ASC Topic 820, "Fair Value Measurements and Disclosures," establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

The following tables present the assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at June 30, 2011 and December 31, 2010. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.


			Fair Value Measurements at Reporting Date Using:
	June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)

Assets:
Investment securities:
Available for sale:
U.S. Treasury securities	$	100,238	$	100,238	$	—	$	—
U.S. government agency securities		84,944		—		84,944		—
Obligations of states and political subdivisions		25,065		—		25,065		—
Residential mortgage-backed securities		514,398		—		467,244		47,154
Trust preferred securities		44,773		20,088		20,621		4,064
Corporate and other debt securities		42,596		29,934		12,662		—
Equity securities		51,182		31,216		19,966		—

Total available for sale		863,196		181,476		630,502		51,218

Trading securities		22,101		—		22,101		—
Loans held for sale (1)		28,385		—		28,385		—
Other assets (2)		4,984		—		4,984		—

Total assets	$	918,666	$	181,476	$	685,972	$	51,218


Liabilities:
Junior subordinated debentures issued to VNB Capital Trust I (3)	$	159,787	$	159,787	$	—	$	—
Other liabilities (2)		2,505		—		2,505		—

Total liabilities	$	162,292	$	159,787	$	2,505	$	—


			Fair Value Measurements at Reporting Date Using:
	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)

Assets:
Investment securities:
Available for sale:
U.S. Treasury securities	$	163,810	$	163,810	$	—	$	—
U.S. government agency securities		88,800		—		88,800		—
Obligations of states and political subdivisions		29,462		—		29,462		—
Residential mortgage-backed securities		610,358		—		514,711		95,647
Trust preferred securities		41,083		20,343		—		20,740
Corporate and other debt securities		53,961		41,046		—		12,915
Equity securities		47,808		28,227		10,228		9,353

Total available for sale		1,035,282		253,426		643,201		138,655

Trading securities		31,894		9,991		—		21,903
Loans held for sale ⁽¹⁾		58,958		—		58,958		—
Other assets ⁽²⁾		8,414		—		8,414		—

Total assets	$	1,134,548	$	263,417	$	710,573	$	160,558


Liabilities:
Junior subordinated debentures issued to VNB Capital Trust I ⁽³⁾	$	161,734	$	161,734	$	—	$	—
Other liabilities ⁽²⁾		1,379		—		1,379		—

Total liabilities	$	163,113	$	161,734	$	1,379	$	—

(1)	Loans held for sale (which consists of residential mortgages) are carried at fair value and had contractual unpaid principal balances totaling approximately $27.7 million and $58.4 million at June 30, 2011 and December 31, 2010, respectively.

(2)	Derivative financial instruments are included in this category.

(3)	The junior subordinated debentures had contractual unpaid principal obligations totaling $157.0 million at June 30, 2011 and December 31, 2010.

The changes in Level 3 assets measured at fair value on a recurring basis for the three and six months ended June 30, 2011 and 2010 are summarized below:


	Three Months Ended June 30, 2011						Six Months Ended June 30, 2011
	Trading Securities			Available For Sale Securities			Trading Securities			Available For Sale Securities
	(in thousands)

Balance, beginning of the period	$	—		$	52,373		$	21,903		$	138,655
Transfers out of Level 3 ⁽¹⁾		—			—			(21,903	)		(84,435	)
Total net (losses) gains for the period included in:
Net income		—			—			—			(825	)
Other comprehensive income		—			851			—			2,212
Settlements		—			(2,006	)		—			(4,389	)

Balance, end of the period	$	—		$	51,218		$	—		$	51,218


Net unrealized losses included in net income for the period relating to assets held at June 30 ⁽²⁾	$	—	⁽³⁾	$	—	⁽⁴⁾	$	—	⁽³⁾	$	(825	) ⁽⁴⁾


	Three Months Ended June 30, 2010						Six Months Ended June 30, 2010
	Trading Securities			Available For Sale Securities			Trading Securities			Available For Sale Securities
	(in thousands)

Balance, beginning of the period	$	33,186		$	148,823		$	32,950		$	156,612
Transfers out of Level 3 ⁽¹⁾		(10,567	)		(532	)		(10,567	)		(1,384	)
Total net (losses) gains for the period included in:
Net income		195			—			431			—
Other comprehensive income		—			(464	)		—			919
Settlements		—			(5,082	)		—			(13,402	)

Balance, end of the period	$	22,814		$	142,745		$	22,814		$	142,745


Net unrealized gains (losses) included in net income for the period relating to assets held at June 30 ⁽²⁾	$	195	⁽³⁾	$	(2,049	) ⁽⁴⁾	$	431	⁽³⁾	$	(4,642	)⁽⁴⁾

⁽¹⁾	All transfers into/or out of Level 3 are assumed to occur at the beginning of the reporting period.

