The following MD&A should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. The words "Valley," "the Company," "we," "our" and "us" refer to Valley National Bancorp and its wholly owned subsidiaries, unless we indicate otherwise.

The MD&A contains supplemental financial information, described in the sections that follow, which has been determined by methods other than U.S. generally accepted accounting principles ("GAAP") that management uses in its analysis of our performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance, our business and performance trends and facilitates comparisons with the performance of others in the financial services industry. These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with GAAP.

Cautionary Statement Concerning Forward-Looking Statements

This Quarterly Report on 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 such forward-looking terminology as "expect," "anticipate," "look," "view," "opportunities," "allow," "continues," "reflects," "believe," "may," "should," "will," "estimates" 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. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to those risk factors disclosed in Valley's Annual Report on Form 10-K for the year ended December 31, 2008. We assume no obligation for updating any such forward-looking statement at any time.

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform, in all material respects, to GAAP. 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 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 its financial condition and results of operations. Our significant accounting policies are presented in Note 1 to the consolidated financial statements included in Valley's Annual Report on Form 10-K for the year ended December 31, 2008. We identified our policies on the allowance for loan losses, security valuations, goodwill and other intangible assets, and income taxes to be critical because management has to make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Management has reviewed the application of these policies with the Audit and Risk Committee of Valley's Board of Directors.

The judgments used by management in applying the critical accounting policies discussed below may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. Specifically, subsequent evaluations of the loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for loan losses in future periods, and the inability to collect on outstanding loans could result in increased loan losses. In addition, the valuation of certain securities in our investment portfolio could be negatively impacted by credit deterioration of security issuers caused by the current economic recession or illiquidity or dislocation in marketplaces resulting in significantly depressed market prices thus leading to further impairments.

Allowance for Loan Losses. The allowance for loan losses represents management's estimate of probable loan losses inherent in the loan portfolio and is the largest component of the allowance for credit losses which also includes management's estimated reserve for unfunded commercial letters of credit. 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 statement of financial condition. Note 1 of the consolidated financial statements included in Valley's Annual Report on Form 10-K for the year ended December 31, 2008 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 allowance for loan losses consists of four elements: (1) specific reserves for individually impaired credits, (2) reserves for classified, or higher risk rated, loans, (3) reserves for non-classified loans based on historical loss factors, and (4) reserves based on general economic conditions and other qualitative risk factors both internal and external to Valley, including changes in loan portfolio volume, the composition and concentrations of credit, new market initiatives, and the impact of competition on loan structuring and pricing.

Security Valuations. Management utilizes various inputs to determine the fair value of its investment portfolio. To the extent they exist, unadjusted quoted market prices in active markets (Level 1) or quoted prices on similar assets (Level 2) are utilized to determine the fair value of each investment in the portfolio. In the absence of quoted prices, valuation techniques would be used to determine fair value of any investments that require inputs that are both significant to the fair value measurement and unobservable (Level 3). Valuation techniques are based on various assumptions, including, but not limited to cash flows, discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. A significant degree of judgment is involved in valuing investments using Level 3 inputs. The use of different assumptions could have a positive or negative effect on consolidated financial condition or results of operations.

Management must periodically evaluate if unrealized losses (as determined based on the securities valuation methodologies discussed above) on individual securities classified as held to maturity or available for sale in the investment portfolio are considered to be other-than-temporary. The analysis of other-than-temporary impairment requires the use of various assumptions, including, but not limited to, the length of time an investment's book value is greater than fair value, the severity of the investment's decline, as well as any credit deterioration of the investment. If the decline in value of an equity investment security is deemed to be other-than-temporary, the investment is written down to fair value and a non-cash impairment charge is recognized in the period of such evaluation. For debt investment securities deemed to be other-than-temporarily impaired, the investment is written down by the impairment related to the estimated credit loss and the non-credit related impairment is recognized in other comprehensive income. We recognized other-than-temporary impairment on securities of $2.2 million for the quarter ended March 31, 2009 for estimated credit losses on three private label mortgage-backed securities classified as available for sale as compared to other-than-temporary impairment of $354 thousand for the quarter ended March 31, 2008. Effective January 1, 2009, we early adopted FSP FAS No. 115-2 and FAS 157-4 (See Notes 6 and 8 to the consolidated financial statements for additional information).

