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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[ ] 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 0-11179

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

NEW JERSEY 22-2477875
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)

1455 VALLEY ROAD
WAYNE, NEW JERSEY 07474
- --------------------------------------- ----------
(Address of principal executive office) (Zip code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Title of each class Name of each exchange on which registered
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COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $1.4 billion on December 31, 1998.

There were 55,277,593 shares of Common Stock outstanding at February 1,
1999.

DOCUMENTS INCORPORATED BY REFERENCE:

Certain portions of the Registrant's Definitive Proxy Statement (the "1999
Proxy Statement") for the 1999 Annual Meeting of shareholders to be held April
7, 1999 will be incorporated by reference in Part III.

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TABLE OF CONTENTS

Page
----
PART I
Item 1. Business ....................................................... 3
Item 2. Properties ..................................................... 6
Item 3. Legal Proceedings .............................................. 7
Item 4. Submission of Matters to a Vote of Security Holders ............ 7
Item 4A. Executive Officers of the Registrant ........................... 7

PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters ........................................... 8
Item 6. Selected Financial Data ........................................ 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 10
Item 8. Financial Statements and Supplementary Data:
Valley National Bancorp and Subsidiaries:
Consolidated Statements of Income ............................ 30
Consolidated Statements of Financial Condition ............... 31
Consolidated Statements of Changes in Shareholders' Equity ... 32
Consolidated Statements of Cash Flows ........................ 33
Notes to Consolidated Financial Statements ................... 34
Independent Auditors' Report ................................. 57
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ...................................... 58

PART III
Item 10. Directors and Executive Officers of the Registrant ............. 58
Item 11. Executive Compensation ......................................... 58
Item 12. Security Ownership of Certain Beneficial Owners
and Management ................................................ 58
Item 13. Certain Relationships and Related Transactions ................. 58

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ................................................... 58
Signatures .............................................................. 61

PART I

ITEM 1. BUSINESS

Valley National Bancorp ("Valley") is a New Jersey corporation incorporated
as a bank holding company under the Bank Holding Company Act of 1956, as amended
("Holding Company Act"). At December 31, 1998, Valley had consolidated total
assets of $5.5 billion, total deposits of $4.7 billion, and total shareholders'
equity of $555.8 million. Its principal subsidiary is Valley National Bank
("VNB").

VNB is a national banking association chartered in 1927 under the laws of
the United States. VNB provides a full range of commercial and retail banking
services through 105 branch offices located in northern New Jersey. These
services include the following: the acceptance of demand, savings and time
deposits; extension of consumer, real estate, Small Business Administration
("SBA") and other commercial credits; and full personal and corporate trust
services, as well as pension and fiduciary services.

VNB has several wholly-owned subsidiaries which include a mortgage
servicing company, an investment company which holds, maintains and manages
investment assets for VNB, a subsidiary which owns and services auto loans and
an Edge Act Corporation which is the holding company for a wholly-owned finance
company located in Toronto, Canada. The mortgage servicing company services
loans for others as well as VNB. Early in 1999, VNB completed the liquidation of
its subsidiary which owned and managed residential mortgage loans, and the
remaining assets were transferred as a final dividend to VNB.

RECENT DEVELOPMENTS

On December 17, 1998 Valley signed a definitive merger agreement with
Ramapo Financial Corporation ("Ramapo"), parent of The Ramapo Bank, an 8 branch
bank headquartered in Wayne, New Jersey. At December 31, 1998 Ramapo had total
assets of $337.8 million and deposits of $295.5 million. The transaction is
expected to close in the second quarter of 1999 and will be accounted for using
the pooling of interests method of accounting. There were approximately 8.1
million shares of Ramapo common stock outstanding at December 31, 1998. The
merger agreement provides that 0.425 shares of Valley common stock will be
exchanged for each share of Ramapo common stock.

On October 16, 1998, Valley consummated its previously announced merger
with Wayne Bancorp, Inc. ("Wayne"), parent of Wayne Savings Bank, F.S.B. ("Wayne
Savings"), headquartered in Wayne, New Jersey. At the date of acquisition, Wayne
had total assets of $272.0 million and deposits of $206.0 million, with 6 branch
offices. The transaction was accounted for using the pooling of interests method
of accounting and resulted in the issuance of approximately 2.4 million shares
of Valley common stock. Each share of common stock of Wayne was exchanged for
1.1 shares of Valley common stock. All financial information in this Form 10-K
has been restated for prior years to include Wayne with the exception of share
data for the years 1996 and prior which have not been restated for the
acquisition of Wayne as the issuance of capital stock in connection with the
conversion from the mutual to stock form of Wayne Savings occurred on June 27,
1996.

COMPETITION

The market for banking and bank-related services is highly competitive.
Valley and its subsidiary compete with other providers of financial services
such as other bank holding companies, commercial and savings banks, savings and
loan associations, credit unions, money market and mutual funds, mortgage
companies, and a growing list of other local, regional and national institutions
which offer financial services. Mergers between financial institutions within
New Jersey and in neighboring states have added competitive pressure.
Competition is expected to intensify as a consequence of interstate banking laws
now in effect or that may be in effect in the future. Valley and its subsidiary
compete by offering quality products and convenient services at competitive
prices. In order to maintain and enhance its competitive position, Valley
regularly reviews its products, locations and various acquisition prospects and
periodically engages in discussions regarding such possible acquisitions.

EMPLOYEES

At December 31, 1998, VNB and its subsidiaries employed 1,752 full-time
equivalent persons. Management considers relations with employees to be
satisfactory.

SUPERVISION AND REGULATION

The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limit the options
of its management to deploy assets and maximize income. The following

discussion is not intended to be a complete list of all the activities regulated
by the banking laws or of the impact of such laws and regulations on the bank.
It is intended only to briefly summarize some material provisions.

BANK HOLDING COMPANY REGULATION

Valley is a bank holding company within the meaning of the Holding Company
Act. As a bank holding company, Valley is supervised by the Board of Governors
of the Federal Reserve System ("FRB") and is required to file reports with the
FRB and provide such additional information as the FRB may require.

The Holding Company Act prohibits Valley, with certain exceptions, from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to subsidiary banks, except that it may, upon application,
engage in, and may own shares of companies engaged in, certain businesses found
by the FRB to be so closely related to banking "as to be a proper incident
thereto." The Holding Company Act requires prior approval by the FRB of the
acquisition by Valley of more than five percent of the voting stock of any
additional bank. Satisfactory capital ratios and Community Reinvestment Act
ratings are generally prerequisites to obtaining federal regulatory approval to
make acquisitions. Acquisitions through Valley National Bank require approval of
the Comptroller of the Currency of the United States ("OCC"). Statewide
branching is permitted in New Jersey. The Holding Company Act does not place
territorial restrictions on the activities of non-bank subsidiaries of bank
holding companies.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking and Branching Act") enabled bank holding companies to
acquire banks in states other than its home state, regardless of applicable
state law. The Interstate Banking and Branching Act also authorized banks to
merge across state lines, thereby creating interstate branches. Under such
legislation, each state had the opportunity to "opt out" of this provision.
Furthermore, a state may "opt-in" with respect to de novo branching, thereby
permitting a bank to open new branches in a state in which the bank does not
already have a branch. Without de novo branching, an out-of-state commercial
bank can enter the state only by acquiring an existing bank or branch. The vast
majority of states have allowed interstate banking by merger but not authorized
de novo branching.

New Jersey enacted legislation to authorize interstate banking and
branching and the entry into New Jersey of foreign country banks. New Jersey did
not authorize de novo branching into the state. However, under federal law,
federal savings banks which meet certain conditions may branch de novo into a
state, regardless of state law.

Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such changes
and the impact such changes might have on Valley cannot be determined at this
time.

The policy of the FRB provides that a bank holding company is expected to
act as a source of financial strength to its subsidiary bank and to commit
resources to support such subsidiary bank in circumstances in which it might not
do so absent such policy.

REGULATION OF BANK SUBSIDIARY

VNB is subject to the supervision of, and to regular examination by, the
OCC.

Various laws and the regulations thereunder applicable to Valley and its
bank subsidiary impose restrictions and requirements in many areas, including
capital requirements, the maintenance of reserves, establishment of new offices,
the making of loans and investments, consumer protection, employment practices
and entry into new types of business. There are various legal limitations,
including Sections 23A and 23B of the Federal Reserve Act, the extent to which a
bank subsidiary may finance or otherwise supply funds to its holding company or
its holding company's non-bank subsidiaries. Under federal law, no bank
subsidiary may, subject to certain limited exceptions, make loans or extensions
of credit to, or investments in the securities of, its parent or the non-bank
subsidiaries of its parent (other than direct subsidiaries of such bank) or take
their securities as collateral for loans to any borrower. Each bank subsidiary
is also subject to collateral security requirements for any loans or extensions
of credit permitted by such exceptions.

DIVIDEND LIMITATIONS

Valley is a legal entity separate and distinct from its subsidiaries.
Valley's revenues (on a parent company only basis) result in substantial part
from dividends paid to Valley by VNB. Payment of dividends to Valley by its

subsidiary bank, without prior regulatory approval, is subject to regulatory
limitations. Under the National Bank Act, dividends may be declared only if,
after payment thereof, capital would be unimpaired and remaining surplus would
equal 100 percent of capital. Moreover, a national bank may declare, in any one
year, dividends only in an amount aggregating not more than the sum of its net
profits for such year and its retained net profits for the preceding two years.
Under this limitation, VNB could declare dividends in 1999 to Valley without
prior approval of the OCC of up to $46.5 million plus an amount equal to VNB's
net profits for 1999 to the date of such dividend declaration. In addition, the
bank regulatory agencies have the authority to prohibit a bank subsidiary from
paying dividends or otherwise supplying funds to Valley if the supervising
agency determines that such payment would constitute an unsafe or unsound
banking practice.

LOANS TO RELATED PARTIES

VNB's authority to extend credit to its directors, executive officers and
10% stockholders, as well as to entities controlled by such persons, is
currently governed by the requirements of the National Bank Act and Regulation O
of the FRB thereunder. Among other things, these provisions require that
extensions of credit to insiders (i) be made on terms that are substantially the
same as, and follow credit underwriting procedures that are not less stringent
than, those prevailing for comparable transactions with unaffiliated persons and
that do not involve more than the normal risk of repayment or present other
unfavorable features and (ii) not exceed certain limitations on the amount of
credit extended to such persons, individually and in the aggregate, which limits
are based, in part, on the amount of the bank's capital. In addition, extensions
of credit in excess of certain limits must be approved by the bank's board of
directors.

COMMUNITY REINVESTMENT

Under the Community Reinvestment Act ("CRA"), as implemented by OCC
regulations, a national bank has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OCC, in connection with
its examination of a national bank, to assess the association's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such association. The CRA also
requires all institutions to make public disclosure of their CRA ratings. VNB
received a "Satisfactory" CRA rating in its most recent examination.

RESTRICTIONS ON ACTIVITIES OUTSIDE THE UNITED STATES

Valley's activities in Canada are conducted through VNB and in the United
States are subject to Section 25 and 25A of the Federal Reserve Act, certain
regulations under the National Bank Act and, primarily, Regulation K promulgated
by the FRB. Under these provisions, VNB may invest no more than 10% of its
capital in foreign banking operations. In addition to investments, VNB may
extend credit or guarantee loans for these entities and such loans or guarantees
are generally not subject to the loans to one person limitation, although they
are subject to prudent banking limitations. The foreign banking operations of
VNB are subject to supervision by the FRB, as well as the OCC. In Canada, VNB's
activities also are subject to the laws and regulations of Canada and to
regulation by Canadian banking authorities. Regulation K generally restricts
activities by United States banks outside of the United States to activities
that are permitted for banks within the United States. As a consequence,
activities by VNB through its subsidiaries outside of the United States would
generally be limited to banking and activities closely related to banking with
certain significant exceptions.

FIRREA

Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly controlled
FDIC-insured depository institution in danger of default. These provisions have
commonly been referred to as FIRREA's "cross guarantee" provisions. Further,
under FIRREA the failure to meet capital guidelines could subject a bank to a
variety of enforcement remedies available to federal regulatory authorities.

FIRREA also imposes certain independent appraisal requirements upon a
bank's real estate lending activities and further imposes certain loan-to-value
restrictions on a bank's real estate lending activities. The bank regulators
have promulgated regulations in these areas.

FDICIA

The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required each federal banking agency to revise its risk-based capital
standards to ensure that those standards take adequate account of interest rate
risk, concentration of credit risk and the risks of non-traditional activities.
In addition, pursuant to FDICIA, each federal banking agency has promulgated
regulations, specifying the levels at which a financial institution would be
considered "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized," and to take
certain mandatory and discretionary supervisory actions based on the capital
level of the institution.

The OCC's regulations implementing these provisions of FDICIA provide that
an institution will be classified as "well capitalized" if it (i) has a total
risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based
capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at
least 5.0 percent, and (iv) meets certain other requirements. An institution
will be classified as "adequately capitalized" if it (i) has a total risk-based
capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital
ratio of at least 4.0 percent, (iii) has Tier 1 leverage ratio of (a) at least
4.0 percent or (b) at least 3.0 percent if the institution was rated 1 in its
most recent examination, and (iv) does not meet the definition of "well
capitalized." An institution will be classified as "undercapitalized" if it (i)
has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1
risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1
leverage ratio of (a) less than 4.0 percent or (b) less than 3.0 percent if the
institution was rated 1 in its most recent examination. An institution will be
classified as "significantly undercapitalized" if it (i) has a total risk-based
capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital
ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less
than 3.0 percent. An institution will be classified as "critically
undercapitalized" if it has a tangible equity to total assets ratio that is
equal to or less than 2.0 percent. An insured depository institution may be
deemed to be in a lower capitalization category if it receives an unsatisfactory
examination.

In addition, significant provisions of FDICIA required federal banking
regulators to impose standards in a number of other important areas to assure
bank safety and soundness, including internal controls, information systems and
internal audit systems, credit underwriting, asset growth, compensation, loan
documentation and interest rate exposure.

BIF PREMIUMS AND RECAPITALIZATION OF SAIF

VNB is a member of the Bank Insurance Fund ("BIF") of the FDIC. The FDIC
also maintains another insurance fund, the Savings Association Insurance Fund
("SAIF"), which primarily covers savings and loan association deposits but also
covers deposits that are acquired by a BIF-insured institution from a savings
and loan association ("Oakar deposits"). VNB had approximately $1.4 billion of
deposits at December 31, 1998, with respect to which VNB pays SAIF insurance
premiums.

The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act")
signed into law on September 30, 1996, included the Deposit Insurance Funds Act
of 1996 (the "Funds Act") under which the FDIC was required to impose a special
assessment on SAIF-assessable deposits to recapitalize the SAIF. Under the Funds
Act, the FDIC also will charge assessments for SAIF and BIF deposits in a 5 to 1
ratio to pay Financing Corp. ("FICO") bonds until January 1, 2000, at which time
the assessment will be equal. A FICO rate of approximately 1.29 basis points
will be charged on BIF deposits, and approximately 6.44 basis points will be
charged on SAIF deposits. Oaker deposits will be treated as SAIF deposits for
purposes of the FICO bond assessment. After the 1996 Act, SAIF deposit
assessments were lowered to the BIF assessment level, except for the FICO bond
assessment. The 1996 Act instituted a number of other regulatory relief
provisions.

ITEM 2. PROPERTIES

VNB's corporate headquarters consist of three office buildings located
adjacent to each other in Wayne, New Jersey. These headquarters encompass
commercial, mortgage and consumer lending, the operations and data

processing center, and the executive offices of both Valley and VNB. Two of the
three buildings are owned by VNB, the other building is leased.

VNB provides banking services at 105 locations of which 45 locations are
owned and 60 locations are leased.

ITEM 3. LEGAL PROCEEDINGS

There were no material pending legal proceedings to which Valley or any of
its direct or indirect subsidiaries were a party, or to which their property was
subject, other than ordinary routine litigations incidental to business and
which had no material effect on the presentation of the financial statements
contained in this report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Executive
Age at Officer
Names December 31, 1998 Since Office
----- ----------------- ------- ------

Gerald H. Lipkin .......... 57 1975 Chairman of the Board, President
and Chief Executive Officer of
Valley and VNB

Peter Southway ............ 64 1965 Vice Chairman of Valley and VNB

Peter Crocitto ............ 41 1991 Executive Vice President of
Valley and VNB

Robert M. Meyer ........... 52 1997 Executive Vice President of
Valley and VNB

Peter John Southway ....... 38 1989 Executive Vice President of
Valley and VNB

Alan D. Eskow ............. 50 1993 Corporate Secretary, Senior Vice
President and Controller of
Valley and VNB

Albert L. Engel ........... 50 1998 First Senior Vice President of VNB

Robert J. Farnon .......... 60 1998 First Senior Vice President of VNB

Robert E. Farrell ......... 52 1990 First Senior Vice President of VNB

Richard P. Garber ......... 55 1992 First Senior Vice President of VNB

Alan D. Lipsky ............ 54 1994 First Senior Vice President of VNB

Robert Mulligan ........... 51 1991 First Senior Vice President of VNB

John H. Prol .............. 61 1992 First Senior Vice President of VNB

Jack M. Blackin ........... 56 1993 Senior Vice President of Valley
and VNB

All officers serve at the pleasure of the Board of Directors.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Valley's common stock trades on the New York Stock Exchange ("NYSE") under
the symbol VLY. The following table sets forth for each quarter period indicated
the high and low sales prices for the common stock of Valley, as reported by the
NYSE, and the dividends paid per share for each quarter. The amounts shown in
the table below have been adjusted for all stock dividends.

Year 1998 Year 1997
---------------------------------- ---------------------------------
High Low Dividend High Low Dividend
-------- --------- -------- --------- --------- --------

First Quarter ........... $34 $28-13/64 $0.22 $21-15/64 $19-21/64 $0.19
Second Quarter .......... 34-3/32 28-13/16 0.25 22-1/2 20-3/16 0.22
Third Quarter ........... 36 25-3/4 0.25 25-13/32 21-21/32 0.22
Fourth Quarter .......... 30 23-3/4 0.25 32-19/64 24-19/64 0.22

Federal laws and regulations contain restrictions on the ability of Valley
and VNB to pay dividends. For information regarding restrictions on dividends,
see Part I, Item 1, "Business--Dividend Limitations" and Part II, Item 8,
"Financial Statements and Supplementary Data--Note 15 of the Notes to
Consolidated Financial Statements".

There were 7,454 registered shareholders of record as of December 31, 1998.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
Valley's Consolidated Financial Statements and the accompanying notes presented
elsewhere herein.

