As of June 30, 2011, Valley had approximately $2.0 billion, $863.2 million, and $22.1 million in held to maturity, available for sale, and trading investment securities, respectively. Valley may be required to record impairment charges on its investment securities if they suffer a decline in value that is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in business climate, adverse actions by regulators, or unanticipated changes in the competitive environment could have a negative effect on Valley's investment portfolio and may result in other-than-temporary impairment on certain investment securities in future periods. Valley's investment portfolios include private label mortgage-backed securities, trust preferred securities principally issued by bank holding companies (referred to below as "bank issuers") (including three pooled trust preferred securities), corporate bonds primarily issued by banks, and perpetual preferred and common equity securities issued by banks. These investments may pose a higher risk of future impairment charges by Valley as a result of the persistently weak U.S. economy and its potential negative effect on the future performance of these bank issuers and/or the underlying mortgage loan collateral.

The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at June 30, 2011 and December 31, 2010 were as follows:

The age of unrealized losses and fair value of related securities held to maturity at June 30, 2011 and December 31, 2010 were as follows:


	June 30, 2011
	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities	$	57,688	$	(59	)	$	—	$	—		$	57,688	$	(59	)
Obligations of states and political subdivisions		65,843		(1,324	)		50		(1	)		65,893		(1,325	)
Residential mortgage-backed securities		10,608		(96	)		—		—			10,608		(96	)
Trust preferred securities		19,427		(137	)		75,615		(57,128	)		95,042		(57,265	)
Corporate and other debt securities		14,797		(141	)		8,494		(480	)		23,291		(621	)

Total	$	168,363	$	(1,757	)	$	84,159	$	(57,609	)	$	252,522	$	(59,366	)


	December 31, 2010
	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities	$	57,027	$	(909	)	$	—	$	—		$	57,027	$	(909	)
Obligations of states and political subdivisions		123,399		(3,467	)		50		—			123,449		(3,467	)
Residential mortgage-backed securities		226,135		(3,081	)		—		—			226,135		(3,081	)
Trust preferred securities		14,152		(250	)		75,477		(59,115	)		89,629		(59,365	)
Corporate and other debt securities		7,971		(13	)		8,761		(213	)		16,732		(226	)

Total	$	428,684	$	(7,720	)	$	84,288	$	(59,328	)	$	512,972	$	(67,048	)

The unrealized losses on investment securities held to maturity are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and lack of liquidity in the marketplace. The total number of security positions in the securities held to maturity portfolio in an unrealized loss position at June 30, 2011 was 61 as compared to 153 at December 31, 2010.

At June 30, 2011, the unrealized losses reported for trust preferred securities relate to 15 single-issuer securities, mainly issued by bank holding companies. Of the 15 trust preferred securities, 7 were investment grade, 1 was non-investment grade, and 7 were not rated. Additionally, $40.0 million of the $57.3 million in unrealized losses in the trust preferred securities portfolio at June 30, 2011, relate to securities issued by one bank holding company with a combined amortized cost of $55.0 million. Valley privately negotiated the purchase of the $55.0 million in trust preferred securities from the bank issuer and holds all of the securities of the two issuances. Typical of most trust preferred issuances, the bank issuer may defer interest payments for up to five years with interest payable on the deferred balance.

In August and October of 2009, the bank issuer elected to defer its scheduled interest payments on each respective security issuance. The bank issuer is currently operating under an agreement with its bank regulators, which requires, among other things, the issuer to receive permission from the regulators prior to resuming its regularly scheduled interest payments on both security issuances. As of its most recent regulatory filing, the deferring bank issuer continued to accrue and capitalize the interest owed, but not remitted to its trust preferred security holders, and at the holding company level it reported cash and cash equivalents in excess of the cumulative amount of accrued but unpaid interest owed on all of its junior subordinated debentures related to trust preferred securities.

