Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (check one):
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The unaudited consolidated financial statementsstatements of Valley National Bancorp, a New Jersey corporation ("Valley"),Corporation (Valley) include the accounts of its commercial bank subsidiary, Valley National Bank (the “Bank”),Bank) and all of Valley’s direct or indirect wholly-owned subsidiaries.other entities in which Valley has a controlling financial interest. All inter-company transactions and balances have been eliminated.eliminated. The accounting and reporting policies of Valley conform to U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at SeptemberJune 30, 20172023 and for all periods presented have been made. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results to be expected for the entire fiscal year.
In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that are particularly susceptible to change are: the allowance for loan losses; the evaluation of goodwill and other intangible assets, and investment securities for impairment; fair value measurements of assets and liabilities; and income taxes. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amountsyear or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates.any subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP and industry practice have been condensed or omitted pursuant to rules and regulations of the SEC. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2016.2022.
On April 27, 2017, Valley's shareholders approved an amendmentSignificant Estimates. In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to Valley's Restated Certificatechange include: the allowance for credit losses, the evaluation of Incorporationgoodwill and other intangible assets for impairment and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results may differ from those estimates. Also, future amounts and values could differ materially from those estimates due to increasechanges in values and circumstances after the authorized shares of common stock and preferred stock to 450,000,000 shares and 50,000,000 shares, respectively.balance sheet date.
On August 3, 2017, Valley issued 4.0 million shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B, no par value per share, with a liquidation preference of $25 per share for aggregate consideration of $100 million. Dividends on the preferred stock will accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 5.50 percent from the original issuance date to, but excluding, September 30, 2022, and thereafter at a floating rate per annum equal to three-month LIBOR plus a spread of 3.578 percent. Net proceeds to Valley after deducting underwriting discounts, commissions and offering expenses totaled $98.1 million.
Note 2. Business Combinations
Acquisitions
Bank Leumi Le-Israel Corporation.On July 26, 2017,April 1, 2022, Valley announcedcompleted its entry into a merger agreementacquisition of Bank Leumi Le-Israel Corporation, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, collectively referred to as "Bank Leumi USA". Bank Leumi USA maintained its headquarters in New York City with USAmeriBancorp, Inc. (USAB) headquarteredcommercial banking offices in Clearwater,Chicago, Los Angeles, Palo Alto, and Aventura, Florida. USAB, largely through its wholly-owned subsidiary, USAmeriBank, has approximately $4.5 billion in assets, $3.6 billion in net loans and $3.6 billion in deposits and maintains a branch network of 30 offices. The acquisition will expand Valley's Florida presence and establish a presence in Alabama. The common shareholders of USAB will receive 6.1Bank Leumi USA received 3.8025 shares of Valley common stock and $5.08 in cash for each USABBank Leumi USA common share that they own, subject to adjustmentowned. As a result, Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the event Valley’s average stock price falls below $11.50 or rises above $13.00 prior to closing. Both Valley and USAB have walkaway rights if the volume-weighted average closing price is below $11.00 and USAB has a walkaway right if the volume-weighted average closing price is above $13.50. The transaction is valued at an estimated $816 million, basedtransaction. Based on Valley’s closing stock price on July 25, 2017. March 31, 2022, the transaction was valued at $1.2 billion, inclusive of the value of options. As a result of the acquisition, Bank Leumi Le-Israel B.M. owned approximately 14 percent of Valley's common stock as of April 1, 2022.
Merger expenses, primarily consisting of salary and employee benefit expense, totaled $4.1 million for the six months ended June 30, 2023. There were no merger expenses for the three months ended June 30, 2023. Merger expenses totaled $54.5 million and $58.9 million for the three and six months ended June 30, 2022, respectively,
and largely consisted of salary and employee benefit expense, professional and legal fees and technology related costs within non-interest expense on the consolidated statements of income.
The acquisition is expected to closefollowing table sets forth assets acquired and liabilities assumed in the first quarter of 2018, and Valley has received all necessary banking regulatory approvals to complete the merger. However, the merger is still subject to a number of conditions, including Valley and USAB shareholder approvalsBank Leumi USA acquisition, at their respective shareholder meetings to be held on December 14, 2017.estimated fair values as of the closing date of the transaction:
| | | | | |
| April 1, 2022 |
| (in thousands) |
| Assets acquired: | |
| Cash and cash equivalents | $ | 443,588 | |
| Equity securities | 6,239 | |
| Available for sale debt securities | 505,928 | |
| Held to maturity debt securities | 806,627 | |
| Loans | 5,914,389 | |
| Allowance for loan losses | (70,319) | |
| Loans, net | 5,844,070 | |
| Premises and equipment | 38,827 | |
| Lease right of use assets | 49,273 | |
| Bank owned life insurance | 126,861 | |
| Accrued interest receivable | 25,717 | |
| Goodwill | 400,582 | |
| Other intangible assets | 153,380 | |
| Other assets | 160,921 | |
| Total assets acquired | $ | 8,562,013 | |
| Liabilities assumed: | |
| Deposits: | |
| Non-interest bearing | $ | 4,511,537 | |
| Interest bearing: | |
| Savings, NOW and money market | 2,224,834 | |
| Time | 293,626 | |
| Total deposits | 7,029,997 | |
| Short-term borrowings | 103,794 | |
| Lease liabilities | 79,683 | |
| Accrued expense and other liabilities | 117,269 | |
| Total liabilities assumed | $ | 7,330,743 | |
| Common stock issued in acquisition | 1,117,829 | |
| Cash paid in acquisition | 113,441 | |
Note 3. Earnings Per Common Share
The following table shows the calculation of both basic and diluted earnings per common share for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016.2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands, except for share and per share data) |
| Net income available to common shareholders | $ | 135,030 | | | $ | 93,241 | | | $ | 277,707 | | | $ | 206,797 | |
| Basic weighted average number of common shares outstanding | 507,690,043 | | | 506,302,464 | | | 507,402,268 | | | 464,172,210 | |
| Plus: Common stock equivalents | 952,982 | | | 2,176,742 | | | 1,674,035 | | | 2,148,473 | |
| Diluted weighted average number of common shares outstanding | 508,643,025 | | | 508,479,206 | | | 509,076,303 | | | 466,320,683 | |
| Earnings per common share: | | | | | | | |
| Basic | $ | 0.27 | | | $ | 0.18 | | | $ | 0.55 | | | $ | 0.45 | |
| Diluted | 0.27 | | | 0.18 | | | 0.55 | | | 0.44 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands, except for share data) |
| Net income available to common shareholders | $ | 36,966 |
| | $ | 41,045 |
| | $ | 129,532 |
| | $ | 112,665 |
|
| Basic weighted average number of common shares outstanding | 264,058,174 |
| | 254,473,994 |
| | 263,938,786 |
| | 254,310,769 |
|
| Plus: Common stock equivalents | 878,046 |
| | 466,313 |
| | 816,059 |
| | 387,824 |
|
| Diluted weighted average number of common shares outstanding | 264,936,220 |
| | 254,940,307 |
| | 264,754,845 |
| | 254,698,593 |
|
| Earnings per common share: | | | | | | | |
| Basic | $ | 0.14 |
| | $ | 0.16 |
| | $ | 0.49 |
| | $ | 0.44 |
|
| Diluted | 0.14 |
| | 0.16 |
| | 0.49 |
| | 0.44 |
|
Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of performance-based restricted stock units and common stock options and warrants to purchase Valley’s common shares. Common stock options and warrants with exercise prices that exceed the average market price per share of Valley’s common stock during the periods presented may have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation. Anti-dilutivecalculation along with restricted stock units. Potential anti-dilutive weighted common stock optionsshares totaled approximately 7.2 million and warrants equaled approximately 3.32.2 million shares for both the three and nine months ended SeptemberJune 30, 20172023 and 4.62022, respectively, and 3.0 millionshares and 1.1 million for both the three and ninesix months ended SeptemberJune 30, 2016,2023 and 2022, respectively.
Note 4. Accumulated Other Comprehensive Loss
The following table presentstables present the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three and ninesix months ended SeptemberJune 30, 2017.2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Components of Accumulated Other Comprehensive Loss | | Total
Accumulated
Other
Comprehensive
Loss |
| Unrealized Gains
and Losses on
Available for Sale
(AFS) Securities | | Unrealized Gains
and Losses on
Derivatives | | Defined Benefit
Pension and Postretirement Benefit Plans | |
| | (in thousands) |
| Balance at March 31, 2023 | $ | (110,648) | | | $ | 5,410 | | | $ | (38,409) | | | $ | (143,647) | |
| Other comprehensive loss before reclassification | (18,051) | | | (3,573) | | | — | | | (21,624) | |
| Amounts reclassified from other comprehensive loss | — | | | 516 | | | 8 | | | 524 | |
| Other comprehensive (loss) income, net | (18,051) | | | (3,057) | | | 8 | | | (21,100) | |
| Balance at June 30, 2023 | $ | (128,699) | | | $ | 2,353 | | | $ | (38,401) | | | $ | (164,747) | |
11
|
| | | | | | | | | | | | | | | | | | | |
| | Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss |
| | Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Non-credit Impairment Losses on AFS Securities | | Unrealized Gains and (Losses) on Derivatives | | Defined Benefit Pension Plan | |
| | (in thousands) |
| Balance at June 30, 2017 | $ | (6,891 | ) | | $ | (634 | ) | | $ | (10,379 | ) | | $ | (18,775 | ) | | $ | (36,679 | ) |
| Other comprehensive income before reclassifications | 1,457 |
| | (223 | ) | | 198 |
| | — |
| | 1,432 |
|
| Amounts reclassified from other comprehensive income | (4 | ) | | (40 | ) | | 1,132 |
| | 59 |
| | 1,147 |
|
| Other comprehensive income, net | 1,453 |
| | (263 | ) | | 1,330 |
| | 59 |
| | 2,579 |
|
| Balance at September 30, 2017 | $ | (5,438 | ) | | $ | (897 | ) | | $ | (9,049 | ) | | $ | (18,716 | ) | | $ | (34,100 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss |
| | Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Non-credit Impairment Losses on AFS Securities | | Unrealized Gains and (Losses) on Derivatives | | Defined Benefit Pension Plan | |
| | (in thousands) |
| Balance at December 31, 2016 | $ | (10,094 | ) | | $ | (642 | ) | | $ | (12,464 | ) | | $ | (18,893 | ) | | $ | (42,093 | ) |
| Other comprehensive income before reclassifications | 4,660 |
| | (89 | ) | | (548 | ) | | — |
| | 4,023 |
|
| Amounts reclassified from other comprehensive income | (4 | ) | | (166 | ) | | 3,963 |
| | 177 |
| | 3,970 |
|
| Other comprehensive income, net | 4,656 |
| | (255 | ) | | 3,415 |
| | 177 |
| | 7,993 |
|
| Balance at September 30, 2017 | $ | (5,438 | ) | | $ | (897 | ) | | $ | (9,049 | ) | | $ | (18,716 | ) | | $ | (34,100 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Components of Accumulated Other Comprehensive Loss | | Total
Accumulated
Other
Comprehensive
Loss |
| | Unrealized Gains
and Losses on
Available for Sale
(AFS) Securities | | Unrealized Gains
and Losses on
Derivatives | | Defined Benefit
Pension and Postretirement Benefit Plans | |
| | (in thousands) |
| Balance at December 31, 2022 | $ | (127,818) | | | $ | 2,233 | | | $ | (38,417) | | | $ | (164,002) | |
| Other comprehensive loss before reclassification | (881) | | | (775) | | | — | | | (1,656) | |
| Amounts reclassified from other comprehensive loss | — | | | 895 | | | 16 | | | 911 | |
| Other comprehensive (loss) income, net | (881) | | | 120 | | | 16 | | | (745) | |
| Balance at June 30, 2023 | $ | (128,699) | | | $ | 2,353 | | | $ | (38,401) | | | $ | (164,747) | |
The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016. 2022:
|
| | | | | | | | | | | | | | | | | | |
| | | Amounts Reclassified from Accumulated Other Comprehensive Loss | | |
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | |
| Components of Accumulated Other Comprehensive Loss | | 2017 | | 2016 | | 2017 | | 2016 | | Income Statement Line Item |
| | | (in thousands) | | |
| Unrealized gains (losses) on AFS securities before tax | | 6 |
| | $ | (10 | ) | | 5 |
| | 258 |
| | Gains (losses) on securities transactions, net |
| Tax effect | | (2 | ) | | 4 |
| | (1 | ) | | (96 | ) | | |
| Total net of tax | | 4 |
| | (6 | ) | | 4 |
| | 162 |
| | |
| Non-credit impairment losses on AFS securities before tax: | | | | | | | | | | |
| Accretion of credit loss impairment due to an increase in expected cash flows | | 67 |
| | 87 |
| | 283 |
| | 576 |
| | Interest and dividends on investment securities (taxable) |
| Tax effect | | (27 | ) | | (37 | ) | | (117 | ) | | (240 | ) | | |
| Total net of tax | | 40 |
| | 50 |
| | 166 |
| | 336 |
| | |
| Unrealized losses on derivatives (cash flow hedges) before tax | | (1,930 | ) | | (3,578 | ) | | (6,762 | ) | | (10,146 | ) | | Interest expense |
| Tax effect | | 798 |
| | 1,483 |
| | 2,799 |
| | 4,203 |
| | |
| Total net of tax | | (1,132 | ) | | (2,095 | ) | | (3,963 | ) | | (5,943 | ) | | |
| Defined benefit pension plan: | | | | | | | | | | |
| Amortization of net loss | | (101 | ) | | (71 | ) | | (303 | ) | | (215 | ) | | * |
| Tax effect | | 42 |
| | 29 |
| | 126 |
| | 87 |
| | |
| Total net of tax | | (59 | ) | | (42 | ) | | (177 | ) | | (128 | ) | | |
| Total reclassifications, net of tax | | $ | (1,147 | ) | | $ | (2,093 | ) | | $ | (3,970 | ) | | $ | (5,573 | ) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amounts Reclassified from
Accumulated Other Comprehensive Loss | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, | | |
| Components of Accumulated Other Comprehensive Loss | | 2023 | | 2022 | | 2023 | | 2022 | | Income Statement Line Item |
| | | (in thousands) | | |
| Unrealized gains on AFS securities before tax | | $ | — | | | $ | — | | | $ | — | | | $ | 14 | | | Gains (losses) on securities transactions, net |
| Tax effect | | — | | | — | | | — | | | (4) | | | |
| Total net of tax | | — | | | — | | | — | | | 10 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Unrealized gains (losses) on derivatives (cash flow hedges) before tax | | (725) | | | 116 | | | (1,256) | | | (426) | | | Interest income, interest expense |
| Tax effect | | 209 | | | (36) | | | 361 | | | 120 | | | |
| Total net of tax | | (516) | | | 80 | | | (895) | | | (306) | | | |
| Defined benefit pension and postretirement benefit plans: | | | | | | | | | | |
| Amortization of actuarial net loss | | (11) | | | (184) | | | (22) | | | (367) | | | * |
| | | | | | | | | | |
| Tax effect | | 3 | | | 51 | | | 6 | | | 102 | | | |
| Total net of tax | | (8) | | | (133) | | | (16) | | | (265) | | | |
| Total reclassifications, net of tax | | $ | (524) | | | $ | (53) | | | $ | (911) | | | $ | (561) | | | |
|
| | | | |
| * | Amortization of actuarial net loss is included in the computation of net periodic pension cost.cost recognized within other non-interest expense. |
Note 5. New Authoritative Accounting Guidance
New Accounting Guidance Adopted in 2023
Accounting Standards Update (ASU) No. 2017-12, "Derivatives2022-01, “Derivatives and Hedging: Targeted ImprovementsHedging (Topic 815): Fair Value Hedging –Portfolio Layer Method” expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. This method allows entities to Accounting for Hedging Activities" amendsdesignate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the hedge accounting recognition and presentation requirementsinterest rate risk associated with such a portfolio is eligible to better align a company’s financial reporting for hedging activities with the economic objectives of those activities.be hedged. ASU No. 2017-122022-01 also clarifies that no assets may be added to a closed portfolio once it is effective fordesignated in a portfolio layer method hedge. Valley for the annual and interim reporting periods beginningadopted ASU No. 2022-01 on January 1, 2019 with early adoption permitted. ASU No. 2017-12 requires a modified retrospective method to be used at adoption with a cumulative-effect adjustment to opening retained earnings. While Valley continues to assess all2023 and the potential impacts of the new guidance ASU No. 2017-12 isdid not currently expected to have a significant impact on Valley's consolidated financial statements.
ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” eliminates the troubled debt restructuring (TDR) accounting model for creditors, such as Valley, that
have adopted Topic 326, “Financial Instruments – Credit Losses.” ASU No. 2022-02 requires all loan modifications to be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities are subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public business entities within the scope of the Topic 326 vintage disclosure requirements are also required to prospectively disclose current-period gross write-off information by vintage. Entities can elect to adopt the guidance on TDRs using either a prospective or modified retrospective transition method. Valley adopted ASU No. 2022-02 on January 1, 2023 and elected to apply the modified retrospective transition method. The adoption of ASU No. 2022-02 resulted in a $1.4 million decrease in the allowance for loan losses, and a $990 thousand increase to retained earnings, net of taxes. See Note 8 for required disclosures. New Accounting Guidance Issued in 2023
ASU No. 2017-08, "Receivables - Nonrefundable Fees2023-02, Investments –“Equity Method and Other Costs (Subtopic 310-20) PremiumJoint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization on Purchased Callable Debt Securities" shortensMethod,” is intended to improve the amortization periodaccounting and disclosures for investments in certain callable debt securities held at a premium.tax credit structures. ASU No. 2017-08 requires2023-02 allows the premiumoption to be amortizedapply the proportional amortization method to account for investments made primarily for the earliest call date. The accounting for securities held at a discount does not changepurpose of receiving income tax credits and the discount continues to be amortized as an adjustment to yield over the contractual life (to maturity) of the instrument.other income tax benefits when certain requirements are met. ASU No. 2017-08 is2023-02 will be effective for Valley for the annual and interim reporting periods beginningon January 1, 2019 with2024 and it can be early adoption permitted, and is toadopted in any interim period. The new guidance can also be applied usingeither on a modified retrospective method. Additionally,or a retrospective basis, with any adjustments resulting from adoption recognized in earnings on the perioddate of adoption, entities should provide disclosures about a change in accounting principle.adoption. Valley is currently evaluating the impact of ASU No. 2017-082023-02, but it is not expected to have a significant impact on Valley's consolidated financial statements.
ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" requires service cost to be reported in the same financial statement line item(s) as other current employee compensation costs. All other components of expense must be presented separately from service cost, and outside any subtotal of income from operations. Only the service cost component of expense is eligible to be capitalized. ASU No. 2017-07 is effective for Valley for its annual and interim reporting periods beginning January1, 2018 with early adoption permitted. ASU No. 2017-07 is not expected to have a significant impact on the presentation on Valley's consolidated financial statements.
ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test guidance) to measure a goodwill impairment charge. Instead, an entity will be required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current guidance). In addition, ASU No. 2017-04 eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. However, an entity will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for Valley for its annual or any interim goodwill impairment tests in fiscal years beginning January 1, 2020 and is not expected to have a significant impact on the presentation of Valley's consolidated financial statements. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.
ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" clarifies on how certain cash receipts and cash payments should be classified and presented in the statement of cash flow. The ASU No. 2016-15 includes guidance on eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 is effective for Valley for annual and interim reporting periods beginning January 1, 2018 and it should be applied using a retrospective transition method to each period presented. ASU No. 2016-15 is not expected to have a significant impact on the presentation of Valley's consolidated statements of cash flows.
ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" amends the accounting guidance on the impairment of financial instruments. The ASU No. 2016-13 adds to U.S. GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity is required to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU No. 2016-13 is effective for Valley for reporting periods beginning January 1, 2020. Management is currently evaluating the impact of the ASU on Valley’s consolidated financial statements. Valley expects that the new guidance will result in an increase in its allowance for credit losses due to several factors, including: (i) the allowance related to Valley loans will increase to include credit losses over the full remaining expected life of the portfolio, and will consider expected future changes in macroeconomic conditions, (ii) the nonaccretable difference (as defined in Note 8) on PCI loans will be recognized as an allowance, offset by an increase in the carrying value of the related loans, and (iii) an allowance will be established for estimated credit losses on investment securities classified as held to maturity. The extent of the increase is under evaluation, but will depend upon the nature and characteristics of the Valley's loan and investment portfolios at the adoption date, and the economic conditions and forecasts at that date.
ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance. The amendments focus on income tax accounting upon vesting or exercise of share-based payments, award classification, liability classification exception for statutory tax withholding requirements, recognition methods for forfeitures within stock compensation expense, and the cash flow presentation. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. ASU No. 2016-09 became effective for Valley for reporting periods after January 1, 2017 and did not have a significant impact on Valley's consolidated financial statements. At adoption, Valley elected to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using the prospective transition method. Valley also elected to continue to estimate the forfeitures of stock awards as a component of total stock compensation expense based on the number of awards that are expected to vest.
ASU No. 2016-02, “Leases (Topic 842)” requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current GAAP. Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842 will be effective for Valley for reporting periods beginning January 1, 2019, with an early adoption permitted. Valley must apply a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Management is currently evaluating the impact of Topic 842 on Valley’s consolidated financial statements by reviewing its existing lease contracts and service contracts that may include embedded leases. Valley expects a gross-up of its consolidated statements of financial condition as a result of recognizing lease liabilities and right of use assets; the extent of such gross-up is under evaluation. Valley does not expect material changes to the recognition of operating lease expense in its consolidated statements of income.
ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities” requires that: (i) equity investments with readily determinable fair values must be measured at fair value with changes in fair value recognized in net income, (ii) equity investments without readily determinable fair values must be measured at either fair value or at cost adjusted for changes in observable prices minus impairment with changes in value under either of these methods recognized in net income, (iii) entities that record financial liabilities at fair value due to a fair value option election must recognize changes in fair value in
other comprehensive income if it is related to instrument-specific credit risk, and (iv) entities must assess whether a valuation allowance is required for deferred tax assets related to available-for-sale debt securities. ASU No. 2016-01 is effective for Valley for reporting periods beginning January 1, 2018 and is not expected to have a material effect on Valley’s consolidated financial statements.
ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)" and subsequent related Updates modifies the guidance used to recognize revenue from contracts with customers for transfers of goods or services and transfers of non-financial assets, unless those contracts are within the scope of other guidance. The updates also requires new qualitative and quantitative disclosures, including disaggregation of revenues and descriptions of performance obligations. Valley will adopt the guidance on January 1, 2018 using the modified retrospective method with a cumulative-effect adjustment to opening retained earnings. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the new revenue recognition standard is not expected to have a material impact on Valley’s consolidated financial statements. Valley has substantially completed its review of non-interest income revenue streams within the scope of the guidance and an assessment of its revenue contracts. While Valley has not identified material changes related to the timing or amount of revenue recognition, Valley will continue to evaluate required disclosures and the need for additional disaggregation of significant categories of revenue in the consolidated financial statements that are within the scope of the new guidance.
Note 6. Fair Value Measurement of Assets and Liabilities
Accounting Standards Codification (ASC)ASC Topic 820, “Fair Value Measurements and Disclosures,”Measurement” 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:
|
| | |
| Level 1 | Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date. |
•Level 1 - Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date.•Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets) for substantially the full term of the asset or liability. |
| | |
| Level 2 | Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets), for substantially the full term of the asset or liability. |
|
| | |
| Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). |
•Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis
The following tables present the assets and liabilities that are measured at fair value on a recurring and nonrecurringnon-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at SeptemberJune 30, 20172023 and December 31, 2016.2022. The assets presented under “nonrecurring“non-recurring fair value measurements” in the tabletables below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized).
| | | | September 30,
2017 | | Fair Value Measurements at Reporting Date Using: | | June 30,
2023 | | Fair Value Measurements at Reporting Date Using: |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Quoted Prices
in Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | (in thousands) | | (in thousands) |
| Recurring fair value measurements: | | Recurring fair value measurements: | |
| Assets | | | | | | | | Assets | |
| Investment securities: | | | | | | | | Investment securities: | |
| Available for sale: | | | | | | | | |
| Equity securities | | Equity securities | $ | 23,635 | | | $ | 23,635 | | | $ | — | | | $ | — | |
| Equity securities at net asset value (NAV) | | Equity securities at net asset value (NAV) | 12,328 | | | — | | | — | | | — | |
| Trading debt securities | | Trading debt securities | 3,409 | | | 3,409 | | | — | | | — | |
| Available for sale debt securities: | | Available for sale debt securities: | |
| U.S. Treasury securities | $ | 50,148 |
| | $ | 50,148 |
| | $ | — |
| | $ | — |
| U.S. Treasury securities | 282,398 | | | 282,398 | | | — | | | — | |
| U.S. government agency securities | 44,230 |
| | — |
| | 44,230 |
| | — |
| U.S. government agency securities | 24,192 | | | — | | | 24,192 | | | — | |
| Obligations of states and political subdivisions | 118,402 |
| | — |
| | 118,402 |
| | — |
| Obligations of states and political subdivisions | 171,043 | | | — | | | 171,043 | | | — | |
| Residential mortgage-backed securities | 1,161,157 |
| | — |
| | 1,153,475 |
| | 7,682 |
| Residential mortgage-backed securities | 594,636 | | | — | | | 594,636 | | | — | |
| Trust preferred securities | 5,393 |
| | — |
| | 3,278 |
| | 2,115 |
| |
| Corporate and other debt securities | 57,427 |
| | 7,890 |
| | 49,537 |
| | — |
| Corporate and other debt securities | 164,677 | | | — | | | 164,677 | | | — | |
| Equity securities | 10,980 |
| | 1,110 |
| | 9,870 |
| | — |
| |
| Total available for sale | 1,447,737 |
| | 59,148 |
| | 1,378,792 |
| | 9,797 |
| |
| Total available for sale debt securities | | Total available for sale debt securities | 1,236,946 | | | 282,398 | | | 954,548 | | | — | |
Loans held for sale (1) | 13,321 |
| | — |
| | 13,321 |
| | — |
| Loans held for sale (1) | 23,044 | | | — | | | 23,044 | | | — | |
Other assets (2) | 26,696 |
| | — |
| | 26,696 |
| | — |
| Other assets (2) | 571,620 | | | — | | | 571,620 | | | — | |
| Total assets | $ | 1,487,754 |
| | $ | 59,148 |
| | $ | 1,418,809 |
| | $ | 9,797 |
| Total assets | $ | 1,870,982 | | | $ | 309,442 | | | $ | 1,549,212 | | | $ | — | |
| Liabilities | | | | | | | | Liabilities | | | | | | | |
Other liabilities (2) | $ | 23,868 |
| | $ | — |
| | $ | 23,868 |
| | $ | — |
| Other liabilities (2) | $ | 599,226 | | | $ | — | | | $ | 599,226 | | | $ | — | |
| Total liabilities | $ | 23,868 |
| | $ | — |
| | $ | 23,868 |
| | $ | — |
| Total liabilities | $ | 599,226 | | | $ | — | | | $ | 599,226 | | | $ | — | |
| Non-recurring fair value measurements: | | | | | | | | Non-recurring fair value measurements: | | | | | | | |
Collateral dependent impaired loans (3) | $ | 33,260 |
| | $ | — |
| | $ | — |
| | $ | 33,260 |
| |
| Loan servicing rights | 7,072 |
| | — |
| | — |
| | 7,072 |
| |
| Non-performing loans held for sale | | Non-performing loans held for sale | $ | 10,000 | | | $ | — | | | $ | 10,000 | | | $ | — | |
| Collateral dependent loans | | Collateral dependent loans | 63,972 | | | — | | | — | | | 63,972 | |
| | Foreclosed assets | 1,762 |
| | — |
| | — |
| | 1,762 |
| Foreclosed assets | 2,132 | | | — | | | — | | | 2,132 | |
| Total | $ | 42,094 |
| | $ | — |
| | $ | — |
| | $ | 42,094 |
| Total | $ | 76,104 | | | $ | — | | | $ | 10,000 | | | $ | 66,104 | |
|
| | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at Reporting Date Using: |
| | December 31,
2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | (in thousands) |
| Recurring fair value measurements: | | | | | | | |
| Assets | | | | | | | |
| Investment securities: | | | | | | | |
| Available for sale: | | | | | | | |
| U.S. Treasury securities | $ | 49,591 |
| | $ | 49,591 |
| | $ | — |
| | $ | — |
|
| U.S. government agency securities | 23,041 |
| | — |
| | 23,041 |
| | — |
|
| Obligations of states and political subdivisions | 119,767 |
| | — |
| | 119,767 |
| | — |
|
| Residential mortgage-backed securities | 1,015,542 |
| | — |
| | 1,005,589 |
| | 9,953 |
|
| Trust preferred securities | 8,009 |
| | — |
| | 6,074 |
| | 1,935 |
|
| Corporate and other debt securities | 60,565 |
| | 8,064 |
| | 52,501 |
| | — |
|
| Equity securities | 20,858 |
| | 1,306 |
| | 19,552 |
| | — |
|
| Total available for sale | 1,297,373 |
| | 58,961 |
| | 1,226,524 |
| | 11,888 |
|
Loans held for sale (1) | 57,708 |
| | — |
| | 57,708 |
| | — |
|
Other assets (2) | 29,055 |
| | — |
| | 29,055 |
| | — |
|
| Total assets | $ | 1,384,136 |
| | $ | 58,961 |
| | $ | 1,313,287 |
| | $ | 11,888 |
|
| Liabilities | | | | | | | |
Other liabilities (2) | $ | 44,077 |
| | $ | — |
| | $ | 44,077 |
| | $ | — |
|
| Total liabilities | $ | 44,077 |
| | $ | — |
| | $ | 44,077 |
| | $ | — |
|
| Non-recurring fair value measurements: | | | | | | | |
Collateral dependent impaired loans (3) | $ | 5,385 |
| | $ | — |
| | $ | — |
| | $ | 5,385 |
|
| Loan servicing rights | 6,489 |
| | — |
| | — |
| | 6,489 |
|
| Foreclosed assets | 4,532 |
| | — |
| | — |
| | 4,532 |
|
| Total | $ | 16,406 |
| | $ | — |
| | $ | — |
| | $ | 16,406 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at Reporting Date Using: |
| | December 31,
2022 | | Quoted Prices
in Active Markets
for Identical
Assets (Level 1) | | Significant
Other
Observable Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | (in thousands) |
| Recurring fair value measurements: | | | | | | | |
| Assets | | | | | | | |
| Investment securities: | | | | | | | |
| Equity securities | $ | 23,494 | | | $ | 23,494 | | | $ | — | | | $ | — | |
| Equity securities at net asset value (NAV) | 10,099 | | | — | | | — | | | — | |
| Trading debt securities | 13,438 | | | 3,282 | | | 10,156 | | | — | |
| Available for sale debt securities: | | | | | | | |
| U.S. Treasury securities | 279,498 | | | 279,498 | | | — | | | — | |
| U.S. government agency securities | 26,964 | | | — | | | 26,964 | | | — | |
| Obligations of states and political subdivisions | 146,811 | | | — | | | 146,811 | | | — | |
| Residential mortgage-backed securities | 629,818 | | | — | | | 629,818 | | | — | |
| | | | | | | |
| Corporate and other debt securities | 178,306 | | | — | | | 178,306 | | | — | |
| Total available for sale debt securities | 1,261,397 | | | 279,498 | | | 981,899 | | | — | |
| | | | | | | |
Loans held for sale (1) | 18,118 | | | — | | | 18,118 | | | — | |
Other assets (2) | 467,127 | | | — | | | 467,127 | | | — | |
| Total assets | $ | 1,793,673 | | | $ | 306,274 | | | $ | 1,477,300 | | | $ | — | |
| Liabilities | | | | | | | |
Other liabilities (2) | $ | 607,237 | | | $ | — | | | $ | 607,237 | | | $ | — | |
| Total liabilities | $ | 607,237 | | | $ | — | | | $ | 607,237 | | | $ | — | |
| Non-recurring fair value measurements: | | | | | | | |
| Collateral dependent loans | $ | 92,923 | | | $ | — | | | $ | — | | | $ | 92,923 | |
| Foreclosed assets | 1,937 | | | — | | | — | | | 1,937 | |
| Total | $ | 94,860 | | | $ | — | | | $ | — | | | $ | 94,860 | |
| |
(1) | Represents residential mortgage loans originated(1)Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $13.1 million and $58.2 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(2) | Derivative financial instruments are included in this category. |
The changes in Level 3 assets measured at fair value on a recurring basis for the three and nine months ended Septemberhad contractual unpaid principal balances totaling approximately $23.0 million and $17.9 million at June 30, 20172023 and 2016December 31, 2022, respectively.
(2)Derivative financial instruments are summarized below:
|
| | | | | | | | | | | | | | | |
| | Available for Sale Securities |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Balance, beginning of the period | $ | 10,730 |
| | $ | 13,101 |
| | $ | 11,888 |
| | $ | 13,793 |
|
| Total net losses included in other comprehensive income | (448 | ) | | (212 | ) | | (435 | ) | | (283 | ) |
| Settlements, net | (485 | ) | | (492 | ) | | (1,656 | ) | | (1,113 | ) |
| Balance, end of the period | $ | 9,797 |
| | $ | 12,397 |
| | $ | 9,797 |
| | $ | 12,397 |
|
No changes in unrealized gains or losses on Level 3 securities were included in earnings during the three and nine months ended September 30, 2017 and 2016. There were no transfers of assets into or out of Level 3, or between Level 1 and Level 2, during the three and nine months ended September 30, 2017 and 2016.this category.
There have been no material changes in the valuation methodologies used at September 30, 2017 from December 31, 2016.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
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 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.
Equity securities. The fair value of equity securities consists of a publicly traded mutual fund, a Community Reinvestment Act (CRA) investment fund and an investment related to the development of new financial technologies that are carried at quoted prices in active markets.
Equity securities at NAV. Valley also has privately held CRA funds at fair value measured at NAV using the most recently available financial information from the investee. Investments measured at NAV (or its equivalent) as a practical expedient are excluded from fair value hierarchy levels in the tables above.
Trading debt securities. The fair value of trading debt securities, consisting of U.S. Treasury securities are reported at fair value utilizing Level 1 inputs at June 30, 2023. At December 31, 2022, trading debt securities consisted of U.S. Treasury securities and municipal bonds reported at fair value utilizing Level 1 and Level 2 inputs, respectively. The prices for municipal bonds investments were derived from market quotations and matrix pricing obtained through an independent pricing service. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data.
Available for sale debt securities.
All U.S. Treasury securities, certain corporate and other debt securities, and certain preferred equity securities are reported at fair value utilizing Level 1 inputs. The majority of 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 partythird-party provider 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 an independent pricing service may be derived from unobservable market information (Level 3 inputs). In these instances, Valley evaluates the appropriateness and quality of the assumption and the resulting price. In addition, Valley reviews the volume and level of activity for all available for sale and tradingdebt securities and attempts 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 utilizes 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 utilizes 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, Valley prepared present value cash flow models for 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 following table presents quantitative information about Level 3 inputs used to measure the fair value of these securities at September 30, 2017:
|
| | | | | | | | |
Security Type | Valuation
Technique
| | Unobservable
Input
| | Range | | Weighted
Average
|
| | | | | | | |
Private label mortgage-backed securities | Discounted cash flow | | Prepayment rate | | 1.1 - 34.1% | | 18.0 | % |
| | | Default rate | | 1.4 - 30.9 | | 6.7 |
|
| | | Loss severity | | 47.7 - 63.8 | | 58.3 |
|
Significant increases or decreases in any of the unobservable inputs in the table above in isolation would result in a significantly lower or higher fair value measurement of the securities. Generally, a change in the assumption used for the default rate is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.
For the Level 3 available for sale residential mortgage-backed securities (consisting of 4 private label 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.
For the Level 3 available for sale trust preferred securities (consisting of one pooled security), the resulting estimated future cash flow was discounted at a yield determined by reference to similarly structured securities for which observable orderly transactions occurred. The discount rate was applied using a pricing matrix based on credit, security type and maturity characteristics to determine the fair value. The fair value calculation is received from an independent valuation adviser. In validating the fair value calculation from an independent valuation adviser, Valley reviews the accuracy of the inputs and the appropriateness of the unobservable inputs utilized in the valuation to ensure the fair value calculation is reasonable from a market participant perspective.
Loans held for sale. The conforming residential Residential mortgage loans originated for sale are reported at fair value using Level 2 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 and maturity of each mortgage. 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 SeptemberJune 30, 20172023 and December 31, 20162022 based on the short duration these assets were held, and the high credit quality of these loans.
Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair valuevalues of Valley’s derivatives are determined using third partythird-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR and Overnight Index Swap rateand Secured Overnight Financing Rate (SOFR) curves. The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at SeptemberJune 30, 20172023 and December 31, 2016)2022), is determined based on the current market prices for similar instruments provided by Fannie Mae and Freddie Mac.instruments. The fair values of most 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 SeptemberJune 30, 20172023 and December 31, 2016.
2022.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
The following valuation techniques were used for certain non-financial assets measured at fair value on a nonrecurringnon-recurring basis, including impairedcollateral dependent loans reported at the fair value of the underlying collateral loan servicing rights and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.
Non-performing loans held for sale. Valley transferred one non-performing construction loan totaling $10.0 million, net of charge-offs, to loans held for sale at June 30, 2023. The transfer at the loan's fair value resulted in a $4.2 million charge-off to the allowance of loan losses for the three months ended June 30, 2023. The fair value of the loan was determined using Level 2 inputs, including bids from a third party broker engaged to solicit interest from potential purchasers. The broker coordinated loan level due diligence with interested parties and established a
formal bidding process in which each participant was required to provide an indicative non-binding bid. Fair value was determined based on a non-binding sale agreement selected by Valley during the bidding process that is expected to close during the third quarter 2023.
Collateral dependent loans. Certain impairedCollateral dependent loans are loans when foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and substantially all of the repayment is expected from the collateral. Collateral dependent 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. Collateral values are estimated using Level 3 inputs, consisting of individual third-party appraisals that may be adjusted based on certain discounting criteria. At September 30, 2017, certainCertain real estate appraisals weremay be discounted based on specific market data by location and property type. During the quarter ended SeptemberAt June 30, 2017,2023, 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. There were noAt June 30, 2023, collateral dependent loans with a total amortized cost of $125.0 million, including our taxi medallion loan charge-offs to theportfolio, were reduced by specific allowance for loan losses for the three months ended September 30, 2017 as compared to $3.7 million for the three months ended September 30, 2016 and $2.1 millionand$4.7 million for the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017, collateral dependent impaired loans with a total recorded investment of $38.3 million were reduced by specific valuation allowance allocations totaling $5.0$61.0 million to a reported total net carrying amount of $33.3$64.0 million.
Loan servicing rights. Fair values for each risk-stratified group of loan servicing rights 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, prepayment speeds, internal rate of return (“discount rate”), servicing cost, ancillary income, float rate, tax rate, and inflation. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At September 30, 2017, the fair value model used prepayment speeds (stated as constant prepayment rates) from 0 percent up to 24 percent and a discount rate of 8 percent for the valuation of the loan servicing rights. 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 amortized cost of a risk-stratified group of loan servicing rights exceeds the estimated fair value. Valley recorded net recoveries of net impairment charges on its loan servicing rights totaling $134 thousand and $185 thousand for the three and nine months ended September 30, 2017, respectively. Valley recorded no net impairment charges on its loan servicing rights for the three months ended September 30, 2016 and net impairment charges totaling $457 thousand for the nine months ended September 30, 2016.
Foreclosed assets. Certain foreclosed assets (consisting of other real estate owned and other repossessed assets included in other 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 a third-party appraisal less estimated cost to sell. When an appraisal thatasset is adjusted based on certain discounting criteria, similaracquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the criteria usedallowance for impaired loans described above.loan losses. If further declines in the estimated fair value of the asset occur, an asset is re-measured and reported at fair value through a write-down recorded in non-interest expense. There were no discount adjustments ofto the appraisals of foreclosed assets at SeptemberJune 30, 2017. At September 30, 2017,
foreclosed assets included $1.8 million of assets that were measured at fair value upon initial recognition or subsequently re-measured during the quarter ended September 30, 2017. The foreclosed assets charge-offs to the allowance for loan losses totaled $536 thousand2023 and $245 thousand for the three months ended September 30, 2017 and 2016, respectively, and $1.5 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively. The re-measurement of foreclosed assets at fair value subsequent to their initial recognition resulted in net losses within non-interest expense of $290 thousand for the nine months ended September 30, 2017, and $34 thousandand $946 thousand for three and nine months ended September 30, 2016, respectively. There were no losses on re-measurement during the three months ended September 30, 2017.
December 31, 2022.
Other Fair Value Disclosures
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,operations, 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.
17
The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at SeptemberJune 30, 20172023 and December 31, 20162022 were as follows:
|
| | | | | | | | | | | | | | | | | |
| | Fair Value Hierarchy | | September 30, 2017 | | December 31, 2016 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | (in thousands) |
| Financial assets | | | | | | | | | |
| Cash and due from banks | Level 1 | | $ | 215,600 |
| | $ | 215,600 |
| | $ | 220,791 |
| | $ | 220,791 |
|
| Interest bearing deposits with banks | Level 1 | | 128,226 |
| | 128,226 |
| | 171,710 |
| | 171,710 |
|
| Investment securities held to maturity: | | | | | | | | | |
| U.S. Treasury securities | Level 1 | | 138,714 |
| | 147,126 |
| | 138,830 |
| | 147,495 |
|
| U.S. government agency securities | Level 2 | | 9,984 |
| | 10,188 |
| | 11,329 |
| | 11,464 |
|
| Obligations of states and political subdivisions | Level 2 | | 495,157 |
| | 511,159 |
| | 566,590 |
| | 577,826 |
|
| Residential mortgage-backed securities | Level 2 | | 1,088,389 |
| | 1,081,703 |
| | 1,112,460 |
| | 1,102,802 |
|
| Trust preferred securities | Level 2 | | 49,819 |
| | 38,998 |
| | 59,804 |
| | 47,290 |
|
| Corporate and other debt securities | Level 2 | | 41,559 |
| | 41,971 |
| | 36,559 |
| | 37,720 |
|
| Total investment securities held to maturity | | | 1,823,622 |
| | 1,831,145 |
| | 1,925,572 |
| | 1,924,597 |
|
| Net loans | Level 3 | | 18,082,496 |
| | 17,741,813 |
| | 17,121,684 |
| | 16,756,655 |
|
| Accrued interest receivable | Level 1 | | 72,063 |
| | 72,063 |
| | 66,816 |
| | 66,816 |
|
Federal Reserve Bank and Federal Home Loan Bank stock (1) | Level 1 | | 204,978 |
| | 204,978 |
| | 147,127 |
| | 147,127 |
|
| Financial liabilities | | | | | | | | | |
| Deposits without stated maturities | Level 1 | | 13,892,110 |
| | 13,892,110 |
| | 14,591,837 |
| | 14,591,837 |
|
| Deposits with stated maturities | Level 2 | | 3,420,656 |
| | 3,436,229 |
| | 3,138,871 |
| | 3,160,572 |
|
| Short-term borrowings | Level 1 | | 1,482,709 |
| | 1,485,695 |
| | 1,080,960 |
| | 1,081,751 |
|
| Long-term borrowings | Level 2 | | 2,215,219 |
| | 2,300,388 |
| | 1,433,906 |
| | 1,523,386 |
|
| Junior subordinated debentures issued to capital trusts | Level 2 | | 41,716 |
| | 42,244 |
| | 41,577 |
| | 45,785 |
|
Accrued interest payable (2) | Level 1 | | 10,812 |
| | 10,812 |
| | 10,675 |
| | 10,675 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value
Hierarchy | | June 30, 2023 | | December 31, 2022 |
| | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| | | | (in thousands) |
| Financial assets | | | | | | | | | |
| Cash and due from banks | Level 1 | | $ | 463,318 | | | $ | 463,318 | | | $ | 444,325 | | | $ | 444,325 | |
| Interest bearing deposits with banks | Level 1 | | 1,491,091 | | | 1,491,091 | | | 503,622 | | | 503,622 | |
Equity securities (1) | Level 3 | | 25,047 | | | 25,047 | | | 15,138 | | | 15,138 | |
| Held to maturity debt securities: | | | | | | | | | |
| U.S. Treasury securities | Level 1 | | 66,579 | | | 65,675 | | | 66,911 | | | 65,889 | |
| U.S. government agency securities | Level 2 | | 261,197 | | | 215,039 | | | 260,392 | | | 212,712 | |
| Obligations of states and political subdivisions | Level 2 | | 465,115 | | | 438,991 | | | 480,298 | | | 453,195 | |
| Residential mortgage-backed securities | Level 2 | | 2,861,227 | | | 2,461,519 | | | 2,909,106 | | | 2,495,797 | |
| Trust preferred securities | Level 2 | | 37,052 | | | 29,344 | | | 37,043 | | | 31,106 | |
| Corporate and other debt securities | Level 2 | | 75,668 | | | 68,380 | | | 75,234 | | | 70,771 | |
Total held to maturity debt securities (2) | | | 3,766,838 | | | 3,278,948 | | | 3,828,984 | | | 3,329,470 | |
| Net loans | Level 3 | | 49,440,816 | | | 47,472,065 | | | 46,458,545 | | | 44,910,049 | |
| Accrued interest receivable | Level 1 | | 225,918 | | | 225,918 | | | 196,606 | | | 196,606 | |
Federal Reserve Bank and Federal Home Loan Bank stock (3) | Level 2 | | 326,959 | | | 326,959 | | | 238,056 | | | 238,056 | |
| Financial liabilities | | | | | | | | | |
| Deposits without stated maturities | Level 1 | | 34,711,633 | | | 34,711,633 | | | 38,080,457 | | | 38,080,457 | |
| Deposits with stated maturities | Level 2 | | 14,908,182 | | | 14,783,271 | | | 9,556,457 | | | 9,443,253 | |
| Short-term borrowings | Level 1 | | 1,088,899 | | | 1,066,450 | | | 138,729 | | | 138,729 | |
| Long-term borrowings | Level 2 | | 2,443,533 | | | 2,340,324 | | | 1,543,058 | | | 1,395,991 | |
| Junior subordinated debentures issued to capital trusts | Level 2 | | 56,934 | | | 48,117 | | | 56,760 | | | 50,923 | |
Accrued interest payable (4) | Level 1 | | 125,873 | | | 125,873 | | | 45,617 | | | 45,617 | |
| |
(1) | Included in other assets. |
| |
(2) | Included in accrued expenses and other liabilities. |
The following methods and assumptions were used to estimate the(1)Represents equity securities without a readily determinable fair value of other financial assets and financial liabilities in the table above:measured at cost less impairment, if any.
Cash and due from banks and interest bearing deposits with banks.(2)The carrying amount is considered to be a reasonable estimate of fair value because ofpresented gross without the short maturity of these items.allowance for credit losses.
(3)Included in other assets.
Investment securities held to maturity. Fair values are based on prices obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases(4)Included in accrued expenses 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 (Level 2 inputs). Additionally, Valley reviews the volume and level of activity for all classes of held to maturity securities and attempts 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 serviceliabilities.
may be adjusted, as necessary. If applicable, the adjustment to fair value is 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 loans are estimated by discounting the projected futurecash flows using market discount rates that reflect the credit and interest-rate risk inherent in the loan. The discount rate is a product of both the applicable index and credit spread, subject to the estimated current new loan interest rates. The credit spread component is static for all maturities and may not necessarily reflect the value of estimating all actual cash flows re-pricing. 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 due to the short-term nature of these items.
Federal Reserve Bank and Federal Home Loan Bank stock. Federal Reserve Bank and FHLB stock are non-marketable equity securities and are reported at their redeemable carrying amounts, which approximate fair value.
Deposits. The carrying amounts of deposits without stated maturities (i.e., non-interest bearing, savings, NOW, and money market deposits) approximate their estimated fair value. 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 carrying amounts of certain short-term borrowings, including securities sold under agreements to repurchase and FHLB borrowings (and from time to time, federal funds purchased) approximate their fair values because they frequently re-price to a market rate. The fair values of other short-term and long-term borrowings are estimated by obtaining quoted market prices of the identical or similar financial instruments when available. When quoted prices are unavailable, the fair values of the borrowings are estimated by discounting the estimated future cash flows using current market discount rates of financial instruments with similar characteristics, terms and remaining maturity.
Junior subordinated debentures issued to capital trusts. The fair value of debentures issued to capital trusts 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 of U.S. Treasury security or the three-month LIBOR for the variable rate indexed debentures (Level 2 inputs). The credit spread used to discount the expected cash flows was calculated based on the median current spreads for all fixed and variable publicly traded trust preferred securities issued by banks.
Note 7. Investment Securities
Equity Securities
Held to MaturityEquity securities totaled $61.0 million and $48.7 million at June 30, 2023 and December 31, 2022, respectively. See Note 6 for further details on equity securities.
Trading Debt Securities
The fair value of trading debt securities totaled $3.4 million and $13.4 million at June 30, 2023 and December 31, 2022, respectively. Net trading gains and losses were included in net gains and losses on securities transactions within non-interest income. We recorded net trading gains of $226 thousand and $628 thousand for the three and six months ended June 30, 2023, respectively. We recorded net trading losses of $387 thousand and $1.4 million for the three and six months ended June 30, 2022, respectively.