Years Ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)

SUMMARY OF OPERATIONS:
Interest income (taxable equivalent) .......... $ 394,420 $ 393,362 $ 376,295 $ 367,019 $ 338,801
Interest expense .............................. 160,104 165,885 162,791 160,276 130,002
----------- ----------- ----------- ----------- -----------
Net interest income (taxable equivalent) ...... 234,316 227,477 213,504 206,743 208,799
Less: tax equivalent adjustment ............... 4,764 6,278 7,669 8,535 8,885
----------- ----------- ----------- ----------- -----------
Net interest income .......................... 229,552 221,199 205,835 198,208 199,914
Provision for possible loan losses ............ 12,370 12,650 3,556 3,321 6,300
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for possible loan losses .................... 217,182 208,549 202,279 194,887 193,614
Gains on securities transactions, net ......... 1,418 2,150 781 1,109 6,219
Non-interest income ........................... 41,655 40,862 29,455 23,612 21,447
Non-interest expense .......................... 134,757 129,218 124,532 109,674 109,513
----------- ----------- ----------- ----------- -----------
Income before income taxes .................... 125,498 122,343 107,983 109,934 111,767
Income tax expense ............................ 28,150 35,397 36,479 42,030 41,804
----------- ----------- ----------- ----------- -----------
Net income ................................ $ 97,348 $ 86,946 $ 71,504 $ 67,904 $ 69,963
=========== =========== =========== =========== ===========

PER COMMON SHARE (1)(2):
Earnings per share:
Basic ........................................ $ 1.77 $ 1.58 $ 1.33 $ 1.24 $ 1.27
Diluted ...................................... 1.75 1.57 1.33 1.24 1.26
Dividends ..................................... 0.97 0.85 0.76 0.72 0.69
Book value .................................... 10.06 9.23 8.16 7.94 7.05
Weighted average shares outstanding:
Basic ........................................ 54,987,473 54,906,154 53,074,424 54,051,473 53,651,151
Diluted ...................................... 55,607,255 55,294,894 53,459,884 54,202,909 54,289,690

RATIOS:
Return on average assets ...................... 1.82% 1.63% 1.37% 1.34% 1.42%
Return on average shareholders' equity ........ 18.47 17.93 15.74 15.99 17.96
Average shareholders' equity to
average assets ............................... 9.86 9.07 8.71 8.40 7.91
Dividend payout ............................... 53.47 52.16 53.92 55.43 50.11
Risk-based capital:
Tier 1 capital ............................... 13.29 13.34 12.60 14.12 13.96
Total capital ................................ 14.51 14.44 13.88 15.32 15.21
Leverage capital .............................. 10.12 9.34 8.51 8.40 8.23

FINANCIAL CONDITION AT YEAR-END:
Assets ........................................ $ 5,541,207 $ 5,360,698 $ 5,359,628 $ 5,217,900 $ 4,996,980
Loans, net of allowance ....................... 3,927,982 3,754,892 3,570,651 3,119,837 2,902,003
Deposits ...................................... 4,674,689 4,602,321 4,746,012 4,645,955 4,409,250
Shareholders' equity .......................... 555,787 509,303 467,295 449,737 395,154

- ----------

(1) All per share amounts have been restated to reflect the 5 for 4 stock split
issued May 18, 1998, and all prior stock dividends.

(2) Share and earnings per share data for the years 1996 and prior have not
been restated for the acquisition of Wayne Bancorp, Inc. as the issuance of
capital stock in connection with the conversion from the mutual to stock
form of Wayne Savings Bank occurred on June 27, 1996.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The purpose of this analysis is to provide the reader with information
relevant to understanding and assessing Valley's results of operations for each
of the past three years and financial condition for each of the past two years.
In order to fully appreciate this analysis the reader is encouraged to review
the consolidated financial statements and statistical data presented in this
document.

CAUTIONARY STATEMENT CONCERNING FORWARD- LOOKING STATEMENTS

This Form 10-K, 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, relationships, opportunities, technology and
market conditions. These statements may be identified by an "asterisk" (*) or
such forward-looking terminology as "expect," "look," "believe," "anticipate,"
"may," "will," or similar statements or variations of such terms. Such
forward-looking statements involve certain risks and uncertainties. These
include, but are not limited to, the direction of interest rates, continued
levels of loan quality and origination volume, continued relationships with
major customers including sources for loans, successful completion of the
implementation of Year 2000 technology changes, as well as the effects of
economic conditions and legal and regulatory barriers and structure. Actual
results may differ materially from such forward-looking statements. Valley
assumes no obligation for updating any such forward-looking statement at any
time.

RECENT DEVELOPMENTS

On December 17, 1998 Valley signed a definitive merger agreement with
Ramapo Financial Corporation ("Ramapo"), parent of The Ramapo Bank, an 8 branch
bank headquartered in Wayne, New Jersey. At December 31, 1998, Ramapo had total
assets of $337.8 million and deposits of $295.5 million. The transaction is
expected to close in the second quarter of 1999 and will be accounted for using
the pooling of interests method of accounting. There were approximately 8.1
million shares of Ramapo common stock outstanding at December 31, 1998. The
merger agreement provides that 0.425 shares of Valley common stock will be
exchanged for each share of Ramapo common stock.

EARNINGS SUMMARY

Net income was $97.3 million, or $1.75 diluted earnings per share, in 1998
compared with $86.9 million, or $1.57 diluted earnings per share, in 1997 (all
financial information has been restated for the Wayne acquisition and per share
amounts have been restated to give effect to a 5 for 4 stock split issued in May
1998). Return on average assets increased in 1998 to 1.82% from 1.63% in 1997,
while the return on average equity also increased to 18.47% in 1998 from 17.93%
in 1997.

The increase in net income for the year ended December 31, 1998, can be
primarily attributed to an increase in net interest income of $8.4 million and a
reduction in income tax expense, offset by merger-related charges of $3.2
million, net of tax, recorded in connection with the Wayne merger.

NET INTEREST INCOME

Net interest income is the largest source of Valley's operating income. Net
interest income on a tax equivalent basis increased to $234.3 million for 1998
as compared to $227.5 million for 1997. The increase in net interest income is
due to a widening spread between the yield earned on interest-earning assets and
funding costs, a modest increase in interest earning assets and the movement of
earning assets out of the investment portfolio and into higher yielding loans.
The net interest margin increased to 4.60% for 1998 compared to 4.49% for 1997.

Average interest earning assets increased $27.6 million in 1998, or 0.5%
over the 1997 amount. This increase was mainly the result of increased volume of
automobile loans and commercial mortgage loans. Average loans

increased by $192.5 million or 5.3% over the 1997 amount. Interest income on
loans for 1998 increased by $13.1 million over 1997 primarily as a result of an
increase in average loans. Offsetting this increase was a decline of $207.2
million in average investment securities or 15.4% from the amount in the
portfolio during 1997. Valley purchased approximately $111.8 million of trust
preferred investment securities, funded by borrowings from the Federal Home Loan
Bank, during the latter part of the fourth quarter of 1998, as part of a
leveraging strategy to increase interest earning assets and net interest income.
There was minimal effect on average interest earning assets and net interest
income for 1998, but the strategy is expected to impact the financial results
for 1999. This strategy is expected to expand in 1999 as Valley continues to
leverage its strong capital position to grow its balance sheet in a strategy
expected to also increase its net income and earnings per share.*

Average interest-bearing liabilities for 1998 declined $80.1 million from
1997. Average demand deposits continued to grow and increased by $51.5 million
or 7.2% over 1997 balances. Average savings deposits decreased by $13.1 million
or 0.7%, and average time deposits, mostly rate sensitive municipal deposits,
decreased by $129.0 million or 6.1%. Average other borrowings increased $54.5
million for 1998 in comparison to 1997 as Valley increased its borrowings from
the Federal Home Loan Bank.

The following table reflects the components of net interest income for each
of the three years ended December 31, 1998, 1997 and 1996.

ANALYSIS OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
NET INTEREST EARNINGS ON A TAX EQUIVALENT BASIS

1998 1997 1996
--------------------------------- --------------------------------- ---------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- ------- ---------- -------- ----

(in thousands)

ASSETS
Interest earning assets
Loans (1)(2) .............. $3,844,174 $317,020 8.25% $3,651,648 $303,888 8.32% $3,334,825 $277,543 8.32%
Taxable investments (3) ... 963,450 58,951 6.12 1,113,204 69,633 6.26 1,213,657 74,967 6.18
Tax-exempt
investments(1)(3) ........ 173,740 12,131 6.98 231,191 15,917 6.88 288,522 19,626 6.80
Federal funds sold and
other short-term
investments .............. 116,993 6,318 5.40 74,725 3,924 5.25 78,934 4,159 5.27
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest earning
assets ................... 5,098,357 $394,420 7.74 5,070,768 $393,362 7.76 4,915,938 $376,295 7.65
-------- ---- -------- ---- -------- ----
Allowance for possible
loan losses .............. (49,539) (47,285) (47,600)
Cash and due from
banks .................... 132,687 151,979 170,019
Other assets .............. 157,709 170,462 181,712
Unrealized gain (loss)
on securities available
for sale ................. 7,777 (290) (4,732)
---------- ---------- ----------
Total assets .............. $5,346,991 $5,345,634 $5,215,337
========== ========== ==========

LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing
liabilities
Savings deposits .......... $1,850,646 $ 43,372 2.34% $1,863,764 $ 44,529 2.39% $1,887,878 $ 45,143 2.39%
Time deposits ............. 1,976,293 105,395 5.33 2,105,307 113,582 5.40 2,095,152 112,795 5.38
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest bearing
deposits ................. 3,826,939 148,767 3.89 3,969,071 158,111 3.98 3,983,030 157,938 3.97
Federal funds purchased
and other short-term
borrowings ............... 53,629 2,531 4.72 46,090 2,303 5.00 38,438 1,776 4.62
Other borrowings .......... 142,087 8,806 6.20 87,611 5,471 6.24 52,825 3,077 5.82
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest bearing
liabilities .............. 4,022,655 160,104 3.98 4,102,772 165,885 4.04 4,074,293 162,791 4.00
-------- ---- -------- ---- -------- ----
Demand deposits ........... 763,559 712,090 640,399
Other liabilities ......... 33,692 45,844 46,281
Shareholders' equity ...... 527,085 484,928 454,364
---------- ---------- ----------
Total liabilities and
shareholders' equity ..... $5,346,991 $5,345,634 $5,215,337
========== ========== ==========
Net interest income
(tax equivalent basis) ... 234,316 227,477 213,504
Tax equivalent adjustment . (4,764) (6,278) (7,669)
-------- -------- --------
Net interest income ....... $229,552 $221,199 $205,835
======== ======== ========
Net interest rate
differential ............. 3.76% 3.72% 3.65%
---- ---- ----
Net interest margin (4) ... 4.60% 4.49% 4.34%
==== ==== ====
- ----------------

(1) Interest income is presented on a tax equivalent basis using a 35% 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 earning assets.

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

CHANGE IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS

1998 Compared to 1997 1997 Compared to 1996
Increase(decrease)(2) Increase(decrease)(2)
-------------------------------------- ----------------------------------
Interest Volume Rate Interest Volume Rate
-------- -------- -------- -------- ------- -----
(in thousands)

Interest income:
Loans (1) ............................. $13,132 $15,898 $(2,766) $26,345 $26,177 $ 168
Taxable investments ................... (10,682) (9,192) (1,490) (5,334) (6,095) 761
Tax-exempt investments(1) ............. (3,786) (4,008) 222 (3,709) (3,944) 235
Federal funds sold and
other short-term investments ......... 2,394 2,280 114 (235) (204) (31)
------- ------- ------- ------- ------- ------
1,058 4,978 (3,920) 17,067 15,934 1,133
------- ------- ------- ------- ------- ------

Interest expense:

Savings deposits ...................... (1,157) (312) (845) (614) (587) (27)
Time deposits ......................... (8,187) (6,893) (1,294) 787 574 213
Federal funds purchased and
other short-term borrowings .......... 228 361 (133) 527 374 153
Other borrowings ....................... 3,335 3,377 (42) 2,394 2,207 187
------- ------- ------- ------- ------- ------
(5,781) (3,467) (2,314) 3,094 2,568 526
------- ------- ------- ------- ------- ------
Net interest income
(tax equivalent basis) ................ $ 6,839 $ 8,445 $(1,606) $13,973 $13,366 $ 607
======= ======= ======= ======= ======= ======

- ----------
(1) Interest income is adjusted to a tax equivalent basis using a 35% tax rate.

(2) 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.

Non-Interest Income

The following table presents the components of non-interest income for the
years ended December 31, 1998, 1997 and 1996.

NON-INTEREST INCOME

Years Ended December 31,
------------------------------------------
1998 1997 1996
------- ------- -------
(in thousands)

Trust income ....................................... $ 1,375 $ 1,162 $ 1,080
Service charges on deposit accounts ................ 12,674 12,063 11,268
Gains on securities transactions, net .............. 1,418 2,150 781
Fees from loan servicing ........................... 7,382 5,576 4,835
Credit card fee income ............................. 10,153 12,643 5,549
Gains on sales of loans, net ....................... 4,863 3,634 1,839
Other .............................................. 5,208 5,784 4,884
------- ------- -------
Total ............................................ $43,073 $43,012 $30,236
======= ======= =======

Fees from loan servicing increased by 32.4% from $5.6 million in 1997 to
$7.4 million in 1998. Included in these fees are gross servicing fees and
related ancillary fees for servicing mortgage portfolios owned by VNB Mortgage
Services, Inc. ("MSI"), VNB's mortgage servicing subsidiary. MSI serviced loans
for other investors of $1.6 billion and $1.2 billion as of December 31, 1998 and
1997, respectively. The increase in the servicing portfolio was due to the
acquisition of several portfolios totaling approximately $734.0 million, the
origination of new loans by VNB and their subsequent sale with servicing
retained, offset by principal paydowns and prepayments.

Also included in fees from loan servicing are fees for servicing SBA loans.
VNB serviced a total of $78.1 million and $69.7 million of SBA loans as of
December 31, 1998 and 1997, respectively, for third-party investors. The
increase in the serviced portfolio was due to the origination of new loans by
VNB, which were sold to third-party investors.

Credit card fee income declined by $2.5 million or 19.7%. The decrease was
the result of the loss of fee income from the sale of the merchant processing
operation during 1997 and the reduced volume of co-branded credit card
transactions.

Gains on the sales of loans were $4.9 million for 1998 compared to $3.6
million for 1997. Gains are recorded primarily from mortgage banking activity
related to residential mortgage loans and the sale of SBA loans in the secondary
market.

The significant component of other non-interest income is safe deposit
rentals. Other non-interest income decreased $576 thousand to $5.2 million for
the year ended December 31, 1998 in comparison to the same period in 1997. The
decrease in other non-interest income was due to a one-time gain of $1.6 million
recorded on the sale of VNB's merchant credit card business during 1997. Safe
deposit rental income remained relatively unchanged and totaled $952 thousand
for 1998.

Non-Interest Expense

The following table presents the components of non-interest expense for the
years ended December 31, 1998, 1997 and 1996.

NON-INTEREST EXPENSE

Years Ended December 31,
-------------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)

Salary expense ........................... $ 51,792 $ 46,738 $ 46,201
Employee benefit expense ................. 12,327 11,596 10,813
FDIC insurance premiums .................. 1,270 1,205 10,083
Net occupancy expense .................... 12,877 11,653 11,832
Furniture and equipment expense .......... 8,338 8,036 7,665
Credit card expense ...................... 9,066 17,520 7,518
Amortization of intangible assets ........ 5,546 3,441 3,009
Merger-related charges ................... 4,539 -- --
Other .................................... 29,002 29,029 27,411
-------- -------- --------
Total .................................. $134,757 $129,218 $124,532
======== ======== ========

Non-interest expense totaled $134.8 million for 1998, an increase of 4.3%
from the 1997 level. The largest components of non-interest expense are salaries
and employee benefit expense which totaled $64.1 million in 1998 compared to
$58.3 million in 1997. At December 31, 1998, full-time equivalent staff was
1,752, compared to 1,699 at the end of 1997.

The efficiency ratio measures a bank's gross operating expense as a
percentage of fully-taxable equivalent net interest income and other
non-interest income without taking into account security gains and losses and
other non-recurring items. Valley's efficiency ratio for the year ended December
31, 1998 was 46.7%, one of the lowest in the industry, compared with an
efficiency ratio for 1997 of 47.7%. Valley strives to control its efficiency
ratio and expenses as a means of producing increased earnings for its
shareholders.

Credit card expense includes cardmember rebates, processing expenses and
fraud losses. The decrease in credit card expenses is directly attributable to
an amendment made to the co-branded credit card program during the fourth
quarter of 1997, which reduced the amount of cardmember rebates paid by Valley.

Amortization of intangible assets increased to $5.5 million in 1998 from
$3.4 million in 1997, representing an increase of $2.1 million or 61.2%. The
majority of this increase resulted from the amortization of loan servicing
rights totaling $4.8 million during 1998, compared with $2.6 million for 1997.
Declining interest rates are responsible for a large amount of prepayments on
mortgage loans, resulting in an increase in amortization expense to reduce the
unamortized balance of servicing rights in line with the portfolio balance and
the expected future cash flows. An impairment analysis is completed quarterly to
determine the adequacy of the mortgage servicing asset valuation allowance.

During 1998, Valley recorded merger-related charges of $4.5 million related
to the acquisition of Wayne. The major components of merger-related charges are
for real estate dispositions, professional fees, personnel expenses and other
expenses totaling $1.5 million, $1.4 million, $1.0 million and $600 thousand,
respectively.

The significant components of other non-interest expense include
advertising, data processing, professional fees, postage, telephone and
stationery expense which total approximately $18.0 million for 1998.

Income Taxes

Income tax expense as a percentage of pre-tax income was 22.4% for the year
ended December 31, 1998 compared to 28.9% in 1997. The reduction in the
effective tax rate since 1996 and through 1998 is attributable to a realignment
of corporate entities and a lower effective tax rate for state taxes. Because of
a change in federal tax law and the completion of the liquidation of its
subsidiary which owned and managed residential mortgage loans, the

effective tax rate is expected to increase to a normal level during the fiscal
year beginning January 1999 over the effective tax rate for 1998 and 1997.
However, Valley is evaluating its current and future tax strategies to minimize
the increase in its effective tax rate in 1999 and future periods.*

Year 2000

Most computer programs have historically been written using two digits
rather than four to define the applicable year. These programs were written
without considering the impact of the upcoming change in the century and the
programs may experience problems handling dates beyond the year 1999. This could
cause computer applications to fail or to create erroneous results unless
corrective measures are taken. Incomplete or untimely resolution of the Year
2000 ("Y2K") issue could have a material adverse impact on Valley's business,
operations and financial condition in the future.

Valley has assessed the Y2K issue as it impacts its internal Information
Technology ("IT") systems (computer hardware and software systems) and its
non-IT systems (facilities, equipment and vendors) and has developed its plan to
address the Y2K issue. Valley operates its deposit, loan and general ledger
systems on one software system licensed to Valley through a third party
("primary software vendor"). Valley received the software from its primary
software vendor and began testing during September 1998 to verify the vendor's
representation that the software is Y2K compliant. The testing for the deposit,
loan and general ledger systems, which are the primary functions of this
software, has been completed as of the end of 1998. Additional Y2K software
systems have been purchased from other vendors and Valley has substantially
completed testing those systems for Y2K compliance. Valley believes it has
identified equipment which needs to be upgraded and is in the process of
remediation.*

Valley currently believes its Y2K compliance plan with respect to its
internal hardware and software systems will not have a material adverse effect
on Valley's financial condition or results of operations.* However, no assurance
can be given that the ultimate costs to address the Y2K issue or the impact of
any failure to timely achieve substantial Y2K compliance will not have a
material adverse effect on Valley's financial condition or results.*

Valley will utilize both internal and external sources to execute its Y2K
plan. Valley's main software system is licensed through its primary software
vendor for which Valley pays a normal annual licensing fee. As noted above, the
vendor has represented that this software system is Y2K compliant, and Valley
has substantially completed testing this system for Y2K compliance. As a result,
Valley has been able to maintain a low level of expenditures to date. Since
implementing the assessment of Y2K issues, Valley's costs to external sources
have been approximately $130 thousand. Based on current information, Valley
estimates that expenditures related to the execution of its Y2K plan will be
approximately $1.0 million.* These estimates of expenditures are based on
Valley's presently available information and may be updated as information
becomes available. The remaining amount to be spent is for additional hardware
and software systems.

