UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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☒ | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 20212022
OR
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☐ | Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 1-11277
Valley National Bancorp
(Exact name of registrant as specified in its charter)
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New Jersey | | | 22-2477875 |
(State or other jurisdiction of Incorporation or Organization) | | | (I.R.S. Employer Identification Number) |
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One Penn Plaza | | | |
New York, | NY | | | 10119 |
(Address of principal executive office) | | | (Zip code) |
973-305-8800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbols | Name of exchange on which registered |
Common Stock, no par value | VLY | The Nasdaq Stock Market LLC |
Non-Cumulative Perpetual Preferred Stock, Series A, no par value | VLYPP | The Nasdaq Stock Market LLC |
Non-Cumulative Perpetual Preferred Stock, Series B, no par value | VLYPO | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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):
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Large accelerated filer | ☒ | Accelerated filer | ☐ | Smaller reporting company | ☐ |
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Non-accelerated filer | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock (no par value), of which506,356,727 406,953,610 sharesshares were outstanding as of November 5, 2021.7, 2022.
TABLE OF CONTENTS
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PART I | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 5. | | |
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Item 6. | | |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
/VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
Assets | Assets | (Unaudited) | | | Assets | (Unaudited) | | |
Cash and due from banks | Cash and due from banks | $ | 304,912 | | | $ | 257,845 | | Cash and due from banks | $ | 431,471 | | | $ | 205,156 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | 1,195,244 | | | 1,071,360 | | Interest bearing deposits with banks | 686,877 | | | 1,844,764 | |
Investment securities: | Investment securities: | | Investment securities: | |
Equity securities | Equity securities | 36,068 | | | 29,378 | | Equity securities | 43,318 | | | 36,473 | |
Trading debt securities | Trading debt securities | 4,797 | | | — | | Trading debt securities | 4,100 | | | 38,130 | |
Available for sale debt securities | Available for sale debt securities | 1,208,277 | | | 1,339,473 | | Available for sale debt securities | 1,271,854 | | | 1,128,809 | |
Held to maturity debt securities (net of allowance for credit losses of $1,075 at September 30, 2021 and $1,428 at December 31, 2020) | 2,583,328 | | | 2,171,583 | | |
Held to maturity debt securities (net of allowance for credit losses of $1,696 at September 30, 2022 and $1,165 at December 31, 2021) | | Held to maturity debt securities (net of allowance for credit losses of $1,696 at September 30, 2022 and $1,165 at December 31, 2021) | 3,720,324 | | | 2,667,532 | |
Total investment securities | Total investment securities | 3,832,470 | | | 3,540,434 | | Total investment securities | 5,039,596 | | | 3,870,944 | |
Loans held for sale, at fair value | Loans held for sale, at fair value | 157,084 | | | 301,427 | | Loans held for sale, at fair value | 6,073 | | | 139,516 | |
Loans | Loans | 32,606,814 | | | 32,217,112 | | Loans | 45,185,764 | | | 34,153,657 | |
Less: Allowance for loan losses | Less: Allowance for loan losses | (342,527) | | | (340,243) | | Less: Allowance for loan losses | (475,744) | | | (359,202) | |
Net loans | Net loans | 32,264,287 | | | 31,876,869 | | Net loans | 44,710,020 | | | 33,794,455 | |
Premises and equipment, net | Premises and equipment, net | 319,763 | | | 319,797 | | Premises and equipment, net | 362,203 | | | 326,306 | |
Lease right of use assets | Lease right of use assets | 258,180 | | | 252,053 | | Lease right of use assets | 314,511 | | | 259,117 | |
Bank owned life insurance | Bank owned life insurance | 537,301 | | | 535,209 | | Bank owned life insurance | 714,649 | | | 566,770 | |
Accrued interest receivable | Accrued interest receivable | 98,073 | | | 106,230 | | Accrued interest receivable | 159,406 | | | 96,882 | |
Goodwill | Goodwill | 1,382,442 | | | 1,382,442 | | Goodwill | 1,871,505 | | | 1,459,008 | |
Other intangible assets, net | Other intangible assets, net | 62,525 | | | 70,449 | | Other intangible assets, net | 208,226 | | | 70,386 | |
Other assets | Other assets | 865,726 | | | 971,961 | | Other assets | 1,422,964 | | | 813,139 | |
Total Assets | Total Assets | $ | 41,278,007 | | | $ | 40,686,076 | | Total Assets | $ | 55,927,501 | | | $ | 43,446,443 | |
Liabilities | Liabilities | | | | Liabilities | | | |
Deposits: | Deposits: | | Deposits: | |
Non-interest bearing | Non-interest bearing | $ | 10,789,237 | | | $ | 9,205,266 | | Non-interest bearing | $ | 15,420,625 | | | $ | 11,675,748 | |
Interest bearing: | Interest bearing: | | Interest bearing: | |
Savings, NOW and money market | Savings, NOW and money market | 18,883,085 | | | 16,015,658 | | Savings, NOW and money market | 23,559,662 | | | 20,269,620 | |
Time | Time | 3,960,283 | | | 6,714,678 | | Time | 6,328,556 | | | 3,687,044 | |
Total deposits | Total deposits | 33,632,605 | | | 31,935,602 | | Total deposits | 45,308,843 | | | 35,632,412 | |
Short-term borrowings | Short-term borrowings | 783,346 | | | 1,147,958 | | Short-term borrowings | 919,283 | | | 655,726 | |
Long-term borrowings | Long-term borrowings | 1,427,444 | | | 2,295,665 | | Long-term borrowings | 1,541,097 | | | 1,423,676 | |
Junior subordinated debentures issued to capital trusts | Junior subordinated debentures issued to capital trusts | 56,326 | | | 56,065 | | Junior subordinated debentures issued to capital trusts | 56,673 | | | 56,413 | |
Lease liabilities | Lease liabilities | 282,034 | | | 276,675 | | Lease liabilities | 367,428 | | | 283,106 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 273,754 | | | 381,991 | | Accrued expenses and other liabilities | 1,460,348 | | | 311,044 | |
Total Liabilities | Total Liabilities | 36,455,509 | | | 36,093,956 | | Total Liabilities | 49,653,672 | | | 38,362,377 | |
Shareholders’ Equity | Shareholders’ Equity | | | | Shareholders’ Equity | | | |
Preferred stock, no par value; 50,000,000 authorized shares: | Preferred stock, no par value; 50,000,000 authorized shares: | | Preferred stock, no par value; 50,000,000 authorized shares: | |
Series A (4,600,000 shares issued at September 30, 2021 and December 31, 2020) | 111,590 | | | 111,590 | | |
Series B (4,000,000 shares issued at September 30, 2021 and December 31, 2020) | 98,101 | | | 98,101 | | |
Common stock (no par value, authorized 650,000,000 shares; issued 407,317,006 shares at September 30, 2021 and 403,881,488 shares at December 31, 2020) | 142,976 | | | 141,746 | | |
Series A (4,600,000 shares issued at September 30, 2022 and December 31, 2021) | | Series A (4,600,000 shares issued at September 30, 2022 and December 31, 2021) | 111,590 | | | 111,590 | |
Series B (4,000,000 shares issued at September 30, 2022 and December 31, 2021) | | Series B (4,000,000 shares issued at September 30, 2022 and December 31, 2021) | 98,101 | | | 98,101 | |
Common stock (no par value, authorized 650,000,000 shares; issued 507,896,910 and 423,034,027 shares at September 30, 2022 and December 31, 2021) | | Common stock (no par value, authorized 650,000,000 shares; issued 507,896,910 and 423,034,027 shares at September 30, 2022 and December 31, 2021) | 178,185 | | | 148,482 | |
Surplus | Surplus | 3,672,467 | | | 3,637,468 | | Surplus | 4,972,732 | | | 3,883,035 | |
Retained earnings | Retained earnings | 818,780 | | | 611,158 | | Retained earnings | 1,100,838 | | | 883,645 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (21,375) | | | (7,718) | | Accumulated other comprehensive loss | (165,557) | | | (17,932) | |
Treasury stock, at cost (3,342 common shares at September 30, 2021 and 22,490 common shares at December 31, 2020) | (41) | | | (225) | | |
Treasury stock, at cost (1,545,408 common shares at September 30, 2022 and 1,596,959 common shares at December 31, 2021) | | Treasury stock, at cost (1,545,408 common shares at September 30, 2022 and 1,596,959 common shares at December 31, 2021) | (22,060) | | | (22,855) | |
Total Shareholders’ Equity | Total Shareholders’ Equity | 4,822,498 | | | 4,592,120 | | Total Shareholders’ Equity | 6,273,829 | | | 5,084,066 | |
Total Liabilities and Shareholders’ Equity | Total Liabilities and Shareholders’ Equity | $ | 41,278,007 | | | $ | 40,686,076 | | Total Liabilities and Shareholders’ Equity | $ | 55,927,501 | | | $ | 43,446,443 | |
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except for share data)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Interest Income | | | | | | | |
Interest and fees on loans | $ | 309,753 | | | $ | 315,788 | | | $ | 938,248 | | | $ | 970,739 | |
Interest and dividends on investment securities: | | | | | | | |
Taxable | 14,292 | | | 14,845 | | | 40,174 | | | 56,225 | |
Tax-exempt | 2,609 | | | 3,606 | | | 9,181 | | | 11,224 | |
Dividends | 1,505 | | | 2,684 | | | 5,543 | | | 9,177 | |
Interest on federal funds sold and other short-term investments | 642 | | | 420 | | | 1,101 | | | 2,296 | |
Total interest income | 328,801 | | | 337,343 | | | 994,247 | | | 1,049,661 | |
Interest Expense | | | | | | | |
Interest on deposits: | | | | | | | |
Savings, NOW and money market | 10,605 | | | 13,323 | | | 32,896 | | | 64,463 | |
Time | 4,394 | | | 19,028 | | | 21,766 | | | 91,699 | |
Interest on short-term borrowings | 1,464 | | | 2,588 | | | 4,390 | | | 9,275 | |
Interest on long-term borrowings and junior subordinated debentures | 11,312 | | | 19,318 | | | 40,595 | | | 53,240 | |
Total interest expense | 27,775 | | | 54,257 | | | 99,647 | | | 218,677 | |
Net Interest Income | 301,026 | | | 283,086 | | | 894,600 | | | 830,984 | |
Provision (credit) for credit losses for held to maturity securities | 35 | | | (112) | | | (353) | | | 688 | |
Provision for credit losses for loans | 3,496 | | | 31,020 | | | 21,287 | | | 106,059 | |
Net Interest Income After Provision for Credit Losses | 297,495 | | | 252,178 | | | 873,666 | | | 724,237 | |
Non-Interest Income | | | | | | | |
Trust and investment services | 3,550 | | | 3,068 | | | 10,411 | | | 9,307 | |
Insurance commissions | 1,610 | | | 1,816 | | | 5,805 | | | 5,426 | |
Service charges on deposit accounts | 5,428 | | | 3,952 | | | 15,614 | | | 13,189 | |
Gains (losses) on securities transactions, net | 787 | | | (46) | | | 1,263 | | | (127) | |
Fees from loan servicing | 2,894 | | | 2,551 | | | 8,980 | | | 7,526 | |
Gains on sales of loans, net | 6,442 | | | 13,366 | | | 20,016 | | | 26,253 | |
Gains on sales of assets, net | 344 | | | 894 | | | 380 | | | 716 | |
Bank owned life insurance | 2,018 | | | (1,304) | | | 6,824 | | | 7,661 | |
Other | 19,358 | | | 24,975 | | | 47,497 | | | 65,548 | |
Total non-interest income | 42,431 | | | 49,272 | | | 116,790 | | | 135,499 | |
Non-Interest Expense | | | | | | | |
Salary and employee benefits expense | 93,992 | | | 83,626 | | | 273,190 | | | 247,886 | |
Net occupancy and equipment expense | 32,402 | | | 31,116 | | | 97,112 | | | 96,774 | |
FDIC insurance assessment | 3,644 | | | 4,847 | | | 10,294 | | | 14,858 | |
Amortization of other intangible assets | 5,298 | | | 6,377 | | | 16,753 | | | 18,528 | |
Professional and legal fees | 13,492 | | | 8,762 | | | 27,250 | | | 22,646 | |
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Loss on extinguishment of debt | — | | | 2,353 | | | 8,406 | | | 2,353 | |
Amortization of tax credit investments | 3,079 | | | 2,759 | | | 8,795 | | | 9,403 | |
Telecommunication expense | 2,615 | | | 2,094 | | | 8,507 | | | 7,247 | |
Other | 20,400 | | | 18,251 | | | 56,721 | | | 53,312 | |
Total non-interest expense | 174,922 | | | 160,185 | | | 507,028 | | | 473,007 | |
Income Before Income Taxes | 165,004 | | | 141,265 | | | 483,428 | | | 386,729 | |
Income tax expense | 42,424 | | | 38,891 | | | 124,626 | | | 101,486 | |
Net Income | 122,580 | | | 102,374 | | | 358,802 | | | 285,243 | |
Dividends on preferred stock | 3,172 | | | 3,172 | | | 9,516 | | | 9,516 | |
Net Income Available to Common Shareholders | $ | 119,408 | | | $ | 99,202 | | | $ | 349,286 | | | $ | 275,727 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Interest Income | | | | | | | |
Interest and fees on loans | $ | 496,520 | | | $ | 309,753 | | | $ | 1,229,462 | | | $ | 938,248 | |
Interest and dividends on investment securities: | | | | | | | |
Taxable | 28,264 | | | 14,292 | | | 74,416 | | | 40,174 | |
Tax-exempt | 5,210 | | | 2,609 | | | 12,739 | | | 9,181 | |
Dividends | 2,738 | | | 1,505 | | | 7,490 | | | 5,543 | |
Interest on federal funds sold and other short-term investments | 3,996 | | | 642 | | | 6,026 | | | 1,101 | |
Total interest income | 536,728 | | | 328,801 | | | 1,330,133 | | | 994,247 | |
Interest Expense | | | | | | | |
Interest on deposits: | | | | | | | |
Savings, NOW and money market | 50,674 | | | 10,605 | | | 77,423 | | | 32,896 | |
Time | 15,174 | | | 4,394 | | | 21,274 | | | 21,766 | |
Interest on short-term borrowings | 5,160 | | | 1,464 | | | 10,049 | | | 4,390 | |
Interest on long-term borrowings and junior subordinated debentures | 11,728 | | | 11,312 | | | 31,566 | | | 40,595 | |
Total interest expense | 82,736 | | | 27,775 | | | 140,312 | | | 99,647 | |
Net Interest Income | 453,992 | | | 301,026 | | | 1,189,821 | | | 894,600 | |
Provision (credit) for credit losses for held to maturity securities | 188 | | | 35 | | | 531 | | | (353) | |
Provision for credit losses for loans | 1,835 | | | 3,496 | | | 49,047 | | | 21,287 | |
Net Interest Income After Provision for Credit Losses | 451,969 | | | 297,495 | | | 1,140,243 | | | 873,666 | |
Non-Interest Income | | | | | | | |
Wealth management and trust fees | 9,281 | | | 3,550 | | | 23,989 | | | 10,411 | |
Insurance commissions | 3,750 | | | 1,610 | | | 9,072 | | | 5,805 | |
Service charges on deposit accounts | 10,338 | | | 5,428 | | | 26,617 | | | 15,614 | |
Gains (losses) on securities transactions, net | 323 | | | 787 | | | (1,058) | | | 1,263 | |
Fees from loan servicing | 3,138 | | | 2,894 | | | 8,636 | | | 8,980 | |
Gains on sales of loans, net | 922 | | | 6,442 | | | 5,510 | | | 20,016 | |
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Bank owned life insurance | 1,681 | | | 2,018 | | | 5,840 | | | 6,824 | |
Other | 26,761 | | | 19,702 | | | 75,391 | | | 47,877 | |
Total non-interest income | 56,194 | | | 42,431 | | | 153,997 | | | 116,790 | |
Non-Interest Expense | | | | | | | |
Salary and employee benefits expense | 134,572 | | | 93,992 | | | 397,103 | | | 273,190 | |
Net occupancy expense | 26,486 | | | 19,941 | | | 70,906 | | | 59,171 | |
Technology, furniture and equipment expense | 39,365 | | | 21,007 | | | 115,245 | | | 64,956 | |
FDIC insurance assessment | 6,500 | | | 3,644 | | | 16,009 | | | 10,294 | |
Amortization of other intangible assets | 11,088 | | | 5,298 | | | 26,925 | | | 16,753 | |
Professional and legal fees | 17,840 | | | 13,492 | | | 62,998 | | | 27,250 | |
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Loss on extinguishment of debt | — | | | — | | | — | | | 8,406 | |
Amortization of tax credit investments | 3,105 | | | 3,079 | | | 9,194 | | | 8,795 | |
Other | 22,683 | | | 14,469 | | | 60,329 | | | 38,213 | |
Total non-interest expense | 261,639 | | | 174,922 | | | 758,709 | | | 507,028 | |
Income Before Income Taxes | 246,524 | | | 165,004 | | | 535,531 | | | 483,428 | |
Income tax expense | 68,405 | | | 42,424 | | | 144,271 | | | 124,626 | |
Net Income | 178,119 | | | 122,580 | | | 391,260 | | | 358,802 | |
Dividends on preferred stock | 3,172 | | | 3,172 | | | 9,516 | | | 9,516 | |
Net Income Available to Common Shareholders | $ | 174,947 | | | $ | 119,408 | | | $ | 381,744 | | | $ | 349,286 | |
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (continued)
(in thousands, except for share data)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Earnings Per Common Share: | Earnings Per Common Share: | | | | | | | | Earnings Per Common Share: | | | | | | | |
Basic | Basic | $ | 0.29 | | | $ | 0.25 | | | $ | 0.86 | | | $ | 0.68 | | Basic | $ | 0.35 | | | $ | 0.29 | | | $ | 0.80 | | | $ | 0.86 | |
Diluted | Diluted | 0.29 | | | 0.25 | | | 0.86 | | | 0.68 | | Diluted | 0.34 | | | 0.29 | | | 0.79 | | | 0.86 | |
Cash Dividends Declared per Common Share | Cash Dividends Declared per Common Share | 0.11 | | | 0.11 | | | 0.33 | | | 0.33 | | Cash Dividends Declared per Common Share | 0.11 | | | 0.11 | | | 0.33 | | | 0.33 | |
Weighted Average Number of Common Shares Outstanding: | Weighted Average Number of Common Shares Outstanding: | | Weighted Average Number of Common Shares Outstanding: | |
Basic | Basic | 406,824,160 | | | 403,833,469 | | | 405,986,114 | | | 403,714,701 | | Basic | 506,342,200 | | | 406,824,160 | | | 478,383,342 | | | 405,986,114 | |
Diluted | Diluted | 409,238,001 | | | 404,788,526 | | | 408,509,767 | | | 404,912,126 | | Diluted | 508,690,997 | | | 409,238,001 | | | 480,625,357 | | | 408,509,767 | |
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net income | Net income | $ | 122,580 | | | $ | 102,374 | | | $ | 358,802 | | | $ | 285,243 | | Net income | $ | 178,119 | | | $ | 122,580 | | | $ | 391,260 | | | $ | 358,802 | |
Other comprehensive income, net of tax: | | |
Other comprehensive loss, net of tax: | | Other comprehensive loss, net of tax: | |
Unrealized gains and losses on available for sale securities | Unrealized gains and losses on available for sale securities | | Unrealized gains and losses on available for sale securities | |
Net (losses) gains arising during the period | (3,953) | | | (1,262) | | | (15,860) | | | 27,819 | | |
Less reclassification adjustment for net (gains) losses included in net income | (613) | | | 36 | | | (493) | | | 94 | | |
Net losses arising during the period | | Net losses arising during the period | (57,242) | | | (3,953) | | | (148,403) | | | (15,860) | |
Less reclassification adjustment for net gains included in net income | | Less reclassification adjustment for net gains included in net income | (12) | | | (613) | | | (22) | | | (493) | |
Total | Total | (4,566) | | | (1,226) | | | (16,353) | | | 27,913 | | Total | (57,254) | | | (4,566) | | | (148,425) | | | (16,353) | |
| Unrealized gains and losses on derivatives (cash flow hedges) | Unrealized gains and losses on derivatives (cash flow hedges) | | | | | | | | Unrealized gains and losses on derivatives (cash flow hedges) | | | | | | | |
Net (losses) gains on derivatives arising during the period | Net (losses) gains on derivatives arising during the period | (96) | | | 83 | | | (69) | | | (2,254) | | Net (losses) gains on derivatives arising during the period | (85) | | | (96) | | | 110 | | | (69) | |
Less reclassification adjustment for net losses included in net income | 743 | | | 1,127 | | | 1,928 | | | 1,257 | | |
Less reclassification adjustment for net (gains) losses included in net income | | Less reclassification adjustment for net (gains) losses included in net income | (13) | | | 743 | | | 293 | | | 1,928 | |
Total | Total | 647 | | | 1,210 | | | 1,859 | | | (997) | | Total | (98) | | | 647 | | | 403 | | | 1,859 | |
Defined benefit pension plan | Defined benefit pension plan | | | | | | | | Defined benefit pension plan | | | | | | | |
| Amortization of actuarial net loss | Amortization of actuarial net loss | 279 | | | 171 | | | 837 | | | 515 | | Amortization of actuarial net loss | 132 | | | 279 | | | 397 | | | 837 | |
Total other comprehensive (loss) income | (3,640) | | | 155 | | | (13,657) | | | 27,431 | | |
Total other comprehensive loss | | Total other comprehensive loss | (57,220) | | | (3,640) | | | (147,625) | | | (13,657) | |
Total comprehensive income | Total comprehensive income | $ | 118,940 | | | $ | 102,529 | | | $ | 345,145 | | | $ | 312,674 | | Total comprehensive income | $ | 120,899 | | | $ | 118,940 | | | $ | 243,635 | | | $ | 345,145 | |
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Nine Months Ended September 30, 20212022
| | | Common Stock | | Accumulated | | | Common Stock | | Accumulated | |
| | Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity | | Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| | (in thousands) | | (in thousands) |
Balance - December 31, 2020 | $ | 209,691 | | | 403,859 | | | $ | 141,746 | | | $ | 3,637,468 | | | $ | 611,158 | | | $ | (7,718) | | | $ | (225) | | | $ | 4,592,120 | | |
Balance - December 31, 2021 | | Balance - December 31, 2021 | $ | 209,691 | | | 421,437 | | | $ | 148,482 | | | $ | 3,883,035 | | | $ | 883,645 | | | $ | (17,932) | | | $ | (22,855) | | | $ | 5,084,066 | |
Net income | Net income | — | | | — | | | — | | | — | | | 115,710 | | | — | | | — | | | 115,710 | | Net income | — | | | — | | | — | | | — | | | 116,728 | | | — | | | — | | | 116,728 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (9,287) | | | — | | | (9,287) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (38,166) | | | — | | | (38,166) | |
Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,281) | | | — | | | — | | | (45,281) | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (46,803) | | | — | | | — | | | (46,803) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 1,939 | | | 689 | | | 14,480 | | | (5,764) | | | — | | | 175 | | | 9,580 | | Effect of stock incentive plan, net | — | | | 972 | | | — | | | (10,799) | | | (5,173) | | | — | | | 13,220 | | | (2,752) | |
| Balance - March 31, 2021 | $ | 209,691 | | | 405,798 | | | 142,435 | | | $ | 3,651,948 | | | $ | 672,651 | | | $ | (17,005) | | | $ | (50) | | | $ | 4,659,670 | | |
Purchase of treasury stock | | Purchase of treasury stock | — | | | (1,015) | | | — | | | — | | | — | | | — | | | (13,517) | | | (13,517) | |
Balance - March 31, 2022 | | Balance - March 31, 2022 | 209,691 | | | 421,394 | | | 148,482 | | | 3,872,236 | | | 945,225 | | | (56,098) | | | (23,152) | | | 5,096,384 | |
Net income | Net income | — | | | — | | | — | | | — | | | 120,512 | | | — | | | — | | | 120,512 | | Net income | — | | | — | | | — | | | — | | | 96,413 | | | — | | | — | | | 96,413 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (730) | | | — | | | (730) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (52,239) | | | — | | | (52,239) | |
Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,093) | | | — | | | — | | | (45,093) | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,211) | | | — | | | — | | | (56,211) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 286 | | | 115 | | | 6,688 | | | (130) | | | — | | | (53) | | | 6,620 | | Effect of stock incentive plan, net | — | | | 72 | | | 1 | | | 5,125 | | | (109) | | | — | | | 892 | | | 5,909 | |
| Balance - June 30, 2021 | $ | 209,691 | | | 406,084 | | | 142,550 | | | $ | 3,658,636 | | | $ | 744,768 | | | $ | (17,735) | | | $ | (103) | | | $ | 4,737,807 | | |
Common stock issued in acquisition | | Common stock issued in acquisition | — | | | 84,863 | | | 29,702 | | | 1,088,127 | | | — | | | — | | | — | | | 1,117,829 | |
Balance - June 30, 2022 | | Balance - June 30, 2022 | 209,691 | | | 506,329 | | | 178,185 | | | 4,965,488 | | | 982,146 | | | (108,337) | | | (22,260) | | | 6,204,913 | |
Net income | Net income | — | | | — | | | — | | | — | | | 122,580 | | | — | | | — | | | 122,580 | | Net income | — | | | — | | | — | | | — | | | 178,119 | | | — | | | — | | | 178,119 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (3,640) | | | — | | | (3,640) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (57,220) | | | — | | | (57,220) | |
Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,228) | | | — | | | — | | | (45,228) | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,242) | | | — | | | — | | | (56,242) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 1,230 | | | 426 | | | 13,831 | | | (168) | | | — | | | 62 | | | 14,151 | | Effect of stock incentive plan, net | — | | | 23 | | | — | | | 7,244 | | | (13) | | | — | | | 200 | | | 7,431 | |
Balance - September 30, 2021 | $ | 209,691 | | | 407,314 | | | 142,976 | | | $ | 3,672,467 | | | $ | 818,780 | | | $ | (21,375) | | | $ | (41) | | | $ | 4,822,498 | | |
Balance - September 30, 2022 | | Balance - September 30, 2022 | $ | 209,691 | | | 506,352 | | | $ | 178,185 | | | $ | 4,972,732 | | | $ | 1,100,838 | | | $ | (165,557) | | | $ | (22,060) | | | $ | 6,273,829 | |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (continued)
For the Nine Months Ended September 30, 20202021
| | | Common Stock | | Accumulated | | | Common Stock | | Accumulated | |
| | Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity | | Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| | (in thousands) | | (in thousands) |
Balance - December 31, 2019 | $ | 209,691 | | | 403,278 | | | $ | 141,423 | | | $ | 3,622,208 | | | $ | 443,559 | | | $ | (32,214) | | | $ | (479) | | | $ | 4,384,188 | | |
Adjustment due to the adoption of ASU No. 2016-13 | — | | | — | | | — | | | — | | | (28,187) | | | — | | | — | | | (28,187) | | |
Balance - January 1, 2020 | 209,691 | | | 403,278 | | | 141,423 | | | 3,622,208 | | | 415,372 | | | (32,214) | | | (479) | | | 4,356,001 | | |
Balance - December 31, 2020 | | Balance - December 31, 2020 | $ | 209,691 | | | 403,859 | | | $ | 141,746 | | | $ | 3,637,468 | | | $ | 611,158 | | | $ | (7,718) | | | $ | (225) | | | $ | 4,592,120 | |
Net income | | Net income | — | | | — | | | — | | | — | | | 115,710 | | | — | | | — | | | 115,710 | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (9,287) | | | — | | | (9,287) | |
Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,281) | | | — | | | — | | | (45,281) | |
Effect of stock incentive plan, net | | Effect of stock incentive plan, net | — | | | 1,939 | | | 689 | | | 14,480 | | | (5,764) | | | — | | | 175 | | | 9,580 | |
| Balance - March 31, 2021 | | Balance - March 31, 2021 | 209,691 | | | 405,798 | | | 142,435 | | | 3,651,948 | | | 672,651 | | | (17,005) | | | (50) | | | 4,659,670 | |
Net income | | Net income | — | | | — | | | — | | | — | | | 120,512 | | | — | | | — | | | 120,512 | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (730) | | | — | | | (730) | |
Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,093) | | | — | | | — | | | (45,093) | |
Effect of stock incentive plan, net | | Effect of stock incentive plan, net | — | | | 286 | | | 115 | | | 6,688 | | | (130) | | | — | | | (53) | | | 6,620 | |
| Balance - June 30, 2021 | | Balance - June 30, 2021 | 209,691 | | | 406,084 | | | 142,550 | | | 3,658,636 | | | 744,768 | | | (17,735) | | | (103) | | | 4,737,807 | |
Net income | Net income | — | | | — | | | — | | | — | | | 87,268 | | | — | | | — | | | 87,268 | | Net income | — | | | — | | | — | | | — | | | 122,580 | | | — | | | — | | | 122,580 | |
Other comprehensive income, net of tax | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 25,648 | | | — | | | 25,648 | | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | (3,640) | | | — | | | (3,640) | |
Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (44,979) | | | — | | | — | | | (44,979) | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,228) | | | — | | | — | | | (45,228) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 466 | | | 190 | | | 1,828 | | | (2,065) | | | — | | | 279 | | | 232 | | Effect of stock incentive plan, net | — | | | 1,230 | | | 426 | | | 13,831 | | | (168) | | | — | | | 62 | | | 14,151 | |
| Balance - March 31, 2020 | $ | 209,691 | | | 403,744 | | | 141,613 | | | $ | 3,624,036 | | | $ | 452,424 | | | $ | (6,566) | | | $ | (200) | | | $ | 4,420,998 | | |
Net income | — | | | — | | | — | | | — | | | 95,601 | | | — | | | — | | | 95,601 | | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 1,628 | | | — | | | 1,628 | | |
Cash dividends declared: | | |
Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | |
Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | |
Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (44,750) | | | — | | | — | | | (44,750) | | |
Effect of stock incentive plan, net | — | | | 52 | | | 54 | | | 4,756 | | | (592) | | | — | | | (35) | | | 4,183 | | |
| Balance - June 30, 2020 | $ | 209,691 | | | 403,796 | | | $ | 141,667 | | | $ | 3,628,792 | | | $ | 499,511 | | | $ | (4,938) | | | $ | (235) | | | $ | 4,474,488 | | |
Net income | — | | | — | | | — | | | — | | | 102,374 | | | — | | | — | | | 102,374 | | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 155 | | | — | | | 155 | | |
Cash dividends declared: | | |
Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | |
Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | |
Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (44,770) | | | — | | | — | | | (44,770) | | |
Effect of stock incentive plan, net | — | | | 83 | | | 51 | | | 4,529 | | | (117) | | | — | | | 225 | | | 4,688 | | |
Balance - September 30, 2020 | $ | 209,691 | | | 403,879 | | | $ | 141,718 | | | $ | 3,633,321 | | | $ | 553,826 | | | $ | (4,783) | | | $ | (10) | | | $ | 4,533,763 | | |
Balance - September 30, 2021 | | Balance - September 30, 2021 | $ | 209,691 | | | 407,314 | | | $ | 142,976 | | | $ | 3,672,467 | | | $ | 818,780 | | | $ | (21,375) | | | $ | (41) | | | $ | 4,822,498 | |
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 358,802 | | | $ | 285,243 | | Net income | $ | 391,260 | | | $ | 358,802 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 40,799 | | | 43,975 | | Depreciation and amortization | 52,545 | | | 40,799 | |
Stock-based compensation | Stock-based compensation | 15,852 | | | 12,001 | | Stock-based compensation | 20,978 | | | 15,852 | |
Provision for credit losses | Provision for credit losses | 20,934 | | | 106,747 | | Provision for credit losses | 49,578 | | | 20,934 | |
Net amortization of premiums and accretion of discounts on securities and borrowings | Net amortization of premiums and accretion of discounts on securities and borrowings | 22,145 | | | 26,051 | | Net amortization of premiums and accretion of discounts on securities and borrowings | 10,603 | | | 22,145 | |
Amortization of other intangible assets | Amortization of other intangible assets | 16,753 | | | 18,528 | | Amortization of other intangible assets | 26,925 | | | 16,753 | |
(Gains) losses on securities transactions, net | (1,263) | | | 127 | | |
Losses (gains) on securities transactions, net | | Losses (gains) on securities transactions, net | 1,058 | | | (1,263) | |
Proceeds from sales of loans held for sale | Proceeds from sales of loans held for sale | 932,274 | | | 716,739 | | Proceeds from sales of loans held for sale | 378,216 | | | 932,274 | |
Gains on sales of loans, net | Gains on sales of loans, net | (20,016) | | | (26,253) | | Gains on sales of loans, net | (5,510) | | | (20,016) | |
Originations of loans held for sale | Originations of loans held for sale | (774,443) | | | (829,252) | | Originations of loans held for sale | (244,441) | | | (774,443) | |
Gains on sales of assets, net | (380) | | | (716) | | |
Losses (gains) on sales of assets, net | | Losses (gains) on sales of assets, net | 372 | | | (380) | |
Loss on extinguishment of debt | Loss on extinguishment of debt | 8,406 | | | 2,353 | | Loss on extinguishment of debt | — | | | 8,406 | |
Net change in: | Net change in: | | Net change in: | |
Fair value of borrowings hedged by derivative transactions | | Fair value of borrowings hedged by derivative transactions | (30,585) | | | — | |
Trading debt securities | Trading debt securities | (4,797) | | | — | | Trading debt securities | 34,030 | | | (4,797) | |
Cash surrender value of bank owned life insurance | Cash surrender value of bank owned life insurance | (6,824) | | | (7,661) | | Cash surrender value of bank owned life insurance | (5,840) | | | (6,824) | |
Accrued interest receivable | Accrued interest receivable | 8,157 | | | (30,421) | | Accrued interest receivable | (36,807) | | | 8,157 | |
Other assets | Other assets | 97,341 | | | (420,572) | | Other assets | (402,391) | | | 97,341 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | (130,698) | | | 83,591 | | Accrued expenses and other liabilities | 990,607 | | | (130,698) | |
Net cash provided by (used in) operating activities | 583,042 | | | (19,520) | | |
Net cash provided by operating activities | | Net cash provided by operating activities | 1,230,598 | | | 583,042 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Net loan originations and purchases | Net loan originations and purchases | (405,204) | | | (2,686,137) | | Net loan originations and purchases | (5,114,908) | | | (405,204) | |
Equity securities: | Equity securities: | | Equity securities: | |
Purchases | Purchases | (3,163) | | | (7,616) | | Purchases | (4,148) | | | (3,163) | |
Sales | Sales | 1,227 | | | 27,867 | | Sales | 1,725 | | | 1,227 | |
Held to maturity debt securities: | Held to maturity debt securities: | | Held to maturity debt securities: | |
Purchases | Purchases | (1,062,202) | | | (381,606) | | Purchases | (666,188) | | | (1,062,202) | |
| Maturities, calls and principal repayments | Maturities, calls and principal repayments | 633,272 | | | 532,151 | | Maturities, calls and principal repayments | 410,760 | | | 633,272 | |
Available for sale debt securities: | Available for sale debt securities: | | Available for sale debt securities: | |
Purchases | Purchases | (367,866) | | | (306,071) | | Purchases | (49,618) | | | (367,866) | |
Sales | Sales | 91,978 | | | — | | Sales | 12,846 | | | 91,978 | |
Maturities, calls and principal repayments | Maturities, calls and principal repayments | 376,875 | | | 374,321 | | Maturities, calls and principal repayments | 192,868 | | | 376,875 | |
Death benefit proceeds from bank owned life insurance | Death benefit proceeds from bank owned life insurance | 3,850 | | | 14,062 | | Death benefit proceeds from bank owned life insurance | 4,680 | | | 3,850 | |
Proceeds from sales of real estate property and equipment | Proceeds from sales of real estate property and equipment | 4,982 | | | 16,136 | | Proceeds from sales of real estate property and equipment | 7,400 | | | 4,982 | |
Proceeds from sales of loans held for investment | Proceeds from sales of loans held for investment | 4,498 | | | 30,020 | | Proceeds from sales of loans held for investment | — | | | 4,498 | |
Purchases of real estate property and equipment | Purchases of real estate property and equipment | (19,805) | | | (20,715) | | Purchases of real estate property and equipment | (50,511) | | | (19,805) | |
| Cash and cash equivalent acquired in acquisitions, net | | Cash and cash equivalent acquired in acquisitions, net | 321,540 | | | — | |
Net cash used in investing activities | Net cash used in investing activities | (741,558) | | | (2,407,588) | | Net cash used in investing activities | (4,933,554) | | | (741,558) | |
|
| VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) | VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) | VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) |
| VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) | |
| | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Net change in deposits | Net change in deposits | $ | 1,697,003 | | | $ | 2,002,145 | | Net change in deposits | $ | 2,646,434 | | | $ | 1,697,003 | |
Net change in short-term borrowings | Net change in short-term borrowings | (364,612) | | | 337,446 | | Net change in short-term borrowings | 159,763 | | | (364,612) | |
Proceeds from issuance of long-term borrowings, net | Proceeds from issuance of long-term borrowings, net | 295,922 | | | 838,388 | | Proceeds from issuance of long-term borrowings, net | 147,508 | | | 295,922 | |
Repayments of long-term borrowings | Repayments of long-term borrowings | (1,168,465) | | | (108,446) | | Repayments of long-term borrowings | — | | | (1,168,465) | |
| Cash dividends paid to preferred shareholders | Cash dividends paid to preferred shareholders | (9,516) | | | (9,516) | | Cash dividends paid to preferred shareholders | (9,516) | | | (9,516) | |
Cash dividends paid to common shareholders | Cash dividends paid to common shareholders | (134,860) | | | (133,536) | | Cash dividends paid to common shareholders | (148,345) | | | (134,860) | |
Purchase of common shares to treasury | Purchase of common shares to treasury | (699) | | | (4,972) | | Purchase of common shares to treasury | (24,013) | | | (699) | |
Common stock issued, net | Common stock issued, net | 15,199 | | | 2,074 | | Common stock issued, net | 106 | | | 15,199 | |
Other, net | Other, net | (505) | | | (451) | | Other, net | (553) | | | (505) | |
Net cash provided by financing activities | Net cash provided by financing activities | 329,467 | | | 2,923,132 | | Net cash provided by financing activities | 2,771,384 | | | 329,467 | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | 170,951 | | | 496,024 | | Net change in cash and cash equivalents | (931,572) | | | 170,951 | |
Cash and cash equivalents at beginning of year | Cash and cash equivalents at beginning of year | 1,329,205 | | | 434,687 | | Cash and cash equivalents at beginning of year | 2,049,920 | | | 1,329,205 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 1,500,156 | | | $ | 930,711 | | Cash and cash equivalents at end of period | $ | 1,118,348 | | | $ | 1,500,156 | |
| Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | Supplemental disclosures of cash flow information: | |
Cash payments for: | Cash payments for: | | Cash payments for: | |
Interest on deposits and borrowings | Interest on deposits and borrowings | $ | 109,661 | | | $ | 229,987 | | Interest on deposits and borrowings | $ | 129,504 | | | $ | 109,661 | |
Federal and state income taxes | Federal and state income taxes | 148,674 | | | 108,302 | | Federal and state income taxes | 122,170 | | | 148,674 | |
Supplemental schedule of non-cash investing activities: | Supplemental schedule of non-cash investing activities: | | Supplemental schedule of non-cash investing activities: | |
Transfer of loans to other real estate owned | Transfer of loans to other real estate owned | $ | 141 | | | $ | 3,716 | | Transfer of loans to other real estate owned | $ | — | | | $ | 141 | |
Transfer of loans to loans held for sale | — | | | 30,020 | | |
| Lease right of use assets obtained in exchange for operating lease liabilities | Lease right of use assets obtained in exchange for operating lease liabilities | 40,296 | | | 10,141 | | Lease right of use assets obtained in exchange for operating lease liabilities | 32,604 | | | 40,296 | |
| Acquisitions: | | Acquisitions: | |
Non-cash assets acquired: | | Non-cash assets acquired: | |
Equity securities | | Equity securities | 6,239 | | | — | |
Investment securities available for sale | | Investment securities available for sale | 505,928 | | | — | |
Investment securities held to maturity | | Investment securities held to maturity | 806,627 | | | — | |
Loans, net | | Loans, net | 5,844,070 | | | — | |
Premises and equipment, net | | Premises and equipment, net | 38,827 | | | — | |
Lease right of use assets | | Lease right of use assets | 49,434 | | | — | |
Bank owned life insurance | | Bank owned life insurance | 126,861 | | | — | |
Accrued interest receivable | | Accrued interest receivable | 25,717 | | | — | |
Goodwill | | Goodwill | 407,522 | | | — | |
Other intangible assets, net | | Other intangible assets, net | 159,587 | | | — | |
Other assets | | Other assets | 158,352 | | | — | |
Total non-cash assets acquired | | Total non-cash assets acquired | $ | 8,129,164 | | | $ | — | |
Liabilities assumed: | | Liabilities assumed: | | | |
Deposits | | Deposits | 7,029,997 | | | — | |
Short-term borrowings | | Short-term borrowings | 103,794 | | | — | |
Lease liabilities | | Lease liabilities | 79,844 | | | — | |
Accrued expenses and other liabilities | | Accrued expenses and other liabilities | 119,240 | | | — | |
Total liabilities assumed | | Total liabilities assumed | $ | 7,332,875 | | | $ | — | |
Non-cash net assets acquired | | Non-cash net assets acquired | $ | 796,289 | | | $ | — | |
Net cash and cash equivalents acquired in acquisition | | Net cash and cash equivalents acquired in acquisition | $ | 321,540 | | | $ | — | |
Common stock issued in acquisition | | Common stock issued in acquisition | $ | 1,117,829 | | | $ | — | |
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 statements of Valley National Bancorp, a New Jersey corporation (Valley), include the accounts of its commercial bank subsidiary, Valley National Bank (the 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. 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.presentation, including changes to our segment reporting structure, as further discussed in Note 9 and Note 15.
