period ended March 31, 2003, over a twelve
month period, an immediate interest rate increase of 100 basis points resulted
in a minimal change in net interest income, while an immediate interest rate
decrease of 100 basis points resulted in an increase in net interest income of
..97% or $3.6 million.* Management cannot provide any assurance about the actual
effect of changes in interest rates on Valley's net interest income.*

Valley's net interest margin is affected by changes in interest rates and
cash flows from its loan and investment portfolio. In a low interest rate
environment, greater cash flow is received from mortgage loans and
mortgage-backed securities due to greater refinancing activity. These larger
cash flows are then reinvested into alternative investments at lower interest
rates causing net interest margin pressure. Valley actively manages these cash
flows in conjunction with its liability mix, duration and rates to maximize net
interest margin. In addition, Valley took advantage of lower rate intermediate
term financing in the latter part of 2002 and lower rate short-term financing in
2003.

Liquidity

Liquidity measures the ability to satisfy current and future cash flow
needs as they become due. Maintaining a level of liquid funds through
asset/liability management seeks to ensure that these needs are met at a
reasonable cost. On the asset side, liquid funds are maintained in the form of
cash and due from banks, federal funds sold, investment securities held to
maturity maturing within one year, securities available for sale and loans held
for sale. Liquid assets amounted to $2.6 billion at March 31, 2003 and $2.5
billion at December 31, 2002. This represents 29.2 percent and 29.1 percent of
earning assets at March 31, 2003 and December 31, 2002, respectively, and 27.2
percent of total assets at March 31, 2003 and December 31, 2002.

On the liability side, the primary source of funds available to meet
liquidity needs is VNB's core deposit base, which generally excludes
certificates of deposit over $100 thousand. Core deposits averaged approximately
$5.7 billion for the three months ended March 31, 2003 and $5.5 billion for the
year ended December 31, 2002, representing 67.4 percent and 67.2 percent,
respectively, of average earning assets. Demand and savings deposits have
continued to increase as an alternative to low interest rates on certificates of
deposits and the effects of a sluggish equity market. Short-term and long-term
borrowings through federal funds lines, repurchase agreements, FHLB advances,
lines of credit and large dollar certificates of deposit, generally those over
$100 thousand, are also used as funding sources. During the first quarter of
2003, average short-term FHLB advances increased by $270 million.

Additional liquidity is derived from scheduled loan and investment payments
of principal and interest, as well as prepayments received. For the three months
ended March 31, 2003, there were $170.4 million of proceeds from the sales of
investment securities available for sale and proceeds of $364.5 million from
maturities, redemptions and prepayments. Purchases of investment securities for
the three months ended March 31, 2003 were $662.7 million. Short-term borrowings
and certificates of deposit over $100 thousand amounted to $1.4 billion, on
average, for the three months ended March 31, 2003 and $1.3 billion for the year
ended December 31, 2002.

Valley's recurring cash requirements consist primarily of dividends to
shareholders and distributions on trust preferred securities. This cash need is
routinely satisfied by dividends collected from its subsidiary bank along with
cash and earnings on investments owned. Projected cash flows from these sources
are expected to be adequate to pay dividends and distributions on trust
preferred securities, given the current capital levels and current profitable
operations of its subsidiary.* In addition, Valley has, as approved by the Board
of Directors, repurchased shares of its outstanding common stock. The cash
required for these purchases of shares has been met by using its own funds,
dividends received from its subsidiary bank as well as borrowed funds and the
proceeds from the issuance of $200 million in trust preferred securities. At
March 31, 2003, Valley maintained a floating rate line of credit with a third
party in the amount of $35 million, of which none was drawn. This line is
available for general corporate purposes and expires June 13, 2003. Borrowings
under this facility, if any, are collateralized by investment securities of no
less than 120 percent of the loan balance.