In assessing whether a credit loss exists for the securities of the deferring bank issuer, Valley considers numerous factors, including, but not limited to, such factors highlighted in the "Other –Than-Temporary Impairment Analysis" section below. Specific to these securities, Valley's conclusions were derived based on a thorough review of the deferring bank issuer's financial condition, coupled with an analysis of external adverse conditions which may impact the issuer's future ability to repay all of the principal and interest owed to Valley. The issuer's principal subsidiary bank reported, in its most recent regulatory filing, that it meets the regulatory capital minimum requirements to be considered a "well-capitalized institution" as of June 30, 2011 and has consistently met these requirements since the date of the interest deferral on both issuances. During the deferral period, the bank issuer also reported that it raised new common capital and increased all of its bank regulatory risk ratios by nearly 40 percent as of June 30, 2011. The bank issuer's financial condition has improved from the dates of deferral as the issuer has implemented many strategies to reduce credit exposure, such as deleveraging its balance sheet of higher risk assets and liquidating certain non-performing assets. Reported net income at the deferring bank issuer was positive for the year ended December 31, 2010 and was higher than all of 2010 for the six months ended June 30, 2011. Additionally when determining whether a credit loss impairment exists, Valley assesses the failure of the deferring bank issuer to make regularly scheduled interest and principal payments and the likely time period until the issuer will be allowed to resume such payments. Valley's assessment includes, but is not limited to, a review of the bank issuer's operating agreement with its bank regulators and the mandatory requirements outlined in the agreement. Additionally, Valley has reviewed a plan presented by the bank issuer's management to their shareholders and the issuer's subsequent performance in relation to the milestones outlined in the plan. The bank issuer's ability to stay on target in improving its financial performance, enhancing its capital and stabilizing the credit quality of its loans were additional factors Valley considered when assessing the bank issuer's deferral of scheduled interest payments each quarter. Another variable Valley assesses in determining other-than-temporary impairment is whether the fair value of the bank issuer's security has been less than its amortized cost for an extended period of time. In reviewing this factor, Valley relied on the assumptions used in calculating the discount rate used to discount future expected cash flows. In Valley's analysis, the discount rate is comprised of both a base rate and credit rate calculation. The base rate, which was obtained from independent third parties, is largely tied to market factors such as liquidity and macro interest rate expectations. The credit rate calculation is, in large part, a function of the credit risk assessment resulting from Valley's impairment analysis. The fair value of the trust preferred securities of the deferring bank issuer was approximately $40.0 million less than their amortized cost at June 30, 2011 as compared to $36.0 million below their amortized cost at September 30, 2009 (the quarterly reporting date nearest to the dates of deferral). The volatility in fair value from the date the issuer deferred is in large part due to fluctuations in macro market conditions which impacted the illiquidity premium and aggregate levels of interest rates. The credit spread, as calculated by Valley, and assigned to the issuer, has remained consistent from the dates of deferral.

Based on the available deferring bank issuer information and Valley's assessment of the expected duration of the deferral period, Valley believes that it will receive all principal and interest contractually due on both security issuances, and as such has concluded no credit impairment exists at June 30, 2011. Valley continues to closely monitor the credit risk of this issuer. We may be required to recognize other-than-temporary impairment charges on the trust preferred securities in future periods. In future periods, changes in several factors considered in Valley's impairment analysis may require the recognition of other-than-temporary impairment charges on these securities, including, among other factors, an extension of the issuer's current deferral of scheduled interest payments beyond the next 18 months. If an impairment charge is recognized by Valley, it may be part or all of the combined amortized cost of the securities totaling $55.0 million and in any such event could cause a reversal of interest accrued, but unpaid from the date of deferral on the securities.

All other single-issuer bank trust preferred securities classified as held to maturity are paying in accordance with their terms, have no deferrals of interest or defaults and, if applicable, meet the regulatory capital requirements to be considered to be "well-capitalized institutions" at June 30, 2011.

As of June 30, 2011, the fair value of investments held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $994 million.

The contractual maturities of investments in debt securities held to maturity at June 30, 2011 are set forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.

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.

The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 6.6 years at June 30, 2011.