Available for Sale Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities held to maturity at SeptemberJune 30, 20172023 and December 31, 20162022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| | (in thousands) |
| June 30, 2023 | | | | | | | |
| U.S. Treasury securities | $ | 310,936 | | | $ | — | | | $ | (28,538) | | | $ | 282,398 | |
| U.S. government agency securities | 26,799 | | | 19 | | | (2,626) | | | 24,192 | |
| Obligations of states and political subdivisions: | | | | | | | |
| Obligations of states and state agencies | 9,425 | | | — | | | (776) | | | 8,649 | |
| Municipal bonds | 193,920 | | | — | | | (31,526) | | | 162,394 | |
| Total obligations of states and political subdivisions | 203,345 | | | — | | | (32,302) | | | 171,043 | |
| Residential mortgage-backed securities | 681,513 | | | 20 | | | (86,897) | | | 594,636 | |
| | | | | | | |
| Corporate and other debt securities | 192,087 | | | — | | | (27,410) | | | 164,677 | |
| Total | $ | 1,414,680 | | | $ | 39 | | | $ | (177,773) | | | $ | 1,236,946 | |
| December 31, 2022 | | | | | | | |
| U.S. Treasury securities | $ | 308,137 | | | $ | — | | | $ | (28,639) | | | $ | 279,498 | |
| U.S. government agency securities | 29,494 | | | 47 | | | (2,577) | | | 26,964 | |
| Obligations of states and political subdivisions: | | | | | | | |
| Obligations of states and state agencies | 10,899 | | | — | | | (493) | | | 10,406 | |
| Municipal bonds | 171,586 | | | — | | | (35,181) | | | 136,405 | |
| Total obligations of states and political subdivisions | 182,485 | | | — | | | (35,674) | | | 146,811 | |
| Residential mortgage-backed securities | 719,868 | | | 64 | | | (90,114) | | | 629,818 | |
| | | | | | | |
| Corporate and other debt securities | 197,927 | | | — | | | (19,621) | | | 178,306 | |
| | | | | | | |
| Total | $ | 1,437,911 | | | $ | 111 | | | $ | (176,625) | | | $ | 1,261,397 | |
Accrued interest on investments, which is excluded from the amortized cost of available for sale debt securities, totaled $4.9 million and $5.6 million at June 30, 2023 and December 31, 2022, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.
19
|
| | | | | | | | | | | | | | | |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | (in thousands) |
| September 30, 2017 | | | | | | | |
| U.S. Treasury securities | $ | 138,714 |
| | $ | 8,412 |
| | $ | — |
| | $ | 147,126 |
|
| U.S. government agency securities | 9,984 |
| | 204 |
| | — |
| | 10,188 |
|
| Obligations of states and political subdivisions: | | | | | | | |
| Obligations of states and state agencies | 247,277 |
| | 9,412 |
| | (1,449 | ) | | 255,240 |
|
| Municipal bonds | 247,880 |
| | 8,049 |
| | (10 | ) | | 255,919 |
|
| Total obligations of states and political subdivisions | 495,157 |
| | 17,461 |
| | (1,459 | ) | | 511,159 |
|
| Residential mortgage-backed securities | 1,088,389 |
| | 7,234 |
| | (13,920 | ) | | 1,081,703 |
|
| Trust preferred securities | 49,819 |
| | 47 |
| | (10,868 | ) | | 38,998 |
|
| Corporate and other debt securities | 41,559 |
| | 699 |
| | (287 | ) | | 41,971 |
|
| Total investment securities held to maturity | $ | 1,823,622 |
| | $ | 34,057 |
| | $ | (26,534 | ) | | $ | 1,831,145 |
|
| December 31, 2016 | | | | | | | |
| U.S. Treasury securities | $ | 138,830 |
| | $ | 8,665 |
| | $ | — |
| | $ | 147,495 |
|
| U.S. government agency securities | 11,329 |
| | 135 |
| | — |
| | 11,464 |
|
| Obligations of states and political subdivisions: | | | | | | | |
| Obligations of states and state agencies | 252,185 |
| | 6,692 |
| | (1,428 | ) | | 257,449 |
|
| Municipal bonds | 314,405 |
| | 6,438 |
| | (466 | ) | | 320,377 |
|
| Total obligations of states and political subdivisions | 566,590 |
| | 13,130 |
| | (1,894 | ) | | 577,826 |
|
| Residential mortgage-backed securities | 1,112,460 |
| | 8,432 |
| | (18,090 | ) | | 1,102,802 |
|
| Trust preferred securities | 59,804 |
| | 40 |
| | (12,554 | ) | | 47,290 |
|
| Corporate and other debt securities | 36,559 |
| | 1,190 |
| | (29 | ) | | 37,720 |
|
| Total investment securities held to maturity | $ | 1,925,572 |
| | $ | 31,592 |
| | $ | (32,567 | ) | | $ | 1,924,597 |
|
The age of unrealized losses and fair value of the related available for sale debt securities held to maturity at SeptemberJune 30, 20172023 and December 31, 20162022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | More than 12 Months | | Total |
| | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| | (in thousands) |
| June 30, 2023 | | | | | | | | | | | |
| U.S. Treasury securities | $ | — | | | $ | — | | | $ | 282,398 | | | $ | (28,538) | | | $ | 282,398 | | | $ | (28,538) | |
| U.S. government agency securities | — | | | — | | | 22,818 | | | (2,626) | | | 22,818 | | | (2,626) | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 1,223 | | | (20) | | | 7,426 | | | (756) | | | 8,649 | | | (776) | |
| Municipal bonds | 1,405 | | | (20) | | | 137,180 | | | (31,506) | | | 138,585 | | | (31,526) | |
| Total obligations of states and political subdivisions | 2,628 | | | (40) | | | 144,606 | | | (32,262) | | | 147,234 | | | (32,302) | |
| Residential mortgage-backed securities | 30,949 | | | (1,919) | | | 562,383 | | | (84,978) | | | 593,332 | | | (86,897) | |
| | | | | | | | | | | |
| Corporate and other debt securities | 44,404 | | | (7,239) | | | 120,273 | | | (20,171) | | | 164,677 | | | (27,410) | |
| Total | $ | 77,981 | | | $ | (9,198) | | | $ | 1,132,478 | | | $ | (168,575) | | | $ | 1,210,459 | | | $ | (177,773) | |
| December 31, 2022 | | | | | | | | | | | |
| U.S. Treasury securities | $ | 279,498 | | | $ | (28,639) | | | $ | — | | | $ | — | | | $ | 279,498 | | | $ | (28,639) | |
| U.S. government agency securities | 22,831 | | | (2,538) | | | 1,116 | | | (39) | | | 23,947 | | | (2,577) | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 2,943 | | | (54) | | | 7,462 | | | (439) | | | 10,405 | | | (493) | |
| Municipal bonds | 112,029 | | | (26,044) | | | 24,127 | | | (9,137) | | | 136,156 | | | (35,181) | |
| Total obligations of states and political subdivisions | 114,972 | | | (26,098) | | | 31,589 | | | (9,576) | | | 146,561 | | | (35,674) | |
| Residential mortgage-backed securities | 311,836 | | | (27,152) | | | 314,834 | | | (62,962) | | | 626,670 | | | (90,114) | |
| | | | | | | | | | | |
| Corporate and other debt securities | 144,924 | | | (12,581) | | | 33,382 | | | (7,040) | | | 178,306 | | | (19,621) | |
| | | | | | | | | | | |
| Total | $ | 874,061 | | | $ | (97,008) | | | $ | 380,921 | | | $ | (79,617) | | | $ | 1,254,982 | | | $ | (176,625) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Less than Twelve Months | | More than Twelve Months | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (in thousands) |
| September 30, 2017 | | | | | | | | | | | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | $ | 55,565 |
| | $ | (1,449 | ) | | $ | — |
| | $ | — |
| | $ | 55,565 |
| | $ | (1,449 | ) |
| Municipal bonds | 4,678 |
| | (10 | ) | | — |
| | — |
| | 4,678 |
| | (10 | ) |
| Total obligations of states and political subdivisions | 60,243 |
| | (1,459 | ) | | — |
| | — |
| | 60,243 |
| | (1,459 | ) |
| Residential mortgage-backed securities | 551,490 |
| | (7,911 | ) | | 228,397 |
| | (6,009 | ) | | 779,887 |
| | (13,920 | ) |
| Trust preferred securities | — |
| | — |
| | 37,597 |
| | (10,868 | ) | | 37,597 |
| | (10,868 | ) |
| Corporate and other debt securities | 4,713 |
| | (287 | ) | | — |
| | — |
| | 4,713 |
| | (287 | ) |
| Total | $ | 616,446 |
| | $ | (9,657 | ) | | $ | 265,994 |
| | $ | (16,877 | ) | | $ | 882,440 |
| | $ | (26,534 | ) |
| December 31, 2016 | | | | | | | | | | | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | $ | 98,114 |
| | $ | (1,428 | ) | | $ | — |
| | $ | — |
| | $ | 98,114 |
| | $ | (1,428 | ) |
| Municipal bonds | 27,368 |
| | (466 | ) | | — |
| | — |
| | 27,368 |
| | (466 | ) |
| Total obligations of states and political subdivisions | 125,482 |
| | (1,894 | ) | | — |
| | — |
| | 125,482 |
| | (1,894 | ) |
| Residential mortgage-backed securities | 692,108 |
| | (14,420 | ) | | 114,505 |
| | (3,670 | ) | | 806,613 |
| | (18,090 | ) |
| Trust preferred securities | — |
| | — |
| | 45,898 |
| | (12,554 | ) | | 45,898 |
| | (12,554 | ) |
| Corporate and other debt securities | 2,971 |
| | (29 | ) | | — |
| | — |
| | 2,971 |
| | (29 | ) |
| Total | $ | 820,561 |
| | $ | (16,343 | ) | | $ | 160,403 |
| | $ | (16,224 | ) | | $ | 980,964 |
| | $ | (32,567 | ) |
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, in some cases, lack of liquidity in the marketplace. Within the held to maturityavailable for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 118725 and 730 at SeptemberJune 30, 20172023 and 132 at December 31, 2016.
The unrealized losses within the residential mortgage-backed securities category of the held to maturity portfolio at September 30, 2017 mainly related to investment grade securities issued by Ginnie Mae.
The unrealized losses existing for more than twelve months for trust preferred securities at September 30, 2017 primarily related to four non-rated single-issuer trust preferred securities issued by bank holding companies. All single-issuer 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, the issuers meet the regulatory capital requirements to be considered “well-capitalized institutions” at September 30, 2017.2022, respectively.
As of SeptemberJune 30, 2017,2023, the fair value of investments held to maturityavailable for sale debt securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $978.7 million.
The contractual maturities of investments in debt securities held to maturity at September 30, 2017 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.
|
| | | | | | | |
| | September 30, 2017 |
| | Amortized Cost | | Fair Value |
| | (in thousands) |
| Due in one year | $ | 54,778 |
| | $ | 55,334 |
|
| Due after one year through five years | 221,351 |
| | 229,067 |
|
| Due after five years through ten years | 313,923 |
| | 330,775 |
|
| Due after ten years | 145,181 |
| | 134,266 |
|
| Residential mortgage-backed securities | 1,088,389 |
| | 1,081,703 |
|
| Total investment securities held to maturity | $ | 1,823,622 |
| | $ | 1,831,145 |
|
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 7.3 years at September 30, 2017.
Available for Sale
The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | (in thousands) |
| September 30, 2017 | | | | | | | |
| U.S. Treasury securities | $ | 51,003 |
| | $ | 6 |
| | $ | (861 | ) | | $ | 50,148 |
|
| U.S. government agency securities | 43,896 |
| | 342 |
| | (8 | ) | | 44,230 |
|
| Obligations of states and political subdivisions: | | | | | | | |
| Obligations of states and state agencies | 38,847 |
| | 367 |
| | (204 | ) | | 39,010 |
|
| Municipal bonds | 79,452 |
| | 473 |
| | (533 | ) | | 79,392 |
|
| Total obligations of states and political subdivisions | 118,299 |
| | 840 |
| | (737 | ) | | 118,402 |
|
| Residential mortgage-backed securities | 1,171,510 |
| | 3,230 |
| | (13,583 | ) | | 1,161,157 |
|
| Trust preferred securities* | 6,532 |
| | — |
| | (1,139 | ) | | 5,393 |
|
| Corporate and other debt securities | 56,827 |
| | 719 |
| | (119 | ) | | 57,427 |
|
| Equity securities | 10,505 |
| | 929 |
| | (454 | ) | | 10,980 |
|
| Total investment securities available for sale | $ | 1,458,572 |
| | $ | 6,066 |
| | $ | (16,901 | ) | | $ | 1,447,737 |
|
| December 31, 2016 | | | | | | | |
| U.S. Treasury securities | $ | 51,020 |
| | $ | 6 |
| | $ | (1,435 | ) | | $ | 49,591 |
|
| U.S. government agency securities | 22,815 |
| | 232 |
| | (6 | ) | | 23,041 |
|
| Obligations of states and political subdivisions: | | | | | | | |
| Obligations of states and state agencies | 40,696 |
| | 70 |
| | (424 | ) | | 40,342 |
|
| Municipal bonds | 80,045 |
| | 147 |
| | (767 | ) | | 79,425 |
|
| Total obligations of states and political subdivisions | 120,741 |
| | 217 |
| | (1,191 | ) | | 119,767 |
|
| Residential mortgage-backed securities | 1,029,827 |
| | 2,061 |
| | (16,346 | ) | | 1,015,542 |
|
| Trust preferred securities* | 10,164 |
| | — |
| | (2,155 | ) | | 8,009 |
|
| Corporate and other debt securities | 60,651 |
| | 436 |
| | (522 | ) | | 60,565 |
|
| Equity securities | 20,505 |
| | 1,114 |
| | (761 | ) | | 20,858 |
|
| Total investment securities available for sale | $ | 1,315,723 |
| | $ | 4,066 |
| | $ | (22,416 | ) | | $ | 1,297,373 |
|
|
| |
* | Includes two pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies, at September 30, 2017 and December 31, 2016. |
The age of unrealized losses and fair value of related securities available for sale at September 30, 2017 and December 31, 2016 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Less than Twelve Months | | More than Twelve Months | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (in thousands) |
| September 30, 2017 | | | | | | | | | | | |
| U.S. Treasury securities | $ | 49,223 |
| | $ | (861 | ) | | $ | — |
| | $ | — |
| | $ | 49,223 |
| | $ | (861 | ) |
| U.S. government agency securities | 5,527 |
| | (8 | ) | | — |
| | — |
| | 5,527 |
| | (8 | ) |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 11,117 |
| | (153 | ) | | 1,544 |
| | (51 | ) | | 12,661 |
| | (204 | ) |
| Municipal bonds | 18,688 |
| | (184 | ) | | 11,019 |
| | (349 | ) | | 29,707 |
| | (533 | ) |
| Total obligations of states and political subdivisions | 29,805 |
| | (337 | ) | | 12,563 |
| | (400 | ) | | 42,368 |
| | (737 | ) |
| Residential mortgage-backed securities | 599,413 |
| | (7,780 | ) | | 217,306 |
| | (5,803 | ) | | 816,719 |
| | (13,583 | ) |
| Trust preferred securities | — |
| | — |
| | 5,394 |
| | (1,139 | ) | | 5,394 |
| | (1,139 | ) |
| Corporate and other debt securities | 15,880 |
| | (17 | ) | | 15,241 |
| | (102 | ) | | 31,121 |
| | (119 | ) |
| Equity securities | — |
| | — |
| | 5,190 |
| | (454 | ) | | 5,190 |
| | (454 | ) |
| Total | $ | 699,848 |
| | $ | (9,003 | ) | | $ | 255,694 |
| | $ | (7,898 | ) | | $ | 955,542 |
| | $ | (16,901 | ) |
| December 31, 2016 | | | | | | | | | | | |
| U.S. Treasury securities | $ | 48,660 |
| | $ | (1,435 | ) | | $ | — |
| | $ | — |
| | $ | 48,660 |
| | $ | (1,435 | ) |
| U.S. government agency securities | 2,530 |
| | (4 | ) | | 4,034 |
| | (2 | ) | | 6,564 |
| | (6 | ) |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 28,628 |
| | (404 | ) | | 753 |
| | (20 | ) | | 29,381 |
| | (424 | ) |
| Municipal bonds | 42,573 |
| | (506 | ) | | 11,081 |
| | (261 | ) | | 53,654 |
| | (767 | ) |
| Total obligations of states and political subdivisions | 71,201 |
| | (910 | ) | | 11,834 |
| | (281 | ) | | 83,035 |
| | (1,191 | ) |
| Residential mortgage-backed securities | 788,030 |
| | (11,889 | ) | | 132,718 |
| | (4,457 | ) | | 920,748 |
| | (16,346 | ) |
| Trust preferred securities | — |
| | — |
| | 8,009 |
| | (2,155 | ) | | 8,009 |
| | (2,155 | ) |
| Corporate and other debt securities | 32,292 |
| | (294 | ) | | 15,192 |
| | (228 | ) | | 47,484 |
| | (522 | ) |
| Equity securities | — |
| | — |
| | 14,883 |
| | (761 | ) | | 14,883 |
| | (761 | ) |
| Total | $ | 942,713 |
| | $ | (14,532 | ) | | $ | 186,670 |
| | $ | (7,884 | ) | | $ | 1,129,383 |
| | $ | (22,416 | ) |
The unrealized losses on investment securities available for sale are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security positions in the securities available for sale portfolio in an unrealized loss position at September 30, 2017 was 253 as compared to 298 at December 31, 2016.
The unrealized losses for the residential mortgage-backed securities category of the available for sale portfolio at September 30, 2017 largely related to several investment grade residential mortgage-backed securities mainly issued by Ginnie Mae.
As of September 30, 2017, 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 $692.2$847.1 million.
The contractual maturities of investment securities available for sale debt securities at SeptemberJune 30, 20172023 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.
| | | | September 30, 2017 | | June 30, 2023 |
| | Amortized Cost | | Fair Value | | Amortized
Cost | | Fair
Value |
| | (in thousands) | | (in thousands) |
| Due in one year | $ | 25,341 |
| | $ | 25,295 |
| Due in one year | $ | 2,350 | | | $ | 2,322 | |
| Due after one year through five years | 65,472 |
| | 65,631 |
| Due after one year through five years | 282,534 | | | 265,870 | |
| Due after five years through ten years | 108,222 |
| | 107,858 |
| Due after five years through ten years | 175,056 | | | 148,811 | |
| Due after ten years | 77,522 |
| | 76,816 |
| Due after ten years | 273,227 | | | 225,307 | |
| Residential mortgage-backed securities | 1,171,510 |
| | 1,161,157 |
| Residential mortgage-backed securities | 681,513 | | | 594,636 | |
| Equity securities | 10,505 |
| | 10,980 |
| |
| Total investment securities available for sale | $ | 1,458,572 |
| | $ | 1,447,737 |
| |
| Total | | Total | $ | 1,414,680 | | | $ | 1,236,946 | |
Actual maturities of available for sale 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 available for sale was 8.27.68 years at SeptemberJune 30, 2017.2023.
Other-Than-Temporary Impairment Analysis of Available For Sale Debt Securities
Valley records impairment charges on its investmentValley's available for sale debt securities when the decline in fair value is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities; decline in the creditworthiness of the issuer; absence of reliable pricing information for investment securities; adverse changes in business climate; adverse actions by regulators; prolonged decline in value of equity investments; 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 (including two pooled trust preferred securities) andincludes corporate bonds issued by banks.and revenue bonds, among other securities. These investmentstypes of securities may pose a higher risk of future impairment charges by Valley as a result of the changes in market interest rates, unpredictable nature of the U.S. economy and itstheir potential negative effect on the future performance of the security issuers and, if applicable, the underlying mortgage loan collateral of the security.issuers.
There were no other-than-temporaryAvailable for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on securities recognized in earnings for the three and nine months ended September 30, 2017 and 2016. Management does not believe that any individual unrealized loss as of September 30, 2017 included in the investment portfolio tables above represent other-than-temporary impairment as management mainly attributes the declines in fair value to changes in interest rates and market volatility, not credit quality or other factors.a quarterly basis. Based on a comparison of the present value of expected cash flows to the amortized cost, management believes there are noValley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in a provision for credit losses on these securities. and full charge-off of the bond totaling $5.0 million during the three months ended March 31, 2023. Valley also evaluated available for sale debt securities that are in an unrealized loss position as of June 30, 2023 included in the table above and has determined that the declines in fair value are mainly attributable to interest rates, credit spreads, market volatility and liquidity conditions, not credit quality or other factors. There was no impairment recognized during the three months endedJune 30, 2023 and the three and six months ended June 30, 2022.
The following table details the activity in the allowance for credit losses for the six months endedJune 30, 2023.
| | | | | | | | | |
| | | Six Months Ended June 30, 2023 |
| | | |
| | (in thousands) |
| Beginning balance | | | $ | — | |
| Provision for credit losses | | | 5,000 | |
| Charge-offs | | | (5,000) | |
| Ending balance | | | $ | — | |
Valley does not have the intentintend to sell norany of its available for sale debt securities in an unrealized loss position prior to recovery of their amortized cost basis, and it is it more likely than not that Valley will not be required to sell theany of its securities contained in the table above before theprior to recovery of their amortized cost basis or maturity.
At Septemberbasis. None of the available for sale debt securities were past due as of June 30, 2017, four previously impaired private label mortgage-backed2023 and there was no allowance for credit losses for available for sale debt securities (prior toat June 30, 2023, December 31, 2012) had a combined2022 and June 30, 2022.
Held to Maturity Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of $8.6debt securities held to maturity at June 30, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value | | Allowance for Credit Losses | | Net Carrying Value |
| | (in thousands) |
| June 30, 2023 | | | | | | | | | | | |
| U.S. Treasury securities | $ | 66,579 | | | $ | — | | | $ | (904) | | | $ | 65,675 | | | $ | — | | | $ | 66,579 | |
| U.S. government agency securities | 261,197 | | | — | | | (46,158) | | | 215,039 | | | — | | | 261,197 | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 88,561 | | | 91 | | | (5,112) | | | 83,540 | | | 409 | | | 88,152 | |
| Municipal bonds | 376,554 | | | 27 | | | (21,130) | | | 355,451 | | | 57 | | | 376,497 | |
| Total obligations of states and political subdivisions | 465,115 | | | 118 | | | (26,242) | | | 438,991 | | | 466 | | | 464,649 | |
| Residential mortgage-backed securities | 2,861,227 | | | 906 | | | (400,614) | | | 2,461,519 | | | — | | | 2,861,227 | |
| Trust preferred securities | 37,052 | | | 1 | | | (7,709) | | | 29,344 | | | 559 | | | 36,493 | |
| Corporate and other debt securities | 75,668 | | | — | | | (7,288) | | | 68,380 | | | 326 | | | 75,342 | |
| Total | $ | 3,766,838 | | | $ | 1,025 | | | $ | (488,915) | | | $ | 3,278,948 | | | $ | 1,351 | | | $ | 3,765,487 | |
| December 31, 2022 | | | | | | | | | | | |
| U.S. Treasury securities | $ | 66,911 | | | $ | — | | | $ | (1,022) | | | $ | 65,889 | | | $ | — | | | $ | 66,911 | |
| U.S. government agency securities | 260,392 | | | — | | | (47,680) | | | 212,712 | | | — | | | 260,392 | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 99,238 | | | 305 | | | (3,869) | | | 95,674 | | | 252 | | | 98,986 | |
| Municipal bonds | 381,060 | | | 76 | | | (23,615) | | | 357,521 | | | 41 | | | 381,019 | |
| Total obligations of states and political subdivisions | 480,298 | | | 381 | | | (27,484) | | | 453,195 | | | 293 | | | 480,005 | |
| Residential mortgage-backed securities | 2,909,106 | | | 1,723 | | | (415,032) | | | 2,495,797 | | | — | | | 2,909,106 | |
| Trust preferred securities | 37,043 | | | 1 | | | (5,938) | | | 31,106 | | | 888 | | | 36,155 | |
| Corporate and other debt securities | 75,234 | | | — | | | (4,463) | | | 70,771 | | | 465 | | | 74,769 | |
| Total | $ | 3,828,984 | | | $ | 2,105 | | | $ | (501,619) | | | $ | 3,329,470 | | | $ | 1,646 | | | $ | 3,827,338 | |
Accrued interest on investments, which is excluded from the amortized cost of held to maturity debt securities, totaled $13.6 million and $7.9$13.5 million at June 30, 2023 and December 31, 2022, respectively, while one previously impaired pooled trust preferred security hadand is presented within total accrued interest receivable on the consolidated statements of financial condition. Held to maturity debt securities are carried net of an amortized costallowance for credit losses.
The age of unrealized losses and fair value of $2.8 millionrelated debt securities held to maturity at June 30, 2023 and $2.1 million,December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | More than 12 Months | | Total |
| | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses | | Fair Value | | Unrealized
Losses |
| | (in thousands) |
| June 30, 2023 | | | | | | | | | | | |
| U.S. Treasury securities | $ | 30,998 | | | $ | (598) | | | $ | 34,677 | | | $ | (306) | | | $ | 65,675 | | | $ | (904) | |
| U.S. government agency securities | — | | | — | | | 213,885 | | | (46,158) | | | 213,885 | | | (46,158) | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 25,298 | | | (623) | | | 44,869 | | | (4,489) | | | 70,167 | | | (5,112) | |
| Municipal bonds | 84,224 | | | (1,437) | | | 200,924 | | | (19,693) | | | 285,148 | | | (21,130) | |
| Total obligations of states and political subdivisions | 109,522 | | | (2,060) | | | 245,793 | | | (24,182) | | | 355,315 | | | (26,242) | |
| Residential mortgage-backed securities | 182,290 | | | (6,756) | | | 2,107,464 | | | (393,858) | | | 2,289,754 | | | (400,614) | |
| Trust preferred securities | — | | | — | | | 28,343 | | | (7,709) | | | 28,343 | | | (7,709) | |
| Corporate and other debt securities | 18,056 | | | (1,194) | | | 50,324 | | | (6,094) | | | 68,380 | | | (7,288) | |
| Total | $ | 340,866 | | | $ | (10,608) | | | $ | 2,680,486 | | | $ | (478,307) | | | $ | 3,021,352 | | | $ | (488,915) | |
| December 31, 2022 | | | | | | | | | | | |
| U.S. Treasury securities | $ | 65,889 | | | $ | (1,022) | | | $ | — | | | $ | — | | | $ | 65,889 | | | $ | (1,022) | |
| U.S. government agency securities | 209,863 | | | (47,508) | | | 1,673 | | | (172) | | | 211,536 | | | (47,680) | |
| Obligations of states and political subdivisions: | | | | | | | | | | | |
| Obligations of states and state agencies | 62,443 | | | (2,020) | | | 18,231 | | | (1,849) | | | 80,674 | | | (3,869) | |
| Municipal bonds | 251,970 | | | (20,457) | | | 15,534 | | | (3,158) | | | 267,504 | | | (23,615) | |
| Total obligations of states and political subdivisions | 314,413 | | | (22,477) | | | 33,765 | | | (5,007) | | | 348,178 | | | (27,484) | |
| Residential mortgage-backed securities | 962,690 | | | (109,532) | | | 1,413,590 | | | (305,500) | | | 2,376,280 | | | (415,032) | |
| Trust preferred securities | — | | | — | | | 30,105 | | | (5,938) | | | 30,105 | | | (5,938) | |
| Corporate and other debt securities | 57,245 | | | (2,989) | | | 13,525 | | | (1,474) | | | 70,770 | | | (4,463) | |
| Total | $ | 1,610,100 | | | $ | (183,528) | | | $ | 1,492,658 | | | $ | (318,091) | | | $ | 3,102,758 | | | $ | (501,619) | |
Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 811 and 802 at June 30, 2023 and December 31, 2022, respectively.
As of June 30, 2023, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $2.4 billion.
The contractual maturities of investments in debt securities held to maturity at June 30, 2023 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.
respectively. | | | | | | | | | | | |
| | June 30, 2023 |
| | Amortized
Cost | | Fair
Value |
| | (in thousands) |
| Due in one year | $ | 68,033 | | | $ | 67,619 | |
| Due after one year through five years | 126,908 | | | 123,033 | |
| Due after five years through ten years | 95,472 | | | 87,948 | |
| Due after ten years | 615,198 | | | 538,829 | |
| Residential mortgage-backed securities | 2,861,227 | | | 2,461,519 | |
| Total | $ | 3,766,838 | | | $ | 3,278,948 | |
Actual maturities of held to maturity 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 previously impaired pooled trustweighted-average remaining expected life for residential mortgage-backed securities held to maturity was 10.05 years at June 30, 2023.
Credit Quality Indicators
Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at June 30, 2023 and December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| AAA/AA/A Rated | | BBB rated | | Non-investment grade rated | | Non-rated | | Total |
| | (in thousands) |
| June 30, 2023 | | | | | | | | | |
| U.S. Treasury securities | $ | 66,579 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66,579 | |
| U.S. government agency securities | 261,197 | | | — | | | — | | | — | | | 261,197 | |
| Obligations of states and political subdivisions: | | | | | | | | | |
| Obligations of states and state agencies | 65,768 | | | — | | | 5,416 | | | 17,377 | | | 88,561 | |
| Municipal bonds | 321,860 | | | — | | | — | | | 54,694 | | | 376,554 | |
| Total obligations of states and political subdivisions | 387,628 | | | — | | | 5,416 | | | 72,071 | | | 465,115 | |
| Residential mortgage-backed securities | 2,861,227 | | | — | | | — | | | — | | | 2,861,227 | |
| Trust preferred securities | — | | | — | | | — | | | 37,052 | | | 37,052 | |
| Corporate and other debt securities | — | | | 6,000 | | | — | | | 69,668 | | | 75,668 | |
| Total | $ | 3,576,631 | | | $ | 6,000 | | | $ | 5,416 | | | $ | 178,791 | | | $ | 3,766,838 | |
| December 31, 2022 | | | | | | | | | |
| U.S. Treasury securities | $ | 66,911 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66,911 | |
| U.S. government agency securities | 260,392 | | | — | | | — | | | — | | | 260,392 | |
| Obligations of states and political subdivisions: | | | | | | | | | |
| Obligations of states and state agencies | 74,943 | | | — | | | 5,497 | | | 18,798 | | | 99,238 | |
| Municipal bonds | 333,488 | | | — | | | — | | | 47,572 | | | 381,060 | |
| Total obligations of states and political subdivisions | 408,431 | | | — | | | 5,497 | | | 66,370 | | | 480,298 | |
| Residential mortgage-backed securities | 2,909,106 | | | — | | | — | | | — | | | 2,909,106 | |
| Trust preferred securities | — | | | — | | | — | | | 37,043 | | | 37,043 | |
| Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 67,234 | | | 75,234 | |
| Total | $ | 3,646,840 | | | $ | 6,000 | | | $ | 5,497 | | | $ | 170,647 | | | $ | 3,828,984 | |
Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At June 30, 2023, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the "non-rated" category included tax exempt mortgage securities (TEMS) secured by Ginnie Mae securities. Trust preferred security wassecurities consist of non-rated single-issuer securities, issued by bank holding companies. Corporate and other debt securities in the non-rated category mostly consist of high quality foreign issued bonds.
Allowance for Credit Losses for Held to Maturity Debt Securities
Valley has a zero-loss expectation for certain securities within the held to maturity portfolio, and therefore it is not accruing interestrequired to estimate an allowance for credit losses related to these securities under the CECL standard. After an evaluation of qualitative factors, Valley identified the following securities types which it believes qualify for this exclusion: U.S. Treasury securities, U.S. government agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and TEMS collateralized municipal bonds.
The following table details the activity in the allowance for credit losses for the three and six months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
| Beginning balance | $ | 1,633 | | | $ | 1,222 | | | $ | 1,646 | | | $ | 1,165 | |
| (Credit) provision for credit losses | (282) | | | 286 | | | (295) | | | 343 | |
| Ending balance | $ | 1,351 | | | $ | 1,508 | | | $ | 1,351 | | | $ | 1,508 | |
There were no sales of available for sale and held to maturity debt securities during the three and ninesix months ended SeptemberJune 30, 20172023 and 2016.2022, respectively.
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 previously recognized in earnings, for which a portion of the impairment loss (non-credit factors) was recognized in other comprehensive income for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) | | | | |
| Balance, beginning of period | $ | 4,700 |
| | $ | 5,348 |
| | $ | 4,916 |
| | $ | 5,837 |
|
| Accretion of credit loss impairment due to an increase in expected cash flows | (67 | ) | | (87 | ) | | (283 | ) | | (576 | ) |
| Balance, end of period | $ | 4,633 |
| | $ | 5,261 |
| | $ | 4,633 |
| | $ | 5,261 |
|
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 each period presented. The credit loss component increases if other-than-temporary impairments (initial and subsequent) are recognized in earnings for credit impaired debt securities. 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, (iii) the security is fully written down, or (iv) Valley sells, intends to sell or believes it will be required to sell previously credit impaired debt securities.
Realized Gains and Losses
Gross gains and losses realized on sales, maturities and other investment securities transactions included in earnings were immaterial for the three and nine months ended September 30, 2017 and 2016.
Note 8. Loans and Allowance for Credit Losses for Loans
The detail of the loan portfolio as of SeptemberJune 30, 20172023 and December 31, 20162022 was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Non-PCI Loans | | PCI Loans* | | Total | | Non-PCI Loans | | PCI Loans* | | Total |
| | (in thousands) |
| Loans: | | | | | | | | | | | |
| Commercial and industrial | $ | 2,504,655 |
| | $ | 202,257 |
| | $ | 2,706,912 |
| | $ | 2,357,018 |
| | $ | 281,177 |
| | $ | 2,638,195 |
|
| Commercial real estate: | | | | | | | | | | | |
| Commercial real estate | 8,359,833 |
| | 991,235 |
| | 9,351,068 |
| | 7,628,328 |
| | 1,091,339 |
| | 8,719,667 |
|
| Construction | 858,682 |
| | 44,958 |
| | 903,640 |
| | 710,266 |
| | 114,680 |
| | 824,946 |
|
| Total commercial real estate loans | 9,218,515 |
| | 1,036,193 |
| | 10,254,708 |
| | 8,338,594 |
| | 1,206,019 |
| | 9,544,613 |
|
| Residential mortgage | 2,791,779 |
| | 149,656 |
| | 2,941,435 |
| | 2,684,195 |
| | 183,723 |
| | 2,867,918 |
|
| Consumer: | | | | | | | | | | | |
| Home equity | 371,130 |
| | 77,712 |
| | 448,842 |
| | 376,213 |
| | 92,796 |
| | 469,009 |
|
| Automobile | 1,171,579 |
| | 106 |
| | 1,171,685 |
| | 1,139,082 |
| | 145 |
| | 1,139,227 |
|
| Other consumer | 671,949 |
| | 5,931 |
| | 677,880 |
| | 569,499 |
| | 7,642 |
| | 577,141 |
|
| Total consumer loans | 2,214,658 |
| | 83,749 |
| | 2,298,407 |
| | 2,084,794 |
| | 100,583 |
| | 2,185,377 |
|
| Total loans | $ | 16,729,607 |
| | $ | 1,471,855 |
| | $ | 18,201,462 |
| | $ | 15,464,601 |
| | $ | 1,771,502 |
| | $ | 17,236,103 |
|
| |
* | PCI loans include covered loans (mostly consisting of residential mortgage and commercial real estate loans) totaling $42.6 million and $70.4 million at September 30, 2017 and December 31, 2016, respectively. |
| | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
| Loans: | | | |
| | | |
| | | |
| | | |
| Commercial and industrial | $ | 9,287,309 | | | $ | 8,804,830 | |
| Commercial real estate: | | | |
| Commercial real estate | 27,793,072 | | | 25,732,033 | |
| Construction | 3,815,761 | | | 3,700,835 | |
| Total commercial real estate loans | 31,608,833 | | | 29,432,868 | |
| Residential mortgage | 5,560,356 | | | 5,364,550 | |
| Consumer: | | | |
| Home equity | 535,493 | | | 503,884 | |
| Automobile | 1,632,875 | | | 1,746,225 | |
| Other consumer | 1,252,382 | | | 1,064,843 | |
| Total consumer loans | 3,420,750 | | | 3,314,952 | |
| Total loans | $ | 49,877,248 | | | $ | 46,917,200 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Total loans (excluding PCI covered loans) include net unearned premiumsdiscounts and deferred loan costsfees of $18.5$119.1 million and $15.3$120.5 million at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. The outstanding balances (representing contractual balances owed to Valley)
Accrued interest on loans, which is excluded from the amortized cost of loans held for PCI loansinvestment, totaled $1.6 billion$202.1 million and $1.9 billion$175.9 million at SeptemberJune 30, 20172023 and December 31, 2016, respectively.2022, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.
During the three months ended June 30, 2023, Valley transferred $225.5a non-performing construction loan totaling $10.0 million, net of residential mortgage loans$4.2 million charge-offs from the held for investment loan portfolio to loans held for sale during the nine months ended September 30, 2017. Exclusive of such transfers, there weresale. See Note 6 for further details. There were no sales of loans from the held for investment portfolio during the three and ninesix months ended SeptemberJune 30, 20172023 and 2016.
Purchased Credit-Impaired Loans (Including Covered Loans)
PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses), and aggregated and accounted for as pools of loans based on common risk characteristics. The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance. Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loan pools. Valley's PCI loan portfolio included covered loans (i.e., loans in which the Bank will share losses with the FDIC under loss-sharing agreements) totaling $42.6 million and $70.4 million at September 30, 2017 and December 31, 2016, respectively.
The following table presents changes in the accretable yield for PCI loans during the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) | | | | |
| Balance, beginning of period | $ | 246,278 |
| | $ | 355,601 |
| | $ | 294,514 |
| | $ | 415,179 |
|
| Accretion | (20,626 | ) | | (26,730 | ) | | (68,862 | ) | | (83,114 | ) |
| Other | — |
| | — |
| | — |
| | (3,194 | ) |
| Balance, end of period | $ | 225,652 |
| | $ | 328,871 |
| | $ | 225,652 |
| | $ | 328,871 |
|
FDIC Loss-Share Receivable
The receivable arising from the loss-sharing agreements with the FDIC is measured separately from the covered loan portfolio because the agreements are not contractually part of the covered loans and are not transferable should the Bank choose to dispose of the covered loans. The FDIC loss share receivable (which is included in other assets on Valley's consolidated statements of financial condition) totaled $6.8 million and $7.2 million at September 30, 2017 and December 31, 2016, respectively.
2022.
Credit Risk Management
For all of its loan types, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk.risk appetite. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of Directors annually. Credit authority relating to a
significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. Valley closely monitors economic conditions and loan performance trends to manage and evaluate its exposure to credit risk. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification, concentrations of credit, loan delinquencies, non-performing, and potential problem loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through cyclical economic circumstances.
Additionally, Valley does not accept crypto assets as loan collateral for any of its loan portfolio classes. See Valley’s Annual Report on Form 10-K for the year ended December 31, 2022 for further details.
Credit Quality
The following table presents past due, current and non-accrual and current loans (excluding PCI loans, which are accountedwithout an allowance for on a pool basis, and non-performing loans held for sale)loan losses by loan portfolio class at SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Past Due and Non-Accrual Loans | | | | | | |
| | 30-59 Days
Past Due Loans | | 60-89 Days
Past Due Loans | | 90 Days or More
Past Due Loans | | Non-Accrual Loans | |
Total Past Due Loans | |
Current Loans | |
Total Loans | | Non-Accrual Loans Without Allowance for Loan Losses |
| | (in thousands) |
| June 30, 2023 | | | | | | | | | | | | | | | |
| Commercial and industrial | $ | 6,229 | | | $ | 7,468 | | | $ | 6,599 | | | $ | 84,449 | | | $ | 104,745 | | | $ | 9,182,564 | | | $ | 9,287,309 | | | $ | 8,221 | |
| Commercial real estate: | | | | | | | | | | | | | | | |
| Commercial real estate | 3,612 | | | — | | | 2,242 | | | 82,712 | | | 88,566 | | | 27,704,506 | | | 27,793,072 | | | 76,438 | |
| Construction | — | | | — | | | 3,990 | | | 63,043 | | | 67,033 | | | 3,748,728 | | | 3,815,761 | | | 15,476 | |
| Total commercial real estate loans | 3,612 | | | — | | | 6,232 | | | 145,755 | | | 155,599 | | | 31,453,234 | | | 31,608,833 | | | 91,914 | |
| Residential mortgage | 15,565 | | | 1,348 | | | 1,165 | | | 20,819 | | | 38,897 | | | 5,521,459 | | | 5,560,356 | | | 16,151 | |
| Consumer loans: | | | | | | | | | | | | | | | |
| Home equity | 959 | | | 46 | | | — | | | 2,737 | | | 3,742 | | | 531,751 | | | 535,493 | | | — | |
| Automobile | 5,963 | | | 568 | | | 332 | | | 248 | | | 7,111 | | | 1,625,764 | | | 1,632,875 | | | — | |
| Other consumer | 1,509 | | | 3,512 | | | 674 | | | 83 | | | 5,778 | | | 1,246,604 | | | 1,252,382 | | | — | |
| Total consumer loans | 8,431 | | | 4,126 | | | 1,006 | | | 3,068 | | | 16,631 | | | 3,404,119 | | | 3,420,750 | | | — | |
| Total | $ | 33,837 | | | $ | 12,942 | | | $ | 15,002 | | | $ | 254,091 | | | $ | 315,872 | | | $ | 49,561,376 | | | $ | 49,877,248 | | | $ | 116,286 | |
27
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Past Due and Non-Accrual Loans | | | | |
| | 30-59 Days Past Due Loans | | 60-89 Days Past Due Loans | | Accruing Loans 90 Days or More Past Due | | Non-Accrual Loans | | Total Past Due Loans | | Current Non-PCI Loans | | Total Non-PCI Loans |
| | (in thousands) |
| September 30, 2017 | | | | | | | | | | | | | |
| Commercial and industrial | $ | 1,186 |
| | $ | 3,043 |
| | $ | 125 |
| | $ | 11,983 |
| | $ | 16,337 |
| | $ | 2,488,318 |
| | $ | 2,504,655 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Commercial real estate | 4,755 |
| | 626 |
| | 389 |
| | 13,870 |
| | 19,640 |
| | 8,340,193 |
| | 8,359,833 |
|
| Construction | — |
| | 2,518 |
| | — |
| | 1,116 |
| | 3,634 |
| | 855,048 |
| | 858,682 |
|
| Total commercial real estate loans | 4,755 |
| | 3,144 |
| | 389 |
| | 14,986 |
| | 23,274 |
| | 9,195,241 |
| | 9,218,515 |
|
| Residential mortgage | 7,942 |
| | 1,604 |
| | 1,433 |
| | 12,974 |
| | 23,953 |
| | 2,767,826 |
| | 2,791,779 |
|
| Consumer loans: | | | | | | | | | | | | | |
| Home equity | 591 |
| | 432 |
| | — |
| | 1,766 |
| | 2,789 |
| | 368,341 |
| | 371,130 |
|
| Automobile | 4,089 |
| | 566 |
| | 297 |
| | 78 |
| | 5,030 |
| | 1,166,549 |
| | 1,171,579 |
|
| Other consumer | 525 |
| | 21 |
| | 4 |
| | — |
| | 550 |
| | 671,399 |
| | 671,949 |
|
| Total consumer loans | 5,205 |
| | 1,019 |
| | 301 |
| | 1,844 |
| | 8,369 |
| | 2,206,289 |
| | 2,214,658 |
|
| Total | $ | 19,088 |
| | $ | 8,810 |
| | $ | 2,248 |
| | $ | 41,787 |
| | $ | 71,933 |
| | $ | 16,657,674 |
| | $ | 16,729,607 |
|
| December 31, 2016 | | | | | | | | | | | | | |
| Commercial and industrial | $ | 6,705 |
| | $ | 5,010 |
| | $ | 142 |
| | $ | 8,465 |
| | $ | 20,322 |
| | $ | 2,336,696 |
| | $ | 2,357,018 |
|
| Commercial real estate: | | | | | | | | | | | | | |
| Commercial real estate | 5,894 |
| | 8,642 |
| | 474 |
| | 15,079 |
| | 30,089 |
| | 7,598,239 |
| | 7,628,328 |
|
| Construction | 6,077 |
| | — |
| | 1,106 |
| | 715 |
| | 7,898 |
| | 702,368 |
| | 710,266 |
|
| Total commercial real estate loans | 11,971 |
| | 8,642 |
| | 1,580 |
| | 15,794 |
| | 37,987 |
| | 8,300,607 |
| | 8,338,594 |
|
| Residential mortgage | 12,005 |
| | 3,564 |
| | 1,541 |
| | 12,075 |
| | 29,185 |
| | 2,655,010 |
| | 2,684,195 |
|
| Consumer loans: | | | | | | | | | | | | | |
| Home equity | 929 |
| | 415 |
| | — |
| | 1,028 |
| | 2,372 |
| | 373,841 |
| | 376,213 |
|
| Automobile | 3,192 |
| | 723 |
| | 188 |
| | 146 |
| | 4,249 |
| | 1,134,833 |
| | 1,139,082 |
|
| Other consumer | 76 |
| | 9 |
| | 21 |
| | — |
| | 106 |
| | 569,393 |
| | 569,499 |
|
| Total consumer loans | 4,197 |
| | 1,147 |
| | 209 |
| | 1,174 |
| | 6,727 |
| | 2,078,067 |
| | 2,084,794 |
|
| Total | $ | 34,878 |
| | $ | 18,363 |
| | $ | 3,472 |
| | $ | 37,508 |
| | $ | 94,221 |
| | $ | 15,370,380 |
| | $ | 15,464,601 |
|
Impaired loans. Impaired loans, consisting of non-accrual commercial and industrial loans and commercial real estate loans over $250 thousand and all loans which were modified in troubled debt restructuring, are individually evaluated for impairment. PCI loans are not classified as impaired loans because they are accounted for on a pool basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Past Due and Non-Accrual Loans | | | | | | |
| |
30-59
Days
Past Due Loans | | 60-89
Days
Past Due Loans | | 90 Days or More
Past Due Loans | | Non-Accrual Loans | |
Total Past Due Loans | |
Current Loans | | Total Loans | | Non-Accrual Loans Without Allowance for Loan Losses |
| (in thousands) | | |
| December 31, 2022 | | | | | | | | | | | | | | | |
| Commercial and industrial | $ | 11,664 | | | $ | 12,705 | | | $ | 18,392 | | | $ | 98,881 | | | $ | 141,642 | | | $ | 8,663,188 | | | $ | 8,804,830 | | | $ | 5,659 | |
| Commercial real estate: | | | | | | | | | | | | | | | |
| Commercial real estate | 6,638 | | | 3,167 | | | 2,292 | | | 68,316 | | | 80,413 | | | 25,651,620 | | | 25,732,033 | | | 66,066 | |
| Construction | — | | | — | | | 3,990 | | | 74,230 | | | 78,220 | | | 3,622,615 | | | 3,700,835 | | | 16,120 | |
| Total commercial real estate loans | 6,638 | | | 3,167 | | | 6,282 | | | 142,546 | | | 158,633 | | | 29,274,235 | | | 29,432,868 | | | 82,186 | |
| Residential mortgage | 16,146 | | | 3,315 | | | 1,866 | | | 25,160 | | | 46,487 | | | 5,318,063 | | | 5,364,550 | | | 14,224 | |
| Consumer loans: | | | | | | | | | | | | | | | |
| Home equity | 955 | | | 254 | | | — | | | 2,810 | | | 4,019 | | | 499,865 | | | 503,884 | | | 117 | |
| Automobile | 5,974 | | | 630 | | | 1 | | | 271 | | | 6,876 | | | 1,739,349 | | | 1,746,225 | | | — | |
| Other consumer | 2,158 | | | 695 | | | 46 | | | 93 | | | 2,992 | | | 1,061,851 | | | 1,064,843 | | | — | |
| Total consumer loans | 9,087 | | | 1,579 | | | 47 | | | 3,174 | | | 13,887 | | | 3,301,065 | | | 3,314,952 | | | 117 | |
| Total | $ | 43,535 | | | $ | 20,766 | | | $ | 26,587 | | | $ | 269,761 | | | $ | 360,649 | | | $ | 46,556,551 | | | $ | 46,917,200 | | | $ | 102,186 | |
The following table presents the information about impaired loans by loan portfolio class at September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | |
| | Recorded Investment With No Related Allowance | | Recorded Investment With Related Allowance | | Total Recorded Investment | | Unpaid Contractual Principal Balance | | Related Allowance |
| | (in thousands) |
| September 30, 2017 | | | | | | | | | |
| Commercial and industrial | $ | 12,580 |
| | $ | 56,364 |
| | $ | 68,944 |
| | $ | 72,680 |
| | $ | 7,104 |
|
| Commercial real estate: | | | | | | | | | |
| Commercial real estate | 31,058 |
| | 29,709 |
| | 60,767 |
| | 62,686 |
| | 2,626 |
|
| Construction | 2,675 |
| | 470 |
| | 3,145 |
| | 3,145 |
| | 18 |
|
| Total commercial real estate loans | 33,733 |
| | 30,179 |
| | 63,912 |
| | 65,831 |
| | 2,644 |
|
| Residential mortgage | 5,620 |
| | 8,693 |
| | 14,313 |
| | 15,343 |
| | 733 |
|
| Consumer loans: | | | | | | | | | |
| Home equity | 1,078 |
| | 2,171 |
| | 3,249 |
| | 3,379 |
| | 69 |
|
| Total consumer loans | 1,078 |
| | 2,171 |
| | 3,249 |
| | 3,379 |
| | 69 |
|
| Total | $ | 53,011 |
| | $ | 97,407 |
| | $ | 150,418 |
| | $ | 157,233 |
| | $ | 10,550 |
|
| December 31, 2016 | | | | | | | | | |
| Commercial and industrial | $ | 3,609 |
| | $ | 27,031 |
| | $ | 30,640 |
| | $ | 35,957 |
| | $ | 5,864 |
|
| Commercial real estate: | | | | | | | | | |
| Commercial real estate | 21,318 |
| | 36,974 |
| | 58,292 |
| | 60,267 |
| | 3,612 |
|
| Construction | 1,618 |
| | 2,379 |
| | 3,997 |
| | 3,997 |
| | 260 |
|
| Total commercial real estate loans | 22,936 |
| | 39,353 |
| | 62,289 |
| | 64,264 |
| | 3,872 |
|
| Residential mortgage | 8,398 |
| | 9,958 |
| | 18,356 |
| | 19,712 |
| | 725 |
|
| Consumer loans: | | | | | | | | | |
| Home equity | 1,182 |
| | 2,352 |
| | 3,534 |
| | 3,626 |
| | 70 |
|
| Total consumer loans | 1,182 |
| | 2,352 |
| | 3,534 |
| | 3,626 |
| | 70 |
|
| Total | $ | 36,125 |
| | $ | 78,694 |
| | $ | 114,819 |
| | $ | 123,559 |
| | $ | 10,531 |
|
The following tables present by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
| | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
| | (in thousands) |
| Commercial and industrial | $ | 70,135 |
| | $ | 300 |
| | $ | 31,499 |
| | $ | 293 |
|
| Commercial real estate: | | | | | | | |
| Commercial real estate | 57,712 |
| | 482 |
| | 58,117 |
| | 513 |
|
| Construction | 3,049 |
| | 21 |
| | 6,635 |
| | 37 |
|
| Total commercial real estate loans | 60,761 |
| | 503 |
| | 64,752 |
| | 550 |
|
| Residential mortgage | 15,630 |
| | 183 |
| | 20,193 |
| | 225 |
|
| Consumer loans: | | | | | | | |
| Home equity | 4,766 |
| | 49 |
| | 2,253 |
| | 25 |
|
| Total consumer loans | 4,766 |
| | 49 |
| | 2,253 |
| | 25 |
|
| Total | $ | 151,292 |
| | $ | 1,035 |
| | $ | 118,697 |
| | $ | 1,093 |
|
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | Average Recorded Investment | | Interest Income Recognized | | Average Recorded Investment | | Interest Income Recognized |
| | (in thousands) |
| Commercial and industrial | $ | 49,037 |
| | $ | 896 |
| | $ | 28,008 |
| | $ | 727 |
|
| Commercial real estate: | | | | | | | |
| Commercial real estate | 57,718 |
| | 1,290 |
| | 66,871 |
| | 1,627 |
|
| Construction | 2,836 |
| | 60 |
| | 8,814 |
| | 138 |
|
| Total commercial real estate loans | 60,554 |
| | 1,350 |
| | 75,685 |
| | 1,765 |
|
| Residential mortgage | 17,851 |
| | 575 |
| | 22,232 |
| | 660 |
|
| Consumer loans: | | | | | | | |
| Home equity | 4,820 |
| | 123 |
| | 2,560 |
| | 68 |
|
| Total consumer loans | 4,820 |
| | 123 |
| | 2,560 |
| | 68 |
|
| Total | $ | 132,262 |
| | $ | 2,944 |
| | $ | 128,485 |
| | $ | 3,220 |
|
Interest income recognized on a cash basis (included in the table above) was immaterial for the three and nine months ended September 30, 2017 and 2016.