As of March 31, 2003 and December 31, 2002, Valley had a total of $2.2
billion and $2.1 billion, respectively, of securities available for sale
recorded at their fair value. As of March 31, 2003, the investment securities
available for sale had an unrealized gain of $35.2 million, net of deferred
taxes, compared with $41.3 million, net of deferred taxes, at December 31, 2002.
This change was primarily due to a temporary decrease in prices. These
securities are not considered trading account securities, which may be sold on a
continuous basis, but rather, are securities which may be sold to meet the
various liquidity and interest rate requirements of Valley. As of March 31,
2003, Valley had a total of $2.4 million in trading securities.

Loan Portfolio

Total loans were $6.0 billion, $5.8 billion and $5.3 billion at March 31,
2003, December 31, 2002 and March 31, 2002, respectively. The following table
reflects the composition of the loan portfolio for these periods.

LOAN PORTFOLIO

March 31, December 31, March 31,
2003 2002 2002
---------------------------------------------------------------------------
(in thousands)

Commercial $1,140,736 $1,115,784 $1,070,531
-------------------- -------------------- ------------------
Total commercial loans 1,140,736 1,115,784 1,070,531

Construction 187,016 200,896 204,028
Residential mortgage 1,581,777 1,427,715 1,317,346
Commercial mortgage 1,568,991 1,515,095 1,391,889
-------------------- -------------------- ------------------
Total mortgage loans 3,337,784 3,143,706 2,913,263

Home equity 449,919 451,543 415,576
Credit card 10,381 11,544 11,431
Automobile 893,314 905,372 825,444
Other consumer 136,974 134,539 101,114
-------------------- -------------------- ------------------
Total consumer loans 1,490,588 1,502,998 1,353,565

-------------------- -------------------- ------------------
Total loans $5,969,108 $5,762,488 $5,337,359
==================== ==================== ==================

As a percent of total loans:
Commercial loans 19.1% 19.4% 20.0%
Mortgage loans 55.9 54.5 54.6
Consumer loans 25.0 26.1 25.4
-------------------- -------------------- ------------------
Total 100.0% 100.0% 100.0%
==================== ==================== ==================

During the first quarter of 2003, Valley's total loan portfolio continued a
steady upward trend while maintaining emphasis on credit quality. During the
quarter, total loans grew 3.6 percent from December 31, 2002, while on an
annualized basis, total loans increased 14.3 percent, compared with December 31,
2002 reflecting overall growth in residential and commercial mortgages and
commercial loans. Valley cannot guarantee that the current level of loan growth
will continue throughout the year.*

For the three months ended March 31, 2003, commercial loans increased 2.2
percent or 8.9 percent annualized, partly due to increased commercial line draw
downs as well as increased aviation and small business administration loan
financing.

For the three months ended March 31, 2003, total mortgage loans increased
6.2 percent or 24.7 percent on an annual basis mainly due to a favorable
interest rate environment and continuing stable economic conditions in Valley's
lending area. This growth was primarily due to a 10.8 percent or 43.2 percent
annualized increase in the residential mortgage portfolio. Valley often sells
many of its newly originated conforming residential mortgage loans with low
long-term fixed rates into the secondary market, but may retain amounts
necessary to balance Valley's overall asset mix and loan growth strategy. During
the first quarter of 2003, Valley elected to sell approximately $70.1 million of
$425.4 million in originated residential mortgage loans. Commercial mortgage
loans increased 3.6 percent or 14.2 percent

annualized, for the three months ended March 31, 2003, primarily due to an
increase in residential building.

Consumer loans, for the three months ended March 31, 2003, posted a slight
decrease of 0.8 percent or 3.3 percent annualized, primarily from automobile
loans. Automobile loan growth was constrained during the first quarter due to
manufacturers' based incentives, such as zero percent financing as well as
aggressive loan offerings from other lending institutions. Valley continued to
increase its dealer network in additional markets within New Jersey, New York
and Pennsylvania.

