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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended September 30, 2004

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 98,737,776 shares were outstanding as of November 5, 2004.

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PART I – FINANCIAL INFORMATION

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

See accompanying notes to consolidated financial statements.

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VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

See accompanying notes to consolidated financial statements.

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VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

See accompanying notes to consolidated financial statements.

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VALLEY NATIONAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Consolidated Statements of Financial Condition as of September 30, 2004 and December 31, 2003, the Consolidated Statements of Income for the three and nine month periods ended September 30, 2004 and 2003 and the Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2004 and 2003 have been prepared by Valley National Bancorp (“Valley”) without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations and cash flows at September 30, 2004 and for all periods presented have been made. Share data reflects the 5 percent stock dividend issued on May 17, 2004.

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, 2003 report on Form 10-K. Certain prior period amounts have been reclassified to conform to the current year’s presentation.

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 and nine months ended September 30, 2004 and 2003.

Common stock equivalents for the three and nine months ended September 30, 2004 exclude approximately 387 thousand common stock options because the exercise prices exceeded the average

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market value. For the three months ended September 30, 2003, no shares exceeded the average market value. Approximately 32 thousand shares exceeded the average market value for the nine months ended September 30, 2003 and were excluded from common stock equivalents. Inclusion of these common stock equivalents would be anti-dilutive to the diluted earnings per share calculation.

Valley adopted on a prospective basis the fair value provisions of Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”), effective January 1, 2002. 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 and the expected term. The fair value of each option is expensed over its vesting period.

For the three and nine months ended September 30, 2004, Valley recorded stock-based employee compensation expense for incentive stock options of $151 thousand and $454 thousand, net of tax, compared to $68 thousand and $213 thousand, for the three and nine months ended September 30, 2003, and will continue to amortize the remaining cost of these grants of approximately $1.9 million, net of tax, 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 in 2004 and 2003, respectively: dividend yield of 3.24 and 3.03 percent; risk-free interest rate of 3.67 and 3.94 percent; expected volatility of 22.96 and 19.97 percent; and expected term of 7.52 and 7.65 years. Prior to January 1, 2002, Valley applied APB Opinion No. 25 and related Interpretations in accounting for its stock options granted. Had compensation expense for the options issued prior to January 1, 2002, been recorded consistent with the fair value provisions of SFAS No. 123 for those periods, net income and earnings per share would have been reduced to the pro forma amounts indicated below:

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Valley’s comprehensive income consists of unrealized gains (losses) on securities available for sale and derivative financial instruments, net of tax. The following table shows each component of comprehensive income for the three and nine months ended September 30, 2004 and 2003.

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The information under the caption “Business Segments” in Management’s Discussion and Analysis is incorporated herein by reference.

Guarantees that have been entered into by Valley include standby letters of credit (“Standbys”) of $179 million as of September 30, 2004. Standbys represent the guarantee by Valley of the obligations or performance of a customer in the event the customer is unable to meet or perform its obligations to a third party. Of the total Standbys, 62 percent are secured and in the event of non performance by the customer, Valley has rights to the underlying collateral which includes commercial real estate, business assets (physical plant or property, inventory or receivables), marketable securities and cash in the form of bank savings accounts and certificates of deposit.

Valley has a non-contributory defined benefit pension plan covering substantially all of its employees. The determination of the benefit obligation and pension expense is based upon actuarial assumptions used in calculating such amounts. Those assumptions include the discount rate, expected long-term rate of return on plan assets and the rate of increase in future compensation levels.

The following table sets forth the components of net periodic pension expense for each of the three and nine month periods ended September 30, 2004 and 2003:

During the third quarter of 2004, Valley entered into interest rate swap transactions which effectively converted $300 million of its prime-based floating rate loans to a fixed rate. This interest rate swap involves the receipt of fixed-rate amounts in exchange for variable-rate payments over the life of

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the agreements without exchange of the underlying principal amount. Valley’s objective in using derivatives is to add stability to net interest income and to manage its exposure to interest rate movements.

Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS 133, Valley records all derivatives on the balance sheet at fair value.

Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. Valley assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

At September 30, 2004, derivatives designated as cash flow hedges with a fair value of $1.6 million were included in other assets. Valley had no derivatives designated as cash flow hedges outstanding at September 30, 2003. The change in net unrealized gains of $1.6 million in 2004 for derivatives designated as cash flow hedges is separately disclosed in the statement of comprehensive income, net of related income taxes of $655 thousand. No significant hedge ineffectiveness existed on cash flow hedges during the three or nine months ended September 30, 2004.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are received on Valley’s variable-rate loans. During the three and nine months ended September 30, 2004, $0.8 million was reclassified out of other comprehensive income as the hedged forecasted transactions occurred. During the next twelve months, Valley estimates that an additional $2.0 million will be reclassified out of other comprehensive income into interest income.*

The Emerging Issues Task Force (“EITF”) Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” provides guidance for determining when an investment is considered impaired, whether impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless: (i) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (ii) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss should be recognized equal to the difference between the investment’s cost and its fair value. Certain disclosure requirements of EITF 03-1 were adopted in 2003 and Valley began presenting the new disclosure requirements in its consolidated financial statements for the year ended December 31, 2003. The recognition and measurement provisions were initially effective for other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. However, in September 2004, the effective date of these provisions was delayed until the finalization of a Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) to provide additional implementation guidance. Currently, the FASB expects to issue the FSP no later than December 2004.

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In March 2004, the Securities and Exchange Commission (“SEC”) issued SEC Staff Accounting Bulletin (“SAB”) No. 105, “Application of Accounting Principles to Loan Commitments.” SAB 105 summarizes the views of the staff of the SEC regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. SAB 105 provides that the fair value of recorded loan commitments that are accounted for as derivatives under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” should not incorporate the expected future cash flows related to the associated servicing of the future loan. In addition, SAB 105 requires registrants to disclose their accounting policy for loan commitments. The provisions of SAB 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. The adoption of this accounting standard did not have a material impact on Valley’s financial statements.

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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, market conditions and economic expectations. These statements may be identified by an (*) or such forward-looking terminology as “expect,” “anticipate,” “look,” “view,” “opportunities,” “allow,” “continues,” “reflects,” “believe,” “may,” “should,” “will” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. Actual results may differ materially from such forward-looking statements. Valley assumes no obligation for updating any such forward-looking statement at any time. 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, changes in loan, investment and mortgage prepayment assumptions, changes in effective income tax rates, higher or lower cash flow levels than anticipated, slowdown in levels of deposit growth, a decline in the economy in New Jersey and/or New York, a decrease in loan origination volume, as well as a change in legal and regulatory barriers and the development of new tax strategies or the disallowance of prior tax strategies.

Critical Accounting Policies and Estimates

The accounting and reporting policies followed by Valley conform, in all material respects, to accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Actual results could differ significantly from those estimates.

Valley’s accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. The most significant accounting policies followed by Valley are presented in Note 1 of the Notes to Consolidated Financial Statements included in Valley’s December 31, 2003 report on Form 10-K. Valley has identified its policies on the allowance for loan losses and income tax liabilities to be critical because management has to make subjective and/or complex judgments about matters that are inherently uncertain and could be subject to revision as new information becomes available.

The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the Consolidated Statements of Financial Condition. Note 1 of the Notes to Consolidated Financial Statements in Valley’s December 31, 2003 report on Form 10-K describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this MD&A.

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required

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in assessing the future tax consequences of events that have been recognized in Valley’s consolidated financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could impact Valley’s consolidated financial condition or results of operations.* Notes 1 and 14 of the Notes to Consolidated Financial Statements in Valley’s December 31, 2003 report on Form 10-K include additional discussion on the accounting for income taxes.

Executive Summary²

For the quarter ended September 30, 2004, net income was $0.40 per diluted share or $39.4 million compared with $0.37 per diluted share or $36.7 million for the second quarter of 2004 and $0.40 per diluted share or $39.3 million for the third quarter of 2003. Net income per diluted share was $1.16 for both the nine months ended September 30, 2004 and September 30, 2003. Net income for the first nine months of 2004 was $114.5 million, compared with $115.0 million for the same period in 2003.

Net interest income for the current quarter grew $3.5 million or almost 15 percent annualized on a tax equivalent basis to $96.4 million and the net interest margin increased to 3.94 percent from 3.90 percent from the second quarter of 2004. This was a result of a higher volume of loans coupled with recent increases in the prime rate.

Earnings for the third quarter of 2004 increased $2.7 million or 7.2 percent compared to the second quarter of 2004. Loans grew by $316 million across all areas of the bank at an annualized rate of 19.4 percent as a result of new business development, consolidation in the marketplace and expansion of existing customer borrowings. In addition, the yield on loans increased for the first time in four years reflecting the positive changes in short-term interest rates and the economy.

Earning assets increased by over 6 percent annualized for the three month period ended September 30, 2004. This encompasses substantial loan growth in conjunction with a strategic decision to reduce investments. This has a combined effect of shortening the duration of earning assets while increasing both asset sensitivity and increasing the consolidated earning asset yield.