Valley has also communicated with its significant suppliers, vendors and
borrowing customers to determine the extent to which the company is vulnerable
to the failure of these third parties to remedy any Y2K issues. Valley can give
no assurance that failure to address Y2K issues by third parties on whom
Valley's systems, business processes or loan payments rely would not have a
material adverse effect on Valley's operations or financial condition.* Valley
has implemented a customer awareness program on its website, in brochures in
each of its branches and in messages on customer statements to keep customers
informed about Y2K as it relates to Valley.

Valley has established a contingency plan for the applications critical to
its operations. This plan includes trigger dates in which a contingency vendor
would be contacted. The testing phase is almost complete, and Valley does not
foresee converting any of these applications to a contingency vendor at this
time.*

Business Segments

VNB has three major business segments it monitors and reports on to manage
its business operations. These segments are commercial lending, consumer lending
and investment management. Lines of business and actual structure of operations
determine each segment. Each is reviewed routinely for its asset growth,
contribution to pretax net income and return on assets. Expenses related to the
branch network, all other components of retail banking, along with the back
office departments of the bank are allocated to each of the three business
segments. The financial reporting for each segment contains allocations and
reporting in line with VNB's operations, which may not necessarily be compared
to any other financial institution. The accounting for each segment includes
internal accounting policies designed to measure consistent and reasonable
financial reporting. For financial data on the three business segments see Part
II, Item 8. "Financial Statements and Supplementary Data--Note 19 of the Notes
to Consolidated Financial Statements."

CONSUMER LENDING SEGMENT

The consumer lending segment had a return on average interest-earning
assets before taxes of 2.35% for 1998 compared to 2.32% for 1997. The increase
in average interest-earning assets of $116.7 million was mostly attributable to
increased automobile loans, net of a reduction of $26.4 million in credit card
loans during the year. Residential loans did not increase substantially as a
large portion of the loans originated in 1998 were sold into the secondary
market. The increase in volume offset by a decrease in interest rates caused
interest income to rise between 1998 and 1997 by $7.2 million. Interest expense,
allocated to segments based upon average interest-earning assets, is a function
of the overall interest cost, of the bank, which declined during 1998 as
compared to 1997.

Non-interest income declined by $3.4 million mainly as a result of
decreased fees in 1998 on the merchant processing business sold during 1997.
Non-interest expense decreased by $9.6 million during 1998 largely as a result
of an amendment to the cobranded credit card program during 1997 which reduced
cardmember rebates paid by Valley. The increase in the internal transfer expense
is proportionate to the increase in volume and portfolio size.

COMMERCIAL LENDING SEGMENT

The return on average interest-earning assets before taxes for the
commercial lending segment declined 24 basis points to 3.80%. Average
interest-earning assets increased by $78.3 million during 1998 as a result of
increased volume of loans and lower interest rates. Interest rates on these
assets declined, largely due to changes in the average lending rate, from 8.88%
in 1997 to 8.68% in 1998. Net interest income increased by $3.8 million or 5.0%
from 1997 to 1998.

During 1998 the provision for loan losses increased to $1.7 million,
non-interest income remained unchanged and non-interest expense increased by
$1.0 million or 11.6% resulting from higher staffing levels and increased other
expenses.

INVESTMENT MANAGEMENT SEGMENT

The return on average interest-earning assets before taxes for the
investment segment decreased from 2.13% in 1997 to 1.92% in 1998. The decline in
average investments was the result of the investment of proceeds from maturing
investments into higher yielding loans during most of 1998. During the latter
portion of the fourth quarter of 1998 approximately $111.8 million of trust
preferred securities were added to the portfolio as part of a leveraging
strategy to increase net interest income and earnings per share for 1999 and
future years.*

CORPORATE SEGMENT

The corporate segment represents assets and income and expense items not
directly attributable to a specific segment. The decline in net interest income
is related to the decline in average interest-earning assets. Non-interest
income, non-interest expense and the internal expense transfer represent the net
allocation of income and expenses to each of the interest earning segments.
These generally increased, on a net basis, between 1998 and 1997 as cost
accounting now identifies various income and expense items previously included
in total overhead.

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"), which reports to the Board of Directors. 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 repricing
characteristics of rate sensitive assets and liabilities. The model incorporates
assumptions regarding the impact of changing interest rates on the prepayment
speeds of certain assets and liabilities. According to the model, over a twelve
month period, an interest rate increase of 100 basis points resulted in an
increase in net interest income of approximately $905.0 thousand while an
interest rate decrease of 100 basis points resulted in a decrease in net
interest income of approximately $2.8 million. Management cannot provide any
assurance about the actual effect of changes in interest rates on Valley's net
interest income.

The following table shows the financial instruments that are sensitive to
changes in interest rates, categorized by expected maturity, and the
instruments' fair value at December 31, 1998. Market risk sensitive instruments
are generally defined as on-and-off balance sheet financial instruments.

INTEREST RATE SENSITIVITY ANALYSIS
Total Fair
Rate 1999 2000 2001 2002 2003 Thereafter Balance Value
---- ---------- --------- --------- -------- ------- ---------- ---------- ----------
(in thousands)

INTEREST SENSITIVE ASSETS:
Federal funds sold ............. 5.08% $ 102,000 $ -- $ -- $ -- $ -- $ -- $ 102,000 $ 102,000
Investment securities
held to maturity .............. 7.45 33,300 17,722 13,628 8,492 8,400 155,868 237,410 238,421
Investment securities
available for sale ............ 6.29 520,000 407,481 -- -- -- -- 927,481 927,481
Trading account securities ..... -- 1,592 -- -- -- -- -- 1,592 1,592
Loans, net of unearned income
Commercial .................... 8.48 271,915 10,077 9,516 62,296 43,404 66,401 463,609 465,620
Mortgage ...................... 7.78 549,943 106,654 86,125 357,873 265,975 725,180 2,091,750 2,103,331
Consumer ...................... 8.09 210,516 268,463 191,561 379,418 250,682 121,851 1,422,491 1,448,138
---- ---------- --------- --------- -------- -------- ---------- ---------- ----------
Total interest sensitive assets . 7.59% $1,689,266 $(810,397 $ 300,830 $808,079 $568,461 $1,069,300 $5,246,333 $5,286,583
---- ---------- --------- --------- -------- -------- ---------- ---------- ----------

INTEREST SENSITIVE LIABILITIES:

Deposits:
Savings ........................ 2.19% $ 660,991 $(660,991 $(660,991 $ -- $ -- $ -- $1,982,973 $1,982,973
Time ........................... 5.23 1,446,617 290,404 35,305 39,596 23,864 1,336 1,837,122 1,847,385
Short-term borrowings ........... 3.70 53,081 -- -- -- -- -- 53,081 53,081
Other borrowings ................ 5.89 50,068 28,074 2,080 17,086 82,060 33,581 212,949 214,958
---- ---------- --------- --------- -------- -------- ---------- ---------- ----------
Total interest sensitive
liabilities .................... 3.77% $2,210,757 $(979,469 $ 698,376 $ 56,682 $105,924 $ 34,917 $4,086,125 $4,098,397
---- ---------- --------- --------- -------- -------- ---------- ---------- ----------
Interest sensitivity gap ........ $ (521,491) $(169,072) $(397,546) $751,397 $462,537 $1,034,383 $1,160,208 $1,188,186
---------- --------- --------- -------- -------- ---------- ---------- ----------
Ratio of interest sensitive
assets to interest
sensitive liabilities ..........
(0.76:1) (0.83:1) (0.43:1) 14.26:1 5.37:1 30.62:1 1.28:1 1.29:1
---------- --------- --------- -------- -------- ---------- ---------- ----------

Expected maturities are contractual maturities adjusted for prepayments of
principal without taking into consideration contractual cash flows from normal
payments. Valley uses certain assumptions to estimate fair values and expected
maturities. For investment securities held to maturity and loans, expected
maturities are based upon contractual maturity, projected repayments and
prepayments of principal. The prepayment experience reflected herein is based on
historical experience. Investment securities available for sale are categorized
shorter than their expected maturity because they can be sold at any time to
meet estimated liquidity needs. For deposit liabilities, in accordance with
standard industry practice and Valley's own historical experience, "decay
factors," used to estimate deposit runoff of 33% were used for savings. The
actual maturities of these instruments could vary substantially if future
prepayments differ from historical experience. Off-balance sheet items are not
considered material.

The total negative gap repricing within 1 year as of December 31, 1998 is
$521.5 million, representing a ratio of interest sensitive assets to interest
sensitive liabilities of (0.76:1). Management does not view this amount as
presenting an unusually high risk potential, although no assurances can be given
that Valley is not at risk from interest rate increases or decreases.

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, investments securities held to
maturity maturing within one year, securities available for sale and loans held
for sale. Liquid assets amounted to $1.3 billion at both December 31, 1998 and
1997. This represents 23.9% and 25.9% of earning assets, and 22.6% and 24.6% of
total assets at December 31, 1998 and 1997, respectively.

On the liability side, the primary source of funds available to meet
liquidity needs is Valley's core deposit base, which generally excludes
certificates of deposit over $100 thousand. Core deposits averaged approximately
$3.4 billion for both years ended December 31, 1998 and 1997, representing 66.8%
and 67.3% of average earning assets. Short-term borrowings through Federal funds
lines, Federal Home Loan Bank ("FHLB") advances and large dollar certificates of
deposit, generally those over $100 thousand, are used as supplemental funding
sources. During the fourth quarter of 1998, Valley borrowed $100.0 million from
the FHLB as part of a leveraging strategy to increase earning assets and net
interest income. This strategy is expected to expand in 1999.* As of December
31, 1998, Valley had outstanding advances of $212.5 million with the FHLB.
Additional liquidity is derived from scheduled loan and investment payments of
principal and interest, as well as prepayments received. In 1998 proceeds from
the sales of investment securities available for sale were $93.1 million, and
proceeds of $459.4 million were generated from investment maturities. Purchases
of investment securities in 1998 were $462.7 million. Short term borrowings and
certificates of deposit over $100 thousand amounted to $474.4 million and $603.7
million, on average, for the years ended December 31, 1998 and 1997,
respectively.

During 1998 a substantial amount of loan growth was funded from maturities
and normal payments of the investment portfolio. Valley anticipates using funds
from the investment portfolio as well as deposit inflows to fund loan growth
during 1999.*

The following table lists, by maturity, all certificates of deposit of $100
thousand and over at December 31, 1998. These certificates of deposit are
generated primarily from core deposit customers and are not brokered funds.

(in thousands)

Less than three months ........... $286,289
Three to six months .............. 37,980
Six to twelve months ............. 46,583
More than twelve months .......... 37,450
--------
$408,302
========

Valley's cash requirements consist primarily of dividends to shareholders.
This cash need is routinely satisfied by dividends collected from its subsidiary
bank. Projected cash flows from this source are expected to be adequate to pay
dividends, given the current capital levels and current profitable operations of
its subsidiary.

Investment Securities

The amortized cost of securities held to maturity at December 31, 1998,
1997 and 1996 were as follows:

INVESTMENT SECURITIES HELD TO MATURITY

1998 1997 1996
-------- -------- --------
(in thousands)

U.S. Treasury securities and other government agencies
and corporations .................................................. $ -- $ -- $ 25,608
Obligations of states and political subdivisions ................... 39,220 58,111 83,908
Mortgage-backed securities ......................................... 62,088 84,129 129,845
Other debt securities .............................................. 111,922 195 1,978
-------- -------- --------
Total debt securities ........................................... 213,230 142,435 241,339
FRB & FHLB stock ................................................... 24,180 24,180 18,735
-------- -------- --------
Total investment securities held to maturity .................... $237,410 $166,615 $260,074
======== ======== ========

The fair value of securities available for sale at December 31, 1998, 1997
and 1996 were as follows:

INVESTMENT SECURITIES AVAILABLE FOR SALE

1998 1997 1996
-------- -------- --------
(in thousands)

U.S. Treasury securities and other government agencies
and corporations .................................................. $ 84,998 $ 181,154 $ 183,634
Obligations of states and political subdivisions ................... 111,781 142,457 177,505
Mortgage-backed securities ......................................... 699,624 756,342 698,633
-------- -------- --------
Total debt securities ........................................... 896,403 1,079,953 1,059,772
Equity securities .................................................. 31,078 10,685 10,793
-------- -------- --------
Total investment securities available for sale .................. $927,481 $1,090,638 $1,070,565
======== ========== ==========

MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
HELD TO MATURITY AT DECEMBER 31, 1998

Obligations of Mortgage-
States and Political Backed Other Debt
Subdivisions Securities Securities Total (4)
------------------ ----------------- ------------------- ------------------
Amortized Yield Amortized Yield Amortized Yield Amortized Yield
Cost (1) (2)(3) Cost (1) (2) Cost (1) (2) Cost (1) (2)
-------- ------ --------- ----- -------- ----- -------- -----
(in thousands)

0-1 years .............. $22,429 5.54% $ 295 8.45% $ -- -- % $ 22,724 5.58%
1-5 years .............. 13,411 8.01 61,793 7.41 35 8.46 75,239 7.52
5-10 years ............. 254 7.69 -- -- 50 7.30 304 7.63
Over 10 years .......... 3,126 7.30 -- -- 111,837 7.19 114,963 7.19
------- ---- ------- ---- -------- ---- -------- ----
Total securities ..... $39,220 6.54% $62,088 7.41% $111,922 7.19% $213,230 7.14%
======= ==== ======= ==== ======== ==== ======== ====

MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
AVAILABLE FOR SALE AT DECEMBER 31, 1998

US Treasury
Securities and
Other Government Obligations of Mortgage-
Agencies States and Political Backed
and Corporations Subdivisions Securities Total (4)
------------------ ----------------- ------------------- ------------------
Amortized Yield Amortized Yield Amortized Yield Amortized Yield
Cost (1) (2) Cost (1) (2)(3) Cost (1) (2) Cost (1) (2)
-------- ------ --------- ------ -------- ----- --------- -----
(IN THOUSANDS)

0-1 years .............. $55,586 4.56% $ 37,364 6.79% $138,853 5.23% $231,803 5.32%
1-5 years .............. 4,000 6.10 56,599 7.93 529,185 6.13 589,784 6.30
5-10 years ............. 25,000 7.78 12,178 5.95 30,339 6.36 67,517 6.81
Over 10 years .......... -- -- 3,724 9.74 395 6.12 4,119 9.39
------- ---- ------- ---- -------- ---- -------- ----
Total securities ..... $84,586 5.58% $109,865 7.38% $698,772 5.96% $893,223 6.10%
======= ==== ======== ==== ======== ==== ======== ====

- ----------
(1) Maturities are stated at cost less principal reductions, if any, and
adjusted for accretion of discounts and amortization of premiums.

(2) Average yields are calculated on a yield-to-maturity basis.

(3) Average yields on obligations of states and political subdivisions are
generally tax-exempt and calculated on a tax-equivalent basis using a
statutory federal income tax rate of 35%.

(4) Excludes equity securities which have indefinite maturities.

Valley's investment portfolio is comprised of U.S. government and federal
agency securities, tax-exempt issues of states and political subdivisions,
mortgage-backed securities, equity and other securities. There were no
securities in the name of any one issuer exceeding 10% of shareholders' equity,
except for securities issued by the United States and its political subdivisions
and agencies. The portfolio generates substantial cash flow. The decision to
purchase or sell securities is based upon the current assessment of long and
short term economic and financial conditions, including the interest rate
environment and other statement of financial condition components.

At December 31, 1998, Valley had $62.1 million of mortgaged-backed
securities classified as held to maturity and $699.6 million of mortgage-backed
securities classified as available for sale. Substantially all the
mortgage-backed securities held by Valley are issued or backed by Federal
agencies. The mortgage-backed securities portfolio is a source of significant
liquidity to Valley through the monthly cash flow of principal and interest.
Mortgage-backed securities, like all securities, are sensitive to changes in the
interest rate environment, increasing and decreasing in value as interest rates
fall and rise. As interest rates fall, the increase in prepayments can reduce
the yield on the mortgage-backed securities portfolio, and reinvestment of the
proceeds will be at lower interest rates.

Included in the mortgage-backed securities portfolio at December 31, 1998
were $191.1 million of collateralized mortgage obligations ("CMO") of which $2.3
million were privately issued. CMO's had a yield of 5.67% and an unrealized gain
of $549 thousand at December 31, 1998. Substantially all of the CMO portfolio
was classified as available for sale.

As of December 31, 1998, Valley had $927.5 million of securities available
for sale compared with $1.1 billion at December 31, 1997. Those securities are
recorded at their fair value on an aggregate basis. As of December 31, 1998, the
investment securities available for sale had an unrealized gain of $4.9 million,
net of deferred taxes, compared to an unrealized gain of $4.0 million, net of
deferred taxes, at December 31, 1997. This change was primarily due to an
increase in prices resulting from a decreasing interest rate environment. 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. In connection with
the Wayne acquisition, Valley reassessed the classification of securities held
in the Wayne portfolio and transferred $1.6 million of securities held to
maturity to securities available for sale to conform with Valley's investment
objectives. In 1997, in connection with the Midland acquisition, Valley
reassessed the classification of securities held in the Midland portfolio and
transferred $39.8 million of securities held to maturity to securities available
for sale to conform with Valley's investment objectives.

During the fourth quarter of 1998, Valley purchased approximately $111.8
million of trust preferred securities as part of a leveraging strategy to
increase interest earning assets and net interest income.

Loan Portfolio

As of December 31, 1998, total loans were $4.0 billion, compared to $3.8
billion at December 31, 1997, an increase of 4.6%. The following table reflects
the composition of the loan portfolio for the five years endedDecember 31, 1998.

LOAN PORTFOLIO

1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(in thousands)

Commercial .......................... $ 463,609 $ 455,732 $ 467,224 $ 413,796 $ 363,313
---------- ---------- ---------- ---------- ----------
Total commercial loans ............ 463,609 455,732 467,224 413,796 363,313
---------- ---------- ---------- ---------- ----------
Construction ........................ 101,200 83,609 87,486 75,920 70,251
Residential mortgage ................ 1,036,110 1,034,066 1,038,468 1,008,208 1,015,439
Commercial mortgage ................. 954,440 866,348 794,170 707,228 649,906
---------- ---------- ---------- ---------- ----------
Total mortgage loans .............. 2,091,750 1,984,023 1,920,124 1,791,356 1,735,596
---------- ---------- ---------- ---------- ----------
Home equity ......................... 201,175 196,777 198,928 201,583 181,988
Credit card ......................... 107,595 145,485 149,494 22,380 23,298
Automobile .......................... 1,032,783 930,372 811,852 672,589 579,049
Other consumer ...................... 80,938 91,101 71,396 65,003 68,538
---------- ---------- ---------- ---------- ----------
Total consumer loans .............. 1,422,491 1,363,735 1,231,670 961,555 852,873
---------- ---------- ---------- ---------- ----------
Less: unearned income ............... -- (56) (556) (1,290) (2,331)
---------- ---------- ---------- ---------- ----------
Loans, net of unearned
income ............................. $3,977,850 $3,803,434 $3,618,462 $3,165,417 $2,949,451
========== ========== ========== ========== ==========

As a percent of total loans:
Commercial loans ................... 11.7% 12.0% 12.9% 13.0% 12.3%
Mortgage loans ..................... 52.6 52.2 53.1 56.6 58.8
Consumer loans ..................... 35.7 35.8 34.0 30.4 28.9
----- ----- ----- ----- -----
Total loans ....................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====

The major portion of the increase in loans for 1998 was divided between
commercial mortgage and automobile loans. It is not known if the trend of
increased lending in these loan types will continue.