Troubled debt restructured loans. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (TDR). Valley’s PCI loans are excluded from the TDR disclosures below because they are evaluated for impairment on a pool by pool basis. When an individual PCI loan within a pool is modified as a TDR, it is not removed from its pool. All TDRs are classified as impaired loans and are included in the impaired loan disclosures above.
The majority of the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. The concessions rarely result in the forgiveness of principal or accrued interest. In addition, Valley frequently obtains additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms of the loan and Valley’s underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
Performing TDRs (not reported as non-accrual loans) totaled $113.7 million and $85.2 million as of September 30, 2017 and December 31, 2016, respectively. Non-performing TDRs totaled $18.7 million and $10.6 million as of September 30, 2017 and December 31, 2016, respectively.
The following tables present loans by loan portfolio class modified as TDRs during the three and nine months ended September 30, 2017 and 2016. The pre-modification and post-modification outstanding recorded investments disclosed in the table below represent the loan carrying amounts immediately prior to the modification and the carrying amounts at September 30, 2017 and 2016, respectively.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
September 30, 2017 | | Three Months Ended
September 30, 2016 |
| Troubled Debt Restructurings | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | | ($ in thousands) |
| Commercial and industrial | | 10 |
| | $ | 12,522 |
| | $ | 11,655 |
| | 7 |
| | $ | 6,389 |
| | $ | 6,248 |
|
| Commercial real estate: | | | | | | | | | | | | |
| Commercial real estate | | 4 |
| | 5,931 |
| | 5,929 |
| | 1 |
| | 1,667 |
| | 1,870 |
|
| Construction | | 2 |
| | 628 |
| | 625 |
| | 2 |
| | 2,078 |
| | 2,078 |
|
| Total commercial real estate | | 6 |
| | 6,559 |
| | 6,554 |
| | 3 |
| | 3,745 |
| | 3,948 |
|
| Residential mortgage | | 2 |
| | 561 |
| | 557 |
| | 1 |
| | 78 |
| | 77 |
|
| Consumer | | — |
| | — |
| | — |
| | 1 |
| | 23 |
| | 18 |
|
| Total | | 18 |
| | $ | 19,642 |
| | $ | 18,766 |
| | 12 |
| | $ | 10,235 |
| | $ | 10,291 |
|
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | Nine Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2016 |
| Troubled Debt Restructurings | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | | ($ in thousands) |
| Commercial and industrial | | 61 |
| | $ | 57,338 |
| | $ | 52,694 |
| | 12 |
| | $ | 11,700 |
| | $ | 11,088 |
|
| Commercial real estate: | | | | | | | | | | | | |
| Commercial real estate | | 7 |
| | 23,806 |
| | 23,217 |
| | 4 |
| | 8,325 |
| | 8,174 |
|
| Construction | | 3 |
| | 1,188 |
| | 994 |
| | 2 |
| | 2,079 |
| | 2,078 |
|
| Total commercial real estate | | 10 |
| | 24,994 |
| | 24,211 |
| | 6 |
| | 10,404 |
| | 10,252 |
|
| Residential mortgage | | 6 |
| | 1,514 |
| | 1,495 |
| | 8 |
| | 2,300 |
| | 2,271 |
|
| Consumer | | — |
| | — |
| | — |
| | 2 |
| | 77 |
| | 69 |
|
| Total | | 77 |
| | $ | 83,846 |
| | $ | 78,400 |
| | 28 |
| | $ | 24,481 |
| | $ | 23,680 |
|
The total TDRs presented in the above table had allocated specific reserves for loan losses totaling $5.3 million and $2.4 million at September 30, 2017 and 2016, respectively.These specific reserves are included in the allowance for loan losses for loans individually evaluated for impairment disclosed in Note 9. One commercial and industrial TDR loan totaling $209 thousand was fully charged-off during the nine months ended September 30, 2016. There were no charge-offs related to TDR modifications during the three and nine months ended September 30, 2017 and 2016, respectively.
We had 7 commercial and industrial loans and 1 commercial real estate loan modified as TDRs within the previous 12 months for which there was a payment default (90 days or more past due) totaling $6.4 million and $732 thousand, respectively during the nine months ended September 30, 2017. There were no payment defaults during three months ended September 30, 2017.
We had 4 residential mortgage loans modified as TDRs within the previous 12 months for which there was a payment default (90 days or more past due) totaling $1.1 million during both the three and nine months ended September 30, 2016.
Credit quality indicators. indicators. Valley utilizes an internal loan classification system as a means of reporting problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes. Under Valley’s internal risk rating system, loan relationships could be classified as “Pass,” “Special"Pass," "Special Mention,” “Substandard,” “Doubtful,”" "Substandard," "Doubtful," and “Loss.”"Loss." Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses, and, therefore, not presented in the table below. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories but pose weaknesses that deserve management’s close attention are deemed Special Mention. LoansPass rated as Passloans do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants.
The following table presents the internal loan classification risk category of loans (excluding PCI loans) by loan portfolio class of loansby origination year based on the most recent analysis performed at SeptemberJune 30, 20172023 and December 31, 2016. 2022, as well as the gross loan charge-offs by year of origination for the six months ended June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Term Loans | | | | | | |
| | Amortized Cost Basis by Origination Year | | | | | | |
| June 30, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) |
| Commercial and industrial | | | | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 978,383 | | | $ | 1,233,039 | | | $ | 987,984 | | | $ | 490,159 | | | $ | 267,719 | | | $ | 565,910 | | | $ | 4,420,712 | | | $ | 306 | | | $ | 8,944,212 | |
| Special Mention | | 16,582 | | | 43,260 | | | 3,257 | | | 19,948 | | | 4,125 | | | 7,005 | | | 131,677 | | | 1,488 | | | 227,342 | |
| Substandard | | 6,056 | | | 754 | | | 3,288 | | | 1,706 | | | 1,703 | | | 2,819 | | | 25,681 | | | — | | | 42,007 | |
| Doubtful | | 1,500 | | | 669 | | | 2,768 | | | — | | | 2,674 | | | 63,427 | | | 2,710 | | | — | | | 73,748 | |
| | | | | | | | | | | | | | | | | | |
| Total commercial and industrial | | $ | 1,002,521 | | | $ | 1,277,722 | | | $ | 997,297 | | | $ | 511,813 | | | $ | 276,221 | | | $ | 639,161 | | | $ | 4,580,780 | | | $ | 1,794 | | | $ | 9,287,309 | |
| Commercial real estate | | | | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 3,006,116 | | | $ | 6,675,372 | | | $ | 4,997,069 | | | $ | 3,073,019 | | | $ | 2,453,918 | | | $ | 6,040,604 | | | $ | 542,644 | | | $ | 3,310 | | | $ | 26,792,052 | |
| Special Mention | | 86,078 | | | 52,939 | | | 51,208 | | | 111,268 | | | 100,524 | | | 205,971 | | | 6,621 | | | — | | | 614,609 | |
| Substandard | | 10,972 | | | 30,664 | | | 35,577 | | | 27,280 | | | 36,320 | | | 237,578 | | | 7,830 | | | — | | | 386,221 | |
| Doubtful | | — | | | — | | | — | | | 190 | | | — | | | — | | | — | | | — | | | 190 | |
| | | | | | | | | | | | | | | | | | |
| Total commercial real estate | | $ | 3,103,166 | | | $ | 6,758,975 | | | $ | 5,083,854 | | | $ | 3,211,757 | | | $ | 2,590,762 | | | $ | 6,484,153 | | | $ | 557,095 | | | $ | 3,310 | | | $ | 27,793,072 | |
| Construction | | | | | | | | | | | | | | | | | | |
| Risk Rating: | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 390,550 | | | $ | 702,031 | | | $ | 342,403 | | | $ | 32,129 | | | $ | 18,878 | | | $ | 20,230 | | | $ | 2,251,552 | | | $ | — | | | $ | 3,757,773 | |
| | | | | | | | | | | | | | | | | | |
| Substandard | | 8,538 | | | 12,969 | | | 7,427 | | | — | | | 955 | | | 17,668 | | | 3,501 | | | — | | | 51,058 | |
| Doubtful | | — | | | 6,930 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,930 | |
| Total construction | | $ | 399,088 | | | $ | 721,930 | | | $ | 349,830 | | | $ | 32,129 | | | $ | 19,833 | | | $ | 37,898 | | | $ | 2,255,053 | | | $ | — | | | $ | 3,815,761 | |
| Gross loan charge-offs | | $ | — | | | $ | 7,288 | | | $ | 24,658 | | | $ | 6,479 | | | $ | 908 | | | $ | 2,524 | | | $ | 26 | | | $ | — | | | $ | 41,883 | |
| | | | | | | | | | | | | | | Term Loans | | | | |
| Credit exposure - by internally assigned risk rating | | Pass | | Special Mention | | Substandard | | Doubtful | | Total Non-PCI Loans | |
| | | (in thousands) | | Amortized Cost Basis by Origination Year | |
| September 30, 2017 | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | | | (in thousands) |
| Commercial and industrial | | $ | 2,337,467 |
| | $ | 58,376 |
| | $ | 102,649 |
| | $ | 6,163 |
| | $ | 2,504,655 |
| Commercial and industrial | |
| Risk Rating: | | Risk Rating: | |
| Pass | | Pass | | $ | 1,600,747 | | | $ | 1,089,386 | | | $ | 590,406 | | | $ | 322,564 | | | $ | 250,031 | | | $ | 386,085 | | | $ | 4,307,163 | | | $ | 144 | | | $ | 8,546,526 | |
| Special Mention | | Special Mention | | 31,557 | | | 3,367 | | | 19,492 | | | 4,732 | | | 4,369 | | | 3,558 | | | 51,021 | | | 7 | | | 118,103 | |
| Substandard | | Substandard | | 288 | | | 1,734 | | | 4,121 | | | 1,412 | | | 4,256 | | | 4,879 | | | 31,698 | | | — | | | 48,388 | |
| Doubtful | | Doubtful | | 886 | | | 20,844 | | | — | | | 2,692 | | | — | | | 64,158 | | | 3,233 | | | — | | | 91,813 | |
| | Total commercial and industrial | | Total commercial and industrial | | $ | 1,633,478 | | | $ | 1,115,331 | | | $ | 614,019 | | | $ | 331,400 | | | $ | 258,656 | | | $ | 458,680 | | | $ | 4,393,115 | | | $ | 151 | | | $ | 8,804,830 | |
| Commercial real estate | | 8,241,629 |
| | 42,145 |
| | 76,059 |
| | — |
| | 8,359,833 |
| Commercial real estate | | | | | | | | | | | | | | | | | | |
| Risk Rating: | | Risk Rating: | |
| Pass | | Pass | | $ | 6,815,115 | | | $ | 5,168,127 | | | $ | 3,246,885 | | | $ | 2,672,223 | | | $ | 1,536,327 | | | $ | 5,027,128 | | | $ | 452,461 | | | $ | 3,504 | | | $ | 24,921,770 | |
| Special Mention | | Special Mention | | 93,286 | | | 48,007 | | | 60,169 | | | 45,447 | | | 62,111 | | | 125,414 | | | 8,188 | | | — | | | 442,622 | |
| Substandard | | Substandard | | 15,088 | | | 34,475 | | | 32,630 | | | 34,622 | | | 59,337 | | | 183,341 | | | 7,986 | | | — | | | 367,479 | |
| Doubtful | | Doubtful | | — | | | — | | | — | | | — | | | — | | | 162 | | | — | | | — | | | 162 | |
| | Total commercial real estate | | Total commercial real estate | | $ | 6,923,489 | | | $ | 5,250,609 | | | $ | 3,339,684 | | | $ | 2,752,292 | | | $ | 1,657,775 | | | $ | 5,336,045 | | | $ | 468,635 | | | $ | 3,504 | | | $ | 25,732,033 | |
| Construction | | 856,363 |
| | 364 |
| | 1,955 |
| | — |
| | 858,682 |
| Construction | | | | | | | | | | | | | | | | | | |
| Total | | $ | 11,435,459 |
| | $ | 100,885 |
| | $ | 180,663 |
| | $ | 6,163 |
| | $ | 11,723,170 |
| |
| December 31, 2016 | | | | | | | | | | | |
| Commercial and industrial | | $ | 2,246,457 |
| | $ | 44,316 |
| | $ | 64,649 |
| | $ | 1,596 |
| | $ | 2,357,018 |
| |
| Commercial real estate | | 7,486,469 |
| | 57,591 |
| | 84,268 |
| | — |
| | 7,628,328 |
| |
| Construction | | 708,070 |
| | 200 |
| | 1,996 |
| | — |
| | 710,266 |
| |
| Total | | $ | 10,440,996 |
| | $ | 102,107 |
| | $ | 150,913 |
| | $ | 1,596 |
| | $ | 10,695,612 |
| |
| Risk Rating: | | Risk Rating: | |
| Pass | | Pass | | $ | 942,380 | | | $ | 512,046 | | | $ | 61,131 | | | $ | 22,845 | | | $ | 8,676 | | | $ | 20,599 | | | $ | 2,040,866 | | | $ | — | | | $ | 3,608,543 | |
| Special Mention | | Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | 14,268 | | | — | | | 14,268 | |
| Substandard | | Substandard | | 12,969 | | | 12,601 | | | — | | | 974 | | | — | | | 17,599 | | | 20,138 | | | — | | | 64,281 | |
| Doubtful | | Doubtful | | — | | | — | | | — | | | — | | | — | | | 13,743 | | | — | | | — | | | 13,743 | |
| Total construction | | Total construction | | $ | 955,349 | | | $ | 524,647 | | | $ | 61,131 | | | $ | 23,819 | | | $ | 8,676 | | | $ | 51,941 | | | $ | 2,075,272 | | | $ | — | | | $ | 3,700,835 | |
For residential mortgages, automobile, home equity and other consumer loan portfolio classes, (excluding PCI loans), Valley also evaluates credit quality based on the aging status of the loan which was previously presented, and by payment activity.
The following table presents the recorded investmentamortized cost in those loan classes based on payment activity, by origination year as of SeptemberJune 30, 20172023 and December 31, 2016:2022, as well as the gross loan charge-offs by year of origination for the six months ended June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Term Loans | | | | | | |
| | Amortized Cost Basis by Origination Year | | | | | | |
| June 30, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) |
| Residential mortgage | | | | | | | | | | | | | | | | | | |
| Performing | | $ | 369,607 | | | $ | 1,304,327 | | | $ | 1,524,988 | | | $ | 562,263 | | | $ | 455,463 | | | $ | 1,263,659 | | | $ | 73,983 | | | $ | — | | | $ | 5,554,290 | |
| 90 days or more past due | | — | | | 178 | | | — | | | — | | | 797 | | | 5,091 | | | — | | | — | | | 6,066 | |
| Total residential mortgage | | $ | 369,607 | | | $ | 1,304,505 | | | $ | 1,524,988 | | | $ | 562,263 | | | $ | 456,260 | | | $ | 1,268,750 | | | $ | 73,983 | | | $ | — | | | $ | 5,560,356 | |
| Consumer loans | | | | | | | | | | | | | | | | | | |
| Home equity | | | | | | | | | | | | | | | | | | |
| Performing | | $ | 19,442 | | | $ | 45,601 | | | $ | 11,873 | | | $ | 4,326 | | | $ | 4,660 | | | $ | 17,396 | | | $ | 392,898 | | | $ | 38,391 | | | $ | 534,587 | |
| 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 263 | | | 643 | | | 906 | |
| Total home equity | | 19,442 | | | 45,601 | | | 11,873 | | | 4,326 | | | 4,660 | | | 17,396 | | | 393,161 | | | 39,034 | | | 535,493 | |
| Automobile | | | | | | | | | | | | | | | | | | |
| Performing | | 205,170 | | | 633,269 | | | 437,528 | | | 161,245 | | | 123,616 | | | 71,682 | | | — | | | — | | | 1,632,510 | |
| 90 days or more past due | | 47 | | | 105 | | | 73 | | | — | | | 9 | | | 131 | | | — | | | — | | | 365 | |
| Total automobile | | 205,217 | | | 633,374 | | | 437,601 | | | 161,245 | | | 123,625 | | | 71,813 | | | — | | | — | | | 1,632,875 | |
| Other consumer | | | | | | | | | | | | | | | | | | |
| Performing | | 17,973 | | | 20,979 | | | (1,549) | | | 3,729 | | | 8,720 | | | 12,707 | | | 1,189,191 | | | — | | | 1,251,750 | |
| 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 38 | | | 594 | | | — | | | 632 | |
| Total other consumer | | 17,973 | | | 20,979 | | | (1,549) | | | 3,729 | | | 8,720 | | | 12,745 | | | 1,189,785 | | | — | | | 1,252,382 | |
| Total consumer | | $ | 242,632 | | | $ | 699,954 | | | $ | 447,925 | | | $ | 169,300 | | | $ | 137,005 | | | $ | 101,954 | | | $ | 1,582,946 | | | $ | 39,034 | | | $ | 3,420,750 | |
| Gross loan charge-offs | | $ | 11 | | | $ | 226 | | | $ | 206 | | | $ | 90 | | | $ | 428 | | | $ | 953 | | | $ | 103 | | | $ | — | | | $ | 2,017 | |
| | | | | | | | | | | Term Loans | | | | |
| Credit exposure - by payment activity | | Performing Loans | | Non-Performing Loans | | Total Non-PCI Loans | |
| | | (in thousands) | | Amortized Cost Basis by Origination Year | |
| September 30, 2017 | | | | | | | |
| December 31, 2022 | | December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | | | (in thousands) |
| Residential mortgage | | $ | 2,778,805 |
| | $ | 12,974 |
| | $ | 2,791,779 |
| Residential mortgage | |
| Performing | | Performing | | $ | 1,302,279 | | | $ | 1,502,622 | | | $ | 571,390 | | | $ | 500,197 | | | $ | 338,062 | | | $ | 1,073,995 | | | $ | 66,706 | | | $ | — | | | $ | 5,355,251 | |
| 90 days or more past due | | 90 days or more past due | | — | | | 197 | | | 217 | | | 1,835 | | | 2,876 | | | 4,174 | | | — | | | — | | | 9,299 | |
| Total residential mortgage | | Total residential mortgage | | $ | 1,302,279 | | | $ | 1,502,819 | | | $ | 571,607 | | | $ | 502,032 | | | $ | 340,938 | | | $ | 1,078,169 | | | $ | 66,706 | | | $ | — | | | $ | 5,364,550 | |
| Consumer loans | | Consumer loans | | | | | | | | | | | | | | | | | | |
| Home equity | | 369,364 |
| | 1,766 |
| | 371,130 |
| Home equity | |
| Performing | | Performing | | $ | 47,084 | | | $ | 12,432 | | | $ | 4,592 | | | $ | 5,024 | | | $ | 5,581 | | | $ | 13,007 | | | $ | 376,608 | | | $ | 38,570 | | | $ | 502,898 | |
| 90 days or more past due | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 276 | | | 710 | | | 986 | |
| Total home equity | | Total home equity | | 47,084 | | | 12,432 | | | 4,592 | | | 5,024 | | | 5,581 | | | 13,007 | | | 376,884 | | | 39,280 | | | 503,884 | |
| Automobile | | 1,171,501 |
| | 78 |
| | 1,171,579 |
| Automobile | | | | | | | | | | | | | | | | | | |
| Performing | | Performing | | 724,557 | | | 525,017 | | | 204,578 | | | 166,103 | | | 80,012 | | | 45,415 | | | — | | | — | | | 1,745,682 | |
| 90 days or more past due | | 90 days or more past due | | 38 | | | 116 | | | 36 | | | 180 | | | 101 | | | 72 | | | — | | | — | | | 543 | |
| Total automobile | | Total automobile | | 724,595 | | | 525,133 | | | 204,614 | | | 166,283 | | | 80,113 | | | 45,487 | | | — | | | — | | | 1,746,225 | |
| Other consumer | | 671,949 |
| | — |
| | 671,949 |
| Other consumer | | | | | | | | | | | | | | | | | | |
| Total | | $ | 4,991,619 |
| | $ | 14,818 |
| | $ | 5,006,437 |
| |
| December 31, 2016 | | | | | | | |
| Residential mortgage | | $ | 2,672,120 |
| | $ | 12,075 |
| | $ | 2,684,195 |
| |
| Home equity | | 375,185 |
| | 1,028 |
| | 376,213 |
| |
| Automobile | | 1,138,936 |
| | 146 |
| | 1,139,082 |
| |
| Other consumer | | 569,499 |
| | — |
| | 569,499 |
| |
| Total | | $ | 4,755,740 |
| | $ | 13,249 |
| | $ | 4,768,989 |
| |
| Performing | | Performing | | 24,140 | | | 10,144 | | | 8,206 | | | 7,435 | | | 7,406 | | | 15,736 | | | 991,737 | | | — | | | 1,064,804 | |
| 90 days or more past due | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 38 | | | 1 | | | — | | | 39 | |
| Total other consumer | | Total other consumer | | 24,140 | | | 10,144 | | | 8,206 | | | 7,435 | | | 7,406 | | | 15,774 | | | 991,738 | | | — | | | 1,064,843 | |
| Total consumer | | Total consumer | | $ | 795,819 | | | $ | 547,709 | | | $ | 217,412 | | | $ | 178,742 | | | $ | 93,100 | | | $ | 74,268 | | | $ | 1,368,622 | | | $ | 39,280 | | | $ | 3,314,952 | |
Loan modifications to borrowers experiencing financial difficulty.From time to time, Valley evaluatesmayextend, restructure, or otherwise modify the credit qualityterms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. Prior to 2023, a loan was classified as a troubled debt restructuring (TDR) if the borrower was experiencing financial difficulties and a concession has been made at the time of such modification.
Effective January 1, 2023, Valley adopted ASU No. 2022-02 which eliminated the accounting guidance for TDR loans while enhancing disclosure requirements for certain loan modifications by creditors when a borrower is experiencing financial difficulty. Valley adopted ASU No. 2022-02 using the modified retrospective transition method. At the date of adoption, Valley was no longer required to utilize a loan-level discounted cash flow approach for determining the allowance for certain modified loans previously classified as TDR loans. As a result, Valley elected to utilize its PCIcollective reserve methodology for pools of loans that share common risk characteristic for determining the reserves for the modified loans formerly classified as TDR loans. This change resulted in the recognition of a cumulative-effect adjustment which decreased the allowance for loan pools based on the expectationlosses with an offsetting entry to retained earnings, net of the underlying cash flows of each pool, derived from the aging status and by payment activity of individual loans within the pool. deferred taxes, at January 1, 2023.
The following table presentsshows the recorded investment in PCIamortized cost basis of loans to borrowers experiencing financial difficulty at June 30, 2023 that were modified during the three and six months ended June 30, 2023, disaggregated by class of financing receivable and type of modification. Each of the types of modifications was less than one percent of their respective loan categories.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, 2023 | | Six Months Ended
June 30, 2023 |
| | Term extension | | | | | | | | Term extension and interest rate reduction | | Total | | Term extension | | Term extension and interest rate reduction | | Total | | | | | | |
| | | ($ in thousands) | | | | | | |
| Commercial and industrial | | $ | 37,762 | | | | | | | | | $ | 1,482 | | | $ | 39,244 | | | $ | 39,033 | | | $ | 2,003 | | | $ | 41,036 | | | | | | | |
| Commercial real estate | | 3,512 | | | | | | | | | 3,754 | | | 7,266 | | | 49,617 | | | 3,754 | | | 53,371 | | | | | | | |
| Residential mortgage | | 578 | | | | | | | | | — | | | 578 | | | 790 | | | — | | | 790 | | | | | | | |
| Consumer | | — | | | | | | | | | — | | | — | | | 53 | | | — | | | 53 | | | | | | | |
| Total | | $ | 41,852 | | | | | | | | | $ | 5,236 | | | $ | 47,088 | | | $ | 89,493 | | | $ | 5,757 | | | $ | 95,250 | | | | | | | |
The following table describes the types of modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023:
| | | | | | | | | | | | |
| | |
| | Types of Modifications | | | | |
| Commercial and industrial | | 12 month term extensions; and one 12 month term extension combined with a reduction in interest rate from 9.38 percent to 6.50 percent | | | | |
| Commercial real estate | | 6 to 36 month term extensions and one term extension combined with a reduction in interest rate from 8.75 percent to 6.00 percent | | | | |
| | | | | | |
| Residential mortgage | | 12 month term extensions | | | | |
| Consumer | | 60 month term extensions | | | | |
Valley closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts. All loans to borrowers experiencing financial difficulty that have been modified during the three and six months ended June 30, 2023 were current to their contractual payments as of June 30, 2023.
Valley did not extend any commitments to lend additional funds to borrowers experiencing financial difficulty whose loans had been modified during the three and six months ended June 30, 2023.
Troubled debt restructured loans. The following tables present the pre- and post-modification amortized cost of TDR loans by loan class based on individual loan payment activityduring the three and six months ended June 30, 2022. Post-modification amounts are presented as of SeptemberJune 30, 20172022 using the allowance methodology for TDRs prior to the adoption of ASU 2022-02.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Three Months Ended
June 30, 2022 |
| Troubled Debt Restructurings | | | | | | | | Number
of
Contracts | | Pre-Modification
Outstanding Recorded Investment | | Post-Modification
Outstanding Recorded Investment |
| | | | | | | | | ($ in thousands) |
| Commercial and industrial | | | | | | | | 49 | | | $ | 82,120 | | | $ | 78,051 | |
| | | | | | | | | | | | |
| Commercial real estate | | | | | | | | 1 | | | 8,811 | | | 8,735 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Residential mortgage | | | | | | | | 7 | | | 4,970 | | | 4,969 | |
| Consumer | | | | | | | | 1 | | | 125 | | | 124 | |
| Total | | | | | | | | 58 | | | $ | 96,026 | | | $ | 91,879 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Six Months Ended
June 30, 2022 |
| Troubled Debt Restructurings | | | | | | | | Number
of
Contracts | | Pre-Modification
Outstanding Recorded Investment | | Post-Modification
Outstanding Recorded Investment |
| | | | | | | | ($ in thousands) |
| Commercial and industrial | | | | | | | | 60 | | | $ | 91,804 | | | $ | 87,685 | |
| | | | | | | | | | | | |
| Commercial real estate | | | | | | | | 3 | | | 14,072 | | | 13,986 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Residential mortgage | | | | | | | | 8 | | | 5,090 | | | 5,087 | |
| Consumer | | | | | | | | 1 | | | 125 | | | 124 | |
| Total | | | | | | | | 72 | | | $ | 111,091 | | | $ | 106,882 | |
|
The total TDRs presented in the above tables had allocated allowance for loan losses of $56.0 million at June 30, 2022. There were $1.5 million in charge-offs related to TDRs for the three and December 31, 2016.six months ended June 30, 2022. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three and six months ended June 30, 2022.
Performing TDRs (not reported as non-accrual loans) and non-performing TDRs totaled $67.3 million and $154.4 million as of June 30, 2022. |
| | | | | | | | | | | | |
| Credit exposure - by payment activity | | Performing Loans | | Non-Performing Loans | | Total PCI Loans |
| | | (in thousands) |
| September 30, 2017 | | | | | | |
| Commercial and industrial | | $ | 189,158 |
| | $ | 13,099 |
| | $ | 202,257 |
|
| Commercial real estate | | 984,789 |
| | 6,446 |
| | 991,235 |
|
| Construction | | 44,294 |
| | 664 |
| | 44,958 |
|
| Residential mortgage | | 144,998 |
| | 4,658 |
| | 149,656 |
|
| Consumer | | 83,203 |
| | 546 |
| | 83,749 |
|
| Total | | $ | 1,446,442 |
| | $ | 25,413 |
| | $ | 1,471,855 |
|
| December 31, 2016 | | | | | | |
| Commercial and industrial | | $ | 272,483 |
| | $ | 8,694 |
| | $ | 281,177 |
|
| Commercial real estate | | 1,080,376 |
| | 10,963 |
| | 1,091,339 |
|
| Construction | | 113,370 |
| | 1,310 |
| | 114,680 |
|
| Residential mortgage | | 179,793 |
| | 3,930 |
| | 183,723 |
|
| Consumer | | 98,469 |
| | 2,114 |
| | 100,583 |
|
| Total | | $ | 1,744,491 |
| | $ | 27,011 |
| | $ | 1,771,502 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended
June 30, 2022 | | Six Months Ended
June 30, 2022 |
| Troubled Debt Restructurings Subsequently Defaulted | | | | | | Number of
Contracts | | Recorded
Investment | | Number of
Contracts | | Recorded
Investment |
| | | | | | | ($ in thousands) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Construction | | | | | | 2 | | | $ | 17,599 | | | 2 | | | $ | 17,599 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Total | | | | | | 2 | | | $ | 17,599 | | | 2 | | | $ | 17,599 | |
Loans in process of foreclosure.Other real estate owned (OREO) totaled $10.8 million$824 thousand and $10.2 million$286 thousand at SeptemberJune 30, 20172023 and December 31, 2016, respectively (including $558 thousand of OREO properties which are subject to loss-sharing agreements with the FDIC at December 31, 2016).2022, respectively. There were no covered OREO properties at September 30, 2017. OREO included foreclosed residential real estate properties totaling $7.2 millionand $1.6 millionincluded in OREO at SeptemberJune 30, 20172023 and December 31, 2016, respectively.2022. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $4.9 million$454 thousand and $7.1$2.6 million at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.
Collateral dependent loans. Loans are collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process.
The following table presents collateral dependent loans by class as of June 30, 2023 and December 31, 2022:
| | | | | | | | | | | |
| | June 30,
2023 | | December 31,
2022 |
| | (in thousands) |
| Collateral dependent loans: | | | |
| Commercial and industrial * | $ | 77,364 | | | $ | 94,433 | |
| | | |
| Commercial real estate | 138,032 | | | 130,199 | |
| | | |
| | | |
| Residential mortgage | 16,151 | | | 33,865 | |
| Home equity | — | | | 195 | |
| Total | $ | 231,547 | | | $ | 258,692 | |
* Commercial and industrial loans presented in the table above are primarily collateralized by taxi medallions.
Allowance for Credit Losses
for Loans
The allowance for credit losses (ACL) for loans consists of the allowance for loan losses and the allowance for unfunded letters of credit. Management maintains the allowancecredit commitments. The ACL for credit lossesloans decreased $24.6 million at a level estimatedJune 30, 2023 as compared to absorb probable loan losses of the loan portfolio and unfunded letter of credit commitments at the balance sheet date. The allowance for loan losses is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio, including unexpected additional credit impairment of PCI loan pools subsequent to acquisition. There was no allowance allocation for PCI loan losses at September 30, 2017 and December 31, 2016.
2022.
The following table summarizes the allowanceACL for credit lossesloans at SeptemberJune 30, 20172023 and December 31, 2016:2022:
| | | | | | | | | | | |
| June 30,
2023 | | December 31,
2022 |
| | (in thousands) |
| Components of allowance for credit losses for loans: | | | |
| Allowance for loan losses | $ | 436,432 | | | $ | 458,655 | |
| Allowance for unfunded credit commitments | 22,244 | | | 24,600 | |
| Total allowance for credit losses for loans | $ | 458,676 | | | $ | 483,255 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| | (in thousands) |
| Components of allowance for credit losses: | | | |
| Allowance for loan losses | $ | 118,966 |
| | $ | 114,419 |
|
| Allowance for unfunded letters of credit | 2,514 |
| | 2,185 |
|
| Total allowance for credit losses | $ | 121,480 |
| | $ | 116,604 |
|
The following table summarizes the provision for credit losses for loans for the periods indicated: |
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Components of provision for credit losses: | | | | | | | |
| Provision for loan losses | $ | 1,301 |
| | $ | 5,949 |
| | $ | 7,413 |
| | $ | 8,041 |
|
| Provision for unfunded letters of credit | 339 |
| | (109 | ) | | 329 |
| | 28 |
|
| Total provision for credit losses | $ | 1,640 |
| | $ | 5,840 |
| | $ | 7,742 |
| | $ | 8,069 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
| Components of provision for credit losses for loans: | | | | | | | |
| Provision for loan losses | $ | 8,159 | | | $ | 38,310 | | | $ | 18,138 | | | $ | 41,568 | |
| (Credit) provision for unfunded credit commitments | (1,827) | | | 5,402 | | | (2,356) | | | 5,644 | |
| Total provision for credit losses for loans | $ | 6,332 | | | $ | 43,712 | | | $ | 15,782 | | | $ | 47,212 | |
The following table details the activity in the allowance for loan losses by loan portfolio segment for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022: | | | | | | | | | | | | | | Commercial
and Industrial | | Commercial
Real Estate | | Residential
Mortgage | | Consumer | | Total |
| | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total | | (in thousands) |
| | (in thousands) | |
Three Months Ended
September 30, 2017 | | | | | | | | | | |
Three Months Ended
June 30, 2023 | | Three Months Ended
June 30, 2023 | |
| Allowance for loan losses: | | | | | | | | | | Allowance for loan losses: | |
| Beginning balance | $ | 51,617 |
| | $ | 55,455 |
| | $ | 4,186 |
| | $ | 5,188 |
| | $ | 116,446 |
| Beginning balance | $ | 127,992 | | | $ | 243,332 | | | $ | 41,708 | | | $ | 23,866 | | | $ | 436,898 | |
| | Loans charged-off | (265 | ) | | — |
| | (129 | ) | | (1,335 | ) | | (1,729 | ) | Loans charged-off | (3,865) | | | (6,273) | | | (149) | | | (1,040) | | | (11,327) | |
| Charged-off loans recovered | 2,320 |
| | 42 |
| | 220 |
| | 366 |
| | 2,948 |
| Charged-off loans recovered | 2,173 | | | 4 | | | 135 | | | 390 | | | 2,702 | |
| Net recoveries (charge-offs) | 2,055 |
| | 42 |
| | 91 |
| | (969 | ) | | 1,219 |
| |
| Net charge-offs | | Net charge-offs | (1,692) | | | (6,269) | | | (14) | | | (650) | | | (8,625) | |
| Provision for loan losses | 1,017 |
| | (198 | ) | | (385 | ) | | 867 |
| | 1,301 |
| Provision for loan losses | 1,945 | | | 2,632 | | | 2,459 | | | 1,123 | | | 8,159 | |
| Ending balance | $ | 54,689 |
| | $ | 55,299 |
| | $ | 3,892 |
| | $ | 5,086 |
| | $ | 118,966 |
| Ending balance | $ | 128,245 | | | $ | 239,695 | | | $ | 44,153 | | | $ | 24,339 | | | $ | 436,432 | |
Three Months Ended
September 30, 2016 | | | | | | | | | | |
Three Months Ended
June 30, 2022 | | Three Months Ended
June 30, 2022 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | Allowance for loan losses: | |
| Beginning balance | $ | 48,025 |
| | $ | 51,877 |
| | $ | 3,495 |
| | $ | 4,691 |
| | $ | 108,088 |
| Beginning balance | $ | 101,203 | | | $ | 219,949 | | | $ | 28,189 | | | $ | 13,169 | | | $ | 362,510 | |
| Allowance for purchased credit deteriorated (PCD) loans * | | Allowance for purchased credit deteriorated (PCD) loans * | 33,452 | | | 36,618 | | | 206 | | | 43 | | | 70,319 | |
| | Loans charged-off | (3,763 | ) | | — |
| | (518 | ) | | (782 | ) | | (5,063 | ) | Loans charged-off | (4,540) | | | — | | | (1) | | | (726) | | | (5,267) | |
| Charged-off loans recovered | 902 |
| | 44 |
| | 495 |
| | 282 |
| | 1,723 |
| Charged-off loans recovered | 1,952 | | | 224 | | | 74 | | | 697 | | | 2,947 | |
| Net (charge-offs) recoveries | (2,861 | ) | | 44 |
| | (23 | ) | | (500 | ) | | (3,340 | ) | Net (charge-offs) recoveries | (2,588) | | | 224 | | | 73 | | | (29) | | | (2,320) | |
| Provision for loan losses | 5,588 |
| | 539 |
| | (94 | ) | | (84 | ) | | 5,949 |
| Provision for loan losses | 12,472 | | | 20,436 | | | 1,421 | | | 3,981 | | | 38,310 | |
| Ending balance | $ | 50,752 |
| | $ | 52,460 |
| | $ | 3,378 |
| | $ | 4,107 |
| | $ | 110,697 |
| Ending balance | $ | 144,539 | | | $ | 277,227 | | | $ | 29,889 | | | $ | 17,164 | | | $ | 468,819 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
Six Months Ended
June 30, 2023 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Beginning balance | $ | 139,941 | | | $ | 259,408 | | | $ | 39,020 | | | $ | 20,286 | | | $ | 458,655 | |
Impact of the adoption of ASU No. 2022-02 | (739) | | | (589) | | | (12) | | | (28) | | | (1,368) | |
| Beginning balance, adjusted | $ | 139,202 | | | $ | 258,819 | | | $ | 39,008 | | | $ | 20,258 | | | $ | 457,287 | |
| Loans charged-off | (29,912) | | | (11,971) | | | (149) | | | (1,868) | | | (43,900) | |
| Charged-off loans recovered | 3,572 | | | 28 | | | 156 | | | 1,151 | | | 4,907 | |
| Net (charge-offs) recoveries | (26,340) | | | (11,943) | | | 7 | | | (717) | | | (38,993) | |
| Provision (credit) for loan losses | 15,383 | | | (7,181) | | | 5,138 | | | 4,798 | | | 18,138 | |
| Ending balance | $ | 128,245 | | | $ | 239,695 | | | $ | 44,153 | | | $ | 24,339 | | | $ | 436,432 | |
Six Months Ended
June 30, 2022 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Beginning balance | $ | 103,090 | | | $ | 217,490 | | | $ | 25,120 | | | $ | 13,502 | | | $ | 359,202 | |
| Allowance for PCD loans * | 33,452 | | | 36,618 | | | 206 | | | 43 | | | 70,319 | |
| | | | | | | | | |
| Loans charged-off | (6,111) | | | (173) | | | (27) | | | (1,551) | | | (7,862) | |
| Charged-off loans recovered | 2,776 | | | 331 | | | 531 | | | 1,954 | | | 5,592 | |
| Net (charge-offs) recoveries | (3,335) | | | 158 | | | 504 | | | 403 | | | (2,270) | |
| Provision for loan losses | 11,332 | | | 22,961 | | | 4,059 | | | 3,216 | | | 41,568 | |
| Ending balance | $ | 144,539 | | | $ | 277,227 | | | $ | 29,889 | | | $ | 17,164 | | | $ | 468,819 | |
|
* Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $62.4 million in the second quarter 2022.
36
|
| | | | | | | | | | | | | | | | | | | |
| | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| | (in thousands) |
Nine Months Ended
September 30, 2017 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Beginning balance | $ | 50,820 |
| | $ | 55,851 |
| | $ | 3,702 |
| | $ | 4,046 |
| | $ | 114,419 |
|
| Loans charged-off | (4,889 | ) | | (553 | ) | | (488 | ) | | (3,467 | ) | | (9,397 | ) |
| Charged-off loans recovered | 3,480 |
| | 824 |
| | 903 |
| | 1,324 |
| | 6,531 |
|
| Net (charge-offs) recoveries | (1,409 | ) | | 271 |
| | 415 |
| | (2,143 | ) | | (2,866 | ) |
| Provision for loan losses | 5,278 |
| | (823 | ) | | (225 | ) | | 3,183 |
| | 7,413 |
|
| Ending balance | $ | 54,689 |
| | $ | 55,299 |
| | $ | 3,892 |
| | $ | 5,086 |
| | $ | 118,966 |
|
Nine Months Ended
September 30, 2016 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Beginning balance | $ | 48,767 |
| | $ | 48,006 |
| | $ | 4,625 |
| | $ | 4,780 |
| | $ | 106,178 |
|
| Loans charged-off | (5,507 | ) | | (519 | ) | | (750 | ) | | (2,553 | ) | | (9,329 | ) |
| Charged-off loans recovered | 2,418 |
| | 1,591 |
| | 604 |
| | 1,194 |
| | 5,807 |
|
| Net (charge-offs) recoveries | (3,089 | ) | | 1,072 |
| | (146 | ) | | (1,359 | ) | | (3,522 | ) |
| Provision for loan losses | 5,074 |
| | 3,382 |
| | (1,101 | ) | | 686 |
| | 8,041 |
|
| Ending balance | $ | 50,752 |
| | $ | 52,460 |
| | $ | 3,378 |
| | $ | 4,107 |
| | $ | 110,697 |
|
The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the impairmentallowance measurement methodology at SeptemberJune 30, 20172023 and December 31, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and Industrial | | Commercial
Real Estate | | Residential
Mortgage | | Consumer | | Total |
| | (in thousands) |
| June 30, 2023 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Individually evaluated for credit losses | $ | 54,311 | | | $ | 6,749 | | | $ | 34 | | | $ | — | | | $ | 61,094 | |
| Collectively evaluated for credit losses | 73,934 | | | 232,946 | | | 44,119 | | | 24,339 | | | 375,338 | |
| Total | $ | 128,245 | | | $ | 239,695 | | | $ | 44,153 | | | $ | 24,339 | | | $ | 436,432 | |
| Loans: | | | | | | | | | |
| Individually evaluated for credit losses | $ | 77,364 | | | $ | 138,032 | | | $ | 16,151 | | | $ | — | | | $ | 231,547 | |
| Collectively evaluated for credit losses | 9,209,945 | | | 31,470,801 | | | 5,544,205 | | | 3,420,750 | | | 49,645,701 | |
| Total | $ | 9,287,309 | | | $ | 31,608,833 | | | $ | 5,560,356 | | | $ | 3,420,750 | | | $ | 49,877,248 | |
| December 31, 2022 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Individually evaluated for credit losses | $ | 68,745 | | | $ | 13,174 | | | $ | 337 | | | $ | 4,338 | | | $ | 86,594 | |
| Collectively evaluated for credit losses | 71,196 | | | 246,234 | | | 38,683 | | | 15,948 | | | 372,061 | |
| Total | $ | 139,941 | | | $ | 259,408 | | | $ | 39,020 | | | $ | 20,286 | | | $ | 458,655 | |
| Loans: | | | | | | | | | |
| Individually evaluated for credit losses | $ | 117,644 | | | $ | 213,522 | | | $ | 28,869 | | | $ | 14,058 | | | $ | 374,093 | |
| Collectively evaluated for credit losses | 8,687,186 | | | 29,219,346 | | | 5,335,681 | | | 3,300,894 | | | 46,543,107 | |
| Total | $ | 8,804,830 | | | $ | 29,432,868 | | | $ | 5,364,550 | | | $ | 3,314,952 | | | $ | 46,917,200 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| | (in thousands) |
| September 30, 2017 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Individually evaluated for impairment | $ | 7,104 |
| | $ | 2,644 |
| | $ | 733 |
| | $ | 69 |
| | $ | 10,550 |
|
| Collectively evaluated for impairment | 47,585 |
| | 52,655 |
| | 3,159 |
| | 5,017 |
| | 108,416 |
|
| Total | $ | 54,689 |
| | $ | 55,299 |
| | $ | 3,892 |
| | $ | 5,086 |
| | $ | 118,966 |
|
| Loans: | | | | | | | | | |
| Individually evaluated for impairment | $ | 68,944 |
| | $ | 63,912 |
| | $ | 14,313 |
| | $ | 3,249 |
| | $ | 150,418 |
|
| Collectively evaluated for impairment | 2,435,711 |
| | 9,154,603 |
| | 2,777,466 |
| | 2,211,409 |
| | 16,579,189 |
|
| Loans acquired with discounts related to credit quality | 202,257 |
| | 1,036,193 |
| | 149,656 |
| | 83,749 |
| | 1,471,855 |
|
| Total | $ | 2,706,912 |
| | $ | 10,254,708 |
| | $ | 2,941,435 |
| | $ | 2,298,407 |
| | $ | 18,201,462 |
|
| December 31, 2016 | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | |
| Individually evaluated for impairment | $ | 5,864 |
| | $ | 3,872 |
| | $ | 725 |
| | $ | 70 |
| | $ | 10,531 |
|
| Collectively evaluated for impairment | 44,956 |
| | 51,979 |
| | 2,977 |
| | 3,976 |
| | 103,888 |
|
| Total | $ | 50,820 |
| | $ | 55,851 |
| | $ | 3,702 |
| | $ | 4,046 |
| | $ | 114,419 |
|
| Loans: | | | | | | | | | |
| Individually evaluated for impairment | $ | 30,640 |
| | $ | 62,289 |
| | $ | 18,356 |
| | $ | 3,534 |
| | $ | 114,819 |
|
| Collectively evaluated for impairment | 2,326,378 |
| | 8,276,305 |
| | 2,665,839 |
| | 2,081,260 |
| | 15,349,782 |
|
| Loans acquired with discounts related to credit quality | 281,177 |
| | 1,206,019 |
| | 183,723 |
| | 100,583 |
| | 1,771,502 |
|
| Total | $ | 2,638,195 |
| | $ | 9,544,613 |
| | $ | 2,867,918 |
| | $ | 2,185,377 |
| | $ | 17,236,103 |
|
Note 10.9. Goodwill and Other Intangible Assets
Goodwill totaled $690.6 million at both September 30, 2017 and December 31, 2016. There were no changes to theThe carrying amounts of goodwill allocated to Valley’sValley's business segments, or reporting units thereof, for goodwill impairment analysis (as reported in Valley’s Annual Report on Form 10-K for the year endedat both June 30, 2023 and December 31, 2016).2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Business Segment / Reporting Unit * |
| Wealth
Management | | Consumer
Banking | | Commercial
Banking | | | | Total |
| (in thousands) |
| | | | | | | | | |
| | | | | | | | | |
| $ | 49,767 | | | $ | 284,873 | | | $ | 1,534,296 | | | | | $ | 1,868,936 | |
* Valley’s Wealth Management and Insurance Division is comprised of trust, asset management, brokerage, insurance and tax credit advisory services. This reporting unit is included in the Consumer Banking segment for financial reporting purposes.
During the second quarter 2023, Valley performed the annual goodwill impairment test at its normal assessment date. The results of the 2023 annual impairment test resulted in no impairment of goodwill. During the six months ended June 30, 2023, there were no triggering events that would more likely than not reduce the fair value of any reporting unit below its carrying amount. There was no impairment of goodwill recognized during the three and ninesix months ended SeptemberJune 30, 2017 and 2016.2022.