The annualized return on average shareholders’ equity was 23.65 percent for the three months ended September 30, 2004 compared with 24.71 percent for the same period in 2003 while the annualized return on average assets was 1.51 percent for the three months ended September 30, 2004 compared with 1.66 percent recorded in the third quarter of 2003. For the first nine months of 2004, Valley achieved an annualized return on average shareholders’ equity of 22.80 percent compared with 24.35 percent for the same period in 2003 and an annualized return on average assets of 1.51 percent for the first nine months of 2004, compared with 1.65 percent for the same period in 2003.

Net Interest Income³

Net interest income represents the largest component of Valley’s operating income and as a result, is the area that management focuses most of its efforts. For the three months ended September 30, 2004, net interest income on a tax equivalent basis increased to $96.4 million compared with $83.2 million for the quarter ended September 30, 2003 and from $92.9 million for the second quarter of 2004. These increases were due to higher loan and investment volume and lower rates paid on deposits and borrowings, partly offset by lower interest rates earned on loans as compared to the same period in 2003.

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For the third quarter of 2004, average loans increased $494.4 million or 8.0 percent while average taxable investments increased $431.1 million or 18.2 percent over the same period in 2003. Compared to the second quarter of 2004, average loans grew $273.7 million or 4.3 percent, while the average balance on taxable investments decreased $16.2 million. Interest on loans increased $5.1 million for the third quarter of 2004 compared to the second quarter of 2004 due to increased volume and higher short-term interest rates. Interest on taxable investments increased $1.5 million for the three month period ended September 30, 2004 compared with the quarter ended June 30, 2004 mainly due to lower amortization expense and higher average balances.

Interest expense for the three months ended September 30, 2004 increased $1.5 million compared with the quarter ended June 30, 2004 mainly due to higher rates paid on deposits and an increase in borrowings. Valley lowered some of its borrowing costs through variable rate sub-LIBOR based borrowings during the end of the fourth quarter of 2003 and in the first quarter of 2004. These borrowings have call provisions, but if not called, will convert to higher-cost fixed rate borrowings at the end of 2004 and into 2005. Since July 2003, Valley has also secured approximately $500 million of fixed rate borrowings at average long-term rates 69 basis points less than currently available.

Average interest bearing liabilities for the quarter ended September 30, 2004 increased $754.1 million or 10.5 percent compared with the quarter ended September 30, 2003 and increased $256.5 million or 3.3 percent compared with the quarter ended June 30, 2004. Average total deposits increased $347.7 million or 4.9 percent for the quarter ended September 30, 2004 compared with the same period in 2003 and increased $83.9 million or 1.1 percent compared with the quarter ended June 30, 2004. These increases were attributed to the addition of new branches, continued increases in customer activity as well as advertising and promotional efforts. Average short-term borrowings increased $234.5 million or 93.7 percent for the quarter ended September 30, 2004, compared with the same period last year, and increased $112.0 million or 30.1 percent compared with the quarter ended June 30, 2004. Average long-term debt, which includes Federal Home Loan Bank (“FHLB”) advances, increased $329.0 million, or 22.3 percent for the quarter ended September 30, 2004 compared with the same quarter ended September 30, 2003 and increased $107.1 million or 6.3 percent compared with the quarter ended June 30, 2004. The increase in borrowings is used as an alternative to deposits and is evaluated based upon need, cost and term.

During the third quarter of 2004, the Federal Reserve (“Fed”) increased short-term interest rates three times. Valley’s prime rate moved in conjunction with each interest rate increase which resulted in higher net interest income during the quarter. The first prime rate increase on July 1, 2004, affected Valley’s net interest income for the entire quarter, while the second and third increases in August and September only partially contributed to the net interest income during the quarter. It is anticipated, based upon these increases, that net interest income will increase during the fourth quarter of 2004.* Additional increases in the prime rate which are anticipated, could further increase net interest income for the fourth quarter, should they occur.*

Additionally, Valley entered into cash flow hedges on July 28, 2004, which further increased both net interest income by $772 thousand and the net interest margin by 3 basis points during the quarter. While the cash flow hedges are expected to further increase net interest income and net interest margin in the fourth quarter, Valley anticipates that the spread received will be less as a result of increases in the prime rate.*

The net interest margin increased for the three months ended September 30, 2004 to 3.94 percent compared with 3.76 percent for the quarter ended September 30, 2003 and from 3.90 percent for the three months ended June 30, 2004, primarily due to higher volume of loans coupled with recent increases in the prime rate. The third quarter of 2003 was negatively impacted by prepayment penalties paid in connection with refinancing of debt at lower interest rates with the FHLB.

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The following table reflects the components of net interest income for each of the three months ended September 30, 2004 and 2003.

ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY AND

NET INTEREST INCOME ON A TAX EQUIVALENT BASIS