The commercial mortgage loan portfolio has continued its steady increase.
Valley targets small-to-medium size businesses within the market area of the
bank for this type of lending.

During 1996, Valley issued a co-branded credit card. Of the $107.6 million
of credit card loans outstanding at December 31, 1998, approximately $91.2
million were the result of this co-branded credit card program. The decrease in
the credit card portfolio is directly attributable to an amendment made to the
co-branded credit card program during the fourth quarter of 1997, which reduced
the amount of cardmember rebates paid by Valley.

Automobile loans comprised 26.0% of total loans at December 31, 1998.
Automobile loans increased 11.0% during 1998 as a result of increased loan
demand and market penetration. Approximately 67.6% of the automobile loan
portfolio and 17.6% of the total loan portfolio at December 31, 1998 represented
loans originated by VNB through a program with a major insurance company. These
loans are subject to Valley's underwriting criteria. During the fourth quarter
of 1997, Valley began closing loans in Florida under this program. Valley began
an identical program in the State of Pennsylvania in January 1998. The addition
of Florida and Pennsylvania resulted in a greater than 60% increase in the
number of agents under this program. This expanded Valley's over 40 year
relationship with the company to 11 states from Maine to Florida, as well as
Canada.

VNB extended this program during the first quarter of 1996 by establishing
a finance company in Toronto, Canada to make auto loans. This Canadian
subsidiary had interest income of approximately $1.4 million for the year

ended December 31, 1998, and auto loans of $19.0 million at December 31, 1998.
These loans are funded by a capital investment by VNB of $7.4 million, with
additional funding requirements satisfied by lines of credit in Canadian funds.
Any foreign exchange risk is limited to the capital investment by VNB.

Much of Valley's lending is in northern New Jersey, with the exception of
the out-of-state auto lending program. However, efforts are made to maintain a
diversified portfolio as to type of borrower and loan to guard against a
downward turn in any one economic sector.

The following table reflects the contractual maturity distribution of the
commercial and construction loan portfolios as of December 31, 1998:

1 Yr. or Less Over 1 to 5 Yrs. Over 5 Yrs. Total
------------- ---------------- ----------- --------
(in thousands)

Commercial--fixed rate ................................. $ 9,034 $ 84,723 $24,028 $117,785
Commercial--adjustable rate ............................ 262,351 37,605 45,868 345,824
Real estate construction--fixed rate ................... 6,710 3,244 -- 9,954
Real estate construction--adjustable rate .............. 37,006 54,240 -- 91,246
-------- -------- ------- --------
$315,101 $179,812 $69,896 $564,809
======== ======== ======= ========

Prior to maturity of each loan with a balloon payment and if the borrower
requests an extension, Valley generally conducts a review which normally
includes an analysis of the borrower's financial condition and, if applicable, a
review of the adequacy of collateral. A rollover of the loan at maturity may
require a principal paydown.

VNB is a preferred U. S. Small Business Administration ("SBA") lender with
authority to make loans without the prior approval of the SBA. VNB currently has
approval to make SBA loans in New Jersey, Pennsylvania, New York, Delaware,
Maryland, the District of Columbia and sections of Virginia. Between 75% and 80%
of each loan is guaranteed by the SBA and may be sold into the secondary market,
with the balance retained in VNB's portfolio. VNB intends to continue expanding
this area of lending because it provides a solid source of fee income and loans
with floating interest rates tied to the prime lending rate.

During 1998, VNB originated approximately $25.8 million of SBA loans and
sold $22.1 million. Stronger competition and lower conventional lending rates
led to a lower volume of new loans during 1998 as compared to 1997. At December
31, 1998, $31.4 million of SBA loans were held in VNB's portfolio and VNB
serviced approximately $78.1 million of SBA loans.

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 continued to decrease, and totaled $9.4 million at
December 31, 1998, compared with $11.9 million at December 31, 1997, a decrease
of $2.5 million or 20.9%. Non-performing assets at December 31, 1998 and 1997,
respectively, amounted to 0.24% and 0.31% of loans and OREO.

Loans 90 days or more past due and not included in the non-performing
category totaled $7.4 million at December 31, 1998, compared to $16.4 million at
December 31, 1997. These loans are primarily residential mortgage loans,
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 $175 thousand and $2.0
million at December 31, 1998 and 1997, respectively.

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

1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(in thousands)

Loans past due in excess of
90 days and still accruing ............... $ 7,359 $16,351 $10,166 $ 8,125 $ 8,712
------- ------- ------- ------- -------
Non-accrual loans ......................... $ 7,063 $ 9,635 $15,258 $16,627 $27,490
------- ------- ------- ------- -------
Other real estate owned ................... 2,341 2,258 3,866 7,612 9,097
------- ------- ------- ------- -------
Total non-performing assets ............... $ 9,404 $11,893 $19,124 $24,239 $36,587
------- ------- ------- ------- -------
Troubled debt restructured loans .......... $ 5,127 $ 5,248 $ 5,576 $ 5,209 $ --
------- ------- ------- ------- -------
Non-performing loans as a % of loans ...... 0.18% 0.25% 0.42% 0.53% 0.93%
------- ------- ------- ------- -------
Non-performing assets as a % of
loans plus other real estate owed ........ 0.24% 0.31% 0.53% 0.76% 1.24%
------- ------- ------- ------- -------
Allowance as a % of loans ................. 1.25% 1.28% 1.32% 1.44% 1.61%
------- ------- ------- ------- -------

During 1998, lost interest on non-accrual loans amounted to $972 thousand,
compared with lost interest of $1.2 million in 1997.

Although substantially all risk elements at December 31, 1998 have been
disclosed in the categories presented above, management believes that for a
variety of reasons, including economic conditions, certain borrowers may be
unable to comply with the contractual repayment terms on certain real estate and
commercial loans. As part of the analysis of the loan portfolio by management,
it has been determined that there are approximately $2.7 million in potential
problem loans at December 31, 1998, which have not been classified as
non-accrual, past due or restructured. Potential problem loans are defined as
performing loans for which management has serious doubts as to the ability of
such borrowers to comply with the present loan repayment terms and which may
result in a non-performing loan. Approximately $607 thousand has been provided
for in the allowance for loan losses for these potential problem loans. There
can be no assurance that Valley has identified all of its problem loans. At
December 31, 1997, Valley had identified approximately $3.6 million of potential
problem loans which were not classified as non-accrual, past due or
restructured.

Asset Quality and Risk Elements

Lending is one of the most important functions performed by Valley and, by
its very nature, lending is also the most complicated, risky and profitable part
of Valley's business. For commercial loans, construction loans and

commercial mortgage loans, a separate credit department is responsible for risk
assessment, credit file maintenance and periodically evaluating overall
creditworthiness of a borrower. Additionally, efforts are made to limit
concentrations of credit so as to minimize the impact of a downturn in any one
economic sector. These loans are diversified as to type of borrower and loan.
However, most of these loans are in northern New Jersey, presenting a
geographical and credit risk if there was a significant downturn of the economy
within the region.

Residential mortgage loans are secured primarily by 1-4 family properties
located mainly within northern New Jersey. Conservative underwriting policies
are adhered to and loan to value ratios are generally less than 80 percent.

Consumer loans are comprised of home equity loans, credit card loans and
automobile loans. Home equity and automobile loans are secured loans and are
made based on an evaluation of the collateral and the borrower's
creditworthiness. The majority of automobile loans are originated through a
program with a major insurance company, whose customer base generally has a good
credit profile and generally result in lower delinquencies and charge-offs than
that typically experienced from traditional sources. These automobile loans are
from 11 states, including New Jersey. All loans are subject to Valley's
underwriting criteria; therefore, each loan or group of loans presents a
geographical risk and credit risk based upon the economy of the region.

The co-branded credit card portfolio was substantially generated through a
pre-approved mailing during 1996 utilizing automated credit scoring techniques
and additional underwriting standards.

Management realizes that some degree of risk must be expected in the normal
course of lending activities. Reserves are maintained to absorb such potential
loan and off-balance sheet credit losses. The allowance for loan losses and
related provision are an expression of management's evaluation of the credit
portfolio and economic climate.

The following table sets forth the relationship among loans, loans
charged-off and loan recoveries, the provision for possible loan losses and the
allowance for loan losses for the past five years

Years Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(in thousands)

Average loans outstanding .............. $3,844,174 $3,651,648 $3,334,825 $3,086,871 $2,762,080
========== ========== ========== ========== ==========
Beginning balance--Allowance
for possible loan losses .............. $ 48,542 $ 47,811 $ 45,580 $ 47,448 $ 45,792
---------- ---------- ---------- ---------- ----------
Loans charged-off:
Commercial ............................ 216 4,647 471 1,217 1,805
Construction .......................... -- -- -- 2,498 835
Mortgage-Commercial ................... 980 475 593 646 1,359
Mortgage-Residential .................. 1,208 496 858 731 288
---------- ---------- ---------- ---------- ----------
Consumer .............................. 11,284 8,287 3,996 2,875 2,790
---------- ---------- ---------- ---------- ----------
13,688 13,905 5,918 7,967 7,077
---------- ---------- ---------- ---------- ----------

Charged-off loans recovered:

Commercial ............................ 460 522 2,585 1,321 603
Construction .......................... 222 89 -- -- 603
Mortgage-Commercial ................... 119 214 920 83 61
Mortgage-Residential .................. 198 121 124 56 23
Consumer .............................. 1,645 1,040 964 1,318 1,143
---------- ---------- ---------- ---------- ----------
2,644 1,986 4,593 2,778 2,433
---------- ---------- ---------- ---------- ----------
Net charge-offs ........................ 11,044 11,919 1,325 5,189 4,644
Provision charged to operations ........ 12,370 12,650 3,556 3,321 6,300
---------- ---------- ---------- ---------- ----------
Ending balance--Allowance
for possible loan losses .............. $ 49,868 $ 48,542 $ 47,811 $ 45,580 $ 47,448
========== ========== ========== ========== ==========
Ratio of net charge-offs
during the period to
average loans outstanding
during the period ..................... 0.29% 0.33% 0.04% 0.17% 0.17%

The allowance for possible loan losses is maintained at an estimated level
necessary to absorb the potential loan losses and other credit risk related
charge-offs. It is the result of an analysis which relates outstanding balances
to expected reserve levels required to absorb future credit losses. Current
economic problems are addressed through management's assessment of anticipated
changes in the regional economic climate, changes in composition and volume of
the loan portfolio and variances in levels of classified loans, non-performing
assets and other past due amounts. Additional factors include consideration of
exposure to loss including size of credit, existence and nature of collateral,
credit record, profitability and general economic conditions.

The underwriting, growth and delinquency experience in the credit card
portfolio will substantially influence the level of the allowance needed to
absorb future credit losses. Although credit card loans are generally considered
more risky than other types of lending, a higher interest rate is charged to
compensate for this increased risk. VNB will continue to closely monitor the
need for additions to the allowance.

During 1998, continued emphasis was placed on the current economic climate
and the condition of the real estate market in the northern New Jersey area.
Management addressed these economic conditions and applied that information to
changes in the composition of the loan portfolio. The provision charged to
operation was $12.4 million in 1998 compared to $12.7 million in 1997.

The following table summarizes the allocation of the allowance for possible
loan losses to specific loan categories for the past five years:

Years Ended December 31,
--------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------- -------------------- -------------------- -------------------- ---------------------
Percent Percent Percent Percent Percent
of Loan of Loan of Loan of Loan of Loan
Category Category Category Category Category
Allowance to Total Allowance to Total Allowance to Total Allowance to Total Allowance to Total
Allocation Loans Allocation Loans Allocation Loans Allocation Loans Allocation Loans
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
(in thousands)

Loan category:
Commercial ........ $14,247 11.7% $13,250 12.0% $18,850 12.9% $15,658 13.0% $13,532 12.3%
Mortgage .......... 12,484 52.6 14,736 52.2 11,823 53.1 10,759 56.6 12,412 58.8
Consumer .......... 11,934 35.7 11,078 35.8 7,135 34.0 7,363 30.4 7,788 28.9
Unallocated ....... 11,203 N/A 9,478 N/A 10,003 N/A 11,800 N/A 13,716 N/A
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
$49,868 100.0% $48,542 100.0% $47,811 100.0% $45,580 100.0% $47,448 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====

At December 31, 1998 the allowance for possible loan losses amounted to
$49.9 million or 1.25% of loans, net of unearned income, as compared to $48.5
million or 1.28% at year-end 1997.

The allowance is adjusted by provisions charged against income and loans
charged-off, net of recoveries. Net loan charge-offs were $11.0 million for the
year ended December 31, 1998 compared with $11.9 million for the year ended
December 31, 1997. The ratio of net charge-offs to average loans decreased to
0.29% for 1998 compared with 0.33% for 1997. While consumer loan charge-offs
increased during 1998, they were at a level less than the level reported
throughout the industry on a national basis. Non-performing loans and loans past
due 90 days and still accruing in 1998 were less than during 1997.

The impaired loan portfolio is primarily collateral dependent. Impaired
loans and their related specific and general allocations to the allowance for
possible loan losses totaled $16.5 million and $6.9 million, respectively, at
December 31, 1998 and $21.9 million and $8.5 million, respectively, at December
31, 1997. The average balance of impaired loans during 1998 and 1997 was
approximately $18.7 million and $25.1 million, respectively. The amount of cash
basis interest income that was recognized on impaired loans during both 1998 and
1997 was $1.4 million and $1.6 million, respectively.

Capital Adequacy

A significant measure of the strength of a financial institution is its
shareholders' equity, which should expand in close proportion to asset growth.
At December 31, 1998, shareholders' equity totaled $555.8 million or 10.0% of
total assets, compared with $509.3 million or 9.5% at year-end 1997. Valley has
achieved steady internal capital generation and an excess of percentage asset
growth throughout the past five years.

On May 26, 1998 Valley's Board of Directors rescinded its previously
announced stock repurchase program after 220,125 shares of Valley common stock
had been repurchased. Rescinding the remaining authorization was necessary to
comply with certain accounting rules in connection with Valley's acquisition of
Wayne.

Included in shareholders' equity as components of accumulated other
comprehensive income at December 31, 1998 was a $4.9 million unrealized gain on
investment securities available for sale, net of tax, and a translation
adjustment of $852 thousand related to the Canadian subsidiary of VNB, compared
to an unrealized gain of $4.0 million and a $343 thousand translation adjustment
at December 31, 1997.

Risk-based guidelines define a two-tier capital framework. Tier 1 capital
consists of common shareholders' equity less disallowed intangibles, while Total
risk-based capital consists of Tier 1 capital and the allowance for possible
loan losses up to 1.25% 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.

Valley's capital position at December 31, 1998 under risk-based capital
guidelines was $546.1 million, or 13.3% of risk-weighted assets, for Tier 1
capital and $595.9 million, or 14.5% for Total risked-based capital. The
comparable ratios at December 31, 1997 were 13.3.% for Tier 1 capital and 14.4%
for Total risk-based capital. At December 31, 1998 and 1997, Valley was in
compliance with the leverage requirement having Tier 1 leverage ratios of 10.1%
and

9.3%, respectively. Valley's ratios at December 31, 1998 were above the "well
capitalized" requirements, which require Tier 1 capital of at least 6% , total
risk-based capital of 10% and a minimum leverage ratio of 5%.

Book value per share amounted to $10.06 at December 31, 1998 compared with
$9.23 per share at December 31, 1997.

The primary source of capital growth is through retention of earnings.
Valley's rate of earnings retention, derived by dividing undistributed earnings
by net income, was 46.5% at December 31, 1998, compared to 47.8% at December 31,
1997. Cash dividends declared amounted to $0.97 per share, equivalent to a
dividend payout ratio of 53.5% for 1998, compared to 52.2% for the year 1997.
The current quarterly dividend rate of $0.25 per share provides for an annual
rate of $1.00 per share. Valley's Board of Directors continues to believe that
cash dividends are an important component of shareholder value and that, at its
current level of performance and capital, Valley expects to continue its current
dividend policy of a quarterly distribution of earnings to its shareholders.

Results of Operations--1997 Compared to 1996

Valley reported net income for 1997 of $86.9 million or $1.57 diluted
earnings per share, compared to the $71.5 million, or $1.33 diluted earnings per
share earned in 1996 (all amounts have been restated for the Midland and Wayne
acquisitions and the per share amounts have been restated to give effect to a 5
for 4 stock split issued in 1998 and a 5% stock dividend issued in 1997).

Net interest income on a tax equivalent basis increased $14.0 million, or
6.5%, to $227.5 million in 1997. The increase in 1997 was due primarily to an
increase in the average balance and average rate on interest bearing assets.
This was partially offset by a slight increase in the average balance and
average rate on interest bearing liabilities.

The provision for possible loan loss increased to $12.7 million for the
year ended December 31, 1997 as compared to $3.6 million for the year ended
December 31, 1996. The increase was recorded as a result of higher net
charge-offs totaling $11.9 million in 1997.

Non-interest income in 1997 amounted to $43.0 million, an increase of $12.8
million or 42.3% compared with 1996. Non-interest expense totaled $129.2 million
in 1997, an increase of $4.7 million. These increases were largely the result of
additional credit card income and expense. VNB began a co-branded credit card
program during 1996.

Gains on the sales of loans were $3.6 million for 1997 compared to $1.8
million for 1996. The gains recorded are primarily from the sale of the
guaranteed portion of SBA loans. The increase reflected the growth in VNB's
origination of SBA loans.

Included in non-interest expense for 1996 is a one time FDIC assessment of
$7.4 million. Excluding this one time payment, insurance premiums decreased by
$1.5 million for the year ended December 31, 1997 in comparison to the same
period in 1996.