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 September 30, 20212022 and for all periods presented have been made. The results of operations for the three and nine months ended September 30, 20212022 are not necessarily indicative of the results to be expected for the entire fiscal year or 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, 2020.2021.
Significant 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 change include: the allowance for credit losses, the evaluation of goodwill 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 changes in values and circumstances after the balance sheet date.
Note 2. Business Combinations
The Westchester Bank HoldingLeumi Le-Israel Corporation. On June 29, 2021,April 1, 2022, Valley announced that it will acquire The Westchester Bank Holding Corporation (“Westchester”) andcompleted its principal subsidiary, The Westchester Bank which is headquartered in White Plains, New York. Asacquisition of June 30, 2021, Westchester had total assets of $1.3 billion, total loans of $908 million, and total deposits of $1.1 billion. Westchester maintains a seven branch network in Westchester County, New York. The common shareholders of Westchester will receive 229.645 shares of Valley common stock for each Westchester share they own. Based on Valley’s closing stock price on June 28, 2021, Westchester’s stockholders will receive approximately $210 million in Valley common stock. Existing Westchester options will be cashed out for approximately $10 million in cash. Valley has received all the requisite regulatory approvals to complete the merger which is anticipated to close on December 1, 2021, pending the satisfaction of customary closing conditions.
Bank Leumi Le-Israel Corporation. On September 23, 2021, Valley announced that it will acquire Bank Leumi Le-Israel Corporation, (“Leumi”), the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, (“Bank Leumi”)collectively referred to as "Bank Leumi USA". Bank Leumi maintainsUSA maintained its headquarters in New York City and also haswith commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida. The common shareholders of Bank Leumi USA received 3.8025 shares of Valley common stock and $5.08 in cash for each Bank Leumi USA common share that they owned. As a result, Valley issued approximately 85 million shares of Junecommon stock and paid $113.4 million in cash in the transaction. Based on Valley’s closing stock price on 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.
The transaction was accounted for under the acquisition method of accounting and accordingly the results of Bank Leumi USA's operations have been included in Valley's consolidated financial statements for the three and nine months ended September 30, 2021, Leumi had total2022 from the date of the acquisition.
The following table sets forth assets acquired and liabilities assumed in the Bank Leumi USA acquisition, at their estimated fair values as of $8.4the 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 | 403,151 | |
Other intangible assets | 153,380 | |
Other assets | 158,352 | |
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 | |
The determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available.
Fair Value Measurement of Assets Acquired and Liabilities Assumed
Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Bank Leumi USA acquisition.
Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.
Investment securities. The estimated fair value of equity securities, which represents a privately held Community Reinvestment Act (CRA) fund, was measured at net asset value (NAV). Other investment securities acquired from Bank Leumi USA were classified as available for sale and held to maturity debt securities based on Valley's intent at the acquisition date. Their estimated fair values were calculated utilizing Level 2 inputs similar to the valuation techniques used for Valley's investment portfolios detailed in Note 6.
Loans. The acquired loan portfolio was recorded at its estimated fair value based on a discounted cash flow methodology. The acquired loan portfolio was segregated into categories for valuation purposes primarily based on loan type and loan risk rating. The estimated fair value incorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and other market factors such as liquidity from a market participant perspective. Management estimated the cash flows expected to be collected at the acquisition date by using valuation models that incorporated loan contractual characteristics (such as payment type, amortization type, and term to maturity) as well as estimates of key valuation assumptions (such as prepayment speeds, default rates, and loss severity rates).
The expected cash flows from the acquired loan portfolios were discounted to present value based on estimated market rates. The market rates were estimated using a buildup approach based on the following components: funding cost, servicing cost, and consideration of liquidity premium. In addition, coupon rates for recently originated loans and available market data regarding origination rates were also considered in the analysis. The methods used to estimate the Level 3 fair values of loans are sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets.
The acquired loans were also evaluated upon acquisition to determine whether they represented purchased credit-deteriorated (PCD) loans, defined as loans which have experienced a more-than-insignificant deterioration in credit quality since origination. Valley considered a variety of factors in assessing loans the PCD classification, including but not limited to risk grades, delinquency, non-performing status, current or previous troubled debt restructurings, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination.
For PCD loans, an initial allowance was determined based on Valley’s CECL methodology and was added to the acquisition date fair value of each PCD loan to establish its initial amortized cost basis. The difference between the unpaid principal balance of loans and the calculated amortized cost basis resulted in a net non-credit discount totaling $18.8 million. This net discount will be accreted into interest income over the loan's remaining life using the effective interest method.
The following table provides a reconciliation of the unpaid principal balance and fair value of loans identified as PCD acquired from Bank Leumi USA:
| | | | | | | | |
| | April 1, 2022 |
| | ($ in thousands) |
Unpaid Principal Balance of PCD loans | | $ | 1,922,272 | |
Allowance for credit losses at acquisition * | | (70,319) | |
Non-credit discount at acquisition | | (18,814) | |
Fair value of acquired PCD loans | | $ | 1,833,139 | |
* Represents the initial reserve for PCD loans, reported net of an additional $62.4 million charge-offs recognized at the date of acquisition in accordance with Valley's charge-off policy.
Other intangible assets. Other intangible assets recorded consist of core deposit intangibles (CDI) and other acquired client relationships. CDI assets are measures of the value of non-maturity checking, savings, NOW and
money market customer deposits that are acquired in a business combination. The fair value for CDI was estimated based on a discounted cash flow methodology considering expected customer attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the interest costs associated with the customer deposits. The CDI is amortized using an accelerated amortization method over an estimated useful life of 10 years. For other acquired client relationships, fair value is measured using the multi-period excess earnings methodology under the income approach. This method measures the future economic income that can be attributed to the existing client relationships acquired, after considering revenue and expense assumptions, expected client attrition rates, and subtracting returns for other complementary assets that contribute to the income over their expected remaining useful lives. The resulting net cash flows are discounted to present value using an estimated intangible asset discount rate. The other acquired client relationships are amortized using an accelerated amortization method over an estimated remaining useful life of 14 years.
Deposits. The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing accounts and savings, NOW and money market accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities.
Supplemental Pro Forma Financial Information (Unaudited). The following table summarizes supplemental pro forma financial information giving effect to the merger as if it had been completed on January 1, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| | | (in thousands) |
Net interest income | | | $ | 453,992 | | $ | 371,178 | | $ | 1,261,442 | | $ | 1,099,597 |
Non-interest income | | | 56,194 | | 58,931 | | 175,488 | | 164,458 |
Net income | | | 178,119 | | 139,666 | | 478,891 | | 351,489 |
The supplemental pro forma financial information does not necessarily reflect the results of operations that would have occurred had Valley merged with Bank Leumi USA on January 1, 2021. Costs savings and other business synergies related to the merger are not included in the supplemental pro forma financial information.
Other Recent Acquisitions
Landmark Insurance of the Palm Beaches. On February 1, 2022, the Bank's insurance agency subsidiary, Valley Insurance Services, acquired Landmark Insurance of the Palm Beaches Inc. (Landmark) agency. The purchase price included $8.6 million in cash and $1.0 million in contingent consideration. Goodwill and other intangible assets totaled $4.4 million and $6.2 million, respectively. The transaction was accounted for under the acquisition method of accounting and accordingly the results of Landmark's operations have been included in Valley's consolidated financial statements for the three and nine months ended September 30, 2022 from the date of acquisition.
The Westchester Bank Holding Corporation. On December 1, 2021, Valley completed its acquisition of The Westchester Bank Holding Corporation (Westchester) and its principal subsidiary, The Westchester Bank, which was headquartered in White Plains, New York. As of December 1, 2021, Westchester had approximately $1.4 billion totalin assets, $915.0 million in loans, and $1.2 billion in deposits, after purchase accounting adjustments, and a branch network of $7.1 billion, and gross loans of $5.4 billion.seven locations in Westchester County, New York. The common stockholdersshareholders of Leumi will receive 3.8025Westchester received 229.645 shares of Valley common stock and $5.08 in cash (subject to specified adjustments) for each Leumi commonWestchester share they own. Based on Valley’s closing stock price onowned prior to the merger. The total consideration for the merger was $211.1 million, consisting of approximately 15.7 million shares of Valley common stock.
During the nine months ended September 22, 2021,30, 2022, Valley revised the transaction is valued at an estimated $1.1 billion, inclusivefair values of the value of options and upon completionacquired assets as of the acquisition Leumi will own approximately 14 percentdate of Valley's common stock. The acquisition is expected to close in the first half of 2022, subject to standard regulatory approvals, approval of Valley shareholders, as well as other customary closing conditions.
Dudley Ventures. On October 8, 2021, Valley acquired Arizona-based Dudley Ventures (DV), an advisory firm specializing in the investment and management of tax credits. The transaction includes the acquisition of DV's community development entity, DV Community Investment, as well as DV Fund Advisors and DV Advisory Services. The transaction price included $11.3 million of cash at the closing date, fixed future stock consideration totaling $3.8 million, and contingent cash earn-out paymentsWestchester based upon revenue growthadditional information obtained that existed as of the acquired entities over a five-year period.
Merger expensesDecember 1, 2021. The adjustments related to the above acquisitionsfair value of deferred tax assets and resulted in a $5.0 million increase in goodwill (see Note 9 for more information). If additional information (that existed as of the acquisition date)
becomes available, the fair value estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date.
Merger expenses mainly related to the Bank Leumi USA acquisition above totaled $1.3$4.7 million and $63.8 million for the three and nine months ended September 30, 20212022, respectively. The merger expenses largely consisted of salaries and primarily consisted ofbenefits expense; technology, furniture and equipment expense; and professional and legal fees.fees within non-interest expense on the consolidated statements of income. Valley incurred merger related expenses of $1.3 million during the three and nine months ended September 30, 2021. Incremental merger expenses related to this acquisition are expected to be incurred in future periods, including professional fees, technology and other expenses related to back office consolidation of the Bank operations.
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 nine months ended September 30, 20212022 and 2020:2021:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (in thousands, except for share data) | | (in thousands, except for share data) |
Net income available to common shareholders | Net income available to common shareholders | $ | 119,408 | | | $ | 99,202 | | | $ | 349,286 | | | $ | 275,727 | | Net income available to common shareholders | $ | 174,947 | | | $ | 119,408 | | | $ | 381,744 | | | $ | 349,286 | |
Basic weighted average number of common shares outstanding | Basic weighted average number of common shares outstanding | 406,824,160 | | | 403,833,469 | | | 405,986,114 | | | 403,714,701 | | Basic weighted average number of common shares outstanding | 506,342,200 | | | 406,824,160 | | | 478,383,342 | | | 405,986,114 | |
Plus: Common stock equivalents | Plus: Common stock equivalents | 2,413,841 | | | 955,057 | | | 2,523,653 | | | 1,197,425 | | Plus: Common stock equivalents | 2,348,797 | | | 2,413,841 | | | 2,242,015 | | | 2,523,653 | |
Diluted weighted average number of common shares outstanding | Diluted weighted average number of common shares outstanding | 409,238,001 | | | 404,788,526 | | | 408,509,767 | | | 404,912,126 | | Diluted weighted average number of common shares outstanding | 508,690,997 | | | 409,238,001 | | | 480,625,357 | | | 408,509,767 | |
Earnings per common share: | Earnings per common share: | | | | | | | | Earnings per common share: | | | | | | | |
Basic | Basic | $ | 0.29 | | | $ | 0.25 | | | $ | 0.86 | | | $ | 0.68 | | Basic | $ | 0.35 | | | $ | 0.29 | | | $ | 0.80 | | | $ | 0.86 | |
Diluted | Diluted | 0.29 | | | 0.25 | | | 0.86 | | | 0.68 | | Diluted | 0.34 | | | 0.29 | | | 0.79 | | | 0.86 | |
Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units and common stock options to purchase Valley’s common shares. Common stock options 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 along with restricted stock units. Potential anti-dilutive weighted common shares werewere immaterial for the three and nine months ended September 30, 2021, respectively, as compared to 4.9 million2022 and 2.2 million shares for the three and nine months ended September 30, 2020, respectively.2021.
Note 4. Accumulated Other Comprehensive Loss
The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2021:2022:
| | | Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss | | 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 Plan | | | Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Unrealized Gains and Losses on Derivatives | | Defined Benefit Pension Plan | |
| | (in thousands) | | (in thousands) |
Balance at June 30, 2021 | $ | 21,503 | | | $ | (2,694) | | | $ | (36,544) | | | $ | (17,735) | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | $ | (81,985) | | | $ | (831) | | | $ | (25,521) | | | $ | (108,337) | |
Other comprehensive loss before reclassification | Other comprehensive loss before reclassification | (3,953) | | | (96) | | | — | | | (4,049) | | Other comprehensive loss before reclassification | (57,242) | | | (85) | | | — | | | (57,327) | |
Amounts reclassified from other comprehensive (loss) income | Amounts reclassified from other comprehensive (loss) income | (613) | | | 743 | | | 279 | | | 409 | | Amounts reclassified from other comprehensive (loss) income | (12) | | | (13) | | | 132 | | | 107 | |
Other comprehensive (loss) income, net | Other comprehensive (loss) income, net | (4,566) | | | 647 | | | 279 | | | (3,640) | | Other comprehensive (loss) income, net | (57,254) | | | (98) | | | 132 | | | (57,220) | |
Balance at September 30, 2021 | $ | 16,937 | | | $ | (2,047) | | | $ | (36,265) | | | $ | (21,375) | | |
Balance at September 30, 2022 | | Balance at September 30, 2022 | $ | (139,239) | | | $ | (929) | | | $ | (25,389) | | | $ | (165,557) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 Plan | |
| (in thousands) |
Balance at December 31, 2020 | $ | 33,290 | | | $ | (3,906) | | | $ | (37,102) | | | $ | (7,718) | |
Other comprehensive loss before reclassification | (15,860) | | | (69) | | | — | | | (15,929) | |
Amounts reclassified from other comprehensive (loss) income | (493) | | | 1,928 | | | 837 | | | 2,272 | |
Other comprehensive (loss) income, net | (16,353) | | | 1,859 | | | 837 | | | (13,657) | |
Balance at September 30, 2021 | $ | 16,937 | | | $ | (2,047) | | | $ | (36,265) | | | $ | (21,375) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 Plan | |
| (in thousands) |
Balance at December 31, 2021 | $ | 9,186 | | | $ | (1,332) | | | $ | (25,786) | | | $ | (17,932) | |
Other comprehensive (loss) gain before reclassification | (148,403) | | | 110 | | | — | | | (148,293) | |
Amounts reclassified from other comprehensive (loss) income | (22) | | | 293 | | | 397 | | | 668 | |
Other comprehensive (loss) income, net | (148,425) | | | 403 | | | 397 | | | (147,625) | |
Balance at September 30, 2022 | $ | (139,239) | | | $ | (929) | | | $ | (25,389) | | | $ | (165,557) | |
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 nine months ended September 30, 20212022 and 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amounts Reclassified from Accumulated Other Comprehensive Loss | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
Components of Accumulated Other Comprehensive Loss | | 2021 | | 2020 | | 2021 | | 2020 | | Income Statement Line Item |
| | (in thousands) | | |
Unrealized gains (losses) on AFS securities before tax | | $ | 825 | | | $ | (46) | | | $ | 663 | | | $ | (127) | | | Gains (losses) on securities transactions, net |
Tax effect | | (212) | | | 10 | | | (170) | | | 33 | | | |
Total net of tax | | 613 | | | (36) | | | 493 | | | (94) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Unrealized losses on derivatives (cash flow hedges) before tax | | (1,044) | | | (1,586) | | | (2,708) | | | (1,763) | | | Interest expense |
Tax effect | | 301 | | | 459 | | | 780 | | | 506 | | | |
Total net of tax | | (743) | | | (1,127) | | | (1,928) | | | (1,257) | | | |
Defined benefit pension plan: | | | | | | | | | | |
Amortization of actuarial net loss | | (388) | | | (234) | | | (1,163) | | | (699) | | | * |
| | | | | | | | | | |
Tax effect | | 109 | | | 63 | | | 326 | | | 184 | | | |
Total net of tax | | (279) | | | (171) | | | (837) | | | (515) | | | |
Total reclassifications, net of tax | | $ | (409) | | | $ | (1,334) | | | $ | (2,272) | | | $ | (1,866) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amounts Reclassified from Accumulated Other Comprehensive Loss | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
Components of Accumulated Other Comprehensive Loss | | 2022 | | 2021 | | 2022 | | 2021 | | Income Statement Line Item |
| | (in thousands) | | |
Unrealized gains on AFS securities before tax | | $ | 16 | | | $ | 825 | | | $ | 30 | | | $ | 663 | | | Gains (losses) on securities transactions, net |
Tax effect | | (4) | | | (212) | | | (8) | | | (170) | | | |
Total net of tax | | 12 | | | 613 | | | 22 | | | 493 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Unrealized gains (losses) on derivatives (cash flow hedges) before tax | | 21 | | | (1,044) | | | (405) | | | (2,708) | | | Interest expense |
Tax effect | | (8) | | | 301 | | | 112 | | | 780 | | | |
Total net of tax | | 13 | | | (743) | | | (293) | | | (1,928) | | | |
Defined benefit pension plan: | | | | | | | | | | |
Amortization of actuarial net loss | | (183) | | | (388) | | | (550) | | | (1,163) | | | * |
| | | | | | | | | | |
Tax effect | | 51 | | | 109 | | | 153 | | | 326 | | | |
Total net of tax | | (132) | | | (279) | | | (397) | | | (837) | | | |
Total reclassifications, net of tax | | $ | (107) | | | $ | (409) | | | $ | (668) | | | $ | (2,272) | | | |
| | | | | |
* | Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense. |
Note 5. New Authoritative Accounting Guidance
New Accounting Guidance Adopted in 20212022
Accounting Standards Update (ASU) No. 2020-08, "Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs" provides clarification and affects the guidance previously issued by ASU No. 2017-08 “Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” ASU No. 2020-08 clarifies that an entity should reevaluate whether a debt security with multiple call dates is within the scope of paragraph 310-20-35-33. For each reporting period, to the extent that the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the premium should be amortized to the next call date, unless the guidance to consider estimated prepayments is applied. Valley adopted ASU No. 2020-08 on January 1, 2021 and the new guidance did not have a significant impact on Valley’s consolidated financial statements.
2021-01
New Accounting Guidance issued in 2021
ASU No. 2021-01 "Reference Rate Reform (Topic 848)" extends some ofof Accounting Standards Codification Topic 848’s optional expedients to derivative contracts impacted by the discounting transition, including for derivatives that do not reference LIBOR or other reference rates that are expected to be discontinued. ASU No. 2021-01 is effective for all entities immediately upon issuance and may be elected retrospectively to eligible modifications as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications made on or after any date within the interim period including January 7, 2021 and it can be applied through December 31, 2022, similar to the other reference rate reform relief provided under Topic 848. The ASU No. 2021-01 is not expected to have a significant impact on Valley’s consolidated financial statements.
ASU No. 2021-05 "Lessors – Certain Leases with Variable Lease Payments". The ASU No. 2021-05 updates guidance in Accounting Standards Codification (ASC)ASC 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an
operating lease at lease commencement if: (i) the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria; and (ii) the lessor would have recognized a selling loss at lease commencement. Valley adopted ASU No. 2021-05 on January 1, 2022, and the new guidance did not have a significant impact on Valley’s consolidated financial statements.
New Accounting Guidance Issued in 2022
ASU No. 2022-01, “Derivatives and Hedging (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 designate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged. ASU No. 2022-01 also clarifies that no assets may be added to a closed portfolio once it is designated in a portfolio layer method hedge. ASU No. 2022-01 will be effective for Valley for fiscal years and interim periods beginning after December 15, 2021, with early adoption permitted. Theon January 1, 2023. Valley is currently evaluating the impact of ASU No. 2021-052022-01 but it is not expected to have a significant impact on Valley’sValley'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 will require all loan modifications to be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities will also be 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 also will be required to prospectively disclose current-period gross write-off information by vintage. However, gross recoveries will not be required. ASU No. 2022-02 will be effective for Valley on January 1, 2023, with early adoption permitted. Valley is currently evaluating the impact of ASU No. 2022-02 on its consolidated financial statements.
ASU No. 2022-03, "Fair Value Measurement of Equity Securities subject to Contractual Sale Restrictions” updates guidance in ASC 820, Fair Value Measurement and clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities including (i) the nature and remaining duration of the restriction; (ii) the circumstances that could cause a lapse in restrictions; and (iii) the fair value of the securities with contractual sale restrictions. ASU No. 2022-03 will be effective for Valley on January 1, 2024, and it can be applied prospectively, with any adjustments resulting from adoption recognized in earnings on the date of adoption. The adoption of ASU No. 2022-03 is not expected to have a significant impact on Valley's consolidated financial statements.
Note 6. Fair Value Measurement of Assets and Liabilities
ASC Topic 820, “Fair Value Measurements” 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 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).
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 non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at September 30, 20212022 and December 31, 2020.2021. The assets presented under “non-recurring fair value measurements” in the tables 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, 2021 | | Fair Value Measurements at Reporting Date Using: | | September 30, 2022 | | 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: | | Recurring fair value measurements: | |
Assets | Assets | | Assets | |
Investment securities: | Investment securities: | | Investment securities: | |
Equity securities (1) | Equity securities (1) | $ | 32,300 | | | $ | 20,890 | | | $ | — | | | $ | — | | Equity securities (1) | $ | 34,942 | | | $ | 23,917 | | | $ | — | | | $ | — | |
Trading debt securities | Trading debt securities | 4,797 | | | — | | | 4,797 | | | — | | Trading debt securities | 4,100 | | | 2,915 | | | 1,185 | | | — | |
Available for sale debt securities: | Available for sale debt securities: | | Available for sale debt securities: | |
| U.S. Treasury securities | | U.S. Treasury securities | 277,902 | | | 277,902 | | | — | | | — | |
U.S. government agency securities | U.S. government agency securities | 21,442 | | | — | | | 21,442 | | | — | | U.S. government agency securities | 26,821 | | | — | | | 26,821 | | | — | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 83,149 | | | — | | | 83,149 | | | — | | Obligations of states and political subdivisions | 141,563 | | | — | | | 141,563 | | | — | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 992,828 | | | — | | | 992,828 | | | — | | Residential mortgage-backed securities | 646,665 | | | — | | | 646,665 | | | — | |
Corporate and other debt securities | Corporate and other debt securities | 110,858 | | | — | | | 110,858 | | | — | | Corporate and other debt securities | 178,903 | | | — | | | 178,903 | | | — | |
Total available for sale debt securities | Total available for sale debt securities | 1,208,277 | | | — | | | 1,208,277 | | | — | | Total available for sale debt securities | 1,271,854 | | | 277,902 | | | 993,952 | | | — | |
Loans held for sale (2) | Loans held for sale (2) | 157,084 | | | — | | | 157,084 | | | — | | Loans held for sale (2) | 6,073 | | | — | | | 6,073 | | | — | |
Other assets (3) | Other assets (3) | 215,919 | | | — | | | 215,919 | | | — | | Other assets (3) | 594,116 | | | — | | | 594,116 | | | — | |
Total assets | Total assets | $ | 1,618,377 | | | $ | 20,890 | | | $ | 1,586,077 | | | $ | — | | Total assets | $ | 1,911,085 | | | $ | 304,734 | | | $ | 1,595,326 | | | $ | — | |
Liabilities | Liabilities | | | | | | | | Liabilities | | | | | | | |
Other liabilities (3) | Other liabilities (3) | $ | 66,733 | | | $ | — | | | $ | 66,733 | | | $ | — | | Other liabilities (3) | $ | 625,656 | | | $ | — | | | $ | 625,656 | | | $ | — | |
Total liabilities | Total liabilities | $ | 66,733 | | | $ | — | | | $ | 66,733 | | | $ | — | | Total liabilities | $ | 625,656 | | | $ | — | | | $ | 625,656 | | | $ | — | |
Non-recurring fair value measurements: | Non-recurring fair value measurements: | | | | | | | | Non-recurring fair value measurements: | | | | | | | |
| Collateral dependent loans | Collateral dependent loans | $ | 68,162 | | | $ | — | | | $ | — | | | $ | 68,162 | | Collateral dependent loans | $ | 73,108 | | | $ | — | | | $ | — | | | $ | 73,108 | |
| Foreclosed assets | Foreclosed assets | 2,037 | | | — | | | — | | | 2,037 | | Foreclosed assets | 1,122 | | | — | | | — | | | 1,122 | |
Total | Total | $ | 70,199 | | | $ | — | | | $ | — | | | $ | 70,199 | | Total | $ | 74,230 | | | $ | — | | | $ | — | | | $ | 74,230 | |
| | | | | Fair Value Measurements at Reporting Date Using: | | | | Fair Value Measurements at Reporting Date Using: |
| | December 31, 2020 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | December 31, 2021 | | 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: | | Recurring fair value measurements: | |
Assets | Assets | | Assets | |
Investment securities: | Investment securities: | | Investment securities: | |
Equity securities (1) | Equity securities (1) | $ | 26,379 | | | $ | 18,600 | | | $ | — | | | $ | — | | Equity securities (1) | $ | 32,844 | | | $ | 21,284 | | | $ | — | | | $ | — | |
Trading debt securities | | Trading debt securities | 38,130 | | | — | | | 38,130 | | | — | |
Available for sale debt securities: | Available for sale debt securities: | | Available for sale debt securities: | |
U.S. Treasury securities | 51,393 | | | 51,393 | | | — | | | — | | |
| U.S. government agency securities | U.S. government agency securities | 26,157 | | | — | | | 26,157 | | | — | | U.S. government agency securities | 20,925 | | | — | | | 20,925 | | | — | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 79,950 | | | — | | | 79,135 | | | 815 | | Obligations of states and political subdivisions | 79,890 | | | — | | | 79,890 | | | — | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1,090,022 | | | — | | | 1,090,022 | | | — | | Residential mortgage-backed securities | 904,502 | | | — | | | 904,502 | | | — | |
| Corporate and other debt securities | Corporate and other debt securities | 91,951 | | | — | | | 91,951 | | | — | | Corporate and other debt securities | 123,492 | | | — | | | 123,492 | | | — | |
Total available for sale | 1,339,473 | | | 51,393 | | | 1,287,265 | | | 815 | | |
Total available for sale debt securities | | Total available for sale debt securities | 1,128,809 | | | — | | | 1,128,809 | | | — | |
| Loans held for sale (2) | Loans held for sale (2) | 301,427 | | | — | | | 301,427 | | | — | | Loans held for sale (2) | 139,516 | | | — | | | 139,516 | | | — | |
Other assets (3) | Other assets (3) | 387,452 | | | — | | | 387,452 | | | — | | Other assets (3) | 181,500 | | | — | | | 181,500 | | | — | |
Total assets | Total assets | $ | 2,054,731 | | | $ | 69,993 | | | $ | 1,976,144 | | | $ | 815 | | Total assets | $ | 1,520,799 | | | $ | 21,284 | | | $ | 1,487,955 | | | $ | — | |
Liabilities | Liabilities | | | | | | | | Liabilities | | | | | | | |
Other liabilities (3) | Other liabilities (3) | $ | 156,281 | | | $ | — | | | $ | 156,281 | | | $ | — | | Other liabilities (3) | $ | 52,376 | | | $ | — | | | $ | 52,376 | | | $ | — | |
Total liabilities | Total liabilities | $ | 156,281 | | | $ | — | | | $ | 156,281 | | | $ | — | | Total liabilities | $ | 52,376 | | | $ | — | | | $ | 52,376 | | | $ | — | |
Non-recurring fair value measurements: | Non-recurring fair value measurements: | | | | | | | | Non-recurring fair value measurements: | | | | | | | |
Collateral dependent impaired loans | $ | 35,228 | | | $ | — | | | $ | — | | | $ | 35,228 | | |
Loan servicing rights | 15,603 | | | — | | | — | | | 15,603 | | |
Collateral dependent loans | | Collateral dependent loans | $ | 47,871 | | | $ | — | | | $ | — | | | $ | 47,871 | |
Foreclosed assets | Foreclosed assets | 7,387 | | | — | | | — | | | 7,387 | | Foreclosed assets | 2,931 | | | — | | | — | | | 2,931 | |
Total | Total | $ | 58,218 | | | $ | — | | | $ | — | | | $ | 58,218 | | Total | $ | 50,802 | | | $ | — | | | $ | — | | | $ | 50,802 | |
(1)Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $11.4$11.0 million and $7.8$11.6 million at September 30, 20212022 and December 31, 2020,2021, respectively. These securities have not been classified in the fair value hierarchy.