The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at June 30, 2011 and December 31, 2010 were as follows:


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

June 30, 2011
U.S. Treasury securities	$	100,098	$	140	$	—		$	100,238
U.S. government agency securities		84,578		575		(209	)		84,944
Obligations of states and political subdivisions		23,781		1,284		—			25,065
Residential mortgage-backed securities		494,815		24,170		(4,587	)		514,398
Trust preferred securities*		52,455		433		(8,115	)		44,773
Corporate and other debt securities		42,746		1,678		(1,828	)		42,596
Equity securities		47,924		4,467		(1,209	)		51,182

Total investment securities available for sale	$	846,397	$	32,747	$	(15,948	)	$	863,196


December 31, 2010
U.S. Treasury securities	$	162,404	$	1,406	$	—		$	163,810
U.S. government agency securities		88,926		26		(152	)		88,800
Obligations of states and political subdivisions		28,231		1,234		(3	)		29,462
Residential mortgage-backed securities		578,282		35,016		(2,940	)		610,358
Trust preferred securities*		54,060		1,142		(14,119	)		41,083
Corporate and other debt securities		53,379		2,612		(2,030	)		53,961
Equity securities		48,724		812		(1,728	)		47,808

Total investment securities available for sale	$	1,014,006	$	42,248	$	(20,972	)	$	1,035,282

*	Includes three pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies.

The age of unrealized losses and fair value of related securities available for sale at June 30, 2011 and December 31, 2010 were as follows:


	June 30, 2011
	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)

U.S. government agency securities	$	8,720	$	(209	)	$	—	$	—		$	8,720	$	(209	)
Residential mortgage-backed securities		48,277		(553	)		25,668		(4,034	)		73,945		(4,587	)
Trust preferred securities		1,859		(98	)		17,823		(8,017	)		19,682		(8,115	)
Corporate and other debt securities		3,497		(11	)		8,158		(1,817	)		11,655		(1,828	)
Equity securities		—		—			14,103		(1,209	)		14,103		(1,209	)

Total	$	62,353	$	(871	)	$	65,752	$	(15,077	)	$	128,105	$	(15,948	)


	December 31, 2010
	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)

U.S. government agency securities	$	66,157	$	(152	)	$	—	$	—		$	66,157	$	(152	)
Obligations of states and political subdivisions		1,146		(3	)		—		—			1,146		(3	)
Residential mortgage-backed securities		11,439		(350	)		46,206		(2,590	)		57,645		(2,940	)
Trust preferred securities		1,262		(153	)		33,831		(13,966	)		35,093		(14,119	)
Corporate and other debt securities		—		—			7,944		(2,030	)		7,944		(2,030	)
Equity securities		1,538		(243	)		13,736		(1,485	)		15,274		(1,728	)

Total	$	81,542	$	(901	)	$	101,717	$	(20,071	)	$	183,259	$	(20,972	)

The total number of security positions in the securities available for sale portfolio in an unrealized loss position at June 30, 2011 was 35 as compared to 43 at December 31, 2010.

Within the residential mortgage-backed securities category of the available for sale portfolio at June 30, 2011, substantially all of the $4.6 million of unrealized losses relate to 6 private label mortgage-backed securities. Of these 6 securities, 2 securities had an investment grade rating, while 4 had a non-investment grade rating at June 30, 2011. Three of the non-investment grade private label mortgage-backed securities with unrealized losses were other-than-temporarily impaired during 2009 and 2010. No additional estimated credit losses were recognized on these securities during the six months ended June 30, 2011. See the "Other-Than-Temporary Impairment Analysis" section below.

At June 30, 2011, the unrealized losses for trust preferred securities in the table above relate to 3 pooled trust preferred securities and 10 single-issuer bank issued trust preferred securities. Most of the unrealized losses were attributable to the pooled trust preferred securities with an aggregate amortized cost of $22.0 million and a fair value of $14.5 million. One of the three pooled trust preferred securities with an unrealized loss of $6.2 million had an investment grade rating at June 30, 2011. The other two trust preferred securities were other-than-temporarily impaired in the first quarter of 2010, and additional estimated credit losses were recognized on one of these securities in the first quarter of 2011. See "Other-Than-Temporarily Impaired Securities" section below for more details. At June 30, 2011, all of the 10 single-issuer trust preferred securities classified as available for sale had investment grade ratings. These single-issuer securities are all paying in accordance with their terms and have no deferrals of interest or defaults.