Non-performing Assets

Non-performing assets include non-accrual loans and other real estate owned
("OREO"). Loans are generally placed on a non-accrual status when they become
past due in excess of 90 days as to payment of principal or interest. Exceptions
to the non-accrual policy may be permitted if the loan is sufficiently
collateralized and in the process of collection. OREO is acquired through
foreclosure on loans secured by land or real estate. OREO is reported at the
lower of cost or fair value at the time of acquisition and at the lower of fair
value, less estimated costs to sell, or cost thereafter. Non-performing assets
totaled $27.2 million at March 31, 2003, compared with $21.6 million at December
31, 2002 and $15.1 million at March 31, 2002, an increase of approximately $5.7
million and $12.2 million, respectively. These increases are primarily
attributed to a few large credits. At March 31, 2003, December 31, 2002 and
March 31, 2002, non-performing assets amounted to 0.46 percent, 0.37 percent and
0.28 percent, respectively, of loans and OREO.

Loans 90 days or more past due and still accruing which were not included
in the non-performing category totaled $4.7 million at March 31, 2003 compared
with $4.9 million at December 31, 2002 and $9.0 million at March 31, 2002. These
loans are primarily commercial mortgage loans and commercial loans which are
generally well secured and in the process of collection. Also included are
matured commercial mortgage loans in the process of being renewed, which totaled
$961 thousand at March 31, 2003 and $1.7 million at December 31, 2002.

Total loans past due in excess of 30 days were 0.87 percent of all loans at
March 31, 2003 compared with 1.20 percent at December 31, 2002.

The following table sets forth non-performing assets and accruing loans,
which were 90 days or more past due as to principal or interest payments on the
dates indicated, in conjunction with asset quality ratios for Valley.

LOAN QUALITY

March 31, December 31, March 31,
2003 2002 2002

(in thousands)
Loans past due in excess of
90 days and still accruing $4,698 $4,931 $8,992
-----------------------------------------------------------
Non-accrual loans $26,799 $21,524 $15,089
Other real estate owned 448 43 0
-----------------------------------------------------------
Total non-performing assets $27,247 $21,567 $15,089
-----------------------------------------------------------
Troubled debt restructured loans $ 0 $ 0 $ 879
-----------------------------------------------------------
Non-performing loans as a % of loans 0.46% 0.37% 0.28%
-----------------------------------------------------------
Non-performing assets as a % of
loans plus other real estate owned 0.46% 0.37% 0.28%
-----------------------------------------------------------
Allowance as a % of loans 1.12% 1.11% 1.20%
-----------------------------------------------------------

Allowance for Loan Losses

At March 31, 2003, the allowance for loan losses totaled $66.8 million
compared with $64.1 million at December 31, 2002. The allowance was adjusted by
provisions charged against income and loans charged-off net of recoveries. In
the current economic environment, that information is applied to the composition
of the loan portfolio to provide adequate levels in the allowance for loan
losses*. Net loan charge-offs were $551 thousand for the three months ended
March 31, 2003 compared with $4.8 million and $3.3 million for the three months
ended December 31, 2002 and March 31, 2002, respectively. Valley cannot
guarantee that the low level of net charge-offs during the first quarter of 2003
will continue in future periods.*

The allowance for loan losses is maintained at a level estimated to absorb
probable loan losses of the loan portfolio.* The allowance is based on ongoing
evaluations of the probable estimated losses inherent in the loan portfolio.
VNB's methodology for evaluating the appropriateness of the allowance consists
of several significant elements, which include the allocated allowance, specific
allowances for identified problem loans, portfolio segments and the unallocated
allowance. The allowance also incorporates the results of measuring impaired
loans as called for in SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures."

The following summarizes the relationship among loans, loans charged-off
and loan recoveries, the provision for loan losses and the allowance for loan
losses for the three months ended March 31, 2003, December 31, 2002 and March
31, 2002.