Income tax expense as a percentage of pre-tax income was 28.9% for the year
ended December 31, 1997 compared to 33.8% in 1996. The reduction in the
effective tax rate from 1996 to 1997 is attributable to a realignment of
corporate entities and a lower effective tax rate for state taxes. The reduction
in the effective tax rate continued in 1998. The effective tax rate is expected
to increase to a normal level during the fiscal year beginning 1999 over the
effective tax rate for 1998 and 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,
-------------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands, except for share data)

INTEREST INCOME
Interest and fees on loans (Note 5) .............................. $316,502 $303,181 $276,743
Interest and dividends on investment securities:
Taxable ........................................................ 57,005 67,944 73,858
Tax-exempt ..................................................... 7,885 10,346 12,757
Dividends ...................................................... 1,946 1,689 1,109
Interest on federal funds sold and other short-term investments .. 6,318 3,924 4,159
-------- -------- --------
Total interest income ........................................ 389,656 387,084 368,626
-------- -------- --------
INTEREST EXPENSE
Interest on deposits:
Savings deposits ............................................... 43,372 44,529 45,143
Time deposits (Note 10) ........................................ 105,395 113,582 112,795
Interest on federal funds purchased and securities sold
under repurchase agreements ..................................... 906 1,171 1,128
Interest on other short-term borrowings .......................... 1,625 1,132 648
Interest on other borrowings (Note 11) ........................... 8,806 5,471 3,077
-------- -------- --------
Total interest expense ....................................... 160,104 165,885 162,791
-------- -------- --------
NET INTEREST INCOME .............................................. 229,552 221,199 205,835
Provision for possible loan losses (Note 6) ...................... 12,370 12,650 3,556
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES ..... 217,182 208,549 202,279
-------- -------- --------
NON-INTEREST INCOME
Trust income ..................................................... 1,375 1,162 1,080
Service charges on deposit accounts .............................. 12,674 12,063 11,268
Gains on securities transactions, net (Note 4) ................... 1,418 2,150 781
Fees from loan servicing (Note 7) ................................ 7,382 5,576 4,835
Credit card fee income ........................................... 10,153 12,643 5,549
Gains on sales of loans, net ..................................... 4,863 3,634 1,839
Other ............................................................ 5,208 5,784 4,884
-------- -------- --------
Total non-interest income .................................... 43,073 43,012 30,236
-------- -------- --------
NON-INTEREST EXPENSE
Salary expense (Note 12) ......................................... 51,792 46,738 46,201
Employee benefit expense (Note 12) ............................... 12,327 11,596 10,813
FDIC insurance premiums .......................................... 1,270 1,205 10,083
Net occupancy expense (Notes 8 and 14) ........................... 12,877 11,653 11,832
Furniture and equipment expense (Note 8) ......................... 8,338 8,036 7,665
Credit card expense .............................................. 9,066 17,520 7,518
Amortization of intangible assets (Note 7) ....................... 5,546 3,441 3,009
Merger-related charges (Note 2) .................................. 4,539 -- --
Other ............................................................ 29,002 29,029 27,411
-------- -------- --------
Total non-interest expense ................................... 134,757 129,218 124,532
-------- -------- --------
INCOME BEFORE INCOME TAXES ....................................... 125,498 122,343 107,983
Income tax expense (Note 13) ..................................... 28,150 35,397 36,479
-------- -------- --------
NET INCOME ....................................................... $ 97,348 $ 86,946 $ 71,504
======== ======== ========
EARNINGS PER SHARE:
Basic .......................................................... $1.77 $1.58 $1.33
Diluted ........................................................ 1.75 1.57 1.33
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic .......................................................... 54,987,473 54,906,154 53,074,424
Diluted ........................................................ 55,607,255 55,294,894 53,459,884

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31,
------------------------------------
1998 1997
---------- ----------
(in thousands, except for share data)

ASSETS
Cash and due from banks ................................................... $ 175,794 $ 151,620
Federal funds sold ........................................................ 102,000 33,400
Investment securities held to maturity, fair value of $238,421 and
$168,476 in 1998 and 1997, respectively (Note 3) ......................... 237,410 166,615
Investment securities available for sale (Note 4) ......................... 927,481 1,090,638
Trading account securities (Note 4) ....................................... 1,592 --
Loans (Note 5) ............................................................ 3,954,395 3,786,783
Loans held for sale (Note 5) .............................................. 23,455 16,651
Less: Allowance for possible loans losses (Note 6) ...................... (49,868) (48,542
---------- ----------
Net loans ............................................................... 3,927,982 3,754,892
---------- ----------
Premises and equipment (Note 8) ........................................... 79,774 77,871
Accrued interest receivable ............................................... 29,711 31,210
---------- ---------
Other assets (Notes 7, 9 and 13) .......................................... 59,463 54,452
---------- ----------
Total assets .......................................................... $5,541,207 $5,360,698
========== ==========

LIABILITIES
Deposits:
Non-interest bearing .................................................... $ 854,594 $ 781,239
Interest bearing:
Savings ................................................................ 1,982,973 1,918,762
Time (Note 10) ......................................................... 1,837,122 1,902,320
---------- ----------
Total deposits ........................................................ 4,674,689 4,602,321
---------- ----------
Federal funds purchased and securities sold under repurchase
agreements (Note 3) ...................................................... 30,414 32,882
Treasury tax and loan account and other short-term borrowings (Note 3) .... 22,667 24,056
Other borrowings (Note 11) ................................................ 212,949 146,012
Accrued expenses and other liabilities (Note 12) .......................... 44,701 46,124
---------- ----------
Total liabilities ..................................................... 4,985,420 4,851,395
---------- ----------
Commitments and Contingencies (Note 14)
SHAREHOLDERS' EQUITY (Notes 2, 12 and 15) Common stock, no par value,
authorized 98,437,500 shares; issued 55,503,060 shares in 1998 and
55,520,694 shares in 1997 ................................................ 24,424 24,345
Surplus ................................................................... 311,611 310,904
Retained earnings ......................................................... 223,185 178,739
Unallocated common stock held by the ESOP ................................. (1,331) (1,604)
Accumulated other comprehensive income .................................... 4,084 3,614
---------- ----------
561,973 515,998
Treasury stock, at cost (236,735 shares in 1998 and 356,082 shares
in 1997) ................................................................. (6,186) (6,695)
---------- ----------
Total shareholders' equity ............................................ 555,787 509,303
---------- ----------
Total liabilities and shareholders' equity ............................ $5,541,207 $5,360,698
========== ==========

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Unallocated Accumulated
Common Other
Stock Comprehensive Total
Common Retained Held by Income Treasury Shareholders'
Stock Surplus Earnings the ESOP (loss) Stock Equity
------- -------- -------- -------- ------- -------- --------
(in thousands)

BALANCE-DECEMBER 31, 1995 ...................... $21,900 $216,045 $210,242 $ -- $ 3,460 $ (1,910) $449,737
Comprehensive income: .......................... --
Net income ..................................... -- -- 71,504 -- -- -- 71,504
Other comprehensive income (loss), net of tax:
Unrealized losses on securities available for
sale, net of tax of $1,744 .................... -- -- -- -- (3,100) --
Reclassification adjustment for gains
included in net income, net of tax of $(290) .. -- -- -- -- (491) --
Foreign currency translation adjustment ........ -- -- -- -- (36) --
-------
Total other comprehensive loss ................. -- -- -- -- (3,627) -- (3,627)
------- --------
Total comprehensive income ..................... -- -- -- -- -- -- 67,877
Dividends declared ............................. -- -- (38,556) -- -- -- (38,556)
Effect of stock incentive plan, net ............ 11 (264) (1,104) -- -- 2,743 1,386
Net proceeds from stock offering,
net of expenses of $1,272 ..................... 1,063 19,963 -- -- -- -- 21,026
Unallocated common stock acquired by the ESOP .. -- -- -- (1,785) -- -- (1,785)
Stock dividend ................................. 409 22,796 (47,173) -- -- 23,845 (123)
Purchase of treasury stock ..................... -- -- -- -- -- (32,267) (32,267)
------- -------- -------- ------- ------- -------- --------
BALANCE-DECEMBER 31, 1996 ...................... 23,383 258,540 194,913 (1,785) (167) (7,589) 467,295
Comprehensive income:
Net income ..................................... -- -- 86,946 -- -- -- 86,946
Other comprehensive income (loss), net of tax:
Unrealized gains on securities
available for sale, net of tax of $3,079 ...... -- -- -- -- 5,457 --
Reclassification adjustment for gains
included in net income, net of tax of $(781) .. -- -- -- -- (1,369) --
Foreign currency translation adjustment ........ -- -- -- -- (307) --
-------
Total other comprehensive income ............... -- -- -- -- 3,781 -- 3,781
------- --------
Total comprehensive income ..................... -- -- -- -- -- -- 90,727
Dividends declared ............................. -- -- (45,350) -- -- -- (45,350)
Effect of stock incentive plan, net ............ (2) (1,733) (1,684) -- -- 5,311 1,892
Stock dividend ................................. 964 55,041 (56,086) -- -- -- (81)
Tax benefit from exercise of stock options ..... -- 329 -- -- -- -- 329
Allocation of ESOP stock ....................... -- 177 -- 181 -- -- 358
Common stock acquired for stock incentive plan . -- (1,450) -- -- -- -- (1,450)
Purchase of treasury stock ..................... -- -- -- -- -- (4,417) (4,417)
------- -------- -------- ------- ------- -------- --------
BALANCE-DECEMBER 31, 1997 ...................... 24,345 310,904 178,739 (1,604) 3,614 (6,695) 509,303
Comprehensive income:

Net income ..................................... -- -- 97,348 -- -- -- 97,348
Other comprehensive income (loss), net of tax:
Unrealized gains on securities
available for sale, net of tax of $1,055 ...... -- -- -- -- 1,874 --
Reclassification adjustment for gains
included in net income, net of tax of $(523) .. -- -- -- -- (895) --
Foreign currency translation adjustment ........ -- -- -- -- (509) --
-------
Total other comprehensive income ............... -- -- -- -- 470 -- 470
------- --------
Total comprehensive income ..................... -- -- -- -- -- -- 97,818
Dividends declared ............................. -- -- (52,052) -- -- -- (52,052)
Effect of stock incentive plan, net ............ (10) (764) (850) -- -- 3,713 2,089
Allocation of ESOP stock ....................... -- 381 -- 273 -- -- 654
Issuance of stock from treasury ................ 89 1,090 -- -- -- 3,454 4,633
Purchase of treasury stock ..................... -- -- -- -- -- (6,658) (6,658)
------- -------- -------- ------- ------- -------- --------
BALANCE-DECEMBER 31, 1998 ...................... $24,424 $311,611 $223,185 $(1,331) $ 4,084 $ (6,186) $555,787
======= ======== ======== ======= ======= ======== ========

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,
--------------------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................ $ 97,348 $ 86,946 $ 71,504
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................. 14,380 12,205 10,481
Amortization of compensation costs pursuant to
long term stock incentive plan ........................................... 1,036 898 448
Provision for possible loan losses ........................................ 12,370 12,650 3,556
Net amortization of premiums and accretion of discounts ................... 3,312 1,105 4,376
Net deferred income tax (benefit) expense ................................. (2,418) 2,355 (961)
Net gains on securities transactions ...................................... (1,418) (2,150) (781)
Proceeds from sales of loans .............................................. 181,020 49,972 34,950
Gain on sales of loans .................................................... (4,863) (3,634) (1,839)
Proceeds from recoveries of previously charged-off loans .................. 2,644 1,986 4,593
Net decrease in accrued interest receivable and other assets .............. 4,846 9,174 2,716
Net decrease in accrued expenses and other liabilities .................... (4,005) (969) (10,174)
--------- --------- ---------
Net cash provided by operating activities ................................. 304,252 170,538 118,869
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and originations of mortgage servicing rights ................... (12,101) (3,905) (6,167)
Proceeds from sales of investment securities available for sale ........... 93,093 175,311 143,605
Proceeds from maturing investment securities available for sale ........... 407,638 231,998 253,112
Purchases of investment securities available for sale ..................... (338,141) (379,596) (233,006)
Purchases of investment securities held to maturity ....................... (124,513) (17,905) (30,640)
Proceeds from maturing investment securities held to maturity ............. 51,784 71,098 100,764
Net (increase) decrease in federal funds sold and other
short-term investments ................................................... (68,600) 54,300 15,600
Net increase in loans made to customers ................................... (364,261) (245,003) (491,829)
Purchases of premises and equipment, net of sales ......................... (10,622) (12,195) (12,928)
--------- --------- ---------
Net cash used in investing activities ..................................... (365,723) (125,897) (261,489
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ....................................... 72,368 (144,531) 110,937
Net (decrease) increase in federal funds purchased and
other short-term borrowings .............................................. (3,857) 16,397 2,312
Advances of other borrowings .............................................. 120,000 92,500 45,000
Repayments of other borrowings ............................................ (53,063) (8,559) (14,054)
Dividends paid to common shareholders ..................................... (50,052) (42,805) (38,373)
Addition of common shares to treasury ..................................... (6,658) (4,417) (32,267)
Purchase of shares by ESOP ................................................ -- -- (1,785)
Purchase of shares for stock incentive plan ............................... -- (1,450) --
Common stock issued, net of cancellations ................................. 6,907 1,156 21,669
--------- --------- ---------
Net cash provided by (used in) financing activities ....................... 85,645 (91,709) 93,439
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ...................... 24,174 (47,068) (49,181)
Cash and cash equivalents at beginning of year ............................ 151,620 198,688 247,86
--------- --------- ---------
Cash and cash equivalents at end of year .................................. $ 175,794 $ 151,620 $ 198,68
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest on deposits and borrowings ......... $ 161,538 $ 166,876 $ 162,789
Cash paid during the year for federal and state income taxes .............. 30,640 28,615 38,278
Transfer of securities from held to maturity to available for sale ........ 1,592 39,833 --

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Note 1)

BUSINESS

Valley National Bancorp ("Valley") is a bank holding company whose
principal wholly-owned subsidiary is Valley National Bank ("VNB"), a national
banking association providing a full range of commercial, retail and trust
services through its branch and ATM network throughout northern New Jersey. VNB
also lends through its consumer division and SBA program to borrowers covering
territories outside of its branch network and New Jersey. VNB is subject to
intense competition from other financial services companies and is subject to
the regulation of certain federal and state agencies and undergoes periodic
examinations by certain regulatory authorities.

BASIS OF PRESENTATION

The consolidated financial statements of Valley include the accounts of its
principal commercial bank subsidiary, VNB and its wholly-owned subsidiaries. All
material intercompany transactions and balances have been eliminated. The
financial statements of prior years have been restated to include Wayne Bancorp,
Inc., which was acquired on October 16, 1998, in a transaction accounted for as
a pooling of interests. Certain reclassifications have been made in the
consolidated financial statements for 1997 and 1996 to conform to the
classifications presented for 1998.

In preparing the consolidated financial statements, management has made
estimates and assumptions that effect the reported amounts of assets and
liabilities as of the date of the statements of condition and results of
operations for the periods indicated. Actual results could differ significantly
from those estimates.

INVESTMENT SECURITIES

Investments are classified into three categories: held to maturity;
available for sale; and trading. Valley's investment portfolio consists of each
of these three categories.

Investment securities held to maturity, except for equity securities, 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.

Management has identified those investment securities which may be sold
prior to maturity. These investment securities are classified as available for
sale in the accompanying consolidated statements of financial condition and are
recorded at fair value on an aggregate basis. Unrealized holding gains and
losses on such securities are excluded from earnings, but are included as a
component of accumulated other comprehensive income which is included in
shareholders' equity, net of deferred tax.

Realized gains or losses on the sale of investment securities available for
sale are recognized by the specific identification method and shown as a
separate component of non-interest income.

Trading securities are recorded at market value. Included in non-interest
income are unrealized gains resulting from market value adjustments.

In October, 1998, the FASB issued SFAS No. 134 "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This statement was adopted by
Valley and did not materially affect the financial statements.

LOANS AND LOAN FEES

Loan origination and commitment fees, net of related costs, are deferred
and amortized as an adjustment of loan yield over the estimated lives of the
loans approximating the effective interest method.

Loans held for sale consist of residential mortgage loans and SBA loans,
and are carried at the lower of cost or estimated fair market value using the
aggregate method.

Interest income is not accrued on loans where interest or principal is 90
days or more past due or if in management's judgement the ultimate
collectibility of the interest is doubtful. Exceptions may be made if the loan
is sufficiently collateralized and in the process of collection. When a loan is
placed on non-accrual status, interest

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

accruals cease and uncollected accrued interest is reversed and charged against
current income. Payments received on non-accrual loans are applied against
principal. A loan may only be restored to an accruing basis when it again
becomes well secured and in the process of collection and all past due amounts
have been collected.

The value of an impaired loan is measured based upon the present value of
expected future cash flows discounted at the loan's effective interest rate, or
the fair value of the collateral if the loan is collateral dependent. Smaller
balance homogeneous loans that are collectively evaluated for impairment, such
as residential mortgage loans and installment loans, are specifically excluded
from the impaired loan portfolio. Valley has defined the population of impaired
loans to be all non-accrual loans and other loans considered to be impaired as
to principal and interest, consisting primarily of commercial real estate loans.
The impaired loan portfolio is primarily collateral dependent. Impaired loans
are individually assessed to determine that each loan's carrying value is not in
excess of the fair value of the related collateral or the present value of the
expected future cash flows.

Valley originates loans guaranteed by the SBA. The principal amount of
these loans is guaranteed between 75% and 80%, subject to certain dollar
limitations. Valley generally sells the guaranteed portions of these loans and
retains the unguaranteed portions as well as the rights to service the loans.
Gains are recorded on loan sales based on the cash proceeds in excess of the
assigned value of the loan, as well as the value assigned to the rights to
service the loan.

Credit card loans primarily represent revolving MasterCard credit card
loans. Interest on credit card loans is recognized based on the balances
outstanding according to the related cardmember agreements. Direct origination
costs are deferred and amortized over 24 months, the term of the cardmember
agreement, on a straight-line basis. Net direct origination costs include costs
associated with credit card originations that are incurred in transactions with
independent third parties and certain costs relating to loan origination
programs and the preparation and processing of loan documents, net of fees
received. Ineligible direct origination costs are expensed as incurred.

ALLOWANCE FOR POSSIBLE LOAN LOSSES

The allowance for possible loan losses ("allowance") is increased through
provisions charged against current earnings and additionally by crediting
amounts of recoveries received, if any, on previously charged-off loans. The
allowance is reduced by charge-offs on loans which are determined to be a loss,
in accordance with established policies, when all efforts of collection have
been exhausted.

The allowance is maintained at a level estimated necessary to absorb
potential loan losses and other credit risk related charge-offs. The level of
the allowance is based upon management's evaluation of potential losses in the
loan portfolio. Current and economic problems are addressed through management's
assessment of anticipated changes in the regional economic climate, changes in
composition and volume of the loan portfolio and variances in levels of
classified loans, non-performing loans and other past due amounts.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are stated at cost less accumulated
amortization computed on a straight-line basis over the term of the lease or
estimated useful life of the asset, whichever is shorter. Major improvements are
capitalized, while repairs and maintenance costs are charged to operations as
incurred. Upon retirement or disposition, any gain or loss is credited or
charged to operations.

OTHER REAL ESTATE OWNED

Other real estate owned ("OREO"), acquired through foreclosure on loans
secured by real estate, is reported at the lower of cost or fair value, as
established by a current appraisal, less estimated costs to sell, and is
included in other assets. Any write-downs at the date of foreclosure are charged
to the allowance for possible loan losses.

An allowance for OREO has been established to record subsequent declines in
estimated net realizable value. Expenses incurred to maintain these properties
and realized gains and losses upon sale of the properties are included in other
non-interest expense and other non-interest income, as appropriate.

INTANGIBLE ASSETS

Intangible assets resulting from acquisitions under the purchase method of
accounting consist of goodwill and core deposit intangibles. Goodwill, which was
recorded prior to 1987, is being amortized on a straight-line basis over

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

25 years. Core deposit intangibles are amortized on accelerated methods over the
estimated lives of the assets. Goodwill and core deposit intangibles are
included in other assets.

LOAN SERVICING RIGHTS

Loan servicing rights are generally recorded when purchased or originated
loans are sold, with servicing rights retained. The cost of each loan is
allocated between the servicing right and the loan (without the servicing right)
based on their relative fair values. Loan servicing rights, which are classified
in other assets, are amortized over the estimated net servicing life and are
evaluated on a quarterly basis for impairment based on their fair value. The
fair value is estimated using the present value of expected future cash flows
along with numerous assumptions including servicing income, cost of servicing,
discount rates, prepayment speeds, and default rates. Impairment adjustments, if
any, are recognized through the use of a valuation allowance.