Substantially all of the unrealized losses reported for corporate and other debt securities at June 30, 2011 relate to one investment rated bank issued corporate bond with a $10.0 million amortized cost and a $1.8 million unrealized loss that is paying in accordance with its contractual terms.

The unrealized losses on equity securities, including those more than twelve months, are related primarily to two perpetual preferred security positions from the same issuance with a combined $9.8 million amortized cost and a $1.1 million unrealized loss. At June 30, 2011, these perpetual preferred securities had investment grade ratings and are currently performing and paying quarterly dividends.

Management does not believe that any individual unrealized loss as of June 30, 2011 represents an other-than-temporary impairment, except for the previously discussed impaired securities above, as management mainly attributes the declines in value to changes in interest rates and recent market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management believes there are no credit losses on these securities. Valley has no intent to sell, nor is it more likely than not that Valley will be required to sell, the securities contained in the table above before the recovery of their amortized cost basis or, if necessary, maturity.

As of June 30, 2011, the fair value of securities available for sale that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $498 million.

The contractual maturities of investment securities available for sale at June 30, 2011, are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.

The weighted-average remaining expected life for residential mortgage-backed securities available for sale at June 30, 2011 was 4.5 years.

Other-Than-Temporary Impairment Analysis

To determine whether a security's impairment is other-than-temporary, Valley considers several factors that include, but are not limited to the following:

•

The severity and duration of the decline, including the causes of the decline in fair value, such as credit problems, interest rate fluctuations, or market volatility;

•

Adverse conditions specifically related to the security, an industry, or geographic area;

•

Failure of the issuer of the security to make scheduled interest or principal payments;

•

Any changes to the rating of the security by a rating agency or, if applicable, any regulatory actions impacting the security issuer;

•

Recoveries or additional declines in fair value after the balance sheet date;

•

Our ability and intent to hold equity security investments until they recover in value, as well as the likelihood of such a recovery in the near term; and

•

Our intent to sell debt security investments, or if it is more likely than not that we will be required to sell such securities before recovery of their individual amortized cost basis.

For debt securities, the primary consideration in determining whether impairment is other-than-temporary is whether or not we expect to collect all contractual cash flows."

In assessing the level of other-than-temporary impairment attributable to credit loss for debt securities, Valley compares the present value of cash flows expected to be collected with the amortized cost basis of the security. The portion of the total other-than-temporary impairment related to credit loss is recognized in earnings, while the amount related to other factors is recognized in other comprehensive income. The total other-than-temporary impairment loss is presented in the consolidated statements of income, less the portion recognized in other comprehensive income. Subsequent assessments may result in additional estimated credit losses on previously impaired securities. These additional estimated credit losses are recorded as reclassifications from the portion of other-than-temporary impairment previously recognized in other comprehensive income to earnings in the period of such assessments. The amortized cost basis of an impaired debt security is reduced by the portion of the total impairment related to credit loss.

For residential mortgage-backed securities, Valley estimates loss projections for each security by stressing the cash flows from the individual loans collateralizing the security using expected default rates, loss severities, and prepayment speeds, in conjunction with the underlying credit enhancement (if applicable) for each security. Based on collateral and origination vintage specific assumptions, a range of possible cash flows was identified to determine whether other-than-temporary impairment existed at June 30, 2011.

For the single-issuer trust preferred securities and corporate and other debt securities, Valley reviews each portfolio to determine if all the securities are paying in accordance with their terms and have no deferrals of interest or defaults.

Over the past several years, many banking institutions have been required to defer trust preferred payments and a growing number of banking institutions have been put in receivership by the FDIC. A deferral event by a bank holding company for which we hold trust preferred securities may require us to recognize an other-than-temporary impairment charge if we determine that the probability is likely that Valley will not collect all contractual interest and principal. In assessing the probability of default by an issuer, Valley views the time period the issuer is in deferral in conjunction with the facts and circumstances attributable to each issuer. A FDIC receivership for any single-issuer would result in an impairment and significant loss. Valley analyzes the performance of the issuers on a quarterly basis, including a review of performance data from the issuer's most recent bank regulatory report, if applicable, to assess their credit risk and the probability of impairment of the contractual cash flows of the applicable security. Based upon management's quarterly review, all of the issuers' capital ratios are at or above the minimum amounts to be considered a "well-capitalized" financial institution, if applicable, and/or have maintained performance levels adequate to support the contractual cash flows.