Goodwill and Other Intangible Assets. Valley records all assets and liabilities acquired in purchase acquisitions, including goodwill and other intangible assets, at fair value as required by SFAS No. 141. Goodwill totaling $295.1 million at March 31, 2009 is not amortized but is subject to annual tests for

impairment or more often if events or circumstances indicate it may be impaired. Other intangible assets are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount. The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets.

The goodwill impairment test is performed in two phases. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional procedure must be performed. That additional procedure compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.

The initial recording and subsequent impairment tests of goodwill and other intangible assets are subject to the provisions of SFAS No. 157 which Valley adopted as of January 1, 2007.

Income Taxes. 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 in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Changes in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations.

In connection with determining its income tax provision under SFAS No. 109, "Accounting for Income Taxes" and FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109," we maintain a reserve related to certain tax positions and strategies that management believes contain an element of uncertainty. Periodically, we evaluate each of our tax positions and strategies to determine whether the reserve continues to be appropriate. Notes 1 and 14 to the consolidated financial statements in Valley's Annual Report on Form 10-K for the year ended December 31, 2008, and the "Income Taxes" section below include additional discussion on the accounting for income taxes.

Executive Summary

Net income for the three months ended March 31, 2009 was $37.4 million compared to $31.6 million for the same period of 2008. The increase was largely due to
(i) a $16.4 million increase in net trading gains which includes a $13.8 million gain on the change in the fair value of Valley's junior subordinated debentures carried at fair value in the first quarter of 2009 compared to a loss of $1.7 million on such debentures for the same period of 2008 and (ii) a $14.0 million increase in net interest income due to loan growth since March 31, 2008 and loans acquired through the acquisition of Greater Community Bancorp ("Greater Community") on July 1, 2008, partially offset by (iii) a $9.5 million increase in non-interest expense caused by higher operating expenses relating to the addition of Greater Community's 16 full-service branches, 7 de novo branches opened since March 31, 2008, and a $2.9 million increase in Federal Deposit Insurance Corporation ("FDIC") insurance premiums, (iv) a $6.0 million increase in the provision of credit losses due to higher net charge-offs and deterioration in economic conditions and (v) a $2.2 million other-than-temporary impairment charge on three private label mortgage-backed securities during the 2009 period as compared to $354 thousand in impairment charges for the 2008 period. Adjusting for a five percent stock dividend declared April 14, 2009, payable May 22, 2009 to shareholders of record on May 8, 2009, fully diluted earnings per common share were $0.23 for the first quarter of 2009 as compared to $0.24 per share for the first quarter of 2008. Accrued preferred dividends and accretion of the discount on preferred stock issued by Valley in November 2008 reduced fully diluted earnings per common share by $0.03 for the three months ended March 31, 2009. All common share data presented in this report was adjusted to reflect the stock dividend.

Given the state of the U.S. economy, the low level of our loan delinquencies and losses relative to our peers and other struggling financial institutions, management believes that our credit quality remains good. However, our performance ratios for the first quarter of 2009 do reflect the negative impact of the current financial crisis. Valley's total loans past due in excess of 30 days were 1.34 percent of our total loan portfolio of $9.8 billion as of March 31, 2009 compared to 1.06 percent of total loans at December 31, 2008. Loans past due in excess of

90 days and still accruing declined to 0.14 percent of total loans at March 31, 2009 as compared to 0.15 percent of total loans at December 31, 2008 mainly due to the migration of certain commercial and commercial mortgage loans to non-accrual loans during the first quarter of 2009. Valley's non-accrual loans increased $14.3 million to $47.4 million, or 0.48 percent of total loans at March 31, 2009 as compared to $33.1 million, or 0.33 percent of total loans at December 31, 2008 mainly due to two commercial and two commercial mortgage relationships. In general, our non-accrual loans are well secured and, as a result, we do not expect potential losses on such loans to be near their current outstanding levels. Valley's management strives to maintain superior credit quality through its conservative loan underwriting policy; however, due to the current credit market conditions and the potential for additional macroeconomic recessionary pressures in 2009, management cannot predict that Valley's loan portfolio will continue to perform at levels experienced during the three months ended March 31, 2009. See "Non-performing Assets" section at page 52 for further analysis of Valley's credit quality.