STOCK-BASED COMPENSATION

Valley accounts for its stock option plan in accordance with Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
25"). In accordance with APB 25, no compensation expense is recognized for stock
options issued to employees since the options have an exercise price equal to
the market value of the common stock on the day of the grant. Valley provides
the fair market disclosure required by SFAS No. 123 "Accounting for Stock-based
Compensation."

INCOME TAXES

Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.

COMPREHENSIVE INCOME

On January 1, 1998, Valley adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 established standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
does not require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive income for
the period in that financial statement.

SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and surplus in the equity section of a statement of financial
condition. This statement was effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS No. 130 did not have a material effect
on Valley's financial position or results of operations.

EARNINGS PER SHARE

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 common stock options outstanding utilizing the treasury stock
method.

All share and per share amounts have been restated to reflect the 5 for 4
stock split issued May 18, 1998, and all prior stock dividends. Earnings per
share for the years 1996 and prior have not been restated for the acquisition of
Wayne Bancorp, Inc. as the issuance of capital stock in connection with the
conversion from the mutual to stock form of Wayne Savings Bank occurred on June
27, 1996.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

TREASURY STOCK

Treasury stock is recorded using the cost method and accordingly is
presented as an unallocated reduction of shareholders' equity.

IMPACT OF FUTURE ACCOUNTING CHANGES

Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), was issued by
the FASB in June 1998. SFAS No. 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. Valley must
adopt SFAS No. 133 by January 1, 2000; however, early adoption is permitted.
Upon adoption, the provisions of SFAS No. 133 must be applied prospectively.
Valley anticipates that the adoption of SFAS No. 133 will not have a material
impact in the financial statements.

ACQUISITIONS (Note 2)

On December 17, 1998, Valley signed a definitive merger agreement with
Ramapo Financial Corporation ("Ramapo"), parent of The Ramapo Bank, an 8 branch
bank headquartered in Wayne, New Jersey. At December 31, 1998 Ramapo had total
assets of $337.8 million and deposits of $295.5 million. The transaction is
expected to close in the second quarter of 1999 and will be accounted for using
the pooling of interests method of accounting. There were approximately 8.1
million shares of Ramapo common stock outstanding at December 31, 1998. The
merger agreement provides that 0.425 shares of Valley common stock will be
exchanged for each share of Ramapo common stock.

On October 16, 1998, Valley acquired Wayne Bancorp, Inc. ("Wayne"), parent
of Wayne Savings Bank, F.S.B., headquartered in Wayne, New Jersey. At the date
of acquisition, Wayne had total assets of $272.0 million and deposits of $206.0
million, with 6 branch offices. The transaction was accounted for using the
pooling of interests method of accounting and resulted in the issuance of
approximately 2.4 million shares of Valley common stock. Each share of common
stock of Wayne was exchanged for 1.1 shares of Valley common stock. The
consolidated financial statements of Valley have been restated to include Wayne
for all periods presented. Separate results of the combining companies for the
years ended December 31, 1997 and 1996 are as follows:

1997 1996
---- ----
(in thousands)

Net interest income after provision
for possible loan losses:
Valley ................................. $200,091 $194,979
Wayne .................................. 8,458 7,300
-------- --------
$208,549 $202,279
======== ========
Net income:
Valley ................................. $ 84,992 $ 70,838
Wayne .................................. 1,954 666
-------- --------
$ 86,946 $ 71,504
======== ========

During 1998, Valley recorded merger-related charges of $4.5 million related
to the acquisition of Wayne. On an after tax basis, these charges totaled $3.2
million or $0.06 per diluted share. These charges include only identified direct
and incremental costs associated with this acquisition. Items included in these
charges include the following: personnel expenses which include severance
payments and benefits for terminated employees, principally, senior executives
at Wayne; real estate expenses related to the closing of duplicate facilities,
mainly two branches and the Wayne headquarters which is currently not in
service; professional fees which include investment banking, accounting and
legal fees; and other expenses which include data processing and the write-off
of supplies and other assets not considered useful in the operation of the
combined entity. The major components of merger-related charges are for real
estate dispositions, professional fees, personnel expenses and other expenses
totaled $1.5 million, $1.4 million, $1.0 million and $600 thousand,
respectively. Of the total merger-related charges $2.0 million, or 44.9% were
paid through December 31, 1998. It is expected that the remaining liability will
be fully utilized in 1999.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

On February 28, 1997, Valley acquired Midland Bancorporation, Inc.
("Midland"), parent of The Midland Bank and Trust Company ("Midland Bank"),
headquartered in Paramus, New Jersey. On February 28, 1997, Midland had total
assets of $418.6 million and deposits of $380.6 million, with 13 branches
located in Bergen County, New Jersey. The transaction was accounted for using
the pooling of interests method of accounting and resulted in the issuance of
approximately 5.0 million shares of Valley common stock. Each share of common
stock of Midland was exchanged for 37.5 shares of Valley common stock. The
consolidated financial statements of Valley have been restated to include
Midland for all periods presented.

INVESTMENT SECURITIES HELD TO MATURITY (Note 3)

The amortized cost, fair value and gross unrealized gains and losses of
securities held to maturity at December 31, 1998 and 1997 were as follows:

December 31, 1998
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------- ------- --------
(in thousands)

Obligations of states and political subdivisions ...... $ 39,220 $ 558 $ (15) $ 39,763
Mortgage-backed securities ............................ 62,088 1,274 (40) 63,322
Other debt securities ................................. 111,922 39 (805) 111,156
-------- ------ ----- --------
Total debt securities ............................... 213,230 1,871 (860) 214,241
FRB & FHLB stock ...................................... 24,180 -- -- 24,180
-------- ------ ----- --------
Total investment securities held to maturity ........ $237,410 $1,871 $(860) $238,421
======== ====== ===== ========

December 31, 1997

-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------- ------- --------
(in thousands)

Obligations of states and political subdivisions ...... $ 58,111 $ 455 $(161) $ 58,405
Mortgage-backed securities ............................ 84,129 1,743 (176) 85,696
Other debt securities ................................. 195 -- -- 195
-------- ------ ----- --------
Total debt securities ............................... 142,435 2,198 (337) 144,296
FRB & FHLB stock ...................................... 24,180 -- -- 24,180
-------- ------ ----- --------
Total investment securities held to maturity ........ $166,615 $2,198 $(337) $168,476
======== ====== ===== ========

The contractual maturities of investments in debt securities held to
maturity at December 31, 1998, are set forth in the following table:

December 31, 1998
-------------------------
Amortized Fair
Cost Value
-------- ---------
(in thousands)

Due in one year ................................. $ 22,429 $ 22,505
Due after one year through five years ........... 13,446 13,866
Due after five years through ten years .......... 304 309
Due after ten years ............................. 114,963 114,239
-------- --------
151,142 150,919
Mortgage-backed securities ...................... 62,088 63,322
-------- --------
Total debt securities ......................... 213,230 214,241
FRB & FHLB stock ................................ 24,180 24,180
-------- --------
Total investment securities held to maturity .. $237,410 $238,421
======== ========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Actual maturities of debt securities may differ from those presented above
since certain obligations provide the issuer the right to call or prepay the
obligation prior to scheduled maturity without penalty. FRB and FHLB stock do
not have contractual maturities.

The weighted-average remaining life for mortgage-backed securities held to
maturity was 2.2 years at December 31, 1998, and 4.1 years at December 31, 1997.

The amortized cost of securities pledged to secure public deposits,
treasury tax and loan deposits, repurchase agreements and for other purposes
required by law approximated $119.4 million and $129.0 million at December 31,
1998 and 1997, respectively.

In connection with the Wayne acquisition, Valley reassessed the
classification of securities held in the Wayne portfolio and transferred $1.6
million of securities held to maturity to securities available for sale to
conform with Valley's investment objectives. In 1997, in connection with the
Midland acquisition, Valley reassessed the classification of securities held in
the Midland investment portfolio and transferred $39.8 million of securities
held to maturity to securities available for sale to conform to Valley's
investment objectives.

INVESTMENT SECURITIES AVAILABLE FOR SALE (Note 4)

The amortized cost, fair value and gross unrealized gains and losses of
securities available for sale at December 31, 1998 and 1997 were as follows:

December 31, 1998
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------- ------- --------
(in thousands)

U.S. Treasury securities and other government
agencies and corporations ........................... $ 84,586 $ 412 $ -- $ 84,998
Obligations of states and political subdivisions ..... 109,865 1,923 (7) 111,781
Mortgage-backed securities ........................... 698,772 4,138 (3,286) 699,624
-------- ------- ------- --------
Total debt securities .............................. 893,223 6,473 (3,293) 896,403
Equity securities .................................... 26,284 4,976 (182) 31,078
-------- ------- ------- --------
Total investment securities available for sale ..... $919,507 $11,449 $(3,475) $927,481
======== ======= ======= ========

December 31, 1997
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- ------- ----------
(in thousands)

U.S. Treasury securities and other government
agencies and corporations ........................... $ 180,703 $ 688 $ (237) $ 181,154
Obligations of states and political subdivisions ..... 141,409 1,302 (254) 142,457
Mortgage-backed securities ........................... 753,955 5,421 (3,034) 756,342
---------- ------- ------- ----------
Total debt securities .............................. 1,076,067 7,411 (3,525) 1,079,953
Equity securities .................................... 8,106 2,652 (73) 10,685
---------- ------- ------- ----------
Total investment securities available for sale ..... $1,084,173 $10,063 $(3,598) $1,090,638
========== ======= ======= ==========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The contractual maturities of investments in debt securities available for
sale at December 31, 1998, are set forth in the following table:

December 31, 1998
----------------------
Amortized Fair
Cost Value
-------- --------
(in thousands)

Due in one year ..................................... $ 92,950 $ 93,287
Due after one year through five years ............... 60,599 61,794
Due after five years through ten years .............. 37,178 37,577
Due after ten years ................................. 3,724 4,121
194,451 196,779
-------- --------
Mortgage-backed securities .......................... 698,772 699,624
-------- --------
Total debt securities ............................. 893,223 896,403
Equity securities ................................... 26,284 31,078
-------- --------
Total investment securities available for sale .... $919,507 $927,481
======== ========

Actual maturities on debt securities may differ from those presented above
since certain obligations provide the issuer the right to call or prepay the
obligation prior to scheduled maturity without penalty. Equity securities do not
have contractual maturities.

The weighted-average remaining life for mortgage-backed securities
available for sale at December 31, 1998 and 1997 was 2.3 years and 4.1 years,
respectively.

Gross gains (losses) realized on sales, maturities and other securities
transactions, related to securities available for sale, and unrealized holding
gains on trading account securities included in earnings for the years ended
December 31, 1998, 1997 and 1996 were as follows:

1998 1997 1996
------ ------ ------
(in thousands)

Sales transactions:
Gross gains ........................................... $ 703 $2,374 $1,214
Gross losses .......................................... (1) (209) (522)
------ ------ ------
. 702 2,165 692
------ ------ ------
Maturities and other securities transactions:
Gross gains ........................................... 124 10 89
Gross losses .......................................... -- (25) --
------ ------ ------
124 (15) 89
------ ------ ------
Unrealized holding gains on trading account securities:
Unrealized holding gains .............................. 592 -- --
------ ------ ------
Gains on securities transactions, net ................. $1,418 $2,150 $ 781
====== ====== ======

Cash proceeds from sales transactions were $93.1 million, $175.3 million
and $143.6 million for the years ended 1998, 1997 and 1996, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

LOANS (Note 5)

The detail of the loan portfolio as of December 31, 1998 and 1997 was as
follows:

1998 1997
---------- ----------
(in thousands)

Commercial ........................ $ 463,609 $ 455,732
---------- ----------
Total commercial loans .......... 463,609 455,732
---------- ----------
Construction ...................... 101,200 83,609
Residential mortgage .............. 1,036,110 1,034,066
Commercial mortgage ............... 954,440 866,348
---------- ----------
Total mortgage loans ............ 2,091,750 1,984,023
---------- ----------
Home equity ....................... 201,175 196,777
Credit card ....................... 107,595 145,485
Automobile ........................ 1,032,783 930,372
Other consumer .................... 80,938 91,101
---------- ----------
Total consumer loans ............ 1,422,491 1,363,735
---------- ----------
Less: unearned income ............. -- (56)
---------- ----------
Loans, net of unearned income ..... $3,977,850 $3,803,434
========== ==========

Included in the table above are loans held for sale in the amount of $23.5
million and $16.7 million at December 31, 1998 and 1997, respectively.

VNB grants loans in the ordinary course of business to its directors,
executive officers and their affiliates, on the same terms and under the same
risk conditions as those prevailing for comparable transactions with outside
borrowers.

The following table summarizes the change in the total amounts of loans and
advances to directors, executive officers, and their affiliates during the year
1998:

1998
--------------
(in thousands)

Outstanding at beginning of year ........... $25,450
New loans and advances ..................... 11,582
Repayments ................................. (12,128)
-------
Outstanding at end of year ................. $24,904
=======

The outstanding balances of loans which are 90 days or more past due as to
principal or interest payments and still accruing and non-performing assets at
December 31, 1998 and 1997 were as follows:

1998 1997
------ -------
(in thousands)

Loans past due in excess of 90 days and still accruing .. $7,359 $16,351
====== =======
Non-accrual loans ....................................... $7,063 $ 9,635
Other real estate owned ................................. 2,341 2,258
------ -------
Total non-performing assets ............................ $9,404 $11,893
====== =======
Troubled debt restructured loans ........................ $5,127 $ 5,248
====== =======

The amount of interest income that would have been recorded on non-accrual
loans in 1998, 1997 and 1996 had payments remained in accordance with the
original contractual terms approximated $1.2 million, $1.5 million and $1.6
million, while the actual amount of interest income recorded on these types of
assets in 1998, 1997 and 1996 totaled $244 thousand, $336 thousand and $1.8
million, resulting in lost (recovered) interest income of $972 thousand, $1.2
million, and $(159) thousand, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1998, there were no commitments to lend additional funds to
borrowers whose loans were non-accrual or contractually past due in excess of 90
days and still accruing interest.

The impaired loan portfolio is primarily collateral dependent. Impaired
loans and their related specific and general allocations to the allowance for
loan losses totaled $16.5 million and $6.9 million, respectively, at December
31, 1998 and $21.9 million and $8.5 million, respectively, at December 31, 1997.
The average balance of impaired loans during 1998 and 1997 was approximately
$18.7 million and $25.1 million, respectively. The amount of cash basis interest
income that was recognized on impaired loans during 1998 and 1997 was $1.4
million and $1.6 million, respectively.

ALLOWANCE FOR POSSIBLE LOAN LOSSES (Note 6)

Transactions in the allowance for possible loan losses during 1998, 1997
and 1996 were as follows:

1998 1997 1996
------- ------- -------
(in thousands)

Balance at beginning of year .............. $48,542 $47,811 $45,580
Provision charged to operating expense .... 12,370 12,650 3,556
------- ------- -------
60,912 60,461 49,136
------- ------- -------
Less net loan charge-offs:
Loans charged-off ........................ (13,688) (13,905) (5,918)
Less recoveries on loan charge-offs ...... 2,644 1,986 4,593
------- ------- -------
Net loan charge-offs ...................... (11,044) (11,919) (1,325)
------- ------- -------
Balance at end of year .................... $49,868 $48,542 $47,811
======= ======= =======

LOAN SERVICING (Note 7)

VNB Mortgage Services, Inc. ("MSI"), a subsidiary of VNB, is a servicer of
residential mortgage loan portfolios. MSI is compensated for loan administrative
services performed for mortgage servicing rights purchased in the secondary
market and originated by VNB. The aggregate principal balances of mortgage loans
serviced by MSI for others approximated $1.6 billion, $1.2 billion and $1.1
billion at December 31, 1998, 1997 and 1996, respectively. The outstanding
balance of loans serviced for others is not included in the consolidated
statements of financial condition.

VNB is a servicer of SBA loans, and is compensated for loan administrative
services performed for SBA loans originated and sold by VNB. VNB serviced a
total of $78.1 million and $69.7 million of SBA loans as of December 31, 1998
and 1997, respectively, for third-party investors.

The costs associated with acquiring loan servicing rights are included in
other assets in the consolidated financial statements and are being amortized
over the estimated net servicing income.

The following table summarizes the change in loan servicing rights during
the years ended December 31, 1998, 1997 and 1996:

1998 1997 1996
------- ------- -------
(in thousands)

Balance at beginning of year ........ $13,471 $12,187 $ 8,094
Purchase and origination of loan
servicing rights ................... 11,986 3,905 6,167
Amortization expense ................ (4,692) (2,621) (2,074)
------- ------- -------
Balance at end of year .............. $20,765 $13,471 $12,187
======= ======= =======

Amortization expense is included in amortization of intangible assets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

PREMISES AND EQUIPMENT (Note 8)

At December 31, 1998 and 1997, premises and equipment consisted of:

1998 1997
-------- --------
(in thousands)

Land ............................................. $ 18,297 $ 17,795
Buildings ........................................ 51,461 48,093
Leasehold improvements ........................... 14,584 12,311
Furniture and equipment .......................... 64,413 59,934
-------- --------
148,755 138,133
Less: Accumulated depreciation and amortization .. (68,981) (60,262)
-------- --------
Premises and equipment ........................... $ 79,774 $ 77,871
======== ========

Depreciation and amortization included in non-interest expense for the
years ended December 31, 1998, 1997 and 1996 amounted to approximately $8.4
million, $8.9 million and $7.5 million, respectively.

OTHER ASSETS (Note 9)

At December 31, 1998 and 1997, other assets consisted of the following:

1998 1997
-------- --------
(in thousands)

Loan servicing rights ................ $20,765 $13,471
Goodwill ............................. 2,673 2,922
Core deposit intangible .............. 1,210 1,816
Other real estate owned, net ......... 2,341 2,258
Deferred tax asset ................... 14,806 12,920
Other ................................ 17,668 21,065
------ ------
Total other assets .................. $59,463 $54,452
======= =======

DEPOSITS (Note 10)

Included in time deposits at December 31, 1998 and 1997 are certificates of
deposit over $100 thousand of $408.3 million and $483.6 million, respectively.

Interest expense on time deposits of $100 thousand or more totaled
approximately $19.7 million, $26.9 million and $24.5 million in 1998, 1997 and
1996, respectively.

The scheduled maturities of time deposits as of December 31, 1998 are as
follows:

(in thousands)

1999 ............................... $1,446,617
2000 ............................... 290,404
2001 ............................... 35,305
2002 ............................... 39,596
2003 ............................... 23,864
Thereafter ......................... 1,336
----------
$1,837,122
==========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

OTHER BORROWINGS (NOTE 11)

At December 31, 1998 and 1997, other borrowings consisted of the following:

1998 1997
-------- --------
(in thousands)

FHLB advances .................... $212,500 $145,500
Other ............................ 449 512
-------- --------
Total other borrowings .......... $212,949 $146,012
======== ========

The Federal Home Loan Bank (FHLB) advances have a weighted average interest
rate of 5.89% at December 31, 1998 and 6.25% at December 31, 1997. These
advances are secured by pledges of FHLB stock, mortgage-backed securities and a
blanket assignment of qualifying mortgage loans. The advances are scheduled for
repayment as follows:

(in thousands)

1999 ................................... $ 50,000
2000 ................................... 28,000
2001 ................................... 2,000
2002 ................................... 17,000
2003 ................................... 82,000
Thereafter ............................. 33,500
--------
$212,500
========

Interest expense of $8.8 million, $5.4 million and $3.0 million was
recorded on FHLB advances during the years ended December
31, 1998, 1997 and 1996, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

BENEFIT PLANS (Note 12)

PENSION PLAN

VNB has a non-contributory benefit plan covering substantially all of its
employees. The benefits are based upon years of credited service, primary social
security benefits and the employee's highest average compensation as defined. It
is VNB's funding policy to contribute annually the maximum amount that can be
deducted for federal income tax purposes. In addition, VNB has a supplemental
non-qualified, non-funded retirement plan which is designed to supplement the
pension plan for key officers.