ALLOWANCE FOR LOAN LOSSES

Three Months Ended
------------------------------------------------------
March 31, December 31, March 31,
2003 2002 2002
------------------------------------------------------
(in thousands)

Average loans outstanding $5,856,965 $5,690,264 $5,320,959
__________ ___________ __________
Beginning balance:
Allowance for loan losses $64,087 $66,189 $63,803

Loans charged-off (2,167) (5,552) (4,715)
Recoveries 1,616 784 1,430
__________ ___________ __________
Net charge-offs (551) (4,768) (3,285)
Provision charged to operations 3,255 2,666 3,705
__________ ___________ __________
Ending balance: Allowance for loan losses $ 66,791 $ 64,087 $ 64,223
__________ ___________ __________
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.04% 0.24% 0.25%
__________ ___________ __________

Capital Adequacy3

A significant measure of the strength of a financial institution is its
shareholders' equity. At March 31, 2003, shareholders' equity totaled $626.5
million or 6.62 percent of total assets, compared with $631.7 million or 6.92
percent at year-end 2002. The decline in shareholders' equity was mainly the
result of the repurchase of Valley's common stock as discussed below.

On May 13, 2003, Valley's Board of Directors authorized the repurchase of
an additional 2.5 million shares of the Company's outstanding common stock.
Purchases may be made from time to time in the open market or in privately
negotiated transactions generally not exceeding prevailing market prices.
Reacquired shares are held in treasury and are expected to be used for general
corporate purposes.* Valley's Board of Directors had previously authorized the
repurchase of up to 10.5 million shares of the Company's outstanding common
stock on August 21, 2001. As of March 31, 2003, Valley had repurchased
approximately 9.5 million shares of its common stock at an average cost of
$24.48 per share. Valley expects to continue its existing repurchase program
until all 10.5 million shares are purchased before the newly authorized program
becomes effective.

On April 9, 2003, the Board of Directors declared a five percent stock
dividend to be issued on May 16, 2003, to shareholders of record on May 2, 2003
and also agreed to maintain the annual cash dividend at $0.90 per share, on an
after-stock-dividend basis, representing an increase of 5 percent in the cash
payout.

Included in shareholders' equity as a component of accumulated other
comprehensive income at March 31, 2003 was a $35.2 million unrealized gain on
investment securities available for sale, net of tax, compared with an
unrealized gain of $41.3 million at December 31, 2002.

Risk-based guidelines define a two-tier capital framework. Tier I capital
consists of common shareholders' equity and trust preferred securities, less
disallowed intangibles and is adjusted to exclude unrealized gains and losses,
net of tax. Total risk-based capital consists of Tier I capital and the
allowance for loan losses up to 1.25 percent of risk-adjusted assets.
Risk-adjusted assets are determined by assigning various levels of risk to
different categories of assets and off-balance sheet activities.

In November 2001, Valley sold $200.0 million of trust preferred securities,
a portion of which qualifies as Tier I capital, within regulatory limitations.
Including these securities, Valley's capital position at March 31, 2003, under
risk-based capital guidelines was $759.0 million or 10.88 percent of
risk-weighted assets for Tier 1 capital and $835.4 million or 11.98 percent for
Total risk-based capital. The comparable ratios at December 31, 2002 were 11.49
percent for Tier 1 capital and 12.55 percent for Total risk-based capital. At
March 31, 2003 and December 31, 2002, Valley exceeded the minimum leverage
requirement having Tier 1 leverage ratios of 8.38 percent and 8.68 percent,
respectively. Valley's ratios at March 31, 2003 were above the "well
capitalized" requirements, which require Tier I capital to risk-adjusted assets
of at least 6 percent, Total risk-based capital to risk-adjusted assets of 10
percent and a minimum leverage ratio of 5 percent.

Book value per share amounted to $6.64 at March 31, 2003 and $6.65 at
December 31, 2002.