For the three pooled trust preferred securities, Valley evaluates the projected cash flows from each of its tranches in the three securities to determine if they are adequate to support their future contractual principal and interest payments. Valley assesses the credit risk and probability of impairment of the contractual cash flows by projecting the default rates over the life of the security. Higher projected default rates will decrease the expected future cash flows from each security. If the projected decrease in cash flows in each tranche causes a change in contractual yield, the security would be considered to be other-than-temporarily impaired. Two of the pooled trust preferred securities were initially impaired in 2008 with additional estimated credit losses recognized during 2009 and the first quarter of 2010. One of the two pooled trust preferred securities had additional estimated credit losses recognized during the first quarter of 2011. See "Other-Than-Temporarily Impaired Securities" section below for further details.

The perpetual preferred securities, reported in equity securities, are hybrid investments that are assessed for impairment by Valley as if they were debt securities. Therefore, Valley assessed the creditworthiness of each security issuer, as well as any potential change in the anticipated cash flows of the securities as of June 30, 2011. Based on this analysis, management believes the declines in fair value of these securities are attributable to a lack of liquidity in the marketplace and are not reflective of any deterioration in the creditworthiness of the issuers.

The following table provides information regarding our other-than-temporary impairment charges on securities recognized in earnings for the three and six months ended June 30, 2011 and 2010.

There were no net impairment losses on securities recognized in earnings during the second quarter of 2011 compared to $2.0 million for the same period in 2010. During the second quarter of 2010, Valley recognized additional estimated credit losses on three previously impaired private label mortgage-backed securities.

For the six months ended June 30, 2011, Valley recognized net impairment losses on securities in earnings totaling $825 thousand due to additional estimated credit losses on one of the two previously impaired pooled trust preferred securities. For the six months ended June 30, 2010, Valley recognized impairment charges on a total of five individual private label mortgage-backed securities and two previously impaired pooled trust preferred securities.

At June 30, 2011, the five previously impaired private label mortgage-backed securities had a combined amortized cost of $47.0 million and fair value of $47.2 million, while the two previously impaired pooled trust preferred securities had a combined amortized cost and fair value of $5.4 million and $4.1 million, respectively, after recognition of all credit impairments.

Gross gains (losses) realized on sales, maturities and other securities transactions related to investment securities included in earnings for the three and six months ended June 30, 2011 and 2010 were as follows:

During the quarter ended June 30, 2011, Valley recognized gross gains on sales transactions of $16.3 mainly due to the sale of $253.0 million in residential mortgage-backed securities issued by government sponsored agencies, perpetual preferred securities issued by Freddie Mac and Fannie Mae, and U.S Treasury securities that were classified as available for sale. Of these sales, $141.2 million in net proceeds were recorded as an unsettled trade date receivable included in other assets at June 30, 2011.

The following table presents the changes in the credit loss component of cumulative other-than-temporary impairment losses on debt securities classified as either held to maturity or available for sale that Valley has recognized in earnings, for which a portion of the impairment loss (non-credit factors) was recognized in other comprehensive income for the three and six months ended June 30, 2011 and 2010:

The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the security prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which other-than-temporary impairment occurred prior to the periods presented. Other-than-temporary impairments recognized in earnings for credit impaired debt securities are presented as additions in two components based upon whether the current period is the first time the debt security was credit impaired (initial credit impairment) or is not the first time the debt security was credit impaired (subsequent credit impairment). The credit loss component is reduced if Valley sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) Valley receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.

The fair value of trading securities (consisting of 3 and 4 single-issuer bank trust preferred securities at June 30, 2011 and December 31, 2010, respectively) was $22.1 million and $31.9 million at June 30, 2011 and December 31, 2010, respectively. Interest income on trading securities totaled $500 thousand and $642 thousand for the three months ended June 30, 2011 and 2010, respectively, and $1.1 million and $1.3 million for the six months ended June 30, 2011 and 2010, respectively.