In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits. This
statement is effective for fiscal years beginning after December 15, 1997. The
adoption did not materially effect the financial statements. In connection with
the adoption of this Statement, all prior period data presented has been
restated to conform with SFAS No. 132.

The following table sets forth change in projected benefit obligation,
change in fair value of plan assets, funded status and amounts recognized in
Valley's financial statements for the pension plans at December 31, 1998 and
1997:

1998 1997
------- -------
(in thousands)
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year ..... $18,236 $16,217
Service cost ......................................... 1,346 1,095
Interest cost ........................................ 1,212 1,191
Actuarial loss ....................................... 145 400
Benefits paid ........................................ (966) (667)
------- -------
Projected benefit obligation at end of year ........... $19,973 $18,236
======= =======
Change in Fair Value of Plan Assets
Fair value of plan assets at beginning of year ........ $21,638 $16,776
Actual return on plan assets ......................... 2,758 4,818
Employer contributions ............................... -- 711
Benefits paid ........................................ (966) (667)
------- -------
Fair value of plan assets at end of year .............. $23,430 $21,638
======= =======
Funded status ......................................... $ 3,457 $ 3,402
Unrecognized net asset ................................ (365) (420)
Unrecognized prior service cost ....................... 367 471
Unrecognized net actuarial gain ....................... (7,677) (6,942)
Intangible asset ...................................... (79) (107)
------- -------
Accrued benefit cost .................................. $(4,297) $(3,596)
======= =======

Net periodic pension expense for 1998, 1997 and 1996 included the following
components:

1998 1997 1996
------ ------ ------
(in thousands)

Service cost ............................... $1,346 $1,095 $1,317
Interest cost .............................. 1,212 1,191 1,119
Expected return on plan assets ............. (1,673) (1,320) (2,096)
Net amortization and deferral .............. (56) 71 962
Recognized prior service cost .............. 105 118 --
Recognized net gains ....................... (191) (33) --
------ ------ ------
Total net periodic pension expense ......... $ 743 $1,122 $1,302
====== ====== ======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of benefit
obligations for the plan were 6.75% and 5.00%, respectively, for 1998 and 7.00%
and 5.00% for 1997. The expected long term rate of return on assets was 9.00%
for both 1998 and 1997 and the weighted average discount rate used in computing
pension cost was 7.00% and 7.25% for 1998 and 1997, respectively. The pension
plan held 49,841 shares of Valley National Bancorp stock at both December 31,
1998 and 1997.

BONUS PLAN

VNB and its subsidiaries award incentive and merit bonuses to its officers
and employees based upon a percentage of the covered employees' compensation and
determined by the achievement of certain performance objectives. Amounts charged
to salaries expense during 1998, 1997 and 1996 were $2.6 million, $2.2 million
and $1.8 million, respectively.

SAVINGS PLAN

VNB maintains a 401K Savings and Investment Plan. This plan covers eligible
employees of VNB and its subsidiaries. The 401K plan allows employees to
contribute from 1% to 15% of their salary with VNB matching a certain percentage
out of its current years earnings with the distribution of VNB's contributions
subject to a vesting schedule. VNB's 401K contributions, net of forfeitures, for
1998, 1997 and 1996 amounted to $772 thousand, $887 thousand and $1.2 million,
respectively.

ESOP PLAN

VNB maintains an Employee Stock Ownership Plan ("ESOP") as a result of the
merger with Wayne. In 1998 and 1997, 24,217 shares and 19,863 shares,
respectively, were allocated to participants. ESOP expense for 1998 and 1997,
was $607 thousand and $357 thousand, respectively. The amount of the loan from
Valley to the ESOP was $1.3 million at December 31, 1998, and has a remaining
term of eight years at an interest rate of 8.25%. At December 31, 1998 and 1997
unallocated shares in the ESOP were 152,282 and 176,499, respectively.

STOCK OPTION PLAN

At December 31, 1998, Valley has a stock option plan which is described
below. Valley applies APB Opinion No. 25 and related Interpretations in
accounting for its plan. Had compensation cost for the plan been determined
consistent with FASB Statement No. 123, net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

1998 1997 1996
---- ---- ----
(in thousands,
except for share data)

Net income
As Reported .................. $97,348 $86,946 $71,504
Pro forma .................... 96,517 86,471 70,734
Earnings per share
As Reported:
Basic ....................... $1.77 $1.58 $1.33
Diluted ..................... 1.75 1.57 1.33
Pro forma:
Basic ....................... $1.76 $1.57 $1.33
Diluted ..................... 1.74 1.56 1.32

Under the Employee Stock Option Plan, Valley may grant options to its
employees for up to 2.5 million shares of common stock in the form of stock
options, stock appreciation rights and restricted stock awards. The exercise
price of options equal 100 percent of the market price of Valley's stock on the
date of grant, and an option's maximum term is ten years. The options granted
under this plan are exercisable not earlier than one year after the date of
grant, expire not more than ten years after the date of the grant, and are
subject to a vesting schedule. Non-qualified options granted by Midland and
assumed by Valley have no vesting period and a maximum term of fifteen years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996: dividend yield of 3.50
percent for 1998 and 1997 and 4.36 percent for 1996; weighted-average risk-free
interest rate of 5.0 percent for 1998, 5.75 percent for 1997 and 6.5 percent for
1996, and expected volatility of 18.5 percent for 1998, 23.9 percent for 1997
and 24.3 percent for 1996. The effects of applying SFAS No. 123 on the pro forma
net income may not be representative of the effects on pro forma net income for
future years.

A summary of the status of qualified and non-qualified stock options as of
December 31, 1998, 1997 and 1996 and changes during the years ended on those
dates is presented below:

1998 1997 1996
------------------- -------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
------------- --------- ------- --------- -------- -------- --------

Outstanding at Beginning of year ............ 1,383,907 $16 1,141,818 $13 718,820 $14
Granted ..................................... 244,851 27 466,857 21 520,044 11
Exercised ................................... (94,828) 14 (205,029) 11 (75,724) 9
Forfeited ................................... (15,998) 22 (19,739) 18 (21,322) 15
--------- --------- ---------
Outstanding at end of year .................. 1,517,932 18 1,383,907 16 1,141,818 13
========= ========= =========
Options exercisable at year-end ............. 747,434 13 643,432 12 691,235 10
========= ========= =========
Weighted-average fair value of options
granted during the year .................... $6.08 $5.60 $5.60

The following table summarizes information about stock options outstanding
at December 31, 1998:

Options Outstanding Options Exercisable
----------------------------------------------- -------------------------------
Weighted-
Average
Range of Remaining Weighted- Weighted-
Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
-------- ----------- ----------- -------------- ----------- --------------

$ 5-13 322,200 10.6 years $ 7 322,200 $ 7
13-19 562,826 6.4 16 327,382 16
19-25 359,760 8.5 23 90,353 22
25-32 273,146 9.6 27 7,499 26
--------- -------
5-32 1,517,932 8.4 18 747,434 13
========= =======

During 1998, 1997 and 1996, stock appreciation rights granted in tandem
with stock options were 10,375, 10,894 and 13,771, respectively. There were
45,858, 35,483 and 38,159 stock appreciation rights outstanding as of December
31, 1998, 1997 and 1996, respectively.

Restricted stock is awarded to key employees providing for the immediate
award of Valley's common stock subject to certain vesting and restrictions. The
awards are recorded at fair market value and amortized into salary expense over
the vesting period. The following table sets forth the changes in restricted
stock awards outstanding for the years ended December 31, 1998, 1997 and 1996.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Restricted
Stock Awards 1998 1997 1996
------------ ------- ------- -------
Outstanding at beginning of year ......... 189,978 103,948 92,537
Granted .................................. 51,841 123,904 41,524
Vested ................................... (48,766) (31,600) (26,836)
Forfeited ................................ (1,987) (6,274) (3,277)
------- ------- -------
Outstanding at end of year ............... 191,066 189,978 103,948
======= ======= =======

The amount of compensation costs related to restricted stock awards
included in salary expense in 1998, 1997 and 1996 amounted to $1.0 million, $717
thousand and $448 thousand, respectively.

INCOME TAXES (Note 13)

Income tax expense included in the financial statements consisted of the
following:

1998 1997 1996
------- ------- -------
(in thousands)
Income tax from operations:
Current:
Federal ................................. $27,494 $31,412 $34,145
State ................................... 3,074 1,630 3,295
------- ------- -------
30,568 33,042 37,440
Deferred:
Federal and State ....................... (2,418) 2,355 (961)
------- ------- -------
Total income tax expense .............. $28,150 $35,397 $36,479
======= ======= =======

The tax effects of temporary differences that gave rise to deferred tax
assets and liabilities as of December 31, 1998 and 1997
are as follows:

1998 1997
------- -------
(in thousands)
Deferred tax assets:
Allowance for possible loan losses ............... $20,061 $19,144
State privilege year taxes ....................... 472 311
Non-accrual loan interest ........................ 475 477
Other ............................................ 5,363 3,567
------- -------
Total deferred tax assets 26,371 23,499
------- -------
Deferred tax liabilities:
Tax over book depreciation ....................... 3,171 3,470
Purchase accounting adjustments .................. 496 552
Unearned discount on investments ................. 502 836
Investment securities available for sale ......... 3,038 2,506
Other ............................................ 4,358 3,215
------- -------
Total deferred tax liabilities .................. 11,565 10,579
------- -------
Net deferred tax assets ........................... $14,806 $12,920
======= =======

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation between the reported income tax expense and the amount
computed by multiplying income before taxes by the statutory federal income tax
rate is as follows:

1998 1997 1996
------- ------- -------
(in thousands)

Tax at statutory federal income tax rate ....... $43,924 $42,820 $37,794
Increases (decreases) resulted from:
Tax-exempt interest, net of interest
incurred to carry tax-exempts ................ (2,777) (3,652) (4,531)
State income tax, net of federal tax benefit .. 1,652 1,416 2,557
Realignment of corporate entities ............. (15,406) (6,215) --
Other, net .................................... 757 1,028 659
------- ------- -------
Income tax expense ............................ $28,150 $35,397 $36,479
======= ======= =======

COMMITMENTS AND CONTINGENCIES (Note 14)

LEASE COMMITMENTS

Certain bank facilities are occupied under non-cancelable long term
operating leases which expire at various dates through 2047. Certain lease
agreements provide for renewal options and increases in rental payments based
upon increases in the consumer price index or the lessor's cost of operating the
facility. Minimum aggregate lease payments for the remainder of the lease terms
are as follows:

(in thousands)
--------------
1999 ............................. $ 4,237
2000 ............................. 3,968
2001 ............................. 3,632
2002 ............................. 3,065
2003 ............................. 2,861
Thereafter ....................... 8,825
-------
Total lease commitments ......... $26,588
=======
Net occupancy expense for 1998, 1997 and 1996 included approximately $2.9
million, $2.5 million and $2.9 million, respectively, of rental expenses for
leased bank facilities.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the ordinary course of business of meeting the financial needs of its
customers, Valley, through its subsidiary VNB, is a party to various financial
instruments which are properly not reflected in the consolidated financial
statements. These financial instruments include standby and commercial letters
of credit, unused portions of lines of credit and commitments to extend various
types of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amounts recognized in the consolidated financial
statements. The commitment or contract amount of these instruments is an
indicator of VNB's level of involvement in each type of instrument as well as
the exposure to credit loss in the event of non-performance by the other party
to the financial instrument. VNB seeks to limit any exposure of credit loss by
applying the same credit underwriting standards, including credit review,
interest rates and collateral requirements or personal guarantees, as for
on-balance sheet lending facilities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table provides a summary of financial instruments with
off-balance sheet risk at December 31, 1998 and 1997:

1998 1997
---------- ----------
(in thousands)

Standby and commercial letters of credit ................. $ 65,384 $ 49,959
Commitments under unused lines of credit-credit card ..... 808,760 1,074,810
Commitments under unused lines of credit-other ........... 485,808 524,302
Outstanding loan commitments ............................. 328,583 215,281
---------- ----------
Total financial instruments with off-balance
sheet risk .............................................. $1,688,535 $1,864,352
========== ==========

Standby letters of credit represent the guarantee by VNB 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. Obligations to advance funds under
commitments to extend credit, including commitments under unused lines of
credit, are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have specified
expiration dates, which may be extended upon request, or other termination
clauses and generally require payment of a fee.

At December 31, 1998, VNB had commitments to sell residential mortgage
loans and SBA loans totaling $4.6 million.

The amounts set forth above do not necessarily represent future cash
requirements as it is anticipated that many of these commitments will expire
without being fully drawn upon. Most of VNB's lending activity is to customers
within the state of New Jersey, except for automobile loans, which are to
customers from 11 states, including New Jersey, and Canada.

LITIGATION

In the normal course of business, Valley may be a party to various
outstanding legal proceedings and claims. In the opinion of management, the
consolidated financial position or results of operations of Valley will not be
materially affected by the outcome of such legal proceedings and claims.

SHAREHOLDERS' EQUITY (Note 15)

CAPITAL REQUIREMENTS

Valley is subject to the regulatory capital requirements administered by
the Federal Reserve Bank. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on Valley's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Valley must meet specific capital
guidelines that involve quantitative measures of Valley's assets, liabilities
and certain off-balance sheet items as calculated under regulatory accounting
practices. Capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require Valley to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets, as
defined in the regulations. As of December 31, 1998, Valley exceeded all capital
adequacy requirements to which it was subject.

The most recent notification received from the Federal Reserve Bank
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized Valley must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Valley's actual capital amounts and ratios as of December 31, 1998 and 1997
are presented in the following table:

To be Well Capitalized
Under Prompt
Minimum Capital Corrective Action
Actual Requirements Provisions
------------------- -------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----

(in thousands)

As of December 31, 1998
Total Risk-based Capital ........... $595,921 14.5% $328,670 8.0% $410,837 10.0%
Tier I Risk-based Capital .......... 546,053 13.3 164,335 4.0 246,502 6.0
Tier I Leverage Capital ............ 546,053 10.1 215,865 4.0 269,831 5.0

As of December 31, 1997
Total Risk-based Capital ........... 542,003 14.4 300,368 8.0 375,460 10.0
Tier I Risk-based Capital .......... 501,002 13.3 150,184 4.0 225,276 6.0
Tier I Leverage Capital ............ 501,002 9.3 214,464 4.0 268,080 5.0

DIVIDEND RESTRICTIONS

VNB, a national banking association, is subject to a limitation in the
amount of dividends it may pay to Valley, VNB's only shareholder. Prior approval
by the Comptroller of the Currency ("OCC") is required to the extent that the
total of all dividends to be declared by VNB in any calendar year exceeds net
profits, as defined, for that year combined with its retained net profits from
the preceding two calendar years, less any transfers to capital surplus. Under
this limitation, VNB could declare dividends in 1999 without prior approval of
the OCC of up to $46.5 million plus an amount equal to VNB's net profits for
1999 to the date of such dividend declaration.

SHARES OF COMMON STOCK

The following table summarizes the share transactions for the three years
ended December 31, 1998:

Shares in
Shares Issued Treasury
------------- ----------
Balance, December 31, 1995 ..................... 49,550,214 (138,613)
Stock dividend (5%) ........................... 1,002,025 1,178,743
Effect of stock incentive plan, net ........... 26,688 126,595
Issuance of stock ............................. 2,454,521 --
Purchase of treasury stock .................... (16,838) (1,510,186)
---------- --------
Balance, December 31, 1996 ..................... 53,016,610 (343,461)
Stock dividend (5%) ........................... 2,511,465 --
Effect of stock incentive plan, net ........... (7,381) 226,695
Purchase of treasury stock .................... -- (239,316)
---------- --------
Balance, December 31, 1997 ..................... 55,520,694 (356,082)
Effect of stock incentive plan, net ........... (17,634) 152,472
Purchase of treasury stock .................... -- (220,125)
Issuance of stock from treasury ............... -- 187,000
---------- --------
Balance, December 31, 1998 ..................... 55,503,060 (236,735)
========== ========

TREASURY STOCK

On May 26, 1998 Valley's Board of Directors rescinded its previously
announced stock repurchase program after 220,125 shares of Valley common stock
had been repurchased. Rescinding the remaining authorization was undertaken in
connection with Valley's acquisition of Wayne.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED) (Note 16)

Quarters Ended 1998
----------------------------------------------------
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- -------
(in thousands, except for share data)

Interest income ........................................ $97,334 $97,449 $98,055 $96,818
Interest expense ....................................... 40,499 40,185 40,210 39,210
Net interest income .................................... 56,835 57,264 57,845 57,608
Provision for possible loan losses ..................... 2,570 3,385 3,070 3,345
Non-interest income .................................... 10,400 11,037 10,813 10,823
Non-interest expense ................................... 31,127 31,173 33,710 38,747
Income before income taxes ............................. 33,538 33,743 31,878 26,339
Income tax expense ..................................... 9,859 8,760 7,020 2,511
Net income ............................................. 23,679 24,983 24,858 23,828

Earnings per share:
Basic ................................................. 0.43 0.45 0.45 0.43
Diluted ............................................... 0.43 0.45 0.45 0.43
Cash dividends per share ............................... 0.22 0.25 0.25 0.25

Average shares outstanding:
Basic .............................................. 55,024,368 54,962,274 54,974,545 54,988,705
Diluted ............................................ 55,641,013 55,630,639 55,610,876 55,546,491

Quarters Ended 1997
----------------------------------------------------
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- -------
(in thousands, except for share data)

Interest income ........................................ $95,717 $96,178 $97,333 $97,856
Interest expense ....................................... 41,306 40,751 41,711 42,117
Net interest income .................................... 54,411 55,427 55,622 55,739
Provision for possible loan losses ..................... 1,325 1,975 2,275 7,075
Non-interest income .................................... 10,298 10,655 11,911 10,148
Non-interest expense ................................... 30,790 32,339 31,628 34,461
Income before income taxes ............................. 32,594 31,768 33,630 24,351
Income tax expense ..................................... 11,190 10,768 11,291 2,148
Net income ............................................. 21,404 21,000 22,339 22,203

Earnings per share:
Basic ................................................. 0.39 0.38 0.41 0.40
Diluted ............................................... 0.39 0.38 0.40 0.40
Cash dividends per share ............................... 0.19 0.22 0.22 0.22

Average shares outstanding:
Basic .............................................. 54,988,277 54,903,132 54,883,028 54,850,180
Diluted ............................................ 55,301,744 55,248,595 55,257,535 55,371,704

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

PARENT COMPANY INFORMATION (Note 17)

CONDENSED STATEMENTS OF INCOME

Years Ended December 31,
------------------------------------
1998 1997 1996
------- ------- -------
(in thousands)