The following table summarizes other intangible assets as of SeptemberJune 30, 20172023 and December 31, 2016:2022:
|
| | | | | | | | | | | | | | | |
| | Gross Intangible Assets | | Accumulated Amortization | | Valuation Allowance | | Net Intangible Assets |
| | (in thousands) |
| September 30, 2017 | | | | | | | |
| Loan servicing rights | $ | 77,072 |
| | $ | (55,613 | ) | | $ | (715 | ) | | $ | 20,744 |
|
| Core deposits | 43,396 |
| | (23,142 | ) | | — |
| | 20,254 |
|
| Other | 4,087 |
| | (2,224 | ) | | — |
| | 1,863 |
|
| Total other intangible assets | $ | 124,555 |
| | $ | (80,979 | ) | | $ | (715 | ) | | $ | 42,861 |
|
| December 31, 2016 | | | | | | | |
| Loan servicing rights | $ | 73,002 |
| | $ | (52,634 | ) | | $ | (900 | ) | | $ | 19,468 |
|
| Core deposits | 61,504 |
| | (37,562 | ) | | — |
| | 23,942 |
|
| Other | 4,087 |
| | (2,013 | ) | | — |
| | 2,074 |
|
| Total other intangible assets | $ | 138,593 |
| | $ | (92,209 | ) | | $ | (900 | ) | | $ | 45,484 |
|
| | | | | | | | | | | | | | | | | | | |
| Gross
Intangible
Assets | | Accumulated
Amortization | | | | Net
Intangible
Assets |
| | (in thousands) |
| June 30, 2023 | | | | | | | |
| Loan servicing rights | $ | 120,764 | | | $ | (98,453) | | | | | $ | 22,311 | |
| Core deposits | 215,620 | | | (99,129) | | | | | 116,491 | |
| Other | 50,393 | | | (11,249) | | | | | 39,144 | |
| Total other intangible assets | $ | 386,777 | | | $ | (208,831) | | | | | $ | 177,946 | |
| December 31, 2022 | | | | | | | |
| Loan servicing rights | $ | 119,943 | | | $ | (96,136) | | | | | $ | 23,807 | |
| Core deposits | 223,670 | | | (92,486) | | | | | 131,184 | |
| Other | 51,299 | | | (8,834) | | | | | 42,465 | |
| Total other intangible assets | $ | 394,912 | | | $ | (197,456) | | | | | $ | 197,456 | |
Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets in proportion to, and over the period of the economic life of the assets arising from estimated net servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Impairment charges on loan servicing rights are recognized in earnings when the book value of a stratified group of loan servicing rights exceeds its estimated fair value. SeeThere was no net impairment recognized during the "Assetsthree and Liabilities Measured at Fair Value on a Non-recurring Basis" section of Note 6 for additional information regarding the fair valuationsix months ended June 30, 2023 and impairment of loan servicing rights.
2022.
Core deposits are amortized using an accelerated method and haveover a weighted average amortization period of 1110.0 years. The line item labeled “Other” included in the table above primarily consists of customer lists, certain financial asset servicing contracts and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 2013.4 years.
Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. No impairment was recognized during the three and ninesix months ended SeptemberJune 30, 20172023 and 2016.2022.
The following table presents the estimated future amortization expense of other intangible assets for the remainder of 20172023 through 2021:2027:
|
| | | | | | | | | | | |
| | Loan Servicing Rights | | Core Deposits | | Other |
| | (in thousands) |
| 2017 | $ | 1,439 |
| | $ | 1,154 |
| | $ | 69 |
|
| 2018 | 4,798 |
| | 4,215 |
| | 249 |
|
| 2019 | 3,812 |
| | 3,671 |
| | 235 |
|
| 2020 | 3,031 |
| | 3,127 |
| | 220 |
|
| 2021 | 2,301 |
| | 2,582 |
| | 206 |
|
| | | | | | | | | | | | | | | | | |
| Year | Loan Servicing
Rights | | Core
Deposits | | Other |
| | (in thousands) |
| 2023 | $ | 1,579 | | | $ | 14,054 | | | $ | 3,201 | |
| 2024 | 2,863 | | | 24,897 | | | 5,951 | |
| 2025 | 2,506 | | | 21,048 | | | 5,380 | |
| 2026 | 2,181 | | | 17,223 | | | 4,805 | |
| 2027 | 1,890 | | | 13,544 | | | 4,205 | |
Valley recognized amortization expense on other intangible assets including net impairment (or recovery of impairment) charges on loan servicing rights, totaling approximately $2.5$9.8 million and $2.7$11.4 million for the three months ended SeptemberJune 30, 20172023 and 2016,2022, respectively and $7.6$20.3 million and $8.5$15.8 million for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
Note 10. Deposits
Included in time deposits are certificates of deposit over $250 thousand totaling $2.0 billion and $1.8 billion at June 30, 2023 and December 31, 2022, respectively. Interest expense on time deposits of $250 thousand or more totaled $5.1 million and $444 thousand for the three months ended June 30, 2023 and 2022, respectively and $7.5 million and $545 thousand for the six months ended June 30, 2023 and 2022, respectively.
The scheduled maturities of time deposits as of June 30, 2023 were as follows:
| | | | | | | | |
| Year | | Amount |
| | | (in thousands) |
| 2023 | | 8,020,778 | |
| 2024 | | 6,574,934 | |
| 2025 | | 70,994 | |
| 2026 | | 160,144 | |
| 2027 | | 41,691 | |
| Thereafter | | 39,641 | |
| Total time deposits | | $ | 14,908,182 | |
Note 11. Borrowed Funds
Short-Term Borrowings
Short-term borrowings at June 30, 2023 and December 31, 2022 consisted of the following:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
| FHLB advances | $ | 1,000,000 | | | $ | 24,035 | |
| | | |
| Securities sold under agreements to repurchase | 88,899 | | | 114,694 | |
| Total short-term borrowings | $ | 1,088,899 | | | $ | 138,729 | |
The weighted average interest rate for short-term FHLB advances was 5.30 percent and 1.60 percent at June 30, 2023 and December 31, 2022, respectively.
Long-Term Borrowings
Long-term borrowings at June 30, 2023 and December 31, 2022 consisted of the following:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
FHLB advances, net (1) | $ | 1,688,311 | | | $ | 788,419 | |
Subordinated debt, net (2) | 755,222 | | | 754,639 | |
| | | |
| Total long-term borrowings | $ | 2,443,533 | | | $ | 1,543,058 | |
| | | | | |
| (1) | FHLB advances are presented net of unamortized premiums totaling $311 thousand and $419 thousand at June 30, 2023 and December 31, 2022, respectively. |
| (2) | Subordinated debt is presented net of unamortized debt issuance costs totaling $6.0 million and $6.9 million at June 30, 2023 and December 31, 2022, respectively. |
FHLB Advances. Long-term FHLB advances had a weighted average interest rate of 3.75 percent and 1.88 percent at June 30, 2023 and December 31, 2022, respectively. FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket
assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans.
The long-term FHLB advances at June 30, 2023 are scheduled for contractual balance repayments as follows:
| | | | | | | | |
| Year | | Amount |
| | | (in thousands) |
| | |
| 2024 | | $ | 165,000 | |
| 2025 | | 273,000 | |
| 2026 | | 350,000 | |
| 2027 | | 675,000 | |
| Thereafter | | 225,000 | |
| Total long-term FHLB advances | | $ | 1,688,000 | |
There are no FHLB advances reported in the table above, which are callable for early redemption by the FHLB during the next 12 months.
Subordinated debt. There were no new issuances of the subordinated debt during the six months ended June 30, 2023. See Note 10 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2022 for details on the outstanding subordinated debt.
Note 12. Stock–Based Compensation
On April 25, 2023, Valley's shareholders approved the Valley currently has one active employee stock option plan, the 2016 Long-Term StockNational Bancorp 2023 Incentive Compensation Plan (the “2016 Stock Plan”), adopted by Valley’s Board of Directors on January 29, 2016 and approved by its shareholders on April 28, 2016.2023 Plan). The purpose of the 20162023 Plan is to provide additional incentivelong-term incentives to employees, directors and officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley. Upon shareholder approval of the 2023 Plan, Valley and to attract and retain competent and dedicated officers and other key employees whose efforts will result inceased granting awards under the continued and long-term growth of Valley’s business.
Valley National Bancorp 2021 Incentive Compensation Plan (the 2021 Plan). Under the 2016 Stock2023 Plan, Valley may award shares of common stock in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs)issue awards to its officers, employees and non-employee directors. As of September 30, 2017, 7.3directors in amounts up to 14.5 million shares of common stock, were availableless one share for issuanceevery share granted after December 31, 2022 under the 2016 Stock2021 Plan.
Restricted stock units are awarded as performance-based RSUs and time-based RSUs. The essential features of each awardperformance-based RSU awards are described in the award agreement relatinggranted to that award. The grant, exercise,certain officers and include RSUs with vesting settlement or payment of an award may beconditions based upon the fair valuecertain levels of Valley’s common stock on the last sale price reported for Valley’s common stock on such date or the last sale price reported preceding such date, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third party specialist using a Monte Carlo valuation model.
Restricted Stock. Restricted stock is awarded to key employees, providing for the immediate award of our common stock subject to certain vesting and restrictions under the 2016 Stock Plan. Compensation expense is
measured based on the grant-date fair value of the shares. Valley awarded time-based restricted stock totaling 482 thousand shares and 534 thousand shares during the nine months ended September 30, 2017 and 2016, respectively, to both executive officers and key employees of Valley. The majority of the awards have vesting periods of three years. Generally, the restrictions on such awards lapse at an annual rate of one-third of the total award commencing with the first anniversary of the date of grant. The average grant date fair value of the restricted stock awards granted during the nine months ended September 30, 2017 and 2016 was $11.71 per share and $8.58 per share, respectively.
Restricted Stock Units. Valley granted 371 thousand shares and 431 thousand shares of performance-based RSUs to certain executive officers for the nine months ended September 30, 2017 and 2016, respectively. The performance-based awards vest based on (i) growth in Valley's tangible book value per share, plus dividends (75 percent of performance shares)dividends; and (ii)RSUs, with vesting conditions based upon Valley's total shareholder return as compared to ourits peer group (25 percent of performance shares). group.
The performance basedtable below summarizes RSU awards "cliff" vest after three years based on the cumulative performance of Valley during that time period. The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common stock) over the applicable performance period. Dividend equivalentsgranted and accrued interest (if applicable), per the terms of the agreements, are accumulated and paid to the grantee at the vesting date, or forfeited if the performance conditions are not met. Theaverage grant date fair value of the RSUs granted during the nine months ended September 30, 2017 and 2016 was $11.05 per share and $8.32 per share, respectively.
Valley recorded total stock-based compensation expense of $2.7 million and $2.2 millionvalues for the three and six months ended SeptemberJune 30, 20172023 and2016, respectively, and $9.6 million and $7.4 million for the nine months ended September 30, 2017 and 2016, respectively. The 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands, except per share data) |
| Award shares granted: | | | | | | | |
| Performance-based RSUs | — | | | 52 | | | 723 | | | 619 | |
| Time-based RSUs | 178 | | | 937 | | | 1,731 | | | 2,104 | |
| Average grant date fair value per share: | | | | | | | |
| Performance-based RSUs | $ | — | | | $ | 13.60 | | | $ | 12.80 | | | $ | 14.72 | |
| Time-based RSUs | $ | 8.35 | | | $ | 12.85 | | | $ | 11.55 | | | $ | 13.51 | |
Stock award fair values of stock awards are expensed over the shorter of the vesting or required service period. Valley recorded total stock-based compensation expense of $8.7 million and $6.2 million for the three months ended June 30, 2023
and 2022, respectively and $16.8 million and $13.4 million for the six months ended June 30, 2023 and 2022, respectively. As of SeptemberJune 30, 2017,2023, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $13.8 million and$49.4 million. This expense will be recognized over an average remaining vesting period of 1.9approximately 2.0 years. See Note 12 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2022 for details on the stock-based compensation awards.
Note 12.13. Derivative Instruments and Hedging Activities
Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest and currency rates.
Cash Flow Hedges of Interest Rate Risk. Risk. Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively. Interest
During the second quarter 2023, Valley terminated six interest rate caps designated asswaps with a total notional amount of $600 million. The terminated swaps, originally maturing between November 2024 to November 2026, were used to hedge the changes in cash flow hedges involveflows associated with certain variable rate loans. The transaction resulted in a pre-tax gain totaling $3.6 million reported in accumulated other comprehensive loss within shareholders' equity that will be amortized to interest income over the receiptlife of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.previously hedged loans.
Fair Value Hedges of Fixed Rate Assets and Liabilities. Liabilities. Valley is exposed to changes in the fair value of certain of its fixed rate assets or liabilitiesfixed-rate subordinated debt due to changes in benchmark interest rates based on one-month LIBOR. From time to time,rates. Valley uses interest rate swaps to manage its exposure to changes in fair value.value on fixed rate debt instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. Valley includes the gain or loss on the hedged items in the same income statement line item as the loss or gain on the related derivatives.
Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide a service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes.
Under a program, Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that Valley minimizes its net risk exposure resulting from such transactions. As thethese interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the participation type. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At June 30, 2023, Valley had 36 credit swaps with an aggregate notional amount of $492.8 million related to risk participation agreements.
At SeptemberJune 30, 2017,2023, Valley has one "steepener" swaphad two “steepener” swaps, each with a total current notional amount of $14.5$10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the raterates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve. Although these types of instruments do not meet the hedge accounting requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in
opposite directions with changes in the three-month LIBOR rate (modified to the three-month Term SOFR rate effective July 1, 2023) and, therefore, provide an effective economic hedge.
Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest ratesrate on Valley’sValley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.
Valley enters into foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments. Upon the origination of a certain foreign currency denominated transactions (including foreign currency holdings and non-U.S. dollar denominated loans) with a client, we enter into a respective hedging contract with a third party financial institution to mitigate the economic impact of foreign currency exchange rate fluctuation.
Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Fair Value | | | | Fair Value | | |
| | Other Assets | | Other Liabilities | | Notional Amount | | Other Assets | | Other Liabilities | | Notional Amount |
| | (in thousands) |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
| Cash flow hedge interest rate caps and swaps | $ | 514 |
| | $ | — |
| * | $ | 607,000 |
| | $ | 802 |
| | $ | 15,641 |
| | $ | 707,000 |
|
| Fair value hedge interest rate swaps | — |
| | 762 |
| | 7,832 |
| | — |
| | 986 |
| | 7,999 |
|
| Total derivatives designated as hedging instruments | $ | 514 |
| | $ | 762 |
| | $ | 614,832 |
| | $ | 802 |
| | $ | 16,627 |
| | $ | 714,999 |
|
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
| Interest rate swaps and embedded derivatives | $ | 25,999 |
| | $ | 22,972 |
| * | $ | 1,279,055 |
| | $ | 25,285 |
| | $ | 25,284 |
| | $ | 1,075,722 |
|
| Mortgage banking derivatives | 183 |
| | 134 |
| | 113,555 |
| | 2,968 |
| | 2,166 |
| | 246,583 |
|
| Total derivatives not designated as hedging instruments | $ | 26,182 |
| | $ | 23,106 |
| | $ | 1,392,610 |
| | $ | 28,253 |
| | $ | 27,450 |
| | $ | 1,322,305 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | Fair Value | | | | Fair Value | | |
| Other Assets | | Other Liabilities | | Notional Amount | | Other Assets | | Other Liabilities | | Notional Amount |
| | (in thousands) |
| Derivatives designated as hedging instruments: | | | | | | | | | | | |
| Cash flow hedge interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | 3,971 | | | $ | 4 | | | $ | 600,000 | |
| Fair value hedge interest rate swaps | — | | | 28,992 | | | 300,000 | | | — | | | 29,794 | | | 300,000 | |
| Total derivatives designated as hedging instruments | $ | — | | | $ | 28,992 | | | $ | 300,000 | | | $ | 3,971 | | | $ | 29,798 | | | $ | 900,000 | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | |
Interest rate swaps and other contracts* | $ | 548,592 | | | $ | 548,217 | | | $ | 15,837,195 | | | $ | 449,280 | | | $ | 564,678 | | | $ | 14,753,330 | |
| Foreign currency derivatives | 22,635 | | | 21,710 | | | 1,331,575 | | | 13,709 | | | 12,604 | | | 1,273,735 | |
| Mortgage banking derivatives | 393 | | | 307 | | | 105,948 | | | 167 | | | 157 | | | 31,299 | |
| Total derivatives not designated as hedging instruments | $ | 571,620 | | | $ | 570,234 | | | $ | 17,274,718 | | | $ | 463,156 | | | $ | 577,439 | | | $ | 16,058,364 | |
* The fair value forOther derivative contracts include risk participation agreements.
During the second quarter 2023, certain cash flow hedges and other non-designated derivative hedging instruments previously cleared through the Chicago Mercantile Exchange cleared derivative positions is inclusive of accrued interest payable and the portion of the cash collateral representingLondon Clearing House were no longer subject to the variation margin posted with (or by)netting under the applicable counterparties.
Chicago Mercantile Exchange (CME) amended their rules to legally characterize the variation margin posted between counterparties to be classified as settlementssingle-unit of the outstandingaccount. At December 31, 2022, fair value of these non-designated derivative contracts insteadinstruments were reported net of cash collateral. Effective January 1, 2017, Valley adopted the new rule on a prospective basis to classify its CME variation margin as settlements using a single-unit of account with the fair value of certain cash flow and non-designated derivative instruments. As a result, the fair value of the designated cash flow derivatives and non-designated interest rate swaps cleared with the CME were offset by variation margins totaling $10.9 million and $3.1 million, respectively, and reported in the table above on a net basis at September 30, 2017.account.
LossesGains (losses) included in the consolidated statements of income and in other comprehensive income,loss, on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Amount of loss reclassified from accumulated other comprehensive loss to interest expense | $ | (1,930 | ) | | $ | (3,578 | ) | | $ | (6,762 | ) | | $ | (10,146 | ) |
| Amount of gain (loss) recognized in other comprehensive income | 329 |
| | 2,962 |
| | (936 | ) | | (11,695 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
| Amount of (loss) gain reclassified from accumulated other comprehensive loss to interest income and expense | $ | (725) | | | $ | 116 | | | $ | (1,256) | | | $ | (426) | |
| Amount of (loss) gain recognized in other comprehensive loss | (4,991) | | | 121 | | | (1,093) | | | 441 | |
The netaccumulated after-tax gains or losses related to cash flow hedge ineffectiveness were immaterial during the three and nine months ended September 30, 2017 and 2016. The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $9.0$2.4 million and $12.5$2.2 million at SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest income and expense as interest payments are madereceived and paid on the hedged variable interest rate assets and liabilities. Valley estimates that $6.4$1.2 million and $238 thousand (before tax) will be reclassified as an increase to interest income and a decrease to interest expense, respectively, over the next 12 months.
Gains (losses)(Losses) gains included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Derivative - interest rate swaps: | | | | | | | |
| Interest income | $ | 75 |
| | $ | 129 |
| | $ | 224 |
| | $ | 32 |
|
| Interest expense | — |
| | (127 | ) | | — |
| | 6,670 |
|
| Hedged item - loans and borrowings: | | | | | | | |
| Interest income | $ | (75 | ) | | $ | (129 | ) | | $ | (224 | ) | | $ | (32 | ) |
| Interest expense | — |
| | 133 |
| | — |
| | (6,646 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
| Derivative - interest rate swap: | | | | | | | |
| | | | | | | |
| Interest expense | $ | (3,790) | | | $ | 76 | | | $ | 902 | | | $ | 606 | |
| Hedged item - subordinated debt | | | | | | | |
| | | | | | | |
| Interest expense | $ | 3,952 | | | $ | (147) | | | $ | (820) | | | $ | (477) | |
The amounts recognizedchanges in non-interest expensethe fair value of the hedged item designated as a qualifying hedge are captured as an adjustment to the carrying amount of the hedged item (basis adjustment). The following table presents the hedged item related to ineffectiveness ofinterest rate derivatives designated as fair value hedges were immaterial forand the threecumulative basis fair value adjustment included in the net carrying amount of the hedged item at June 30, 2023 and nine months ended SeptemberDecember 31, 2022, respectively.
| | | | | | | | | | | |
| Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Net Carrying Amount of the Hedged Liability * | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability |
| (in thousands) |
| June 30, 2023 | | | |
| Long-term borrowings | $ | 268,300 | | | $ | (29,312) | |
| December 31, 2022 | | | |
| Long-term borrowings | $ | 267,076 | | | $ | (30,132) | |
* Net carrying amount includes unamortized debt issuance costs of $2.4 million and $2.8 million at June 30, 20172023 and 2016.December 31, 2022, respectively.
The net gains (losses)(gains) losses included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
| Non-designated hedge interest rate swaps and credit derivatives | | | | | | | |
| Other non-interest expense | $ | (368) | | | $ | 1,143 | | | $ | (160) | | | $ | (1,654) | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Non-designated hedge interest rate derivatives | | | | | | | |
| Other non-interest expense | $ | 37 |
| | $ | 171 |
| | $ | (753 | ) | | $ | (218 | ) |
Collateral Requirements and Credit Risk Related Contingent Features.Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated
counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board of Directors.
Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterpartycounterparties could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of SeptemberJune 30, 2017,2023, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of September 30, 2017, theThe aggregate fair value of derivativesall derivative financial instruments with credit risk-related contingent features in a net liability position which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements,at June 30, 2023 was $11.4 million.not material. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties. At September 30, 2017, Valley had $43.6 million in collateral posted with counterparties, net of CME variation margin.
Note 13.14. Balance Sheet Offsetting
Certain financial instruments, including certain over-the-counter (OTC) derivatives (consisting of(mostly interest rate caps and swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated balance sheetstatements of financial condition and/or subject to master netting arrangements or similar agreements. OTC derivatives include interest rate swaps executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house (presented in the table below). The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements.
Valley is party to master netting arrangements with its financial institution counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts. In such cases, the collateral would be used to settle the fair value of the swap or repurchase agreement should Valley be in default. The total amount of collateral held or pledged cannot exceed the net derivative fair values with the counterparty.
The table below presents information about Valley’s financial instruments that are eligible for offset in the consolidated statements of financial condition as of SeptemberJune 30, 20172023 and December 31, 2016.2022.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset | | |
| | Gross Amounts Recognized | | Gross Amounts Offset | | Net Amounts Presented | | Financial Instruments | | Cash Collateral | | Net Amount |
| | (in thousands) |
| September 30, 2017 | | | | | | | | | | | |
| Assets: | | | | | | | | | | | |
| Interest rate caps and swaps | $ | 26,513 |
| | $ | — |
| | $ | 26,513 |
| | $ | (3,509 | ) | | $ | — |
| | $ | 23,004 |
|
| Liabilities: | | | | | | | | | | | |
| Interest rate caps and swaps | $ | 23,734 |
| | $ | — |
| | $ | 23,734 |
| | $ | (3,509 | ) | | $ | (10,187 | ) | (1) | $ | 10,038 |
|
| Repurchase agreements | 200,000 |
| | — |
| | 200,000 |
| | — |
| | (200,000 | ) | (2) | — |
|
| Total | $ | 223,734 |
| | $ | — |
| | $ | 223,734 |
| | $ | (3,509 | ) | | $ | (210,187 | ) | | $ | 10,038 |
|
| December 31, 2016 | | | | | | | | | | | |
| Assets: | | | | | | | | | | | |
| Interest rate caps and swaps | $ | 26,087 |
| | $ | — |
| | $ | 26,087 |
| | $ | (5,268 | ) | | $ | — |
| | $ | 20,819 |
|
| Liabilities: | | | | | | | | | | | |
| Interest rate caps and swaps | $ | 41,911 |
| | $ | — |
| | $ | 41,911 |
| | $ | (5,268 | ) | | $ | (36,643 | ) | (1) | $ | — |
|
| Repurchase agreements | 165,000 |
| | — |
| | 165,000 |
| | — |
| | (165,000 | ) | (2) | — |
|
| Total | $ | 206,911 |
| | $ | — |
| | $ | 206,911 |
| | $ | (5,268 | ) | | $ | (201,643 | ) | | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gross Amounts Not Offset | | |
| | Gross Amounts
Recognized | | Gross Amounts
Offset | | Net Amounts
Presented | | Financial
Instruments | | Cash
Collateral * | | Net
Amount |
| | (in thousands) |
| June 30, 2023 | | | | | | | | | | | |
| Assets | | | | | | | | | | | |
| Interest rate swaps | $ | 548,592 | | | $ | — | | | $ | 548,592 | | | $ | 9,929 | | | $ | (468,200) | | | $ | 90,321 | |
| Liabilities | | | | | | | | | | | |
| Interest rate swaps | $ | 577,209 | | | $ | — | | | $ | 577,209 | | | $ | (9,929) | | | $ | — | | | $ | 567,280 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| December 31, 2022 | | | | | | | | | | | |
| Assets | | | | | | | | | | | |
| Interest rate swaps | $ | 453,251 | | | $ | — | | | $ | 453,251 | | | $ | 12,766 | | | $ | (342,480) | | | $ | 123,537 | |
| Liabilities | | | | | | | | | | | |
| Interest rate swaps | $ | 594,476 | | | $ | — | | | $ | 594,476 | | | $ | (12,766) | | | $ | (432) | | | $ | 581,278 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| |
(1) | Represents the amount of collateral posted with derivatives counterparties that offsets net liabilities. Actual cash collateral posted with all counterparties totaled $57.7 million and $52.4 million at September 30, 2017 and December 31, 2016, respectively. |
| |
(2) | Represents the fair value of non-cash pledged investment securities. |
* Cash collateral received from or pledged to our counterparties in relation to market value exposures of OTC derivative contacts in an asset/liability position. Note 14.15. Tax Credit Investments
Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the Community Reinvestment Act (CRA).Act. Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense.
Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense ofin the consolidated statements of income using the equity method of accounting. An impairment loss is recognized whenAfter initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair valuevalues are increased to reflect Valley's share of income of the tax credit investment is less thaninvestee and are reduced to reflect its carrying value.
share of losses of the investee, dividends received and impairments, if applicable.
The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at SeptemberJune 30, 20172023 and December 31, 2016.2022:
| | | | | | | | | | | |
| June 30,
2023 | | December 31,
2022 |
| (in thousands) |
| Other Assets: | | | |
| Affordable housing tax credit investments, net | $ | 21,427 | | | $ | 24,198 | |
| Other tax credit investments, net | 80,145 | | | 56,551 | |
| Total tax credit investments, net | $ | 101,572 | | | $ | 80,749 | |
| Other Liabilities: | | | |
| Unfunded affordable housing tax credit commitments | $ | 1,327 | | | $ | 1,338 | |
| | | |
| Total unfunded tax credit commitments | $ | 1,327 | | | $ | 1,338 | |
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| | (in thousands) |
| Other Assets: | | | |
| Affordable housing tax credit investments, net | $ | 26,397 |
| | $ | 29,567 |
|
| Other tax credit investments, net | 40,191 |
| | 44,763 |
|
| Total tax credit investments, net | $ | 66,588 |
| | $ | 74,330 |
|
| Other Liabilities: | | | |
| Unfunded affordable housing tax credit commitments | $ | 3,690 |
| | $ | 4,850 |
|
| Unfunded other tax credit commitments | 10,194 |
| | 7,276 |
|
| Total unfunded tax credit commitments | $ | 13,884 |
| | $ | 12,126 |
|
The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
| Components of Income Tax Expense: | | | | | | | |
| Affordable housing tax credits and other tax benefits | $ | 1,460 | | | $ | 1,614 | | | $ | 2,919 | | | $ | 2,358 | |
| Other tax credit investment credits and tax benefits | 3,430 | | | 2,539 | | | 6,651 | | | 5,090 | |
| Total reduction in income tax expense | $ | 4,890 | | | $ | 4,153 | | | $ | 9,570 | | | $ | 7,448 | |
| Amortization of Tax Credit Investments: | | | | | | | |
| Affordable housing tax credit investment losses | $ | 938 | | | $ | 653 | | | $ | 1,875 | | | $ | 1,068 | |
| Affordable housing tax credit investment impairment losses | 448 | | | 363 | | | 896 | | | 625 | |
| Other tax credit investment losses | 719 | | | 386 | | | 725 | | | 695 | |
| Other tax credit investment impairment losses | 2,913 | | | 1,791 | | | 5,775 | | | 3,701 | |
| Total amortization of tax credit investments recorded in non-interest expense | $ | 5,018 | | | $ | 3,193 | | | $ | 9,271 | | | $ | 6,089 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Components of Income Tax Expense: | | | | | | | |
| Affordable housing tax credits and other tax benefits | $ | 1,965 |
| | $ | 1,065 |
| | $ | 4,520 |
| | $ | 3,195 |
|
| Other tax credit investment credits and tax benefits | 7,859 |
| | 6,118 |
| | 22,825 |
| | 12,654 |
|
| Total reduction in income tax expense | $ | 9,824 |
| | $ | 7,183 |
| | $ | 27,345 |
| | $ | 15,849 |
|
| Amortization of Tax Credit Investments: | | | | | | | |
| Affordable housing tax credit investment losses | $ | 1,183 |
| | $ | 33 |
| | $ | 1,937 |
| | $ | 1,392 |
|
| Affordable housing tax credit investment impairment losses | 979 |
| | 128 |
| | 1,233 |
| | 328 |
|
| Other tax credit investment losses | 307 |
| | 107 |
| | 2,134 |
| | 775 |
|
| Other tax credit investment impairment losses | 5,920 |
| | 6,182 |
| | 16,141 |
| | 18,865 |
|
| Total amortization of tax credit investments recorded in non-interest expense | $ | 8,389 |
| | $ | 6,450 |
| | $ | 21,445 |
| | $ | 21,360 |
|
Note 15. Litigation16. Operating Segments
InValley manages its business operations under reportable segments consisting of Consumer Banking, Commercial Banking and Treasury and Corporate Other. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the normal course of business,carrying amount). Valley is a party to various outstanding legal proceedings and claims. In the opinion of management, the financial condition, results ofregularly assesses its strategic plans, operations and liquidityreporting structures to identify its reportable segments and no changes to the reportable segments were determined necessary during the first half of Valley should not be materially affected by2023.
Consumer Banking is mainly comprised of residential mortgages and automobile loans, and to a lesser extent, secured personal lines of credit, home equity loans and other consumer loans. The duration of the outcome of such legal proceedings and claims. However,residential mortgage loan portfolio is subject to movements in the eventmarket level of an unexpected adverse outcomeinterest rates and forecasted prepayment speeds. The average weighted life of the automobile loans within the portfolio is relatively unaffected by movements in onethe market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or moreused automobiles. Consumer Banking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.
Commercial Banking is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, Commercial Banking is Valley’s operating segment that is most sensitive to movements in market interest rates.
Treasury and Corporate Other largely consists of the Treasury managed held to maturity debt securities and available for sale debt securities portfolios mainly utilized in the liquidity management needs of our legal proceedings, operating results forlending segments and income and expense items resulting from support functions not directly attributable to a particular period may be negatively impacted. Disclosurespecific segment. Interest income is required when a riskgenerated through investments in various types of material loss in a litigation or claim is more than remote, even when the risksecurities (mainly comprised of a material loss is less than likely. Unless an estimate cannot be made, disclosure is also required of the estimate of the reasonably possible loss or range of loss.
Although there can be no assurance as to the ultimate outcome, Valley has generally denied, or believes it has a meritorious defensefixed rate securities) and will deny liability in litigation pending against Valley and claims made, including the matter described below. Valley intends to defend vigorously each case against it. Liabilities are established for legal claims when payments associatedinterest-bearing deposits with the claims become probable and the costs can be reasonably estimated.
Merrick Bank Corporation v. Valley National Bank and American Express Travel Related Services v. Valley National Bank litigation. For about a decade, Valley served as the depository bank for various charter operators under regulations of the Department of Transportation (DOT) and contracts entered into with charter operators under those regulations. The purported intent of the regulations is to afford some protection to the customers of the charter operators. A charter operator has several options with regard to fulfilling its obligations under the regulations, with one option requiring the charter operator to deposit the proceeds of tickets purchased for a charter flight into an FDIC insured bank account. The funds for a flight are released when the charter operator certifies that the flight has been completed. Valley stopped serving as a depository bank for the charter business due to the narrow profit in that business combined with the legal expenses incurred to defend itself in a prior case in which Valley was completely successful and the anticipated legal expenses from the following similar cases that are still pending.
Valley served as the depository bank for Myrtle Beach Direct Air (Direct Air) under a contract between Direct Air and Valley approved by the DOT under the DOT regulations. Direct Air commenced operations in 2007 but in March 2012 Direct Air ceased operations and filed for bankruptcy. Thereafter the United States Justice Department charged three of the principals of Direct Air with criminal fraud; that case is expected to go to trial in March 2018. Merrick Bank Corp. (Merrick) was the merchant bank for Direct Air and processed credit card purchases for Direct Air. Following the bankruptcy of Direct Air, Merrick incurred chargebacks in the approximate amount of $26.2 million when the Direct Air customers whose flights had been canceled obtained a credit from their card issuingother banks for the cost of the ticket or other item purchased from Direct Air. Merrick was not able to recover the
chargebacks from Direct Air. Direct Air’s depository account at Valley contained approximately $1.0 million at the time Direct Air ceased operations.
Merrick filed an action against Valley with ten counts in December 2013. Valley moved to dismiss five of the counts and, in March 2015, the court dismissed four of the five counts. American Express Travel Related Services (American Express) filed a similar action against Valley claiming about $3.0 million in charge-backs. Five of American Express’ eleven counts have been dismissed. The two cases have now been consolidated in(primarily the Federal District CourtReserve Bank of New Jersey.
During April 2017, all parties attended a mediation, however it was unsuccessful. Shortly before the mediation, Valley filed summary judgment motions on all of the remaining counts in both the Merrick and American Express cases. Merrick and American Express also filed summary judgment motions against Valley. As of the present time, the Court has not rendered any decisions on these pending motions.
At September 30, 2017, Valley could not estimate an amount or range of reasonably possible lossesYork). Expenses related to the matter described above. Based upon information currently available and advicebranch network, all other components of counsel, Valley believes thatretail banking, along with the eventual outcome of such claims will not have a material adverse effect on Valley’s consolidated financial position. However, in the event of unexpected future developments, it is possible that the ultimate resolutionback office departments of the matters, if unfavorable, may be materialBank are allocated from Treasury and Corporate Other to Valley’s resultsthe Consumer and Commercial Banking segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which involves the allocation of operationsoperating and
funding costs based on each segment's respective mix of average interest earning assets and or liabilities outstanding for a particularthe period.
Note 16. Business Segments
The informationaccounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data.
The following tables represent the caption “Business Segments” in Management’s Discussionfinancial data for Valley’s operating segments for the three and Analysis of Financial Conditionsix months ended June 30, 2023 and Results of Operations is incorporated herein by reference.2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2023 |
| | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 8,904,483 | | | $ | 40,553,454 | | | $ | 7,893,871 | | $ | 57,351,808 | |
| | | | | | | |
| Interest income | $ | 90,602 | | | $ | 624,569 | | | $ | 72,288 | | $ | 787,459 | |
| Interest expense | 55,198 | | | 250,871 | | | 61,625 | | 367,694 | |
| Net interest income | 35,404 | | | 373,698 | | | 10,663 | | 419,765 | |
| Provision (credit) for credit losses | 3,492 | | | 2,840 | | | (282) | | 6,050 | |
| Net interest income after provision for credit losses | 31,912 | | | 370,858 | | | 10,945 | | 413,715 | |
| Non-interest income | 25,529 | | | 14,361 | | | 20,185 | | 60,075 | |
| Non-interest expense | 23,223 | | | 35,365 | | | 224,383 | | 282,971 | |
| Internal transfer expense (income) | 22,018 | | | 102,395 | | | (124,413) | | — | |
| Income (loss) before income taxes | $ | 12,200 | | | $ | 247,459 | | | $ | (68,840) | | $ | 190,819 | |
| Return on average interest earning assets (pre-tax) | 0.55 | % | | 2.44 | % | | (3.49) | % | | 1.33 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 7,967,305 | | | $ | 34,549,982 | | | $ | 6,373,943 | | $ | 48,891,230 | |
| | | | | | | |
| Interest income | $ | 63,137 | | | $ | 352,440 | | | $ | 37,370 | | $ | 452,947 | |
| Interest expense | 4,723 | | | 19,735 | | | 10,329 | | 34,787 | |
| Net interest income | 58,414 | | | 332,705 | | | 27,041 | | 418,160 | |
| Provision for credit losses | 5,402 | | | 38,310 | | | 286 | | 43,998 | |
| Net interest income after provision for credit losses | 53,012 | | | 294,395 | | | 26,755 | | 374,162 | |
| Non-interest income | 17,086 | | | 14,425 | | | 27,022 | | 58,533 | |
| Non-interest expense | 18,791 | | | 24,448 | | | 256,491 | | 299,730 | |
| Internal transfer expense (income) | 37,629 | | | 157,365 | | | (194,994) | | — | |
| Income (loss) before income taxes | $ | 13,678 | | | $ | 127,007 | | | $ | (7,720) | | $ | 132,965 | |
| Return on average interest earning assets (pre-tax) | 0.69 | % | | 1.47 | % | | (0.48) | % | | 1.09 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2023 |
| | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 8,836,859 | | | $ | 39,826,630 | | | $ | 7,699,305 | | $ | 56,362,794 | |
| | | | | | | |
| Interest income | $ | 175,918 | | | $ | 1,194,479 | | | $ | 137,292 | | $ | 1,507,689 | |
| Interest expense | 98,204 | | | 442,594 | | | 111,106 | | 651,904 | |
| Net interest income | 77,714 | | | 751,885 | | | 26,186 | | 855,785 | |
| Provision for credit losses | 9,936 | | | 5,846 | | | 4,705 | | 20,487 | |
| Net interest income after provision for credit losses | 67,778 | | | 746,039 | | | 21,481 | | 835,298 | |
| Non-interest income | 39,819 | | | 30,108 | | | 44,447 | | 114,374 | |
| Non-interest expense | 41,472 | | | 71,088 | | | 442,577 | | 555,137 | |
| Internal transfer expense (income) | 52,901 | | | 233,990 | | | (286,891) | | — | |
| Income (loss) before income taxes | $ | 13,224 | | | $ | 471,069 | | | $ | (89,758) | | $ | 394,535 | |
| Return on average interest earning assets (pre-tax) | 0.30 | % | | 2.37 | % | | (2.33) | % | | 1.40 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 7,848,764 | | | $ | 30,743,387 | | | $ | 6,017,817 | | $ | 44,609,968 | |
| | | | | | | |
| Interest income | $ | 122,596 | | | $ | 610,346 | | | $ | 60,463 | | $ | 793,405 | |
| Interest expense | 7,930 | | | 31,062 | | | 18,584 | | 57,576 | |
| Net interest income | 114,666 | | | 579,284 | | | 41,879 | | 735,829 | |
| Provision for credit losses | 7,275 | | | 39,937 | | | 343 | | 47,555 | |
| Net interest income after provision for credit losses | 107,391 | | | 539,347 | | | 41,536 | | 688,274 | |
| Non-interest income | 30,903 | | | 31,305 | | | 35,595 | | 97,803 | |
| Non-interest expense | 35,359 | | | 49,533 | | | 412,178 | | 497,070 | |
| Internal transfer expense (income) | 66,276 | | | 257,281 | | | (323,557) | | — | |
| Income (loss) before income taxes | $ | 36,659 | | | $ | 263,838 | | | $ | (11,490) | | $ | 289,007 | |
| Return on average interest earning assets (pre-tax) | 0.93 | % | | 1.72 | % | | (0.38) | % | | 1.30 | % |
|
Item 2. Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
The following MD&A should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in Part I, Item 1 of this report. The words "Valley," the "Company," "we," "our" and "us" refer to Valley National Bancorp and its wholly owned subsidiaries, unless we indicate otherwise. Additionally, Valley’s principal subsidiary, Valley National Bank, is commonly referred to as the “Bank” in this MD&A.
The MD&A contains supplemental financial information, described in the sections that follow, which has been determined by methods other than U.S. generally accepted accounting principles (U.S. GAAP) that management uses in its analysis of our performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance, our business and performance trends and facilitatesfacilitate comparisons with the performance of others in the financial services industry. These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q, both in the MD&A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about our business, new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by such forward-looking terminology as “intend,” “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “would,” “could,” “typically,” “usually,” “anticipate,” “may,” “estimate,” “outlook,” “project,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actualuncertainties. Actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements in addition to those risk factors disclosed in Valley’s Annual Report on Form 10-K for the year ended December 31, 2016, include, but are not limited to:
weakness or a decline•the impact of Federal Reserve actions affecting the level of market interest rates and increases in the economy, mainly in New Jersey, New York and Florida,business failures, specifically among our clients, as well as an unexpected declineon our business, our employees and our ability to provide services to our customers;
•the impact of recent and possible future bank failures on the business environment in commercial real estate values withinwhich we operate and resulting market volatility and reduced confidence in depository institutions, including impact on stock price, customer deposit withdrawals from Valley National Bank, or business disruptions or liquidity issues that have or may affect our market areas;customers;
less•the impact of unfavorable macroeconomic conditions or downturns, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by and factors outside of our control, such as geopolitical instabilities or events; natural and other disasters (including severe weather events) and health emergencies, acts of terrorism or other external events;
•risks associated with our acquisition of Bank Leumi Le-Israel Corporation (Bank Leumi USA), including (i) the inability to realize expected cost savings and synergies from the acquisition in the amounts or timeframe anticipated and (ii) greater than expected cost reductions and revenue enhancement from Valley's cost reduction plans including its earnings enhancement program called "LIFT";costs or difficulties relating to integration matters;
damage verdicts or settlements or restrictions related to existing or potential litigations arising from claims of breach of fiduciary responsibility, negligence, fraud, contractual claims, environmental laws, patent or trade mark infringement, employment related claims, and other matters;
•the loss of or decrease in lower-cost funding sources within our deposit base may adversely impactbase;
•the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
•the inability to attract new customer deposits to keep pace with loan growth strategies;
•a material change in our net interest incomeallowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and net income;investment portfolios;
cyber•greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
•the risks related to the replacement of the London Interbank Offered Rate with Secured Overnight Financing Rate and other reference rates, including increased expenses, risk of litigation and the effectiveness of hedging strategies;
•cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
•damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of
fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;
•changes to laws and regulations, including changes affecting oversight of the financial services industry; changes in the enforcement and interpretation of such laws and regulations; and changes in accounting and reporting standards;
•higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
•results of examinations by the OCC,Office of the FRB,Comptroller of the CFPBCurrency (OCC), the Federal Reserve Bank (FRB), the Consumer Financial Protection Bureau (CFPB) and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, require us to reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
changes in accounting policies or accounting standards, including the new authoritative accounting guidance (known as the current expected credit loss (CECL) model) which may increase the required level of our allowance for credit losses after adoption on January 1, 2020;
higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in tax laws, regulations and case law;
•our inability or determination not to pay dividends at current levels, or at all, because of inadequate future earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;
higher than expected loan losses•a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California, and Illinois, as well as an unexpected decline in commercial real estate values within one or more segments of our loan portfolio;market areas; and
unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;
•unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors;factors.
the failureA detailed discussion of other financial institutions with whom we have trading, clearing, counterparty and other financial relationships.
failure to close the merger with USAB for any reason,factors that could affect our results is included in our SEC filings, including the failure to obtain shareholder approval“Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the merger withinyear ended December 31, 2022, and in Part II, Item 1A of this Form 10-Q.
We undertake no duty to update any forward-looking statement to conform the proposed timeframestatement to actual results or changes in the stock price of Valley during the 30 day pricing period prior to the closing of the merger that gives either Valley or USAB the right to terminate the merger agreement;
the riskour expectations. Although we believe that the businesses of Valley and USAB may not be combined successfully, or such combination may take longer or be more difficult, time-consuming or costly to accomplish than expected;
the diversion of management's time on issues relating to the merger with USAB;
the inability to realize expected cost savings and synergies from the merger of USAB with Valleyexpectations reflected in the amountsforward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or in the timeframe anticipated; andachievements.
the inability to retain USAB’s customers and employees.
Critical Accounting Policies and Estimates
Valley’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. Our significant accounting policies are presented in Note 1 toIn preparing the consolidated financial statements, includedmanagement has made estimates, judgments and assumptions in Valley’s Annual Report on Form 10-Kaccordance with these policies that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the year ended December 31, 2016. Weperiods indicated. At June 30, 2023, we identified our policies on the allowance for loancredit losses, security valuations and impairments, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts
would be reported under different conditions or using different assumptions. Management has reviewed the application of these policies and estimates with the Audit Committee of Valley’s Board of Directors. Our critical accounting policies and estimates are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2016.2022, and there have been no material changes in such policies and estimates since the date of such report.
New Authoritative Accounting Guidance
See Note 5 to the consolidated financial statements for a description of new authoritative accounting guidance, including the respective dates of adoption and effects on results of operations and financial condition.
Executive Summary
Company Overview. At September At June 30, 2017,2023, Valley had consolidated total assets of approximately $23.8$61.7 billion, total net loans of $18.1$49.4 billion, total deposits of $17.3$49.6 billion and total shareholders’ equity of $2.5$6.6 billion. Our commercial bank operations includeValley operates many convenient branch office locations and commercial banking offices in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn and Queens, and Long Island, Westchester County, New York, Florida, California, Alabama and Florida.Illinois. Of our current 209230 branch network, 6756 percent, 18 percent, and 1518 percent of the branches are located in New Jersey, New York and Florida, respectively.respectively, with the remaining 8 percent of the branches in Alabama, California, and Illinois combined. We have grown significantly both in asset size and locations over the past several years primarilyboth through organic efforts and bank acquisitions, that expandedincluding our operating footprint into several Florida markets since 2014, as well as normal lending activity.acquisition of Bank Leumi USA on April 1, 2022.
USAmeriBancorp, Inc. In July 2017, we announced our entry into a merger agreement with USAmeriBancorp, Inc. (USAB) headquartered in Clearwater, Florida. USAB largely through its wholly-owned subsidiary, USAmeriBank, has approximately $4.5 billion in assets, $3.6 billion in net loansIndustry Developments. The combination of rapidly rising interest rates, increased competition and $3.6 billion in deposits, and maintains a branch network of 30 offices. The acquisition represents a significant additioneconomic uncertainty continues to Valley’s Florida franchise, and will meaningfully enhance its presenceweigh on the banking industry in the Tampa Baywake of the recent bank failures. We have consistently operated the Bank with a focus on diversification to maintain stability through various economic cycles. During the second quarter 2023, we continued to position our balance sheet to mitigate potential risks from the market which is Florida’s second largest metropolitan area by population. The acquisition will also bringuncertainty affecting the banking industry in general and Valley, its clients and communities in particular.
•Total assets decreased to $61.7 billion at June 30, 2023, a decrease of 4.1 percent from March 31, 2023. Liquidity remained strong with total liquid assets of approximately $13.1 billion at June 30, 2023, representing 6.0 percent of interest earning assets. We continue to maintain significant access to readily available, diverse funding sources to fulfill both short-term and long-term funding needs. See "Bank Liquidity" section for additional information.
•Total deposits increased $2.0 billion to $49.6 billion at June 30, 2023 as compared to $47.6 billion at March 31, 2023 largely due to higher CD balances. See the Birmingham, Montgomery,"Deposits and Tallapoosa areas in Alabama, where USAmeriBank maintains 15 offices, contributing approximatelyOther Borrowings" section for more details.
•Capital remained strong with ratios of both Valley and the Bank exceeding all capital adequacy requirements at June 30, 2023. Total shareholders' equity increased $63.6 million to $6.6 billion at June 30, 2023 as compared to March 31, 2023. See the "Capital Adequacy" section for additional details.
•Total loans increased $1.2 billion, of deposits and $515 million in loans.
Each USAB shareholder will receive 6.1 shares of Valley common stock for each share of USAB common stock if Valley’s volume-weighted average closing price during the 30 day trading ending 5 days prior to closing is between $11.50 and $13.00. In the event that the volume-weighted average closing price is less than $11.50, then the exchange ratio shall be $69.00 divided by the volume-weighted average closing price. If Valley’s volume-weighted average closing price is greater than $13.00, then the exchange ratio shall be $79.30 divided by the volume-weighted average closing price. Both Valley and USAB have walkaway rights if the volume-weighted average closing price is below $11.00 and USAB has a walkaway right if the volume-weighted average closing price is above $13.50. The transaction is valued at an estimated $816 million, based on Valley’s closing stock price on July 25, 2017.
The acquisition of USAB is expected to close in the first quarter of 2018, and Valley has received all necessary banking regulatory approvals to complete the merger. However, the merger is still subject to a number of conditions, including Valley and USAB shareholder approvals at their respective shareholder meetings to be held on December 14, 2017.
See Item 1 of Valley’s Annual Report on Form 10-K for the year ended December 31, 2016 for more details regarding our other recent acquisitions.
Earnings Enhancement Program. In December 2016, Valley announced a company-wide earnings enhancement initiative called LIFT. The LIFT program is a review of our business practices with goals of improving our overall efficiency, targeting resources to more value-added activities and delivering on the financial banking experience expected by our customers. During July 2017, we completed the idea generation and approval phase of the LIFT program. As a result of these efforts, we plan to achieve approximately $22 million in total cost reductions and revenue enhancementsor 10.0 percent on an annualized pre-tax run-rate through a combination of workforce reduction and other efficiency and revenue initiatives. We estimate that these changes will result in employee severance and other
implementation costs of approximately $11 million, the majority of which was recognized in the third quarter of 2017. The implementation phase of the initiative enhancements is expectedbasis to be fully phased-in by$49.9 billion at June 30, 2019. During2023 from March 31, 2023 mainly due to continued organic loan growth in commercial loan categories and relatively low levels of prepayment activity during the thirdsecond quarter 2023. See "Loan Portfolio" section for more information.
•Asset quality continued to reflect our disciplined underwriting and lending practices during the second quarter2023. Non-performing assets (NPAs) as a percentage of 2017, Valley already implemented several enhancements that is expectedtotal loans and NPAs totaled 0.51 percent and 0.50 percent at June 30, 2023 and March 31, 2023, respectively. See the "Non-Performing Assets" section for additional information.
•Total investment securities were $5.1 billion, or 8.2 percent of total assets, at June 30, 2023 and remained relatively unchanged as compared to result in cost reductions of approximately $9 million on an annualized pre-tax basis beginning inMarch 31, 2023. See the fourth quarter of 2017."Investment Securities Portfolio" section for more details.