As previously disclosed (including in our Annual Report on Form 10-K for the year ended December 31, 2008), Valley completed its $300 million nonvoting senior preferred stock issuance to the U.S. Treasury under its TARP Capital Purchase Program on November 14, 2008. The issuance brought additional strength to Valley's already well-capitalized position (See "Capital Adequacy" section below). Although, it was not necessary for us to raise additional capital, Valley elected to participate in the program as an insurance policy against a prolonged downturn in the U.S. economy and a chance to better position us for acquisition opportunities that may result from further disruption in the financial markets. During the first quarter of 2009, we continued to utilize the TARP funds in our lending operations. We originated over $300 million in new loans during the three months ended March 31, 2009 despite a decline in our overall loan portfolio mainly caused by low consumer demand for auto loans, our sale of most residential loan originations due to the low interest rate environment, seasonal declines in usage of our commercial lines of credit, and our strict underwriting standards.

As the U.S. Government asked the largest 19 banks to stress test their balance sheets, Valley has independently evaluated its future capital needs by applying tests to Valley's balance sheet under varied and extreme economic scenarios. The results of our stress analysis suggest our capital levels will continue to be adequate; however our management team and board of directors remain cognizant of the potential pitfalls that may be yet to come in this severe downturn in the financial markets. We may request permission from our regulators to repay a portion of our TARP funds in an amount and timeframe both consistent with the underlying credit risk of Valley and the duration and severity of the decline in the economic environment.

During the first quarter, loans decreased $305.8 million to approximately $9.8 billion at March 31, 2009. Our automobile loan portfolio declined by $119.2 million and has decreased for three consecutive quarters mainly due to low consumer demand for new and used automobiles, as well as Valley's move to strengthen its already conservative auto loan underwriting standards in light of the current economic conditions. Residential mortgage loans decreased $104.3 million during the first quarter of 2009 due to our sale or intention to sell (i.e., loans held for sale are presented separate from the loan portfolio on the consolidated statements of financial condition and increased $35.8 million to $40.3 million at March 31, 2009) most conforming refinanced loans and new loan originations in the secondary market. The loan sales are based on the current low level of interest rates and our management strategies for balance sheet and interest rate risk. Commercial loans also declined $76.8 million partly due to seasonal declines in the usage of commercial lines of credit by our customers. We may experience further declines in automobile and residential mortgage loans during 2009 if the economy continues to weaken and we maintain our current asset/liability management strategies.

Deposits increased $185.7 million during the first quarter of 2009 to approximately $9.4 billion at March 31, 2009 compared to $9.2 billion at December 31, 2008. At March 31, 2009, non-interest bearing deposits, savings, NOW, and money market, and time deposits increased by $87.5 million, $62.9 million and $35.3 million, respectively, as compared to December 31, 2008. The increases in both non-interest bearing and money market deposits is partly due to the migration of customer securities sold under agreements to repurchase ("repo") sweep account balances (recorded as short-term borrowings) into these accounts. The lower customer repo balances can be attributed to the Company's reduction in collateral positions to support the repo product and lower interest rates which reduce the customers' incentive to overnight sweep their demand deposit balances. Time deposits increased mainly due to growth in municipal certificates of deposit during the first quarter of 2009.

For the three months ended March 31, 2009, we reported an annualized return on average shareholders' equity ("ROE") of 10.94 percent and an annualized return on average assets ("ROA") of 1.03 percent which includes intangible assets. Our annualized return on average tangible shareholders' equity ("ROATE") was 14.29 percent for the first quarter of 2009. The comparable ratios for the first quarter of 2008 were an annualized ROE of 13.25 percent, an annualized ROA of 1.00 percent, and an annualized ROATE of 16.86 percent. All of the above ratios were negatively impacted by other-than-temporary impairment charges. These impairment charges totaled $2.2 million ($1.4 million after taxes) on three private label mortgage-backed securities during the first quarter of 2009 as compared to $324 thousand ($230 thousand) of impairment charges recognized on two financial institutions' common stock and one Freddie Mac perpetual preferred stock in the first quarter of 2008.

ROATE, which is a non-GAAP measure, is computed by dividing net income by average shareholders' equity less average goodwill and average other intangible assets, as follows:

                                                            Three Months Ended
                                                                March 31,
                                                           2009            2008
                                                             ($ in thousands)
   Net income                                           $    37,384     $   31,583

   Average shareholders' equity                           1,367,247        953,240
   Less: Average goodwill and other intangible assets      (320,635 )     (203,798 )

   Average tangible shareholders' equity                $ 1,046,612     $  749,442


   Annualized ROATE                                           14.29 %        16.86 %

Management believes the ROATE measure provides information useful to management and investors in understanding our underlying operational performance, our business and performance trends and the measure facilitates comparisons with the performance of others in the financial services industry. This non-GAAP financial measure should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with GAAP.