(2)Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $152.4$6.2 million and $286.4$136.3 million at September 30, 20212022 and December 31, 2020,2021, respectively.
(3)Derivative financial instruments are included in this category.
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, Community Reinvestment Act (CRA)a CRA investment fund and an investment related to the development of new financial technologies that are carried at quoted prices in active markets. Valley also has privately held CRA funds measured at NAV, which are excluded from fair value hierarchy levels in the tables above.
Trading debt securities.The fair value of trading Trading debt securities consistingconsist of U.S Treasury securities and municipal bonds is reported at fair value utilizing Level 1 and Level 2 inputs.inputs, respectively. The prices for these investmentsmunicipal bonds are 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. When applicable, U.S. Treasury 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-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for sale debt securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.
Loans held for sale. 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. 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. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at September 30, 20212022 and December 31, 20202021 based on the short duration these assets were held, and the credit quality of these loans.
Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR, Overnight Index Swap and Secured Overnight Financing Rate (SOFR) curves for all cleared derivatives. 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 September 30, 20212022 and December 31, 2020)2021), is determined based on the current market prices for similar 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 September 30, 20212022 and December 31, 2020.2021.
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 non-recurring basis, including collateral 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.
Collateral Dependent Loansdependent loans. Collateral 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. Collateral values are estimated using Level 3 inputs, consisting of individual third-party appraisals that may be adjusted based on certain discounting criteria. Certain real estate appraisals may be discounted based on specific market data by location and property type. At September 30, 2021,2022, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses based on the fair value of the underlying collateral. At September 30, 2021,2022, collateral dependent loans with a total amortized cost of $136.1$171.3 million, including our taxi medallion loan portfolio, were reduced by specific allowance for loan losses allocations totaling $67.9$98.2 million to a reported total net carrying amount of $68.2$73.1 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, 2021, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 13.6 percent and a discount rate of 9.0 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. At September 30, 2021, there was no re-measurement of loan servicing rights at fair value. See Note 9 for additional information.
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
using Level 3 inputs, consisting of a third-party appraisal less estimated cost to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for 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. TheThere were no adjustments to the appraisals of foreclosed assets ranged from 0.6 percent to 4.6 percentat September 30, 2021.2022.
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, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at September 30, 20212022 and December 31, 20202021 were as follows:
| | | Fair Value Hierarchy | | September 30, 2021 | | December 31, 2020 | | Fair Value Hierarchy | | September 30, 2022 | | December 31, 2021 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | (in thousands) | | | | (in thousands) |
Financial assets | Financial assets | | Financial assets | |
Cash and due from banks | Cash and due from banks | Level 1 | | $ | 304,912 | | | $ | 304,912 | | | $ | 257,845 | | | $ | 257,845 | | Cash and due from banks | Level 1 | | $ | 431,471 | | | $ | 431,471 | | | $ | 205,156 | | | $ | 205,156 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | Level 1 | | 1,195,244 | | | 1,195,244 | | | 1,071,360 | | | 1,071,360 | | Interest bearing deposits with banks | Level 1 | | 686,877 | | | 686,877 | | | 1,844,764 | | | 1,844,764 | |
Equity securities (1) | Equity securities (1) | Level 3 | | 3,768 | | | 3,768 | | | 2,999 | | | 2,999 | | Equity securities (1) | Level 3 | | 8,376 | | | 8,376 | | | 3,629 | | | 3,629 | |
Held to maturity debt securities: | Held to maturity debt securities: | | Held to maturity debt securities: | |
U.S. Treasury securities | U.S. Treasury securities | Level 1 | | 67,716 | | | 72,898 | | | 68,126 | | | 75,484 | | U.S. Treasury securities | Level 1 | | 67,075 | | | 66,030 | | | 67,558 | | | 71,661 | |
U.S. government agency securities | U.S. government agency securities | Level 2 | | 4,817 | | | 5,015 | | | 6,222 | | | 6,513 | | U.S. government agency securities | Level 2 | | 259,869 | | | 214,314 | | | 6,265 | | | 6,378 | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | Level 2 | | 353,406 | | | 360,903 | | | 470,259 | | | 484,506 | | Obligations of states and political subdivisions | Level 2 | | 471,189 | | | 430,134 | | | 337,962 | | | 344,164 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | Level 2 | | 2,072,700 | | | 2,076,597 | | | 1,550,306 | | | 1,589,655 | | Residential mortgage-backed securities | Level 2 | | 2,811,582 | | | 2,373,581 | | | 2,166,142 | | | 2,152,301 | |
Trust preferred securities | Trust preferred securities | Level 2 | | 37,014 | | | 31,507 | | | 37,348 | | | 30,033 | | Trust preferred securities | Level 2 | | 37,038 | | | 31,417 | | | 37,020 | | | 31,916 | |
Corporate and other debt securities | Corporate and other debt securities | Level 2 | | 48,750 | | | 49,391 | | | 40,750 | | | 41,421 | | Corporate and other debt securities | Level 2 | | 75,267 | | | 71,176 | | | 53,750 | | | 54,185 | |
Total held to maturity debt securities (2) | Total held to maturity debt securities (2) | | 2,584,403 | | | 2,596,311 | | | 2,173,011 | | | 2,227,612 | | Total held to maturity debt securities (2) | | 3,722,020 | | | 3,186,652 | | | 2,668,697 | | | 2,660,605 | |
Net loans | Net loans | Level 3 | | 32,264,287 | | | 32,113,934 | | | 31,876,869 | | | 31,635,060 | | Net loans | Level 3 | | 44,710,020 | | | 41,945,829 | | | 33,794,455 | | | 33,283,251 | |
Accrued interest receivable | Accrued interest receivable | Level 1 | | 98,073 | | | 98,073 | | | 106,230 | | | 106,230 | | Accrued interest receivable | Level 1 | | 159,406 | | | 159,406 | | | 96,882 | | | 96,882 | |
Federal Reserve Bank and Federal Home Loan Bank stock (3) | Federal Reserve Bank and Federal Home Loan Bank stock (3) | Level 2 | | 207,701 | | | 207,701 | | | 250,116 | | | 250,116 | | Federal Reserve Bank and Federal Home Loan Bank stock (3) | Level 2 | | 267,319 | | | 267,319 | | | 206,450 | | | 206,450 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits without stated maturities | Deposits without stated maturities | Level 1 | | 29,672,322 | | | 29,672,322 | | | 25,220,924 | | | 25,220,924 | | Deposits without stated maturities | Level 1 | | 38,980,287 | | | 38,980,287 | | | 31,945,368 | | | 31,945,368 | |
Deposits with stated maturities | Deposits with stated maturities | Level 2 | | 3,960,283 | | | 3,957,008 | | | 6,714,678 | | | 6,639,022 | | Deposits with stated maturities | Level 2 | | 6,328,556 | | | 6,194,389 | | | 3,687,044 | | | 3,670,113 | |
Short-term borrowings | Short-term borrowings | Level 1 | | 783,346 | | | 765,636 | | | 1,147,958 | | | 1,151,478 | | Short-term borrowings | Level 1 | | 919,283 | | | 883,100 | | | 655,726 | | | 637,490 | |
Long-term borrowings | Long-term borrowings | Level 2 | | 1,427,444 | | | 1,417,368 | | | 2,295,665 | | | 2,405,345 | | Long-term borrowings | Level 2 | | 1,541,097 | | | 1,424,946 | | | 1,423,676 | | | 1,404,184 | |
Junior subordinated debentures issued to capital trusts | Junior subordinated debentures issued to capital trusts | Level 2 | | 56,326 | | | 46,057 | | | 56,065 | | | 57,779 | | Junior subordinated debentures issued to capital trusts | Level 2 | | 56,673 | | | 56,543 | | | 56,413 | | | 46,306 | |
Accrued interest payable (4) | Accrued interest payable (4) | Level 1 | | 8,824 | | | 8,824 | | | 18,839 | | | 18,839 | | Accrued interest payable (4) | Level 1 | | 16,519 | | | 16,519 | | | 4,909 | | | 4,909 | |
(1)Represents equity securities without a readily determinable fair value measured at cost less impairment, if any.
(2)The carrying amount is presented gross without the allowance for credit losses.
(3)Included in other assets.
(4)Included in accrued expenses and other liabilities.
Note 7. Investment Securities
Equity Securities
Equity securities carried at fair value totaled $36.1$43.3 million and $29.4$36.5 million at September 30, 20212022 and December 31, 2020,2021, respectively. At September 30, 2021, Valley'sSee Note 6 for further details on equity securities consisted of one publicly traded mutual fund, CRA investments and to a lesser extent, equity investments related to the development of new financial technologies. Our CRA and other equity investments are a mixture of both publicly traded entities and privately held entities without readily determinable fair market values.
Trading Debt Securities
The fair value of trading debt securities consisting of municipal bonds, totaled $4.8$4.1 million and $38.1 million at September 30, 2021. We had no trading debt securities at2022 and December 31, 2020.2021, respectively. Net trading gains and losses arewere included in net gains and losses on securities transactions within non-interest income. We recorded net trading losses of $2 thousand$1.2 million and net trading gains of $705 thousand for three andthe nine months ended September 30, 2022and 2021, respectively. The net trading gains and losses for the three months ended September 30, 2022 and 2021 were not material.
Available for Sale Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities at September 30, 20212022 and December 31, 20202021 were as follows:
| | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | (in thousands) | | (in thousands) |
September 30, 2021 | | |
| September 30, 2022 | | September 30, 2022 | |
U.S. Treasury securities | | U.S. Treasury securities | $ | 306,748 | | | $ | — | | | $ | (28,846) | | | $ | 277,902 | |
U.S. government agency securities | U.S. government agency securities | $ | 20,408 | | | $ | 1,041 | | | $ | (7) | | | $ | 21,442 | | U.S. government agency securities | 29,529 | | | 50 | | | (2,758) | | | 26,821 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 29,752 | | | 239 | | | (39) | | | 29,952 | | Obligations of states and state agencies | 12,576 | | | — | | | (565) | | | 12,011 | |
Municipal bonds | Municipal bonds | 53,186 | | | 440 | | | (429) | | | 53,197 | | Municipal bonds | 173,574 | | | — | | | (44,022) | | | 129,552 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 82,938 | | | 679 | | | (468) | | | 83,149 | | Total obligations of states and political subdivisions | 186,150 | | | — | | | (44,587) | | | 141,563 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 973,543 | | | 21,761 | | | (2,476) | | | 992,828 | | Residential mortgage-backed securities | 744,547 | | | 66 | | | (97,948) | | | 646,665 | |
| Corporate and other debt securities | Corporate and other debt securities | 107,901 | | | 3,262 | | | (305) | | | 110,858 | | Corporate and other debt securities | 197,847 | | | 15 | | | (18,959) | | | 178,903 | |
Total | Total | $ | 1,184,790 | | | $ | 26,743 | | | $ | (3,256) | | | $ | 1,208,277 | | Total | $ | 1,464,821 | | | $ | 131 | | | $ | (193,098) | | | $ | 1,271,854 | |
December 31, 2020 | | | | | | | | |
U.S. Treasury securities | $ | 50,031 | | | $ | 1,362 | | | $ | — | | | $ | 51,393 | | |
December 31, 2021 | | December 31, 2021 | | | | | | | |
| U.S. government agency securities | U.S. government agency securities | 25,067 | | | 1,103 | | | (13) | | | 26,157 | | U.S. government agency securities | $ | 20,323 | | | $ | 608 | | | $ | (6) | | | $ | 20,925 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 40,861 | | | 970 | | | (32) | | | 41,799 | | Obligations of states and state agencies | 26,088 | | | 132 | | | (93) | | | 26,127 | |
Municipal bonds | Municipal bonds | 37,489 | | | 731 | | | (69) | | | 38,151 | | Municipal bonds | 53,530 | | | 349 | | | (116) | | | 53,763 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 78,350 | | | 1,701 | | | (101) | | | 79,950 | | Total obligations of states and political subdivisions | 79,618 | | | 481 | | | (209) | | | 79,890 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1,050,369 | | | 40,426 | | | (773) | | | 1,090,022 | | Residential mortgage-backed securities | 895,279 | | | 14,986 | | | (5,763) | | | 904,502 | |
| Corporate and other debt securities | Corporate and other debt securities | 89,689 | | | 2,294 | | | (32) | | | 91,951 | | Corporate and other debt securities | 120,871 | | | 3,177 | | | (556) | | | 123,492 | |
| Total | Total | $ | 1,293,506 | | | $ | 46,886 | | | $ | (919) | | | $ | 1,339,473 | | Total | $ | 1,116,091 | | | $ | 19,252 | | | $ | (6,534) | | | $ | 1,128,809 | |
The age of unrealized losses and fair value of the related available for sale debt securities at September 30, 20212022 and December 31, 20202021 were as follows:
| | | Less than Twelve Months | | More than Twelve Months | | Total | | Less than Twelve Months | | More than Twelve Months | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (in thousands) | | (in thousands) |
September 30, 2021 | | |
| September 30, 2022 | | September 30, 2022 | |
U.S. Treasury securities | | U.S. Treasury securities | $ | 277,902 | | | $ | (28,846) | | | $ | — | | | $ | — | | | $ | 277,902 | | | $ | (28,846) | |
U.S. government agency securities | U.S. government agency securities | $ | — | | | $ | — | | | $ | 1,355�� | | | $ | (7) | | | $ | 1,355 | | | $ | (7) | | U.S. government agency securities | 22,614 | | | (2,720) | | | 1,142 | | | (38) | | | 23,756 | | | (2,758) | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 10,344 | | | (39) | | | — | | | — | | | 10,344 | | | (39) | | Obligations of states and state agencies | 4,402 | | | (56) | | | 7,610 | | | (509) | | | 12,012 | | | (565) | |
Municipal bonds | Municipal bonds | 25,100 | | | (429) | | | — | | | — | | | 25,100 | | | (429) | | Municipal bonds | 119,722 | | | (40,475) | | | 9,305 | | | (3,547) | | | 129,027 | | | (44,022) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 35,444 | | | (468) | | | — | | | — | | | 35,444 | | | (468) | | Total obligations of states and political subdivisions | 124,124 | | | (40,531) | | | 16,915 | | | (4,056) | | | 141,039 | | | (44,587) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 264,495 | | | (2,138) | | | 12,058 | | | (338) | | | 276,553 | | | (2,476) | | Residential mortgage-backed securities | 376,683 | | | (39,604) | | | 266,591 | | | (58,344) | | | 643,274 | | | (97,948) | |
| Corporate and other debt securities | Corporate and other debt securities | 19,175 | | | (305) | | | — | | | — | | | 19,175 | | | (305) | | Corporate and other debt securities | 160,743 | | | (14,670) | | | 15,145 | | | (4,289) | | | 175,888 | | | (18,959) | |
Total | Total | $ | 319,114 | | | $ | (2,911) | | | $ | 13,413 | | | $ | (345) | | | $ | 332,527 | | | $ | (3,256) | | Total | $ | 962,066 | | | $ | (126,371) | | | $ | 299,793 | | | $ | (66,727) | | | $ | 1,261,859 | | | $ | (193,098) | |
December 31, 2020 | | | | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | | | |
| U.S. government agency securities | U.S. government agency securities | $ | — | | | $ | — | | | $ | 1,479 | | | $ | (13) | | | $ | 1,479 | | | $ | (13) | | U.S. government agency securities | $ | — | | | $ | — | | | $ | 1,326 | | | $ | (6) | | | $ | 1,326 | | | $ | (6) | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | — | | | — | | | 1,010 | | | (32) | | | 1,010 | | | (32) | | Obligations of states and state agencies | 10,549 | | | (93) | | | — | | | — | | | 10,549 | | | (93) | |
Municipal bonds | Municipal bonds | 6,777 | | | (69) | | | — | | | — | | | 6,777 | | | (69) | | Municipal bonds | 19,100 | | | (116) | | | — | | | — | | | 19,100 | | | (116) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 6,777 | | | (69) | | | 1,010 | | | (32) | | | 7,787 | | | (101) | | Total obligations of states and political subdivisions | 29,649 | | | (209) | | | — | | | — | | | 29,649 | | | (209) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 41,418 | | | (500) | | | 27,911 | | | (273) | | | 69,329 | | | (773) | | Residential mortgage-backed securities | 371,256 | | | (4,770) | | | 25,960 | | | (993) | | | 397,216 | | | (5,763) | |
| Corporate and other debt securities | Corporate and other debt securities | 12,517 | | | (32) | | | — | | | — | | | 12,517 | | | (32) | | Corporate and other debt securities | 59,039 | | | (556) | | | — | | | — | | | 59,039 | | | (556) | |
| Total | Total | $ | 60,712 | | | $ | (601) | | | $ | 30,400 | | | $ | (318) | | | $ | 91,112 | | | $ | (919) | | Total | $ | 459,944 | | | $ | (5,535) | | | $ | 27,286 | | | $ | (999) | | | $ | 487,230 | | | $ | (6,534) | |
Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 111743 and 58139 at September 30, 20212022 and December 31, 2020,2021, respectively.
As of September 30, 2021,2022, the fair value of available for sale debt securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $547.5$348.1 million.
The contractual maturities of available for sale debt securities at September 30, 20212022 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, 2021 |
| Amortized Cost | | Fair Value |
| (in thousands) |
Due in one year | $ | 10,183 | | | $ | 10,294 | |
Due after one year through five years | 31,000 | | | 31,750 | |
Due after five years through ten years | 84,781 | | | 87,587 | |
Due after ten years | 85,283 | | | 85,818 | |
Residential mortgage-backed securities | 973,543 | | | 992,828 | |
Total | $ | 1,184,790 | | | $ | 1,208,277 | |
| | | | | | | | | | | |
| September 30, 2022 |
| Amortized Cost | | Fair Value |
| (in thousands) |
Due in one year | $ | 8,593 | | | $ | 8,553 | |
Due after one year through five years | 184,748 | | | 174,982 | |
Due after five years through ten years | 271,404 | | | 246,134 | |
Due after ten years | 255,529 | | | 195,520 | |
Residential mortgage-backed securities | 744,547 | | | 646,665 | |
Total | $ | 1,464,821 | | | $ | 1,271,854 | |
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 4.96.6 years at September 30, 2021.2022.
Impairment Analysis of Available For Sale Debt Securities
Valley's available for sale debt securities portfolio includes corporate bonds and revenue bonds, among other securities. These types of securities may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S. economy and its potential negative effect on the future performance of the security issuers, including due to current economic conditions and the economic effects of the COVID-19 pandemic.
Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. Valley has evaluated available for sale debt securities that are in an unrealized loss position as of September 30, 20212022 included in the table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the three and nine months ended September 30, 20212022 and 2020.2021. There was no allowance for credit losses for available for sale debt securities at September 30, 20212022 and December 31, 2020.2021.
Held to Maturity Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at September 30, 20212022 and December 31, 20202021 were as follows:
| | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | (in thousands) | | (in thousands) |
September 30, 2021 | | |
September 30, 2022 | | September 30, 2022 | |
U.S. Treasury securities | U.S. Treasury securities | $ | 67,716 | | | $ | 5,182 | | | $ | — | | | $ | 72,898 | | U.S. Treasury securities | $ | 67,075 | | | $ | — | | | $ | (1,045) | | | $ | 66,030 | |
U.S. government agency securities | U.S. government agency securities | 4,817 | | | 198 | | | — | | | 5,015 | | U.S. government agency securities | 259,869 | | | — | | | (45,555) | | | 214,314 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 161,929 | | | 3,866 | | | (293) | | | 165,502 | | Obligations of states and state agencies | 88,276 | | | 16 | | | (5,127) | | | 83,165 | |
Municipal bonds | Municipal bonds | 191,477 | | | 4,066 | | | (142) | | | 195,401 | | Municipal bonds | 382,913 | | | 17 | | | (35,961) | | | 346,969 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 353,406 | | | 7,932 | | | (435) | | | 360,903 | | Total obligations of states and political subdivisions | 471,189 | | | 33 | | | (41,088) | | | 430,134 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,072,700 | | | 21,898 | | | (18,001) | | | 2,076,597 | | Residential mortgage-backed securities | 2,811,582 | | | 250 | | | (438,251) | | | 2,373,581 | |
Trust preferred securities | Trust preferred securities | 37,014 | | | 4 | | | (5,511) | | | 31,507 | | Trust preferred securities | 37,038 | | | 1 | | | (5,622) | | | 31,417 | |
Corporate and other debt securities | Corporate and other debt securities | 48,750 | | | 650 | | | (9) | | | 49,391 | | Corporate and other debt securities | 75,267 | | | — | | | (4,091) | | | 71,176 | |
Total | Total | $ | 2,584,403 | | | $ | 35,864 | | | $ | (23,956) | | | $ | 2,596,311 | | Total | $ | 3,722,020 | | | $ | 284 | | | $ | (535,652) | | | $ | 3,186,652 | |
December 31, 2020 | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | |
U.S. Treasury securities | U.S. Treasury securities | $ | 68,126 | | | $ | 7,358 | | | $ | — | | | $ | 75,484 | | U.S. Treasury securities | $ | 67,558 | | | $ | 4,103 | | | $ | — | | | $ | 71,661 | |
U.S. government agency securities | U.S. government agency securities | 6,222 | | | 291 | | | — | | | 6,513 | | U.S. government agency securities | 6,265 | | | 113 | | | — | | | 6,378 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 262,762 | | | 8,060 | | | (105) | | | 270,717 | | Obligations of states and state agencies | 141,015 | | | 3,065 | | | (312) | | | 143,768 | |
Municipal bonds | Municipal bonds | 207,497 | | | 6,292 | | | — | | | 213,789 | | Municipal bonds | 196,947 | | | 3,536 | | | (87) | | | 200,396 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 470,259 | | | 14,352 | | | (105) | | | 484,506 | | Total obligations of states and political subdivisions | 337,962 | | | 6,601 | | | (399) | | | 344,164 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1,550,306 | | | 39,603 | | | (254) | | | 1,589,655 | | Residential mortgage-backed securities | 2,166,142 | | | 14,599 | | | (28,440) | | | 2,152,301 | |
Trust preferred securities | Trust preferred securities | 37,348 | | | 50 | | | (7,365) | | | 30,033 | | Trust preferred securities | 37,020 | | | 5 | | | (5,109) | | | 31,916 | |
Corporate and other debt securities | Corporate and other debt securities | 40,750 | | | 672 | | | (1) | | | 41,421 | | Corporate and other debt securities | 53,750 | | | 559 | | | (124) | | | 54,185 | |
Total | Total | $ | 2,173,011 | | | $ | 62,326 | | | $ | (7,725) | | | $ | 2,227,612 | | Total | $ | 2,668,697 | | | $ | 25,980 | | | $ | (34,072) | | | $ | 2,660,605 | |
The age of unrealized losses and fair value of related debt securities held to maturity at September 30, 20212022 and December 31, 20202021 were as follows:
| | | Less than Twelve Months | | More than Twelve Months | | Total | | Less than Twelve Months | | More than Twelve Months | | Total |
| | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | (in thousands) | | (in thousands) |
September 30, 2021 | | |
September 30, 2022 | | September 30, 2022 | |
U.S. Treasury securities | | U.S. Treasury securities | $ | 66,030 | | | $ | (1,045) | | | $ | — | | | $ | — | | | $ | 66,030 | | | $ | (1,045) | |
U.S. government agency securities | | U.S. government agency securities | 213,129 | | | (45,555) | | | — | | | — | | | 213,129 | | | (45,555) | |
Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | | Obligations of states and state agencies | 69,161 | | | (3,397) | | | 12,403 | | | (1,730) | | | 81,564 | | | (5,127) | |
Municipal bonds | | Municipal bonds | 284,323 | | | (34,193) | | | 7,674 | | | (1,768) | | | 291,997 | | | (35,961) | |
Total obligations of states and political subdivisions | | Total obligations of states and political subdivisions | 353,484 | | | (37,590) | | | 20,077 | | | (3,498) | | | 373,561 | | | (41,088) | |
Residential mortgage-backed securities | | Residential mortgage-backed securities | 1,354,304 | | | (200,314) | | | 1,007,883 | | | (237,937) | | | 2,362,187 | | | (438,251) | |
Trust preferred securities | | Trust preferred securities | — | | | — | | | 30,416 | | | (5,622) | | | 30,416 | | | (5,622) | |
Corporate and other debt securities | | Corporate and other debt securities | 57,181 | | | (3,336) | | | 7,245 | | | (755) | | | 64,426 | | | (4,091) | |
Total | | Total | $ | 2,044,128 | | | $ | (287,840) | | | $ | 1,065,621 | | | $ | (247,812) | | | $ | 3,109,749 | | | $ | (535,652) | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | | | |
| Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | $ | 10,541 | | | $ | (218) | | | $ | 5,519 | | | $ | (75) | | | $ | 16,060 | | | $ | (293) | | Obligations of states and state agencies | $ | 17,000 | | | $ | (254) | | | $ | 5,517 | | | $ | (58) | | | $ | 22,517 | | | $ | (312) | |
Municipal bonds | Municipal bonds | 14,917 | | | (142) | | | — | | | — | | | 14,917 | | | (142) | | Municipal bonds | 9,403 | | | (87) | | | — | | | — | | | 9,403 | | | (87) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 25,458 | | | (360) | | | 5,519 | | | (75) | | | 30,977 | | | (435) | | Total obligations of states and political subdivisions | 26,403 | | | (341) | | | 5,517 | | | (58) | | | 31,920 | | | (399) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1,292,965 | | | (17,978) | | | 2,546 | | | (23) | | | 1,295,511 | | | (18,001) | | Residential mortgage-backed securities | 1,381,405 | | | (22,365) | | | 206,520 | | | (6,075) | | | 1,587,925 | | | (28,440) | |
Trust preferred securities | Trust preferred securities | — | | | — | | | 30,503 | | | (5,511) | | | 30,503 | | | (5,511) | | Trust preferred securities | — | | | — | | | 30,912 | | | (5,109) | | | 30,912 | | | (5,109) | |
Corporate and other debt securities | Corporate and other debt securities | 6,991 | | | (9) | | | — | | | — | | | 6,991 | | | (9) | | Corporate and other debt securities | 32,627 | | | (124) | | | — | | | — | | | 32,627 | | | (124) | |
Total | Total | $ | 1,325,414 | | | $ | (18,347) | | | $ | 38,568 | | | $ | (5,609) | | | $ | 1,363,982 | | | $ | (23,956) | | Total | $ | 1,440,435 | | | $ | (22,830) | | | $ | 242,949 | | | $ | (11,242) | | | $ | 1,683,384 | | | $ | (34,072) | |
December 31, 2020 | | | | | | | | | | | | |
| Obligations of states and state agencies | $ | 5,546 | | | $ | (105) | | | $ | — | | | $ | — | | | $ | 5,546 | | | $ | (105) | | |
| Residential mortgage-backed securities | 21,599 | | | (245) | | | 2,470 | | | (9) | | | 24,069 | | | (254) | | |
Trust preferred securities | — | | | — | | | 28,630 | | | (7,365) | | | 28,630 | | | (7,365) | | |
Corporate and other debt securities | 10,749 | | | (1) | | | — | | | — | | | 10,749 | | | (1) | | |
Total | $ | 37,894 | | | $ | (351) | | | $ | 31,100 | | | $ | (7,374) | | | $ | 68,994 | | | $ | (7,725) | | |
Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 62826 and 13108 at September 30, 20212022 and December 31, 2020,2021, respectively.
As of September 30, 2021,2022, 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 $955.9$619.5 million.
The contractual maturities of investments in debt securities held to maturity at September 30, 20212022 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, 2021 | | September 30, 2022 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | (in thousands) | | (in thousands) |
Due in one year | Due in one year | $ | 22,683 | | | $ | 22,845 | | Due in one year | $ | 31,783 | | | $ | 31,721 | |
Due after one year through five years | Due after one year through five years | 231,112 | | | 239,893 | | Due after one year through five years | 195,679 | | | 191,824 | |
Due after five years through ten years | Due after five years through ten years | 66,064 | | | 67,333 | | Due after five years through ten years | 86,011 | | | 79,844 | |
Due after ten years | Due after ten years | 191,844 | | | 189,643 | | Due after ten years | 596,965 | | | 509,682 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,072,700 | | | 2,076,597 | | Residential mortgage-backed securities | 2,811,582 | | | 2,373,581 | |
Total | Total | $ | 2,584,403 | | | $ | 2,596,311 | | Total | $ | 3,722,020 | | | $ | 3,186,652 | |
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 weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 5.98.8 years at September 30, 2021.2022.
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 September 30, 20212022 and December 31, 2020.2021.
| | | AAA/AA/A Rated | | BBB rated | | Non-investment grade rated | | Non-rated | | Total | | AAA/AA/A Rated | | BBB rated | | Non-investment grade rated | | Non-rated | | Total |
| | (in thousands) | | (in thousands) |
September 30, 2021 | | |
September 30, 2022 | | September 30, 2022 | |
U.S. Treasury securities | U.S. Treasury securities | $ | 67,716 | | | $ | — | | | $ | — | | | $ | — | | | $ | 67,716 | | U.S. Treasury securities | $ | 67,075 | | | $ | — | | | $ | — | | | $ | — | | | $ | 67,075 | |
U.S. government agency securities | U.S. government agency securities | 4,817 | | | — | | | — | | | — | | | 4,817 | | U.S. government agency securities | 259,869 | | | — | | | — | | | — | | | 259,869 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 135,122 | | | — | | | 5,595 | | | 21,212 | | | 161,929 | | Obligations of states and state agencies | 63,434 | | | — | | | 5,517 | | | 19,325 | | | 88,276 | |
Municipal bonds | Municipal bonds | 150,468 | | | — | | | — | | | 41,009 | | | 191,477 | | Municipal bonds | 348,330 | | | — | | | — | | | 34,583 | | | 382,913 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 285,590 | | | — | | | 5,595 | | | 62,221 | | | 353,406 | | Total obligations of states and political subdivisions | 411,764 | | | — | | | 5,517 | | | 53,908 | | | 471,189 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,072,700 | | | — | | | — | | | — | | | 2,072,700 | | Residential mortgage-backed securities | 2,811,582 | | | — | | | — | | | — | | | 2,811,582 | |
Trust preferred securities | Trust preferred securities | — | | | — | | | — | | | 37,014 | | | 37,014 | | Trust preferred securities | — | | | — | | | — | | | 37,038 | | | 37,038 | |
Corporate and other debt securities | Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 40,750 | | | 48,750 | | Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 67,267 | | | 75,267 | |
Total | Total | $ | 2,432,823 | | | $ | 6,000 | | | $ | 5,595 | | | $ | 139,985 | | | $ | 2,584,403 | | Total | $ | 3,552,290 | | | $ | 6,000 | | | $ | 5,517 | | | $ | 158,213 | | | $ | 3,722,020 | |
December 31, 2020 | | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | |
U.S. Treasury securities | U.S. Treasury securities | $ | 68,126 | | | $ | — | | | $ | — | | | $ | — | | | $ | 68,126 | | U.S. Treasury securities | $ | 67,558 | | | $ | — | | | $ | — | | | $ | — | | | $ | 67,558 | |
U.S. government agency securities | U.S. government agency securities | 6,222 | | | — | | | — | | | — | | | 6,222 | | U.S. government agency securities | 6,265 | | | — | | | — | | | — | | | 6,265 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 228,286 | | | — | | | 5,650 | | | 28,826 | | | 262,762 | | Obligations of states and state agencies | 118,368 | | | — | | | 5,576 | | | 17,071 | | | 141,015 | |
Municipal bonds | Municipal bonds | 166,408 | | | — | | | — | | | 41,089 | | | 207,497 | | Municipal bonds | 148,854 | | | — | | | — | | | 48,093 | | | 196,947 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 394,694 | | | — | | | 5,650 | | | 69,915 | | | 470,259 | | Total obligations of states and political subdivisions | 267,222 | | | — | | | 5,576 | | | 65,164 | | | 337,962 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1,550,306 | | | — | | | — | | | — | | | 1,550,306 | | Residential mortgage-backed securities | 2,166,142 | | | — | | | — | | | — | | | 2,166,142 | |
Trust preferred securities | Trust preferred securities | — | | | — | | | — | | | 37,348 | | | 37,348 | | Trust preferred securities | — | | | — | | | — | | | 37,020 | | | 37,020 | |
Corporate and other debt securities | Corporate and other debt securities | — | | | 5,000 | | | — | | | 35,750 | | | 40,750 | | Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 45,750 | | | 53,750 | |
Total | Total | $ | 2,019,348 | | | $ | 5,000 | | | $ | 5,650 | | | $ | 143,013 | | | $ | 2,173,011 | | Total | $ | 2,509,187 | | | $ | 6,000 | | | $ | 5,576 | | | $ | 147,934 | | | $ | 2,668,697 | |
Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At September 30, 2021,2022, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the "non-rated" category included TEMS securities secured by Ginnie Mae securities. Trust preferred securities consist of non-rated single-issuer securities, issued by bank holding companies. Corporate bonds consist of debt primarily issued by banks.