As part of the LIFT program and the regular on-going review of our business, we will evaluate the operational efficiency of our entire branch network (consisting of 110 leased and 99 owned office locations at September 30, 2017). This review will ensure the optimal performance of our retail operations, in conjunction with several other factors, including our customers’ delivery channel preferences, branch usage patterns, and the potential opportunity to move existing customer relationships to another branch location without imposing a negative impact on their banking experience.
Preferred Stock Offering. On August 3, 2017, Valley issued 4.0 million shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B, no par value per share, with a liquidation preference of $25 per share for aggregate consideration of $100 million. Dividends on the preferred stock will accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 5.50 percent from the original issuance date to, but excluding, September 30, 2022, and thereafter at a floating rate per annum equal to three-month LIBOR plus a spread of 3.578 percent. Valley intends to use the net proceeds for general corporate purposes and investment in Valley National Bank as regulatory capital. Net proceeds to Valley after deducting underwriting discounts, commissions and offering expenses were $98.1 million.
Quarterly Results. Net income for the thirdsecond quarter of 20172023 was $39.6$139.1 million, or $0.14$0.27 per diluted common share as compared to $42.8$96.4 million, or $0.16$0.18 per diluted common share, for the thirdsecond quarter of 2016.2022. The $3.2$42.6 million decreaseincrease in quarterly net income as compared to the same quarter one year ago was largelymainly due to: (i) to the following changes:
•a $19.3$37.9 million decrease in our provision for credit losses mainly due to a provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA in the second quarter 2022;
•a $1.6 million increase in non-interest expense mostly caused by $11.1 million of charges that largely consist of professional fees and employee severance expense related to our LIFT program, and, to a lesser extent, merger expenses related to the proposed acquisition of USAB, as well as higher salary and employee benefit expense partly related to our expanding team of residential mortgage loan consultants and technology personnel, partially offset by (ii) a $10.7 million increase in our net interest income mostlymainly due to increased yields on both new loan originations and adjustable-rate loans and higher average loan balances, drivenlargely offset by both strong organic and purchased loan volume over the last 12 months and the full benefitincreased cost of reduced interest expense resulting from $405 million of long-term borrowings modifications in the third quarter of 2016, (iii) deposits;
•a $1.2$1.5 million increase in non-interest income mostly caused byprimarily due to an increase in netcapital markets fees and wealth management and trust fees, partially offset by lower net gains on sales of residential mortgage loans; and (iv)
•a $4.2$16.8 million decrease in non-interest expense was due, in part, to a $40.2 million decrease in merger expenses, partially offset by a $11.2 million restructuring charge and various other increases;
These items were partially offset by:
•a $15.2 million increase in income tax expense mostly due to higher pre-tax income in the provision for credit losses mainly caused by continued low level of actual loan loss experience and the continued positive impact of the current economic cycle on our credit quality. second quarter 2023.
See the "Net Interest Income,"Income", "Non-Interest Income,"Income", "Non-Interest Expense" and "Non-Interest Expense""Income Taxes" sections below for more details on the impact of the items above impactingon our thirdsecond quarter 2017 results, as well as other items discussed elsewhere in this MD&A.2023 results.
U.S. Economic Overview. Conditions.During the thirdthe second quarter of 2017,2023, real gross domestic product (GDP) grewincreased at a 3.0percentan annual rate after advancing 3.1of 2.4 percent as compared to an increase of 2.0 percent during the first quarter 2023. The 2.4 percent increase in real GDP reflected robust consumer spending, private inventory investment, nonresidential fixed investment, and government spending, as well as improved supply chain. Inflation moderately cooled, but remained well above the Federal Reserve’s target of 2 percent in the second quarter of 2017. The pace of hiring decelerated considerably, although2023.
During the figures released duringfirst quarter 2023, the third quarter were likely impacted by severe weather in the South, particularly in Texas and Florida. Overall price growth has accelerated in the past few months, although core readings, which exclude food and energy related items, have remained mostly unchanged. Compared to the prior quarter, consumer spending improved, business fixed investment increased modestly, and growth in residential fixed investment declined for the second consecutive quarter.
The civilian unemployment rate decreased from 4.4 percent as of June 30, 2017 to 4.2 percent as of September 30, 2017 even as the number of people entering the workforce increased, demonstrating the continued strength of the labor market. The pace of hiring decelerated from a monthly average of 187 thousand during the second quarter of 2017 to 91 thousand in the third quarter of 2017. Measures of wage growth picked up notably in September although the impact of severe weather in Texas and Florida may have distorted the figures.
In the third quarter of 2017, the pace of U.S. existing home sales decreased compared to the second quarter as inventory levels increased. In addition, borrowing costs have incrementally increased as the average 30 year fixed
rate mortgage during the third quarter of 2017 was 3.88 percent compared to 3.65 percent in the third quarter of 2016. However, home prices have appreciated to a level above the prior peak experienced in 2007.
Growth in personal consumption of goods and services improved in the third quarter of 2017. After a weak start for sales of automobiles and related parts, consumption in this category increased in the third quarter of 2017. Household balance sheets continue to improve as equity and home prices rose in the third quarter of 2017. Further price appreciation may support consumer spending into the end of the year.
The Federal Reserve’s Open Market Committee (FOMC) maintainedReserve raised the target range for the federal funds rate at 1.00by an additional 25 basis points in May 2023 and paused rate increases in June to 1.25 percent since their June 2017 meeting. The Committee remained concerned about continued low levelsobserve the full impact of inflation and inflation expectations.its changes over the past year. In determining future policy actions, the FOMC will assess progress - both realized and expected - toward its objectives of maximum employment and 2-percent inflation. The FOMC has indicated it will begin a balance sheet normalization program in October 2017. This program will gradually reduceJuly 2023, the Federal Reserve's securities holdingsReserve raised the target again by decreasing reinvestmentanother 25 basis points to a range of principal payments from those securities. The FOMC has continued5.25 to emphasize that changes in monetary policy will be data dependent.
5.5 percent.
The 10-year U.S. Treasury note yield ended the thirdsecond quarter 2023 at 2.333.81 percent, 2or 33 basis points higher thanas compared with June 30, 2017. However,to the spread betweenfirst quarter 2023, and the 2- and 10-year2-year U.S. Treasury note yieldsyield ended the thirdsecond quarter of 20172023 at 0.86 percentage points,4.87 percent, or 781 basis points lowerhigher as compared to the end of the secondfirst quarter of 2017.2023.
We are currently witnessing a mix of interest rates on pending loan originations, that are on average higher than our overall loan portfolio yield, during the early stages of the fourth quarter of 2017. However, we do see some offset potentially coming in the form of higher depositFor all U.S. commercial banks, commercial and borrowing costs in our primary markets. To that end, despite solid loan demand, particularly in commercial real estate and residential mortgage lending, our business operations and results could be challenged in the future dueindustrial loans decreased approximately by 1.3 percent at June 30, 2023 as compared to several external factors, including, but not limited to, the decline in the spread between short- and long-term market interest rates and/or slower than expected economic activity within our markets.
Loans. LoansMarch 31, 2023, while consumer loans increased by $490.7 million, or 11.1 percent on an annualized basis, to $18.2 billion at September 30, 2017 from June 30, 2017 largely due to net increases of $216.7 million, $143.1 million and $75.6 million in residential mortgage loans, total1.3 percent. Alternatively, demand for commercial real estate loans and commercial and industrial loans, respectively. The residential mortgage loan growth was largely driven by solid loan production from our expanding internal home mortgage consultant team covering New Jersey, New York and Florida. Additionally, we sold $176 million of residential mortgage loans (including approximately $139 million of loans held for sale at June 30, 2017) resulting in pre-tax gains of $5.5 million during the third quarter of 2017. See further details on our loan activities under the “Loan Portfolio” section below.
Hurricane Irma. The credit quality of our Florida loan portfolio has remained resilient in the aftermath of Hurricane Irma, which hit Florida in mid-September. Through our loan customer outreach efforts, we offered loan payment deferrals up to 90 days to distressed borrowers. Under the deferral program, we have currently granted 53 loan deferral requests with a combined outstanding balance of approximately $37.6 million. At this time, no material loan losses are expected as a result of the hurricane.
Asset Quality. Our past due loans and non-accrual loans, discussed further below, exclude PCI loans. Under U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) are accounted for on a pool basis and are not subject to delinquency classification in the same manner as loans originated by Valley. As of September 30, 2017, PCI loans totaled $1.5 billion and represented approximately 8.1 percent of our total loan portfolio. Total non-PCI loan portfolio delinquencies (including loans past due 30 days or more and non-accrual loans) as a percentage of total loans decreased to 0.40 percent at September 30, 2017 asflat compared to 0.47 percent at June 30, 2017 mostly due to a decrease inthe prior quarter. Overall the commercial real estate loans past due 60market was constricted by the financial environment this quarter as rising interest rates eroded investment profitability. Despite higher mortgage rates, demand for residential real estate remained steady, although sales were constrained by low inventories.
While many economic measures continue to 89 daysdefy recessionary concerns, further increases in market interest rates, the inverted yield curve, high inflation, and several loan types within the loans past due 90 days or more category. Non-performing assets (including non-accrual loans) increased by 1.1 percent to $55.2 million at September 30, 2017 as compared to $54.6 million at June 30, 2017 mainly due to a moderate increase in foreclosed assets during the third quarter of 2017.
Our lending strategy is based on underwriting standards designed to maintain high credit quality and we remain optimistic regarding the overall future performance of our loan portfolio. However, due to the potential for additional fallout from the recent banking crisis, including bank regulatory actions, among other factors, have added a higher level of uncertainty to the future credit deterioration caused by the unpredictable future strengthpath of the U.S. economy and the housingcreated a challenging banking environment. Should economic conditions deteriorate, causing business activity, spending and labor markets,investment to decline, it may adversely impact our financial results, as well as other market factors that may continue to negatively impact the performance of our $139.3 million taxi medallion loan portfolio, management cannot provide assurance that our non-performing assets will not increase from the levels reported as of September 30, 2017. See the "Non-Performing Assets" section below for further analysis of our asset quality.highlighted in this MD&A.
Deposits and Other Borrowings. The mix of the deposit categories of total
Overall, average deposits increased by $311.6 million to $47.5 billion for the thirdsecond quarter of 2017 remained relatively unchanged2023 as compared to the secondfirst quarter 2023 mostly due to higher time deposits driven by successful retail CD generation and increased utilization of 2017. Non-interestfully insured indirect customer (i.e., brokered) deposits, partially offset by a decrease in average non-interest bearing deposits. The decline in non-interest bearing deposits was largely due to a moderate shift in customer balances to our interest bearing deposit products in a rising interest rate environment and outflows due to attractive investment alternatives to deposits in the marketplace. Average non-interest-bearing deposits; savings,
NOW and money market deposits; and time deposits represented approximately 3027 percent, 47 percent and 26 percent of total average deposits as of June 30, 2023, respectively.
Actual ending balances for the third quarter of 2017, whiledeposits increased $2.0 billion to approximately $49.6 billion at June 30, 2023 from March 31, 2023 mainly due to a $3.8 billion increase in time deposits, partially offset by decreases in non-interest bearing deposits, and savings, NOW and money market deposits were 51 percenttotaling $1.1 billion and $626.1 million, respectively. The increase in time deposits from March 31, 2023 was partially driven by higher fully-insured indirect customer CD balances at June 30, 2023. Total fully-insured indirect customer deposits, consisting of both brokered time deposit and money market accounts, increased $3.2 billion to $10.3 billion at June 30, 2023 from March 31, 2023. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits were 19represented approximately 25 percent, 45 percent and 30 percent of total deposits as of June 30, 2023, respectively, as compared to 29 percent, 48 percent and 23 percent of total deposits as of March 31, 2023, respectively.
The following table lists, by maturity, uninsured certificates of deposit at June 30, 2023:
| | | | | |
| |
| (in thousands) |
| Less than three months | $ | 410,010 | |
| Three to six months | 445,585 | |
| Six to twelve months | 922,713 | |
| More than twelve months | 261,279 | |
| Total | $ | 2,039,587 | |
Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $12.1 billion, or 24 percent of total deposits, at June 30, 2023 as compared to $14.9 billion, or 31 percent of total deposits, at March 31, 2023.
While our diversified commercial and consumer deposit base has remained relatively stable during the total average deposits. Overall, average deposits totaled $17.4 billion forearly stages of the third quarter of 20172023, deposit gathering initiatives could remain challenging due to market competition, attractive investment alternatives, such as U.S. Treasury securities, and other factors. As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at June 30, 2023.
The following table presents average short-term and long-term borrowings for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2023 | | March 31, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| (in thousands) |
| Average short-term borrowings: | | | | | | | | | |
| FHLB advances | $ | 3,656,593 | | | $ | 2,513,983 | | | $ | 822,913 | | | $ | 3,088,445 | | | $ | 629,753 | |
| Securities sold under repurchase agreements | 99,327 | | | 99,546 | | | 142,790 | | | 99,436 | | | 145,666 | |
| Federal funds purchased | 122,537 | | | 190,214 | | | 637,495 | | | 156,188 | | | 326,116 | |
| Total | $ | 3,878,457 | | | $ | 2,803,743 | | | $ | 1,603,198 | | | $ | 3,344,069 | | | $ | 1,101,535 | |
| | | | | | | | | |
| Average long-term borrowings: | | | | | | | | | |
| FHLB advances | $ | 1,523,500 | | | $ | 875,053 | | | $ | 788,803 | | | $ | 1,201,068 | | | $ | 788,879 | |
| Subordinated debt | 759,334 | | | 754,972 | | | 617,291 | | | 757,165 | | | 624,135 | |
| | | | | | | | | |
| Junior subordinated debentures issued to capital trusts | 56,893 | | | 56,805 | | | 56,544 | | | 56,848 | | | 56,501 | |
| | | | | | | | | |
| Total | $ | 2,339,727 | | | $ | 1,686,830 | | | $ | 1,462,638 | | | $ | 2,015,081 | | | $ | 1,469,515 | |
Average short-term borrowings increased by $64.6 million$1.1 billion during the second quarter 2023 as compared to the secondfirst quarter of 2017 due, in large part, to higher average balances in time deposits resulting from the success of our current retail certificate of deposit products, partially offset by a decrease of approximately $18.2 million in average brokered money market deposit account balances and a moderate decline in average non-interest bearing deposits. Actual ending balances for deposits increased $62.7 million to approximately $17.3 billion at September 30, 2017 from June 30, 2017 largely due to increases in the Savings, NOW, and money market accounts, as well as time deposits resulting from ongoing retail and business account initiatives in 2017. However, non-interest bearing deposits and brokered money market account balances declined $98.6 million and $96.2 million at September 30, 2017, respectively, as compared to June 30, 2017.
Average short-term borrowings decreased $300.2 million to $1.5 billion for the third quarter of 2017 as compared to the second quarter of 2017. Actual ending balances for short-term borrowings also decreased $251.7 million to $1.5 billion at September 30, 2017 as compared to June 30, 2017 largely2023 mostly due to the maturity and repaymenthigher utilization of several short-term FHLB advances. Valley largely replaced matured short-term borrowings during both the second and third quarters of 2017 with new long-term FHLB borrowings.advances in March 2023 to increase our excess liquidity
position. Average long-term borrowings (which include(including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) increased by $352.4$652.9 million to $2.0 billion for the third quarter of 2017 as compared to the first quarter 2023 mainly due to the new FHLB advances issued in March 2023 and the second quarter 2023.
Actual ending balances for short-term borrowings decreased $5.3 billion to $1.1 billion at June 30, 2023 as compared to March 31, 2023 mainly due to maturities and repayment of 2017.FHLB advances. In March 2023, we increased our short-term borrowings to bolster our liquidity position out of an abundance of caution in the wake of the two bank failures and subsequently managed these balances to a lower level during the second quarter 2023, partially through the greater use of time deposits. We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity. Actual ending balances for long-term borrowings also increased $395.6 million to $2.2totaled $2.4 billion at SeptemberJune 30, 20172023 and remained relatively unchanged as compared to June 30, 2017 mostly due to new FHLB advances with contractual terms less than two years. March 31, 2023. See the "Bank Liquidity" section for more details on our available funding sources.
Non-GAAP Financial Measures
The new FHLB borrowings were utilized to replacetable below presents selected performance indicators, their comparative non-GAAP measures and the funding from matured short-term advances and provide additional liquidity for loan growth during the third quarter of 2017.
Selected Performance Indicators. The following table presents our annualized performance ratios(non-GAAP) efficiency ratio for the periods indicated:
|
| | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Return on average assets | 0.67 | % | | 0.78 | % | | 0.78 | % | | 0.72 | % |
| Return on average assets, as adjusted | 0.79 |
| | 0.78 |
| | 0.81 |
| | 0.72 |
|
| | | | | | | | |
| Return on average shareholders’ equity | 6.34 |
| | 7.61 |
| | 7.42 |
| | 7.04 |
|
| Return on average shareholders’ equity, as adjusted | 7.42 |
| | 7.61 |
| | 7.79 |
| | 7.04 |
|
| | | | | | | | |
| Return on average tangible shareholders’ equity (ROATE) | 8.96 |
| | 11.29 |
| | 10.61 |
| | 10.48 |
|
| ROATE, as adjusted | 10.50 |
| | 11.29 |
| | 11.14 |
| | 10.48 |
|
Adjusted return on average assets, adjusted return on average shareholders' equity, ROATE and adjusted ROATE included inindicated. Valley believes that the table above are non-GAAP measures. Management believes thesefinancial measures provide useful supplemental information useful to both management and investors in understanding ourits underlying operational performance, business, and
performance trends, and the measuresmay facilitate comparisons of ourcurrent and prior performance with the performance of others in the financial services industry. TheManagement utilizes these measures for internal planning, forecasting and analysis purposes. Management believes that Valley’s presentation and discussion of this supplemental information, together with the accompanying reconciliations to the GAAP financial measures, also allows investors to view performance in a manner similar to management. These non-GAAP financial measures should not be considered in isolation, or as a substitute for or superior to financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
The non-GAAP measure reconciliations are as follows:following table presents our annualized performance ratios:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Selected Performance Indicators | ($ in thousands) |
| GAAP measures: | | | | | | | |
| Net income, as reported | $ | 139,060 | | | $ | 96,413 | | | $ | 285,611 | | | $ | 213,141 | |
| Return on average assets | 0.90 | % | | 0.72 | % | | 0.94 | % | | 0.88 | % |
| Return on average shareholders’ equity | 8.50 | | | 6.18 | | | 8.80 | | | 7.51 | |
| Non-GAAP measures: | | | | | | | |
| Net income, as adjusted | $ | 147,081 | | | $ | 165,803 | | | $ | 301,611 | | | $ | 286,116 | |
| Return on average assets, as adjusted | 0.95 | % | | 1.25 | % | | 0.99 | % | | 1.18 | % |
| Return on average shareholders' equity, as adjusted | 8.99 | | | 10.63 | | | 9.29 | | | 10.09 | |
| Return on average tangible shareholders' equity (ROATE) | 12.37 | | | 9.33 | | | 12.87 | | | 11.07 | |
| ROATE, as adjusted | 13.09 | | | 16.05 | | | 13.59 | | | 14.87 | |
| Efficiency ratio | 55.59 | | | 50.78 | | | 54.69 | | | 51.81 | |
| | | | | | | | | | | |
| June 30,
2023 | | December 31,
2022 |
| Common Equity Per Share Data: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Book value per common share (GAAP) | $ | 12.54 | | | $ | 12.23 | |
| Tangible book value per common share (non-GAAP) | 8.51 | | | 8.15 | |
Non-GAAP Reconciliations to GAAP Financial Measures
Adjusted net income is computed as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | ($ in thousands) |
| Net income, as reported | $ | 39,649 |
| | $ | 42,842 |
| | $ | 135,809 |
| | $ | 118,056 |
|
Add: LIFT program expenses (net of tax)(1) | 5,753 |
| | — |
| | 5,753 |
| | — |
|
Add: Merger related expenses (net of tax)(2) | 1,043 |
| | — |
| | 1,044 |
| | — |
|
| Net income, as adjusted | $ | 46,445 |
| | $ | 42,842 |
| | $ | 142,606 |
| | $ | 118,056 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
| Net income, as reported (GAAP) | $ | 139,060 | | | $ | 96,413 | | | $ | 285,611 | | | $ | 213,141 | |
| | | | | | | |
Add: Losses (gains) on available for sale and held to maturity debt securities, net (net of tax) (a) | 6 | | | (56) | | | 23 | | | (50) | |
Add: Restructuring charge (net of tax) (b) | 8,015 | | | — | | | 8,015 | | | — | |
Add: Provision for credit losses for available for sale securities (c) | — | | | — | | | 5,000 | | | — | |
Add: Non-PCD provision for credit losses, (net of tax) (d) | — | | | 29,282 | | | — | | | 29,282 | |
Add: Merger related expenses (net of tax) (e) | — | | | 40,164 | | | 2,962 | | | 43,743 | |
| | | | | | | |
| | | | | | | |
| Net income, as adjusted (non-GAAP) | $ | 147,081 | | | $ | 165,803 | | | $ | 301,611 | | | $ | 286,116 | |
| |
(1) | LIFT program expenses are primarily within professional and legal fees, and salary and employee benefits expense. |
| |
(2) | Merger related expenses are primarily within professional and legal fees. |
(a) Included in gains (losses) on securities transactions, net.
(b) Represents severance expense related to workforce reductions within salary and employee benefits expense.
(c) Included in provision for credit losses for available for sale and held to maturity securities (tax disallowed).
(d) Represents provision for credit losses for non-PCD loans and unfunded credit commitments acquired during the period.
(e) Included primarily within salary and employee benefits expense.
In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans, wealth management fees, and swap fees recognized from commercial loan customer transactions reported in capital markets fees. These amounts can vary widely from period to period due to, among other factors, the amount of residential mortgage loans originated for sale, loan portfolio sales, brokerage fees, and commercial loan customer demand for certain products. See the “Non-Interest Income” section below for more details.
Adjusted annualized return on average assets is computed by dividing adjusted net income by average assets, as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in thousands) |
| Net income, as adjusted (non-GAAP) | $ | 147,081 | | $ | 165,803 | | $ | 301,611 | | $ | 286,116 |
| Average assets | $ | 61,877,464 | | $ | 53,211,422 | | $ | 60,877,792 | | $ | 48,417,469 |
| Annualized return on average assets, as adjusted (non-GAAP) | 0.95 | % | | 1.25 | % | | 0.99 | % | | 1.18 | % |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | ($ in thousands) |
| Net income, as adjusted | $ | 46,445 |
| | $ | 42,842 |
| | $ | 142,606 |
| | $ | 118,056 |
|
| Average assets | $ | 23,604,252 |
| | $ | 22,081,470 |
| | $ | 23,334,491 |
| | $ | 21,831,622 |
|
| Annualized return on average assets, as adjusted | 0.79 | % | | 0.78 | % | | 0.81 | % | | 0.72 | % |
Adjusted annualized return on average shareholders' equity is computed by dividing adjusted net income by average shareholders' equity, as follows:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | ($ in thousands) |
| Net income, as adjusted | $ | 46,445 |
| | $ | 42,842 |
| | $ | 142,606 |
| | $ | 118,056 |
|
| Average shareholders' equity | $ | 2,502,538 |
| | $ | 2,251,461 |
| | $ | 2,441,227 |
| | $ | 2,236,569 |
|
| Annualized return on average shareholders' equity, as adjusted | 7.42 | % | | 7.61 | % | | 7.79 | % | | 7.04 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in thousands) |
| Net income, as adjusted (non-GAAP) | $ | 147,081 | | $ | 165,803 | | $ | 301,611 | | $ | 286,116 |
| Average shareholders' equity | $ | 6,546,452 | | $ | 6,238,985 | | $ | 6,493,627 | | $ | 5,673,014 |
| Annualized return on average shareholders' equity, as adjusted (non-GAAP) | 8.99 | % | | 10.63 | % | | 9.29 | % | | 10.09 | % |
ROATE and adjusted ROATE are computed by dividing net income and adjusted net income, respectively, by average shareholders’ equity less average goodwill and average other intangible assets, as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | ($ in thousands) |
| Net income, as reported (GAAP) | $ | 139,060 | | $ | 96,413 | | $ | 285,611 | | $ | 213,141 |
| Net income, as adjusted (non-GAAP) | 147,081 | | 165,803 | | 301,611 | | 286,116 |
| Average shareholders’ equity (GAAP) | $ | 6,546,452 | | $ | 6,238,985 | | $ | 6,493,627 | | $ | 5,673,014 |
| Less: Average goodwill and other intangible assets | 2,051,591 | | 2,105,585 | | 2,056,487 | | 1,823,538 |
| Average tangible shareholders’ equity (non-GAAP) | $ | 4,494,861 | | $ | 4,133,400 | | $ | 4,437,140 | | $ | 3,849,476 |
| Annualized ROATE (non-GAAP) | 12.37 | % | | 9.33 | % | | 12.87 | % | | 11.07 | % |
| Annualized ROATE, as adjusted (non-GAAP) | 13.09 | % | | 16.05 | % | | 13.59 | % | | 14.87 | % |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | ($ in thousands) |
| Net income | $ | 39,649 |
| | $ | 42,842 |
| | $ | 135,809 |
| | $ | 118,056 |
|
| Net income, as adjusted | $ | 46,445 |
| | $ | 42,842 |
| | $ | 142,606 |
| | $ | 118,056 |
|
| Average shareholders’ equity | $ | 2,502,538 |
| | $ | 2,251,461 |
| | $ | 2,441,227 |
| | $ | 2,236,559 |
|
| Less: Average goodwill and other intangible assets | (733,450 | ) | | (733,830 | ) | | (734,738 | ) | | (734,791 | ) |
| Average tangible shareholders’ equity | $ | 1,769,088 |
| | $ | 1,517,631 |
| | $ | 1,706,489 |
| | $ | 1,501,768 |
|
| Annualized ROATE | 8.96 | % | | 11.29 | % | | 10.61 | % | | 10.48 | % |
| Annualized ROATE, as adjusted | 10.50 | % | | 11.29 | % | | 11.14 | % | | 10.48 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | ($ in thousands) |
| Total non-interest expense, as reported (GAAP) | $ | 282,971 | | | $ | 299,730 | | | $ | 555,137 | | | $ | 497,070 | |
| | | | | | | |
Less: Restructuring charge (pre-tax) (a) | 11,182 | | | — | | | 11,182 | | | — | |
| Less: Amortization of tax credit investments (pre-tax) | 5,018 | | | 3,193 | | | 9,271 | | | 6,089 | |
Less: Merger related expenses (pre-tax) (b) | — | | | 54,496 | | | 4,133 | | | 59,124 | |
| Total non-interest expense, as adjusted (non-GAAP) | $ | 266,771 | | | $ | 242,041 | | | $ | 530,551 | | | $ | 431,857 | |
| Net interest income, as reported (GAAP) | $ | 419,765 | | | $ | 418,160 | | | $ | 855,785 | | | $ | 735,829 | |
| Total non-interest income, as reported (GAAP) | 60,075 | | | 58,533 | | | 114,374 | | | 97,803 | |
Add: Losses (gains) on available for sale and held to maturity debt securities, net (pre-tax) (c) | 9 | | | (78) | | | 33 | | | (69) | |
| Total net interest income and non-interest income, as adjusted (non-GAAP) | $ | 479,849 | | | $ | 476,615 | | | $ | 970,192 | | | $ | 833,563 | |
| | | | | | | |
| Efficiency ratio (non-GAAP) | 55.59 | % | | 50.78 | % | | 54.69 | % | | 51.81 | % |
Additionally, our net income is, from time(a) Represents severance expense related to time, impacted by networkforce reductions within salary and employee benefits expense.
(b) Included primarily within salary and employee benefits expense.
(c) Included in gains and losses(losses) on securities transactions, net gains on sales of loans,net.
Tangible book value per common share is computed by dividing shareholders’ equity less preferred stock, goodwill and net impairment losses on securities recognized in non-interest income. These amounts can vary widely from period to period due to, among other factors, the level of sales of our investment securities classifiedintangible assets by common shares outstanding, as available for sale, the amount of residential mortgage loans originated for sale, and the results of our quarterly impairment analysis of the held to maturity and available for sale investment portfolios. See the “Non-Interest Income” and "Non-Interest Expense" sections below for more details.follows:
| | | | | | | | | | | |
| June 30,
2023 | | December 31,
2022 |
| | ($ in thousands, except for share data) |
| Common shares outstanding | 507,619,430 | | | 506,374,478 | |
| Shareholders’ equity (GAAP) | $ | 6,575,184 | | | $ | 6,400,802 | |
| Less: Preferred stock | 209,691 | | | 209,691 | |
| Less: Goodwill and other intangible assets | 2,046,882 | | | 2,066,392 | |
| Tangible common shareholders’ equity (non-GAAP) | $ | 4,318,611 | | | $ | 4,124,719 | |
| Book value per common share (GAAP) | $ | 12.54 | | | $ | 12.23 | |
| Tangible book value per common share (non-GAAP) | $ | 8.51 | | | $ | 8.15 | |
Net Interest Income
Net interest income on a tax equivalentequivalent basis totaling $166.9$421.3 million for the thirdsecond quarter of 2017 increased $10.62023 decreased $16.2 million as compared to the thirdfirst quarter of 20162023 and decreased $4.2increased $1.7 million fromas compared to the second quarter of 2017.2022. The decrease as compared to the first quarter 2023 was mainly due to a $3.3 billion increase in average interest bearing liabilities and higher interest rates on most interest bearing deposit products and short-term borrowings, partially offset by higher loan yields. As a result, interest expense increased $83.5 million to $367.7 million for the second quarter 2023 as compared to the first quarter 2023. Interest income on a tax equivalent basis increased $401 thousand$67.3 million to $213.7$789.0 million in the second quarter 2023 as compared to the first quarter 2023. The increase was mostly due to higher yields on both new originations and adjustable rate loans in our portfolio and a $1.6 billion increase in average loan balances driven by organic new loan volumes and a continuation of slower loan prepayments.
Average interest earning assets increased $8.5 billion to $57.4 billion for the thirdsecond quarter of 20172023 as compared to the second quarter of 20172022 mainly due to a $304.6$6.9 billion increase in average loan balances and $1.4 billion increase in average interest bearing cash balances largely due to higher excess cash held overnight as part of our prudent liquidity management navigating the fallout from the recent bank failures. Compared to the first quarter 2023,
average interest earning assets increased by $2.0 billion during the second quarter 2023. The increase was primarily driven by a $1.6 billion increase in average loan balances mainly due to organic commercial loan growth and a $351.6 million increase in average loans, partially offset by a 5 basis point decrease in the yield on average loans. The decrease in yield on average loans for the third quarter of 2017interest bearing cash as compared to the prior linked quarter.
Average interest bearing liabilities increased $11.2 billion to $40.9 billion for the second quarter was largely due to a decrease of $4.1 million in periodic commercial loan fee income related to derivative interest rate swaps executed with customers and interest income recoveries from non-performing loans. Interest expense of $46.8 million for the third quarter of 2017 increased $4.6 million2023 as compared to the second quarter 2022 mainly due to increases of 2017. During the third quarter of 2017, our interest expense on$8.1 billion and $2.3 billion in average time deposits increased by approximately $3.6 million from the linked second quarterand short-term borrowings, respectively. The increases in average time deposits and short-term borrowings were largely due to an increase in short-term market interest rates on interest bearing deposits without stated maturities and one more daythe enhanced liquidity management efforts during the third quarterfirst half of 2023, including increased usage of fully FDIC-insured indirect customer CD and successful retail CD initiatives. As compared to the second quarter. Interest expense on long-term borrowings also increased $1.4 million in the thirdfirst quarter of 2017 as compared to the second quarter of 2017 due, in part, to an increase of $352.4 million in the average balances. Average long-term borrowings increased as compared to the second quarter of 2017 mostly due to new long-term FHLB borrowings replacing short-term FHLB advances that matured during the second and third quarters of 2017. As a result, the interest expense on short-term borrowings and average balances declined by $355 thousand and $300.2 million, respectively, during the third quarter of 2017 as compared to the second quarter of 2017.
Average interest earning assets increased to $21.6 billion for the third quarter of 2017 as compared to approximately $19.9 billion for the third quarter of 2016 largely due to strong organic and purchased loan growth over the last 12 month period. The broad-based loan growth within several loan categories since September 30, 2016 was largely supplemented by purchased loans, primarily consisting of participations in multi-family loans and whole 1-4 family loans (that were a mix of qualifying and non-qualifying CRA loans with adjustable and fixed rates) over the last 12 months ended September 30, 2017. Compared to the second quarter of 2017, average interest earning assets increased by $226.2 million from $21.4 billion largely due to continued loan growth, partially offset by normal investment securities portfolio repayments that were redeployed to fund loans in the third quarter of 2017. Average loans increased $304.6 million to $18.0 billion for the third quarter of 2017 from the second quarter of 2017 mostly due to organic loan growth within the residential mortgage loan and commercial real estate loan portfolios. Average total investments decreased $87.5 million during the third quarter of 2017, while average overnight cash balances increased $9.1 million
as compared to the second quarter of 2017 mostly due to the timing of loan originations, investment repayments and additional borrowings to fund such loans.
Average interest bearing liabilities increased $1.2 billion to $15.7 billion for the third quarter of 2017 as compared to the third quarter of 2016 mainly due to greater use of low cost brokered money market deposits, time deposits and both short- and long-term FHLB advances as part of our overall funding and liquidity strategy over the last 12 month period. Compared to the second quarter of 2017,2023, average interest bearing liabilities increased $126.8 millionby $3.3 billion in the thirdsecond quarter of 2017 mostly2023 largely due to higher levelsa $2.5 billion increase in average time deposits mainly driven by increased usage of FHLBfully FDIC-insured indirect customer CD and successful retail CD initiatives, as well as an increase in short-term borrowings, as part of our funding and time deposit account balances, partially offset by slightly lower money market deposit account balances.liquidity sources. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.
Our netNet interest margin on a tax equivalent basis of 3.082.94 percent for the thirdsecond quarter of 20172023 decreased by 622 basis points and 1249 basis points from 3.16 percent and 3.43 percent for the first quarter 2023 and the second quarter 2022, respectively. The decrease as compared to the thirdfirst quarter of 20162023 was largely driven by higher interest rates on interest bearing deposits and second quarter of 2017, respectively. Theshort-term borrowings, partially offset by a 29 basis point increase in the yield on average interest earning assets decreased by 3 basis points on a linked quarter basis mostly due to the aforementioned decline in commercial loan swap fees and interest income recoveries which negatively impacted the yield by 8 basis points. assets. The yield on average loans also decreased 5increased by 30 basis points to 4.155.78 percent for the thirdsecond quarter of 20172023 as compared to the secondfirst quarter of 20172023 largely due to the aforementioned decreases which negatively impacted the loan yield by approximately 9 basis points.higher interest rates on new originations and adjustable rate loans. The yieldyields on average taxable and non-taxable investment securitiesinvestments also moderately decreased by 1increased 13 basis pointpoints and 216 basis points, respectively, as comparedfrom the first quarter 2023 mostly due to investment maturities and prepayments redeployed into new higher yielding securities during the first half of 2023. Our cost of total average deposits increased to 2.45 percent for the second quarter of 2017.2023 from 1.96 percent and 0.19 percent for the first quarter 2023 and the second quarter 2022, respectively. The overall cost of average interest bearing liabilities also increased by 1157 basis points to 1.19 percent during the third quarter of 2017 from 1.08 percent in the linked second quarter of 2017. The increase was due, in part, to higher interest rates on most deposits and short-term borrowings, a shift in the overall mix of borrowings from short-term to more long-term FHLB advances (with maturities less than two years), as well as one more day during the third quarter of 2017 compared to the second quarter. Our cost of total deposits was 0.61 percent for the third quarter of 2017 as compared to 0.533.59 percent for the second quarter of 2017.
Looking forward, our net interest margin for the fourth quarter of 2017 may decline2023 as compared to the thirdfirst quarter of 2017 due to a multitude of conditional, and sometimes unpredictable, factors that can impact our actual margin results. For example, our margin may continue to face2023 primarily driven by the risk of compression in the future due to, among other factors, the relatively low level of long-termrising market interest rates further repaymenton deposits during the first half of higher yielding interest earning assets, and the re-pricing risk related to interest bearing deposits and short-term borrowings due to a rise in short-term market interest rates. Additionally,2023.
Based upon our investment portfolios include a large number of residential mortgage-backed securities purchasedcurrent estimates at a premium. The amortization of such premiums, which impacts both the yield andJune 30, 2023, we anticipate net interest income recognized on such securities, may increase or decrease depending upon the level of principal prepayments and market interest rates. To manage these risks, we continuously explore ways to maximize our mix of interest earning assets on our balance sheet, while maintaining a low cost of funds to optimize our net interest margin and overall returns. The increase in both the U.S. and Valley prime rates (to 4.25 percent and 5.25 percent, respectively) in response to the Federal Reserve's 25 basis point increasegrowth in the targeted federal funds ratelow single digits (i.e., less than 10 percent) for the full year of 2023, revised down from 16 to 18 percent previously estimated in mid-June 2017 may more fully benefit both our futurethe MD&A of Valley's Form 10-K for the year ended December 31, 2022. While we are seeing initial signs of stabilization in net interest income and margin in the fourth quarter as compared to the thirddeclines in both experienced in the first quarter as2023, we close additional new variable loanscannot provide any assurances with respect to the future trajectory of market interest rates or that our net interest margin or income will remain at these rates.the levels reported for the second quarter 2023.
The following table reflects the components of net interest income for the three months ended September 30, 2017, June 30, 20172023, March 31, 2023 and SeptemberJune 30, 2016:2022:
Quarterly Analysis of Average Assets, Liabilities and Shareholders’ Equity and
Net Interest Income on a Tax Equivalent Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | June 30, 2023 | | March 31, 2023 | | June 30, 2022 |
| | Average
Balance | | Interest | | Average
Rate | | Average
Balance | | Interest | | Average
Rate | | Average
Balance | | Interest | | Average
Rate |
| | ($ in thousands) |
| Assets | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
Loans (1)(2) | $ | 49,457,937 | | | $ | 715,195 | | | 5.78 | % | | $ | 47,859,371 | | | $ | 655,250 | | | 5.48 | % | | $ | 42,517,287 | | | $ | 415,602 | | | 3.91 | % |
Taxable investments (3) | 5,065,812 | | | 39,436 | | | 3.11 | | | 5,033,134 | | | 37,474 | | | 2.98 | | | 4,912,994 | | | 30,610 | | | 2.49 | |
Tax-exempt investments (1)(3) | 629,342 | | | 7,062 | | | 4.49 | | | 623,145 | | | 6,739 | | | 4.33 | | | 684,471 | | | 6,571 | | | 3.84 | |
| Interest bearing deposits with banks | 2,198,717 | | | 27,276 | | | 4.96 | | | 1,847,140 | | | 22,205 | | | 4.81 | | | 776,478 | | | 1,569 | | | 0.81 | |
| Total interest earning assets | 57,351,808 | | | 788,969 | | | 5.50 | | | 55,362,790 | | | 721,668 | | | 5.21 | | | 48,891,230 | | | 454,352 | | | 3.72 | |
| Allowance for credit losses | (446,098) | | | | | | | (466,837) | | | | | | | (428,193) | | | | | |
| Cash and due from banks | 415,075 | | | | | | | 445,005 | | | | | | | 426,187 | | | | | |
| Other assets | 4,709,061 | | | | | | | 4,702,376 | | | | | | | 4,362,789 | | | | | |
| Unrealized gains on securities available for sale, net | (152,382) | | | | | | | (176,332) | | | | | | | (40,591) | | | | | |
| Total assets | $ | 61,877,464 | | | | | | | $ | 59,867,002 | | | | | | | $ | 53,211,422 | | | | | |
| Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
| Savings, NOW and money market deposits | $ | 22,512,128 | | | $ | 164,843 | | | 2.93 | % | | $ | 23,389,569 | | | $ | 150,766 | | | 2.58 | % | | $ | 23,027,347 | | | $ | 17,122 | | | 0.30 | % |
| Time deposits | 12,195,479 | | | 125,764 | | | 4.12 | | | 9,738,608 | | | 80,298 | | | 3.30 | | | 3,601,088 | | | 3,269 | | | 0.36 | |
| Total interest bearing deposits | 34,707,607 | | | 290,607 | | | 3.35 | | | 33,128,177 | | | 231,064 | | | 2.79 | | | 26,628,435 | | | 20,391 | | | 0.31 | |
| Short-term borrowings | 3,878,457 | | | 50,207 | | | 5.18 | | | 2,803,743 | | | 33,948 | | | 4.84 | | | 1,603,198 | | | 4,083 | | | 1.02 | |
Long-term borrowings (4) | 2,339,727 | | | 26,880 | | | 4.60 | | | 1,686,830 | | | 19,198 | | | 4.55 | | | 1,462,638 | | | 10,313 | | | 2.82 | |
| Total interest bearing liabilities | 40,925,791 | | | 367,694 | | | 3.59 | | | 37,618,750 | | | 284,210 | | | 3.02 | | | 29,694,271 | | | 34,787 | | | 0.47 | |
| Non-interest bearing deposits | 12,756,862 | | | | | | | 14,024,742 | | | | | | | 16,267,946 | | | | | |
| Other liabilities | 1,648,359 | | | | | | | 1,783,295 | | | | | | | 1,010,220 | | | | | |
| Shareholders’ equity | 6,546,452 | | | | | | | 6,440,215 | | | | | | | 6,238,985 | | | | | |
| Total liabilities and shareholders’ equity | $ | 61,877,464 | | | | | | | $ | 59,867,002 | | | | | | | $ | 53,211,422 | | | | | |
Net interest income/interest rate spread (5) | | | $ | 421,275 | | | 1.91 | % | | | | $ | 437,458 | | | 2.19 | % | | | | $ | 419,565 | | | 3.25 | % |
| Tax equivalent adjustment | | | (1,510) | | | | | | | (1,438) | | | | | | | (1,405) | | | |
| Net interest income, as reported | | | $ | 419,765 | | | | | | | $ | 436,020 | | | | | | | $ | 418,160 | | | |
Net interest margin (6) | | | | | 2.93 | % | | | | | | 3.15 | % | | | | | | 3.42 | % |
| Tax equivalent effect | | | | | 0.01 | | | | | | | 0.01 | | | | | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | | | | | 2.94 | % | | | | | | 3.16 | % | | | | | | 3.43 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2017 | | June 30, 2017 | | September 30, 2016 |
| | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| | ($ in thousands) |
| Assets | | | | | | | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | | | | | | | |
| Loans (1)(2) | $ | 18,006,274 |
| | $ | 186,776 |
| | 4.15 | % | | $ | 17,701,676 |
| | $ | 185,863 |
| | 4.20 | % | | $ | 16,570,723 |
| | $ | 171,146 |
| | 4.13 | % |
| Taxable investments (3) | 2,905,400 |
| | 20,579 |
| | 2.83 |
| | 2,967,729 |
| | 21,065 |
| | 2.84 |
| | 2,531,202 |
| | 15,844 |
| | 2.50 |
|
| Tax-exempt investments (1)(3) | 556,061 |
| | 5,773 |
| | 4.15 |
| | 581,263 |
| | 6,066 |
| | 4.17 |
| | 628,951 |
| | 6,189 |
| | 3.94 |
|
| Federal funds sold and other interest bearing deposits | 175,111 |
| | 546 |
| | 1.25 |
| | 166,003 |
| | 279 |
| | 0.67 |
| | 165,956 |
| | 193 |
| | 0.47 |
|
| Total interest earning assets | 21,642,846 |
| | 213,674 |
| | 3.95 |
| | 21,416,671 |
| | 213,273 |
| | 3.98 |
| | 19,896,832 |
| | 193,372 |
| | 3.89 |
|
| Allowance for loan losses | (117,938 | ) | | | | | | (116,254 | ) | | | | | | (109,504 | ) | | | | |
| Cash and due from banks | 231,518 |
| |
| | | | 231,960 |
| | | | | | 279,720 |
| | | | |
| Other assets | 1,860,683 |
| | | | | | 1,879,853 |
| | | | | | 2,012,532 |
| | | | |
| Unrealized (losses) gains on securities available for sale, net | (12,857 | ) | | | | | | (15,971 | ) | | | | | | 1,890 |
| | | | |
| Total assets | $ | 23,604,252 |
| | | | | | $ | 23,396,259 |
| | | | | | $ | 22,081,470 |
| | | | |
| Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
| Savings, NOW and money market deposits | $ | 8,799,955 |
| | $ | 15,641 |
| | 0.71 | % | | $ | 8,803,028 |
| | $ | 12,715 |
| | 0.58 | % | | $ | 8,509,793 |
| | $ | 10,165 |
| | 0.48 | % |
| Time deposits | 3,368,153 |
| | 10,852 |
| | 1.29 |
| | 3,290,407 |
| | 10,166 |
| | 1.24 |
| | 3,082,100 |
| | 9,412 |
| | 1.22 |
|
| Total interest bearing deposits | 12,168,108 |
| | 26,493 |
| | 0.87 |
| | 12,093,435 |
| | 22,881 |
| | 0.76 |
| | 11,591,893 |
| | 19,577 |
| | 0.68 |
|
| Short-term borrowings | 1,537,562 |
| | 5,161 |
| | 1.34 |
| | 1,837,809 |
| | 5,516 |
| | 1.20 |
| | 1,439,352 |
| | 3,545 |
| | 0.99 |
|
| Long-term borrowings (4) | 2,032,068 |
| | 15,142 |
| | 2.98 |
| | 1,679,691 |
| | 13,790 |
| | 3.28 |
| | 1,518,757 |
| | 13,935 |
| | 3.67 |
|
| Total interest bearing liabilities | 15,737,738 |
| | 46,796 |
| | 1.19 |
| | 15,610,935 |
| | 42,187 |
| | 1.08 |
| | 14,550,002 |
| | 37,057 |
| | 1.02 |
|
| Non-interest bearing deposits | 5,184,991 |
| | | | | | 5,195,052 |
| | | | | | 5,077,032 |
| | | | |
| Other liabilities | 178,985 |
| | | | | | 169,424 |
| | | | | | 202,975 |
| | | | |
| Shareholders’ equity | 2,502,538 |
| | | | | | 2,420,848 |
| | | | | | 2,251,461 |
| | | | |
| Total liabilities and shareholders’ equity | $ | 23,604,252 |
| | | | | | $ | 23,396,259 |
| | | | | | $ | 22,081,470 |
| | | | |
| Net interest income/interest rate spread (5) |
| | $ | 166,878 |
| | 2.76 | % | | | | $ | 171,086 |
| | 2.90 | % | | | | $ | 156,315 |
| | 2.87 | % |
| Tax equivalent adjustment | | | (2,024 | ) | | | | | | (2,126 | ) | | | | | | (2,169 | ) | | |
| Net interest income, as reported | | | $ | 164,854 |
| | | | | | $ | 168,960 |
| | | | | | $ | 154,146 |
| | |
| Net interest margin (6) | | | | | 3.05 | % | | | | | | 3.16 | % | | | | | | 3.10 | % |
| Tax equivalent effect | | | | | 0.03 | % | | | | | | 0.04 | % | | | | | | 0.04 | % |
| Net interest margin on a fully tax equivalent basis (6) | | | | | 3.08 | % | | | | | | 3.20 | % | | | | | | 3.14 | % |
The following table reflects the components of net interest income for the ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, 2023 | | June 30, 2022 |
| Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| ($ in thousands) |
| Assets | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | |
Loans (1)(2) | $ | 48,663,070 | | | $ | 1,370,446 | | | 5.63 | % | | $ | 38,592,151 | | | $ | 732,991 | | | 3.80 | % |
Taxable investments (3) | 5,049,563 | | | 76,910 | | | 3.05 | | | 4,377,990 | | | 50,725 | | | 2.32 | |
Tax-exempt investments (1)(3) | 626,261 | | | 13,800 | | | 4.41 | | | 543,646 | | | 9,757 | | | 3.59 | |
| Interest bearing deposits with banks | 2,023,900 | | | 49,481 | | | 4.89 | | | 1,096,181 | | | 2,030 | | | 0.37 | |
| Total interest earning assets | 56,362,794 | | | 1,510,637 | | | 5.36 | | | 44,609,968 | | | 795,503 | | | 3.57 | |
| Allowance for credit losses | (456,410) | | | | | | | (398,258) | | | | | |
| Cash and due from banks | 429,957 | | | | | | | 354,433 | | | | | |
| Other assets | 4,705,742 | | | | | | | 3,864,997 | | | | | |
| Unrealized gains on securities available for sale, net | (164,291) | | | | | | | (13,671) | | | | | |
| Total assets | $ | 60,877,792 | | | | | | | $ | 48,417,469 | | | | | |
| Liabilities and shareholders’ equity | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | |
| Savings, NOW and money market deposits | $ | 22,948,425 | | | $ | 315,608 | | | 2.75 | % | | $ | 21,781,907 | | | $ | 26,749 | | | 0.25 | % |
| Time deposits | 10,973,830 | | | 206,062 | | | 3.76 | | | 3,577,933 | | | 6,100 | | | 0.34 | |
| Total interest bearing deposits | 33,922,255 | | | 521,670 | | | 3.08 | | | 25,359,840 | | | 32,849 | | | 0.26 | |
| Short-term borrowings | 3,344,069 | | | 84,156 | | | 5.03 | | | 1,101,535 | | | 4,889 | | | 0.89 | |
Long-term borrowings (4) | 2,015,081 | | | 46,078 | | | 4.57 | | | 1,469,515 | | | 19,838 | | | 2.70 | |
| Total interest bearing liabilities | 39,281,405 | | | 651,904 | | | 3.32 | | | 27,930,890 | | | 57,576 | | | 0.41 | |
| Non-interest bearing deposits | 13,387,299 | | | | | | | 13,989,897 | | | | | |
| Other liabilities | 1,715,461 | | | | | | | 823,668 | | | | | |
| Shareholders’ equity | 6,493,627 | | | | | | | 5,673,014 | | | | | |
| Total liabilities and shareholders’ equity | $ | 60,877,792 | | | | | | | $ | 48,417,469 | | | | | |
Net interest income/interest rate spread (5) | | | $ | 858,733 | | | 2.04 | % | | | | $ | 737,927 | | | 3.16 | % |
| Tax equivalent adjustment | | | (2,948) | | | | | | | (2,098) | | | |
| Net interest income, as reported | | | $ | 855,785 | | | | | | | $ | 735,829 | | | |
Net interest margin (6) | | | | | 3.04 | % | | | | | | 3.30 | % |
| Tax equivalent effect | | | | | 0.01 | | | | | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | | | | | 3.05 | % | | | | | | 3.31 | % |
Analysis of Average Assets, Liabilities and Shareholders’ Equity and_____________
Net
(1)Interest Incomeincome is presented on a Tax Equivalent Basistax equivalent basis using a 21 percent federal 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. |
| | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 |
| | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| | ($ in thousands) |
| Assets | | | | | | | | | | | |
| Interest earning assets: | | | | | | | | | | | |
| Loans (1)(2) | $ | 17,676,222 |
| | $ | 547,656 |
| | 4.13 | % | | $ | 16,273,482 |
| | $ | 506,652 |
| | 4.15 | % |
| Taxable investments (3) | 2,903,396 |
| | 61,384 |
| | 2.82 |
| | 2,487,853 |
| | 46,895 |
| | 2.51 |
|
| Tax-exempt investments (1)(3) | 583,215 |
| | 18,040 |
| | 4.12 |
| | 594,846 |
| | 17,611 |
| | 3.95 |
|
| Federal funds sold and other interest bearing deposits | 176,033 |
| | 1,156 |
| | 0.88 |
| | 285,378 |
| | 846 |
| | 0.40 |
|
| Total interest earning assets | 21,338,866 |
| | 628,236 |
| | 3.93 |
| | 19,641,559 |
| | 572,004 |
| | 3.88 |
|
| Allowance for loan losses | (116,507 | ) | | | | | | (108,150 | ) | | | | |
| Cash and due from banks | 234,905 |
| | | | | | 290,124 |
| | | | |
| Other assets | 1,892,875 |
| | | | | | 2,009,780 |
| | | | |
| Unrealized losses on securities available for sale, net | (15,648 | ) | | | | | | (1,691 | ) | | | | |
| Total assets | $ | 23,334,491 |
| | | | | | $ | 21,831,622 |
| | | | |
| Liabilities and shareholders’ equity | | | | | | | | | | | |
| Interest bearing liabilities: | | | | | | | | | | | |
| Savings, NOW and money market deposits | 8,883,229 |
| | 38,538 |
| | 0.58 | % | | 8,404,929 |
| | 29,369 |
| | 0.47 | % |
| Time deposits | 3,279,699 |
| | 30,571 |
| | 1.24 |
| | 3,093,311 |
| | 28,220 |
| | 1.22 |
|
| Total interest bearing deposits | 12,162,928 |
| | 69,109 |
| | 0.76 |
| | 11,498,240 |
| | 57,589 |
| | 0.67 |
|
| Short-term borrowings | 1,646,030 |
| | 14,578 |
| | 1.18 |
| | 1,240,235 |
| | 8,537 |
| | 0.92 |
|
| Long-term borrowings (4) | 1,737,314 |
| | 41,883 |
| | 3.21 |
| | 1,650,999 |
| | 45,948 |
| | 3.71 |
|
| Total interest bearing liabilities | 15,546,272 |
| | 125,570 |
| | 1.08 |
| | 14,389,474 |
| | 112,074 |
| | 1.04 | % |
| Non-interest bearing deposits | 5,173,140 |
| | | | | | 5,003,375 |
| | | | |
| Other liabilities | 173,852 |
| | | | | | 202,204 |
| | | | |
| Shareholders’ equity | 2,441,227 |
| | | | | | 2,236,569 |
| | | | |
| Total liabilities and shareholders’ equity | $ | 23,334,491 |
| | | | | | $ | 21,831,622 |
| | | | |
| Net interest income/interest rate spread (5) | | | $ | 502,666 |
| | 2.85 | % | | | | $ | 459,930 |
| | 2.84 | % |
| Tax equivalent adjustment | | | (6,323 | ) | | | | | | (6,176 | ) | | |
| Net interest income, as reported | | | $ | 496,343 |
| | | | | | $ | 453,754 |
| | |
| Net interest margin (6) | | | | | 3.10 | % | | | | | | 3.08 | % |
| Tax equivalent effect | | | | | 0.04 | % | | | | | | 0.04 | % |
| Net interest margin on a fully tax equivalent basis (6) | | | | | 3.14 | % | | | | | | 3.12 | % |
| |
(1) | Interest income is presented on a tax equivalent basis using a 35 percent federal 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) | Includes junior subordinated debentures issued to capital trusts which are presented separately on the consolidated |
statements of financial condition.
| |
(5) | Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis. |
| |
(6) | Net interest income as a percentage of total average interest earning assets. |
(5)Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(6)Net interest income as a percentage of total average interest earning assets.