⁽²⁾	Represents net losses that are due to changes in economic conditions and management's estimates of fair value.

⁽³⁾	Included in trading (losses)gains, net within the non-interest income category on the consolidated statements of income.

⁽⁴⁾	Represents the net impairment losses on securities recognized in earnings for the period.

During the second quarter of 2011, there were no transfers of assets into or out of Level 3. During the six months ended June 30, 2011, 21 trust preferred securities (including one pooled trust preferred security), 12 private labeled mortgage-backed securities and 4 corporate bonds classified as available-for-sale with fair values totaling $26.7 million, $44.8 million and $12.9 million at January 1, 2011, respectively, were transferred out of Level 3 assets to Level 2 assets. Within the trading securities portfolio, 3 trust preferred securities with a combined fair value of $21.9 million at January 1, 2011 were transferred out of Level 3 assets to Level 2 assets. All of the transfers were as a result of an increase in the availability of observable market data used in the securities' pricing obtained through independent pricing services or dealer market participants.

During the three and six months ended June 30, 2011 there were no transfers of assets between Level 1 and Level 2. One trust preferred security (classified as a trading security), was called for early redemption and removed from Level 1 assets during the second quarter of 2011.

The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All the valuation techniques described below apply to the unpaid principal balance excluding any accrued interest or dividends at the measurement date. Interest income and expense and dividend income are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.

Available for sale and trading securities. All U.S. Treasury securities, certain corporate and other debt securities, and certain common and preferred equity securities (including certain trust preferred securities) are reported at fair values utilizing Level 1 inputs (exchange quoted prices). The majority of the other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third party providers to ensure the highest level of significant inputs are derived from market observable data. For certain securities, the inputs used by either dealer market participants or independent pricing service, may be derived from unobservable market information. In these instances, Valley evaluated the appropriateness and quality of each price. In addition, Valley reviewed the volume and level of activity for all available for sale and trading securities and attempted to identify transactions which may not be orderly or reflective of a significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value and this results in fair values based on Level 3 inputs. In determining fair value, Valley utilized unobservable inputs which reflect Valley's own assumptions about the inputs that market participants would use in pricing each security. In developing its assertion of market participant assumptions, Valley utilized the best information that is both reasonable and available without undue cost and effort.

In calculating the fair value for the available for sale securities under Level 3 at June 30, 2011, Valley prepared present value cash flow models for two pooled trust preferred securities, and certain private label mortgage-backed securities. The cash flows for the residential mortgage-backed securities incorporated the expected cash flow of each security adjusted for default rates, loss severities and prepayments of the individual loans collateralizing the security. The cash flows for trust preferred securities reflected the contractual cash flow, adjusted if necessary for potential changes in the amount or timing of cash flows due to the underlying credit worthiness of each issuer. Valuation techniques that were used for measuring the fair value of certain available for sale and trading securities, consisting of trust preferred securities, under Level 3 at December 31, 2010 are fully described in Valley's Annual Report on Form 10-K for the year ended December 31, 2010.

For the two available for sale pooled trust preferred securities, the resulting estimated future cash flows were discounted at a yield determined by reference to similarly structured securities for which observable orderly transactions occurred. The discount rate for each security was applied using a pricing matrix based on credit, security type and maturity characteristics to determine the fair value. The fair value calculations for both securities are received from an independent valuation advisor.

For certain available for sale private label mortgage-backed securities, cash flow assumptions incorporated independent third party market participant data based on vintage year for each security. The discount rate utilized in determining the present value of cash flows for the mortgage-backed securities was arrived at by combining the yield on orderly transactions for similar maturity government sponsored mortgage-backed securities with (i) the historical average risk premium of similar structured private label securities, (ii) a risk premium reflecting current market conditions, including liquidity risk and (iii) if applicable, a forecasted loss premium derived from the expected cash flows of each security. The estimated cash flows for each private label mortgage-backed security were then discounted at the aforementioned effective rate to determine the fair value. The quoted prices received from either market participants or independent pricing services are weighted with the internal price estimate to determine the fair value of each instrument.

Loans held for sale. The conforming residential mortgage loans originated for sale are reported at fair value using Level 2 (significant other observable) inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. To determine these fair values, the mortgages held for sale are put into multiple tranches, or pools, based on the coupon rate of each mortgage. If the mortgages held for sale are material, the market prices for each tranche are obtained from both Fannie Mae and Freddie Mac. The market prices represent a delivery price which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. The market prices received from Fannie Mae and Freddie Mac are then averaged and interpolated or extrapolated, where required, to calculate the fair value of each tranche. Depending upon the time elapsed since the origination of each loan held for sale, non-performance risk and changes therein were addressed in the estimate of fair value based upon the delinquency data provided to both Fannie Mae and Freddie Mac for market pricing and changes in market credit spreads. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at June 30, 2011 and December 31, 2010 based on the short duration these assets were held, and the high credit quality of these loans.