Allowance for Credit Losses for Held to Maturity Debt Securities
Valley has a zero losszero-loss expectation for certain securities within the held to maturity portfolio, and therefore it is not required 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 collateralized municipal bonds called TEMS.
At September 30, 2021, heldHeld to maturity debt securities were carried net of allowance for credit losses totaling $1.1$1.7 million at September 30, 2022, and $1.41.2 million at December 31, 2021. Valley recorded a provision for credit losses of $188 thousand and $531 thousand for the three and nine months ended September 30, 20212022, respectively. Valley recorded
a provision for credit losses of $35 thousand and December 31, 2020, respectively. There were no net charge-offsa credit (negative) provision for credit losses of held to maturity debt securities$353 thousand for the three and nine months ended September 30, 2021, respectively. There were no charge-offs for all the respective periods of 2022 and 2020.
Note 8. Loans and Allowance for Credit Losses for Loans
The detail of the loan portfolio as of September 30, 20212022 and December 31, 20202021 was as follows:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| | (in thousands) | | (in thousands) |
Loans: | Loans: | | Loans: | |
Commercial and industrial: | Commercial and industrial: | | Commercial and industrial: | |
Commercial and industrial | Commercial and industrial | $ | 4,761,227 | | | $ | 4,709,569 | | Commercial and industrial | $ | 8,615,557 | | | $ | 5,411,601 | |
Commercial and industrial PPP loans * | Commercial and industrial PPP loans * | 874,033 | | | 2,152,139 | | Commercial and industrial PPP loans * | 85,820 | | | 435,950 | |
Total commercial and industrial loans | Total commercial and industrial loans | 5,635,260 | | | 6,861,708 | | Total commercial and industrial loans | 8,701,377 | | | 5,847,551 | |
Commercial real estate: | Commercial real estate: | | | | Commercial real estate: | | | |
Commercial real estate | Commercial real estate | 17,912,070 | | | 16,724,998 | | Commercial real estate | 24,493,445 | | | 18,935,486 | |
Construction | Construction | 1,804,580 | | | 1,745,825 | | Construction | 3,571,818 | | | 1,854,580 | |
Total commercial real estate loans | Total commercial real estate loans | 19,716,650 | | | 18,470,823 | | Total commercial real estate loans | 28,065,263 | | | 20,790,066 | |
Residential mortgage | Residential mortgage | 4,332,422 | | | 4,183,743 | | Residential mortgage | 5,177,128 | | | 4,545,064 | |
Consumer: | Consumer: | | Consumer: | |
Home equity | Home equity | 402,658 | | | 431,553 | | Home equity | 467,135 | | | 400,779 | |
Automobile | Automobile | 1,563,698 | | | 1,355,955 | | Automobile | 1,711,086 | | | 1,570,036 | |
Other consumer | Other consumer | 956,126 | | | 913,330 | | Other consumer | 1,063,775 | | | 1,000,161 | |
Total consumer loans | Total consumer loans | 2,922,482 | | | 2,700,838 | | Total consumer loans | 3,241,996 | | | 2,970,976 | |
Total loans | Total loans | $ | 32,606,814 | | | $ | 32,217,112 | | Total loans | $ | 45,185,764 | | | $ | 34,153,657 | |
|
*Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $27.6$1.4 million and $43.2$12.1 million at September 30, 20212022 and December 31, 2020,2021, respectively.
Total loans includesinclude net unearned discounts and deferred loan fees of $73.0$136.5 million and $95.8$78.5 million at September 30, 20212022 and December 31, 2020,2021, respectively. Net unearned discounts and deferred loan fees include the non-credit discount on purchased credit deterioration (PCD) loans and net unearned fees related to PPPThe increase in total loans at September 30, 2021 and December 31, 2020.2022 is partially attributed to $5.9 billion of loans acquired in the Bank Leumi USA acquisition, which was inclusive of a $98.6 million net purchase discount at the acquisition date.
Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $83.4$139.6 million and $90.2$83.7 million at September 30, 20212022 and December 31, 2020,2021, respectively, and is presented separately inwithin total accrued interest receivable on the consolidated statements of financial condition.
Valley transferred and sold approximately $30.0 million of residential mortgage loans from the loan portfolio to loans held for sale during the nine months ended September 30, 2020. Excluding the loan transfers, thereThere were no other material sales of loans from the held for investment portfolio during the three and nine months ended September 30, 20212022 and 2020.2021.
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 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. 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. See Valley’s Annual Report on Form 10-K for the year ended December 31, 20202021 for further details.
Credit Quality
The following table presents past due, current and non-accrual loans without an allowance for creditloan losses by loan portfolio class at September 30, 20212022 and December 31, 2020:2021:
| | | Past Due and Non-Accrual Loans | | | 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 Credit Losses | | 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) | | (in thousands) |
September 30, 2021 | | |
September 30, 2022 | | September 30, 2022 | |
Commercial and industrial | Commercial and industrial | $ | 2,677 | | | $ | 985 | | | $ | 2,083 | | | $ | 100,614 | | | $ | 106,359 | | | $ | 5,528,901 | | | $ | 5,635,260 | | | $ | 10,407 | | Commercial and industrial | $ | 19,526 | | | $ | 2,188 | | | $ | 15,072 | | | $ | 135,187 | | | $ | 171,973 | | | $ | 8,529,404 | | | $ | 8,701,377 | | | $ | 5,043 | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Commercial real estate | Commercial real estate | 22,956 | | | 5,897 | | | 1,942 | | | 95,843 | | | 126,638 | | | 17,785,432 | | | 17,912,070 | | | 55,621 | | Commercial real estate | 6,196 | | | 383 | | | 15,082 | | | 67,319 | | | 88,980 | | | 24,404,465 | | | 24,493,445 | | | 64,260 | |
Construction | Construction | — | | | — | | | — | | | 17,653 | | | 17,653 | | | 1,786,927 | | | 1,804,580 | | | — | | Construction | — | | | 12,969 | | | — | | | 61,098 | | | 74,067 | | | 3,497,751 | | | 3,571,818 | | | 14,941 | |
Total commercial real estate loans | Total commercial real estate loans | 22,956 | | | 5,897 | | | 1,942 | | | 113,496 | | | 144,291 | | | 19,572,359 | | | 19,716,650 | | | 55,621 | | Total commercial real estate loans | 6,196 | | | 13,352 | | | 15,082 | | | 128,417 | | | 163,047 | | | 27,902,216 | | | 28,065,263 | | | 79,201 | |
Residential mortgage | Residential mortgage | 9,293 | | | 974 | | | 1,002 | | | 33,648 | | | 44,917 | | | 4,287,505 | | | 4,332,422 | | | 21,032 | | Residential mortgage | 13,045 | | | 5,947 | | | 550 | | | 26,564 | | | 46,106 | | | 5,131,022 | | | 5,177,128 | | | 14,378 | |
Consumer loans: | Consumer loans: | | Consumer loans: | |
Home equity | Home equity | 606 | | | 225 | | | — | | | 3,541 | | | 4,372 | | | 398,286 | | | 402,658 | | | 5 | | Home equity | 321 | | | 168 | | | 312 | | | 2,845 | | | 3,646 | | | 463,489 | | | 467,135 | | | 123 | |
Automobile | Automobile | 4,218 | | | 555 | | | 233 | | | 420 | | | 5,426 | | | 1,558,272 | | | 1,563,698 | | | — | | Automobile | 4,999 | | | 702 | | | 109 | | | 286 | | | 6,096 | | | 1,704,990 | | | 1,711,086 | | | — | |
Other consumer | Other consumer | 639 | | | 837 | | | 92 | | | 112 | | | 1,680 | | | 954,446 | | | 956,126 | | | — | | Other consumer | 876 | | | 304 | | | — | | | 96 | | | 1,276 | | | 1,062,499 | | | 1,063,775 | | | — | |
Total consumer loans | Total consumer loans | 5,463 | | | 1,617 | | | 325 | | | 4,073 | | | 11,478 | | | 2,911,004 | | | 2,922,482 | | | 5 | | Total consumer loans | 6,196 | | | 1,174 | | | 421 | | | 3,227 | | | 11,018 | | | 3,230,978 | | | 3,241,996 | | | 123 | |
Total | Total | $ | 40,389 | | | $ | 9,473 | | | $ | 5,352 | | | $ | 251,831 | | | $ | 307,045 | | | $ | 32,299,769 | | | $ | 32,606,814 | | | $ | 87,065 | | Total | $ | 44,963 | | | $ | 22,661 | | | $ | 31,125 | | | $ | 293,395 | | | $ | 392,144 | | | $ | 44,793,620 | | | $ | 45,185,764 | | | $ | 98,745 | |
| | | Past Due and Non-Accrual Loans | | | | | | | 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 Credit Losses | | 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) | | | | (in thousands) | | |
December 31, 2020 | | |
December 31, 2021 | | December 31, 2021 | |
Commercial and industrial | Commercial and industrial | $ | 6,393 | | | $ | 2,252 | | | $ | 9,107 | | | $ | 106,693 | | | $ | 124,445 | | | $ | 6,737,263 | | | $ | 6,861,708 | | | $ | 4,075 | | Commercial and industrial | $ | 6,717 | | | $ | 7,870 | | | $ | 1,273 | | | $ | 99,918 | | | $ | 115,778 | | | $ | 5,731,773 | | | $ | 5,847,551 | | | $ | 9,066 | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Commercial real estate | Commercial real estate | 35,030 | | | 1,326 | | | 993 | | | 46,879 | | | 84,228 | | | 16,640,770 | | | 16,724,998 | | | 32,416 | | Commercial real estate | 14,421 | | | — | | | 32 | | | 83,592 | | | 98,045 | | | 18,837,441 | | | 18,935,486 | | | 70,719 | |
Construction | Construction | 315 | | | — | | | — | | | 84 | | | 399 | | | 1,745,426 | | | 1,745,825 | | | — | | Construction | 1,941 | | | — | | | — | | | 17,641 | | | 19,582 | | | 1,834,998 | | | 1,854,580 | | | — | |
Total commercial real estate loans | Total commercial real estate loans | 35,345 | | | 1,326 | | | 993 | | | 46,963 | | | 84,627 | | | 18,386,196 | | | 18,470,823 | | | 32,416 | | Total commercial real estate loans | 16,362 | | | — | | | 32 | | | 101,233 | | | 117,627 | | | 20,672,439 | | | 20,790,066 | | | 70,719 | |
Residential mortgage | Residential mortgage | 17,717 | | | 10,351 | | | 3,170 | | | 25,817 | | | 57,055 | | | 4,126,688 | | | 4,183,743 | | | 11,610 | | Residential mortgage | 10,999 | | | 3,314 | | | 677 | | | 35,207 | | | 50,197 | | | 4,494,867 | | | 4,545,064 | | | 20,401 | |
Consumer loans: | Consumer loans: | | Consumer loans: | |
Home equity | Home equity | 953 | | | 492 | | | — | | | 4,936 | | | 6,381 | | | 425,172 | | | 431,553 | | | 50 | | Home equity | 242 | | | 98 | | | — | | | 3,517 | | | 3,857 | | | 396,922 | | | 400,779 | | | 4 | |
Automobile | Automobile | 8,056 | | | 1,107 | | | 245 | | | 338 | | | 9,746 | | | 1,346,209 | | | 1,355,955 | | | — | | Automobile | 6,391 | | | 656 | | | 271 | | | 240 | | | 7,558 | | | 1,562,478 | | | 1,570,036 | | | — | |
Other consumer | Other consumer | 1,248 | | | 224 | | | 26 | | | 535 | | | 2,033 | | | 911,297 | | | 913,330 | | | — | | Other consumer | 178 | | | 266 | | | 518 | | | 101 | | | 1,063 | | | 999,098 | | | 1,000,161 | | | — | |
Total consumer loans | Total consumer loans | 10,257 | | | 1,823 | | | 271 | | | 5,809 | | | 18,160 | | | 2,682,678 | | | 2,700,838 | | | 50 | | Total consumer loans | 6,811 | | | 1,020 | | | 789 | | | 3,858 | | | 12,478 | | | 2,958,498 | | | 2,970,976 | | | 4 | |
Total | Total | $ | 69,712 | | | $ | 15,752 | | | $ | 13,541 | | | $ | 185,282 | | | $ | 284,287 | | | $ | 31,932,825 | | | $ | 32,217,112 | | | $ | 48,151 | | Total | $ | 40,889 | | | $ | 12,204 | | | $ | 2,771 | | | $ | 240,216 | | | $ | 296,080 | | | $ | 33,857,577 | | | $ | 34,153,657 | | | $ | 100,190 | |
Credit quality 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 Mention," "Substandard," "Doubtful," and "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 by loan portfolio class by origination year based on the most recent analysis performed at September 30, 20212022 and December 31, 2020:2021:
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
September 30, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
September 30, 2022 | | September 30, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Commercial and industrial | Commercial and industrial | | Commercial and industrial | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 1,526,393 | | | $ | 840,868 | | | $ | 462,843 | | | $ | 388,482 | | | $ | 149,991 | | | $ | 328,289 | | | $ | 1,716,736 | | | $ | 269 | | | $ | 5,413,871 | | Pass | | $ | 1,451,283 | | | $ | 1,193,937 | | | $ | 663,575 | | | $ | 352,556 | | | $ | 279,803 | | | $ | 395,216 | | | $ | 4,076,834 | | | $ | 159 | | | $ | 8,413,362 | |
Special Mention | Special Mention | | 1,809 | | | 1,558 | | | 1,342 | | | 10,770 | | | 1,930 | | | 14,950 | | | 59,905 | | | 53 | | | 92,317 | | Special Mention | | 15,224 | | | 3,433 | | | 20,292 | | | 5,246 | | | 9,320 | | | 3,852 | | | 56,973 | | | 9 | | | 114,349 | |
Substandard | Substandard | | 4,587 | | | 6,507 | | | 3,972 | | | 7,853 | | | 886 | | | 2,532 | | | 15,066 | | | 288 | | | 41,691 | | Substandard | | — | | | 2,279 | | | 5,285 | | | 2,082 | | | 4,467 | | | 5,312 | | | 71,792 | | | — | | | 91,217 | |
Doubtful | Doubtful | | — | | | — | | | 2,736 | | | 5 | | | 16,364 | | | 68,276 | | | — | | | — | | | 87,381 | | Doubtful | | — | | | — | | | — | | | 2,701 | | | 2,636 | | | 77,112 | | | — | | | — | | | 82,449 | |
| Total commercial and industrial | Total commercial and industrial | | $ | 1,532,789 | | | $ | 848,933 | | | $ | 470,893 | | | $ | 407,110 | | | $ | 169,171 | | | $ | 414,047 | | | $ | 1,791,707 | | | $ | 610 | | | $ | 5,635,260 | | Total commercial and industrial | | $ | 1,466,507 | | | $ | 1,199,649 | | | $ | 689,152 | | | $ | 362,585 | | | $ | 296,226 | | | $ | 481,492 | | | $ | 4,205,599 | | | $ | 168 | | | $ | 8,701,377 | |
Commercial real estate | Commercial real estate | | | | | | | | | | | | | | | | | | | Commercial real estate | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 3,178,182 | | | $ | 2,936,284 | | | $ | 2,801,710 | | | $ | 1,851,162 | | | $ | 1,498,151 | | | $ | 4,716,223 | | | $ | 170,763 | | | $ | 12,753 | | | $ | 17,165,228 | | Pass | | $ | 5,326,845 | | | $ | 5,193,267 | | | $ | 3,280,227 | | | $ | 2,733,365 | | | $ | 1,553,479 | | | $ | 5,161,982 | | | $ | 284,891 | | | $ | 3,599 | | | $ | 23,537,657 | |
Special Mention | Special Mention | | 1,988 | | | 45,305 | | | 44,596 | | | 43,593 | | | 51,875 | | | 169,460 | | | 38,594 | | | — | | | 395,411 | | Special Mention | | 102,150 | | | 63,572 | | | 90,429 | | | 43,812 | | | 75,328 | | | 155,873 | | | 15,074 | | | — | | | 546,239 | |
Substandard | Substandard | | 743 | | | 33,817 | | | 39,817 | | | 40,568 | | | 68,190 | | | 165,574 | | | 2,531 | | | — | | | 351,240 | | Substandard | | 17,641 | | | 31,910 | | | 37,797 | | | 40,394 | | | 63,254 | | | 210,011 | | | 8,372 | | | — | | | 409,379 | |
Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | 191 | | | — | | | — | | | 191 | | Doubtful | | — | | | — | | | — | | | — | | | — | | | 170 | | | — | | | — | | | 170 | |
| Total commercial real estate | Total commercial real estate | | $ | 3,180,913 | | | $ | 3,015,406 | | | $ | 2,886,123 | | | $ | 1,935,323 | | | $ | 1,618,216 | | | $ | 5,051,448 | | | $ | 211,888 | | | $ | 12,753 | | | $ | 17,912,070 | | Total commercial real estate | | $ | 5,446,636 | | | $ | 5,288,749 | | | $ | 3,408,453 | | | $ | 2,817,571 | | | $ | 1,692,061 | | | $ | 5,528,036 | | | $ | 308,337 | | | $ | 3,599 | | | $ | 24,493,445 | |
Construction | Construction | | | | | | | | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 160,031 | | | $ | 109,843 | | | $ | 62,330 | | | $ | 65,581 | | | $ | 6,181 | | | $ | 28,498 | | | $ | 1,329,163 | | | $ | — | | | $ | 1,761,627 | | Pass | | $ | 743,720 | | | $ | 607,441 | | | $ | 120,837 | | | $ | 30,246 | | | $ | 10,572 | | | $ | 17,069 | | | $ | 1,952,786 | | | $ | — | | | $ | 3,482,671 | |
Special Mention | Special Mention | | 4,131 | | | — | | | 1,018 | | | — | | | — | | | — | | | 9,497 | | | — | | | 14,646 | | Special Mention | | 12,917 | | | — | | | — | | | — | | | — | | | 13,084 | | | — | | | 26,001 | |
Substandard | Substandard | | — | | | 23 | | | 13 | | | 646 | | | — | | | 17,842 | | | 9,783 | | | — | | | 28,307 | | Substandard | | — | | | 11,376 | | | — | | | 982 | | | 17,599 | | | 20,183 | | | — | | | 50,140 | |
| Doubtful | | Doubtful | | — | | | 643 | | | — | | | — | | | 12,364 | | | — | | | — | | | 13,006 | |
Total construction | Total construction | | $ | 164,162 | | | $ | 109,866 | | | $ | 63,361 | | | $ | 66,227 | | | $ | 6,181 | | | $ | 46,340 | | | $ | 1,348,443 | | | $ | — | | | $ | 1,804,580 | | Total construction | | $ | 756,637 | | | $ | 619,460 | | | $ | 120,837 | | | $ | 31,228 | | | $ | 10,572 | | | $ | 47,032 | | | $ | 1,986,053 | | | $ | — | | | $ | 3,571,818 | |
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior to 2016 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
December 31, 2021 | | December 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Commercial and industrial | Commercial and industrial | | Commercial and industrial | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 3,058,596 | | | $ | 605,112 | | | $ | 556,284 | | | $ | 212,215 | | | $ | 162,483 | | | $ | 337,484 | | | $ | 1,677,559 | | | $ | 350 | | | $ | 6,610,083 | | Pass | | $ | 1,563,050 | | | $ | 743,165 | | | $ | 461,022 | | | $ | 362,748 | | | $ | 143,753 | | | $ | 337,713 | | | $ | 1,968,513 | | | $ | 247 | | | $ | 5,580,211 | |
Special Mention | Special Mention | | 819 | | | 10,236 | | | 2,135 | | | 9,502 | | | 10,228 | | | 14,165 | | | 49,883 | | | 51 | | | 97,019 | | Special Mention | | 4,182 | | | 1,195 | | | 3,217 | | | 14,143 | | | 1,726 | | | 9,869 | | | 102,145 | | | 40 | | | 136,517 | |
Substandard | Substandard | | 5,215 | | | 3,876 | | | 12,481 | | | 1,798 | | | 4,215 | | | 12,965 | | | 18,913 | | | 462 | | | 59,925 | | Substandard | | 8,248 | | | 4,823 | | | 3,139 | | | 7,077 | | | 910 | | | 408 | | | 19,642 | | | 109 | | | 44,356 | |
Doubtful | Doubtful | | — | | | 5,203 | | | 1 | | | 17,010 | | | 2,596 | | | 69,871 | | | — | | | — | | | 94,681 | | Doubtful | | — | | | — | | | 2,733 | | | — | | | 16,355 | | | 67,379 | | | — | | | — | | | 86,467 | |
| Total commercial and industrial | Total commercial and industrial | | $ | 3,064,630 | | | $ | 624,427 | | | $ | 570,901 | | | $ | 240,525 | | | $ | 179,522 | | | $ | 434,485 | | | $ | 1,746,355 | | | $ | 863 | | | $ | 6,861,708 | | Total commercial and industrial | | $ | 1,575,480 | | | $ | 749,183 | | | $ | 470,111 | | | $ | 383,968 | | | $ | 162,744 | | | $ | 415,369 | | | $ | 2,090,300 | | | $ | 396 | | | $ | 5,847,551 | |
Commercial real estate | Commercial real estate | | | | | | | | | | | | | | | | | | | Commercial real estate | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 3,096,549 | | | $ | 3,052,076 | | | $ | 2,230,047 | | | $ | 1,767,528 | | | $ | 1,798,137 | | | $ | 3,916,990 | | | $ | 199,145 | | | $ | 15,532 | | | $ | 16,076,004 | | Pass | | $ | 4,517,917 | | | $ | 2,983,140 | | | $ | 2,702,580 | | | $ | 1,734,922 | | | $ | 1,474,770 | | | $ | 4,557,011 | | | $ | 195,851 | | | $ | 13,380 | | | $ | 18,179,571 | |
Special Mention | Special Mention | | 50,193 | | | 68,203 | | | 44,336 | | | 48,813 | | | 66,845 | | | 109,295 | | | 1,705 | | | — | | | 389,390 | | Special Mention | | 7,700 | | | 50,019 | | | 46,911 | | | 44,187 | | | 65,623 | | | 143,540 | | | 50,168 | | | — | | | 408,148 | |
Substandard | Substandard | | 18,936 | | | 17,049 | | | 30,997 | | | 59,618 | | | 11,541 | | | 118,725 | | | 2,531 | | | — | | | 259,397 | | Substandard | | 735 | | | 34,655 | | | 29,029 | | | 41,231 | | | 70,941 | | | 169,041 | | | 1,949 | | | — | | | 347,581 | |
Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | 207 | | | — | | | — | | | 207 | | Doubtful | | — | | | — | | | — | | | — | | | — | | | 186 | | | — | | | — | | | 186 | |
| Total commercial real estate | Total commercial real estate | | $ | 3,165,678 | | | $ | 3,137,328 | | | $ | 2,305,380 | | | $ | 1,875,959 | | | $ | 1,876,523 | | | $ | 4,145,217 | | | $ | 203,381 | | | $ | 15,532 | | | $ | 16,724,998 | | Total commercial real estate | | $ | 4,526,352 | | | $ | 3,067,814 | | | $ | 2,778,520 | | | $ | 1,820,340 | | | $ | 1,611,334 | | | $ | 4,869,778 | | | $ | 247,968 | | | $ | 13,380 | | | $ | 18,935,486 | |
Construction | Construction | | | | | | | | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 145,246 | | | $ | 120,800 | | | $ | 111,174 | | | $ | 15,497 | | | $ | 47,971 | | | $ | 20,029 | | | $ | 1,199,034 | | | $ | — | | | $ | 1,659,751 | | Pass | | $ | 274,097 | | | $ | 98,609 | | | $ | 48,555 | | | $ | 32,781 | | | $ | 6,061 | | | $ | 28,419 | | | $ | 1,313,555 | | | $ | — | | | $ | 1,802,077 | |
Special Mention | Special Mention | | — | | | 1,043 | | | — | | | — | | | 9,996 | | | 17,414 | | | 47,311 | | | — | | | 75,764 | | Special Mention | | 4,131 | | | — | | | 1,009 | | | — | | | — | | | — | | | 18,449 | | | — | | | 23,589 | |
Substandard | Substandard | | — | | | 26 | | | 246 | | | 2,628 | | | 17 | | | 380 | | | 7,013 | | | — | | | 10,310 | | Substandard | | 199 | | | 19 | | | 6 | | | 246 | | | — | | | 17,842 | | | 10,602 | | | — | | | 28,914 | |
| Total construction | Total construction | | $ | 145,246 | | | $ | 121,869 | | | $ | 111,420 | | | $ | 18,125 | | | $ | 57,984 | | | $ | 37,823 | | | $ | 1,253,358 | | | $ | — | | | $ | 1,745,825 | | Total construction | | $ | 278,427 | | | $ | 98,628 | | | $ | 49,570 | | | $ | 33,027 | | | $ | 6,061 | | | $ | 46,261 | | | $ | 1,342,606 | | | $ | — | | | $ | 1,854,580 | |
For residential mortgages, automobile, home equity and other consumer loan portfolio classes, 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 amortized cost in those loan classes based on payment activity by origination year as of September 30, 20212022 and December 31, 2020.2021.
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
September 30, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
September 30, 2022 | | September 30, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Residential mortgage | Residential mortgage | | Residential mortgage | |
Performing | Performing | | $ | 1,084,533 | | | $ | 661,418 | | | $ | 619,942 | | | $ | 467,876 | | | $ | 405,847 | | | $ | 1,019,676 | | | $ | 60,510 | | | $ | — | | | $ | 4,319,802 | | Performing | | $ | 1,040,542 | | | $ | 1,508,300 | | | $ | 586,418 | | | $ | 505,502 | | | $ | 351,579 | | | $ | 1,113,157 | | | $ | 63,694 | | | $ | — | | | $ | 5,169,192 | |
90 days or more past due | 90 days or more past due | | — | | | 234 | | | 2,093 | | | 4,072 | | | 3,150 | | | 3,071 | | | — | | | — | | | 12,620 | | 90 days or more past due | | — | | | — | | | 129 | | | 1,508 | | | 2,526 | | | 3,773 | | | — | | | — | | | 7,936 | |
Total residential mortgage | Total residential mortgage | | $ | 1,084,533 | | | $ | 661,652 | | | $ | 622,035 | | | $ | 471,948 | | | $ | 408,997 | | | $ | 1,022,747 | | | $ | 60,510 | | | $ | — | | | $ | 4,332,422 | | Total residential mortgage | | $ | 1,040,542 | | | $ | 1,508,300 | | | $ | 586,547 | | | $ | 507,010 | | | $ | 354,105 | | | $ | 1,116,930 | | | $ | 63,694 | | | $ | — | | | $ | 5,177,128 | |
Consumer loans | Consumer loans | | | | | | | | | | | | | | | | | | | Consumer loans | | | | | | | | | | | | | | | | | | |
Home equity | Home equity | | Home equity | |
Performing | Performing | | $ | 11,096 | | | $ | 6,593 | | | $ | 8,055 | | | $ | 8,745 | | | $ | 6,031 | | | $ | 14,327 | | | $ | 303,235 | | | $ | 43,502 | | | $ | 401,584 | | Performing | | $ | 36,133 | | | $ | 12,728 | | | $ | 4,788 | | | $ | 5,279 | | | $ | 5,822 | | | $ | 15,602 | | | $ | 346,709 | | | $ | 39,105 | | | $ | 466,166 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 68 | | | 542 | | | 464 | | | 1,074 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 424 | | | 545 | | | 969 | |
Total home equity | Total home equity | | 11,096 | | | 6,593 | | | 8,055 | | | 8,745 | | | 6,031 | | | 14,395 | | | 303,777 | | | 43,966 | | | 402,658 | | Total home equity | | 36,133 | | | 12,728 | | | 4,788 | | | 5,279 | | | 5,822 | | | 15,602 | | | 347,133 | | | 39,650 | | | 467,135 | |
Automobile | Automobile | | | | | | | | | | | | | | | | | | | Automobile | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 611,329 | | | 342,584 | | | 315,330 | | | 182,973 | | | 89,463 | | | 21,302 | | | — | | | — | | | 1,562,981 | | Performing | | 589,413 | | | 570,603 | | | 226,848 | | | 188,741 | | | 95,798 | | | 39,039 | | | — | | | — | | | 1,710,442 | |
90 days or more past due | 90 days or more past due | | 73 | | | 52 | | | 130 | | | 162 | | | 179 | | | 121 | | | — | | | — | | | 717 | | 90 days or more past due | | 75 | | | 111 | | | 78 | | | 167 | | | 132 | | | 81 | | | — | | | — | | | 644 | |
Total automobile | Total automobile | | 611,402 | | | 342,636 | | | 315,460 | | | 183,135 | | | 89,642 | | | 21,423 | | | — | | | — | | | 1,563,698 | | Total automobile | | 589,488 | | | 570,714 | | | 226,926 | | | 188,908 | | | 95,930 | | | 39,120 | | | — | | | — | | | 1,711,086 | |
Other Consumer | | | | | | | | | | | | | | | | | | | |
Other consumer | | Other consumer | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 6,518 | | | 6,794 | | | 6,543 | | | 7,231 | | | 1,017 | | | 9,017 | | | 918,946 | | | — | | | 956,066 | | Performing | | 21,110 | | | 2,934 | | | 7,262 | | | 7,476 | | | 7,560 | | | 16,546 | | | 1,000,795 | | | — | | | 1,063,683 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 60 | | | — | | | 60 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 92 | | | — | | | 92 | |
Total other consumer | Total other consumer | | 6,518 | | | 6,794 | | | 6,543 | | | 7,231 | | | 1,017 | | | 9,017 | | | 919,006 | | | — | | | 956,126 | | Total other consumer | | 21,110 | | | 2,934 | | | 7,262 | | | 7,476 | | | 7,560 | | | 16,546 | | | 1,000,887 | | | — | | | 1,063,775 | |
Total consumer | Total consumer | | $ | 629,016 | | | $ | 356,023 | | | $ | 330,058 | | | $ | 199,111 | | | $ | 96,690 | | | $ | 44,835 | | | $ | 1,222,783 | | | $ | 43,966 | | | $ | 2,922,482 | | Total consumer | | $ | 646,731 | | | $ | 586,376 | | | $ | 238,976 | | | $ | 201,663 | | | $ | 109,312 | | | $ | 71,268 | | | $ | 1,348,020 | | | $ | 39,650 | | | $ | 3,241,996 | |
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
December 31, 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior to 2016 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
December 31, 2021 | | December 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Residential mortgage | Residential mortgage | | Residential mortgage | |
Performing | Performing | | $ | 730,764 | | | $ | 778,161 | | | $ | 684,761 | | | $ | 582,650 | | | $ | 380,723 | | | $ | 943,616 | | | $ | 64,798 | | | $ | — | | | $ | 4,165,473 | | Performing | | $ | 1,448,602 | | | $ | 635,531 | | | $ | 572,911 | | | $ | 425,152 | | | $ | 368,164 | | | $ | 1,014,190 | | | $ | 70,342 | | | $ | — | | | $ | 4,534,892 | |
90 days or more past due | 90 days or more past due | | — | | | 3,085 | | | 4,212 | | | 3,464 | | | 4,144 | | | 3,365 | | | — | | | — | | | 18,270 | | 90 days or more past due | | — | | | 357 | | | 2,627 | | | 2,056 | | | 2,794 | | | 2,338 | | | — | | | — | | | 10,172 | |
Total residential mortgage | Total residential mortgage | | $ | 730,764 | | | $ | 781,246 | | | $ | 688,973 | | | $ | 586,114 | | | $ | 384,867 | | | $ | 946,981 | | | $ | 64,798 | | | $ | — | | | $ | 4,183,743 | | Total residential mortgage | | $ | 1,448,602 | | | $ | 635,888 | | | $ | 575,538 | | | $ | 427,208 | | | $ | 370,958 | | | $ | 1,016,528 | | | $ | 70,342 | | | $ | — | | | $ | 4,545,064 | |
Consumer loans | Consumer loans | | | | | | | | | | | | | | | | | | | Consumer loans | | | | | | | | | | | | | | | | | | |
Home equity | Home equity | | Home equity | |
Performing | Performing | | $ | 8,580 | | | $ | 10,634 | | | $ | 11,756 | | | $ | 8,886 | | | $ | 5,340 | | | $ | 15,393 | | | $ | 318,869 | | | $ | 50,879 | | | $ | 430,337 | | Performing | | $ | 13,847 | | | $ | 5,723 | | | $ | 6,994 | | | $ | 7,384 | | | $ | 5,359 | | | $ | 13,597 | | | $ | 303,888 | | | $ | 42,822 | | | $ | 399,614 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | 25 | | | 83 | | | 378 | | | 730 | | | 1,216 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 35 | | | 536 | | | 594 | | | 1,165 | |
Total home equity | Total home equity | | 8,580 | | | 10,634 | | | 11,756 | | | 8,886 | | | 5,365 | | | 15,476 | | | 319,247 | | | 51,609 | | | 431,553 | | Total home equity | | 13,847 | | | 5,723 | | | 6,994 | | | 7,384 | | | 5,359 | | | 13,632 | | | 304,424 | | | 43,416 | | | 400,779 | |
Automobile | Automobile | | | | | | | | | | | | | | | | | | | Automobile | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 426,121 | | | 438,181 | | | 272,075 | | | 151,523 | | | 50,853 | | | 16,550 | | | — | | | — | | | 1,355,303 | | Performing | | 735,446 | | | 309,856 | | | 278,828 | | | 157,450 | | | 72,753 | | | 15,171 | | | — | | | — | | | 1,569,504 | |
90 days or more past due | 90 days or more past due | | 19 | | | 108 | | | 173 | | | 223 | | | 35 | | | 94 | | | — | | | — | | | 652 | | 90 days or more past due | | 129 | | | — | | | 78 | | | 163 | | | 81 | | | 81 | | | — | | | — | | | 532 | |
Total automobile | Total automobile | | 426,140 | | | 438,289 | | | 272,248 | | | 151,746 | | | 50,888 | | | 16,644 | | | — | | | — | | | 1,355,955 | | Total automobile | | 735,575 | | | 309,856 | | | 278,906 | | | 157,613 | | | 72,834 | | | 15,252 | | | — | | | — | | | 1,570,036 | |
Other Consumer | | | | | | | | | | | | | | | | | | | |
Other consumer | | Other consumer | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 12,271 | | | 5,558 | | | 6,815 | | | 1,112 | | | 1,077 | | | 5,314 | | | 880,748 | | | — | | | 912,895 | | Performing | | 2,949 | | | 6,717 | | | 6,468 | | | 7,017 | | | 1,009 | | | 14,483 | | | 961,027 | | | — | | | 999,670 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 22 | | | 5 | | | 408 | | | 435 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 491 | | | — | | | 491 | |
Total other consumer | Total other consumer | | 12,271 | | | 5,558 | | | 6,815 | | | 1,112 | | | 1,077 | | | 5,336 | | | 880,753 | | | 408 | | | 913,330 | | Total other consumer | | 2,949 | | | 6,717 | | | 6,468 | | | 7,017 | | | 1,009 | | | 14,483 | | | 961,518 | | | — | | | 1,000,161 | |
Total consumer | Total consumer | | $ | 446,991 | | | $ | 454,481 | | | $ | 290,819 | | | $ | 161,744 | | | $ | 57,330 | | | $ | 37,456 | | | $ | 1,200,000 | | | $ | 52,017 | | | $ | 2,700,838 | | Total consumer | | $ | 752,371 | | | $ | 322,296 | | | $ | 292,368 | | | $ | 172,014 | | | $ | 79,202 | | | $ | 43,367 | | | $ | 1,265,942 | | | $ | 43,416 | | | $ | 2,970,976 | |
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).