The following table demonstrates the relative impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by us on such assets and liabilities. 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.
Change in Net Interest Income on a Tax Equivalent Basis
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, 2017
Compared to September 30, 2016 | | Nine Months Ended
September 30, 2017
Compared to September 30, 2016 |
| | Change Due to Volume | | Change Due to Rate | | Total Change | | Change Due to Volume | | Change Due to Rate | | Total Change |
| | (in thousands) |
| Interest Income: | | | | | | | | | | | |
| Loans* | $ | 14,888 |
| | $ | 742 |
| | $ | 15,630 |
| | $ | 43,472 |
| | $ | (2,468 | ) | | $ | 41,004 |
|
| Taxable investments | 2,505 |
| | 2,230 |
| | 4,735 |
| | 8,384 |
| | 6,105 |
| | 14,489 |
|
| Tax-exempt investments* | (744 | ) | | 328 |
| | (416 | ) | | (349 | ) | | 778 |
| | 429 |
|
| Federal funds sold and other interest bearing deposits | 11 |
| | 342 |
| | 353 |
| | (419 | ) | | 729 |
| | 310 |
|
| Total increase in interest income | 16,660 |
| | 3,642 |
| | 20,302 |
| | 51,088 |
| | 5,144 |
| | 56,232 |
|
| Interest Expense: | | | | | | | | | | | |
| Savings, NOW and money market deposits | 358 |
| | 5,118 |
| | 5,476 |
| | 1,748 |
| | 7,421 |
| | 9,169 |
|
| Time deposits | 904 |
| | 536 |
| | 1,440 |
| | 1,728 |
| | 623 |
| | 2,351 |
|
| Short-term borrowings | 256 |
| | 1,360 |
| | 1,616 |
| | 3,220 |
| | 2,821 |
| | 6,041 |
|
| Long-term borrowings and junior subordinated debentures | 4,141 |
| | (2,934 | ) | | 1,207 |
| | 2,312 |
| | (6,377 | ) | | (4,065 | ) |
| Total increase in interest expense | 5,659 |
| | 4,080 |
| | 9,739 |
| | 9,008 |
| | 4,488 |
| | 13,496 |
|
| Total increase in net interest income | $ | 11,001 |
| | $ | (438 | ) | | $ | 10,563 |
| | $ | 42,080 |
| | $ | 656 |
| | $ | 42,736 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2023 Compared to June 30, 2022 | | Six Months Ended June 30, 2023 Compared to June 30, 2022 |
| | Change
Due to
Volume | | Change
Due to
Rate | | Total
Change | | Change
Due to
Volume | | Change
Due to
Rate | | Total
Change |
| | (in thousands) |
| Interest Income: | | | | | | | | | | | |
| Loans* | $ | 76,106 | | | $ | 223,487 | | | $ | 299,593 | | | $ | 223,680 | | | $ | 413,775 | | | $ | 637,455 | |
| Taxable investments | 978 | | | 7,848 | | | 8,826 | | | 8,583 | | | 17,602 | | | 26,185 | |
| Tax-exempt investments* | (558) | | | 1,049 | | | 491 | | | 1,618 | | | 2,425 | | | 4,043 | |
| Interest bearing deposits with banks | 6,755 | | | 18,952 | | | 25,707 | | | 3,078 | | | 44,373 | | | 47,451 | |
Total increase in interest income | 83,281 | | | 251,336 | | | 334,617 | | | 236,959 | | | 478,175 | | | 715,134 | |
| Interest Expense: | | | | | | | | | | | |
| Savings, NOW and money market deposits | (392) | | | 148,113 | | | 147,721 | | | 1,509 | | | 287,350 | | | 288,859 | |
| Time deposits | 22,935 | | | 99,560 | | | 122,495 | | | 34,214 | | | 165,748 | | | 199,962 | |
| Short-term borrowings | 11,897 | | | 34,227 | | | 46,124 | | | 24,064 | | | 55,203 | | | 79,267 | |
| Long-term borrowings and junior subordinated debentures | 8,083 | | | 8,484 | | | 16,567 | | | 9,146 | | | 17,094 | | | 26,240 | |
Total increase in interest expense | 42,523 | | | 290,384 | | | 332,907 | | | 68,933 | | | 525,395 | | | 594,328 | |
| Total increase (decrease) in net interest income | $ | 40,758 | | | $ | (39,048) | | | $ | 1,710 | | | $ | 168,026 | | | $ | (47,220) | | | $ | 120,806 | |
| |
* | Interest income is presented on a tax equivalent basis using a 35 percent tax rate.*Interest income is presented on a tax equivalent basis using 21 percent as the federal tax rate.
|
Non-Interest Income
Non-interest income increased $1.5 million and $16.6 million for the three and six months ended June 30, 2023, respectively, as compared to the same period of 2022. The following table presents the components of non-interest income for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
| Wealth management and trust fees | $ | 11,176 | | | $ | 9,577 | | | $ | 20,763 | | | $ | 14,708 | |
| Insurance commissions | 3,139 | | | 3,463 | | | 5,559 | | | 5,322 | |
| Capital markets | 16,967 | | | 14,711 | | | 27,859 | | | 29,071 | |
| Service charges on deposit accounts | 10,542 | | | 10,067 | | | 21,018 | | | 16,279 | |
| Gains (losses) on securities transactions, net | 217 | | | (309) | | | 595 | | | (1,381) | |
| | | | | | | |
| Fees from loan servicing | 2,702 | | | 2,717 | | | 5,373 | | | 5,498 | |
| Gains on sales of loans, net | 1,240 | | | 3,602 | | | 1,729 | | | 4,588 | |
| | | | | | | |
| Bank owned life insurance | 2,443 | | | 2,113 | | | 5,027 | | | 4,159 | |
| Other | 11,649 | | | 12,592 | | | 26,451 | | | 19,559 | |
| Total non-interest income | $ | 60,075 | | | $ | 58,533 | | | $ | 114,374 | | | $ | 97,803 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Trust and investment services | $ | 3,062 |
| | $ | 2,628 |
| | $ | 8,606 |
| | $ | 7,612 |
|
| Insurance commissions | 4,519 |
| | 4,580 |
| | 13,938 |
| | 14,133 |
|
| Service charges on deposit accounts | 5,558 |
| | 5,263 |
| | 16,136 |
| | 15,460 |
|
| Gains (losses) on securities transactions, net | 6 |
| | (10 | ) | | 5 |
| | 258 |
|
| Fees from loan servicing | 1,895 |
| | 1,598 |
| | 5,541 |
| | 4,753 |
|
| Gains on sales of loans, net | 5,520 |
| | 4,823 |
| | 14,439 |
| | 9,723 |
|
| Bank owned life insurance | 1,541 |
| | 1,683 |
| | 5,705 |
| | 5,464 |
|
| Other | 3,987 |
| | 4,288 |
| | 11,467 |
| | 13,162 |
|
| Total non-interest income | $ | 26,088 |
| | $ | 24,853 |
| | $ | 75,837 |
| | $ | 70,565 |
|
Non-interestWealth management and trust fees income increased $1.2$1.6 million and $5.3$6.1 million for the three and ninesix months ended SeptemberJune 30, 2017, respectively, as compared with the same periods in 2016 primarily due to an increase in net gains on sales of loans, partially offset by lower other non-interest income.
Net gains on sales of loans increased $697 thousand and $4.7 million for the three and nine months ended September 30, 2017,2023, respectively, as compared to the same periods in 2016.2022. The increases wereincrease as compared to the second quarter 2022 was mainly driven by higher revenues generated by our advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments. The increase for the six months ended June 30, 2023 was largely duerelated to sales of residential mortgage loans totaling approximately $176higher brokerage fees related to our broker dealer subsidiary, Valley Financial Management, Inc., acquired on April 1, 2022 from Bank Leumi USA. Brokerage fees totaled $9.7 million and $472$4.9 million for the six months ended June 30, 2023 and 2022, respectively.
Capital markets income increased $2.3 million and decreased $1.2 million for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to $149 million and $332 million for the same periods of 2016, respectively. Our net gains on sales of loans for each period are comprised of both gains on sales of residential mortgages and the net change in the mark to market gains and losses on our loans originated for sale and carried at fair value at each period end. The net change in the fair value of loans held for sale resulted in net losses of $140 thousand and net gains of $655 thousand for the three months ended September 30, 2017 and 2016, respectively, and net gains of $709 thousand and $532 thousand for the nine months ended September 30, 2017 and 2016, respectively. See further discussions of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.
Other non-interest income decreased$1.7 million for the nine months ended September 30, 2017 as compared to the same periods in 2016. The decrease was2022 mainly due to changes in volume of interest rate swap transactions executed for commercial loan customers.
Service charges on deposit accounts increased $4.7 million for the six months ended June 30, 2023compared to the same period in 2022 largely due to a decline in netthe additional deposit accounts acquired from Bank Leumi USA on April 1, 2022.
Net gains on sales of assetsloans decreased $2.4 million and $2.9 million for the ninethree and six months ended SeptemberJune 30, 2017 2023, respectively, as compared to the same periods in 2022 mostly due to lower loan sale volumes as we continued to retain a higher percentage of new loan volumes during the first half of 2023. During the six months ended June 30, 2023, we sold $71.8 million of residential mortgage loans as compared to $326.2 million for same period in 2022.
Other non-interest income increased $6.9 million for the six months ended June 30, 2023 as compared to the same period in 20162022. The increase for the six months ended June 30, 2023 was mostly due to incremental increases in several operating non-interest income categories caused by net gains from the saleacquisition of two closed branch locations recognized inBank Leumi USA and organic growth of our business operations over the second quarter of 2016.last 12 months.
Non-Interest Expense
Non-interest expense decreased $16.8 million and increased $58.1 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The following table presents the components of non-interest expense for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended
June 30, | | Six Months Ended
June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) |
| Salary and employee benefits expense | $ | 149,594 | | | $ | 154,798 | | | $ | 294,580 | | | $ | 262,531 | |
| Net occupancy expense | 25,949 | | | 22,429 | | | 49,205 | | | 44,420 | |
| Technology, furniture and equipment expense | 32,476 | | | 49,866 | | | 68,984 | | | 75,880 | |
| FDIC insurance assessment | 10,426 | | | 5,351 | | | 19,581 | | | 9,509 | |
| Amortization of other intangible assets | 9,812 | | | 11,400 | | | 20,331 | | | 15,837 | |
| Professional and legal fees | 21,406 | | | 30,409 | | | 38,220 | | | 45,158 | |
| | | | | | | |
| Amortization of tax credit investments | 5,018 | | | 3,193 | | | 9,271 | | | 6,089 | |
| Other | 28,290 | | | 22,284 | | | 54,965 | | | 37,646 | |
| Total non-interest expense | $ | 282,971 | | | $ | 299,730 | | | $ | 555,137 | | | $ | 497,070 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (in thousands) |
| Salary and employee benefits expense | $ | 67,062 |
| | $ | 58,107 |
| | $ | 192,116 |
| | $ | 174,438 |
|
| Net occupancy and equipment expense | 22,756 |
| | 20,658 |
| | 68,400 |
| | 65,615 |
|
| FDIC insurance assessment | 4,603 |
| | 4,804 |
| | 14,658 |
| | 14,998 |
|
| Amortization of other intangible assets | 2,498 |
| | 2,675 |
| | 7,596 |
| | 8,452 |
|
| Professional and legal fees | 11,110 |
| | 4,031 |
| | 20,107 |
| | 13,398 |
|
| Amortization of tax credit investments | 8,389 |
| | 6,450 |
| | 21,445 |
| | 21,360 |
|
| Telecommunications expense | 2,464 |
| | 2,459 |
| | 7,830 |
| | 7,139 |
|
| Other | 13,683 |
| | 14,084 |
| | 40,604 |
| | 45,896 |
|
| Total non-interest expense | $ | 132,565 |
| | $ | 113,268 |
| | $ | 372,756 |
| | $ | 351,296 |
|
Non-interestSalary and employee benefits expense increased $19.3decreased $5.2 million and $21.5increased $32.0 million for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to the same periods in 2016. The increases are2022. As compared to second quarter 2022, the decline was largely due to decreases in cash incentive compensation expense and Bank Leumi USA merger related costs (which totaled $28.0 million in the second quarter 2022), partially offset by higher salary and employee benefits expense, net occupancy and equipment expense and professionala restructuring charge of $11.2 million, consisting of severance expense related to recent workforce reductions. The increase for the six months ended June 30, 2023 was primarily driven by higher headcount from the Bank Leumi USA acquisition and legal fees.organic growth in our operations, the aforementioned restructuring charge, and inflationary pressures on our overall labor costs. These increases were partially offset by lower cash incentive compensation expense and merger related costs. The merger related costs totaled $4.1 million for the six months ended June 30, 2023 as compared to $28.0 million for the same period in 2022.
Salary and employee benefitsNet occupancy expense increased $9.0$3.5 million and $17.7$4.8 million for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to the same periods in 20162022 mainly due todriven by increased salaries and cash incentive compensation (both paid and accrued) for the three and nine months ended September 30, 2017. The increases were largely due to normal increases in annual compensation and incentives, expansion of our technology and home mortgage consultant teams, as well as severance costs totaling $3.8 million related to our LIFT initiative recognized during the third quarter of 2017. Health insurance expenses, which can be volatile due to self-funding of a large portion of our insurance plan, increased by $642 thousand and $1.6 million during the three and nine months ended September 30, 2017, respectively, as compared with the same periods in 2016. The increase in salary andlease expense.
employee benefits during the nine months ended September 30, 2017 was also attributable to a $2.0 million increase in stock-based compensation expense as compared to the same period of 2016.
Net occupancyTechnology, furniture and equipment expense increased $2.1decreased $17.4 million and $2.8$6.9 million for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to the same periods in 20162022. The second quarter 2023 decrease was largely due to Bank Leumi USA merger related expenses (largely consisting of technology related costs) totaling $15.3 million for the second quarter 2022. The decrease for the six months ended June 30, 2023 was mainly due to andecline in merger related expense, partially offset by higher depreciation expense as compared to the same period in 2022.
FDIC insurance assessment expense increased $5.1 million and $10.1 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods of 2022 mainly due to growth in our balance sheet, as well as a two basis point increase in periodic repairthe initial base rate effective for 2023.
Amortization of other intangible assets increased $4.5 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to higher amortization expense of core deposits and maintenance expenses duringother intangible assets resulting from Bank Leumi USA acquisition. See Note 9 to the third quarter of 2017.
consolidated financial statements for additional information.
Professional and legal fees increased $7.1decreased $9.0 million and $6.7$6.9 million for the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, as compared to the same periods in 20162022, largely due to advisorydeclines in merger related expense, partially offset by higher technology transformation consulting and legal fees managed services. Within the category, merger
related expenses (related to our LIFT programthe Bank Leumi USA acquisition) totaled $11.4 million and the proposed acquisition of USAB.
Amortization of tax credit investments increased $1.9$12.2 million for the three and six months ended SeptemberJune 30, 2017 as compared with the same period in 2016 mostly due to normal differences in the timing2023 and amount of such investments and recognition of the related tax credits. These investments, while negatively impacting the level of our operating expenses and efficiency ratio, produce tax credits that reduce our income tax expense and effective tax rate. See Note 14 to the consolidated financial statements for more details regarding our tax credit investments.
2022, respectively.
Other non-interest expenses decreased $5.3 million for the nine months ended September 30, 2017 as compared with the same period in 2016 mainly due to declines in both bank operating losses and branch closing costs and an increase in net gains on other real estate owned.
Efficiency Ratios
The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total non-interest income. We believe this non-GAAP measure provides a meaningful comparison of our operational performance and facilitates investors’ assessments of business performance and trends in comparison to our peers in the banking industry. Our overall efficiency ratio, and its comparability to some of our peers, is negatively impacted by the amortization of tax credit investments, as well as infrequent charges within non-interest expense resulting from our LIFT program and the proposed acquisition of USAB.
The following table presents our efficiency ratio and a reconciliation of the efficiency ratio adjusted for certain items during the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | ($ in thousands) |
| Total non-interest expense | $ | 132,565 |
| | $ | 113,268 |
| | $ | 372,756 |
| | $ | 351,296 |
|
| Less: Amortization of tax credit investments (pre-tax) | 8,389 |
| | 6,450 |
| | 21,445 |
| | 21,360 |
|
Less: LIFT program expenses (pre-tax) (1) | 9,875 |
| | — |
| | 9,875 |
| | — |
|
Less: Merger related expenses (pre-tax) (2) | 1,241 |
| | — |
| | 1,242 |
| | — |
|
| Total non-interest expense, adjusted | $ | 113,060 |
| | $ | 106,818 |
| | $ | 340,194 |
| | $ | 329,936 |
|
| | | | | | | | |
| Net interest income | $ | 164,854 |
| | $ | 154,146 |
| | $ | 496,343 |
| | $ | 453,754 |
|
| Total non-interest income | 26,088 |
| | 24,853 |
|
| 75,837 |
| | 70,565 |
|
| Total net interest income and non-interest income | $ | 190,942 |
| | $ | 178,999 |
| | $ | 572,180 |
| | $ | 524,319 |
|
| Efficiency ratio | 69.43 | % | | 63.28 | % | | 65.15 | % | | 67.00 | % |
| Efficiency ratio, adjusted | 59.21 | % | | 59.68 | % | | 59.46 | % | | 62.93 | % |
| |
(1) | LIFT program expenses are primarily within professional and legal fees and salary and employee benefits expense. |
| |
(2) | Merger related expenses are primarily within professional and legal fees. |
Income Taxes
Income tax expense was $17.1increased $6.0 million and $17.0$17.3 million for the three and six months ended SeptemberJune 30, 20172023, respectively, as compared to the same periods in 2022 primarily due to general increases in several categories caused by our acquired and 2016, respectively,organic growth in operations, higher charitable contributions, and $55.9increased charges related to collateral liabilities in connection with derivative transactions.
We continuously monitor and closely manage our non-interest expense in an effort to optimize our operating efficiency. To offset the current headwinds impacting our net interest income and margin, we began the implementation of a new cost saving initiative in late June 2023. The identified cost savings are expected to primarily come from workforce reductions, more efficient third-party consulting and service usage, and specific technology cost reductions. As noted above, we incurred $11.2 million of severance expense associated with these efforts during the second quarter 2023. Overall, the new initiative is expected to generate more than $40 million of annual pre-tax cost savings and $46.9be realized over the next 12 months.
Income Taxes
Income tax expense totaled $51.8 million for the nine months ended September 30, 2017second quarter 2023 as compared to $57.2 million and 2016,$36.6 million for the first quarter 2023 and second quarter 2022, respectively. Our effective tax rate was 30.127.1 percent, 28.1 percent and 28.527.5 percent for the three months ended September 30, 2017second quarter 2023, first quarter 2023 and 2016, respectively, and 29.1 percent and 28.4 percent forsecond quarter 2022, respectively. The decline in the nine months ended September 30, 2017 and 2016, respectively.
effective tax rate in the second quarter 2023 was primarily due to the release of a state valuation allowance related to New Jersey net operating loss carryforwards.
U.S. GAAP requires that any change in judgment or change in measurement of a tax position taken in a prior annual period be recognized as a discrete event in the quarter in which it occurs, rather than being recognized as a change in effective tax rate for the current year. Our adherence to these tax guidelines may result in volatile effective income tax rates in future quarterly and annual periods. Factors that could impact management’s judgment include changes in income, tax laws and regulations and tax planning strategies. For the remainder of 2017, we anticipate that our effective tax rate will range from 28 percent to 31 percent. The effective tax rate is generally lower than the statutory rate primarily due to tax credits derived from our investments in qualified affordable housing projects and other investments related to community development and renewable energy sources, as well as earnings from other tax-exempt investments. See Note 14 to the consolidated financial statements for additional information regarding our tax credit investments.
BusinessOperating Segments
We have fourValley manages its business segments that we monitor and report on to manage our business operations. These segments are consumer lending, commercial lending, investment management, and corporate and other adjustments. Ouroperations under reportable segments have been determined based upon Valley’s internal structureconsisting of operationsConsumer Banking, Commercial Banking and lines of business.Treasury and Corporate Other. Each businessoperating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Expenses relatedValley regularly assesses its strategic plans, operations and reporting structures to identify its reportable segments and no changes to the branch network, all other componentsreportable segments were determined necessary during the first half of retail banking, along with the back office departments of our subsidiary bank are allocated from the corporate and other adjustments segment to each of the other three business segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a “pool funding” methodology, which involves the allocation of uniform funding cost based on each segments’ average earning assets outstanding for the period. The financial reporting for each segment contains allocations and reporting in line with our operations, which may not necessarily be comparable to any other financial institution. 2023.
The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to those of any other financial institution. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data.
The following tables present the financial data for each business segmentValley's operating segments for the three months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2023 |
| | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 8,904,483 | | $ | 40,553,454 | | $ | 7,893,871 | | $ | 57,351,808 |
| Income (loss) before income taxes | 12,200 | | 247,459 | | (68,840) | | 190,819 |
| Annualized return on average interest earning assets (before tax) | 0.55 | % | | 2.44 | % | | (3.49) | % | | 1.33 | % |
| | | | Three Months Ended September 30, 2017 | | Three Months Ended June 30, 2022 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
| Average interest earning assets | $ | 5,226,964 |
| | $ | 12,779,310 |
| | $ | 3,636,572 |
| | $ | — |
| | $ | 21,642,846 |
| Average interest earning assets | $ | 7,967,305 | | $ | 34,549,982 | | $ | 6,373,943 | | $ | 48,891,230 |
| Income (loss) before income taxes | 15,609 |
| | 55,036 |
| | 9,118 |
| | (23,026 | ) | | 56,737 |
| Income (loss) before income taxes | 13,678 | | 127,007 | | (7,720) | | 132,965 |
| Annualized return on average interest earning assets (before tax) | 1.19 | % | | 1.72 | % | | 1.00 | % | | N/A |
| | 1.05 | % | Annualized return on average interest earning assets (before tax) | 0.69 | % | | 1.47 | % | | (0.48) | % | | 1.09 | % |
See Note 16 to the consolidated financial statements for additional details.
|
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2016 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 5,038,230 |
| | $ | 11,532,493 |
| | $ | 3,326,109 |
| | $ | — |
| | $ | 19,896,832 |
|
| Income (loss) before income taxes | 17,071 |
| | 46,456 |
| | 6,657 |
| | (10,293 | ) | | 59,891 |
|
| Annualized return on average interest earning assets (before tax) | 1.36 | % | | 1.61 | % | | 0.80 | % | | N/A |
| | 1.20 | % |
Consumer LendingBanking
This segment, representing approximately 28.8Consumer Banking represented 18.0 percent of our loan portfolio at SeptemberJune 30, 2017, is2023, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans). The duration of the residential mortgage loan portfolio (which represented 16.211.1 percentof our loan portfolio at SeptemberJune 30, 2017, including covered loans)2023) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (representing 6.4(which represented 3.3 percent of total loans at SeptemberJune 30, 2017)2023) is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. The consumer lending segmentConsumer Banking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and insurancetax credit advisory services.
Average interest earning assets in this segment within Consumer Banking increased$188.7937.2 million to $5.2$8.9 billion for the three months ended SeptemberJune 30, 20172023 as compared to the third quartersame period of 2016.2022. The increase was largely due to solid organicnew residential mortgage loan volumes originated for investment rather than sale over the last 12-month period, and, to a lesser extent, growth in home equity and secured personal lines of credit and auto loans overcredit.
Income before income taxes for Consumer Banking decreased $1.5 million to $12.2 million for the last 12 months, partially offset by a decline in average residential mortgage loanssecond quarter 2023 as compared to the thirdsecond quarter of 2016 caused2022 mainly driven by lower net interest income and, to a high volume of loan sales into the secondary market since September 30, 2016. Home equity loan volumes and customer usage of existing home equity lines of credit also steadily declined since September 30, 2016 despite the relatively favorable interest rate environment.
Income before income taxes generated by the consumer lending segment decreased $1.5 millionto $15.6 millionfor the third quarter of 2017 as compared to $17.1 million for the third quarter of 2016 largely due tolesser extent, an increase in non-interest expense of $3.4expense. Net interest income decreased $23.0 million partially offset by a $1.3 million increase in non-interest income, as well as lower internal transfer expense for the third quarter of 2017. The increase in non-interest expense was largely driven by infrequent charges related to our LIFT initiative and proposed USAB merger. The increase in non-interest income was due, in part, to a $697 thousand increase in the net gains on sales of loans caused by the higher level of sales during thirdsecond quarter of 2017.
The net interest margin on the consumer lending portfolio decreased 6 basis points to 2.74 percent for the third quarter of 20172023 as compared to the same period of 2022 due to additional interest expense generated from higher average deposit and other borrowing balances, as well as an increase in the cost of such interest bearing liabilities. The negative impact of these items was partially offset by an increase in non-interest income and lower internal transfer expense. Non-interest income increased $8.4 million mainly due to increases in wealth management and trust fees, capital markets and service charges on deposit accounts, partially offset by lower gains on sales of loans.Internal transfer expense decreased $15.6 million for the second quarter 2023 as compared to the second quarter 2022 due to the lower allocation of non-interest expense over the same period. The provision for loan losses decreased $1.9 million for the three months ended June 30, 2023 due to a decrease in non-economic qualitative factors as compared to one year ago. The netSee further details in the “Allowance for Credit Losses” section of this MD&A.
Net interest margin was negatively impacted byon the Consumer Banking portfolio decreased 134 basis points to 1.60 percent for the second quarter 2023 as compared to the second quarter 2022 mainly due to a 12224 basis point increase in the costs associated with our funding sources,sources, partially offset by a 690 basis point increase in the yield on average loans.loans. The increase in the cost of fundsour funding costs was due, in part, tomainly driven by higher interest rates on most of our interest bearing commercial and retail deposit products, increased utilization of fully FDIC-insured indirect customer deposits and short-term borrowing and a shift in the overall mixhigher cost of other borrowings from short-term to longer term FHLB advances (primarily with maturities less than two years)held during the thirdsecond quarter of 2017.2023. The 90 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our depositsnet interest margin and other borrowings.funding sources.
The return on average interest earning assets before income taxes for the consumer banking segment was 0.55 percent for the second quarter 2023 compared to 0.69 percent for the second quarter 2022. Commercial LendingBanking
The commercial lending segmentCommercial Banking is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, commercial lendingCommercial Banking is Valley’s business segment that is most sensitive to movements in
market interest rates. Commercial and industrial loans totaled approximately $2.7$9.3 billionand represented 14.918.6 percent of the total loan portfolio at SeptemberJune 30, 2017.2023. Commercial real estate loans and construction loans totaled $10.3$31.6 billion and represented 56.363.4 percentof the total loan portfolio at SeptemberJune 30, 2017.2023.
Average interest earning assets in this segmentCommercial Banking increased$1.2 $6.0 billion to $12.8$40.6 billion for the three months ended SeptemberJune 30, 20172023 as compared to the thirdsecond quarter of 2016. This increase was2022 primarily due to strong organic loan growth concentrated in part, to solid organicthe commercial real estate loan growth across many segments of borrowers and purchases of loan participations (mostly consisting of multi-family loans in New York City) totaling over $499portfolio.
Income before income taxes for Commercial Banking increased $120.5 million during the last 12 months.
Forto $247.5 million for the three months ended SeptemberJune 30, 2017, income before income taxes for the commercial lending segment increased $8.6 millionto $55.0 million2023 as compared to the same quarterperiod of 2016 mostly2022 mainly due to an increase in net interest income and a decreasedecreases in the provision for loancredit losses and internal transfer expense, partially offset by an increase in the internal transferhigher non-interest expense. Net interest income for this segment increased$7.1 $41.0 million to $114.6$373.7 million for the thirdsecond quarter of 20172023 as compared to the same period in 2016 largely2022 primarily due to higher average commercial loan balances and higher interest rates on new and adjustable loans. Internal transfer expense decreased $55.0 million to $102.4 million for the aforementioned organic and purchased loan growth overthree months ended June 30, 2023 as compared to the last 12 months. second quarter 2022. The provisionprovision for credit losses decreased $4.4$35.5 million to $1.2$2.8 million during the three months ended September 30, 2017 as compared to $5.6 million for the third quarter of 2016 (See details in the "Allowance for Credit Losses" section elsewhere in this MD&A). Internal transfer expense increased $2.0 million during the third quarter of 2017 as compared to the same period in 2016.2022 mainly due to elevated provision for credit losses for the second quarter 2022 related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA. See details in the "Allowance for Credit Losses for Loans" section of this MD&A. Non-interest expense increased $10.9 million to $35.4 million for three months ended June 30, 2023 as compared to the second quarter 2022.
The net interest margin for this segment decreased 16 basis points to 3.69 percent for the second quarter 2023 as compared to the second quarter 2022 due to a 224 basis point increase in the cost of our funding sources, partially offset by a 208 basis point increase in the yield on average loans.
The return on average interest earning assets before income taxes for the commercial banking segment was 2.44 percent for the three months ended June 30, 2023 compared to 1.47 percent for the same period in 2022.
Treasury and Corporate Other
Treasury and Corporate Other largely consists of the Treasury managed held to maturity and available for sale debt securities portfolios mainly utilized in the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment. Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the Federal Reserve Bank of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to the Consumer Banking and Commercial Banking segments. Interest
expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average interest earning assets and/or liabilities outstanding for the period. Other items disclosed in this segment include net gains and losses on available for sale and held to maturity securities transactions, interest expense related to subordinated notes, amortization of tax credit investments, as well as other non-core items, including merger expenses.
Average interest earning assets within Treasury and Corporate Other increased $1.5 billion to $7.9 billion for the three months ended June 30, 2023 mainly due to a $1.4 billion increase in average overnight interest bearing deposits with banks as compared to the same period in 2022. Our average overnight cash levels increased in the second quarter2023 as a cautionary liquidity management measure resulting from the bank failures in March and April 2023.
For the three months ended June 30, 2023, loss before income taxes in this segment totaled $68.8 million compared to $7.7 million for the same period in 2022. The $61.1 million increase in the pre-tax loss during the second quarter 2023 period was mainly due to lower internal transfer income and net interest income, partially offset by a decrease in non-interest expense. The internal transfer income decreased $70.6 million to $124.4 million for the three months ended June 30, 2023 as compared to the same period a year ago due to the lower allocation of non-interest expense over the same period. Non-interest expense decreased $32.1 million to $224.4 million during the three months ended June 30, 2023 as compared to the same period in 2022 mainly attributable to merger expenses incurred during the second quarter 2022 resulting from the Bank Leumi USA acquisition. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.
The net interest margin for this segment decreased 1393 basis points to 3.591.19 percent for the thirdsecond quarter of 20172023 as compared to the samesecond quarter one year ago as2022 due to a result of a 1 basis point decline in yield on average loans and a 12224 basis point increase in the cost of our funding sources.
Investment Management
The investment management segment generatessources, partially offset by a large portion of our income through investments in various types of securities and interest-bearing deposits with other banks. These investments are mainly comprised of fixed rate securities and, depending on our liquid cash position, federal funds sold and interest-bearing deposits with banks (primarily the Federal Reserve Bank of New York) as part of our asset/liability management strategies. The fixed rate investments are one of Valley’s least sensitive assets to changes in market interest rates. However, a portion of the investment portfolio is invested in shorter-duration securities to maintain the overall asset sensitivity of our balance sheet. See the “Asset/Liability Management” section below for further analysis.
Average interest earning assets in this segment increased $310.5 million during the third quarter of 2017 as compared to the third quarter of 2016. The increase was mainly due to purchases of residential mortgage-backed securities classified as held for maturity and available for sale in the last 12 months and a $9.2 million increase in average federal funds sold and other interest bearing deposits for the three months ended September 30, 2017 as compared to the same period in 2016.
For the quarter ended September 30, 2017, income before income taxes for the investment management segment increased $2.5 million to $9.1 million as compared to the third quarter in 2016. Net interest income increased $2.9 million as compared to the third quarter in 2016 as a result of the increase in average taxable investment balances, as well as a higher overall yield on average investments partly due to a decline in premium amortization expense recognized on certain residential mortgage-backed securities.
The net interest margin for this segment increased17basis points to 2.15 percentfor the third quarter of 2017 as compared to the same quarter one year ago largely due to a 28131 basis point increase in the yield on average investments partially offset by a 12 basis point increase in costs associated with our funding sources.investments. The increase in the yield on average investments as compared to the same period a year ago was largely due to the aforementioned declinedriven by new higher yielding investments and a reduction in premium amortization expense mostly caused by lowerslower principal repayments on these securities.
Corporate and other adjustments
The amounts disclosed as “corporate and other adjustments” represent income and expense items not directly attributable to a specific segment, including net securities gains and losses not reported in the investment management segment above,rising interest expense related to subordinated notes, as well as income and expense from derivative financial instruments.rate environment.
The pre-tax net loss for the corporate segment increased $12.7 million to $23.0 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 mainly due to higher salary and employee benefits expense, net occupancy and equipment expense, professional and legal fees, and amortization of tax credit investments. See further details in the "Non-Interest Expense" section above.
The following tables present the financial data for each business segmentValley's operating segments for the ninesix months ended SeptemberJune 30, 20172023 and 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2023 |
| | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 8,836,859 | | $ | 39,826,630 | | $ | 7,699,305 | | $ | 56,362,794 |
| Income before income taxes | 13,224 | | 471,069 | | (89,758) | | 394,535 |
| Annualized return on average interest earning assets (before tax) | 0.30 | % | | 2.37 | % | | (2.33) | % | | 1.40 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Consumer
Banking | | Commercial
Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 7,848,764 | | $ | 30,743,387 | | $ | 6,017,817 | | $ | 44,609,968 |
| Income (loss) before income taxes | 36,659 | | 263,838 | | (11,490) | | 289,007 |
| Annualized return on average interest earning assets (before tax) | 0.93 | % | | 1.72 | % | | (0.38) | % | | 1.30 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 5,133,132 |
| | $ | 12,543,090 |
| | $ | 3,662,644 |
| | $ | — |
| | $ | 21,338,866 |
|
| Income (loss) before income taxes | 46,068 |
| | 162,801 |
| | 28,694 |
| | (45,881 | ) | | 191,682 |
|
| Annualized return on average interest earning assets (before tax) | 1.20 | % | | 1.73 | % | | 1.04 | % | | N/A |
| | 1.20 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2016 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total |
| | ($ in thousands) |
| Average interest earning assets | $ | 5,110,845 |
| | $ | 11,162,637 |
| | $ | 3,368,077 |
| | $ | — |
| | $ | 19,641,559 |
|
| Income (loss) before income taxes | 45,332 |
| | 137,748 |
| | 16,019 |
| | (34,145 | ) | | 164,954 |
|
| Annualized return on average interest earning assets (before tax) | 1.18 | % | | 1.65 | % | | 0.63 | % | | N/A |
| | 1.12 | % |
Consumer LendingBanking
AverageConsumer Banking's average interest earning assets in this segment increased $22.3$988.1 million to $5.1$8.8 billion for the ninesix months ended SeptemberJune 30, 20172023 as compared to the same period in 2016.2022. The increase was largely due to aforementioned organicnew residential mortgage loan volumes originated for investment rather than sale over the last 12-month period, as well as growth in home equity loans and secured personal lines of credit and auto loans over the last 12 months, partially offset by lower average residential mortgage loans and home equity loans. The decline in residential mortgage loans over the last 12 months was largely driven by normal repayment activity, a high percentage of loans originated for sale rather than investment during the fourth quarter of 2016 and first quarter of 2017, and the transfer and the sale of approximately $226 million and $104 million of performing fixed rate mortgages from loans held for investment portfolio to loans held for sale during the first half of 2017 and the fourth quarter of 2016, respectively.credit.
Income before income taxes generated by the consumer lending segment increased $736 thousandConsumer Banking decreased $23.4 million to $46.1$13.2 millionfor the ninesix months ended SeptemberJune 30, 20172023 as compared to $45.3 million for the same period in 2016. This2022 mainly driven by lower net interest income, and, to a lesser extent, increases in non-interest expense and the provision for loan losses. Net interest income decreased $37.0 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to additional interest expense generated from higher average deposit balances, as well as an increase in interest rates on such balances. The provision for loan losses increased $2.7 million for the six months ended June 30, 2023 due to additional reserves related to residential loan growth, and changes in the economic forecast component within our CECL model as compared to one year ago. See further details in the “Allowance for Credit Losses” section of this MD&A. The negative impact of these items was largely attributable topartially offset by an$8.9 million increase in non-interest income of $6.8coupled with a $13.4 million and a decrease of $3.1 million in the internal transfer expense partially offset by increases of $3.0 million and $5.9 million infor the provision for loan losses and non-interest expense, respectively, for the ninesix months ended SeptemberJune 30, 2017.2023 as compared to the same period in 2022. The increase in non-interest income was mostlymainly driven by a $4.7 million increaseincreases in the net gainswealth management and trust fees and service charges on sales of loans caused by the higher level of residential mortgage loan sales during the nine months ended September 30, 2017. The increase in thedeposit accounts.
provision for loan losses was mainly due to the loan growth, while non-interest expense increased due, in part, to higher salary and employee benefits expense.
The netNet interest margin on the consumer lendingConsumer Banking portfolio decreased 2116 basis points to 2.771.76 percent for the ninesix months ended SeptemberJune 30, 20172023as compared to the same period one year ago. The net interest margin results were comprised ofago mainly due to a 3202 basis point increase in the costs associated with our funding sources, partially offset by a 1an 86 basis point increase in the yield on average loans. The 86 basis point increase in our cost of fundsloan yield was primarilylargely due to increased short-termhigher yielding new loan volumes and adjustable rate loans in our portfolio. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest rates resulting from the Federal Reserve's three rate hikes pushing the upper limit targetmargin and funding sources.
The return on average interest earning assets before income taxes for the federal funds rate from 0.50consumer banking segment was 0.30 percent in December 2016for the six months ended June 30, 2023 compared to 1.250.93 percent in June 2017. The negative impact to our cost of deposits and short-term borrowings was partially offset by a decline in the cost of our average long-term borrowings as compared to the nine months ended September 30, 2016 mostly due to the modification and maturity of certain high cost borrowings during the second half of 2016.same period one year ago.
Commercial LendingBanking
Average interest earning assets in this segmentCommercial Banking increased$1.4 $9.1 billion to $12.5$39.8 billion for the ninesix months ended SeptemberJune 30, 20172023 as compared to the same period in 2016.2022. This increase was primarily due to strong organic loan growth, especially in part, to solid organicthe commercial real estate loan volumes in New York, New Jersey and Florida and purchases of loan participations duringportfolio over the last 12 months.12-month period ended June 30, 2023, as well as loans acquired from Bank Leumi USA on April 1, 2022.
For the ninesix months ended SeptemberJune 30, 2017,2023, income before income taxes for the commercial lending segmentCommercial Banking increased $25.1$207.2 millionto $162.8$471.1 million as compared to the same period of 2016 mostlyin 2022 mainly due to an increase in net interest income and a decrease in thelower provision for credit losses, partially offset by increases in bothhigher non-interest expense and internal transfer expense. Net interest income increased$30.5 $172.6 million to $344.8$751.9 million for the ninesix months ended SeptemberJune 30, 20172023 as compared to the same period in 2016 largely2022 primarily due to the aforementioned organichigher average commercial loan balances and purchased loan growth over the last 12 months. The provisionhigher interest rates on new and adjustable loans. The provision for credit losses decreased $3.3$34.1 million to $4.6$5.8 million during the ninesix months ended SeptemberJune 30, 20172023 as compared to $7.9$39.9 million for the same period in 2016 (See2022 mainly due to a provision for non-PCD loans and unfunded credit commitments acquired from Bank Leumi in the second quarter 2022. See details in the "Allowance for Credit Losses"Losses for Loans" section of this MD&A).&A. Non-interest expense and internal transfer expense increased$1.8 $21.6 million and $6.6to $71.1 million during for the ninesix months ended SeptemberJune 30, 2017, respectively,2023 as compared to the same period in 2016.
The net interest margin for this segment decreased 10 basis points to 3.66 percent for the nine months ended September 30, 2017 as compared to the same period one year ago as a result of a 7 basis point decline in yield on average loans and a 3 basis point increase in the cost of our funding sources. The decrease in the yield on loans was primarily due to the normal repayment of higher rate loans during the last 12 months.
Investment Management
Average interest earning assets in this segment increased $294.6 million for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase was2022 mainly due to purchases of residential mortgage-backed securities classified as held for maturityacquired and available for saleorganic growth in the last 12 months, partially offset by a $109.3 million decrease in average federal funds sold and other interest bearing deposits for the nine months ended September 30, 2017 as compared to the same period in 2016.
For the nine months ended September 30, 2017, income before income taxes for the investment management segment increased $12.7 million to $28.7 million as compared to the same period in 2016 mainly due to a $13.0 million increase in net interest income. The increase in net interest income was mainly driven by both the higher average investment balances and higher yield on average investments during the nine months ended September 30, 2017 as compared to the same period in 2016.
The net interest margin for this segment increased 31 basis points to 2.20 percent for the nine months ended September 30, 2017 as compared to the same period one year ago mostly due to a 34 basis point increase in the yield on average investments, partially offset by a 3 basis point increase in costs associated with our funding sources. The increase in the yield on average investments was due, in part, to a decline in premium amortization
expense caused by lower principal repayments on residential mortgage-backed securities during the nine months ended September 30, 2017.
Corporate and other adjustments
The pre-tax net loss for the corporate segment increased $11.7 million to $45.9 million for the nine months ended September 30, 2017 as compared to $34.1 million for the same period in 2016 mainly due to a $13.8 millionincrease in non-interest expense and a $1.5 million decrease in non-interest income, partially offset by a $4.2 million increase in internal transfer income. Non-interest expense increased largely due to higher salary and employee benefits expense, and professional and legal fees mostly related to the LIFT initiative and proposed USAB merger charges incurred in the third quarter of 2017. commercial operations. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections above.of this MD&A.
The net interest margin for this segment increased 1 basis point to 3.78 percent for the six months ended June 30, 2023 as compared to the same period in 2022 due to a 203 basis point increase in yield on average loans, partially offset by a 202 basis point increase in the cost of our funding sources.
The return on average interest earning assets before income taxes for the commercial banking segment was 2.37 percent for the six months ended June 30, 2023 compared to 1.72 percent for the same period in 2022.
Treasury and Corporate Other
Treasury and Corporate Other's average interest earning assets increased $1.7 billion during the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to investment securities acquired from Bank Leumi USA, as well as other select new investment securities purchases over the last 12-month period. Average interest bearing deposits with banks increased $47.5 million as compared to the same period in 2022 due to additional cash held as a cautionary liquidity management measure starting in March 2023 and through most of the second quarter 2023.
The loss before income taxes for this segment totaled $89.8 million for the six months ended June 30, 2023 as compared to $11.5 million for the same period in 2022. The $78.3 million increase in pre-tax loss was mainly due to an increase in non-interest expense and decreases in both net interest income and internal transfer income, partially offset by higher non-interest income. Non-interest expense increased $30.4 million to $442.6 million for the six months ended June 30, 2023 as compared to the same period in 2022 largely due to expenses related to our expanded banking operations and organic business growth including higher salary and employee benefits expense, technology, furniture and equipment and professional and legal fees. Internal transfer income decreased $36.7 million to $286.9 million for the six months ended June 30, 2023 as compared to the same period in 2022 due to the higher allocation of non-interest expense over the same period. Non-interest income increased $8.9 million during the six months ended June 30, 2023 as compared to the same period in 2022 mostly due to incremental increases in several operating non-interest income categories caused by acquired and organic growth of our business operations over the last 12-month period. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A. Provision for credit losses increased $4.4 million mainly due to a corporate bond issued by Signature Bank within our AFS debt securities portfolio that was fully charged-off during the first quarter 2023.
Treasury and Corporate Other's net interest margin decreased 46 basis points to 1.35 percent for the six months ended June 30, 2023 as compared to the same period in 2022 due to a 202 basis point increase in cost of our funding sources, partially offset by a 156 basis point increase in the yield on average investments. The increased yield on average investments as compared to the same period in 2022 was largely driven by new higher yielding investments and a reduction in premium amortization expense mostly caused by slower principal repayments in the rising interest rate environment.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
Risk
Our success is largely dependent upon our ability to manage interest rate risk. Interest rate risk can be defined as the exposure of our interest rate sensitive assets and liabilities to the movement in interest rates. Our Asset/Liability Management Committee is responsible for managing such risks and establishing policies that monitor and coordinate our sources and uses of funds. Asset/Liability management is a continuous process due to the constant change in interest rate risk factors. In assessing the appropriate interest rate risk levels for us, management weighs the potential benefit of each risk management activity within the desired parameters of liquidity, capital levels and management’s tolerance for exposure to income fluctuations. Many of the actions undertaken by management utilize fair value analysis and attemptsattempt to achieve consistent accounting and economic benefits for financial assets and their related funding sources. We have predominatelypredominantly focused on managing our interest rate risk by attempting to match the inherent risk and cash flows of financial assets and liabilities. Specifically, management employs multiple risk management activities such as optimizing the level of new residential mortgage originations retained in our mortgage portfolio through increasing or decreasing loan sales in the secondary market, product pricing levels, the desired maturity levels for new originations, the composition levels of both our interest earning assets and interest bearing liabilities, as well as several other risk management activities.