Junior subordinated debentures issued to capital trusts. The junior subordinated debentures issued to VNB Capital Trust I are reported at fair value using Level 1 inputs. The fair value was estimated using quoted prices in active markets for similar assets, specifically the quoted price of the VNB Capital Trust I preferred stock traded under ticker symbol "VLYPRA" on the New York Stock Exchange. The preferred stock and Valley's junior subordinated debentures issued to the Trust have identical financial terms and therefore, the preferred stock's quoted price moves in a similar manner to the estimated fair value and current settlement price of the junior subordinated debentures. The preferred stock's quoted price includes market considerations for Valley's credit and non-performance risk and is deemed to represent the transfer price that would be used if the junior subordinated debenture were assumed by a third party. Valley's potential credit risk and changes in such risk did not materially impact the fair value measurement of the junior subordinated debentures at June 30, 2011 and December 31, 2010.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair value of Valley's derivatives are determined using third party prices that are based on discounted cash flow analyses using observed market interest rate curves and volatilities. The fair values of the derivatives incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance risk of Valley and its counterparties. The credit valuation adjustments were not significant to the overall valuation of Valley's derivatives at June 30, 2011 and December 31, 2010.

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Certain non-financial assets and non-financial liabilities are measured at fair value on a nonrecurring basis, including other real estate owned and other repossessed assets (upon initial recognition or subsequent impairment), goodwill measured at fair value in the second step of a goodwill impairment test, and loan servicing rights, core deposits, other intangible assets, and other long-lived assets measured at fair value for impairment assessment.

The following table summarizes assets measured at fair value on a non-recurring basis as of the dates indicated:


			Fair Value Measurements at Reporting Date Using:
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)

As of June 30, 2011
Collateral dependent impaired loans⁽¹⁾	$	57,467	$	—	$	—	$	57,467
Loan servicing rights		7,263		—		—		7,263
Foreclosed assets		9,152		—		—		9,152

As of December 31, 2010
Collateral dependent impaired loans⁽¹⁾	$	53,330	$	—	$	—	$	53,330
Loan servicing rights		11,328		—		—		11,328
Foreclosed assets		19,986		—		—		19,986

(1)	Excludes pooled covered loans acquired in the FDIC-assisted transactions.

Impaired loans. Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral and are commonly referred to as "collateral dependent impaired loans." Collateral values are typically estimated using Level 3 inputs, consisting of individual appraisals that are significantly adjusted based on customized discounting criteria. During the six months ended June 30, 2011, collateral dependent impaired loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses and/or a specific valuation allowance allocation based on the fair value of the underlying collateral. The direct collateral dependent loan charge-offs to the allowance for loan losses totaled $4.3 million and $4.6 million for the three and six months ended June 30, 2011, respectively. At June 30, 2011, collateral dependent impaired loans (mainly consisting of commercial and construction loans) with a carrying value of $60.0 million were reduced by specific valuation allowance allocations totaling $2.5 million to a reported fair value of $57.5 million.

Loan servicing rights. Fair values for each risk-stratified group are calculated using a fair value model from a third party vendor that requires inputs that are both significant to the fair value measurement and unobservable (Level 3). The fair value model is based on various assumptions, including but not limited to, servicing cost, prepayment speed, internal rate of return, ancillary income, float rate, tax rate, and inflation. A significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate. Impairment charges are recognized on loan servicing rights when the book value of a risk-stratified group of loan servicing rights exceeds the estimated fair value. During the three and six months ended June 30, 2011, Valley recognized net recoveries of impairment charges totaling $49 thousand and $101 thousand, respectively, on loan servicing rights. The loan servicing rights had an $11.7 million carrying value, net of a $1.1 million valuation allowance, at June 30, 2011. Of the $11.7 million loan in total servicing rights, $7.3 million relates to impaired loan servicing rights that were recorded at their estimated fair values as of June 30, 2011.