Generally, 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 may also involve payment deferrals but 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 $64.8$69.7 million and $57.4$71.3 million as of September 30, 20212022 and December 31, 2020,2021, respectively. Non-performing TDRs totaled $116.7$155.7 million and $92.8$117.2 million as of September 30, 20212022 and December 31, 2020,2021, respectively.
The following table presentstables present the pre- and post-modification amortized cost of loans by loan class modified as TDRs during the three and nine months ended September 30, 20212022 and 2020.2021. Post-modification amounts are presented as of September 30, 20212022 and 2020.2021.
| | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Troubled Debt Restructurings | Troubled Debt Restructurings | | Number of Contracts | | Pre-Modification Amortized Carrying Amount | | Post-Modification Amortized Carrying Amount | | Number of Contracts | | Pre-Modification Amortized Carrying Amount | | Post-Modification Amortized Carrying Amount | Troubled Debt Restructurings | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | | ($ in thousands) | | | ($ in thousands) |
Commercial and industrial | Commercial and industrial | | 4 | | | $ | 2,446 | | | $ | 2,414 | | | 28 | | | $ | 31,237 | | | $ | 30,938 | | Commercial and industrial | | 65 | | | $ | 54,586 | | | $ | 54,747 | | | 4 | | | $ | 2,446 | | | $ | 2,414 | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Commercial real estate | Commercial real estate | | 5 | | | 14,473 | | | 14,539 | | | 2 | | | 4,249 | | | 4,240 | | Commercial real estate | | 1 | | | 2,187 | | | 2,187 | | | 5 | | | 14,473 | | | 14,539 | |
Construction | Construction | | 2 | | | 17,599 | | | 17,599 | | | — | | | — | | | — | | Construction | | 2 | | | 11,025 | | | 7,811 | | | 2 | | | 17,599 | | | 17,599 | |
Total commercial real estate | Total commercial real estate | | 7 | | | 32,072 | | | 32,138 | | | 2 | | | 4,249 | | | 4,240 | | Total commercial real estate | | 3 | | | 13,212 | | | 9,998 | | | 7 | | | 32,072 | | | 32,138 | |
Residential mortgage | Residential mortgage | | 4 | | | 356 | | | 350 | | | 1 | | | 247 | | | 247 | | Residential mortgage | | 1 | | | 44 | | | 44 | | | 4 | | | 356 | | | 350 | |
Consumer | | — | | | — | | | — | | | 1 | | | 72 | | | 72 | | |
| Total | Total | | 15 | | | $ | 34,874 | | | $ | 34,902 | | | 32 | | | $ | 35,805 | | | $ | 35,497 | | Total | | 69 | | | $ | 67,842 | | | $ | 64,789 | | | 15 | | | $ | 34,874 | | | $ | 34,902 | |
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Troubled Debt Restructurings | Troubled Debt Restructurings | | Number of Contracts | | Pre-Modification Amortized Carrying Amount | | Post-Modification Amortized Carrying Amount | | Number of Contracts | | Pre-Modification Amortized Carrying Amount | | Post-Modification Amortized Carrying Amount | 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) | | | ($ in thousands) |
Commercial and industrial | Commercial and industrial | | 16 | | | $ | 21,822 | | | $ | 19,060 | | | 33 | | | $ | 40,537 | | | $ | 38,204 | | Commercial and industrial | | 79 | | | $ | 109,779 | | | $ | 105,495 | | | 16 | | | $ | 21,822 | | | $ | 19,060 | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Commercial real estate | Commercial real estate | | 11 | | | 26,710 | | | 26,730 | | | 4 | | | 8,996 | | | 9,000 | | Commercial real estate | | 4 | | | 16,259 | | | 15,660 | | | 11 | | | 26,710 | | | 26,730 | |
Construction | Construction | | 2 | | | 17,599 | | | 17,599 | | | — | | | — | | | — | | Construction | | 2 | | | 11,025 | | | 7,811 | | | 2 | | | 17,599 | | | 17,599 | |
Total commercial real estate | Total commercial real estate | | 13 | | | 44,309 | | | 44,329 | | | 4 | | | 8,996 | | | 9,000 | | Total commercial real estate | | 6 | | | 27,284 | | | 23,471 | | | 13 | | | 44,309 | | | 44,329 | |
Residential mortgage | Residential mortgage | | 12 | | | 2,974 | | | 2,909 | | | 1 | | | 247 | | | 247 | | Residential mortgage | | 9 | | | 5,135 | | | 5,116 | | | 12 | | | 2,974 | | | 2,909 | |
Consumer | Consumer | | 1 | | | 170 | | | 163 | | | 1 | | | 72 | | | 72 | | Consumer | | 1 | | | 125 | | | 123 | | | 1 | | | 170 | | | 163 | |
Total | Total | | 42 | | | $ | 69,275 | | | $ | 66,461 | | | 39 | | | $ | 49,852 | | | $ | 47,523 | | Total | | 95 | | | $ | 142,323 | | | $ | 134,205 | | | 42 | | | $ | 69,275 | | | $ | 66,461 | |
The total TDRs presented in the above tabletables had allocated allowance for loan losses of $8.2$71.5 million and $18.7$8.2 million at September 30, 20212022 and 2020,2021, respectively. There were $206 thousand$3.8 million and $6.0$5.4 million ofin charge-offs related to TDRs for the three and nine months ended September 30, 2021, respectively.2022. There were $1.9charge-offs of $206 thousand and $6.0 million and $5.6 million of charge-offs related to TDRs for the three and nine months ended September 30, 2020,2021, respectively. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three and nine months ended September 30, 20212022 and 2020.2021.
Loans modified as TDRs within the previous 12 months and for which there was a payment default (90 or more days past due) for the three and nine months ended September 30, 20212022 and 20202021 were as follows:
| | | | Three Months Ended September 30, | | | Three Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Troubled Debt Restructurings Subsequently Defaulted | Troubled Debt Restructurings Subsequently Defaulted | | Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment | Troubled Debt Restructurings Subsequently Defaulted | | Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment |
| | | ($ in thousands) | | | ($ in thousands) |
Commercial and industrial | Commercial and industrial | | — | | | $ | — | | | 30 | | | $ | 17,496 | | Commercial and industrial | | 1 | | | $ | 42,771 | | | — | | | $ | — | |
| Commercial real estate | Commercial real estate | | 1 | | | 419 | | | — | | | — | | Commercial real estate | | 2 | | | 5,207 | | | 1 | | | 419 | |
| Residential mortgage | Residential mortgage | | 1 | | | 129 | | | — | | | — | | Residential mortgage | | 1 | | | 1,071 | | | 1 | | | 129 | |
| Total | Total | | 2 | | | $ | 548 | | | 30 | | | $ | 17,496 | | Total | | 4 | | | $ | 49,049 | | | 2 | | | $ | 548 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2021 | | 2020 |
Troubled Debt Restructurings Subsequently Defaulted | | Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment |
| | ($ in thousands) |
Commercial and industrial | | — | | | $ | — | | | 35 | | | $ | 20,099 | |
Commercial real estate | | 1 | | | 419 | | | — | | | — | |
Residential mortgage | | 1 | | | 129 | | | — | | | — | |
Consumer | | — | | | — | | | 1 | | | 18 | |
Total | | 2 | | | $ | 548 | | | 36 | | | $ | 20,117 | |
Forbearance. In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment, when requested by customers, all of which were insignificant. As of September 30, 2021, Valley had approximately $98.6 million of outstanding loans remaining in their payment deferral period under short-term modifications as compared to $361.0 million of loans in deferral at December 31, 2020. Under the applicable guidance, none of these loans were classified as TDRs at September 30, 2021 and December 31, 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
Troubled Debt Restructurings Subsequently Defaulted | | Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment |
| | ($ in thousands) |
Commercial and industrial | | 1 | | | $ | 42,771 | | | — | | | $ | — | |
| | | | | | | | |
Commercial real estate | | 2 | | | 5,207 | | | 1 | | | 419 | |
| | | | | | | | |
| | | | | | | | |
Residential mortgage | | 1 | | | 1,071 | | | 1 | | | 129 | |
| | | | | | | | |
Total | | 4 | | | $ | 49,049 | | | 2 | | | $ | 548 | |
Loans in Process of Foreclosure. Other real estate owned (OREO) totaled $4.0 million$286 thousand and $5.1$2.3 million at September 30, 20212022 and December 31, 2020,2021, respectively. OREO included foreclosedThere were no foreclosed residential real estate properties which werincluded in OREOe immaterial at September 30, 20212022 and totaled $1.0 million at December 31, 2020.2021. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $3.0$1.9 million and $1.9$2.5 million at September 30, 20212022 and December 31, 2020,2021, 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 September 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| (in thousands) |
| | | |
Commercial and industrial * | $ | 95,509 | | | $ | 106,239 | |
| | | |
Commercial real estate | 117,609 | | | 41,562 | |
| | | |
| | | |
Residential mortgage | 35,047 | | | 28,176 | |
Home equity | 5 | | | 50 | |
Total | $ | 248,170 | | | $ | 176,027 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (in thousands) |
Collateral dependent loans: | | | |
Commercial and industrial * | $ | 129,776 | | | $ | 95,335 | |
Commercial real estate: | | | |
Commercial real estate | 73,862 | | | 110,174 | |
Construction | 41,726 | | | — | |
Total commercial real estate loans | 115,588 | | | 110,174 | |
Residential mortgage | 32,487 | | | 35,745 | |
Home equity | — | | | 4 | |
Total | $ | 277,851 | | | $ | 241,258 | |
* Commercial and industrialThe majority of the loans are primarily collateralized by taxi medallions.medallions for all periods.
Allowance for Credit Losses for Loans
The following table summarizesallowance for credit losses (ACL) for loans consists of the allowance for loan losses and the allowance for unfunded credit lossescommitments. The ACL for loans at September 30, 2022 increased $122.7 million from December 31, 2021 largely reflecting a net ACL of $70.3 million for PCD loans acquired from Bank Leumi USA that was recorded at April 1, 2022 and recognition of a $41.0 million provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA during the three months ended June 30, 2022. Overall, an increased economic forecast reserve component of our CECL model caused by elevated uncertainty in economic conditions was largely offset by lower expected quantitative loss experience at September 30, 2022 as compared to December 31, 2021.
The following table summarizes the ACL for loans at September 30, 2022 and December 31, 2020:2021:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| | (in thousands) | | (in thousands) |
Components of allowance for credit losses for loans: | Components of allowance for credit losses for loans: | | Components of allowance for credit losses for loans: | |
Allowance for loan losses | Allowance for loan losses | $ | 342,527 | | | $ | 340,243 | | Allowance for loan losses | $ | 475,744 | | | $ | 359,202 | |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 14,400 | | | 11,111 | | Allowance for unfunded credit commitments | 22,664 | | | 16,500 | |
Total allowance for credit losses for loans | Total allowance for credit losses for loans | $ | 356,927 | | | $ | 351,354 | | Total allowance for credit losses for loans | $ | 498,408 | | | $ | 375,702 | |
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, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (in thousands) | | (in thousands) |
Components of provision for credit losses for loans: | Components of provision for credit losses for loans: | | Components of provision for credit losses for loans: | |
Provision for loan losses | Provision for loan losses | $ | 3,496 | | | $ | 30,833 | | | $ | 17,998 | | | $ | 105,709 | | Provision for loan losses | $ | 1,315 | | | $ | 3,496 | | | $ | 42,883 | | | $ | 17,998 | |
Provision for unfunded credit commitments | Provision for unfunded credit commitments | — | | | 187 | | | 3,289 | | | 350 | | Provision for unfunded credit commitments | 520 | | | — | | | 6,164 | | | 3,289 | |
Total provision for credit losses for loans | Total provision for credit losses for loans | $ | 3,496 | | | $ | 31,020 | | | $ | 21,287 | | | $ | 106,059 | | Total provision for credit losses for loans | $ | 1,835 | | | $ | 3,496 | | | $ | 49,047 | | | $ | 21,287 | |
The following table details the activity in the allowance for loan losses by loan portfolio segment for the three and nine months ended September 30, 20212022 and 2020:2021:
| | | 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, 2022 | | Three Months Ended September 30, 2022 | |
Allowance for loan losses: | | Allowance for loan losses: | |
Beginning balance | | Beginning balance | $ | 144,539 | | | $ | 277,227 | | | $ | 29,889 | | | $ | 17,164 | | | $ | 468,819 | |
| Loans charged-off | | Loans charged-off | (5,033) | | | (4,000) | | | — | | | (962) | | | (9,995) | |
Charged-off loans recovered | | Charged-off loans recovered | 13,236 | | | 1,729 | | | 163 | | | 477 | | | 15,605 | |
Net recoveries (charge-offs) | | Net recoveries (charge-offs) | 8,203 | | | (2,271) | | | 163 | | | (485) | | | 5,610 | |
Provision (credit) for loan losses | | Provision (credit) for loan losses | 1,309 | | | (7,176) | | | 6,105 | | | 1,077 | | | 1,315 | |
Ending balance | | Ending balance | $ | 154,051 | | | $ | 267,780 | | | $ | 36,157 | | | $ | 17,756 | | | $ | 475,744 | |
Three Months Ended September 30, 2021 | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2021 | | | | | | | | | |
Allowance for loan losses: | Allowance for loan losses: | | Allowance for loan losses: | |
Beginning balance | $ | 109,689 | | | $ | 189,139 | | | $ | 25,303 | | | $ | 15,193 | | | $ | 339,324 | | |
Loans charged-off | (1,248) | | | — | | | — | | | (771) | | | (2,019) | | |
Charged-off loans recovered | 514 | | | 29 | | | 228 | | | 955 | | | 1,726 | | |
Net (charge-offs) recoveries | (734) | | | 29 | | | 228 | | | 184 | | | (293) | | |
(Credit) provision for loan losses | (5,078) | | | 10,553 | | | (799) | | | (1,180) | | | 3,496 | | |
Ending balance | $ | 103,877 | | | $ | 199,721 | | | $ | 24,732 | | | $ | 14,197 | | | $ | 342,527 | | |
Three Months Ended September 30, 2020 | | | | | | | | | | |
Allowance for losses: | | |
Beginning balance | Beginning balance | $ | 132,039 | | | $ | 131,702 | | | $ | 29,630 | | | $ | 16,243 | | | $ | 309,614 | | Beginning balance | $ | 109,689 | | | $ | 189,139 | | | $ | 25,303 | | | $ | 15,193 | | | $ | 339,324 | |
| Loans charged-off | Loans charged-off | (13,965) | | | (695) | | | (7) | | | (2,458) | | | (17,125) | | Loans charged-off | (1,248) | | | — | | | — | | | (771) | | | (2,019) | |
Charged-off loans recovered | Charged-off loans recovered | 428 | | | 100 | | | 31 | | | 1,151 | | | 1,710 | | Charged-off loans recovered | 514 | | | 29 | | | 228 | | | 955 | | | 1,726 | |
Net (charge-offs) recoveries | Net (charge-offs) recoveries | (13,537) | | | (595) | | | 24 | | | (1,307) | | | (15,415) | | Net (charge-offs) recoveries | (734) | | | 29 | | | 228 | | | 184 | | | (293) | |
Provision (credit) for loan losses | 11,907 | | | 13,543 | | | (1,040) | | | 6,423 | | | 30,833 | | |
(Credit) provision for loan losses | | (Credit) provision for loan losses | (5,078) | | | 10,553 | | | (799) | | | (1,180) | | | 3,496 | |
Ending balance | Ending balance | $ | 130,409 | | | $ | 144,650 | | | $ | 28,614 | | | $ | 21,359 | | | $ | 325,032 | | Ending balance | $ | 103,877 | | | $ | 199,721 | | | $ | 24,732 | | | $ | 14,197 | | | $ | 342,527 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| (in thousands) |
Nine Months Ended September 30, 2021 | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | |
Beginning balance | $ | 131,070 | | | $ | 164,113 | | | $ | 28,873 | | | $ | 16,187 | | | $ | 340,243 | |
Loans charged-off | (19,283) | | | (382) | | | (139) | | | (3,389) | | | (23,193) | |
Charged-off loans recovered | 2,781 | | | 763 | | | 576 | | | 3,359 | | | 7,479 | |
Net (charge-offs) recoveries | (16,502) | | | 381 | | | 437 | | | (30) | | | (15,714) | |
(Credit) provision for loan losses | (10,691) | | | 35,227 | | | (4,578) | | | (1,960) | | | 17,998 | |
Ending balance | $ | 103,877 | | | $ | 199,721 | | | $ | 24,732 | | | $ | 14,197 | | | $ | 342,527 | |
Nine Months Ended September 30, 2020 | | | | | | | | | |
Allowance for losses: | | | | | | | | | |
Beginning balance | $ | 104,059 | | | $ | 45,673 | | | $ | 5,060 | | | $ | 6,967 | | | $ | 161,759 | |
Impact of ASU 2016-13 adoption* | 15,169 | | | 49,797 | | | 20,575 | | | 6,990 | | | 92,531 | |
Beginning balance, adjusted | 119,228 | | | 95,470 | | | 25,635 | | | 13,957 | | | 254,290 | |
Loans charged-off | (31,349) | | | (766) | | | (348) | | | (7,624) | | | (40,087) | |
Charged-off loans recovered | 1,796 | | | 244 | | | 626 | | | 2,454 | | | 5,120 | |
Net (charge-offs) recoveries | (29,553) | | | (522) | | | 278 | | | (5,170) | | | (34,967) | |
Provision for loan losses | 40,734 | | | 49,702 | | | 2,701 | | | 12,572 | | | 105,709 | |
Ending balance | $ | 130,409 | | | $ | 144,650 | | | $ | 28,614 | | | $ | 21,359 | | | $ | 325,032 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| (in thousands) |
Nine Months Ended September 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 | (11,144) | | | (4,173) | | | (27) | | | (2,513) | | | (17,857) | |
Charged-off loans recovered | 16,012 | | | 2,060 | | | 694 | | | 2,431 | | | 21,197 | |
Net recoveries (charge-offs) | 4,868 | | | (2,113) | | | 667 | | | (82) | | | 3,340 | |
Provision for loan losses | 12,641 | | | 15,785 | | | 10,164 | | | 4,293 | | | 42,883 | |
Ending balance | $ | 154,051 | | | $ | 267,780 | | | $ | 36,157 | | | $ | 17,756 | | | $ | 475,744 | |
Nine Months Ended September 30, 2021 | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | |
Beginning balance | $ | 131,070 | | | $ | 164,113 | | | $ | 28,873 | | | $ | 16,187 | | | $ | 340,243 | |
| | | | | | | | | |
| | | | | | | | | |
Loans charged-off | (19,283) | | | (382) | | | (139) | | | (3,389) | | | (23,193) | |
Charged-off loans recovered | 2,781 | | | 763 | | | 576 | | | 3,359 | | | 7,479 | |
Net (charge-offs) recoveries | (16,502) | | | 381 | | | 437 | | | (30) | | | (15,714) | |
(Credit) provision for loan losses | (10,691) | | | 35,227 | | | (4,578) | | | (1,960) | | | 17,998 | |
Ending balance | $ | 103,877 | | | $ | 199,721 | | | $ | 24,732 | | | $ | 14,197 | | | $ | 342,527 | |
* Includes a $61.6 million increase representingRepresents the estimated expected credit lossesallowance for acquired PCD loans, as a resultnet of PCD loan charge-offs totaling $62.4 million in the ASU 2016-13 adoption on January 1, 2020.second quarter 2022 related to the Bank Leumi USA acquisition.
The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at September 30, 20212022 and December 31, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| (in thousands) |
September 30, 2021 | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | |
Individually evaluated for credit losses | $ | 62,661 | | | $ | 8,093 | | | $ | 489 | | | $ | 574 | | | $ | 71,817 | |
Collectively evaluated for credit losses | 41,216 | | | 191,628 | | | 24,243 | | | 13,623 | | | 270,710 | |
Total | $ | 103,877 | | | $ | 199,721 | | | $ | 24,732 | | | $ | 14,197 | | | $ | 342,527 | |
Loans: | | | | | | | | | |
Individually evaluated for credit losses | $ | 117,656 | | | $ | 143,181 | | | $ | 42,441 | | | $ | 3,264 | | | $ | 306,542 | |
Collectively evaluated for credit losses | 5,517,604 | | | 19,573,469 | | | 4,289,981 | | | 2,919,218 | | | 32,300,272 | |
Total | $ | 5,635,260 | | | $ | 19,716,650 | | | $ | 4,332,422 | | | $ | 2,922,482 | | | $ | 32,606,814 | |
December 31, 2020 | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | |
Individually evaluated for credit losses | $ | 73,063 | | | $ | 1,338 | | | $ | 1,206 | | | $ | 264 | | | $ | 75,871 | |
Collectively evaluated for credit losses | 58,007 | | | 162,775 | | | 27,667 | | | 15,923 | | | 264,372 | |
Total | $ | 131,070 | | | $ | 164,113 | | | $ | 28,873 | | | $ | 16,187 | | | $ | 340,243 | |
Loans: | | | | | | | | | |
Individually evaluated for credit losses | $ | 131,057 | | | $ | 61,754 | | | $ | 35,151 | | | $ | 1,631 | | | $ | 229,593 | |
Collectively evaluated for credit losses | 6,730,651 | | | 18,409,069 | | | 4,148,592 | | | 2,699,207 | | | 31,987,519 | |
Total | $ | 6,861,708 | | | $ | 18,470,823 | | | $ | 4,183,743 | | | $ | 2,700,838 | | | $ | 32,217,112 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| (in thousands) |
September 30, 2022 | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | |
Individually evaluated for credit losses | $ | 89,822 | | | $ | 8,544 | | | $ | 4,592 | | | $ | 100 | | | $ | 103,058 | |
Collectively evaluated for credit losses | 64,229 | | | 259,236 | | | 31,565 | | | 17,656 | | | 372,686 | |
Total | $ | 154,051 | | | $ | 267,780 | | | $ | 36,157 | | | $ | 17,756 | | | $ | 475,744 | |
Loans: | | | | | | | | | |
Individually evaluated for credit losses | $ | 151,415 | | | $ | 149,775 | | | $ | 42,911 | | | $ | 1,507 | | | $ | 345,608 | |
Collectively evaluated for credit losses | 8,549,962 | | | 27,915,488 | | | 5,134,217 | | | 3,240,489 | | | 44,840,156 | |
Total | $ | 8,701,377 | | | $ | 28,065,263 | | | $ | 5,177,128 | | | $ | 3,241,996 | | | $ | 45,185,764 | |
December 31, 2021 | | | | | | | | | |
Allowance for loan losses: | | | | | | | | | |
Individually evaluated for credit losses | $ | 64,359 | | | $ | 6,277 | | | $ | 470 | | | $ | 390 | | | $ | 71,496 | |
Collectively evaluated for credit losses | 38,731 | | | 211,213 | | | 24,650 | | | 13,112 | | | 287,706 | |
Total | $ | 103,090 | | | $ | 217,490 | | | $ | 25,120 | | | $ | 13,502 | | | $ | 359,202 | |
Loans: | | | | | | | | | |
Individually evaluated for credit losses | $ | 119,760 | | | $ | 134,135 | | | $ | 42,469 | | | $ | 2,431 | | | $ | 298,795 | |
Collectively evaluated for credit losses | 5,727,791 | | | 20,655,931 | | | 4,502,595 | | | 2,968,545 | | | 33,854,862 | |
Total | $ | 5,847,551 | | | $ | 20,790,066 | | | $ | 4,545,064 | | | $ | 2,970,976 | | | $ | 34,153,657 | |
Note 9. Goodwill and Other Intangible Assets
Goodwill totaled $1.4 billion at both September 30, 2021 and December 31, 2020. There were noThe changes toin the carrying amountsamount of goodwill as 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 ended December 31, 2020).were:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Business Segment / Reporting Unit * |
| Wealth Management | | Consumer Lending | | Commercial Lending | | | | Total |
| (in thousands) |
Balance at December 31, 2021 | $ | 38,851 | | | $ | 222,390 | | | $ | 1,197,767 | | | | | $ | 1,459,008 | |
Goodwill from business combinations | 10,984 | | | 62,875 | | | 338,638 | | | | | 412,497 | |
Balance at September 30, 2022 | $ | 49,835 | | | $ | 285,265 | | | $ | 1,536,405 | | | | | $ | 1,871,505 | |
* Valley’s Wealth Management Division is comprised of trust, asset management, brokerage, insurance, and tax credit advisory services. This reporting unit is included in the Consumer Lending segment for financial reporting purposes.
During the second quarter 2021,2022, Valley performed the annual goodwill impairment test at its normal assessment
date. There wasno impairment of goodwill recognized during the three and nine months ended September 30, 20212022 and 2020.2021.
As discussed in Note 15, Valley made changes to its operating structure and strategy during the second quarter 2022 (and subsequent to the annual goodwill impairment test), which resulted in changes in its operating segments and reporting units to reflect how the CEO, who is the chief operating decision maker, intends to manage Valley, allocate resources and measure performance. Goodwill balances were reallocated across the new operating segments and reporting units (as reflected in the table above) based on their relative fair values using the valuation performed during the second quarter 2022.
The goodwill from business combinations set forth in the above table during the nine months ended September 30, 2022, related to the acquisitions of Bank Leumi USA and Landmark totaled $403.2 million and $4.4 million, respectively. The goodwill from Landmark transaction was allocated entirely to the Wealth Management reporting unit. During the nine months ended September 30, 2022, Valley recorded $5.0 million of additional goodwill reflecting an adjustment to the deferred tax assets acquired from Westchester as of the acquisition date. See Note 2 for details related to these acquisitions.
The following table summarizes other intangible assets as of September 30, 20212022 and December 31, 2020:2021:
| | | Gross Intangible Assets | | Accumulated Amortization | | Valuation Allowance | | Net Intangible Assets | | Gross Intangible Assets | | Accumulated Amortization | | | Net Intangible Assets |
| | (in thousands) | | (in thousands) |
September 30, 2021 | | |
September 30, 2022 | | September 30, 2022 | | | |
Loan servicing rights | Loan servicing rights | $ | 111,978 | | | $ | (89,039) | | | $ | — | | | $ | 22,939 | | Loan servicing rights | $ | 119,813 | | | $ | (94,956) | | | | $ | 24,857 | |
Core deposits | Core deposits | 101,160 | | | (62,511) | | | — | | | 38,649 | | Core deposits | 223,670 | | | (84,511) | | | | 139,159 | |
Other | Other | 3,945 | | | (3,008) | | | — | | | 937 | | Other | 51,299 | | | (7,089) | | | | 44,210 | |
Total other intangible assets | Total other intangible assets | $ | 217,083 | | | $ | (154,558) | | | $ | — | | | $ | 62,525 | | Total other intangible assets | $ | 394,782 | | | $ | (186,556) | | | | $ | 208,226 | |
December 31, 2020 | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | |
Loan servicing rights | Loan servicing rights | $ | 103,150 | | | $ | (80,340) | | | $ | (865) | | | $ | 21,945 | | Loan servicing rights | $ | 114,636 | | | $ | (90,951) | | | | $ | 23,685 | |
Core deposits | Core deposits | 101,160 | | | (53,747) | | | — | | | 47,413 | | Core deposits | 109,290 | | | (65,488) | | | | 43,802 | |
Other | Other | 3,945 | | | (2,854) | | | — | | | 1,091 | | Other | 6,092 | | | (3,193) | | | | 2,899 | |
Total other intangible assets | Total other intangible assets | $ | 208,255 | | | $ | (136,941) | | | $ | (865) | | | $ | 70,449 | | Total other intangible assets | $ | 230,018 | | | $ | (159,632) | | | | $ | 70,386 | |
Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets 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. There was no net impairment recognized during the three and nine months ended September 30, 2022. Valley recorded net recoveries of impairment charges on its loan servicing rights totaling $32 thousand and $864 thousand for the three and nine months ended September 30, 2021, respectively. Valley recorded net impairment charges totaling $188 thousand and $966 thousand for the three and nine months ended September 30, 2020, respectively. See the “Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis” section of Note 6 for additional information regarding the fair valuation.
Core deposits are amortized using an accelerated method and haveover a weighted average amortization period of 8.910 years. Valley recorded $114.4 million of core deposit intangibles resulting from the Bank Leumi USA acquisition.
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 7.613.3 years. Valley recorded $39.0 million and $6.2 million of other intangible assets during the nine months ended September 30, 2022 resulting from the Bank Leumi USA and Landmark acquisitions, respectively.
Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. No impairment was recognized during the three and nine months ended September 30, 20212022 and 2020.2021.
The following table presents the estimated future amortization expense of other intangible assets for the remainder of 20212022 through 2025:2026:
| | | Loan Servicing Rights | | Core Deposits | | Other | | Loan Servicing Rights | | Core Deposits | | Other |
| | (in thousands) | | (in thousands) |
2021 | $ | 1,063 | | | $ | 2,843 | | | $ | 51 | | |
2022 | 2022 | 3,705 | | | 9,876 | | | 191 | | 2022 | $ | 865 | | | $ | 7,975 | | | $ | 1,745 | |
2023 | 2023 | 3,015 | | | 8,146 | | | 131 | | 2023 | 3,195 | | | 28,746 | | | 6,522 | |
2024 | 2024 | 2,473 | | | 6,537 | | | 117 | | 2024 | 2,817 | | | 24,897 | | | 5,951 | |
2025 | 2025 | 2,047 | | | 4,929 | | | 103 | | 2025 | 2,471 | | | 21,048 | | | 5,380 | |
2026 | | 2026 | 2,156 | | | 17,223 | | | 4,805 | |
Valley recognized amortization expense on other intangible assets including(including net (recoveries of)recoveries of impairment charges on loan servicing rights,rights) totaling approximately $5.3$11.1 million and $6.4$5.3 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $16.8$26.9 million and $18.5$16.8 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
Note 10. Borrowed Funds
Short-Term Borrowings
Short-term borrowings at September 30, 20212022 and December 31, 20202021 consisted of the following:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| | (in thousands) | | (in thousands) |
FHLB advances | FHLB advances | $ | 600,000 | | | $ | 1,000,000 | | FHLB advances | $ | 785,767 | | | $ | 500,000 | |
Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 183,346 | | | 147,958 | | Securities sold under agreements to repurchase | 133,516 | | | 155,726 | |
Total short-term borrowings | Total short-term borrowings | $ | 783,346 | | | $ | 1,147,958 | | Total short-term borrowings | $ | 919,283 | | | $ | 655,726 | |
The weighted average interest rate for short-term FHLB advances was 0.353.21 percent and 0.380.37 percent at September 30, 20212022 and December 31, 2020,2021, respectively. The interest payments on the FHLB advances totaling $600 million were hedged with interest rate swaps at September 30, 2021. See Note 12 for additional details.