We use 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 12-month and 24-month period. The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets and liabilities. The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates and the prepayment assumptions of certain assets and liabilities as of SeptemberJune 30, 2017.2023. The model assumes immediate changes in interest rates without any proactive change in the composition or size of the balance sheet, or other future actions that management might undertake to mitigate this risk. In the model, the forecasted shape of the yield curve remains static as of SeptemberJune 30, 2017.2023. The impact of interest rate derivatives, such as interest rate swaps, and caps, is also included in the model.
Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of SeptemberJune 30, 2017.2023. Although the size of Valley’s balance sheet is forecasted to remain static as of SeptemberJune 30, 20172023 in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the thirdsecond quarter of 2017.2023. The model also utilizes an immediate parallel shift in the market interest rates at SeptemberJune 30, 2017.
2023.
The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the table below due to the frequency and timing of changes in interest rates and changes in spreads between maturity and re-pricing categories. Overall, our net interest income is affected by changes in interest rates and cash flows from our loan and investment portfolios. We actively manage these cash flows in conjunction with our liability mix, duration and interest rates to optimize the net interest income, while
structuring the balance sheet in response to actual or potential changes in interest rates. Additionally, our net interest income is impacted by the level of competition within our marketplace. Competition can negatively impact the level of interest rates attainable on loans and increase the cost of deposits, which may result in downward pressure on our net interest margin in future periods. Other factors, including, but not limited to, the slope of the yield curve and projected cash flows will impact our net interest income results and may increase or decrease the level of asset sensitivity of our balance sheet.
Convexity is a measure of how the duration of a financial instrument changes as market interest rates change. Potential movements in the convexity of bonds held in our investment portfolio, as well as the duration of the loan portfolio may have a positive or negative impact on our net interest income in varying interest rate environments. As a result, the increase or decrease in forecasted net interest income may not have a linear relationship to the results reflected in the table above.below. Management cannot provide any assurance about the actual effect of changes in interest rates on our net interest income.
The following table reflects management’s expectations of the change in our net interest income over the next 12- month period in light ofconsidering the aforementioned assumptions. While an instantaneous and severe shift in interest rates was used in this simulation model, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact than shown in the table below.
| | | | Estimated Change in Future Net Interest Income | | Estimated Change in
Future Net Interest Income |
| Changes in Interest Rates | Dollar Change | | Percentage Change | Changes in Interest Rates | Dollar
Change | | Percentage
Change |
| (in basis points) | ($ in thousands) | (in basis points) | ($ in thousands) |
| +300 | | +300 | $ | 215,671 | | | 12.16 | % |
| +200 | $ | (4,656 | ) | | (0.70 | )% | +200 | 143,021 | | | 8.06 | |
| +100 | (1,092 | ) | | (0.16 | ) | +100 | 70,754 | | | 3.99 | |
| –100 | (22,816 | ) | | (3.42 | ) | –100 | (72,077) | | | (4.06) | |
| –200 | | –200 | (143,067) | | | (8.06) | |
| –300 | | –300 | (213,209) | | | (12.02) | |
As noted in the table above, a 100 basis point immediate increase in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to decreaseincrease net
interest income over the next 12 months12-month period by 0.163.99 percent. The Bank’s sensitivity to changes in market rates changed in both size and direction as compared to December 31, 2016 (which was an increase of 0.03 percent in net interest income over a 12 month period). However,Management believes the interest rate sensitivity of our balance sheet remains within our current objectives for generatingan acceptable tolerance range at June 30, 2023. However, the level of net interest income. In addition, we believeincome sensitivity may increase or decrease in the future as a result of several factors, including potential changes in our balance sheet remains well-positioned to respond positively to a rising market interest rate environment. Our current asset sensitivity to a 100 basis point immediate increase in interest rates is impacted by, among other factors, asset cash flow and repricing characteristics, complemented by a funding structure that provides for very stable earnings and low volatility. Future changes including, but not limited to,strategies, the slope of the yield curve and projected cash flows will affect our net interest income resultsflows.
Liquidity and may increase or decrease the level of net interest income sensitivity.
Our interest rate swaps and cap designated as cash flow hedging relationships are designed to protect us from upward movements in interest rates on certain deposits and other borrowings based on the three-month LIBOR rate or the prime rate (as reported by The Wall Street Journal). Our cash flow interest rate swaps had a total notional value of $482 million at September 30, 2017 and currently pay fixed and receive floating rates. We also utilize fair value and non-designated hedge interest rate swaps to effectively convert fixed rate loans, and a much smaller amount of certain brokered certificates of deposit, to floating rate instruments. The cash flow hedges are expected to benefit our net interest income in a rising interest rate environment. However, due to the relatively low level of market interest rates and the strike rate of these instruments, the cash flow hedge interest rate swaps and cap negatively impacted our net interest income during the nine months ended September 30, 2017. This negative trend will likely continue based upon the current market expectations regarding the Federal Reserve’s monetary policies which are designed to impact the level of market interest rates. See Note 12 to the consolidated financial statements for further details on our derivative transactions.
Liquidity
Cash Requirements
Bank Liquidity
Liquidity measures theValley's ability to satisfy its current and future cash flow needs as they become due. A bank’sneeds. Our objective is to have liquidity reflects its abilityavailable to meetfulfill loan demand, to accommodate possible outflows indemands, repay deposits and other liabilities, and execute balance sheet strategies in all market conditions while adhering to take advantage of interest rate opportunities ininternal controls and income targets. Valley's liquidity program is managed by the marketplace. Liquidity management isTreasury Department and routinely monitored by our Asset/the Asset and Liability Management Committee and the Investment Committee of the Board of Directors of Valley National Bank, which review historical funding requirements,two board committees. Among other actions, Treasury actively monitors Valley's current liquidity position,profile, sources and stability of funding, marketabilityavailability of assets options for attractingpledging or sale, opportunities to gather additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient liquidity to cover current and potential funding requirements.
The Bank has no required regulatory liquidity ratios to maintain; however, it adheres to ancertain internal liquidity policy. The current policy maintains that we may not have a ratiomeasures including ratios of loans to deposits in excess of 125below 110 percent or reliance onand wholesale funding greater thanto total funding below 25 percent, as summarized in the table below. Management maintains flexibility to temporarily exceed these thresholds in certain operating environments.
The following table presents Valley's loan to deposits and wholesale funding to total funding ratios at June 30, 2023 and December 31, 2022: | | | | | | | | | | | | | | |
| | June 30,
2023 | | December 31,
2022 |
| | | | |
| Loans to deposits | | 100.5 | % | | 98.5 | % |
| Wholesale funding to total funding | | 24.8 | | | 13.8 | |
Valley's short and long-term cash requirements include contractual obligations under borrowings, deposits, payments related to leases, capital expenditures and other purchase commitments. In the ordinary course of total funding. Theoperations, the Bank was in compliance withalso enters into various financial obligations, including contractual obligations that may require future cash payments. Management believes the foregoing policies at September 30, 2017.Bank has the ability to generate and obtain adequate amounts of cash to meet its short-term and long-term obligations as they come due by utilizing various cash resources described below.
On the asset side of the balance sheet, the Bank has numerous sources of liquid funds in the form of cash and due from banks, interest bearing deposits with banks (including the Federal Reserve Bank of New York), investment and other sources. The following table summarizes Valley's sources of liquid assets: | | | | | | | | | | | | | | |
| | June 30,
2023 | | December 31,
2022 |
| | (in thousands) |
| Cash and due from banks | | $ | 463,318 | | | $ | 444,325 | |
| Interest bearing deposits with banks | | 1,491,091 | | | 503,622 | |
| Trading debt securities | | 3,409 | | | 13,438 | |
Held to maturity debt securities (1) | | 182,280 | | | 177,614 | |
Available for sale debt securities (2) | | 1,236,946 | | | 1,261,397 | |
| Loans held for sale | | 33,044 | | | 18,118 | |
| Total liquid assets | | $ | 3,410,088 | | | $ | 2,418,514 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(1) Represents securities held to maturity that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid), investment securities available for sale, loans within the held for sale,to maturity debt security portfolio.
(2) Includes approximately $847 million and from time to time, federal funds sold and receivables related to unsettled securities transactions. These liquid assets totaled approximately $1.9 billion, representing 8.8 percent of earning assets, at September 30, 2017 and $1.8 billion, representing 8.9 percent of earning assets, at December 31, 2016. Of the $1.9 billion of liquid assets at September 30, 2017, approximately $692$333 million of various investment securities that were pledged to counterparties to support our earning asset funding strategies. We anticipatestrategies at June 30, 2023 and December 31, 2022, respectively.
Total liquid assets represented 6.0 percent and 4.6 percent of earning assets at June 30, 2023 and December 31, 2022, respectively.
Other sources of funds on the receipt of approximately $374 million in principal from securities in the total investment portfolio over the next 12 months due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.
Additional liquidity isasset side are derived from scheduled loan payments of principal and interest, as well as prepayments received. Loan principal payments (includingAt June 30, 2023, estimated cash inflows from total loans held for sale at September 30, 2017) are projected to be approximately $4.8$14.7 billion over the next 12 months.12-month period. As a contingency plan for significant funding needs,any liquidity constraints, liquidity could also be derived from the sale of conforming residential mortgages from our loan portfolio or alleviated from the temporary curtailmentcurtailment of lending activities. We anticipate the receipt of approximately $386.2 million in principal payments from securities in the total investment portfolio at June 30, 2023 over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.
On the liability side of the balance sheet, we utilize multiple sources of funds to meet liquidity needs, including retail and commercial deposits, brokered andfully FDIC-insured indirect customer deposits, collateralized municipal deposits, and short-term and long-term borrowings. Our core deposit base, which generally excludes all fully insured brokeredindirect customer deposits, and bothas well as retail and brokered certificates of deposit over $250 thousand, represents the largest of these sources.sources. Average core deposits totaled approximately $15.4$42.0 billion and $14.7$38.1 billion for the ninesix months ended SeptemberJune 30, 20172023 and for the year ended December 31, 2016,2022, respectively, representing 72.074.6 percent and 73.979.2 percent of average interest earning assets for the respective periods. The level of interest bearing deposits is affected by interest rates offered, which is often influenced by our need for funds, rates prevailing in the capital markets, competition, and the need to matchmanage interest rate risk sensitivity.
In addition to customer deposits, the maturities of assetsBank has ample access to readily available borrowing sources available to supplement its current and liabilities.projected funding needs. The following table presents short-term borrowings outstanding at June 30, 2023 and December 31, 2022:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
| FHLB advances | $ | 1,000,000 | | | $ | 24,035 | |
| | | |
| Securities sold under agreements to repurchase | 88,899 | | | 114,694 | |
| Total short-term borrowings | $ | 1,088,899 | | | $ | 138,729 | |
Additional funding may be provided through deposit gathering networksThe following table summarizes the Bank's estimated unused available non-deposit borrowing capacities at June 30, 2023 and in the form of federal funds purchased through our well established relationships with numerous correspondent banks. While thereDecember 31, 2022:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| (in thousands) |
| FHLB borrowing capacity* | $ | 13,093,000 | | | $ | 6,891,000 | |
| Unused FRB discount window* | 7,684,000 | | | 2,099,000 | |
| Unused federal funds lines available from commercial banks | 2,065,000 | | | 1,940,000 | |
| Unencumbered investment securities | 1,326,000 | | | 3,502,000 | |
| Total | $ | 24,168,000 | | | $ | 14,432,000 | |
* FHLB and FRB borrowings are no firm lending commitments currently in place, management believes that we could borrow approximately $727 million for a short time from these banks on a collective basis. The Bank is also a member of the Federal Home Loan Bank of New York (FHLB) and has the ability to borrow from them in the form of FHLB advances securedcollateralized by pledges of certain eligible collateral,pledged securities, including but not limited to U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of bothon certain real estate and residential mortgage and commercial real estatesecured loans. Furthermore, we are able to obtain overnight borrowings from
Additionally, the Federal Reserve established the Bank viaTerm Funding Program on March 12, 2023 as a funding source for eligible depository institutions. The Program can provide short-term liquidity (up to one year) against the
par value of certain high-quality collateral, such as U.S. Treasury securities, and eliminate the potential need for an
discount window as a contingency for additional liquidity. At September 30, 2017, our borrowing capacityinstitution to sell those securities in times of stress. Advances under the Federal Reserve's discount window was $1.1 billion.Program can be requested until March 11, 2024. This Program is currently another short-term liquidity source for Valley. Valley had no outstanding borrowings under the Program at June 30, 2023.
We also have access to other short-term and long-term borrowing sources to support our asset base, such as repos (i.e., securities sold under agreements to repurchase). Our short-term borrowings increased $402 million to $1.5 billion at September 30, 2017 as compared to December 31, 2016 due to increases of $395 million and $7 million in
FHLB advances and repo balances, respectively. The new short-term FHLB advances were primarily used as alternate funding for a decline in money market deposits during the first half of 2017, as well as for additional liquidity and loan funding purposes.
Corporation Liquidity
Valley’s recurring cash requirements primarily consist of dividends to preferred and common shareholders and interest expense on subordinated notes and junior subordinated debentures issued to capital trusts. As part of our on-goingongoing asset/liability management strategies, Valley could also use cash to repurchase shares of its outstanding common stock under its share repurchase program or redeem its callable junior subordinated debentures. Thesedebentures and subordinated notes (including $125 million of 5.125 percent subordinated notes which are maturing on September 27, 2023). Valley's cash needs are routinely satisfied by dividends collected from the Bank. Projected cash flows from the Bank are expected to be adequate to pay preferred and common dividends, if declared, and interest expense payable to subordinated note holders and capital trusts, given the current capital levels and current profitable operations of the bank subsidiary.Bank. In addition to dividends received from the Bank, Valley can satisfy its cash requirements by utilizing its own cash and potential new funds borrowed from outside sources or capital issuances. Valley also has the right to defer interest payments on the junior subordinated debentures, and therefore distributions on its trust preferred securities for consecutive quarterly periods of up to five years, but not beyond the stated maturity dates, and subject to other conditions.
Investment Securities Portfolio
As of SeptemberJune 30, 2017,2023, we had $1.8$61.0 million, $1.2 billion, and $1.4$3.8 billion in equity, available for sale debt securities and held to maturity anddebt securities, respectively. The available for sale investmentand held to maturity debt securities respectively. Our total investment portfolio was comprisedportfolios, which comprise the majority of the securities we own, include: U.S. Treasury securities, U.S. government agencies,agency securities, tax-exempt and taxable issuances of states and political subdivisions, residential mortgage-backed securities, (including 9 private label mortgage-backed securities), single-issuer trust preferred securities principally issued by bank holding companies (including 2 pooled securities),and high quality corporate bonds and equity securities issued by banks at September 30, 2017. There were no securities in the name of any one issuer exceeding 10 percent of shareholders’ equity, except for residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac.
bonds. Among other securities, our investments in the private label mortgage-backedavailable for sale debt securities trust preferredinclude securities equity securities, andsuch as bank issued and other corporate bonds, as well as municipal special revenue bonds, which may pose a higher risk of future impairment charges to us as a result of the uncertain economic environment and its potential negative effect on the future performance of the security issuersissuers. The equity securities consisted of two publicly traded mutual funds, CRA investments and if applicable,several other equity investments we have made in companies that develop new financial technologies and in partnerships that invest in such companies. Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities. We also had $3.4 million of trading debt securities at June 30, 2023 consisting of U.S. Treasury securities.
We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the underlying mortgage loan collaterallevel of interest rate risk to which we are exposed to. These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments primarily made into the available for sale and held to maturity debt securities portfolios.
Allowance for Credit Losses and Impairment Analysis
Available for sale debt securities. Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. In assessing whether a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses,
73
Other-Than-Temporary Impairment Analysis
such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes.
We mayhave evaluated all available for sale debt securities that are in an unrealized loss position as of June 30, 2023 and December 31, 2022 and determined that the declines in fair value were mainly attributable to changes in market volatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, Valley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in both a provision for credit losses and full charge-off of the security totaling $5.0 million during the six months ended June 30, 2023. There was no other impairment recognized within the available for sale debt securities portfolio during the three months ended June 30, 2023 and the three and six months ended June 30, 2022.
Valley does not intend to sell any of its available for sale debt securities in an unrealized loss position prior to
recovery of our amortized cost basis, and it is more likely than not that Valley will not be required to record impairment chargessell any of its securities prior to recovery of our amortized cost basis. None of the available for sale debt securities were past due as of June 30, 2023 and there was no allowance for credit losses for available for sale debt securities at June 30, 2023 and December 31, 2022.
Held to maturity debt securities. Valley estimates the expected credit losses on our investmentheld to maturity debt securities if they sufferthat have loss expectations using a decline in valuediscounted cash flow model developed by a third party. Valley has a zero-loss expectation for certain securities within the held to maturity portfolio, including U.S. Treasury securities, U.S. agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds. To measure the expected credit losses on held to maturity debt securities 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 actionshave loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by regulators, or unanticipated changesa third party. Assumptions used in the competitive environment could have a negative effect on our investment portfoliomodel for pools of securities with common risk characteristics include the historical lifetime probability of default and may resultseverity of loss in other-than temporary impairment on our investmentthe event of default, with the model incorporating several economic cycles of loss history data to calculate expected credit losses given default at the individual security level. Held to maturity debt securities in future periods. See our Annual Report on Form 10-Kwere carried net of an allowance for the year endedcredit losses totaling approximately $1.4 million and $1.6 million at June 30, 2023 and December 31, 2016, for additional information regarding our impairment analysis by security type.2022, respectively.
Investment grades. The investment grades in the table below reflect the most current independent analysis performed by third parties of each security as of the date presented and not necessarily the investment grades at the date of our purchase of the securities. For many securities, the rating agencies may not have performed an independent analysis of the tranches
owned by us, but rather an analysis of the entire investment pool. For this and other reasons, we believe the assigned investment grades may not accurately reflect the actual credit quality of each security and should not be viewed in isolation as a measure of the quality of our investment portfolio.
The following table presents the available for sale and held to maturity and available for saledebt investment securities portfolios by investment grades at SeptemberJune 30, 2017.2023:
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | (in thousands) |
| Held to maturity investment grades:* | | | | | | | |
| AAA Rated | $ | 1,385,423 |
| | $ | 23,500 |
| | $ | (13,920 | ) | | $ | 1,395,003 |
|
| AA Rated | 233,198 |
| | 8,762 |
| | (10 | ) | | 241,950 |
|
| A Rated | 41,759 |
| | 1,527 |
| | — |
| | 43,286 |
|
| Non-investment grade | 3,595 |
| | 125 |
| | (31 | ) | | 3,689 |
|
| Not rated | 159,647 |
| | 143 |
| | (12,573 | ) | | 147,217 |
|
| Total investment securities held to maturity | $ | 1,823,622 |
| | $ | 34,057 |
| | $ | (26,534 | ) | | $ | 1,831,145 |
|
| Available for sale investment grades:* | | | | | | | |
| AAA Rated | $ | 1,306,578 |
| | $ | 3,703 |
| | $ | (13,940 | ) | | $ | 1,296,341 |
|
| AA Rated | 54,255 |
| | 353 |
| | (213 | ) | | 54,395 |
|
| A Rated | 23,494 |
| | 10 |
| | (60 | ) | | 23,444 |
|
| BBB Rated | 30,757 |
| | 541 |
| | (91 | ) | | 31,207 |
|
| Non-investment grade | 11,349 |
| | 926 |
| | (1,795 | ) | | 10,480 |
|
| Not rated | 32,139 |
| | 533 |
| | (802 | ) | | 31,870 |
|
| Total investment securities available for sale | $ | 1,458,572 |
| | $ | 6,066 |
| | $ | (16,901 | ) | | $ | 1,447,737 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair Value |
| (in thousands) |
| Available for sale investment grades: * | | | | | | | |
| AAA Rated | $ | 1,052,295 | | | $ | 39 | | | $ | (124,114) | | | $ | 928,220 | |
| AA Rated | 149,623 | | | — | | | (27,011) | | | 122,612 | |
| A Rated | 17,213 | | | — | | | (3,000) | | | 14,213 | |
| BBB Rated | 69,905 | | | — | | | (8,598) | | | 61,307 | |
| Non-investment grade | 5,000 | | | — | | | (1,222) | | | 3,778 | |
| Not rated | 120,644 | | | — | | | (13,828) | | | 106,816 | |
| Total | $ | 1,414,680 | | | $ | 39 | | | $ | (177,773) | | | $ | 1,236,946 | |
| Held to maturity investment grades: * | | | | | | | |
| AAA Rated | $ | 3,333,395 | | | $ | 918 | | | $ | (455,892) | | | $ | 2,878,421 | |
| AA Rated | 237,338 | | | 105 | | | (15,184) | | | 222,259 | |
| A Rated | 5,898 | | | 1 | | | (145) | | | 5,754 | |
| BBB Rated | 6,000 | | | — | | | (780) | | | 5,220 | |
| Non-investment grade | 5,416 | | | — | | | (872) | | | 4,544 | |
| Not rated | 178,791 | | | 1 | | | (16,042) | | | 162,750 | |
| Total | $ | 3,766,838 | | | $ | 1,025 | | | $ | (488,915) | | | $ | 3,278,948 | |
| Allowance for credit losses | 1,351 | | | — | | | — | | | 1,351 | |
| Total, net of allowance for credit losses | $ | 3,765,487 | | | $ | 1,025 | | | $ | (488,915) | | | $ | 3,277,597 | |
|
| | | | |
| * | Rated using external rating agencies (primarily S&P and Moody’s).agencies. Ratings categories include the entire range. For example, “A rated” includes A+, A, and A-. Split rated securities with two ratings are categorized at the higher of the rating levels. |
The unrealized losses in the AAA and AA rated categories of both the available for sale and held to maturity debt securities portfolios (in the above table) were largely related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and continued to be driven by the rising interest rate environment during the last 12 months. The investment securities available for sale and held to maturity portfolio includes $159.6included $120.6 million inand $178.8 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $12.6$13.8 million and $16.0 million, respectively, at SeptemberJune 30, 2017.2023. The unrealized losses within non-rated available for this category primarily relatesale debt securities mostly related to 4several large corporate bonds negatively impacted by rising interest rates, and not changes in underlying credit. The unrealized losses within non-rated held to maturity debt
securities mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million. All single-issuer trust preferred securities classified as held$36.1 million and several corporate and other debt securities.
See Note 7 to maturity, including the aforementioned four securities, are paying in accordance with their terms and have no deferrals of interest or defaults. Additionally, we analyze the performance of each issuer on a quarterly basis, including a review of performance data from the issuer’s most recent bank regulatory report to assess the company’s credit risk and the probability of impairment of the contractual cash flows of the applicable security. Based uponconsolidated financial statements for additional information regarding our quarterly review at September 30, 2017, all of the issuers appear to meet the regulatory capital minimum requirements to be considered a “well-capitalized” financial institution and/or have maintained performance levels adequate to support the contractual cash flows of the security.
There was no other-than-temporary impairment recognized in earnings as a result of Valley's impairment analysis of its securities during the three and nine months ended September 30, 2017 and 2016 as the collateral supporting much of the investment securities has improved or performed as expected.
portfolio.
Loan Portfolio
The following table reflects the composition of the loan portfolio as of the dates presented:
|
| | | | | | | | | | | | | | | | | | | |
| | September 30,
2017 | | June 30,
2017 | | March 31,
2017 | | December 31, 2016 | | September 30,
2016 |
| | ($ in thousands) |
| Loans | | | | | | | | | |
| Commercial and industrial | $ | 2,706,912 |
| | $ | 2,631,312 |
| | $ | 2,642,319 |
| | $ | 2,638,195 |
| | $ | 2,558,968 |
|
| Commercial real estate: | | | | | | | | | |
| Commercial real estate | 9,351,068 |
| | 9,230,514 |
| | 9,016,418 |
| | 8,719,667 |
| | 8,313,855 |
|
| Construction | 903,640 |
| | 881,073 |
| | 835,854 |
| | 824,946 |
| | 802,568 |
|
| Total commercial real estate | 10,254,708 |
| | 10,111,587 |
| | 9,852,272 |
| | 9,544,613 |
| | 9,116,423 |
|
| Residential mortgage | 2,941,435 |
| | 2,724,777 |
| | 2,745,447 |
| | 2,867,918 |
| | 2,826,130 |
|
| Consumer: | | | | | | | | | |
| Home equity | 448,842 |
| | 450,510 |
| | 458,891 |
| | 469,009 |
| | 476,820 |
|
| Automobile | 1,171,685 |
| | 1,150,343 |
| | 1,150,053 |
| | 1,139,227 |
| | 1,121,606 |
|
| Other consumer | 677,880 |
| | 642,231 |
| | 600,516 |
| | 577,141 |
| | 534,188 |
|
| Total consumer loans | 2,298,407 |
| | 2,243,084 |
| | 2,209,460 |
| | 2,185,377 |
| | 2,132,614 |
|
Total loans (1)(2) | $ | 18,201,462 |
| | $ | 17,710,760 |
| | $ | 17,449,498 |
| | $ | 17,236,103 |
| | $ | 16,634,135 |
|
| As a percent of total loans: | | | | | | | | | |
| Commercial and industrial | 14.9 | % | | 14.8 | % | | 15.1 | % | | 15.3 | % | | 15.4 | % |
| Commercial real estate | 56.3 | % | | 57.1 | % | | 56.5 | % | | 55.4 | % | | 54.8 | % |
| Residential mortgage | 16.2 | % | | 15.4 | % | | 15.7 | % | | 16.6 | % | | 17.0 | % |
| Consumer loans | 12.6 | % | | 12.7 | % | | 12.7 | % | | 12.7 | % | | 12.8 | % |
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
| June 30,
2023 | | March 31,
2023 | | December 31,
2022 | | | | |
| | ($ in thousands) |
| Loans | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Commercial and industrial | $ | 9,287,309 | | | $ | 9,043,946 | | | $ | 8,804,830 | | | | | |
| Commercial real estate: | | | | | | | | | |
| Commercial real estate | 27,793,072 | | | 27,051,111 | | | 25,732,033 | | | | | |
| Construction | 3,815,761 | | | 3,725,967 | | | 3,700,835 | | | | | |
| Total commercial real estate | 31,608,833 | | | 30,777,078 | | | 29,432,868 | | | | | |
| Residential mortgage | 5,560,356 | | | 5,486,280 | | | 5,364,550 | | | | | |
| Consumer: | | | | | | | | | |
| Home equity | 535,493 | | | 516,592 | | | 503,884 | | | | | |
| Automobile | 1,632,875 | | | 1,717,141 | | | 1,746,225 | | | | | |
| Other consumer | 1,252,382 | | | 1,118,929 | | | 1,064,843 | | | | | |
| Total consumer loans | 3,420,750 | | | 3,352,662 | | | 3,314,952 | | | | | |
Total loans* | $ | 49,877,248 | | | $ | 48,659,966 | | | $ | 46,917,200 | | | | | |
| As a percent of total loans: | | | | | | | | | |
| Commercial and industrial | 18.6 | % | | 18.6 | % | | 18.8 | % | | | | |
| Commercial real estate | 63.4 | | | 63.2 | | | 62.7 | | | | | |
| Residential mortgage | 11.1 | | | 11.3 | | | 11.4 | | | | | |
| Consumer loans | 6.9 | | | 6.9 | | | 7.1 | | | | | |
| Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | | | |
| |
(1) | Includes covered loans subject to loss-sharing agreements with the FDIC (primarily consisting of residential mortgage loans and commercial real estate loans) totaling $42.6 million, $44.5 million, $47.8 million, $70.4 million and $76.0 million at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively.
|
| |
(2) | Includes net unearned premiums and deferred loan costs of $18.5 million $16.7 million, $15.7 million, $15.3 million, and $10.5 million at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. |
* Includes net unearned discount and deferred loan fees of $119.1 million, $125.4 million and $120.5 million at June 30, 2023, March 31, 2023 and December 31, 2022, respectively.
Total loans increased $490.7 million $1.2 billion, or 10.0 percent on an annualized basis to approximately $18.2$49.9 billion at September 30, 2017 from June 30, 2017 primarily2023 from March 31, 2023 mainly due to solidcontinued organic loan growth in the residential mortgagecommercial loan categories and commercial real estaterelatively low levels of loan supplemented by steady consumer loan volumes and an uptick in our commercial and industrial loans portfoliosprepayment activity during the thirdsecond quarter of 2017. During the third quarter of 2017, Valley also originated $49.4 million of residential2023. Residential mortgage loans for sale rather than investment. Loans held for sale at fair value totaled $13.3$23.0 million and $139.6$17.2 million at September 30, 2017 and June 30, 2017,2023 and March 31, 2023, respectively.
Our At June 30, 2023, loans held for sale also included one non-performing construction loan totaling $10.0 million, net of charge-offs, transferred from the loan portfolio includes purchased credit-impaired (PCI) loans, which are loans acquired at a discount that is due, in part, to credit quality. At September 30, 2017, our PCI loan portfolio decreased $69.6 million to $1.5 billion as compared to June 30, 2017 primarily due to continued larger loan repayments, of which some resulted from continued efforts by management to encourage borrower prepayment. See "Purchased Credit-Impaired Loans (Including Covered Loans)" section below for more information.during the second quarter 2023.
Total commercialCommercial and industrial loans increased $75.6$243.4 million from to $9.3 billion at June 30, 20172023 as compared to approximately $2.7 billion at September 30, 2017 due toMarch 31, 2023. The organic and diverse growth was mainly a $86.7 million increase in the non-PCIresult of new loan portfolio, partially offset by normal run-off in the PCI loan portfolio. The third quarter growth in non-PCI loans was largely due to increased newvolumes from our pre-existing long-term customer business experienced in our community lending and middle market lending portfolios combined with increased business investment by existing customers. The increase was seen in all our primary markets. While we arebase.
optimistic about the fourth quarter growth and current loan pipeline, the portfolio continues to be challenged by very strong market competition for quality borrowers, as well as PCI loan repayments.
Commercial real estate loans (excluding construction loans) increased $120.6$742.0 million from to $27.8 billion at June 30, 2017 to $9.4 billion at September 30, 2017 mainly due to a $158.6 million increase in the non-PCI loan portfolio. The increase in non-PCI loans was primarily due to2023 from March 31, 2023 reflecting solid organic loan volumes in New York, New Jerseygrowth mainly within non-owner occupied and Florida, particularly amongstmulti-family loans across our pre-existing long-term customer base during the third quarter of 2017. The organic loan volumes generated across a broad-based segment of borrowers within thegeographic market areas. At June 30, 2023, commercial real estate portfolioloans collateralized by office buildings were partially offset by a $38.0 million decline in the acquired PCI loan portionapproximately $3.2 billion of the $27.8 billionportfolio. These loans are geographically disbursed largely across Florida, Alabama, New Jersey, New York, and Manhattan with a combined weighted average loan to value ratio of 52 percent and debt service coverage ratio of 1.78.
Construction loans increased $22.6only $89.8 million to $903.6 million$3.8 billion at September 30, 2017 from June 30, 2017. The increase2023 from March 31, 2023 and was mostlylargely due to advances on existingpre-existing construction projects.loan projects in New Jersey, New York and Florida.
Total residentialResidential mortgage loans increased $216.7$74.1 million, or approximately 31.85.4 percent on an annualized basis, to approximately $2.9 billion at September 30, 2017 from June 30, 2017 mostly due to strong loan volumes generated by ourduring the second quarter 2023 as we largely originated new and expanding internal home mortgage consultant team covering our primary markets and a high level of such loans originated for the held for investment portfolio investment rather than sale during the third quarter of 2017.for sale. New and refinanced residential mortgage loan originations totaled approximately $307.0$188.0 million for the third quarter of 2017 as compared to $194.4 million and $258.3 million for the second quarter 2023 as compared to
$194.4 million and $540.7 million for the first quarter 2023 and second quarter 2022, respectively. Florida originations totaled $63.2 million and represented 33.61 percent of 2017total residential mortgage loan originations in the quarter. During the second quarter 2023, we retained approximately 73.2 percent of the total residential mortgage originations in our held for investment loan portfolio. Of the total originations in the second quarter 2023, $50.4 million of residential mortgage loans were originated for sale rather than held for investment as compared to $61.9 million during the second quarter 2022. Additionally, the volume of both new and refinanced loan applications has remained relatively low in the early stages of the third quarter 2023 due to the high level of 2016, respectively.mortgage interest rates and tight housing inventories and may challenge our ability to grow this loan category.
Home equity loans decreased $1.7increased by $18.9 million to $448.8$535.5 million at SeptemberJune 30, 2017 as2023 compared to June 30, 2017 mostly due to PCI loan repayment activity. New home equity loan volumesMarch 31, 2023 as a result of lower new originations and customer usage of existing home equity lines of credit continue to be weak, despite the relatively favorable lowline utilization in an unfavorable high interest rate environment.
Automobile loans increaseddecreased by $21.3 million to $1.2 billion at September 30, 2017 as compared to June 30, 2017. New auto loan origination volumes increased approximately 12.9 percent during the third quarter of 2017 as compared to the second quarter of 2017 largely due to stronger application activity during the third quarter of 2017. Our Florida dealership network contributed over $25 million in auto loan originations, representing approximately 17 percent of Valley's total new auto loan production for the third quarter of 2017 as compared to approximately $23$84.3 million, or 18 percent, of Valley's total auto originations for the second quarter of 2017.
Other consumer loans increased $35.6 million, or 22.219.6 percent on an annualized basis, to $677.9 million$1.6 billion at SeptemberJune 30, 20172023 as compared to $642.2March 31, 2023 largely due to continued low consumer demand for new and used vehicle financing because of the higher interest rate environment. During the second quarter 2023, the interest rates on new car loans reached the highest level since 2008. We originated $16.2 million in auto loans through our Florida dealership network during the second quarter 2023 as compared to $31.5 million in the first quarter 2023. Of the total originations, our Florida dealership network represented approximately 20 percent of new loans, during the second quarter 2023. Despite adequate new automobile inventories available to consumers, we anticipate that the impact of inflation on average new vehicle prices coupled with rising interest rates could continue to have a negative impact on our ability to grow this loan category during the third quarter 2023.
Other consumer loans increased $133.5 million to $1.3 billion at June 30, 2017 2023 as compared to March 31, 2023mainly due to continuedmoderate growth and customer usage ofin our collateralized personal lines of credit.credit portfolio.
MostA significant part of our lendinglending is in northern and central New Jersey, New York City, Long Island and Florida, with the exception of smaller auto and residential mortgage loan portfolios derived from the other neighboring states of New Jersey, which could present a geographic and credit risk if there was another significant broad based economic downturn or a prolonged economic recovery within these regions. We are witnessing new loan activity across Valley's entire geographic footprint, including new loans and solid loan pipelines from our Florida lending operations. However, the New Jersey and New York Metropolitan markets continue to account for a disproportionately larger percentage of our lending activity.Florida. To mitigate theseour geographic risks, we are makingmake efforts to maintain a diversified portfolio as to type of borrower and loan to guard against a potential downward turn in any one economic sector. Geographically, we may make further inroads into
Annualized loan growth slowed to 10 percent during the Florida lending market through bank acquisitions, such as our proposed acquisition of USAB, as well as select de novo branch efforts or adding lending staff.
Purchased Credit-Impaired Loans (Including Covered Loans)
PCI loans totaled $1.5 billion and $1.8 billion at September 30, 2017 and December 31, 2016, respectively, mostly consisting of loans acquiredsecond quarter 2023 from 16 percent in business combinations subsequent to 2011 and covered loans in which the Bank will share losses with the FDIC under loss-sharing agreements. Our covered loans, consisting primarily of residential mortgage loans and commercial real estate loans, totaled $42.6 million and $70.4 millionat September 30, 2017 and December 31, 2016, respectively. The decrease in covered loans was largely due to the expiration of a
commercial loss-sharing agreement acquired from another financial institution effective January 1, 2017 and the reclassification of such loans to non-covered PCI loans during the first quarter 2023 as we worked through the majority of 2017. Additional information regarding allthe strong loan pipeline that was present at the beginning of 2023. We will continue to be selective on the lending side and generally supportive of compelling projects led by our loss-sharing agreements withhigh quality and tenured customer base. Moving forward, we anticipate moderate levels of overall loan growth in the FDIC can be found in our Annual Reportmid to high single digits on Form 10-Kan annualized basis for the year ended December 31, 2016.remainder of 2023.
PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses), and aggregated and accounted for as pools of loans based on common risk characteristics. The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, loss accrual or valuation allowance. Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loan pools.
We reevaluate expected and contractual cash flows on a quarterly basis. Unlike contractual cash flows which are determined based on known factors, significant management assumptions are necessary in forecasting the estimated cash flows. We attempt to ensure the forecasted expectations are reasonable based on the information currently available; however, due to the uncertainties inherent in the use of estimates, actual cash flow results may differ from our forecast and the differences may be significant. To mitigate such differences, we carefully prepare and review the assumptions utilized in forecasting estimated cash flows.
On a quarterly basis, we also analyze the actual cash flow versus the forecasts at the loan pool level and variances are reviewed to determine their cause. If a re-forecast of future estimated cash flow is necessary, we will adjust the credit loss expectations for the loan pools. These adjustments are based, in part, on actual loss severities recognized for each loan type, as well as changes in the probability of default. For periods in which we don't reforecast estimated cash flows, the prior reporting period’s estimated cash flows are adjusted to reflect the actual cash received and credit events which transpired during the current reporting period.
For the pools with better than expected cash flows, the forecasted increase is recorded as a prospective adjustment to our interest income on these loan pools over future periods. The decrease in the FDIC loss-share receivable due to the increase in expected cash flows for covered loan pools, if applicable, is recognized on a prospective basis over the shorter period of the lives of the loan pools and the loss-share agreements accordingly with a corresponding reduction in non-interest income for the period. Conversely, an increase or decrease in expected future cash flows of covered loans since the acquisition dates will increase or decrease (if applicable) the clawback liability (the amount the FDIC requires us to pay back if certain thresholds are met) accordingly.
The following tables summarize the changes in the carrying amounts of PCI loans (net of the allowance for loan losses, if applicable), and the accretable yield on these loans for the three and nine months ended September 30, 2017 and 2016.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2017 | | 2016 |
| | Carrying Amount | | Accretable Yield | | Carrying Amount | | Accretable Yield |
| | (in thousands) |
| PCI loans: | | | | | | | |
| Balance, beginning of the period | $ | 1,541,469 |
| | $ | 246,278 |
| | $ | 1,975,401 |
| | $ | 355,601 |
|
| Accretion | 20,626 |
| | (20,626 | ) | | 26,730 |
| | (26,730 | ) |
| Payments received | (90,240 | ) | | — |
| | (145,016 | ) | | — |
|
| Balance, end of the period | $ | 1,471,855 |
| | $ | 225,652 |
| | $ | 1,857,115 |
| | $ | 328,871 |
|
|
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | Carrying Amount | | Accretable Yield | | Carrying Amount | | Accretable Yield |
| | (in thousands) |
| PCI loans: | | | | | | | |
| Balance, beginning of the period | $ | 1,771,502 |
| | $ | 294,514 |
| | 2,240,471 |
| | 415,179 |
|
| Accretion | 68,862 |
| | (68,862 | ) | | 83,114 |
| | (83,114 | ) |
| Payments received | (364,975 | ) | | — |
| | (462,100 | ) | | — |
|
| Transfers to other real estate owned | (3,534 | ) | | — |
| | (1,176 | ) | | — |
|
| Other, net | — |
| | — |
| | (3,194 | ) | | (3,194 | ) |
| Balance, end of the period | $ | 1,471,855 |
| | $ | 225,652 |
| | $ | 1,857,115 |
| | $ | 328,871 |
|
FDIC Loss-Share Receivable Related to Covered Loans and Foreclosed Assets
The receivable arising from the loss-sharing agreements with the FDIC is measured separately from the covered loan portfolio because the agreements are not contractually part of the covered loans and are not transferable should the Bank choose to dispose of the covered loans. The FDIC loss share receivable (which is included in other assets on Valley's consolidated statements of financial condition) totaled $6.8 million and $7.2 million at September 30, 2017 and December 31, 2016, respectively.
Non-performing Assets
Non-performing assets (excluding PCI loans)(NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consist of automobiles)automobiles and non-accrual debt securitiestaxi medallions) at SeptemberJune 30, 2017.2023. Loans are generally placed on 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 and other repossessed assets are reported at the lower of cost or fair value, less cost to sell at the time of acquisition and at the lower of cost or fair value, less estimated costscost to sell, thereafter. sell.
Our non-performing assets totaling $55.2NPAs increased $11.2 million to $256.1 million at SeptemberJune 30, 2017 increased 1.12023 as compared to March 31, 2023 mostly due to increases in both non-accrual commercial real estate loans and commercial and industrial loans, partially offset by decreases in construction loans and residential mortgage loans. NPAs as a percentage of total loans and NPAs totaled 0.51 percent and 8.10.50 percent fromat June 30, 20172023 and September 30, 2016,March 31, 2023, respectively (as shown in the table below). The increase from September 30, 2016 was primarily due to higher non-accrual loans balances within the commercial and industrial loan category. Non-performing assets as a percentage ofOur total loans and non-performing assets totaled 0.30 percent and 0.31 percent at September 30, 2017 and June 30, 2017, respectively. Overall, we believe total non-performing assetsNPAs has remained relatively low as a percentage of the total loan portfolio and non-performing assets over the last 12 month period andlevel of NPAs, which is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased from third parties. Past due loans and non-accrual loans in the table below exclude PCI loans. Under U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) are accounted for on a pool basis and are not subject to delinquency classification in the same manner as loans originated by Valley. For additional details, regarding performing and non-performing PCI loans, see the "Credit quality indicators" section in Note 8 to the consolidated financial statements.
Our lending strategy is based on underwriting standards designed to maintain high credit quality and we remain optimistic regarding the overall future performance of our loan portfolio. During the six months ended June 30, 2023, our overall credit trends have remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the recent challenges across the banking system, slower economic growth, elevated inflation and the overall uncertain economy. However, management cannot provide assurance that the non-performing assets will not materially increase from the levels reported at June 30, 2023 due to the aforementioned or other factors potentially impacting our lending customers.
The following table sets forth by loan category accruing past due and non-performing assets onat the dates indicated in conjunction with our asset quality ratios:
| | | | | | | | | | | | | | | | | |
| June 30,
2023 | | March 31,
2023 | | December 31,
2022 |
| | ($ in thousands) |
| Accruing past due loans: | | | |
| 30 to 59 days past due: | | | | | |
| Commercial and industrial | $ | 6,229 | | | $ | 20,716 | | | $ | 11,664 | |
| Commercial real estate | 3,612 | | | 13,580 | | | 6,638 | |
| | | | | |
| Residential mortgage | 15,565 | | | 12,599 | | | 16,146 | |
| Total consumer | 8,431 | | | 7,845 | | | 9,087 | |
| Total 30 to 59 days past due | 33,837 | | | 54,740 | | | 43,535 | |
| 60 to 89 days past due: | | | | | |
| Commercial and industrial | 7,468 | | | 24,118 | | | 12,705 | |
| Commercial real estate | — | | | — | | | 3,167 | |
| | | | | |
| Residential mortgage | 1,348 | | | 2,133 | | | 3,315 | |
| Total consumer | 4,126 | | | 1,519 | | | 1,579 | |
| Total 60 to 89 days past due | 12,942 | | | 27,770 | | | 20,766 | |
| 90 or more days past due: | | | | | |
| Commercial and industrial | 6,599 | | | 8,927 | | | 18,392 | |
| Commercial real estate | 2,242 | | | — | | | 2,292 | |
| Construction | 3,990 | | | 6,450 | | | 3,990 | |
| Residential mortgage | 1,165 | | | 1,668 | | | 1,866 | |
| Total consumer | 1,006 | | | 747 | | | 47 | |
| Total 90 or more days past due | 15,002 | | | 17,792 | | | 26,587 | |
| Total accruing past due loans | $ | 61,781 | | | $ | 100,302 | | | $ | 90,888 | |
| Non-accrual loans: | | | | | |
| Commercial and industrial | $ | 84,449 | | | $ | 78,606 | | | $ | 98,881 | |
| Commercial real estate | 82,712 | | | 67,938 | | | 68,316 | |
| Construction | 63,043 | | | 68,649 | | | 74,230 | |
| Residential mortgage | 20,819 | | | 23,483 | | | 25,160 | |
| Total consumer | 3,068 | | | 3,318 | | | 3,174 | |
| Total non-accrual loans | 254,091 | | | 241,994 | | | 269,761 | |
| | | | | |
| Other real estate owned (OREO) | 824 | | | 1,189 | | | 286 | |
| Other repossessed assets | 1,230 | | | 1,752 | | | 1,937 | |
| Total non-performing assets (NPAs) | $ | 256,145 | | | $ | 244,935 | | | $ | 271,984 | |
| | | | | |
| Total non-accrual loans as a % of loans | 0.51 | % | | 0.50 | % | | 0.57 | % |
| Total NPAs as a % of loans and NPAs | 0.51 | | | 0.50 | | | 0.58 | |
| Total accruing past due and non-accrual loans as a % of loans | 0.63 | | | 0.70 | | | 0.77 | |
| Allowance for loan losses as a % of non-accrual loans | 171.76 | | | 180.54 | | | 170.02 | |
|
| | | | | | | | | | | | | | | | | | | |
| | September 30,
2017 | | June 30,
2017 | | March 31,
2017 | | December 31,
2016 | | September 30, 2016 |
| | ($ in thousands) |
Accruing past due loans: (1) | |
| 30 to 59 days past due: | | | | | | | | | |
| Commercial and industrial | $ | 1,186 |
| | $ | 2,391 |
| | $ | 29,734 |
| | $ | 6,705 |
| | $ | 4,306 |
|
| Commercial real estate | 4,755 |
| | 6,983 |
| | 11,637 |
| | 5,894 |
| | 9,385 |
|
| Construction | — |
| | — |
| | 7,760 |
| | 6,077 |
| | — |
|
| Residential mortgage | 7,942 |
| | 4,677 |
| | 7,533 |
| | 12,005 |
| | 9,982 |
|
| Total Consumer | 5,205 |
| | 4,393 |
| | 3,740 |
| | 4,197 |
| | 3,146 |
|
| Total 30 to 59 days past due | 19,088 |
| | 18,444 |
| | 60,404 |
| | 34,878 |
| | 26,819 |
|
| 60 to 89 days past due: | | | | | | | | | |
| Commercial and industrial | 3,043 |
| | 2,686 |
| | 341 |
| | 5,010 |
| | 788 |
|
| Commercial real estate | 626 |
| | 8,233 |
| | 359 |
| | 8,642 |
| | 4,291 |
|
| Construction | 2,518 |
| | 854 |
| | — |
| | — |
| | — |
|
| Residential mortgage | 1,604 |
| | 1,721 |
| | 4,177 |
| | 3,564 |
| | 2,733 |
|
| Total Consumer | 1,019 |
| | 1,007 |
| | 787 |
| | 1,147 |
| | 1,234 |
|
| Total 60 to 89 days past due | 8,810 |
| | 14,501 |
| | 5,664 |
| | 18,363 |
| | 9,046 |
|
| 90 or more days past due: | | | | | | | | | |
| Commercial and industrial | 125 |
| | — |
| | 405 |
| | 142 |
| | 145 |
|
| Commercial real estate | 389 |
| | 2,315 |
| | — |
| | 474 |
| | 478 |
|
| Construction | — |
| | 2,879 |
| | — |
| | 1,106 |
| | 1,881 |
|
| Residential mortgage | 1,433 |
| | 3,353 |
| | 1,355 |
| | 1,541 |
| | 590 |
|
| Total Consumer | 301 |
| | 275 |
| | 314 |
| | 209 |
| | 226 |
|
| Total 90 or more days past due | 2,248 |
| | 8,822 |
| | 2,074 |
| | 3,472 |
| | 3,320 |
|
| Total accruing past due loans | $ | 30,146 |
| | $ | 41,767 |
| | $ | 68,142 |
| | $ | 56,713 |
| | $ | 39,185 |
|
Non-accrual loans: (1) | | | | | | | | | |
| Commercial and industrial | $ | 11,983 |
| | $ | 11,072 |
| | $ | 8,676 |
| | $ | 8,465 |
| | $ | 7,875 |
|
| Commercial real estate | 13,870 |
| | 15,514 |
| | 15,106 |
| | 15,079 |
| | 14,452 |
|
| Construction | 1,116 |
| | 1,334 |
| | 1,461 |
| | 715 |
| | 1,136 |
|
| Residential mortgage | 12,974 |
| | 12,825 |
| | 11,650 |
| | 12,075 |
| | 14,013 |
|
| Total Consumer | 1,844 |
| | 1,409 |
| | 1,395 |
| | 1,174 |
| | 965 |
|
| Total non-accrual loans | 41,787 |
| | 42,154 |
| | 38,288 |
| | 37,508 |
| | 38,441 |
|
Other real estate owned (OREO) (2) | 10,770 |
| | 10,182 |
| | 10,737 |
| | 9,612 |
| | 10,257 |
|
| Other repossessed assets | 480 |
| | 342 |
| | 475 |
| | 384 |
| | 307 |
|
Non-accrual debt securities (3) | 2,115 |
| | 1,878 |
| | 2,007 |
| | 1,935 |
| | 2,025 |
|
| Total non-performing assets (NPAs) | $ | 55,152 |
| | $ | 54,556 |
| | $ | 51,507 |
| | $ | 49,439 |
| | $ | 51,030 |
|
| Performing troubled debt restructured loans | $ | 113,677 |
| | $ | 109,802 |
| | $ | 80,360 |
| | $ | 85,166 |
| | $ | 81,093 |
|
| Total non-accrual loans as a % of loans | 0.23 | % | | 0.24 | % | | 0.22 | % | | 0.22 | % | | 0.23 | % |
| Total NPAs as a % of loans and NPAs | 0.30 |
| | 0.31 |
| | 0.29 |
| | 0.29 |
| | 0.31 |
|
| Total accruing past due and non-accrual loans as a % of loans | 0.40 |
| | 0.47 |
| | 0.61 |
| | 0.55 |
| | 0.47 |
|
| Allowance for loan losses as a % of non-accrual loans | 284.70 |
| | 276.24 |
| | 301.51 |
| | 305.05 |
| | 287.97 |
|
| |
(1) | Past due loans and non-accrual loans exclude PCI loans that are accounted for on a pool basis. |
| |
(2) | This table excludes covered OREO properties related to FDIC-assisted transactions totaling $558 thousand and $1.0 million at December 31, 2016 and September 30, 2016, respectively. There were no covered OREO properties at September 30, 2017, June 30, 2017, and March 31, 2017. |
| |
(3) | Includes an other-than-temporarily impaired trust preferred security classified as available for sale, which is presented at carrying value, net of net unrealized losses totaling $637 thousand, $875 thousand, $745 thousand, $817 thousand, and $728 thousand at September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively. |
Loans past due 30 to 59 days increased $644 thousanddecreased $20.9 million to $19.1$33.8 million at SeptemberJune 30, 20172023 as compared to June 30, 2017 largely March 31, 2023 due, in part, to a $3.3 million increase in residential mortgage delinquencies caused by normal fluctuations in this category, partially offset by a $2.2 million decline inthe commercial real estate loans primarily duetotaling $10.2 million included in this delinquency category at March 31, 2023 that reclassified to improved performance. The commercial real estatenon-accrual loans past dueat June 30, 2023. Commercial and industrial loans 30 to 59 days at September 30, 2017 ispast due decreased $14.5 million mainly comprised of one internally classified loan totaling $3.4 million.due to improved performance during the second quarter 2023.