Net Interest Income

Net interest income on a tax equivalent basis increased $13.8 million or 14.2 percent to $110.8 million for the first quarter of 2009 compared to the same quarter of 2008. The increase from the first quarter of 2008 was mainly a result of a $1.5 billion increase in average loans and a $7.1 million or 62 basis point decline in funding costs on average interest bearing liabilities, partially offset by a 58 basis point decline in the yield on average interest earning assets and a $1.2 billion increase in average interest bearing liabilities. Both the declines in cost and yield resulted mainly from a decrease in short-term interest rates as the average target federal funds rate decreased approximately 322 basis points for the first quarter of 2009 compared to the same 2008 period. Average loan and deposit balances grew as compared to the three months ended March 31, 2008 in part due to growth through de novo branching and the acquisition of Greater Community on July 1, 2008.

For the first quarter of 2009, average loans, average federal funds sold and other interest bearing deposits, and average investment securities increased $1.5 billion, $139.7 million, and $63.3 million, respectively, as compared to the first quarter of 2008. Average investment securities increased $268.2 million as compared to the fourth quarter of 2008, while average federal funds sold and other interest bearing deposits declined $106.5 million. During the 2009 period, management reallocated overnight federal funds sold positions and principal paydowns on loans mainly to trading investment securities during the period. Compared to the fourth quarter of 2008, average loans decreased by $92.7 million primarily due to a decline in our auto loan portfolio caused by

the slowdown in new and used car sales coupled with our strict underwriting standard, as well as refinance activity in our residential mortgage portfolio which was sold in the secondary market due to the low level of current interest rates.

Average interest bearing liabilities for the quarter ended March 31, 2009 increased approximately $1.2 billion or 11.9 percent compared with the same quarter of 2008. Compared to the fourth quarter of 2008, average interest bearing liabilities decreased $114.8 million or 1.0 percent. Average total interest bearing deposits increased $155.4 million or 2.2 percent from the fourth quarter of 2008 mainly due to higher municipal certificates of deposit balances, time deposit initiatives through our branch network, and higher savings, NOW, and money market account balances caused in part by the migration of customer repo balances (classified as short-term borrowings). Average short-term borrowings decreased $272.8 million or 37.5 percent from the linked quarter due to the maturity of $200 million in short-term FHLB advances and lower customer repo balances as lower interest rates reduced the customers' incentive to overnight sweep their demand deposits balances, as well as the balances that migrated to other interest bearing deposit products as the Company reduced its collateral positions to support the repo product during the first quarter of 2009.

Interest on loans, on a tax equivalent basis decreased $7.0 million or 4.6 percent for the first quarter of 2009 compared to the fourth quarter of 2008 due to the aforementioned decline in average loan balances combined with a 22 basis point decrease in the tax equivalent yield on average loans as compared to the linked quarter. Interest from investments, on a tax equivalent basis, increased $3.3 million for the three months ended March 31, 2009 compared to the quarter ended December 31, 2008 mainly due to higher average balances as management reinvested overnight federal funds sold and other interest bearing deposits and principal paydowns on loans into U.S. agency mortgage-backed securities and corporate bonds insured under the FDIC's Temporary Liquidity Guarantee Program.

Interest expense for the three months ended March 31, 2009 decreased $5.7 million or 7.2 percent compared to the quarter ended December 31, 2008 resulting mainly from lower interest rates on savings, NOW, and money market accounts, normal repricing of higher cost certificates of deposit maturities at lower interest rates, and a decrease in the average short-term borrowings caused by the maturity of $200 million in FHLB advances and a reduction in customer repo balances due to the current low level of interest rates.

The net interest margin on a fully tax equivalent basis for the first quarter of 2009 was 3.35 percent, unchanged as compared to the first quarter of 2008 and an increase of 5 basis points from the linked fourth quarter of 2008. The increase from the linked quarter was largely the result of a continued decline in our cost of funds during the first quarter of 2009 as higher cost time deposits matured and repriced at lower interest rates, as well as higher average investment balances, partially offset by a decrease in the yield on average loans.

The following table reflects the components of net interest income for the three months ended March 31, 2009, December 31, 2008 and March 31, 2008:

 Quarterly Analysis of Average Assets, Liabilities and Shareholders' Equity and

                 Net Interest Income on a Tax Equivalent Basis



                                                                                          Three Months Ended
. . .