Long-Term Borrowings
Long-term borrowings at September 30, 20212022 and December 31, 20202021 consisted of the following:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| | (in thousands) | | (in thousands) |
FHLB advances, net (1) | FHLB advances, net (1) | $ | 789,185 | | | $ | 1,592,252 | | FHLB advances, net (1) | $ | 788,574 | | | $ | 789,033 | |
Subordinated debt, net (2) | Subordinated debt, net (2) | 638,259 | | | 403,413 | | Subordinated debt, net (2) | 752,523 | | | 634,643 | |
Securities sold under agreements to repurchase | — | | | 300,000 | | |
| Total long-term borrowings | Total long-term borrowings | $ | 1,427,444 | | | $ | 2,295,665 | | Total long-term borrowings | $ | 1,541,097 | | | $ | 1,423,676 | |
| | | | | |
(1) | FHLB advances isare presented net of unamortized prepayment penaltiespremiums totaling $574 thousand and other purchase accounting adjustments totaling $2.6$1.0 million at December 31, 2020. The prepayment penalties and other purchase accounting adjustments were fully amortized at September 30, 2021.2022 and December 31, 2021, respectively. |
(2) | Subordinated debt is presented net of unamortized debt issuance costs totaling $6.1$7.3 million and $2.7$5.8 million at September 30, 20212022 and December 31, 2020,2021, respectively. |
FHLB Advances. Long-term FHLB advances had a weighted average interest rate of 1.88 percent and 2.02 percent at both September 30, 20212022 and December 31, 2020, respectively.2021. 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.
In June 2021, Valley prepaid approximately $248 million of long-term FHLB advances with maturities scheduled through 2025 and a weighted average effective interest rate of 1.82 percent. The transaction was funded with excess cash liquidity and accounted for as an early debt extinguishment resulting in a loss of $8.4 million reported within non-interest expense for the nine months ended September 30, 2021.
The long-term FHLB advances at September 30, 20212022 are scheduled for contractual balance repayments as follows:
| | | | | | | | |
Year | | Amount |
| | (in thousands) |
| | |
2023 | | $ | 350,000 | |
2024 | | 165,000 | |
2025 | | 273,000 | |
| | |
Total long-term FHLB advances | | $ | 788,000 | |
There are no FHLB advances with scheduled repayments in years 2023 and thereafter, reported in the table above, which are callable for early redemption by the FHLB during the next 12 months.
Subordinated debt. On April 1, 2021,September 20, 2022, Valley redeemed, at par value, $60issued $150 million of its callable 6.25 percent subordinated notes originally due April 1, 2026. No gain or loss was incurred on this transaction.
On May 25, 2021, Valley issued $300 million of 3.00 percent Fixed-to-Floating Ratefixed-to-floating rate subordinated notes due June 15, 2031. The subordinated notes are callable in whole or in part on or after June 15, 2026 or upon the occurrence of certain events.September 30, 2032. Interest on the subordinated notes during the initial five year term through June 15, 2026September 30, 2027, is payable semi-annually in arrears on June 15March 30 and December 15.September 30, commencing on March 30, 2023. Thereafter, interest is expected to be set based on three-month Secured Overnight Financing Rate (SOFR) plus 236278 basis points and paid quarterly through maturity of the notes. At September 30, 2021,2022, the subordinated notes had a carrying value of $296.2$147.5 million, net of unamortized debt issuance costs. During June 2021, Valley entered into an interest rate swap transaction used to hedge the change in the fair value of the $300 million in subordinated notes. See Note 12 for additional details.
Valley also had the following subordinated debt outstanding at September 30, 2021:2022:
•$125 million aggregate principal amount of 5.125 percent subordinated notes due September 27, 2023 with no call dates or prepayments allowed except upon the occurrence of certain events;
•$100 million aggregate principal amount of 4.55 percent subordinated notes due June 30, 2025 with no call dates or prepayments allowed except upon the occurrence of certain events;
•$115 million aggregate principal amount of 5.25 percent fixed-to-floating rate subordinated notes due June 15, 2030 and callable in whole or in part on or after June 15, 2025 or upon the occurrence of certain events.events; and
Long-term securities sold under agreements to repurchase (repos). •The long-term repos had a weighted average interest$300 million aggregate principal amount of 3.00 percent fixed-to-floating rate subordinated notes due June 15, 2031 and are callable in whole or in part on or after June 15, 2026 or upon the occurrence of 3.37 percent at December 31, 2020. Long-term repos outstanding as of December 31, 2020 were repaid upon their respective contractual maturity dates during the third quarter 2021.certain events.
Note 11. Stock–Based Compensation
On April 19, 2021, Valley's shareholders approved the Valley National Bancorp 2021 Incentive Compensation Plan (the 2021 Plan) administered by the Compensation and Human ResourcesCapital Management Committee (the Committee) as appointed by Valley's Board of Directors. The purposes of the 2021 Plan are to provide additional incentives to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain officers, other employees and non-employee directors whose efforts will result in the continued and long-term growth of Valley's business. Upon shareholder approval of the 2021 Plan, Valley ceased granting new awards under the Valley National Bancorp 2016 Long-Term Stock Incentive Plan (the 2016 Plan).
Under the 2021 Plan, Valley may issue awards to its officers, employees and non-employee directors in amounts up to 9 million shares of common stock (less 1 share for every share granted after December 31, 2020 under the 2016 Plan) in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs). If after December 31, 2020 any award granted under the 2016 Plan is forfeited, expires, settled for cash, withheld for tax obligations, or otherwise does not result in the issuance of all or a portion of the shares subject to such award, the shares will be added to the 2021 Plan's share reserve. As of September 30, 2021, 7.42022, 5.1 million shares of common stock were available for issuance under the 2021 Plan. The essential features of each award are described in the award agreement relating to that award. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair value 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.
On April 1, 2022, Valley issued replacement options for the pre-existing and fully vested stock awards consisting of Bank Leumi USA options for 2.7 million shares of Valley common stock (which all remained outstanding at
September 30, 2022) at a weighted average exercise price of $8.47. The stock plan under which the original Bank Leumi stock awards were issued is no longer active at the acquisition date.
Valley granted 30234 thousand and 2630 thousand of time-based RSUsrestricted stock units (RSUs) during the three months ended September 30, 2022 and 2021, respectively, and 2020, respectively,2.3 million and 1.2 million for both the nine months ended September 30, 2022 and 2021, and 2020.respectively. Generally, time-based RSUs vest ratably over a three-year period. The average grant date fair value of the RSUs granted during the nine months ended September 30, 2022 and 2021 was $13.31 per share and 2020 was $11.98 per share, and $10.41 per share, respectively.
Valley granted 604619 thousand and 589604 thousand of performance-based RSUs to certain executive officers for the nine months ended September 30, 20212022 and 2020, respectively. There were no grants of performance-based RSUs during the three months ended September 30, 2021, and2020, respectively. The performance-based RSU awards include RSUs with vesting conditions based upon certain levels of growth in Valley's tangible book value per share plus dividends and RSUs with vesting conditions based upon Valley's total shareholder return as compared to its peer group. The RSUs “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 equivalents are accumulated and paid to the grantee at the vesting date or forfeited if the performance conditions are not met. The grant date fair value of the performance-based RSUs granted during the nine months ended September 30, 2022 and 2021 and 2020 was $11.75$14.72 per share and $10.82$12.36 per share, respectively.
Valley recorded total stock-based compensation expense of $5.2$7.6 million and $4.1$5.2 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $15.9$21.0 million and $12.3$15.9 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period. As of September 30, 2021,2022, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $23.9$40.0 million and will be recognized over an average remaining vesting period of approximately two2.1 years.
Note 12. 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.
Fair Value Hedges of Fixed Rate Assets and Liabilities. Valley is exposed to changes in the fair value of fixed-rate subordinated debt due to changes in interest rates. From time to time, Valley uses interest rate swaps to manage its exposure to changes in fair value on thesefixed 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.
In June 2021, Valley entered into a $300 million forward-starting interest rate swap agreement with a notional amount of $300 million, maturing in June 2026, to hedge the change in the fair value of the 3.00 percent subordinated debt issued on May 28, 2021. Under the swap agreement, beginning in January 2022, Valley will receive fixed rate payments and pay variable rate amounts based on SOFR plus 2.187 percent.
Cash Flow Hedges of Interest Rate 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 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.
Valley had six interest rate swaps with a total notional amount of $700 million that matured during the nine months ended September 30, 2022. These swaps were used to hedge the changes in cash flows associated with certain short-term FHLB advances and brokered deposits.
Non-designated Hedges. Derivatives not designated as hedges may beare used to manage Valley’s exposure to interest rate movements, orforeign currency risk, credit risk, and to provide serviceservices to customers butor for other purposes. These
derivatives do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes.
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 these interest rate swaps 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 September 30, 2021, 2022, Valley had 2728 credit swaps with an aggregate notional amount of $263.9$290.7 million related to risk participation agreements.
At September 30, 2021,2022, Valley had 2two “steepener” swaps, each with a current notional amount of $10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates 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 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 rate on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.
Valley enters 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, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| | Fair Value | | | Fair Value | | | Fair Value | | | Fair Value | |
| | Other Assets | | Other Liabilities | | Notional Amount | | Other Assets | | Other Liabilities | | Notional Amount | | Other Assets | | Other Liabilities | | Notional Amount | | Other Assets | | Other Liabilities | | Notional Amount |
| | (in thousands) | | (in thousands) |
Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | |
Cash flow hedge interest rate swaps | Cash flow hedge interest rate swaps | $ | — | | | $ | 273 | | | $ | 800,000 | | | $ | — | | | $ | 179 | | | $ | 1,100,000 | | Cash flow hedge interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 310 | | | $ | 700,000 | |
Fair value hedge interest rate swaps | Fair value hedge interest rate swaps | — | | | 316 | | | 300,000 | | | — | | | — | | | — | | Fair value hedge interest rate swaps | — | | | 32,566 | | | 300,000 | | | — | | | 3,335 | | | 300,000 | |
Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | $ | — | | | $ | 589 | | | $ | 1,100,000 | | | $ | — | | | $ | 179 | | | $ | 1,100,000 | | Total derivatives designated as hedging instruments | $ | — | | | $ | 32,566 | | | $ | 300,000 | | | $ | — | | | $ | 3,645 | | | $ | 1,000,000 | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | | | |
Interest rate swaps and other derivatives * | $ | 215,046 | | | $ | 64,623 | | | $ | 10,296,468 | | | $ | 387,008 | | | $ | 154,025 | | | $ | 8,889,557 | | |
Interest rate swaps and other contracts* | | Interest rate swaps and other contracts* | $ | 576,213 | | | $ | 575,917 | | | $ | 13,347,157 | | | $ | 180,701 | | | $ | 47,044 | | | $ | 10,179,294 | |
Foreign currency derivatives | | Foreign currency derivatives | 17,873 | | | 17,142 | | | 1,205,558 | | | 311 | | | 233 | | | 122,166 | |
Mortgage banking derivatives | Mortgage banking derivatives | 873 | | | 1,521 | | | 327,116 | | | 444 | | | 2,077 | | | 321,486 | | Mortgage banking derivatives | 30 | | | 31 | | | 1,875 | | | 488 | | | 1,454 | | | 312,428 | |
Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | $ | 215,919 | | | $ | 66,144 | | | $ | 10,623,584 | | | $ | 387,452 | | | $ | 156,102 | | | $ | 9,211,043 | | Total derivatives not designated as hedging instruments | $ | 594,116 | | | $ | 593,090 | | | $ | 14,554,590 | | | $ | 181,500 | | | $ | 48,731 | | | $ | 10,613,888 | |
* Other derivatives includeIncludes risk participation agreements.
The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account withas settlements of the cash flow hedges and over-the-counter (OTC)other non-designated derivative instruments. As a result, the fair value of the applicable derivative assets and liabilities are reported net of variation margin at September 30, 20212022 and December 31, 20202021 in the table above.
Gains (losses) included in the consolidated statements of income and other comprehensive income (loss),loss, on a pre-tax basis, relatedelated to interest rate derivatives designated as hedges of cash flows were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) |
Amount of loss reclassified from accumulated other comprehensive loss to interest expense | $ | (1,044) | | | $ | (1,586) | | | $ | (2,708) | | | $ | (1,763) | |
Amount of (loss) gain recognized in other comprehensive income | (144) | | | 95 | | | (125) | | | 3,158 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense | $ | 21 | | | $ | (1,044) | | | $ | (405) | | | $ | (2,708) | |
Amount of (loss) gain recognized in other comprehensive loss | (6) | | | (144) | | | 435 | | | (125) | |
The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $2.0 million929 thousand and $4.0$1.3 million at September 30, 20212022 and December 31, 2020,2021, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest expense as interest payments are made on the hedged variable interest rate liabilities. Valley estimates that $1.8 million995 thousand before tax will be reclassified as an increase to interest expense over the next 12 months.
Gains (losses) 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, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (in thousands) | | |
Derivative - interest rate swap: | Derivative - interest rate swap: | | Derivative - interest rate swap: | |
Interest income | $ | — | | | $ | 88 | | | $ | — | | | $ | 170 | | |
| Interest expense | Interest expense | (396) | | | — | | | (316) | | | — | | Interest expense | $ | (989) | | | $ | (396) | | | $ | (383) | | | $ | (316) | |
Hedged item - subordinated debt and loans: | | |
Interest income | $ | — | | | $ | (88) | | | $ | — | | | $ | (170) | | |
Hedged item - subordinated debt | | Hedged item - subordinated debt | |
| Interest expense | Interest expense | 405 | | | — | | | 322 | | | — | | Interest expense | $ | 325 | | | $ | 405 | | | $ | 802 | | | $ | 322 | |
The changes in the 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 interest rate derivatives designated as fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at September 30, 2021.2022.
| Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Carrying Amount of the Hedged Liability | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability | Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Carrying Amount of the Hedged Liability | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability |
| | (in thousands) | | (in thousands) |
Long-term borrowings | Long-term borrowings | $ | (299,678) | | | $ | 322 | | Long-term borrowings | $ | 267,640 | | | $ | (32,360) | |
The net 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 September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) |
Non-designated hedge interest rate swaps and credit derivatives | | | | | | | |
Other non-interest expense | $ | 216 | | | $ | 600 | | | $ | (209) | | | $ | 2,105 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Non-designated hedge interest rate swaps and credit derivatives | | | | | | | |
Other non-interest expense | $ | 463 | | | $ | 216 | | | $ | (1,191) | | | $ | (209) | |
Other non-interest income included fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaling $8.8$10.7 million and $19.2$8.8 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $22.6$35.8 million and $48.1$22.6 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
Credit Risk Related Contingent 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 counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of September 30, 2021,2022, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of September 30, 2021, the fair value of2022, there were no derivatives in aan aggregate net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, wposition. as $60.5 million. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.
Note 13. Balance Sheet Offsetting
Certain financial instruments, including certain OTCover-the-counter (OTC) derivatives (mostly interest rate swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated statements 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 eligible for offset in the consolidated statements of financial condition as of September 30, 20212022 and December 31, 2020.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Gross Amounts Not Offset | | |
| Gross Amounts Recognized | | Gross Amounts Offset | | Net Amounts Presented | | Financial Instruments | | Cash Collateral (1) | | Net Amount |
| (in thousands) |
September 30, 2021 | | | | | | | | | | | |
Assets: | | | | | | | | | | | |
Interest rate swaps | $ | 215,046 | | | $ | — | | | $ | 215,046 | | | $ | — | | | $ | — | | | $ | 215,046 | |
Liabilities: | | | | | | | | | | | |
Interest rate swaps | $ | 65,212 | | | $ | — | | | $ | 65,212 | | | $ | — | | | $ | (60,177) | | | $ | 5,035 | |
| | | | | | | | | | | |
Total | $ | 65,212 | | | $ | — | | | $ | 65,212 | | | $ | — | | | $ | (60,177) | | | $ | 5,035 | |
December 31, 2020 | | | | | | | | | | | |
Assets: | | | | | | | | | | | |
Interest rate swaps | $ | 150,487 | | | $ | — | | | $ | 150,487 | | | $ | — | | | $ | — | | | $ | 150,487 | |
Liabilities: | | | | | | | | | | | |
Interest rate swaps | $ | 150,487 | | | $ | — | | | $ | 150,487 | | | $ | — | | | $ | (150,487) | | | $ | — | |
Repurchase agreements | 300,000 | | | — | | | 300,000 | | | (300,000) | | (2) | — | | | — | |
Total | $ | 450,487 | | | $ | — | | | $ | 450,487 | | | $ | (300,000) | | | $ | (150,487) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Gross Amounts Not Offset | | |
| Gross Amounts Recognized | | Gross Amounts Offset | | Net Amounts Presented | | Financial Instruments | | Cash Collateral * | | Net Amount |
| (in thousands) |
September 30, 2022 | | | | | | | | | | | |
Assets | | | | | | | | | | | |
Interest rate swaps | $ | 576,213 | | | $ | — | | | $ | 576,213 | | | $ | (914) | | | $ | (374,030) | | | $ | 201,269 | |
Liabilities | | | | | | | | | | | |
Interest rate swaps | $ | 608,483 | | | $ | — | | | $ | 608,483 | | | $ | (914) | | | $ | (454) | | | $ | 607,115 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
December 31, 2021 | | | | | | | | | | | |
Assets | | | | | | | | | | | |
Interest rate swaps | $ | 180,701 | | | $ | — | | | $ | 180,701 | | | $ | — | | | $ | — | | | $ | 180,701 | |
Liabilities | | | | | | | | | | | |
Interest rate swaps | $ | 50,689 | | | $ | — | | | $ | 50,689 | | | $ | — | | | $ | (44,231) | | | $ | 6,458 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1)* Cash collateral received from or pledged to our counterparties in relation to market value exposures of OTC derivative contacts in a liability position.
(2) Represents the fair value of non-cash pledged investment securities.
Note 14. 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).CRA. 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 in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its 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 September 30, 20212022 and December 31, 2020:2021:
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| | (in thousands) | | (in thousands) |
Other Assets: | Other Assets: | | Other Assets: | |
Affordable housing tax credit investments, net | Affordable housing tax credit investments, net | $ | 17,231 | | | $ | 20,074 | | Affordable housing tax credit investments, net | $ | 25,139 | | | $ | 15,343 | |
Other tax credit investments, net | Other tax credit investments, net | 46,880 | | | 47,301 | | Other tax credit investments, net | 52,749 | | | 57,006 | |
Total tax credit investments, net | Total tax credit investments, net | $ | 64,111 | | | $ | 67,375 | | Total tax credit investments, net | $ | 77,888 | | | $ | 72,349 | |
Other Liabilities: | Other Liabilities: | | | | Other Liabilities: | | | |
Unfunded affordable housing tax credit commitments | Unfunded affordable housing tax credit commitments | $ | 1,379 | | | $ | 1,379 | | Unfunded affordable housing tax credit commitments | $ | 1,360 | | | $ | 1,360 | |
| Total unfunded tax credit commitments | Total unfunded tax credit commitments | $ | 1,379 | | | $ | 1,379 | | Total unfunded tax credit commitments | $ | 1,360 | | | $ | 1,360 | |
The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and nine months ended September 30, 20212022 and 2020:2021:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (in thousands) | | (in thousands) |
Components of Income Tax Expense: | Components of Income Tax Expense: | | Components of Income Tax Expense: | |
Affordable housing tax credits and other tax benefits | Affordable housing tax credits and other tax benefits | $ | 948 | | | $ | 1,352 | | | $ | 2,744 | | | $ | 3,979 | | Affordable housing tax credits and other tax benefits | $ | 1,184 | | | $ | 948 | | | $ | 3,542 | | | $ | 2,744 | |
Other tax credit investment credits and tax benefits | Other tax credit investment credits and tax benefits | 2,702 | | | 1,727 | | | 8,130 | | | 5,567 | | Other tax credit investment credits and tax benefits | 2,557 | | | 2,702 | | | 7,647 | | | 8,130 | |
Total reduction in income tax expense | Total reduction in income tax expense | $ | 3,650 | | | $ | 3,079 | | | $ | 10,874 | | | $ | 9,546 | | Total reduction in income tax expense | $ | 3,741 | | | $ | 3,650 | | | $ | 11,189 | | | $ | 10,874 | |
Amortization of Tax Credit Investments: | Amortization of Tax Credit Investments: | | | | | | | | Amortization of Tax Credit Investments: | | | | | | | |
Affordable housing tax credit investment losses | Affordable housing tax credit investment losses | $ | 681 | | | $ | 642 | | | $ | 1,684 | | | $ | 1,733 | | Affordable housing tax credit investment losses | $ | 598 | | | $ | 681 | | | $ | 1,666 | | | $ | 1,684 | |
Affordable housing tax credit investment impairment losses | Affordable housing tax credit investment impairment losses | 387 | | | 585 | | | 1,159 | | | 1,668 | | Affordable housing tax credit investment impairment losses | 266 | | | 387 | | | 891 | | | 1,159 | |
Other tax credit investment losses | Other tax credit investment losses | 256 | | | 12 | | | 780 | | | 1,235 | | Other tax credit investment losses | 308 | | | 256 | | | 1,003 | | | 780 | |
Other tax credit investment impairment losses | Other tax credit investment impairment losses | 1,755 | | | 1,520 | | | 5,172 | | | 4,767 | | Other tax credit investment impairment losses | 1,933 | | | 1,755 | | | 5,634 | | | 5,172 | |
Total amortization of tax credit investments recorded in non-interest expense | Total amortization of tax credit investments recorded in non-interest expense | $ | 3,079 | | | $ | 2,759 | | | $ | 8,795 | | | $ | 9,403 | | Total amortization of tax credit investments recorded in non-interest expense | $ | 3,105 | | | $ | 3,079 | | | $ | 9,194 | | | $ | 8,795 | |
Note 15. BusinessOperating Segments
Prior to the second quarter 2022, Valley has 4 business segments that it monitorsoperated as four reportable segments: Consumer Lending, Commercial Lending, Investment Management, and reportsCorporate and Other Adjustments. Valley re-evaluated its segment reporting during the second quarter 2022 to consider the Bank Leumi USA acquisition on to manage Valley’s business operations. These segments are consumer lending, commercial lending, investment management, and corporate andApril 1, 2022 along with other adjustments. Valley’s reportable segments have been determined based upon itsfactors, including changes in the internal structure of operations, discrete financial information reviewed by key decision-makers, balance sheet management strategies and linespersonnel. As a result, Valley determined it operated reportable segments consisting of business.Consumer Lending, Commercial Lending and Treasury and Corporate Other at June 30, 2022. Treasury and Corporate Other was reorganized to consolidate Treasury and other corporate-wide functions, including the Treasury managed investment securities portfolios and overnight interest earning cash balances formerly reported under Investment Management. The discrete financial information related to the
activities previously reported in the Investment Management segment is no longer provided to Valley's CEO, who is the chief operating decision maker. 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). Valley regularly assesses its strategic plans, operations, and reporting structures to identify its reportable segments. There were no additional changes to Valley's reportable segments at September 30, 2022.
Consumer Lending 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 residential mortgage loan portfolio is subject to movements in the market level of interest rates and forecasted prepayment speeds. The average weighted life of the automobile loans within the portfolio 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. Consumer Lending also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.
Commercial Lending 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 lending 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 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 corporateConsumer Lending and other adjustments segment to each of the other three businessCommercial Lending segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each businessoperating segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/and or liabilities outstanding for the period.
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. 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. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The prior period balances presented in the tables below reflect reclassifications to conform the presentation in those periods to the current operating segment structure. Valley's consolidated results were not impacted by the changes discussed above and remain unchanged for all periods presented.
The following tables represent the financial data for Valley’s 4 businessoperating segments for the three and nine months ended September 30, 20212022 and 2020:2021:
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,373,897 | | | $ | 25,324,485 | | | $ | 5,634,492 | | | $ | — | | $ | 38,332,874 | | Average interest earning assets | $ | 8,307,993 | | | $ | 36,033,901 | | | $ | 6,189,348 | | $ | 50,531,242 | |
| Interest income | Interest income | $ | 58,887 | | | $ | 250,866 | | | $ | 19,766 | | | $ | (718) | | $ | 328,801 | | Interest income | $ | 70,590 | | | $ | 425,930 | | | $ | 40,208 | | $ | 536,728 | |
Interest expense | Interest expense | 4,032 | | | 13,795 | | | 3,228 | | | 6,720 | | 27,775 | | Interest expense | 12,288 | | | 53,294 | | | 17,154 | | 82,736 | |
Net interest income (loss) | 54,855 | | | 237,071 | | | 16,538 | | | (7,438) | | 301,026 | | |
Net interest income | | Net interest income | 58,302 | | | 372,636 | | | 23,054 | | 453,992 | |
Provision (credit) for credit losses | Provision (credit) for credit losses | (4,614) | | | 8,110 | | | 35 | | | — | | 3,531 | | Provision (credit) for credit losses | 7,182 | | | (5,347) | | | 188 | | 2,023 | |
Net interest income (loss) after provision for credit losses | 59,469 | | | 228,961 | | | 16,503 | | | (7,438) | | 297,495 | | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 51,120 | | | 377,983 | | | 22,866 | | 451,969 | |
Non-interest income | Non-interest income | 11,845 | | | 11,611 | | | 2,018 | | | 16,957 | | 42,431 | | Non-interest income | 19,637 | | | 23,510 | | | 13,047 | | 56,194 | |
Non-interest expense | Non-interest expense | 13,520 | | | 27,504 | | | (150) | | | 134,048 | | 174,922 | | Non-interest expense | 24,352 | | | 31,759 | | | 205,528 | | 261,639 | |
Internal transfer expense (income) | Internal transfer expense (income) | 20,662 | | | 71,141 | | | 15,825 | | | (107,628) | | — | | Internal transfer expense (income) | 26,268 | | | 113,932 | | | (140,200) | | — | |
Income (loss) before income taxes | $ | 37,132 | | | $ | 141,927 | | | $ | 2,846 | | | $ | (16,901) | | $ | 165,004 | | |
Income before income taxes | | Income before income taxes | $ | 20,137 | | | $ | 255,802 | | | $ | (29,415) | | $ | 246,524 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 2.01 | % | | 2.24 | % | | 0.20 | % | | N/A | | 1.72 | % | Return on average interest earning assets (pre-tax) | 0.97 | % | | 2.84 | % | | (1.90) | % | | 1.95 | % |
| | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,126,157 | | | $ | 25,389,107 | | | $ | 5,252,446 | | | $ | — | | $ | 37,767,710 | | Average interest earning assets | $ | 7,373,897 | | | $ | 25,324,485 | | | $ | 5,634,492 | | $ | 38,332,874 | |
| Interest income | Interest income | $ | 63,956 | | | $ | 251,920 | | | $ | 22,513 | | | $ | (1,046) | | $ | 337,343 | | Interest income | $ | 58,887 | | | $ | 250,866 | | | $ | 19,048 | | $ | 328,801 | |
Interest expense | Interest expense | 9,048 | | | 33,330 | | | 6,728 | | | 5,151 | | 54,257 | | Interest expense | 4,032 | | | 13,795 | | | 9,948 | | 27,775 | |
Net interest income (loss) | 54,908 | | | 218,590 | | | 15,785 | | | (6,197) | | 283,086 | | |
Provision (credit) for credit losses | 5,383 | | | 25,637 | | | (112) | | | — | | 30,908 | | |
Net interest income (loss) after provision for credit losses | 49,525 | | | 192,953 | | | 15,897 | | | (6,197) | | 252,178 | | |
Net interest income | | Net interest income | 54,855 | | | 237,071 | | | 9,100 | | 301,026 | |
(Credit) provision for credit losses | | (Credit) provision for credit losses | (4,614) | | | 8,110 | | | 35 | | 3,531 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 59,469 | | | 228,961 | | | 9,065 | | 297,495 | |
Non-interest income | Non-interest income | 23,531 | | | 20,421 | | | (1,304) | | | 6,624 | | 49,272 | | Non-interest income | 11,845 | | | 11,611 | | | 18,975 | | 42,431 | |
Non-interest expense | Non-interest expense | 19,877 | | | 25,633 | | | (186) | | | 114,861 | | 160,185 | | Non-interest expense | 13,520 | | | 27,504 | | | 133,898 | | 174,922 | |
Internal transfer expense (income) | Internal transfer expense (income) | 18,614 | | | 66,390 | | | 13,713 | | | (98,717) | | — | | Internal transfer expense (income) | 20,662 | | | 71,141 | | | (91,803) | | — | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 34,565 | | | $ | 121,351 | | | $ | 1,066 | | | $ | (15,717) | | $ | 141,265 | | Income (loss) before income taxes | $ | 37,132 | | | $ | 141,927 | | | $ | (14,055) | | $ | 165,004 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 1.94 | % | | 1.91 | % | | 0.08 | % | | N/A | | 1.50 | % | Return on average interest earning assets (pre-tax) | 2.01 | % | | 2.24 | % | | (1.00) | % | | 1.72 | % |
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,176,086 | | | $ | 25,465,276 | | | $ | 5,261,185 | | | $ | — | | $ | 37,902,547 | | Average interest earning assets | $ | 7,978,732 | | | $ | 32,551,062 | | | $ | 6,075,623 | | $ | 46,605,417 | |
| Interest income | Interest income | $ | 179,151 | | | $ | 759,097 | | | $ | 58,514 | | | $ | (2,515) | | $ | 994,247 | | Interest income | $ | 193,186 | | | $ | 1,036,276 | | | $ | 100,671 | | $ | 1,330,133 | |
Interest expense | Interest expense | 15,639 | | | 55,497 | | | 11,466 | | | 17,045 | | 99,647 | | Interest expense | 20,218 | | | 84,356 | | | 35,738 | | 140,312 | |
Net interest income (loss) | 163,512 | | | 703,600 | | | 47,048 | | | (19,560) | | 894,600 | | |
(Credit) provision for credit losses | (6,538) | | | 27,825 | | | (353) | | | — | | 20,934 | | |
Net interest income (loss) after provision for credit losses | 170,050 | | | 675,775 | | | 47,401 | | | (19,560) | | 873,666 | | |
Net interest income | | Net interest income | 172,968 | | | 951,920 | | | 64,933 | | 1,189,821 | |
Provision for credit losses | | Provision for credit losses | 14,457 | | | 34,590 | | | 531 | | 49,578 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 158,511 | | | 917,330 | | | 64,402 | | 1,140,243 | |
Non-interest income | Non-interest income | 47,445 | | | 29,144 | | | 6,824 | | | 33,377 | | 116,790 | | Non-interest income | 50,540 | | | 54,815 | | | 48,642 | | 153,997 | |
Non-interest expense | Non-interest expense | 53,161 | | | 80,276 | | | 1,370 | | | 372,221 | | 507,028 | | Non-interest expense | 59,711 | | | 81,292 | | | 617,706 | | 758,709 | |
Internal transfer expense (income) | Internal transfer expense (income) | 60,026 | | | 212,931 | | | 43,706 | | | (316,663) | | — | | Internal transfer expense (income) | 92,544 | | | 371,213 | | | (463,757) | | — | |
Income (loss) before income taxes | $ | 104,308 | | | $ | 411,712 | | | $ | 9,149 | | | $ | (41,741) | | $ | 483,428 | | |
Income before income taxes | | Income before income taxes | $ | 56,796 | | | $ | 519,640 | | | $ | (40,905) | | $ | 535,531 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 1.94 | % | | 2.16 | % | | 0.23 | % | | N/A | | 1.70 | % | Return on average interest earning assets (pre-tax) | 0.95 | % | | 2.13 | % | | (0.90) | % | | 1.53 | % |
| | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2021 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,187,839 | | | $ | 24,334,429 | | | $ | 5,221,538 | | | $ | — | | $ | 36,743,806 | | Average interest earning assets | $ | 7,176,086 | | | $ | 25,465,276 | | | $ | 5,261,185 | | $ | 37,902,547 | |
| Interest income | Interest income | $ | 199,018 | | | $ | 771,947 | | | $ | 81,905 | | | $ | (3,209) | | $ | 1,049,661 | | Interest income | $ | 179,151 | | | $ | 759,097 | | | $ | 55,999 | | $ | 994,247 | |
Interest expense | Interest expense | 40,217 | | | 136,156 | | | 29,216 | | | 13,088 | | 218,677 | | Interest expense | 15,639 | | | 55,497 | | | 28,511 | | 99,647 | |
Net interest income (loss) | 158,801 | | | 635,791 | | | 52,689 | | | (16,297) | | 830,984 | | |
Provision for credit losses | 15,274 | | | 90,785 | | | 688 | | | — | | 106,747 | | |
Net interest income (loss) after provision for credit losses | 143,527 | | | 545,006 | | | 52,001 | | | (16,297) | | 724,237 | | |
Net interest income | | Net interest income | 163,512 | | | 703,600 | | | 27,488 | | 894,600 | |
(Credit) provision for credit losses | | (Credit) provision for credit losses | (6,538) | | | 27,825 | | | (353) | | 20,934 | |
Net interest income after provision for credit losses | | Net interest income after provision for credit losses | 170,050 | | | 675,775 | | | 27,841 | | 873,666 | |
Non-interest income | Non-interest income | 55,383 | | | 52,192 | | | 7,661 | | | 20,263 | | 135,499 | | Non-interest income | 47,445 | | | 29,144 | | | 40,201 | | 116,790 | |
Non-interest expense | Non-interest expense | 60,188 | | | 73,041 | | | 843 | | | 338,935 | | 473,007 | | Non-interest expense | 53,161 | | | 80,276 | | | 373,591 | | 507,028 | |
Internal transfer expense (income) | Internal transfer expense (income) | 58,355 | | | 197,444 | | | 42,393 | | | (298,192) | | — | | Internal transfer expense (income) | 60,026 | | | 212,931 | | | (272,957) | | — | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 80,367 | | | $ | 326,713 | | | $ | 16,426 | | | $ | (36,777) | | $ | 386,729 | | Income (loss) before income taxes | $ | 104,308 | | | $ | 411,712 | | | $ | (32,592) | | $ | 483,428 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 1.49 | % | | 1.79 | % | | 0.42 | % | | N/A | | 1.40 | % | Return on average interest earning assets (pre-tax) | 1.94 | % | | 2.16 | % | | (0.83) | % | | 1.70 | % |
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 in Part 1,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 facilitate 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, including the potential effects of the COVID-19 pandemic on our businesses and financial results and conditions.expectations. These statements may be identified by such forward-looking terminology as “intend,” “should,” “expect,” “believe,” “view,” “will,” “opportunity,” “allow,” “continues,” “reflects,” “would,” “could,” “typically,” “usually,” “anticipate,” "may," "estimate,"“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 include, but are not limited to:
•failure to obtain shareholder or regulatory approval for the acquisition of Bank Leumi USA (Bank Leumi) on the anticipated terms and within the anticipated timeframe;
•the inability to realize expected cost savings and synergies from the Westchester and Bank Leumi acquisitionsUSA acquisition in the amounts or in the timeframe anticipated;
•greater than expected costs or difficulties relating to Westchester and Bank Leumi USA integration matters might be greater than expected;matters;
•the inability to retain customers and qualified employees of the Westchester and Bank Leumi;Leumi USA;
•changes in estimates ofgreater than expected non-recurring charges related to Westchester andthe Bank Leumi acquisitions;USA acquisition;
•the continued impact of COVID-19 onmacroeconomic factors in the U.S. and global economies,globally due to COVID-19 or otherwise, including business disruptions, reductions in employment, supply chain interruptions, inflation, Federal Reserve actions impacting the level of market interest rates and an increase in business failures, specifically among our clients;
•the continued impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases and new variants of COVID-19 may arise in our primary markets;
•continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets;
•the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral;
•the risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and litigation and the effectiveness of hedging strategies;
•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;
•a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California, and Alabama,Illinois, as well as an unexpected decline in commercial real estate values within our market areas;
•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;
•the inability to grow customer deposits to keep pace with loan growth;
•a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;
•the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
•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 loss of or decrease in lower-cost funding sources within our deposit base, including our inability to achieve deposit retention targets under Valley's branch transformation strategy;
•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;
•results of examinations by the Office of the Comptroller of the Currency (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, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
•our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;
•unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, the COVID-19 pandemic or other external events; and
•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.