Foreclosed assets. Certain foreclosed assets (consisting of other real estate owned and other repossessed assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed assets. The fair value of a foreclosed asset, upon initial recognition, is typically estimated using Level 3 inputs, consisting of an appraisal that is significantly adjusted based on customized discounting criteria. During the six months ended June 30, 2011, foreclosed assets measured at fair value upon initial recognition and subsequent re-measurement totaled $9.2 million and are included in the repossessed assets balance at June 30, 2011. In connection with the measurement and initial recognition of the aforementioned foreclosed assets, Valley recognized charge-offs to the allowance for loan losses totaling $1.2 million and $2.3 million for the three and six months ended June 30, 2011, respectively. The re-measurement of repossessed assets at fair value subsequent to initial recognition resulted in losses totaling $838 thousand and $1.3 million, which are included in non-interest expense for the three and six months ended June 30, 2011, respectively.

The following table presents the amount of gains and losses from fair value changes included in income before income taxes for financial assets and liabilities carried at fair value for the three and six months ended June 30, 2011 and 2010:

ASC Topic 825, "Financial Instruments," requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. 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 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 instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation, trust and investment management departments) 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 any of the estimates.

The carrying amounts and estimated fair values of financial instruments were as follows at June 30, 2011 and December 31, 2010:


	June 30, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in thousands)

Financial assets:
Cash and due from banks	$	360,816	$	360,816	$	302,629	$	302,629
Interest bearing deposits with banks		165,847		165,847		63,657		63,657
Investment securities held to maturity		2,002,650		2,002,359		1,923,993		1,898,872
Investment securities available for sale		863,196		863,196		1,035,282		1,035,282
Trading securities		22,101		22,101		31,894		31,894
Loans held for sale, at fair value		28,385		28,385		58,958		58,958
Net loans		9,452,397		9,304,055		9,241,091		9,035,066
Accrued interest receivable		59,431		59,431		59,126		59,126
Federal Reserve Bank and Federal Home Loan Bank stock		129,714		129,714		139,778		139,778
Other assets*		4,984		4,984		8,414		8,414

Financial liabilities:
Deposits without stated maturities		6,878,257		6,878,257		6,630,763		6,630,763
Deposits with stated maturities		2,828,190		2,878,120		2,732,851		2,783,680
Short-term borrowings		171,060		173,822		192,318		195,360
Long-term borrowings		2,727,481		3,027,188		2,933,858		3,201,090
Junior subordinated debentures issued to capital trusts (carrying amount includes fair value of $159,787 at June 30, 2011 and $161,734 at December 31, 2010 for VNB Capital Trust I)		184,941		185,819		186,922		187,480
Accrued interest payable		4,879		4,879		4,344		4,344
Other liabilities*		2,505		2,505		1,379		1,379

*	Derivative financial instruments are included in this category.

Financial instruments with off-balance sheet risk, consisting of loan commitments and standby letters of credit, had immaterial estimated fair values at June 30, 2011 and December 31, 2010.

The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities not measured and reported at fair value on a recurring basis or a non-recurring basis:

Cash and due from banks and interest bearing deposits with banks. The carrying amount is considered to be a reasonable estimate of fair value.

Investment securities held to maturity. Fair values are based on prices obtained through an independent pricing service or dealer market participants with which Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things. For certain securities, for which the inputs used by either dealer market participants or independent pricing service were derived from unobservable market information, Valley evaluated the appropriateness and quality of each price. Additionally, Valley reviewed the volume and level of activity for all classes of held to maturity securities and attempted to identify transactions which may not be orderly or reflective of a significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value (fair values based on Level 3 inputs). If applicable, the adjustment to fair value was derived based on present value cash flow model projections prepared by Valley utilizing assumptions similar to those incorporated by market participants.

Loans. Fair values of non-covered and covered loans are estimated by discounting the projected future cash flows using market discount rates that reflect the credit and interest-rate risk inherent in current loan originations. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Fair values estimated in this manner do not fully incorporate an exit-price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.

Accrued interest receivable and payable. The carrying amounts of accrued interest approximate their fair value.

Federal Reserve Bank and Federal Home Loan Bank stock. The redeemable carrying amount of these securities with limited marketability approximates their fair value. These securities are recorded in other assets on the consolidated statements of financial condition.

Deposits. 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 alternative funding sources of similar remaining maturity.

Short-term and long-term borrowings. The fair value is estimated by obtaining quoted market prices of the identical or similar financial instruments when available. When these quoted prices are unavailable, the fair value of borrowings is estimated by discounting the estimated future cash flows using market discount rates of financial instruments with similar characteristics, terms and remaining maturity.

Junior subordinated debentures issued to GCB Capital Trust III. There is no active market for the trust preferred securities issued by GCB Capital Trust III. Therefore, the fair value is estimated utilizing the income approach, whereby the expected cash flows, over the remaining estimated life of the security, are discounted using Valley's credit spread over the current yield on a similar maturity U.S. Treasury security. Valley's credit spread was calculated based on Valley's trust preferred securities issued by VNB Capital Trust I, which are publicly traded in an active market.