The primary source of capital growth is through retention of earnings.
Valley's rate of earnings retention, derived by dividing undistributed earnings
per share by net income per share was 47.5 percent for the three months ended
March 31, 2003, compared with 47.4 percent for the three months ended March 31,
2002. Cash dividends declared amounted to $0.21 per share, for the three months
ended March 31, 2003, equivalent to a dividend pay-out ratio per diluted share
of 52.5 percent, compared with 52.6 percent for the same period in 2002.
Valley's Board of Directors continues to believe that cash dividends are an
important component of shareholder

_____________________________
3 Share data reflects the 5 percent stock dividend declared on April 9, 2003 to
be issued May 16, 2003 to shareholders of record on May 2, 2003.

value and that, at its current level of performance and capital, Valley expects
to continue its current dividend policy of a quarterly cash distribution of
earnings to its shareholders.*

Recent Accounting Pronouncements

Statement of Financial Accounting Standards No. 142, "Goodwill and
Intangible Assets" ("SFAS No. 142"), was issued by the Financial Accounting
Standards Board on June 27, 2001. SFAS No. 142 eliminates the amortization of
existing goodwill and requires evaluating goodwill for impairment on an annual
basis or whenever circumstances occur that would reduce the fair value. SFAS No.
142 also requires allocation of goodwill to reporting segments defined by SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). This Statement is effective for fiscal years beginning after
December 15, 2001. As of March 31, 2003, Valley had $20.2 million in unamortized
goodwill.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). The disclosure requirements of
FIN 45 are effective for the year ended December 31, 2002 and require disclosure
of the nature of the guarantee, the maximum potential amount of future payments
that the guarantor could be required to make under the guarantee, and the
current amount of the liability, if any, for the guarantor's obligations under
the guarantee. Significant guarantees that have been entered into by Valley
include standby letters of credits with a total of $150 million as of March 31,
2003. The adoption of FIN 45 did not have a material impact on the consolidated
financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See page 19 for a discussion of interest rate sensitivity.

Item 4. Controls and Procedures

Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon the evaluation, they concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in this report. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of the
evaluation.

The Company's management, including the CEO and CFO, does not expect that
our disclosure controls and procedures or our internal controls will prevent all
error and all fraud. A control system, no matter how well conceived and
operated, provides reasonable, not absolute, assurance that the objectives of
the control system are met. The design of a control system reflects resource
constraints; the benefits of controls must be considered relative to their
costs. Because there are inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been or will be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns occur because of simple error
or mistake. Controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the control.
The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design
will succeed in achieving its stated goals under all future conditions; over
time, controls may become inadequate

because of changes in conditions or deterioration in the degree of compliance
with the policies or procedures. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

PART II

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits
(3) Articles of Incorporation and By-Laws
(A) Certificate of Incorporation of the Registrant
restated to show all changes through May 2, 2003.

(B) By-laws are incorporated herein by reference to the
Registrant's Form 10-K Annual Report for the year ended
December 31, 1998.

(99.1) Gerald H. Lipkin, Chairman, President and Chief Executive
Officer of the Company, certification, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.

(99.2) Alan D. Eskow, Executive Vice President and Chief
Financial Officer of the Company, certification,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Current Reports on Form 8-K
(1) Filed April 17, 2003 to report under Item 12, Valley's
first quarter earnings release announcement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

VALLEY NATIONAL BANCORP
(Registrant)

Date: May 14, 2003
/s/ Gerald H. Lipkin
GERALD H. LIPKIN
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

Date: May 14, 2003
/s/ Alan D. Eskow
ALAN D. ESKOW
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

CERTIFICATIONS

I, Gerald H. Lipkin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Valley National
Bancorp;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Gerald H. Lipkin
Gerald H. Lipkin
Chairman, President and Chief Executive Officer

I, Alan D. Eskow, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Valley National
Bancorp;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Alan D. Eskow
Alan D. Eskow
Executive Vice President and Chief Financial Officer

EXHIBITS INDEX

Exhibit Number Exhibit Description
_____________ _________________________________________

(3) (A) Certificate of Incorporation of the Registrant restated to
show all changes through May 2, 2003.