A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1A2021.
We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of this Quarterly Report.activity, performance or achievements.
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. At September 30, 2021,2022, we identified our policies on the allowance for credit losses, 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, 2020.2021, 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 30, 2021,2022, Valley had consolidated total assets of approximately $41.3$55.9 billion, total net loans of $32.3$44.7 billion, total deposits of $33.6$45.3 billion and total shareholders’ equity of $4.8$6.3 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 Alabama.Illinois. Of our current 226238 branch network, 5855 percent, 1719 percent, 18 percent and 7 percent of the branches are in New Jersey, New York and Florida, respectively, with the remaining 8 percent of the branches in Alabama, California, and Alabama, respectively.Illinois combined. Despite targeted branch consolidation activity, wewe have significantly grown both in asset size and locations over the past several years primarilyboth through organic efforts and bank acquisitions.
The Westchester Bank Holding Corporation. On June 29, 2021, Valley announced that it will acquire The Westchester Bank Holding Corporation (“Westchester”) and its principal subsidiary, The Westchester Bank whichacquisitions. Our most recent bank acquisition is headquartered in White Plains, New York. As of June 30, 2021, Westchester had total assets of $1.3 billion, total loans of $908 million, and total deposits of $1.1 billion. Westchester maintains a seven branch network in Westchester County, New York. The common shareholders of Westchester will receive 229.645 shares of Valleydiscussed below.
common stock for each Westchester share they own. Based on Valley’s closing stock price on June 28, 2021, Westchester’s stockholders will receive approximately $210 million inBank Leumi Le-Israel Corporation. On April 1, 2022, Valley common stock. Existing Westchester options will be cashed out for approximately $10 million in cash. Thecompleted its acquisition is anticipated to close on December 1, 2021, pending the satisfaction of customary closing conditions.
Bank Leumi Le-Israel Corporation, Merger. On September 23, 2021, Valley announced a merger with Bank Leumi Le-Israel Corporation (Leumi) whereby Valley will acquire Leumi, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, (Bank Leumi)collectively referred to as "Bank Leumi USA". The merger will enable Valley to greatly expand its commercial banking and venture capital banking businesses, as well as help Valley increase its revenue diversity and expand into new geographies.At the acquisition date, Bank Leumi has its headquartersUSA had approximately $8.1 billion in New York Cityassets, $5.9 billion of loans and also operates commercial banking offices$7.0 billion of deposits, after purchase accounting adjustments. Valley issued approximately 85 million shares of common stock and paid $113.4 million in Chicago, Los Angeles, Palo Alto, and Aventura, Fl. As of June 30, 2021, Bank Leumi had total assets of $8.4 billion, total deposits of $7.1 billion, and gross loans of $5.4 billion. The acquisition is expected to closecash in the first halftransaction. The consideration for the acquisition totaled approximately $1.2 billion, inclusive of 2022,the value of stock options. The transaction resulted in $403.2 million of goodwill and $153.4 million of combined core deposit and other intangible assets subject to standard regulatory approvals, approval of Valley shareholders, as well as other customary closing conditions.
Dudley Ventures Acquisition. On October 8, 2021, Valley acquired Arizona-based Dudley Ventures (DV), an advisory firm specializing inamortization. See Note 2 to the investment and management of tax credits. The transaction includesconsolidated financial statements for additional details regarding the acquisition of DV's community development entity, DV Community Investment, as well as DV Fund AdvisorsBank Leumi USA and DV Advisory Services. The transaction price included $11.3 million of cash at the closing date, fixed future stock consideration totaling $3.8 million, and contingent cash earn-out payments based upon revenue growth of the acquired entities over a five-year period. Theother recent acquisition of Dudley Ventures is expected to support our efforts to build differentiated sources of non-interest income.
activities.
Impact of COVID-19. Economic activity and businesses continued to rebound inDuring the third quarter 2021. However,2022, worldwide inflationary concerns continued to outweigh the U.S. is experiencing significantother negative impacts of COVID-19. Among other factors, China's "zero COVID" policy has created disruption of China's manufacturing industry which could have prolonged negative consequences for the global supply chain disruptions and labor shortages which have also increased inflation.economy as China exports up to one-third of the world's intermediate goods. We continue to monitor the impact of COVID-19 including the emergence of new variants closely, including its impact on our employees, customers, communities and results of operations and other government stimulus or Federal Reserve actions. The extent to which the COVID-19 pandemic will impact our operations and financial results during the fourth quarter 2021 and beyond is highly uncertain. We continue to closely monitor local conditions in the areas we serve and will take actions as circumstances warrant and will follow proper protocols designed to ensure safety of our employees and customers. See the "Operating Environment" section of MD&A for more details.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act and additional legislation that followed including the Consolidated Appropriations Act and the American Rescue Plan Act of 2021 provided funding for the SBA's Paycheck Protection Program (PPP) and established rules for qualifying borrowers to receive loan forgiveness by the SBA under this program. Valley extended a total of $3.2 billion PPP loans under the program, of which $2.3which $3.1 billion of these loans have received forgiveness from the SBA, including $476.7 million during the third quarter 2021SBA. . As of September 30, 20212022, we had $874.0$85.8 million (including $35.5 million acquired from Bank Leumi USA) of PPP loans still outstanding.
In response to the COVID-19 pandemic and its economic impact on certain customers and in accordance with provisions set forth by the CARES Act, Valley implemented short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant, when requested by customers. As of September 30, 2021, Valley had $98.6 million of outstanding loans remaining in their payment deferral period under short-term modifications representing approximately 0.3 percent of our total loan portfolio at September 30, 2021 as compared to $361 million, or 1.1 percent of total loans at December 31, 2020.
Quarterly Results. Net income for the third quarter 20212022 was $178.1 million, or $0.34 per diluted common share as compared to $122.6 million, or $0.29 per diluted common share, compared to $102.4 million, or $0.25 per diluted common share, for the third quarter 2020.2021. The $20.2$55.5 million increase in quarterly net income as compared to the same quarter one year ago was largelymainly due to:
to the following changes:
•a $17.9$153.0 million increase in net interest income mainly due to (i) lower rates on our deposit products combined with a continued customer shift to deposits without stated maturities, (ii) run-off of higher cost time deposits, (iii) lower average other borrowings and related costsloan balances driven by normal maturities of FHLB
advancesboth acquired and long-term repos, as well as our prepayments of $534 millionorganic loan volumes and $248 million of long-term FHLB borrowings in December 2020increased yields on new and June 2021, respectively; and
adjustable-rate loans;
•a $27.4$13.8 million increase in non-interest income primarily driven by increases in wealth management and trust fees, service charges on deposit accounts and other income totaling $5.7 million, $4.9 million and $7.1 million, respectively, related to additional income resulting from the Bank Leumi USA acquisition, partially offset by lower net gains on sales of residential mortgage loans; and
•a $1.5 million decrease in our provision for credit losses, mainly due to the improved economic forecast component of the reserve as compared to September 30, 2020,
partially offset by:
•a $6.8 million decrease in non-interest income mainly due to the combination of lower gains on sales of residential mortgage loans and lower fee income related to derivative interest rate swaps executed with commercial lending customers, partially offset by moderate increases in other fee categories;
•a $14.7an $86.7 million increase in non-interest expense primarilylargely due to higherincreases in salary and employee benefits expenses,benefits; technology, furniture and increased professionalequipment expenses; and legal fees, including an accrualnet occupancy caused by our expanded banking operations resulting from the acquisitions of $2.1 million for general litigation reserves, partially offset by a $2.4 million decrease in the lossBank Leumi USA on the early extinguishment as compared to the third quarter 2020;April 1, 2022 and
The Westchester Bank Holding Corporation (Westchester) on December 1, 2021; and
•a $3.5$26.0 million increase in income tax expense mainlymostly due to higher pre-tax income before income taxes.in the
third quarter 2022.
See the “Net Interest Income”, “Non-Interest Income”, “Non-Interest Expense”, and “Income Taxes” sections below for more details on the impact of the items above impactingon our third quarter 20212022 results.
Operating Environment. During the third quarter 2021,of 2022, real gross domestic product expanded 0.5increased 2.8 percent compared to 6.7a decline of 0.6 percent growth in the second quarter 2021.of 2022. The decelerationincrease in growtheconomic activity was driven in large part by personal consumptionhousehold spending on goods and businessservices, and a favorable mix of export activity outpacing imports.
Residential fixed investments declined as mortgage rates increased markedly which weighed on the headline result. Business fixed investment, as inflation remained elevated, partly offset by inventory restocking and government spending.spending increased at a tepid rate.
TheDuring the third quarter 2022, the Federal Reserve continued to maintain an accommodative stance on monetary policy to keep interest rates low and promote liquidity. At their meeting in September 2021, the Federal Open Market Committee (the "Committee") maintainedraised the target range for the federal funds rate between 0.00by 150 basis points to a target range of 3.00 percent to 3.25 percent at the end of the third quarter. Following its meeting in November, the Federal Reserve raised the federal fund rate by another 75 basis points to a target range of 3.75 percent to 4.00 percent. In addition, the Federal Reserve has continued to reduce its holdings of Treasury securities and 0.25 percent. Additionally,agency debt and mortgage-backed securities. Consistent with its previously announced plan, the Committee decided to maintain several programs, including purchasing U.S.Federal Reserve targeted a reduction of its Treasury and mortgage backedagency securities portfolio by $47.5 billion per month through September 21, 2022 and, effective September 22, 2022, raised its target reduction of securities to support$95 billion per month. These actions reflect the flow of creditFederal Reserve’s strong commitment to households and businesses in orderreturning inflation to promote its maximum employment and price stability goals. Notwithstanding this, the Committee indicated that a moderation in the pace of asset purchases may soon be warranted.2 percent objective.
The 10-year U.S. Treasury note yield ended the third quarter of 2022 at 1.523.83 percent, 785 basis points higher as compared withto June 30, 2021.2022. The spread between the 2- and 10-year U.S. Treasury note yields ended the third quarter 2021 at 1.24negative 0.39 percent, 4a 45 basis points higher, as compared to the end of the second quarter 2021 and 68 basis points higher, as compared topoint decline from June 30, 2020.2022.
For all commercial banks in the U.S., loans and leases increased approximately 0.92.5 percent infrom June 30, 2022 to September 30, 2022. While loan growth moderated somewhat during the third quarter, 2021, as compared to the previous quarter. Forsurvey data from the industry banks reported more relaxed credit standards for most loan types. Additionally, banks reported that demand had firmed or increased during the third quarter which finally translated into strongerfor most commercial and industrial loan growth. In the third quarter 2021, Valley continued to see strong organic growthproducts increased. Alternatively, demand for most real estate related loans declined, particularly for commercial real estate loans with construction and severalland development purposes. During the third quarter 2022, Valley’s new loan originations decreased across most product types as compared to the second quarter, but loan growth remained at robust levels partly due to slower paydowns on existing loans due to the rising market interest rate environment. While confident in our commercial loan pipelines, we expect a more challenging overall loan origination environment moving forward, especially in the residential mortgage and consumer loan portfolios, due to the impact of higher market interest rates on customer demand and selective tightening of certain underwriting standards by Valley.
Further expected increases in market interest rates, persistently high inflation, the lingering impact of supply chain issues, tight labor market conditions, and global economic fallout from the Russia-Ukraine war, among other loan types across its geographic footprint. Inflationfactors, has beenadded a higher level of uncertainty to the future path of the U.S. economy and an elevated which couldrisk of a recession. Should economic conditions deteriorate causing business activity, spending and investment to decline, it would adversely impact companies if they cannot pass along higher input costs to their customers. Should inflation pressures persist, this dynamic, among other external factors, could challenge our business operationsfinancial results, as highlighted throughout the remainingbelow in this MD&A discussion below.
&A.
Loans. Total loans increased $149.4 million$1.6 billion to $32.6$45.2 billion at September 30, 20212022 from June 30, 2021 in spite of a $476.7 million decrease in PPP loans within the commercial and industrial2022 primarily due to strong organic loan category.growth. Our non-PPP loan portfolio increased $626.0 million, or 8.015 percent on an annualized basis to $31.7 billion at September 30, 2021during the third quarter 2022 from $31.1 billion at June 30, 2021. Thethe second quarter 2022 as a result of solid commercial loan volumes and a continued increase in non-PPP loans was largely driven by increases of $399.9 million, $51.7 million and $105.4 million in the commercial real estate, construction and residential mortgage categories, respectively. Additionally, our third quarter 2021 new and refinanced loan originations included
approximately $233 million of residential mortgage loans originated for investment rather than sale. Net gains on sales of residential loans were $6.4 million and $10.1 million inDuring the third quarter 2021 and second quarter 2021, respectively.2022, we sold only $48 million of residential mortgage loans. See further details on our loan activities under the “Loan Portfolio” section below.section.
Asset Quality. Total non-performing assets (NPAs), consisting of non-accrual loans, other real estate owned (OREO), and other repossessed assets increased $31.1 million to $257.7 million at September 30, 2021 as compared to June 30, 2021. Non-accrual loans increased $31.8 million to $251.8 million at September 30, 2021 as compared to June 30, 2021 mainly due to the $33.1 million increase in non-accrual commercial real estate loans from three loan relationships which have $3.7 million of related allowance reserves as of September 30, 2021. Non-accrual loans represented 0.770.65 percent and 0.72 percent of total loans at September 30, 2021,2022 and June 30, 2022, respectively. Net recoveries of loan charge-offs totaled $5.6 million for the third quarter 2022 as compared to 0.68 percent at June 30, 2021.
net loan charge-offs of $2.3 million for the second quarter 2022. Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) decreased $25.0increased $25.2 million to $55.2$98.7 million, or 0.22 percent of total loans, at September 30, 2022 as compared to $73.5 million, or 0.17 percent of total loans, at September 30, 2021 as compared to $80.2 million, or 0.25 percent of total loans, at June 30, 2021. The decrease was driven by the transition of the aforementioned three commercial real estate loan delinquencies from accruing past due loans to non-accrual loan status.
2022. See further details in the "Non-performing Assets" section below.
Deposits and Other Borrowings. Overall, average deposits increased by $876.6 million$1.9 billion to $33.6$44.8 billion for the third quarter 20212022 as compared to the second quarter 20212022 mostly due to continued growth in both commercialour retail and brokered CD portfolios. The retail customer balances.growth resulted from strategic CD campaigns, while the brokered CD growth resulted from Avour increased utilization of brokered deposits, as a favorable funding alternative, during the erage non-interest bearingthird quarter 2022. Average non-interest-bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 3236 percent, 5653 percent and 12 percent of total deposits as of September 30, 2021,2022, respectively. Our mix of average deposits for the third quarter 2021 also continued to shift away from time deposits into the non-maturity deposit categories as compared to the second quarter 2021, as some funding from maturing retail CDs migrate to the more liquid deposit products and normal growth in such categories.
Actual ending balances for deposits increased $437.8 million$1.4 billion to approximately $33.6$45.3 billion at September 30, 20212022 from June 30, 20212022 largely due to increasesthe increased utilization of $524.8 millionbrokered deposits, consisting of both money market and $260.3 milliontime deposit accounts, in the non-maturity interest bearing deposit and non-interest bearing deposit categories, respectively, partially offset by a $347.3 million decrease in time deposits. The decrease of $347.3 million in time deposits was driven by normal run-off of maturing retail CDs with the aforementioned migration of some retail balances to more liquid, lower cost deposit product categories.our funding mix. Total brokered deposits (within money market deposit accounts) decreased approximately $315 millionincreased to $1.7$3.7 billion at September 30, 20212022 as compared to $2.0$2.3 billion at June 30, 2021,2022. Non-interest bearing deposits decreased $718.9 million at September 30, 2022 as our funding profile has benefited from the surgecompared to June 30, 2022 largely due to fluctuations in certain commercial customer balances, as well as some migration of both commercial and retail balances to interest bearing deposit balances. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 32 percent, 56 percent and 12 percent of total deposits as of September 30, 2021, respectively.products. While weour overall deposit levels increased during the third quarter 2022, we believe the current operating environment will likely continue to be favorableremain very challenging for Valley’s deposit gathering initiatives,initiatives. As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at September 30, 2021.2022.
The following table presents average short-term and long-term borrowings for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| (in thousands) |
Average short-term borrowings: | | | | | | | | | |
FHLB advances | $ | 438,267 | | | $ | 822,913 | | | $ | 690,217 | | | $ | 565,222 | | | $ | 797,070 | |
Securities sold under repurchase agreements | 140,777 | | | 142,790 | | | 170,257 | | | 144,019 | | | 160,793 | |
Federal funds purchased | 437,196 | | | 637,495 | | | — | | | 363,550 | | | 8,681 | |
Total | $ | 1,016,240 | | | $ | 1,603,198 | | | $ | 860,474 | | | $ | 1,072,791 | | | $ | 966,544 | |
| | | | | | | | | |
Average long-term borrowings: | | | | | | | | | |
FHLB advances | $ | 788,651 | | | $ | 788,803 | | | $ | 814,224 | | | $ | 788,802 | | | $ | 1,253,785 | |
Subordinated debt | 632,627 | | | 617,291 | | | 638,349 | | | 626,997 | | | 499,124 | |
Securities sold under repurchase agreements | — | | | — | | | 86,957 | | | — | | | 228,205 | |
Junior subordinated debentures issued to capital trusts | 56,631 | | | 56,544 | | | 56,284 | | | 56,545 | | | 56,198 | |
| | | | | | | | | |
Total | $ | 1,477,909 | | | $ | 1,462,638 | | | $ | 1,595,814 | | | $ | 1,472,344 | | | $ | 2,037,312 | |
Average short-term borrowings decreased $13.5increased $155.8 million during the third quarter 2022 as compared to $860.5 million for the third quarter 2021 as compared to the second quarter 2021mostly due to normal debt maturities funded with excess cash liquidity.an increase in the balance of federal funds purchased as a part of our overall funding strategy, partially offset by less utilization of FHLB advances. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased by $605.0$117.9 million to $1.6 billion forfrom the third quarter 2021 as compared to the second quarter 2021 largely due to combination of (i) the $248 million of FHLB advances which were prepaid in late June 2021, (ii) repayments upon maturities of FHLB advances and (iii) $300 millionrepayment of long-term repurchase agreements which matured during the third quarter 2021 with these decreases partially offset by (iv)and, to a lesser extent, maturities of FHLB advances over the $300 million subordinated notes issued in late May 2021 which were outstanding for the full quarter in third quarter 2021.last 12 months.
Actual ending balances for short-term borrowings decreased by $71.0$603.5 million to $783.3$919.3 million at September 30, 20212022 as compared to June 30, 20212022 largely due to repayments of FHLB advances. Long-term borrowings decreased by $458.2 million to $1.4 billion at September 30, 2021 as compared to June 30, 2021 mainly due to the maturity of $300 million of long-term repurchase agreements and $158 million of FHLB advances which were repaid with excess liquidity during the third quarter 2021. See Note 102022 and our increased utilization of broker deposits, as a favorable alternative funding source, in our funding mix at September 30, 2022. Long-term borrowings increased to approximately $1.5 billion at September 30, 2022 as compared to $1.4 billion at June 30, 2022 primarily due to the consolidated financial statements for additional information.
issuance of new subordinated notes during the third quarter 2022. On September 20, 2022, Valley issued $150 million of 6.25 percent fixed-to-floating rate subordinated notes due September 30, 2032. At September 30, 2022, the subordinated notes had a carrying value of $147.5 million, net of unamortized debt issuance costs.
Selected Performance Indicators.Non-GAAP Financial Measures. The following table below presents our annualizedselected performance ratiosindicators, their comparative non-GAAP measures and the (non-GAAP) efficiency ratio for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Return on average assets | 1.18 | % | | 0.99 | % | | 1.16 | % | | 0.94 | % |
Return on average assets, as adjusted | 1.20 | | | 1.01 | | | 1.19 | | | 0.95 | |
| | | | | | | |
Return on average shareholders’ equity | 10.23 | | | 9.04 | | | 10.14 | | | 8.50 | |
Return on average shareholders’ equity, as adjusted | 10.41 | | | 9.20 | | | 10.37 | | | 8.59 | |
| | | | | | | |
Return on average tangible shareholders’ equity (ROATE) | 14.64 | | | 13.30 | | | 14.63 | | | 12.61 | |
ROATE, as adjusted | 14.90 | | | 13.53 | | | 14.97 | | | 12.75 | |
Adjusted return on average assets, adjusted return on average shareholders' equity, ROATE and adjusted ROATE included inindicated. The Company 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 ourValley’s underlying operational performance, business, and performance trends, and the measuresmay facilitate comparisons of our current and prior performance with the performance of others in the financial services industry.
Management 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 presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Selected Performance Indicators | ($ in thousands, except for %) |
GAAP measures: | | | | | | | |
Net income, as reported | $ | 178,119 | | | $ | 122,580 | | | $ | 391,260 | | | $ | 358,802 | |
Return on average assets | 1.30 | % | | 1.18 | % | | 1.03 | % | | 1.16 | % |
Return on average shareholders’ equity | 11.39 | | | 10.23 | | | 8.89 | | | 10.14 | |
Non-GAAP measures: | | | | | | | |
Net income, as adjusted | $ | 181,455 | | | $ | 124,727 | | | $ | 467,571 | | | $ | 367,139 | |
Return on average assets, as adjusted | 1.32 | % | | 1.20 | % | | 1.23 | % | | 1.19 | % |
Return on average shareholders' equity, as adjusted | 11.60 | | | 10.41 | | | 10.62 | | | 10.37 | |
Return on average tangible shareholders' equity (ROATE) | 17.21 | | | 14.64 | | | 13.20 | | | 14.63 | |
ROATE, as adjusted | 17.54 | | | 14.90 | | | 15.77 | | | 14.97 | |
Efficiency ratio | 49.76 | | | 49.16 | | | 51.03 | | | 48.12 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Common Equity Per Share Data: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Book value per common share (GAAP) | $ | 11.98 | | | $ | 11.57 | |
Tangible book value per common share (non-GAAP) | 7.87 | | | 7.94 | |
Non-GAAP Reconciliations to GAAP Financial Measures
Adjusted net income is computed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) |
Net income, as reported | $ | 122,580 | | | $ | 102,374 | | | $ | 358,802 | | | $ | 285,243 | |
Add: Loss on extinguishment of debt (net of tax) | — | | | 1,691 | | | 6,024 | | | 1,691 | |
Add: (Gains) losses on available for sale and held to maturity securities transactions (net of tax) (a) | (565) | | | 33 | | | (399) | | | 91 | |
| | | | | | | |
Add: Merger related expenses (net of tax) (b) | 1,207 | | | 76 | | | 1,207 | | | 1,275 | |
Add: Litigation reserves (net of tax) (b) | 1,505 | | | — | | | 1,505 | | | — | |
| | | | | | | |
Net income, as adjusted | $ | 124,727 | | | $ | 104,174 | | | $ | 367,139 | | | $ | 288,300 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Net income, as reported (GAAP) | $ | 178,119 | | | $ | 122,580 | | | $ | 391,260 | | | $ | 358,802 | |
Add: Loss on extinguishment of debt (net of tax) | — | | | — | | | — | | | 6,024 | |
Less: Gains on available for sale and held to maturity securities transactions (net of tax) (a) | (24) | | | (565) | | | (74) | | | (399) | |
| | | | | | | |
Add: Provision for credit losses (net of tax) (b) | — | | | — | | | 29,282 | | | — | |
Add: Merger related expenses (net of tax) (c) | 3,360 | | | 1,207 | | | 47,103 | | | 1,207 | |
Add: Litigation reserves (net of tax) (d) | — | | | 1,505 | | | — | | | 1,505 | |
| | | | | | | |
Net income, as adjusted (non-GAAP) | $ | 181,455 | | | $ | 124,727 | | | $ | 467,571 | | | $ | 367,139 | |
(a) Included in gains (losses) on securities transactions, net.
(b)Represents the provision for credit losses for non-PCD loans, unfunded credit commitments and held to maturity debt securities acquired from Bank Leumi USA on April 1, 2022.
(c) Merger related expenses are primarily within salary and employee benefits expense, technology, furniture and equipment expense, and professional and legal fees for the nine months ended September 30, 2022.
(d) Included in professional and legal fees.
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. 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 September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| ($ in thousands) |
Net income, as adjusted | $ | 124,727 | | $ | 104,174 | | $ | 367,139 | | $ | 288,300 |
Average assets | $ | 41,543,930 | | $ | 41,356,737 | | $ | 41,144,375 | | $ | 40,304,956 |
Annualized return on average assets, as adjusted | 1.20 | % | | 1.01 | % | | 1.19 | % | | 0.95 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Net income, as adjusted (non-GAAP) | $ | 181,455 | | $ | 124,727 | | $ | 467,571 | | $ | 367,139 |
Average assets | $ | 54,858,306 | | $ | 41,543,930 | | $ | 50,588,010 | | $ | 41,144,375 |
Annualized return on average assets, as adjusted (non-GAAP) | 1.32 | % | | 1.20 | % | | 1.23 | % | | 1.19 | % |
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, |
| 2021 | | 2020 | | 2021 | | 2020 |
| ($ in thousands) |
Net income, as adjusted | $ | 124,727 | | $ | 104,174 | | $ | 367,139 | | $ | 288,300 |
Average shareholders' equity | $ | 4,794,843 | | $ | 4,530,671 | | $ | 4,718,960 | | $ | 4,472,447 |
Annualized return on average shareholders' equity, as adjusted | 10.41 | % | | 9.20 | % | | 10.37 | % | | 8.59 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Net income, as adjusted (non-GAAP) | $ | 181,455 | | $ | 124,727 | | $ | 467,571 | | $ | 367,139 |
Average shareholders' equity | $ | 6,256,767 | | $ | 4,794,843 | | $ | 5,869,736 | | $ | 4,718,960 |
Annualized return on average shareholders' equity, as adjusted (non-GAAP) | 11.60 | % | | 10.41 | % | | 10.62 | % | | 10.37 | % |
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 September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| ($ in thousands) |
Net income | $ | 122,580 | | $ | 102,374 | | $ | 358,802 | | $ | 285,243 |
Net income, as adjusted | 124,727 | | 104,174 | | $ | 367,139 | | $ | 288,300 |
Average shareholders’ equity | $ | 4,794,843 | | $ | 4,530,671 | | $ | 4,718,960 | | $ | 4,472,447 |
Less: Average goodwill and other intangible assets | 1,446,760 | | 1,451,889 | | 1,449,285 | | 1,456,536 |
Average tangible shareholders’ equity | $ | 3,348,083 | | $ | 3,078,782 | | $ | 3,269,675 | | $ | 3,015,911 |
Annualized ROATE | 14.64 | % | | 13.30 | % | | 14.63 | % | | 12.61 | % |
Annualized ROATE, as adjusted | 14.90 | % | | 13.53 | % | | 14.97 | % | | 12.75 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Net income, as reported (GAAP) | $ | 178,119 | | $ | 122,580 | | $ | 391,260 | | $ | 358,802 |
Net income, as adjusted (non-GAAP) | 181,455 | | 124,727 | | $ | 467,571 | | $ | 367,139 |
Average shareholders’ equity | $ | 6,256,767 | | $ | 4,794,843 | | $ | 5,869,736 | | $ | 4,718,960 |
Less: Average goodwill and other intangible assets | 2,117,818 | | 1,446,760 | | 1,917,217 | | 1,449,285 |
Average tangible shareholders’ equity | $ | 4,138,949 | | $ | 3,348,083 | | $ | 3,952,519 | | $ | 3,269,675 |
Annualized ROATE (non-GAAP) | 17.21 | % | | 14.64 | % | | 13.20 | % | | 14.63 | % |
Annualized ROATE, as adjusted (non-GAAP) | 17.54 | % | | 14.90 | % | | 15.77 | % | | 14.97 | % |
The efficiency ratio is computed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Total non-interest expense, as reported (GAAP) | $ | 261,639 | | | $ | 174,922 | | | $ | 758,709 | | | $ | 507,028 | |
Less: Loss on extinguishment of debt (pre-tax) | — | | | — | | | — | | | 8,406 | |
| | | | | | | |
Less: Amortization of tax credit investments (pre-tax) | 3,105 | | | 3,079 | | | 9,194 | | | 8,795 | |
Less: Merger related expenses (pre-tax) (a) | 4,707 | | | 1,287 | | | 63,831 | | | 1,287 | |
Less: Litigation reserve (pre-tax) (b) | — | | | 2,100 | | | — | | | 2,100 | |
Total non-interest expense, as adjusted (non-GAAP) | $ | 253,827 | | | $ | 168,456 | | | $ | 685,684 | | | $ | 486,440 | |
Net interest income, as reported (GAAP) | $ | 453,992 | | | $ | 301,026 | | | $ | 1,189,821 | | | $ | 894,600 | |
Total non-interest income, as reported (GAAP) | 56,194 | | | 42,431 | | | 153,997 | | | 116,790 | |
Less: Gains on available for sale and held to maturity securities transactions, net (pre-tax) (c) | (33) | | | (788) | | | (102) | | | (557) | |
Total net interest income and non-interest income, as adjusted (non-GAAP) | $ | 510,153 | | | $ | 342,669 | | | $ | 1,343,716 | | | $ | 1,010,833 | |
| | | | | | | |
Efficiency ratio (non-GAAP) | 49.76 | % | | 49.16 | % | | 51.03 | % | | 48.12 | % |
(a) Included primarily within salary and employee benefits expense, technology, furniture and equipment expense, and professional and legal fees for the nine months ended September 30, 2022.
(b) Included in professional and legal fees.
(c) Included in gains (losses) on securities transactions, net.
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, 2022 | | December 31, 2021 |
| ($ in thousands, except for share data) |
Common shares outstanding | 506,351,502 | | | 421,437,068 | |
Shareholders’ equity | $ | 6,273,829 | | | $ | 5,084,066 | |
Less: Preferred stock | 209,691 | | | 209,691 | |
Less: Goodwill and other intangible assets | 2,079,731 | | | 1,529,394 | |
Tangible common shareholders’ equity | $ | 3,984,407 | | | $ | 3,344,981 | |
Tangible book value per common share (non-GAAP) | $ | 7.87 | | | $ | 7.94 | |
Book value per common share (GAAP) | $ | 11.98 | | | $ | 11.57 | |
Net Interest Income
Net interest income consists of interest income and dividends earned on interest earning assets, less interest expense on interest bearing liabilities, and represents the main source of income for Valley.
N
Netet interest income on a tax equivalent basis totaling $301.7$455.3 million for the third quarter 2021 decreased $43 thousand as compared to the second quarter 2021 and2022 increased $17.6 million from the third quarter 2020. Interest expense of $27.8 million for the third quarter 2021 decreased $5.0$35.7 million as compared to the second quarter 2021 as we continue to reduce our cost of funding2022 and increased $153.6 million from both deposits and our repayment of other borrowings, primarily FHLB advances.the third quarter 2021. Interest income on a tax equivalent basis in the third quarter 2021 decreased by $5.02022 increased $83.7 million to $329.5$538.0 million as compared to the second quarter 2022. The increase was mostly due to higher average loan balances driven by our organic loan growth and increased yields on both new originations and adjustable rate loans in our portfolio. Interest expense of $82.7 million for the third quarter 2022 increased $47.9 million as compared to the second quarter 20212022 largely due to higher interest rates on both non-maturity deposits and short-term borrowings, as well as a $9.4 million decline$1.5 billion increase in PPP loan relatedaverage interest and fees caused by lower levels of loan forgiveness (prepayments) in the third quarter 2021 and lower yields on non-PPP new and renewed loans.
bearing liabilities.