Loans past due 60 to 89 days decreased $5.7$14.8 million to $8.8$12.9 million at SeptemberJune 30, 20172023 as compared to June 30, 2017March 31, 2023 largely due to a $7.6 million decrease in past due commercial real estate loans, partially offset by $1.7 million increase in constructionand industrial loan delinquencies within this past due category. The decrease within the commercial real estate loans category was mainly due to the improved performance of one internally classified relationship totaling $5.9$21.2 million that was reported withinincluded in this delinquency category at March 31, 2023 that became current to all its contractual payments at June 30, 2017. Construction loans past due 60 to 89 days included an additional loan relationship totaling $1.8 million and one performing matured loan totaling $675 thousand at September 30, 2017.
2023.
Loans past due 90 days or more past due and still accruing interest decreased $6.6$2.8 million to $2.2 million at September 30, 2017 as compared to $8.8$15.0 million at June 30, 2017 largely2023 as compared to March 31, 2023 mainly due to decreases in the completion of the renewal underwriting process for two performingcommercial and industrial and construction loan categories, partially offset by one new matured construction and commercial real estate loans totaling $5.2 million.loan of $2.2 million expected to be paid off in the near term. All of the loans past due 90 days or more past due and still accruing interest are considered to be well securedwell-secured and in the process of collection.
Non-accrual loans decreased $367 thousandincreased $12.1 million to $41.8 million at September 30, 2017 as compared to $42.2$254.1 million at June 30, 2017 mainly due2023 as compared to a $1.6$242.0 million decrease withinat March 31, 2023 mostly driven by an increase in the commercial real estate loan category. Non-accrual commercial real estate loans partially offset by moderate increasesincreased $14.8 million to $82.7 million at June 30, 2023 due, in most other loan categories.
Duringpart, to the third quarteraforementioned migration of 2017, we continued to closely monitor our NYC and Chicago taxi medallion loans within the commercial and industrial loan portfolio. While the vast majority of the taxi medallion loans are currently performing, negative trends in the market valuations of the underlying taxi medallion collateral could impact the future performance and internal classification of this portfolio. At September 30, 2017, the NYC and Chicago taxi medalliontwo loans totaling $129.3$10.2 million from the 30 to 59 days past due delinquency category at March 31, 2023 and $10.0one new $4.5 million respectively, are largely classified as substandard and special mentionnon-performing loan at June 30, 2023. Non-accrual construction loans within the credit quality table disclosures in Note 8 of our consolidated financial statements. The criticized loan classifications aredecreased $5.6 million to $63.0 million at June 30, 2023 from March 31, 2023 primarily due to the elevated general risk associated with$4.2 million partial charge-off of one loan, which was transferred to loans held for sale at June 30, 2023.
Although the currenttiming of collection is uncertain, management believes that the majority of the non-accrual loans at June 30, 2023, are well secured and largely collectible based in part, on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable. Any estimated shortfall in each collateral valuation results in an allocation of specific reserves within our allowance for credit losses for loans.
Non-performing taxi medallion market.
loans totaled $65.8 million of the $84.4 million non-accrual commercial and industrial loans at June 30, 2023. At SeptemberJune 30, 2017,2023, all taxi medallion loans in the medallionloan portfolio included impaired loans of $40.5 million withwere on non-accrual status and had related reserves of $5.0$41.7 million, or 63.4 percent of such loans, within the allowance for loan losses as compared to impaired loans of $37.4 million with related reserves of $3.7 million at June 30, 2017. At September 30, 2017, the impaired medallion loans largely consisted of performing troubled debt restructured (TDR) loans classified as substandard loans, as well as $5.6 million of non-accrual Chicago taxi cab medallion loans classified as doubtful loans. At September 30, 2017, loans past due 60 to 89 days included $2.2 million of matured performing NYC taxi medallions. We are currently renegotiating the terms of these past due loans. In addition, $18.2 million of performing NYC taxi medallion loans have contractual maturity dates in the fourth quarter of 2017.
Valley's historical taxi medallion lending criteria has been conservative in regards to capping the loan amounts in relation to market valuations, as well as obtaining personal guarantees and other collateral in certain instances.
However, potentiallosses. Potential further declines in the market valuation of taxi medallions couldand the current operating environment mainly within New York City may negatively impact the future performance of this portfolio.
OREO properties increased $588totaled $824 thousand to $10.8 million at September 30, 2017 from $10.2 million at June 30, 2017.2023 and decreased $365 thousand as compared to March 31, 2023. The sales of OREO properties and net gains on sales of OREO during the three and six months ended June 30, 2023 and 2022 were not material. The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $4.9 million at September 30, 2017.
TDRs represent loan modifications for customers experiencing financial difficulties where a concession has been granted. Performing TDRs (i.e., TDRs not reported as loans 90 days or more past duetotaled $454 thousand and still accruing or as non-accrual loans) increased $3.9 million to $113.7 million at September 30, 2017 as compared to $109.8$2.6 million at June 30, 2017. Performing TDRs consisted of 128 loans (primarily in the commercial2023 and industrial loan and commercial real estate portfolios). On an aggregate basis, the $113.7 million in performing TDRs at September 30, 2017 had a modified weighted average interest rate of approximately 4.59 percent as compared to a pre-modification weighted average interest rate of 4.54 percent. The increase in the modified weighted average interest rate of the performing TDRs as compared to the pre-modification weighted average interest rate was largely due to loans restructured at higher current market interest rates, but with extended loan terms.December 31, 2022, respectively.
Despite the increase in taxi medallion loans classified as impaired TDR, we believe our overall credit quality metrics continued to reflect our solid underwriting standards at September 30, 2017. However, we can provide no assurances as to the future level of our loan delinquencies.
Allowance for Credit Losses for Loans
The allowance for credit losses (ACL) for loans includes the allowance for loan losses and the reserve for unfunded commercial letters of credit. Management maintains the allowance for credit losses at a level estimatedcommitments. Under CECL, our methodology to absorb probable losses inherent in the loan portfolio and unfunded letter of credit commitments at the balance sheet dates, based on ongoing evaluations of the loan portfolio. Our methodology for evaluating the appropriateness ofestablish the allowance for loan losses includes:has two basic components: (i) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (ii) an individual reserve component for loans that do not share risk characteristics, consisting of collateral dependent loans. Valley also maintains a separate allowance for unfunded credit commitments mainly consisting of undisbursed non-cancellable lines of credit, new loan commitments and commercial standby letters of credit.
segmentationValley estimated the collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan portfoliobalances. In estimating the component of the allowance on a collective basis, we use a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by generating
probability of default and loss given default metrics. The metrics are based on the majormigration of loans within the commercial and industrial loan categories from performing to loss by credit quality rating or delinquency categories using historical life-of-loan analysis periods for each loan portfolio pool and the severity of loss based on the aggregate net lifetime losses. The model's expected losses based on loss history are adjusted for qualitative factors. Among other things, these adjustments include and account for differences in: (i) the impact of the reasonable and supportable economic forecast, relative probability weightings and reversion period, (ii) other asset specific risks to the extent that they do not exist in the historical loss information, and (iii) net expected recoveries of charged-off loan balances. These adjustments are based on qualitative factors not reflected in the quantitative model but are likely to impact the measurement of estimated credit losses. The expected lifetime loss rate is the life of loan loss percentage from the transition matrix model plus the impact of the adjustments for qualitative factors. The expected credit losses are the product of multiplying the model’s expected lifetime loss rate by the exposure at default at period end on an undiscounted basis.
Valley utilizes a two-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience for the remaining life of the loan on a straight-line basis. The forecasts consist of commercial, commercial real estate (including construction), residential mortgage,a multi-scenario economic forecast model to estimate future credit losses and other consumer loans (including automobileis governed by a cross-functional committee. The committee meets each quarter to determine which economic scenarios developed by Moody's will be incorporated into the model, as well as the relative probability weightings of the selected scenarios, based upon all readily available information. The model projects economic variables under each scenario based on detailed statistical analyses. We have identified and home equity loans);selected key variables that most closely correlated to our historical credit performance, which include: GDP, unemployment and the Case-Shiller Home Price Index.
trackingAt June 30, 2023, Valley continued to maintain the historical levelsmajority of classified loans and delinquencies;
assessingits probability weighting used in the nature and trend of loan charge-offs;
providing specific reserves on impaired loans; and
evaluating the PCI loan pools for additional credit impairment subsequenteconomic forecast to the acquisition dates.Moody’s Baseline scenario with less emphasis on the S-3 downside and S-4 adverse scenarios. However, the standalone Moody's Baseline scenario reflected a more pessimistic outlook as compared to March 31, 2023 in terms of GDP growth, unemployment levels and potential near term negative economic impacts given the present uncertain economic conditions.
Additionally,At June 30, 2023, the qualitative factors, suchMoody's Baseline forecast included the following specific assumptions:
•GDP expansion of approximately 0.6 percent in the third quarter 2023;
•Unemployment of 3.6 percent in the third quarter 2023 and 3.8 to 4.3 percent over the remainder of the forecast period ending in the second quarter 2025;
•Continued concerns about increased debt burden pushed by rising interest rates, high inflation, and elevated house prices;
•Consumer spending remained a source of growth and its contribution grew to the largest in nearly two years, as the volume of non-performing loans, concentration risks by size, type,cost-of-living adjusted boosted after-tax income adding another 2.5 percent to growth;
•The Federal Reserve opted to pause its rate hikes in June 2023, keeping the federal funds rate at 5 - 5.25 percent with possible additional reductions in 2023; and geography, new markets, collateral adequacy, credit policies and procedures, staffing, underwriting consistency, loan review and economic conditions are taken into consideration when evaluating the adequacy of the
•Inflation remains elevated but continues to trend downward, while reporting at approximately 4 percent in May 2023.
See more details regarding our allowance for credit losses. The allowancelosses for credit loss methodology and accounting policy are fully describedloans in Part II, Item 7 and Note 18 to the consolidated financial statements in Valley’s Annual Report on Form 10-K for the year ended December 31, 2016.
While management utilizes its best judgment and information available, the ultimate adequacy of the allowance for credit losses is dependent upon a variety of factors largely beyond our control, including the view of the OCC toward loan classifications, performance of the loan portfolio, and the economy. The OCC may require, based on their judgments about information available to them at the time of their examination, that certain loan balances be charged off or require that adjustments be made to the allowance for loan losses when their credit evaluations differ from those of management.
statements.
The table below summarizes the relationship among loans, loans charged-off, loan recoveries, the provision for credit losses and the allowance for credit losses for loans for the periods indicated.indicated: |
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | June 30,
2017 | | September 30,
2016 | | September 30,
2017 | | September 30,
2016 |
| | ($ in thousands) |
| Average loans outstanding | $ | 18,006,274 |
| | $ | 17,701,676 |
| | $ | 16,570,723 |
| | $ | 17,676,222 |
| | $ | 16,273,482 |
|
| Beginning balance - Allowance for credit losses | 118,621 |
| | 117,696 |
| | 110,414 |
| | 116,604 |
| | 108,367 |
|
| Loans charged-off: | | | | | | | | | |
| Commercial and industrial | (265 | ) | | (2,910 | ) | | (3,763 | ) | | (4,889 | ) | | (5,507 | ) |
| Commercial real estate | — |
| | (139 | ) | | — |
| | (553 | ) | | (519 | ) |
| Construction | — |
| | — |
| | — |
| | — |
| | — |
|
| Residential mortgage | (129 | ) | | (229 | ) | | (518 | ) | | (488 | ) | | (750 | ) |
| Total Consumer | (1,335 | ) | | (1,011 | ) | | (782 | ) | | (3,467 | ) | | (2,553 | ) |
| Total charge-offs | (1,729 | ) | | (4,289 | ) | | (5,063 | ) | | (9,397 | ) | | (9,329 | ) |
| Charged-off loans recovered: | | | | | | | | | |
| Commercial and industrial | 2,320 |
| | 312 |
| | 902 |
| | 3,480 |
| | 2,418 |
|
| Commercial real estate | 42 |
| | 346 |
| | 34 |
| | 530 |
| | 1,581 |
|
| Construction | — |
| | 294 |
| | 10 |
| | 294 |
| | 10 |
|
| Residential mortgage | 220 |
| | 235 |
| | 495 |
| | 903 |
| | 604 |
|
| Total Consumer | 366 |
| | 395 |
| | 282 |
| | 1,324 |
| | 1,194 |
|
| Total recoveries | 2,948 |
| | 1,582 |
| | 1,723 |
| | 6,531 |
| | 5,807 |
|
| Net recoveries (charge-offs) | 1,219 |
| | (2,707 | ) | | (3,340 | ) | | (2,866 | ) | | (3,522 | ) |
| Provision charged for credit losses | 1,640 |
| | 3,632 |
| | 5,840 |
| | 7,742 |
| | 8,069 |
|
| Ending balance - Allowance for credit losses | $ | 121,480 |
| | $ | 118,621 |
| | $ | 112,914 |
| | $ | 121,480 |
| | $ | 112,914 |
|
| Components of allowance for credit losses: | | | | | | | | | |
| Allowance for loan losses | $ | 118,966 |
| | $ | 116,446 |
| | $ | 110,697 |
| | $ | 118,966 |
| | $ | 110,697 |
|
| Allowance for unfunded letters of credit | 2,514 |
| | 2,175 |
| | 2,217 |
| | 2,514 |
| | 2,217 |
|
| Allowance for credit losses | $ | 121,480 |
| | $ | 118,621 |
| | $ | 112,914 |
| | $ | 121,480 |
| | $ | 112,914 |
|
| Components of provision for credit losses: | | | | | | | | | |
| Provision for losses on loans | $ | 1,301 |
| | $ | 3,710 |
| | $ | 5,949 |
| | $ | 7,413 |
| | $ | 8,041 |
|
| Provision for unfunded letters of credit | 339 |
| | (78 | ) | | (109 | ) | | 329 |
| | 28 |
|
| Provision for credit losses | $ | 1,640 |
| | $ | 3,632 |
| | $ | 5,840 |
| | $ | 7,742 |
| | $ | 8,069 |
|
| Annualized ratio of net (recoveries) charge-offs to average loans outstanding | (0.03 | )% | | 0.06 | % | | 0.08 | % | | 0.02 | % | | 0.03 | % |
| Allowance for credit losses as a % of non-PCI loans | 0.73 |
| | 0.73 |
| | 0.76 |
| | 0.73 |
| | 0.76 |
|
| Allowance for credit losses as a % of total loans | 0.67 |
| | 0.67 |
| | 0.68 |
| | 0.67 |
| | 0.68 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| June 30,
2023 | | March 31,
2023 | | June 30,
2022 | | June 30,
2023 | | June 30,
2022 |
| | ($ in thousands) |
| | | | | | | | | |
| Allowance for credit losses for loans | | | | | | | | | |
| Beginning balance | $ | 460,969 | | $ | 483,255 | | $ | 379,252 | | $ | 483,255 | | $ | 375,702 |
Impact of the adoption of ASU No. 2022-02 (1) | — | | (1,368) | | — | | (1,368) | | — |
Allowance for purchased credit deteriorated (PCD) loans, net (2) | — | | — | | 70,319 | | — | | 70,319 |
| Beginning balance, adjusted | 460,969 | | 481,887 | | 449,571 | | 481,887 | | 446,021 |
| Loans charged-off: | | | | | | | | | |
| Commercial and industrial | (3,865) | | (26,047) | | (4,540) | | (29,912) | | (6,111) |
| Commercial real estate | (2,065) | | — | | — | | (2,065) | | (173) |
| Construction | (4,208) | | (5,698) | | — | | (9,906) | | — |
| Residential mortgage | (149) | | — | | (1) | | (149) | | (27) |
| Total consumer | (1,040) | | (828) | | (726) | | (1,868) | | (1,551) |
| Total charge-offs | (11,327) | | (32,573) | | (5,267) | | (43,900) | | (7,862) |
| Charged-off loans recovered: | | | | | | | | | |
| Commercial and industrial | 2,173 | | 1,399 | | 1,952 | | 3,572 | | 2,776 |
| Commercial real estate | 4 | | 24 | | 224 | | 28 | | 331 |
| | | | | | | | | |
| Residential mortgage | 135 | | 21 | | 74 | | 156 | | 531 |
| Total consumer | 390 | | 761 | | 697 | | 1,151 | | 1,954 |
| Total recoveries | 2,702 | | 2,205 | | 2,947 | | 4,907 | | 5,592 |
| Total net loan charge-offs | (8,625) | | (30,368) | | (2,320) | | (38,993) | | (2,270) |
| Provision charged for credit losses | 6,332 | | 9,450 | | 43,712 | | 15,782 | | 47,212 |
| Ending balance | $ | 458,676 | | $ | 460,969 | | $ | 490,963 | | $ | 458,676 | | $ | 490,963 |
| Components of allowance for credit losses for loans: | | | | | | | | | |
| Allowance for loan losses | $ | 436,432 | | $ | 436,898 | | $ | 468,819 | | $ | 436,432 | | $ | 468,819 |
| Allowance for unfunded credit commitments | 22,244 | | 24,071 | | 22,144 | | 22,244 | | 22,144 |
| Allowance for credit losses for loans | $ | 458,676 | | $ | 460,969 | | $ | 490,963 | | $ | 458,676 | | $ | 490,963 |
| Components of provision for credit losses for loans: | | | | | | | | | |
Provision for credit losses for loans | $ | 8,159 | | $ | 9,979 | | $ | 38,310 | | $ | 18,138 | | $ | 41,568 |
Provision for unfunded credit commitments | (1,827) | | (529) | | 5,402 | | (2,356) | | 5,644 |
| Total provision for credit losses for loans | $ | 6,332 | | $ | 9,450 | | $ | 43,712 | | $ | 15,782 | | $ | 47,212 |
| | | | | | | | | |
| | | | | | | | | |
| Allowance for credit losses for loans as a % of total loans | 0.92 | % | | 0.95 | % | | 1.13 | % | | 0.92 | % | | 1.13 | % |
| | | | | | | | | | | | | | |
(1) Represents the opening adjustment for the adoption of ASU No. 2022-02 effective January 1, 2023. |
(2) Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $62.4 million in the second quarter 2022. |
|
During the third quarter of 2017, we recognized net recoveries of loan charge-offs totaling $1.2 million as compared to net loan charge-offs of $2.7 million and $3.3 million in the second quarter of 2017 and the third quarter of 2016, respectively. The improvement in net loan charge-offs as compared to the second quarter of 2017 was mainly due to one large commercial and industrial loan recovery totaling $1.8 million during the third quarter of 2017 and a decline in charge-offs within the same loan category mainly due to an unrelated charged-off loan relationship totaling $1.9 million in the second quarter of 2017.
The following table presents the relationship among net loans charged-off and recoveries, and average loan balances outstanding for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2023 | | March 31, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| | ($ in thousands) |
| Net loan (charge-offs) recoveries | | | | | | | | | |
| Commercial and industrial | $ | (1,692) | | $ | (24,648) | | $ | (2,588) | | $ | (26,340) | | $ | (3,335) |
| Commercial real estate | (2,061) | | 24 | | 224 | | (2,037) | | 158 |
| Construction | (4,208) | | (5,698) | | — | | (9,906) | | — |
| Residential mortgage | (14) | | 21 | | 73 | | 7 | | 504 |
| Total consumer | (650) | | (67) | | (29) | | (717) | | 403 |
| Total | $ | (8,625) | | $ | (30,368) | | $ | (2,320) | | $ | (38,993) | | $ | (2,270) |
| Average loans outstanding | | | | | | | | | |
| Commercial and industrial | $ | 9,043,832 | | $ | 8,754,853 | | $ | 8,304,822 | | $ | 8,304,822 | | $ | 7,017,820 |
| Commercial real estate | 27,808,278 | | 26,555,421 | | 23,319,419 | | 26,735,384 | | 21,303,889 |
| Construction | 3,787,183 | | 3,780,615 | | 2,925,741 | | 3,721,735 | | 2,421,678 |
| Residential mortgage | 5,489,501 | | 5,363,421 | | 4,727,481 | | 5,337,320 | | 4,706,695 |
| Total consumer | 3,329,143 | | 3,405,061 | | 3,239,824 | | 3,268,712 | | 3,142,069 |
| Total | $ | 49,457,937 | | $ | 47,859,371 | | $ | 42,517,287 | | $ | 47,367,973 | | $ | 38,592,151 |
| Annualized net loan charge-offs (recoveries) to average loans outstanding | | | | | | | | | |
| Commercial and industrial | 0.07% | | 1.13% | | 0.12% | | 0.63% | | 0.10% |
| Commercial real estate | 0.03 | | 0.00 | | 0.00 | | 0.02 | | 0.00 |
| Construction | 0.44 | | 0.60 | | 0.00 | | 0.53 | | 0.00 |
| Residential mortgage | 0.00 | | 0.00 | | (0.01) | | 0.00 | | (0.02) |
| Total consumer | 0.08 | | 0.01 | | 0.00 | | 0.04 | | (0.03) |
| Total loans | 0.07 | | 0.25 | | 0.02 | | 0.16 | | 0.01 |
During the third quarter of 2017, we recorded a $1.6 million provision for credit losses as compared to $3.6 million and $5.8Net loan charge-offs totaled $8.6 million for the second quarter of 20172023 as compared to $30.4 million and $2.3 million for the first quarter 2023 and the thirdsecond quarter 2022, respectively. The decrease from the first quarter 2023 was mainly due to the elevated net loan charges-offs during the first quarter 2023 largely related to one commercial and industrial loan participation charged-off. Gross charge-offs totaled $11.3 million for the second quarter 2023 and included the $4.2 million partial charge-off related to the valuation of 2016, respectively. The quarter over quarter decrease ina non-performing construction loan transferred from the provision was due, in part, to our aforementioned net recoveries of loan charge-offs and the moderate levels of actual and estimated loss experience across the majority of theheld for investment loan portfolio which is reflectiveto loans held for sale at June 30, 2023. This construction loan had specific reserves of both Valley's underwriting standards and current economic conditions. Additionally, our analysis of the adequacy of$5.2 million within the allowance for loan losses included an assessmentat March 31, 2023 and, as a result, the partial charge-off was fully reserved for prior to the second quarter 2023.
The amount of net loan charge-offs (as presented in the impactabove table) and the low level of Hurricane Irma on our Floridaindividual loan charge-offs for the second quarter 2023 continued to trend within management's expectations for the credit quality of the loan portfolio at SeptemberJune 30, 2017. As result of the assessment, we do not expect a material amount of loan losses related to Hurricane Irma. However, we can provide no assurances as to the future level of our loan charge-offs.2023.
The following table summarizes the allocation of the allowance for credit losses for loans to specific loan portfolio categories and the allocations as a percentage of each loan category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 | | March 31, 2023 | | June 30, 2022 |
| | Allowance
Allocation | | Allocation
as a % of
Loan
Category | | Allowance
Allocation | | Allocation
as a % of
Loan
Category | | Allowance
Allocation | | Allocation
as a % of
Loan
Category |
| | ($ in thousands) |
| Loan Category: | | | | | | | | | | | |
| Commercial and industrial loans | $ | 128,245 | | | 1.38 | % | | $ | 127,992 | | | 1.42 | % | | $ | 144,539 | | | 1.70 | % |
| Commercial real estate loans: | | | | | | | | | | | |
| Commercial real estate | 194,177 | | | 0.70 | | | 190,420 | | | 0.70 | | | 227,457 | | | 0.97 | |
| Construction | 45,518 | | | 1.19 | | | 52,912 | | | 1.42 | | | 49,770 | | | 1.47 | |
| Total commercial real estate loans | 239,695 | | | 0.76 | | | 243,332 | | | 0.79 | | | 277,227 | | | 1.03 | |
| Residential mortgage loans | 44,153 | | | 0.79 | | | 41,708 | | | 0.76 | | | 29,889 | | | 0.60 | |
| Consumer loans: | | | | | | | | | | | |
| Home equity | 4,020 | | | 0.75 | | | 4,417 | | | 0.86 | | | 3,907 | | | 0.91 | |
| Auto and other consumer | 20,319 | | | 0.70 | | | 19,449 | | | 0.69 | | | 13,257 | | | 0.49 | |
| Total consumer loans | 24,339 | | | 0.71 | | | 23,866 | | | 0.71 | | | 17,164 | | | 0.55 | |
| Allowance for loan losses | 436,432 | | | 0.88 | | | 436,898 | | | 0.90 | | | 468,819 | | | 1.08 | |
| Allowance for unfunded credit commitments | 22,244 | | | | | 24,071 | | | | | 22,144 | | | |
| Total allowance for credit losses for loans | $ | 458,676 | | | | | $ | 460,969 | | | | | $ | 490,963 | | | |
| Allowance for credit losses for loans as a % total loans | | | 0.92 | % | | | | 0.95 | % | | | | 1.13 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | June 30, 2017 | | September 30, 2016 |
| | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category |
| | ($ in thousands) |
| Loan Category: | | | | | | | | | | | |
| Commercial and Industrial loans* | $ | 57,203 |
| | 2.11 | % | | $ | 53,792 |
| | 2.04 | % | | $ | 52,969 |
| | 2.07 | % |
| Commercial real estate loans: | | | | | | | | | | | |
| Commercial real estate | 36,626 |
| | 0.39 | % | | 37,180 |
| | 0.40 | % | | 35,513 |
| | 0.43 | % |
| Construction | 18,673 |
| | 2.07 | % | | 18,275 |
| | 2.07 | % | | 16,947 |
| | 2.11 | % |
| Total commercial real estate loans | 55,299 |
| | 0.54 | % | | 55,455 |
| | 0.55 | % | | 52,460 |
| | 0.58 | % |
| Residential mortgage loans | 3,892 |
| | 0.13 | % | | 4,186 |
| | 0.15 | % | | 3,378 |
| | 0.12 | % |
| Consumer loans: | | | | | | | | | | | |
| Home equity | 592 |
| | 0.13 | % | | 582 |
| | 0.13 | % | | 796 |
| | 0.17 | % |
| Auto and other consumer | 4,494 |
| | 0.24 | % | | 4,606 |
| | 0.26 | % | | 3,311 |
| | 0.20 | % |
| Total consumer loans | 5,086 |
| | 0.22 | % | | 5,188 |
| | 0.23 | % | | 4,107 |
| | 0.19 | % |
| Total allowance for credit losses | $ | 121,480 |
| | 0.67 | % | | $ | 118,621 |
| | 0.67 | % | | $ | 112,914 |
| | 0.68 | % |
|
| |
* | Includes the reserve for unfunded letters of credit. |
The allowance for credit losses for loans, comprised of our allowance for loan losses and reserve for unfunded letters of credit commitments, as a percentage of total loans was 0.670.92 percent at both SeptemberJune 30, 20172023 as compared to 0.95 percent and 1.13 percent at March 31, 2023 and June 30, 20172022, respectively. During the second quarter 2023, the provision for credit losses for loans totaled $6.3 million as compared to $9.5 million and 0.68 percent at September$43.7 million for the first quarter 2023 and second quarter 2022, respectively. At June 30, 2016. At September 30, 2017, 2023, our allowance allocations for credit losses for loans as a percentage of total loans remained relatively stable in most loan categoriesdecreased as compared to June 30, 2017, but increased 0.07 percentMarch 31, 2023 as higher economic forecast reserves driven by a more pessimistic Moody's Baseline outlook was more than offset by lower non-economic qualitative reserves for commercial and industrial loans.loans. The increasenet impact of other changes in quantitative reserves for each loan category was partly attributable to an increase in specific and qualitative reserves relatednot significant to the collateral valuation of taxi medallion loans.
Our allowance for credit losses as a percentage of total non-PCI loans (excluding PCI loans with carrying values totaling approximately $1.5 billion) was 0.73 percent at both September 30, 2017 and June 30, 2017, as compared to 0.76 percent at September 30, 2016. PCI loans are accounted for on a pool basis and initially recorded net of fair valuation discounts related to credit which may be used to absorb future losses on such loans before any allowance for loan losses is recognized subsequent to acquisition. Due to the adequacy of such discounts, there were no allowance reserves related to PCI loans at September 30, 2017, June 30, 2017 and September 30, 2016.2023.
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At SeptemberJune 30, 20172023 and December 31, 2016,2022, shareholders’ equity totaled approximately $2.5$6.6 billion and $2.4$6.4 billion, respectively, andwhich represented 10.7 percent and 10.411.1 percent of total assets, respectively.
During the ninesix months ended SeptemberJune 30, 2017,2023, total shareholders’ equity increased by $160.8approximately $174.4 million primarily due to (i) the following:
•net income of $135.8$285.6 million, (ii) $98.1
•a $7.7 million of net proceeds from the issuance of our Series B preferred stock, (iii) an $8.0 million decrease in our accumulated other comprehensive loss, (iv) a $7.2 million increasecrease attributable to the effect of our stock incentive plan, and (v)
•additional capital issued totaling $3.8 million,
•a $990 thousand net proceedscumulative effect adjustment to retained earnings for the adoption of $5.2 million from the re-issuance of treasury and authorized common shares issued under our dividend reinvestment plan totaling a combined 451 thousand shares. These positive changes wereASU 2022-02, partially offset by
•cash dividends declared on common and preferred stock totaling a combined $93.5 million. See Note 4 to the consolidated financial statements for additional information regarding changes$120.9 million,
•repurchases of $2.1 million of our common stock with these shares held in our accumulated treasury stock and
•other comprehensive loss during the three and nine months ended September 30, 2017.of$745 thousand.
Valley and Valley National Bank are subject to the regulatory capital requirements administered by the Federal Reserve Bank and the OCC. Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations.
Effective January 1, 2015, Valley implemented the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Basel III final rules require a newWe are required to maintain common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, Tier 1 capital to risk-weighted assets ratio of 6.0 percent, ratio of total capital to risk-weighted assets of 8.0 percent, and a minimum leverage ratio of 4.0 percent. The new rule changes included the implementation ofpercent, plus a new2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. The capital conservation buffer is subject to a three year phase-in period that started on January 1, 2016, at 0.625 percent of risk-weighted assets and increases each subsequent year by 0.625 percent until reaching its final level of 2.5 percent when fully phased-in on January 1, 2019. As of SeptemberJune 30, 2017,2023 and December 31, 2016,2022, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).
For regulatory capital purposes, in accordance with the Federal Reserve Board’s final interim rule as of April 3, 2020, we deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) for a two-year period ending January 1, 2022. On January 1, 2022, the deferral amount totaling $47.3 million after-tax started to be phased-in by 25 percent and will increase 25 percent per year until fully phased-in on January 1, 2025. As of June 30, 2023, approximately $23.6 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital conservation buffer under the Basel III Capital Rules (see tables below).and, as a result, decreased our risk-based capital ratios by approximately 6 basis points.
The following tables presenttable presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at SeptemberJune 30, 20172023 and December 31, 2016:2022:
|
| | | | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Capital Requirements with Capital Conservation Buffer | | To Be Well Capitalized Under Prompt Corrective Action Provision |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| | ($ in thousands) |
| As of September 30, 2017 | | | | | | | | | | | |
| Total Risk-based Capital | | | | | | | | | | | |
| Valley | $ | 2,252,853 |
| | 12.61 | % | | $ | 1,653,162 |
| | 9.250 | % | | N/A |
| | N/A |
|
| Valley National Bank | 2,186,146 |
| | 12.26 |
| | 1,648,937 |
| | 9.250 |
| | $ | 1,782,635 |
| | 10.00 | % |
| Common Equity Tier 1 Capital | | | | | | | | | | | |
| Valley | 1,648,540 |
| | 9.22 |
| | 1,027,641 |
| | 5.750 |
| | N/A |
| | N/A |
|
| Valley National Bank | 1,964,544 |
| | 11.02 |
| | 1,025,015 |
| | 5.750 |
| | 1,158,713 |
| | 6.50 |
|
| Tier 1 Risk-based Capital | | | | | | | | | | | |
| Valley | 1,862,159 |
| | 10.42 |
| | 1,295,722 |
| | 7.250 |
| | N/A |
| | N/A |
|
| Valley National Bank | 1,964,544 |
| | 11.02 |
| | 1,292,410 |
| | 7.250 |
| | 1,426,108 |
| | 8.00 |
|
| Tier 1 Leverage Capital | | | | | | | | | | | |
| Valley | 1,862,159 |
| | 8.13 |
| | 916,309 |
| | 4.00 |
| | N/A |
| | N/A |
|
| Valley National Bank | 1,964,544 |
| | 8.59 |
| | 914,953 |
| | 4.00 |
| | 1,143,691 |
| | 5.00 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Capital Requirements with Capital Conservation Buffer | | To Be Well Capitalized Under Prompt Corrective Action Provision |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| | ($ in thousands) |
| As of December 31, 2016 | | | | | | | | | | | |
| Total Risk-based Capital | | | | | | | | | | | |
| Valley | $ | 2,084,531 |
| | 12.15 | % | | $ | 1,480,006 |
| | 8.625 | % | | N/A |
| | N/A |
|
| Valley National Bank | 2,023,857 |
| | 11.82 |
| | 1,476,767 |
| | 8.625 |
| | $ | 1,712,193 |
| | 10.00 | % |
| Common Equity Tier 1 Capital | | | | | | | | | | | |
| Valley | 1,590,825 |
| | 9.27 |
| | 879,424 |
| | 5.125 |
| | N/A |
| | N/A |
|
| Valley National Bank | 1,807,201 |
| | 10.55 |
| | 877,499 |
| | 5.125 |
| | 1,112,926 |
| | 6.50 |
|
| Tier 1 Risk-based Capital | | | | | | | | | | | |
| Valley | 1,698,767 |
| | 9.90 |
| | 1,136,816 |
| | 6.625 |
| | N/A |
| | N/A |
|
| Valley National Bank | 1,807,201 |
| | 10.55 |
| | 1,134,328 |
| | 6.625 |
| | 1,369,755 |
| | 8.00 |
|
| Tier 1 Leverage Capital | | | | | | | | | | | |
| Valley | 1,698,767 |
| | 7.74 |
| | 878,244 |
| | 4.00 |
| | N/A |
| | N/A |
|
| Valley National Bank | 1,807,201 |
| | 8.25 |
| | 876,026 |
| | 4.00 |
| | 1,095,032 |
| | 5.00 |
|
The Dodd-Frank Act requires federal banking agencies to issue regulations that require banks with total consolidated assets of more than $10.0 billion to conduct and publish company-run annual stress tests to assess the potential impact of different scenarios on the consolidated earnings and capital of each bank and certain related items over a nine-quarter forward-looking planning horizon, taking into account all relevant exposures and activities. The FRB, OCC, and FDIC issued final supervisory guidance for these stress tests. The guidance provides supervisory expectations for stress test practices, examples of practices that would be consistent with those expectations, and details about stress test methodologies. It also emphasizes the importance of stress testing as an ongoing risk management practice.
On July 27, 2017, we submitted our latest stress testing results, utilizing data as of December 31, 2016, to the FRB. The full disclosure of the stress testing results, including the results for Valley National Bank, a summary of the supervisory severely adverse scenario and additional information regarding the methodologies used to conduct the stress test may be found on the Shareholder Relations section of our website (www.valleynationalbank.com) under the Dodd-Frank Act Stress Test Reports section.
Tangible book value per common share is computed by dividing shareholders’ equity less preferred stock, goodwill and other intangible assets by common shares outstanding as follows:
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| | ($ in thousands, except for share data) |
| Common shares outstanding | 264,197,172 |
| | 263,638,830 |
|
| Shareholders’ equity | $ | 2,537,984 |
| | $ | 2,377,156 |
|
| Less: Preferred stock | (209,691 | ) | | (111,590 | ) |
| Less: Goodwill and other intangible assets | (733,498 | ) | | (736,121 | ) |
| Tangible common shareholders’ equity | $ | 1,594,795 |
| | $ | 1,529,445 |
|
| Tangible book value per common share | $ | 6.04 |
| | $ | 5.80 |
|
| Book value per common share | $ | 8.81 |
| | $ | 8.59 |
|
Management believes the tangible book value per common share ratio provides information useful to management and investors in understanding our underlying operational performance, our business and performance trends and facilitates comparisons with the performance of others in the financial services industry. This non-GAAP financial measure should not be considered in isolation or as a substitute for or superior to financial measures calculated in
accordance with U.S. GAAP. This non-GAAP financial measure may also be calculated differently from similar measures disclosed by other companies. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | Minimum Capital
Requirements | | To Be Well Capitalized
Under Prompt Corrective
Action Provision |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| | ($ in thousands) |
| As of June 30, 2023 | | | | | | | | | | | |
| Total Risk-based Capital | | | | | | | | | | | |
| Valley | $ | 5,735,239 | | | 11.52 | % | | $ | 5,227,963 | | | 10.50 | % | | N/A | | N/A |
| Valley National Bank | 5,824,996 | | | 11.70 | | | 5,225,830 | | | 10.50 | | | $ | 4,976,981 | | | 10.00 | % |
| Common Equity Tier 1 Capital | | | | | | | | | | | |
| Valley | 4,497,984 | | | 9.03 | | | 3,485,309 | | | 7.00 | | | N/A | | N/A |
| Valley National Bank | 5,446,582 | | | 10.94 | | | 3,483,887 | | | 7.00 | | | 3,235,038 | | | 6.50 | |
| Tier 1 Risk-based Capital | | | | | | | | | | | |
| Valley | 4,712,825 | | | 9.47 | | | 4,232,161 | | | 8.50 | | | N/A | | N/A |
| Valley National Bank | 5,446,582 | | | 10.94 | | | 4,230,434 | | | 8.50 | | | 3,981,585 | | | 8.00 | |
| Tier 1 Leverage Capital | | | | | | | | | | | |
| Valley | 4,712,825 | | | 7.86 | | | 2,399,186 | | | 4.00 | | | N/A | | N/A |
| Valley National Bank | 5,446,582 | | | 9.08 | | | 2,399,094 | | | 4.00 | | | 2,998,868 | | | 5.00 | |
| As of December 31, 2022 | | | | | | | | | | | |
| Total Risk-based Capital | | | | | | | | | | | |
| Valley | $ | 5,569,639 | | | 11.63 | % | | $ | 5,026,621 | | | 10.50 | % | | N/A | | N/A |
| Valley National Bank | 5,659,511 | | | 11.84 | | | 5,018,129 | | | 10.50 | | | $ | 4,779,170 | | | 10.00 | % |
| Common Equity Tier 1 Capital | | | | | | | | | | | |
| Valley | 4,315,659 | | | 9.01 | | | 3,351,080 | | | 7.00 | | | N/A | | N/A |
| Valley National Bank | 5,284,372 | | | 11.06 | | | 3,345,419 | | | 7.00 | | | 3,106,461 | | | 6.50 | |
| Tier 1 Risk-based Capital | | | | | | | | | | | |
| Valley | 4,530,500 | | | 9.46 | | | 4,069,169 | | | 8.50 | | | N/A | | N/A |
| Valley National Bank | 5,284,372 | | | 11.06 | | | 4,062,295 | | | 8.50 | | | 3,823,336 | | | 8.00 | |
| Tier 1 Leverage Capital | | | | | | | | | | | |
| Valley | 4,530,500 | | | 8.23 | | | 2,200,822 | | | 4.00 | | | N/A | | N/A |
| Valley National Bank | 5,284,372 | | | 9.60 | | | 2,200,891 | | | 4.00 | | | 2,751,114 | | | 5.00 | |
Typically, our primary source of capital growth is through retention of earnings. Our rate of earnings retention is derived by dividing undistributed earnings per common share by earnings (or net income available to common stockholders)shareholders) per common share. Our retention ratio was 32.7approximately 60.0 percent for the ninesix months ended SeptemberJune 30, 20172023 as compared to 30.261.4 percent for the year ended December 31, 2016. Our retention ratio may improve during the fourth quarter of 2017 due to, among other factors, expected solid loan growth and incremental earnings improvement from LIFT initiatives completed during the third quarter of 2017. See the "Earnings Enhancement Program" section of the Executive Summary in this MD&A for more information on LIFT.2022.
Cash dividends declared amounted to $0.33$0.22 per common share for botheach of the ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively.2022. The Board is committed to examining and weighing relevant facts and considerations, including its commitment to shareholder value, each time it makes a cash dividend decision in this economic environment. The Federal Reserve has cautioned all bank holding companies about distributing dividends which may reduce the level of capital or not allow capital to grow in light of the increased capital levels as required under the Basel III rules. Prior to the date of this filing, Valley has received no objection or adverse guidance from the FRB or the OCC regarding the current level of its quarterly common stock dividend.decision.
Off-Balance Sheet Arrangements, Contractual Obligations and Other Matters
For a discussion of Valley’s off-balance sheet arrangements and contractual obligations see information included in Valley’s Annual Report on Form 10-K for the year ended December 31, 20162022 in the MD&A section - “Off-Balance Sheet Arrangements”“Liquidity and Cash Requirements” and Notes 1213 and 1314 to the consolidated financial statements included in this report.
|
| | | | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, and commodity prices. Valley’s market risk is composed primarily of interest rate risk. See page 66page 69 for a discussion of interest rate sensitivity.risk.
|
| | | | |
| Item 4. | Controls and Procedures |
(a) Disclosure control and procedures. Valley maintains disclosure controls and procedures which, consistent with Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), are defined to mean controls and other procedures that are designed to ensure that information required to be disclosed in the reports that Valley files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to Valley’s management, including Valley’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.
Valley’s CEO and CFO, with the assistance of other members of Valley’s management, have evaluated the effectiveness of Valley’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, Valley’s CEO and CFO have concluded that Valley’s disclosure controls and procedures arewere effective as of the end of the period covered by this report.
(b) Changes in internal control over financial reporting.Valley’s CEO and CFO have also concluded that there have not been any changes in Valley’s internal control over financial reporting duringin the quarter ended SeptemberJune 30, 20172023 that have materially affected, or are reasonably likely to materially affect, Valley’s internal control over financial reporting.
Valley’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errorerrors and all fraud. A system of internal control, system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the system of internal control system are met. The design of a system of internal control system reflects resource constraints and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Valley have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of a simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controlsinternal control is based in part upon certain assumptions about the likelihood of future events. There can be no
assurance that any design will succeed in achieving its stated goals under all future conditions. Overconditions; over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
In the normal course of business, we may beare a party to various outstanding legal proceedings and claims. See Note 15 toThere have been no material changes in the consolidated financial statementslegal proceedings, if any, previously disclosed under Part I, Item 3 of Valley’s Annual Report on Form 10-K for further details.the year ended December 31, 2022.
Other than the additional risk factor described below, there hasThere have been no material changechanges in the risk factors previously disclosed underin the section titled "Risk Factors" in Part I, Item 1A of Valley’s Annual Report on Form 10-K for the year ended December 31, 2016.2022, except as described below, and previously disclosed in Valley’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023:
The acquisition of USAmeriBancorp, Inc.Our financial results and condition may not be successful, which may adversely affect our business, financial condition and results of operation.impacted by recent events in the banking industry or any future similar events.
In July 2017, we announced our entry into a merger agreement with USAmeriBancorp, Inc. (USAB) and its wholly-owned subsidiary, USAmeriBank, headquartered in Clearwater, Florida. The acquisition of USAB is subject to several conditions,Recent events impacting the banking industry, including the receipt of necessary shareholder approvals. The satisfaction of such conditions could delay the acquisition of USAB for abank failures in March and April 2023, have resulted in significant period or prevent it from occurring. In addition, both Valleydisruption and USAB may terminate the merger agreement under certain circumstances, including but not limited to, if Valley’s share price falls below $11.00volatility in the preclosing measurement period. If we do not completecapital markets, reduced current valuations of bank securities, and decreased confidence in banks among depositors and other counterparties as well as investors. These events occurred in the acquisitioncontext of USABrapidly rising interest rates which, among other things, have resulted in unrealized losses in longer duration debt securities and loans held by banks, increased competition for deposits and potentially increased the risk of recession. These events have had, and may continue to have, an adverse impact on the market price of our common stock.
While the Department of the Treasury, the Federal Reserve, and the FDIC took steps to ensure that depositors of recently failed banks would have access to their insured and uninsured deposits, and to facilitate sales of certain failed banks, there is no assurance that these or if it is significantly delayed,similar actions will restore customer confidence in the expected benefits of such acquisition may not be fully realized, if at all,banking system, and we may incur significant expensesbe further impacted by concerns regarding the soundness of other financial institutions, or other future bank failures or disruptions. Any loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. The cost of resolving the recent bank failures may also prompt the FDIC to increase its premiums above current levels or to issue additional special assessments.
These recent events and any future similar events may also result in changes to laws or regulations governing bank holding companies and banks, including higher capital requirements, or the imposition of restrictions through supervisory or enforcement activities, which could materially impact our business and results of operations may be materially adversely affected.business.
|
| | | | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the quarter, we did not sell any equity securities not registered under the Securities Act of 1933, as amended. Purchases of equity securities by the issuer and affiliated purchasers during the three months ended SeptemberJune 30, 20172023 were as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans (2) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (2) |
| July 1, 2017 to July 31, 2017 | | 7,202 |
| | $ | 11.83 |
| | — |
| | 4,112,465 |
|
| August 1, 2017 to August 31, 2017 | | — |
| | — |
| | — |
| | 4,112,465 |
|
| September 1, 2017 to September 30, 2017 | | 1,484 |
| | 11.19 |
| | — |
| | 4,112,465 |
|
| Total | | 8,686 |
| | $ | 11.72 |
| | — |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of
Shares Purchased (1) | | Average
Price Paid
Per Share | | Total Number of Shares
Purchased as Part of
Publicly Announced
Plans | | Maximum Number of
Shares that May Yet Be
Purchased Under the Plans (2) |
| April 1, 2023 to April 30, 2023 | | 27,407 | | | $ | 9.24 | | | — | | | 25,000,000 | |
| May 1, 2023 to May 31, 2023 | | 300,493 | | | 6.98 | | | 300,000 | | | 24,700,000 | |
| June 1, 2023 to June 30, 2023 | | 25,042 | | | 7.38 | | | — | | | 24,700,000 | |
| Total | | 352,942 | | | $ | 7.18 | | | 300,000 | | | |
(1)Includes repurchases made in connection with the vesting of employee restricted stock awards.
(2)On April 26, 2022, Valley publicly announced a stock repurchase program for up to 25 million shares of Valley common stock. The authorization to repurchase will expire on April 25, 2024.
| | | | | |
(1)Item 5. | Represents repurchases made in connection with the vesting of employee restricted stock awards.Other Information |
| |
(2) | On January 17, 2007, Valley publicly announced its intention to repurchase up to 4.7 million outstanding common shares in the open market or in privately negotiated transactions. The repurchase plan has no stated expiration date. No repurchase plans or programs expired or terminated during the three months ended September 30, 2017. |
a.None.
b.None.
c.None.
|
| | |
(2)Item 6. | Plan of acquisition, reorganization, arrangement, liquidation or succession:Exhibits |
| | | | | | | | | | | |
| (3) | (2.1) |
|
(3) | Articles of Incorporation and By-laws: | |
| (3.1) | | |
| (3.2) | | |
(31.1)(10) | Material Contracts: |
| (10.1) | | |
| (10.2) | | |
| (31.1) | |
(31.2) | | |
| (31.2) | | |
| (32) | | |
| (101) | Interactive Data File *(XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) ** | |
| (104) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
|
| | | | |
| * | Filed herewith. |
| ** | Furnished herewith. |
| + | Management contract and compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements 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 |
| | | | | (Registrant) |
| | | |
| Date: | | | | | /s/ Gerald H. LipkinIra Robbins |
NovemberAugust 7, 20172023 | | | | Gerald H. Lipkin | Ira Robbins |
| | | | | Chairman of the Board and |
| | | | and | Chief Executive Officer |
| | | | | (Principal Executive Officer) |
Date: | | | | /s/ Alan D. Eskow |
November 7, 2017Date: | | | | Alan | /s/ Michael D. EskowHagedorn |
| August 7, 2023 | | | | | Michael D. Hagedorn |
| | | | | Senior Executive Vice President and |
| | | | | Chief Financial Officer |
| | | | | (Principal Financial Officer) |