JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS (Note 11)

Valley established VNB Capital Trust I and assumed in acquisitions GCB Capital Trust III, State Bancorp Capital Trust I, and State Bancorp Capital Trust II statutory trusts for the sole purpose of issuing trust preferred securities and related trust common securities. The proceeds from such issuances were used by the trust to purchase an equivalent amount of junior subordinated debentures of Valley. The junior subordinated debentures, the sole assets of the trusts, are unsecured obligations of Valley, and are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of Valley. Valley wholly owns all of the common securities of each trust. The trust preferred securities qualify, and are treated by Valley, as Tier 1 regulatory capital.

Valley elected to measure the junior subordinated debentures issued to VNB Capital Trust I at fair value under the fair value option, with changes in fair value recognized as charges or credits to current earnings. Net trading gains and losses included non-cash credits of $2.6 million and $1.3 million for the years ended December 31, 2012 and 2011, respectively, and non-cash charges of $5.8 million for the year ended December 31, 2010, for the change in the fair value of the junior subordinated debentures issued to VNB Capital Trust I.

The table below summarizes the outstanding junior subordinated debentures and the related trust preferred securities issued by each trust as of December 31, 2012:


	December 31, 2012
	VNB	GCB	State Bancorp	State Bancorp
	Capital Trust I	Capital Trust III	Capital Trust I	Capital Trust II
	($ in thousands)
Junior Subordinated Debentures:
Carrying value ⁽¹⁾	$147,595	$25,051	$8,324	$7,552
Contractual principal balance	$146,715	$24,743	$10,310	$10,310
Annual interest rate ⁽²⁾	7.75%	6.96%	3-month LIBOR + 3.45%	3-month LIBOR + 2.85%
Stated maturity date	December 15, 2031	July 30, 2037	November 7, 2032	January 23, 2034
Initial call date	November 7, 2006	July 30, 2017	November 7, 2007	January 23, 2009
Trust Preferred Securities:
Face value	$142,313	$24,000	$10,000	$10,000
Annual distribution rate ⁽²⁾	7.75%	6.96%	3-month LIBOR + 3.45%	3-month LIBOR + 2.85%
Issuance date	November 7, 2001	July 2, 2007	October 29, 2002	December 19, 2003
Distribution dates ⁽³⁾	Quarterly	Quarterly	Quarterly	Quarterly

⁽¹⁾	The carrying value for GCB Capital Trust II includes an unamortized purchase accounting premium of $308 thousand, and the carrying values for State Bancorp Capital Trust I and State Bancorp Capital Trust II include purchase accounting discounts of $2.0 million and $2.8 million, respectively.

⁽²⁾	Interest on GCB Capital Trust III is fixed until July 30, 2017, then resets to 3-month LIBOR plus 1.4 percent. The annual interest rate for GCB Capital Trust III, State Bancorp Capital Trust I, and State Bancorp Capital Trust II excludes the effect of the purchase accounting adjustments.

⁽³⁾	All cash distributions are cumulative.

The junior subordinated debentures issued to VNB Capital Trust I and GCB Capital Trust III had total carrying values of $160.5 million and $25.1 million, respectively, and total contractual principal balances of $157.0 million and $24.7 million, respectively, at December 31, 2011. The trust preferred securities issued by VNB Capital Trust I and GCB Capital Trust III had total face values of $152.3 million and $24.0 million, respectively, at December 31, 2011.

The trusts’ ability to pay amounts due on the trust preferred securities is solely dependent upon Valley making payments on the related junior subordinated debentures. Valley’s obligation under the junior subordinated debentures and other relevant trust agreements, in aggregate, constitutes a full and unconditional guarantee by Valley of the trusts’ obligations under the trust preferred securities issued. Under the junior subordinated debenture agreements, Valley has the right to defer payment of interest on the debentures and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above. Currently, Valley has no intention to exercise its right to defer interest payments on the debentures.

The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated debentures at the stated maturity date or upon an earlier call date for redemption at par. The junior subordinated debentures issued to VNB Capital Trust I, State Bancorp Capital Trust I, and State Bancorp Capital Trust II are currently callable by Valley. In January 2012, Valley redeemed $10.3 million of the principal face amount of its outstanding junior subordinated debentures issued to VNB Capital Trust I and $10.0 million of the face value of the related trust preferred securities. No debentures or securities were called for redemption during the years ended December 31, 2011 and 2010.

The trust preferred securities of VNB Capital Trust I, GCB Capital Trust III, and State Bancorp Capital Trusts I and II are included in Valley’s consolidated Tier 1 capital and total capital for regulatory purposes at December 31, 2012. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), Valley’s outstanding trust preferred securities continue to qualify as Tier 1 capital but Valley will be unable to issue replacement or additional trust preferred securities that would qualify as Tier 1 capital. Under recently proposed regulatory capital rules, Valley’s trust preferred securities will be phased out as Tier 1 capital over a period of 3 or 10 years, dependent upon interpretations of such proposed guidance and will supersede the Dodd-Frank Act qualifications.