(3) (B) By-laws are incorporated herein by reference to the
Registrant's Form 10-K Annual Report for the year ended
December 31, 1998.

(99.1) Gerald H. Lipkin, Chairman, President and Chief Executive
Officer of the Company, certification, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(99.2) Alan D. Eskow, Executive Vice President and Chief Financial
Officer of the Company, certification, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

EXHIBIT (3) A

RESTATED
CERTIFICATE OF INCORPORATION
OF
VALLEY NATIONAL BANCORP

The Board of Directors of Valley National Bancorp pursuant to the
provisions of Section 14A:95-5(2) has adopted this Restated Certificate of
Incorporation to restate and integrate in a single certificate the provisions of
its certificate of incorporation as heretofore amended. Valley National Bancorp
does hereby certify as follows:

ARTICLE I
CORPORATE NAME

The name of the Corporation is Valley National Bancorp (hereinafter the
"Corporation").

ARTICLE II
CURRENT REGISTERED OFFICE
AND CURRENT REGISTERED AGENT

The address of the Corporation's current registered office is 1455 Valley
Road, Wayne, New Jersey. The name of the current registered agent at that
address is Gerald H. Lipkin.

ARTICLE III
NUMBER OF DIRECTORS

The number of directors shall be governed by the by-laws of the
Corporation.

ARTICLE IV
CORPORATE PURPOSE

The purpose for which the Corporation is organized is to engage in any
activities for which corporations may be organized under the New Jersey Business
Corporation Act, subject to any restrictions which may be imposed from time to
time by the laws of the United States or the State of New Jersey with regard to
the activities of a bank holding company.

ARTICLE V
CAPITAL STOCK

(A) The total authorized capital stock of the Corporation shall be
179,564,245 shares, consisting of 149,564,245 shares of Common Stock and
30,000,000 shares of Preferred Stock which may be issued in one or more classes
or series. The shares of Common Stock shall constitute a single class and shall
be without nominal or par value. The shares of Preferred Stock of each class or
series shall be without nominal or par value, except that the amendment
authorizing the initial issuance of any class or series, adopted by the Board of
Directors as provided herein, may provide that shares of any class or series

shall have a specified par value per share, in which event all of the shares of
such class or series shall have the par value per share so specified.

(B) The Board of Directors of the Corporation is expressly authorized from
time to time to adopt and to cause to be executed and filed without further
approval of the shareholders amendments to this Certificate of Incorporation
authorizing the issuance of one or more classes or series of Preferred Stock for
such consideration as the Board of Directors may fix. In an amendment
authorizing any class or series of Preferred Stock, the Board of Directors is
expressly authorized to determine:

(a) The distinctive designation of the class or series and the number of
shares which will constitute the class or series, which number may be increased
or decreased (but not below the number of shares then outstanding in that class
or above the total shares authorized herein) from time to time by action of the
Board of Directors;

(b) The dividend rate on the shares of the class or series, whether
dividends will be cumulative, and, if so, from what date or dates;

(c) The price or prices at which, and the terms and conditions on which,
the shares of the class or series may be redeemed at the option of the
Corporation;

(d) Whether or not the shares of the class or series will be entitled to
the benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled, the amount of such fund and the
terms and provisions relative to the operation thereof;

(e) Whether or not the shares of the class or series will be convertible
into, or exchangeable for, any other shares of stock of the Corporation or other
securities, and if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and any adjustments thereof, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;

(f) The rights of the shares of the class or series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;

(g) Whether or not the shares of the class or series will have priority
over, parity with, or be junior to the shares of any other class or series in
any respect, whether or not the shares of the class or series will be entitled
to the benefit of limitations restricting the issuance of shares of any other
class or series having priority over or on parity with the shares of such class
or series and whether or not the shares of the class or series are entitled to
restrictions on the payment of dividends on, the making of other distributions
in respect of, and the purchase or redemption of shares of any other class or
series of Preferred Stock or Common Stock ranking junior to the shares of the
class or series;

(h) Whether the class or series will have voting rights, in addition to any
voting rights provided by law, and if so, the terms of such voting rights; and

(i) Any other preferences, qualifications, privileges, options and other
relative or special rights and limitations of that class or series.