Income
Dividends from subsidiary ............................................. $85,101 $49,500 $70,269
Interest from subsidiary .............................................. 959 550 798
Gains on securities transactions, net ................................. 743 1,849 219
Other interest and dividends .......................................... 683 1,475 598
------- ------- -------
87,486 53,374 71,884
Expenses ............................................................... 3,440 2,555 2,529
------- ------- -------
Income before income taxes and equity in
undistributed earnings in subsidiary .................................. 84,046 50,819 69,355
Income tax expense (benefit) ........................................... 187 295 (47)
------- ------- -------
Income before equity in undistributed earnings of subsidiary ........... 83,859 50,524 69,402
Equity in undistributed earnings of subsidiary ......................... 13,489 36,422 2,102
------- ------- -------
Net income ............................................................. $97,348 $86,946 $71,504
======= ======= =======

CONDENSED STATEMENTS OF FINANCIAL CONDITION

December 31,
----------------------
1998 1997
-------- --------
(in thousands)
ASSETS
Cash ................................................. $ 1,086 $ 478
Interest bearing deposits with banks ................. 16,147 20,200
Investment securities available for sale ............. 71,174 29,605
Trading account securities ........................... 1,592 --
Investment in subsidiary ............................. 476,419 462,768
Advance to subsidiary ................................ -- 3,409
Loan to subsidiary bank ESOP ......................... 1,250 1,428
Other assets ......................................... 3,910 4,270
-------- --------
Total assets ....................................... $571,578 $522,158
======== ========
LIABILITIES
Dividends payable to shareholders .................... $13,749 $11,747
Other liabilities .................................... 2,042 1,10
-------- --------
Total liabilities .................................. 15,791 12,855
-------- --------
SHAREHOLDERS' EQUITY
Common stock ......................................... 24,424 24,345
Surplus .............................................. 311,611 310,904
Retained earnings .................................... 223,185 178,739
Unallocated common stock held by the ESOP ............ (1,331) (1,604)
Accumulated other comprehensive income ............... 4,084 3,614
-------- --------
561,973 515,998
Treasury stock, at cost .............................. (6,186) (6,695)
-------- --------
Total shareholders' equity ......................... 555,787 509,303
-------- --------
Total liabilities and shareholders' equity ......... $571,578 $522,158
======== ========

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS

Years Ended December 31,
-------- ----------------------------
1998 1997 1996
-------- -------- --------
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 97,348 $ 86,946 $ 71,504
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiary ..................... (13,489) (36,422) (2,102)
Depreciation and amortization ...................................... 465 570 434
Amortization of compensation costs on non-qualified stock
options and restricted stock awards ............................... 1,036 898 448
Net deferred income tax (benefit) expense .......................... (15) 89 482
Net accretion of discounts ......................................... (360) (838) --
Net gains on securities transactions ............................... (743) (1,849) (219)
Net (increase) decrease in other assets ............................ (106) 274 (10,770)
Net decrease in other liabilities .................................. (1,474) (1,460) (295)
-------- -------- --------
Net cash provided by operating activities ........................ 82,662 48,208 59,482
-------- -------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale .... 16,918 6,050 715
Proceeds from maturing investment securities available for sale .... 15,000 -- --
Purchases of investment securities available for sale .............. (71,809) (22,264) (2,242)
Net decrease(increase) in short-term investments ................... 4,053 7,300 (1,000)
Decrease (increase) in advance to subsidiary ....................... 3,409 5,204 (8,727)
ESOP loan to subsidiary ............................................ -- -- (1,785)
Payment of ESOP loan ............................................... 178 181 --
-------- -------- --------
Net cash used in investing activities ............................ (32,251) (3,529) (13,039)
-------- -------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:

Purchases of common shares added to treasury ....................... (6,658) (4,417) (32,267)
Dividends paid to common shareholders .............................. (50,052) (42,805) (38,373)
Common stock issued, net of cancellations .......................... 6,907 1,156 21,669
-------- -------- --------
Net cash used in financing activities ............................ (49,803) (46,066) (48,971)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................ 608 (1,387) (2,528)
Cash and cash equivalents at beginning of year ...................... 478 1,865 4,393
-------- -------- --------
Cash and cash equivalents at end of year ............................ $ 1,086 $ 478 $ 1,865
======== ======== ========

FAIR VALUES OF FINANCIAL INSTRUMENTS (Note 18)

Limitations: The fair value estimates made at December 31, 1998 and 1997
were based on pertinent market data and relevant information on the financial
instruments at that time. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the entire portfolio of
financial instruments. Because no market exists for a portion of the financial
instruments, fair value estimates may be based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

instruments. For instance, Valley has certain fee-generating business
lines (e.g., its mortgage servicing operation and trust department) that were
not considered in these estimates since these activities are not financial
instruments. In addition, the tax implications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in many of the estimates.

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments and mortgage servicing rights:

Cash and short-term investments: For such short-term investments, the
carrying amount is considered to be a reasonable estimate of fair value.

Investment securities held to maturity, investment securities
available for sale and trading account securities: Fair values are based on
quoted market prices.

Loans: Fair values are estimated by obtaining quoted market prices,
when available. The fair value of other loans is estimated by discounting
the future cash flows using market discount rates that reflect the credit
and interest-rate risk inherent in the loan.

Deposit liabilities: Current carrying amounts approximate estimated
fair value of demand deposits and savings accounts. The fair value of time
deposits is based on the discounted value of contractual cash flows using
estimated rates currently offered for deposits of similar remaining
maturity.

Short-term borrowings: Current carrying amounts approximate estimated
fair value.

Other borrowings: The fair value is estimated by discounting future
cash flows based on rates currently available for debt with similar terms
and remaining maturity.

The carrying amounts and estimated fair values of financial instruments
were as follows at December 31, 1998 and 1997:

1998 1997
------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(in thousands)

Financial assets:
Cash and due from banks ......................... $ 175,794 $ 175,794 $ 151,620 $ 151,620
Federal funds sold .............................. 102,000 102,000 33,400 33,400
Investment securities held to maturity .......... 237,410 238,421 166,615 168,476
Investment securities available for sale ........ 927,481 927,481 1,090,638 1,090,638
Trading account securities ...................... 1,592 1,592 -- --
Net loans ....................................... 3,927,982 3,967,221 3,754,892 3,798,176

Financial liabilities:
Deposits with no stated maturity ................ 2,837,567 2,837,567 2,700,001 2,700,001
Deposits with stated maturities ................. 1,837,122 1,847,385 1,902,320 1,910,164
Short-term borrowings ........................... 53,081 53,081 56,938 56,938
Other borrowings ................................ 212,949 214,958 146,012 146,166

The estimated fair value of financial instruments with off-balance sheet
risk, consisting of unamortized fee income at December 31, 1998 and 1997 is not
material.

BUSINESS SEGMENTS (Note 19)

VNB has three major business segments it monitors and reports on to manage
its business operations. These segments are consumer lending, commercial
lending, and investment management. Lines of business and actual structure of
operations determine each segment. Each is reviewed routinely for its asset
growth, contribution to pretax net income and return on assets. Expenses related
to the branch network, all other components of retail banking, along

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

with the back office departments of the bank are allocated to each of the three
business segments. The financial reporting for each segment contains allocations
and reporting in line with VNB's operations, which may not necessarily be
compared to any other financial institution. The accounting for each segment
includes internal accounting policies designed to measure consistent and
reasonable financial reporting.

Consumer lending delivers loan and banking products and services mainly to
individuals and small businesses through its branches, ATM machines, PC banking
and sales, service and collection force within each lending department. The
products and services include residential mortgages, home equity loans,
automobile loans, credit card loans, trust services and mortgage servicing for
investors. Automobile lending is generally available throughout New Jersey, but
is also currently available in eleven states and Canada as part of a referral
program with a major insurance company.

The commercial lending division provides loan products and services to
small and medium commercial establishments throughout northern New Jersey. These
include lines of credit, term loans, letters of credit, asset-based lending,
construction, development and permanent real estate financing for owner occupied
and leased properties and Small Business Administration ("SBA") loans. The SBA
loans are offered through a sales force covering New Jersey and a number of
surrounding states and territories. The commercial lending division serves
numerous businesses through departments organized into product or specific
geographic divisions.

The investment function handles the management of the investment portfolio,
asset-liability management and government banking for VNB. The objectives of
this department are production of income and liquidity through the investment of
VNB's funds. The bank purchases and holds a mix of bonds, notes, U.S. and other
governmental securities and other investments.

The corporate segment represents assets and income and expense items not
directly attributable to a specific segment.

The following table represents the financial data for the three business
segments for the years 1998 and 1997. It is not practical to show information
for 1996.

Consumer Lending Commercial Lending Investment Management
----------------------- ----------------------- -----------------------
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
(in thousands)

Average interest-earning
assets ....................... $2,404,902 $2,288,225 $1,454,928 $1,376,607 $1,230,493 $1,376,218
========== ========== ========== ========== ========== ==========
Interest income ............... $ 190,017 $ 182,831 $ 126,245 $ 121,742 $ 79,592 $ 89,719
Interest expense .............. 75,521 74,855 45,689 45,033 38,641 45,021
---------- ---------- ---------- ---------- ---------- ----------
Net interest income ........... 114,496 107,976 80,556 76,709 40,951 44,698
Provision for possible loan
losses ....................... 10,550 11,100 1,700 1,275 -- --
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for possible
loan losses .................. 103,946 96,876 78,856 75,434 40,951 44,698
Non-interest income ........... 16,310 19,737 6,040 6,092 20 --
Non-interest expense .......... 29,973 39,588 9,208 8,248 111 --
Internal expense transfer ..... 33,655 23,880 20,361 17,667 17,221 15,435
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes .... $ 56,628 $ 53,145 $ 55,327 $ 55,611 $ 23,639 $ 29,263
========== ========== ========== ========== ========== ==========
Return on average
interest-earning assets
(pre-tax) .................... 2.35% 2.32% 3.80% 4.04% 1.92% 2.13%

Corporate and Other
Adjustments Total
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------

Average interest-earning
assets ....................... $ 8,034 $ 29,718 $5,098,357 $5,070,768
========== ========== ========== ==========
Interest income ............... $ (6,198) $ (7,208) $ 389,656 $ 387,084
Interest expense .............. 253 976 160,104 165,885
---------- ---------- ---------- ----------
Net interest income ........... (6,451) (8,184) 229,552 221,199
Provision for possible loan
losses ....................... 120 275 12,370 12,650
---------- ---------- ---------- ----------
Net interest income after
provision for possible
loan losses .................. (6,571) (8,459) 217,182 208,549
Non-interest income ........... 20,703 17,183 43,073 43,012
Non-interest expense .......... 95,465 81,382 134,757 129,218
Internal expense transfer ..... (71,237) (56,982) -- --

Income before income taxes .... $ (10,096) $ (15,676) $ 125,498 $ 122,343
========== ========== ========== ==========

Return on average
interest-earning assets
(pre-tax) .................... -- -- 2.46% 2.41%

[KPMG LOGO]

INDEPENDENT AUDITORS' REPORT

KPMG LLP

Certified Public Accountants

New Jersey Headquarters
150 John F. Kennedy Parkway
Short Hills, NJ 07078

THE BOARD OF DIRECTORS AND SHAREHOLDERS
VALLEY NATIONAL BANCORP:

We have audited the accompanying consolidated statements of financial
condition of Valley National Bancorp and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Valley
National Bancorp and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.

KPMG LLP

January 20, 1999

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information which will be set forth under the caption "Director
Information" in the 1999 Proxy Statement is incorporated herein by reference.
Certain information on Executive Officers of the registrant is included in Part
I, Item 4A of this report, which is also incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information which will be set forth under the caption "Executive
Compensation" in the 1999 Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information which will be set forth under the caption "Stock Ownership
of Management and Principal Shareholders" in the 1999 Proxy Statement is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information which will be set forth under the captions "Certain
Transactions with Management" and "Personnel and Compensation Committee
Interlocks and Insider Participation" in the 1999 Proxy Statement is
incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements and Schedules:

The financial statements listed on the index of this Annual Report on Form
10-K are filed as part of this Annual Report.

All financial statement schedules are omitted because they are either
inapplicable or not required, or because the required information is
included in the Consolidated Financial Statements or notes thereto.

(b) Current Reports on Form 8-K during the quarter ended December 31, 1998:

On October 12, 1998 to report financial results for the third quarter of
1998.

On October 16, 1998 to report the merger of Wayne Bancorp, Inc. into Valley
National Bancorp effective as of the close of business on October 16, 1998.

On December 22, 1998 to report the signing of the Agreement and Plan of
Merger, dated December 17, 1998 among Valley National Bancorp, Valley
National Bank, Ramapo Financial Corporation and The Ramapo Bank.

(3) Articles of Incorporation and By-laws:

A. Restated Certificate of Incorporation of the Registrant as in effect on
February 12, 1997 is incorporated herein by reference to the
Registrant's Form 10-K Annual Report for the year ended December 31,
1996.

B. Amendment to the Certificate of Incorporation dated April 30, 1997 is
incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.

C. Amendment to the Certificate of Incorporation dated May 1, 1998 is
incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998.

D. By-laws of the Registrant adopted as of March 14, 1989 and amended March
19, 1991.

(10) Material Contracts:

A. Restated and amended "Change in Control Agreements" dated January 1,
1999 between Valley, VNB and Gerald H. Lipkin, Peter Southway, Peter
John Southway, Robert Meyer, and Peter Crocitto.

B. "Change in Control Agreements" dated January 1, 1995 between Valley, VNB
and Robert Farrell, Richard Garber and Robert Mulligan are incorporated
herein by reference to the Registrant's Form 10-K Annual Report for the
year ended December 31, 1994.

C. "Change in Control Agreement" dated February 1, 1996 between Valley,
VNB and Jack Blackin is incorporated herein by reference to the
Registrant's Form 10-K Annual Report for the year ended December 31,
1996.

D. "Change in Control Agreement" dated April 15, 1996 between Valley, VNB
and John Prol is incorporated herein by reference to the Registrant's
Form 10-K Annual Report for the year ended December 31, 1996.

E. "The Valley National Bancorp Long-term Stock Incentive Plan" dated
January 19, 1999 is incorporated herein by reference to the Registrant's
Notice of Annual Meeting of Shareholders and Proxy dated March 1, 1999.

F. "Severance Agreements" dated August 17, 1994 between Valley, VNB and
Gerald H. Lipkin and Peter Southway are incorporated by reference to
Registrant's Registration Statement on Form S-4 (No. 33-55765) filed
with the Securities and Exchange Commission on October 4, 1994.

G. "Stock Option Agreement" dated April 1, 1992 between Valley and Michael
Guilfoile is incorporated by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994.

H. "Split-Dollar Agreement" dated July 7, 1995 between Valley, VNB, and
Gerald H. Lipkin is incorporated by reference to Registrant's Report on
Form 10-K Annual Report for the year ended December 31, 1995.

I. "Employment Arrangement" dated June 6, 1996 between Valley, VNB and
Peter Southway is incorporated herein by reference to the Registrant's
Form 10-K Annual Report for the year ended December 31, 1996.

J. "Severance Agreements" as of January 1, 1998 between Valley, VNB and
Peter Crocitto, Robert M. Meyer and Peter John Southway are incorporated
herein by reference to the Registrant's Form 10-K Annual Report for the
year ended December 31, 1997.

K. "Change in Control Agreement" dated January 1, 1998 between Valley, VNB
and Alan Lipsky is incorporated herein by reference to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

L. "Change in Control Agreements" dated January 1, 1999 between Valley, VNB
and Alan D. Eskow and Robert J. Farnon.

(21) List of Subsidiaries:

(a) Subsidiary of Valley:

Jurisdiction of Percentage of Voting
Name Incorporation Securities Owned by the Parent
---- ------------- ------------------------------

Valley National Bank (VNB) United States 100%

(b) Subsidiaries of VNB:
VNB Mortgage Services, Inc. New Jersey 100%
BNV Realty Incorporated (BNV) New Jersey 100%
VN Investment, Inc. New Jersey 100%
VNB Financial Advisors, Inc. New Jersey 100%
VNB Loan Services, Inc. New York 100%
VNB RSI, Inc. New Jersey 100%
Wayne Ventures, Inc. New Jersey 100%
Wayne Title Company, Inc. New Jersey 100%
VNB International Services, Inc. (ISI) New Jersey 100%

(d) Subsidiaries of BNV
SAR I, Inc. New Jersey 100%
SAR II, Inc. New Jersey 100%

(23) Consents of Experts and Counsel

Consent of KPMG LLP.

(24) Power of Attorney of Certain Directors and Officers of Valley

(27) Financial Data Schedule

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

VALLEY NATIONAL BANCORP

By /s/ GERARD H. LIPKIN
----------------------------------------
GERARD H. LIPKIN, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Dated: February 26, 1999

Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities indicated.

SIGNATURE TITLE DATE
--------- ----- ----
/s/ GERALD H. LIPKIN Chairman, President and Chief February 26, 199
- --------------------------------------- Executive Officer and Director
GERALD H. LIPKIN

/s/ PETER SOUTHWAY Vice Chairman (Principal Financial February 26, 1999
- --------------------------------------- Officer) and Director
PETER SOUTHWAY

/s/ ALAN D. ESKOW Corporate Secretary, Senior Vice February 26, 1999
- --------------------------------------- President and Controller
ALAN D. ESKOW (Principal Accounting Officer)

ANDREW B. ABRAMSON* Director February 26, 1999
- ---------------------------------------
ANDREW B. ABRAMSON

PAMELA BRONANDER* Director February 26, 1999
- ---------------------------------------
PAMELA BRONANDER

JOSEPH COCCIA, JR.* Director February 26, 1999
- ---------------------------------------
JOSEPH COCCIA, JR.

HAROLD P. COOK, III* Director February 26, 1999
- ---------------------------------------
HAROLD P. COOK, III

AUSTIN C. DRUKKER* Director February 26, 1999
- ---------------------------------------
AUSTIN C. DRUKKER

WILLARD L. HEDDEN* Director February 26, 1999
- ---------------------------------------
WILLARD L. HEDDEN

GRAHAM O. JONES* Director February 26, 1999
- ---------------------------------------
GRAHAM O. JONES

WALTER H. JONES, III* Director February 26, 1999
- ---------------------------------------
WALTER H. JONES, III

GERALD KORDE* Director February 26, 1999
- ---------------------------------------
GERALD KORDE

JOLEEN J. MARTIN* Director February 26, 1999
- ---------------------------------------
JOLEEN J. MARTIN

SIGNATURE TITLE DATE
--------- ----- ----
ROBERT E. MCENTEE* Director February 26, 1999
- ---------------------------------------
ROBERT E. MCENTEE

SAM P. PINYUH* Director February 26, 1999
- ---------------------------------------
SAM P. PINYUH

ROBERT RACHESKY* Director February 26, 1999
- ---------------------------------------
ROBERT RACHESKY

BARNETT RUKIN* Director February 26, 1999
- ---------------------------------------
BARNETT RUKIN

RICHARD F. TICE* Director February 26, 1999
- ---------------------------------------
RICHARD F. TICE

LEONARD J. VORCHEIMER* Director February 26, 1999
- ---------------------------------------
LEONARD J. VORCHEIMER

JOSEPH L. VOZZA* Director February 26, 1999
- ---------------------------------------
JOSEPH L. VOZZA

*By Gerald H. Lipkin, as attorney-in-fact.

EXHIBIT INDEX

EXHIBIT NUMBER EXHIBIT DESCRIPTION

(3) D By-laws

(10) A Change in control agreements -
Gerald H. Lipkin, Peter Southway,
Peter John Southway, Robert Meyer,
Peter Crocitto

(10) L Change in control agreements -
Alan D. Eskow, Robert J. Farnon

(23) Consent of KPMG LLP

(24) Power of Attorney

(27) Financial Data Schedule