ARTICLE VI
INDEMNIFICATION

The Corporation shall indemnify its officers, directors, employees and
agents and former officers, directors, employees and agents, and any other
persons serving at the request of the Corporation as an officer, director,
employee or agent of another corporation, association, partnership, joint
venture, trust, or other enterprise, against expenses (including attorney's
fees, judgments, fines, and amounts paid in settlement) incurred in connection
with any pending or threatened action, suit, or

proceeding, whether civil, criminal, administrative or investigative, with
respect to which such officer, director, employee, agent or other person is a
party, or is threatened to be made a party, to the full extent permitted by the
New Jersey Business Corporation Act. The indemnification provided herein shall
not be deemed exclusive of any other right to which any person seeking
indemnification may be entitled under any by-law, agreement, or vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity, and shall inure to the
benefit of the heirs, executors, and the administrators of any such person. The
Corporation shall have the power to purchase and maintain insurance on behalf of
any persons enumerated above against any liability asserted against him and
incurred by him in any such capacity, arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against such
liability under the provision of this Article.

ARTICLE VII
LIMITATION OF LIABILITY

A director or officer of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for breach of any duty owed to
the Corporation or its shareholders, except that such provision shall not
relieve a director or officer from liability for any breach of duty based upon
an act or omission (i) in breach of such person's duty of loyalty to the
Corporation or its shareholders, (ii) not in good faith or involving a knowing
violation of law, or (iii) resulting in receipt by such person of an improper
personal benefit. If the New Jersey Business Corporation Act is amended after
approval by the shareholders of this provision to authorize corporate action
further eliminating or limiting the personal liability of directors or officers,
then the liability of a director and/or officer of the Corporation shall be
eliminated or limited to the fullest extent permitted by the New Jersey Business
Corporation Act as so amended.

Any repeal or modification of the foregoing paragraph by the shareholders
of the Corporation or otherwise shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time of
such repeal or modification.

IN WITNESS WHEREOF, Gerald H. Lipkin, Chairman, President and Chief
Executive Officer of the Valley National Bancorp, has executed this Restated
Certificate of Incorporation on behalf of Valley National Bancorp, as restated.

/s/ GERALD H. LIPKIN
Gerald H. Lipkin, Chairman
President & Chief Executive Officer

Exhibit (99.1)

VALLEY NATIONAL BANCORP
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This Certification is to accompany the Quarterly Report of Valley National
Bancorp (the "Company") on Form 10-Q for the period ended March 31, 2003 as
filed with the Securities and Exchange Commission (the "Report").

I, Gerald H. Lipkin, Chairman, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ Gerald H. Lipkin
Gerald H. Lipkin
Chairman, President
and Chief Executive Officer,
Valley National Bancorp

May 14, 2003

A signed original of this written statement required by Section 906 has
been provided to Valley National Bancorp and will be retained by Valley National
Bancorp and furnished to the Securities and Exchange Commission or its staff
upon request.

Exhibit (99.2)

VALLEY NATIONAL BANCORP
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This Certification is to accompany the Quarterly Report of Valley National
Bancorp (the "Company") on Form 10-Q for the period ending March 31, 2003 as
filed with the Securities and Exchange Commission (the "Report").

I, Alan D. Eskow, Executive Vice President and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

/s/ Alan D. Eskow
Alan D. Eskow
Executive Vice President
and Chief Financial Officer
Valley National Bancorp

May 14, 2003

A signed original of this written statement required by Section 906 has
been provided to Valley National Bancorp and will be retained by Valley National
Bancorp and furnished to the Securities and Exchange Commission or its staff
upon request.