Average interest earning assets increased $565.2 million$12.2 billion to $38.3$50.5 billion for the third quarter 20212022 as compared to the third quarter 20202021 primarily due to higher levelsthe acquisitions of excess liquidity heldBank Leumi USA and Westchester on April 1, 2022 and December 1, 2021, respectively, as well as strong organic loan growth over the 12-month period ended September 30, 2022. Compared to the second quarter 2022, average interest earning assets increased by $1.6 billion during the third quarter 2022. The increase was primarily driven by a $1.8 billion increase in overnight investments with banks caused byaverage loan balances due to organic loan growth mainly in the surgecommercial loan categories, as well as residential mortgage loans.
Average interest bearing liabilities increased $5.9 billion to $31.2 billion for the third quarter 2022 as compared to the third quarter 2021 mainly due to $2.5 billion of interest bearing deposits assumed from Bank Leumi USA, growth in commercial and retail customer deposit balances without stated maturities and fluctuations in the timingbrokered deposits, and $727 million of loan and investment funding.interest bearing deposits assumed from Westchester. As compared to the second quarter 2021,2022, average interest earning assetsbearing liabilities increased by $425.5 million from $37.9$1.5 billion mostly driven by higher levels of excess overnight liquidityin the third quarter 2022 mainly due to growth in our retail and purchases of new taxable investments,brokered CD portfolios, partially offset by principal repayments in bothmaturities and less use of short-term borrowings as a funding source. The retail growth resulted from successful targeted CD campaigns, while the taxable and non-taxable investment portfolios.
brokered CD growth resulted from
our increased utilization of such deposits as a cost-effective funding alternative.
Average interestTotal average deposits, including non-interest bearing liabilities decreased $1.7deposits, increased $1.9 billion to $25.4$44.8 billion for the third quarter 2021 as compared to the third quarter 2020 primarily due to the repayment of borrowings with excess cash liquidity over the last 12-month period. As compared to the second quarter 2021, average interest bearing liabilities decreased by $115.4 million in the third quarter 2021 mainly due to repayments of short-term and long-term borrowings, which were largely offset by the surge in both commercial and retail customer deposits. Total average deposits increased $876.6 million to $33.6 billion for the third quarter 20212022 as compared to the second quarter 2021.2022. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.
Our net interest margin on a tax equivalent basis of 3.153.60 percent for the third quarter 2021 decreased2022 increased by 317 basis points and increased by 1445 basis points from 3.183.43 percent and 3.013.15 percent for the second quarter 20212022 and third quarter 2020,2021, respectively. The yield on average interest earning assets decreasedincreased by 954 basis points on a linked quarter basis mostly due to the lower yieldaforementioned higher yields on new and renewedadjustable rate loans partially offset by one additional day in the third quarter 20212022 as compared to the second quarter 2021.2022. The yield on average loans decreasedincreased by 857 basis points to 3.794.48 percent for the third quarter 20212022 as compared to the second quarter 2021.2022 largely due to the higher level of market interest rates. The yields on average taxable and non-taxable investments also increased 9 basis points and 25 basis points, respectively, from the second quarter 2022 largely due to investment maturities and prepayments redeployed into new higher yielding securities, as well as lower premium amortization expense caused by a decline in prepayments on mortgage-backed securities during the third quarter 2022. Our cost of total average deposits increased to 0.59 percent for the third quarter 2022 from 0.19 percent for the second quarter 2022. The overall cost of average interest bearing liabilities decreased 7also increased 59 basis points to 0.441.06 percent for the third quarter 20212022 as compared to the second quarter 2021.2022. The decreaseincreased cost of funds was mainly due to: (i) the continued run-offto higher interest rates on most of maturing higher cost time deposits, (ii) repaymentour interest bearing deposit products combined with greater utilization of maturing FHLB advancesbrokered and other borrowingsretail CDs in our funding mix during the third quarter 2021, (iii)2022.
The Federal Reserve continued to raise the prepaymentfederal funds rate by 75 basis points after each of $248 milliontheir meetings in July, September, and November 2022 resulting in a current target range of long-term FHLB advances3.75 percent to 4.00 percent. The higher levels of market interest rates will benefit certain interest earning assets on our balance sheet and are likely to provide us the opportunity to reinvest any excess cash, including normal repayments of loans and investments, at higher rates. Funding costs also increased during the third quarter 2022 and the early stages of the fourth quarter 2022, however at this time, we expect a continued benefit to our net interest income from the immediate repricing of certain earning assets and a degree of lag in June 2021higher funding costs due to the current market and (iv)our ability to manage the overall lower costbalance sheet. While our outlook for our net interest income in the fourth quarter 2022 and beyond is positive, we cannot provide any assurances with respect to the future trajectory of deposits. Our cost of total average deposits was 0.18 percentmarket interest rates or that our net interest margin or income will remain at the levels reported for the third quarter 2021 as compared to 0.21 percent for the second quarter 2021.
Looking forward, we expect moderate ongoing interest rate pressures on our net interest margin for the fourth quarter 2021 and beyond due to the low level of market rates and the potential negative impact on the overall yield on new and refinanced loan originations. However, we are also encouraged by the continued potential opportunity to selectively redeploy low yielding excess cash liquidity into new loans and investments during the fourth quarter 2021, as well as repay or reprice (at low costs) stated maturity deposits totaling approximately $3.3 billion with an average cost of 31 basis points scheduled to mature over the next 12-month period.2022.
The following table reflects the components of net interest income for the three months ended September 30, 2021,2022, June 30, 20212022 and September 30, 2020:2021:
Quarterly Analysis of Average Assets, Liabilities and Shareholders’ Equity and
Net Interest Income on a Tax Equivalent Basis
| | | Three Months Ended | | Three Months Ended |
| | September 30, 2021 | | June 30, 2021 | | September 30, 2020 | | September 30, 2022 | | June 30, 2022 | | September 30, 2021 |
| | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| | ($ in thousands) | | ($ in thousands) |
Assets | Assets | | Assets | |
Interest earning assets: | Interest earning assets: | | Interest earning assets: | |
Loans (1)(2) | Loans (1)(2) | $ | 32,698,382 | | | $ | 309,778 | | | 3.79 | % | | $ | 32,635,298 | | | $ | 315,339 | | | 3.87 | % | | $ | 32,515,264 | | | $ | 315,863 | | | 3.89 | % | Loans (1)(2) | $ | 44,341,894 | | | $ | 496,545 | | | 4.48 | % | | $ | 42,517,287 | | | $ | 415,602 | | | 3.91 | % | | $ | 32,698,382 | | | $ | 309,778 | | | 3.79 | % |
Taxable investments (3) | Taxable investments (3) | 3,302,803 | | | 15,797 | | | 1.91 | | | 3,159,842 | | | 14,883 | | | 1.88 | | | 3,354,373 | | | 17,529 | | | 2.09 | | Taxable investments (3) | 4,815,181 | | | 31,002 | | | 2.58 | | | 4,912,994 | | | 30,610 | | | 2.49 | | | 3,302,803 | | | 15,797 | | | 1.91 | |
Tax-exempt investments (1)(3) | Tax-exempt investments (1)(3) | 429,941 | | | 3,302 | | | 3.07 | | | 498,971 | | | 4,071 | | | 3.26 | | | 542,450 | | | 4,564 | | | 3.37 | | Tax-exempt investments (1)(3) | 635,795 | | | 6,501 | | | 4.09 | | | 684,471 | | | 6,571 | | | 3.84 | | | 429,941 | | | 3,302 | | | 3.07 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | 1,901,748 | | | 642 | | | 0.14 | | | 1,613,303 | | | 235 | | | 0.06 | | | 1,355,623 | | | 420 | | | 0.12 | | Interest bearing deposits with banks | 738,372 | | | 3,996 | | | 2.16 | | | 776,478 | | | 1,569 | | | 0.81 | | | 1,901,748 | | | 642 | | | 0.14 | |
Total interest earning assets | Total interest earning assets | 38,332,874 | | | 329,519 | | | 3.44 | | | 37,907,414 | | | 334,528 | | | 3.53 | | | 37,767,710 | | | 338,376 | | | 3.58 | | Total interest earning assets | 50,531,242 | | | 538,044 | | | 4.26 | | | 48,891,230 | | | 454,352 | | | 3.72 | | | 38,332,874 | | | 329,519 | | | 3.44 | |
Allowance for credit losses | Allowance for credit losses | (346,437) | | | | | (350,388) | | | | | (309,382) | | | | | Allowance for credit losses | (486,747) | | | | | (428,193) | | | | | (346,437) | | | | |
Cash and due from banks | Cash and due from banks | 213,452 | | | 335,083 | | | 291,803 | | | Cash and due from banks | 426,796 | | | 426,187 | | | 213,452 | | |
Other assets | Other assets | 3,314,308 | | | 3,237,689 | | | 3,558,927 | | | Other assets | 4,499,739 | | | 4,362,789 | | | 3,314,308 | | |
Unrealized gains on securities available for sale, net | Unrealized gains on securities available for sale, net | 29,733 | | | 31,661 | | | 47,679 | | | Unrealized gains on securities available for sale, net | (112,724) | | | (40,591) | | | 29,733 | | |
Total assets | Total assets | $ | 41,543,930 | | | $ | 41,161,459 | | | $ | 41,356,737 | | | Total assets | $ | 54,858,306 | | | $ | 53,211,422 | | | $ | 41,543,930 | | |
Liabilities and shareholders’ equity | Liabilities and shareholders’ equity | | | | | | | Liabilities and shareholders’ equity | | | | | | |
Interest bearing liabilities: | Interest bearing liabilities: | | Interest bearing liabilities: | |
Savings, NOW and money market deposits | Savings, NOW and money market deposits | $ | 18,771,619 | | | $ | 10,605 | | | 0.23 | % | | $ | 17,784,985 | | | $ | 11,166 | | | 0.25 | % | | $ | 14,542,470 | | | $ | 13,323 | | | 0.37 | % | Savings, NOW and money market deposits | $ | 23,541,694 | | | $ | 50,674 | | | 0.86 | % | | $ | 23,027,347 | | | $ | 17,122 | | | 0.30 | % | | $ | 18,771,619 | | | $ | 10,605 | | | 0.23 | % |
Time deposits | Time deposits | 4,126,253 | | | 4,394 | | | 0.43 | | | 4,609,778 | | | 6,279 | | | 0.54 | | | 8,027,346 | | | 19,028 | | | 0.95 | | Time deposits | 5,192,896 | | | 15,174 | | | 1.17 | | | 3,601,088 | | | 3,269 | | | 0.36 | | | 4,126,253 | | | 4,394 | | | 0.43 | |
Total interest bearing deposits | Total interest bearing deposits | 22,897,872 | | | 14,999 | | | 0.26 | | | 22,394,763 | | | 17,445 | | | 0.31 | | | 22,569,816 | | | 32,351 | | | 0.57 | | Total interest bearing deposits | 28,734,590 | | | 65,848 | | | 0.92 | | | 26,628,435 | | | 20,391 | | | 0.31 | | | 22,897,872 | | | 14,999 | | | 0.26 | |
Short-term borrowings | Short-term borrowings | 860,474 | | | 1,464 | | | 0.68 | | | 873,927 | | | 1,168 | | | 0.53 | | | 1,533,246 | | | 2,588 | | | 0.68 | | Short-term borrowings | 1,016,240 | | | 5,160 | | | 2.03 | | | 1,603,198 | | | 4,083 | | | 1.02 | | | 860,474 | | | 1,464 | | | 0.68 | |
Long-term borrowings (4) | Long-term borrowings (4) | 1,595,814 | | | 11,312 | | | 2.84 | | | 2,200,836 | | | 14,128 | | | 2.57 | | | 2,959,728 | | | 19,318 | | | 2.61 | | Long-term borrowings (4) | 1,477,909 | | | 11,728 | | | 3.17 | | | 1,462,638 | | | 10,313 | | | 2.82 | | | 1,595,814 | | | 11,312 | | | 2.84 | |
Total interest bearing liabilities | Total interest bearing liabilities | 25,354,160 | | | 27,775 | | | 0.44 | | | 25,469,526 | | | 32,741 | | | 0.51 | | | 27,062,790 | | | 54,257 | | | 0.80 | | Total interest bearing liabilities | 31,228,739 | | | 82,736 | | | 1.06 | | | 29,694,271 | | | 34,787 | | | 0.47 | | | 25,354,160 | | | 27,775 | | | 0.44 | |
Non-interest bearing deposits | Non-interest bearing deposits | 10,701,948 | | | | | 10,328,412 | | | | | 8,820,877 | | | | | Non-interest bearing deposits | 16,035,778 | | | | | 16,267,946 | | | | | 10,701,948 | | | | |
Other liabilities | Other liabilities | 692,979 | | | 654,724 | | | 942,399 | | | Other liabilities | 1,337,022 | | | 1,010,220 | | | 692,979 | | |
Shareholders’ equity | Shareholders’ equity | 4,794,843 | | | 4,708,797 | | | 4,530,671 | | | Shareholders’ equity | 6,256,767 | | | 6,238,985 | | | 4,794,843 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 41,543,930 | | | $ | 41,161,459 | | | $ | 41,356,737 | | | Total liabilities and shareholders’ equity | $ | 54,858,306 | | | $ | 53,211,422 | | | $ | 41,543,930 | | |
Net interest income/interest rate spread (5) | Net interest income/interest rate spread (5) | | | $ | 301,744 | | | 3.00 | % | | | | $ | 301,787 | | | 3.02 | % | | | | $ | 284,119 | | | 2.78 | % | Net interest income/interest rate spread (5) | | | $ | 455,308 | | | 3.20 | % | | | | $ | 419,565 | | | 3.25 | % | | | | $ | 301,744 | | | 3.00 | % |
Tax equivalent adjustment | Tax equivalent adjustment | | (718) | | | | | (880) | | | | | (1,033) | | | | Tax equivalent adjustment | | (1,316) | | | | | (1,405) | | | | | (718) | | | |
Net interest income, as reported | Net interest income, as reported | | $ | 301,026 | | | $ | 300,907 | | | $ | 283,086 | | | Net interest income, as reported | | $ | 453,992 | | | $ | 418,160 | | | $ | 301,026 | | |
Net interest margin (6) | Net interest margin (6) | | | | 3.14 | % | | | | 3.18 | % | | | | 3.00 | % | Net interest margin (6) | | | | 3.59 | % | | | | 3.42 | % | | | | 3.14 | % |
Tax equivalent effect | Tax equivalent effect | | 0.01 | | | — | | | 0.01 | | Tax equivalent effect | | 0.01 | | | 0.01 | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | Net interest margin on a fully tax equivalent basis (6) | | 3.15 | % | | 3.18 | % | | 3.01 | % | Net interest margin on a fully tax equivalent basis (6) | | 3.60 | % | | 3.43 | % | | 3.15 | % |
The following table reflects the components of net interest income for the nine months ended September 30, 20212022 and 2020:2021:
| | | Nine Months Ended | | Nine Months Ended |
| | September 30, 2021 | | September 30, 2020 | | September 30, 2022 | | September 30, 2021 |
| | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| | ($ in thousands) | | ($ in thousands) |
Assets | Assets | | Assets | |
Interest earning assets: | Interest earning assets: | | Interest earning assets: | |
Loans (1)(2) | Loans (1)(2) | $ | 32,641,362 | | | $ | 938,323 | | | 3.83 | % | | $ | 31,522,268 | | | $ | 970,814 | | | 4.11 | % | Loans (1)(2) | $ | 40,529,794 | | | $ | 1,229,536 | | | 4.04 | % | | $ | 32,641,362 | | | $ | 938,323 | | | 3.83 | % |
Taxable investments (3) | Taxable investments (3) | 3,191,930 | | | 45,717 | | | 1.91 | | | 3,527,823 | | | 65,402 | | | 2.47 | | Taxable investments (3) | 4,525,323 | | | 81,906 | | | 2.41 | % | | 3,191,930 | | | 45,717 | | | 1.91 | |
Tax-exempt investments (1)(3) | Tax-exempt investments (1)(3) | 480,599 | | | 11,621 | | | 3.22 | | | 563,459 | | | 14,207 | | | 3.36 | | Tax-exempt investments (1)(3) | 574,699 | | | 16,079 | | | 3.73 | % | | 480,599 | | | 11,621 | | | 3.22 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | 1,588,656 | | | 1,101 | | | 0.09 | | | 1,130,257 | | | 2,296 | | | 0.27 | | Interest bearing deposits with banks | 975,601 | | | 6,026 | | | 0.82 | % | | 1,588,656 | | | 1,101 | | | 0.09 | |
Total interest earning assets | Total interest earning assets | 37,902,547 | | | 996,762 | | | 3.51 | | | 36,743,807 | | | 1,052,719 | | | 3.82 | | Total interest earning assets | 46,605,417 | | | 1,333,547 | | | 3.82 | % | | 37,902,547 | | | 996,762 | | | 3.51 | |
Allowance for credit losses | Allowance for credit losses | (348,011) | | | | | (283,508) | | | | | Allowance for credit losses | (428,078) | | | | | (348,011) | | | | |
Cash and due from banks | Cash and due from banks | 263,910 | | | 318,370 | | | Cash and due from banks | 378,819 | | | 263,910 | | |
Other assets | Other assets | 3,290,439 | | | 3,492,846 | | | Other assets | 4,078,903 | | | 3,290,439 | | |
Unrealized gains on securities available for sale, net | Unrealized gains on securities available for sale, net | 35,490 | | | 33,441 | | | Unrealized gains on securities available for sale, net | (47,051) | | | 35,490 | | |
Total assets | Total assets | $ | 41,144,375 | | | $ | 40,304,956 | | | Total assets | $ | 50,588,010 | | | $ | 41,144,375 | | |
Liabilities and shareholders’ equity | Liabilities and shareholders’ equity | | | | | Liabilities and shareholders’ equity | | | | |
Interest bearing liabilities: | Interest bearing liabilities: | | Interest bearing liabilities: | |
Savings, NOW and money market deposits | Savings, NOW and money market deposits | $ | 17,730,438 | | | $ | 32,896 | | | 0.25 | % | | $ | 13,834,930 | | | $ | 64,463 | | | 0.62 | % | Savings, NOW and money market deposits | $ | 22,374,949 | | | $ | 77,423 | | | 0.46 | % | | 17,730,438 | | | 32,896 | | | 0.25 | % |
Time deposits | Time deposits | 4,853,891 | | | 21,766 | | | 0.60 | | | 8,501,949 | | | 91,699 | | | 1.44 | | Time deposits | 4,122,169 | | | 21,274 | | | 0.69 | | | 4,853,891 | | | 21,766 | | | 0.60 | |
Total interest bearing deposits | Total interest bearing deposits | 22,584,329 | | | 54,662 | | | 0.32 | | | 22,336,879 | | | 156,162 | | | 0.93 | | Total interest bearing deposits | 26,497,118 | | | 98,697 | | | 0.50 | | | 22,584,329 | | | 54,662 | | | 0.32 | |
Short-term borrowings | Short-term borrowings | 966,544 | | | 4,390 | | | 0.61 | | | 1,723,947 | | | 9,275 | | | 0.72 | | Short-term borrowings | 1,072,791 | | | 10,049 | | | 1.25 | | | 966,544 | | | 4,390 | | | 0.61 | |
Long-term borrowings (4) | Long-term borrowings (4) | 2,037,312 | | | 40,595 | | | 2.66 | | | 2,873,912 | | | 53,240 | | | 2.47 | | Long-term borrowings (4) | 1,472,344 | | | 31,566 | | | 2.86 | | | 2,037,312 | | | 40,595 | | | 2.66 | |
Total interest bearing liabilities | Total interest bearing liabilities | 25,588,185 | | | 99,647 | | | 0.52 | | | 26,934,738 | | | 218,677 | | | 1.08 | | Total interest bearing liabilities | 29,042,253 | | | 140,312 | | | 0.64 | | | 25,588,185 | | | 99,647 | | | 0.52 | |
Non-interest bearing deposits | Non-interest bearing deposits | 10,147,130 | | | | | 7,995,759 | | | | | Non-interest bearing deposits | 14,679,354 | | | | | 10,147,130 | | | | |
Other liabilities | Other liabilities | 690,100 | | | 902,012 | | | Other liabilities | 996,667 | | | 690,100 | | |
Shareholders’ equity | Shareholders’ equity | 4,718,960 | | | 4,472,447 | | | Shareholders’ equity | 5,869,736 | | | 4,718,960 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 41,144,375 | | | $ | 40,304,956 | | | Total liabilities and shareholders’ equity | $ | 50,588,010 | | | $ | 41,144,375 | | |
Net interest income/interest rate spread (5) | Net interest income/interest rate spread (5) | | | $ | 897,115 | | | 2.99 | % | | | | $ | 834,042 | | | 2.74 | % | Net interest income/interest rate spread (5) | | | $ | 1,193,235 | | | 3.18 | % | | | | $ | 897,115 | | | 2.99 | % |
Tax equivalent adjustment | Tax equivalent adjustment | | (2,515) | | | | | (3,058) | | | | Tax equivalent adjustment | | (3,414) | | | | | (2,515) | | | |
Net interest income, as reported | Net interest income, as reported | | $ | 894,600 | | | $ | 830,984 | | | Net interest income, as reported | | $ | 1,189,821 | | | $ | 894,600 | | |
Net interest margin (6) | Net interest margin (6) | | | | 3.15 | % | | | | 3.02 | % | Net interest margin (6) | | | | 3.40 | % | | | | 3.15 | % |
Tax equivalent effect | Tax equivalent effect | | 0.01 | % | | 0.01 | % | Tax equivalent effect | | 0.01 | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | Net interest margin on a fully tax equivalent basis (6) | | 3.16 | % | | 3.03 | % | Net interest margin on a fully tax equivalent basis (6) | | 3.41 | % | | 3.16 | % |
_____________
(1)Interest income is presented on a tax 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.
(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.
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, 2021 Compared to September 30, 2020 | | Nine Months Ended September 30, 2021 Compared to September 30, 2020 | | Three Months Ended September 30, 2022 Compared to September 30, 2021 | | Nine Months Ended September 30, 2022 Compared to September 30, 2021 |
| | Change Due to Volume | | Change Due to Rate | | Total Change | | Change Due to Volume | | Change Due to Rate | | Total Change | | Change Due to Volume | | Change Due to Rate | | Total Change | | Change Due to Volume | | Change Due to Rate | | Total Change |
| | (in thousands) | | (in thousands) |
Interest Income: | Interest Income: | | Interest Income: | |
Loans* | Loans* | $ | 1,771 | | | $ | (7,856) | | | $ | (6,085) | | | $ | 33,667 | | | $ | (66,158) | | | $ | (32,491) | | Loans* | $ | 123,594 | | | $ | 63,173 | | | $ | 186,767 | | | $ | 236,972 | | | $ | 54,241 | | | $ | 291,213 | |
Taxable investments | Taxable investments | (266) | | | (1,466) | | | (1,732) | | | (5,809) | | | (13,876) | | | (19,685) | | Taxable investments | 8,660 | | | 6,546 | | | 15,206 | | | 22,185 | | | 14,004 | | | 36,189 | |
Tax-exempt investments* | Tax-exempt investments* | (889) | | | (373) | | | (1,262) | | | (2,022) | | | (564) | | | (2,586) | | Tax-exempt investments* | 1,891 | | | 1,308 | | | 3,199 | | | 2,474 | | | 1,984 | | | 4,458 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | 182 | | | 40 | | | 222 | | | 697 | | | (1,892) | | | (1,195) | | Interest bearing deposits with banks | (624) | | | 3,978 | | | 3,354 | | | (581) | | | 5,506 | | | 4,925 | |
Total increase (decrease) in interest income | 798 | | | (9,655) | | | (8,857) | | | 26,533 | | | (82,490) | | | (55,957) | | |
Total increase in interest income | | Total increase in interest income | 133,521 | | | 75,005 | | | 208,526 | | | 261,050 | | | 75,735 | | | 336,785 | |
Interest Expense: | Interest Expense: | | | | | | | | | | | | Interest Expense: | | | | | | | | | | | |
Savings, NOW and money market deposits | Savings, NOW and money market deposits | 3,234 | | | (5,952) | | | (2,718) | | | 14,669 | | | (46,236) | | | (31,567) | | Savings, NOW and money market deposits | 3,323 | | | 36,745 | | | 40,068 | | | 10,350 | | | 34,177 | | | 44,527 | |
Time deposits | Time deposits | (6,860) | | | (7,774) | | | (14,634) | | | (29,613) | | | (40,320) | | | (69,933) | | Time deposits | 1,392 | | | 9,388 | | | 10,780 | | | (3,529) | | | 3,037 | | | (492) | |
Short-term borrowings | Short-term borrowings | (1,144) | | | 20 | | | (1,124) | | | (3,606) | | | (1,279) | | | (4,885) | | Short-term borrowings | 309 | | | 3,387 | | | 3,696 | | | 531 | | | 5,128 | | | 5,659 | |
Long-term borrowings and junior subordinated debentures | Long-term borrowings and junior subordinated debentures | (9,548) | | | 1,542 | | | (8,006) | | | (16,428) | | | 3,783 | | | (12,645) | | Long-term borrowings and junior subordinated debentures | (874) | | | 1,290 | | | 416 | | | (11,929) | | | 2,900 | | | (9,029) | |
Total decrease in interest expense | (14,318) | | | (12,164) | | | (26,482) | | | (34,978) | | | (84,052) | | | (119,030) | | |
Total increase in net interest income | $ | 15,116 | | | $ | 2,509 | | | $ | 17,625 | | | $ | 61,511 | | | $ | 1,562 | | | $ | 63,073 | | |
Total increase (decrease) in interest expense | | Total increase (decrease) in interest expense | 4,150 | | | 50,810 | | | 54,960 | | | (4,577) | | | 45,242 | | | 40,665 | |
Total increase (decrease) in net interest income | | Total increase (decrease) in net interest income | $ | 129,371 | | | $ | 24,195 | | | $ | 153,566 | | | $ | 265,627 | | | $ | 30,493 | | | $ | 296,120 | |
*Interest income is presented on a tax equivalent basis using 21 percent as the federal tax rate.
Non-Interest Income
Non-interest income decreased $6.8increased $13.8 million and $18.7$37.2 million for the three and nine months ended September 30, 20212022, respectively, as compared to the same periods of 2020.2021. The following table presents the components of non-interest income for the three and nine months ended September 30, 20212022 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) |
Trust and investment services | $ | 3,550 | | | $ | 3,068 | | | $ | 10,411 | | | $ | 9,307 | |
Insurance commissions | 1,610 | | | 1,816 | | | 5,805 | | | 5,426 | |
Service charges on deposit accounts | 5,428 | | | 3,952 | | | 15,614 | | | 13,189 | |
Gains (losses) on securities transactions, net | 787 | | | (46) | | | 1,263 | | | (127) | |
Fees from loan servicing | 2,894 | | | 2,551 | | | 8,980 | | | 7,526 | |
Gains on sales of loans, net | 6,442 | | | 13,366 | | | 20,016 | | | 26,253 | |
Gains on sales of assets, net | 344 | | | 894 | | | 380 | | | 716 | |
Bank owned life insurance | 2,018 | | | (1,304) | | | 6,824 | | | 7,661 | |
Other | 19,358 | | | 24,975 | | | 47,497 | | | 65,548 | |
Total non-interest income | $ | 42,431 | | | $ | 49,272 | | | $ | 116,790 | | | $ | 135,499 | |
2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Wealth management and trust fees | $ | 9,281 | | | $ | 3,550 | | | $ | 23,989 | | | $ | 10,411 | |
Insurance commissions | 3,750 | | | 1,610 | | | 9,072 | | | 5,805 | |
Service charges on deposit accounts | 10,338 | | | 5,428 | | | 26,617 | | | 15,614 | |
Gains (losses) on securities transactions, net | 323 | | | 787 | | | (1,058) | | | 1,263 | |
Fees from loan servicing | 3,138 | | | 2,894 | | | 8,636 | | | 8,980 | |
Gains on sales of loans, net | 922 | | | 6,442 | | | 5,510 | | | 20,016 | |
| | | | | | | |
Bank owned life insurance | 1,681 | | | 2,018 | | | 5,840 | | | 6,824 | |
Other | 26,761 | | | 19,702 | | | 75,391 | | | 47,877 | |
Total non-interest income | $ | 56,194 | | | $ | 42,431 | | | $ | 153,997 | | | $ | 116,790 | |
Service charges on deposits accountsWealth management and trust fees income increased by $1.5$5.7 million and $2.4$13.6 million for the three and nine months ended September 30, 2021,2022, respectively, as compared to the same periods in 2020,2021 mostly due to a decline in waivedbrokerage fees largely related to COVID-19 customer relief efforts duringresulting from the secondacquisition of Bank Leumi USA and third quarters of 2020.
its wholly owned broker dealer subsidiary now legally named Valley Financial Management, In
Net gains on sales of loans decreased $6.9c. The brokerage fees totaled $3.9 million and $6.2$9.3 million for the three and nine months ended September 30, 2021,2022, respectively. The increases in both 2022 periods were also supplemented by additional revenues generated by our advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments, which we acquired in October 2021.
Insurance commissions increased $2.1 million and $3.3 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods in 2021 mostly due to stronger business volumes generated by the Bank's insurance agency subsidiary.
Service charges on deposit accounts increased by $4.9 million and $11.0 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods in 2021 largely related to revenues resulting from deposit accounts acquired from Bank Leumi USA.
Net losses on securities transactions of 2020. $1.1 million for the nine months ended September 30, 2022 were mostly due to net trading losses related to our trading municipal bond portfolio.
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 reporting period end. The net losses from the change in the fair valueNet gains on sales of loans held for sale totaled $403 thousand and $10.4 million for the three and nine months ended September 30, 2021, respectively, as compared to net gains of $4.3decreased $5.5 million and $8.3$14.5 million for the three and nine months ended September 30, 2020, respectively. During2022, respectively, as compared to the same periods of 2021. The third quarter 2021,2022 decrease was mostly due to lower loan sale volumes as we sold approximately $234.6$48.4 million of residential mortgage loans as compared to $301.2$234.6 million during the third quarter 2020.2021. The mark to market change on loans held for sale at fair value resulted in net losses totaling $116 thousand and $403 thousand for the three months ended September 30, 2022 and2021, respectively, and $3.4 million and $10.4 million for the nine months ended September 30, 2022 and2021, respectively. Our ability to generate net gains on sales of loans could continue to be challenged by a number of factors, including increases in market interest rates, lower customer demand for conforming loan products and our decision to originate certain residential mortgage loans for investment in our loan portfolio rather than sale. See further discussion of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.
Bank owned life insurance income increased$3.3 million for the three months ended September 30, 2021 as compared to the same period in 2020. The increase was attributable to a mortality contingency reserve adjustment recorded in third quarter 2020.
Other non-interest income decreased $5.6increased $7.1 million and $18.1$27.5 million for the three and nine months ended September 30, 2021, respectively,2022 as compared to the same periods in 2020 primarily2021, respectively, partially due to lowerhigher fee income related tofrom derivative interest rate swaps executed with commercial lending customers caused by lower transaction volumes.a greater volume of transactions and higher foreign exchange fees. Swap fee incomeincome totaled $8.8$10.7 million and $19.2$8.8 million for the three months ended September 30, 20212022 and 2020,2021, respectively, and $22.6$35.8 million and $48.1$22.6 million for the nine months ended September 30, 20212022 and 2021, respectively. While we believe our commercial loan swap based product will remain attractive to borrowers in the current interest rate environment, we can provide no assurance that our swap fees will remain at the level reported for the third quarter 2022. Foreign exchange fees totaled $1.5 million and $4.0 million2020, three and nine months ended September 30, 2022, respectively. Foreign exchange fees for the respective reporting periods in 2021 were not material.
Non-Interest Expense
Non-Interest Expense
Non-interest expense increased $14.7$86.7 million and $34.0$251.7 million for the three and nine months ended September 30, 2021, respectively,2022 as compared to the same periods of 2020.in 2021, respectively. The following table presents the components of non-interest expense for the three and nine months ended September 30, 20212022 and 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Salary and employee benefits expense | $ | 134,572 | | | $ | 93,992 | | | $ | 397,103 | | | $ | 273,190 | |
Net occupancy expense | 26,486 | | | 19,941 | | | 70,906 | | | 59,171 | |
Technology, furniture and equipment expense | 39,365 | | | 21,007 | | | 115,245 | | | 64,956 | |
FDIC insurance assessment | 6,500 | | | 3,644 | | | 16,009 | | | 10,294 | |
Amortization of other intangible assets | 11,088 | | | 5,298 | | | 26,925 | | | 16,753 | |
Professional and legal fees | 17,840 | | | 13,492 | | | 62,998 | | | 27,250 | |
Loss on extinguishment of debt | — | | | — | | | — | | | 8,406 | |
Amortization of tax credit investments | 3,105 | | | 3,079 | | | 9,194 | | | 8,795 | |
Other | 22,683 | | | 14,469 | | | 60,329 | | | 38,213 | |
Total non-interest expense | $ | 261,639 | | | $ | 174,922 | | | $ | 758,709 | | | $ | 507,028 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands) |
Salary and employee benefits expense | $ | 93,992 | | | $ | 83,626 | | | $ | 273,190 | | | $ | 247,886 | |
Net occupancy and equipment expense | 32,402 | | | 31,116 | | | 97,112 | | | 96,774 | |
FDIC insurance assessment | 3,644 | | | 4,847 | | | 10,294 | | | 14,858 | |
Amortization of other intangible assets | 5,298 | | | 6,377 | | | 16,753 | | | 18,528 | |
Professional and legal fees | 13,492 | | | 8,762 | | | 27,250 | | | 22,646 | |
Loss on extinguishment of debt | — | | | 2,353 | | | 8,406 | | | 2,353 | |
Amortization of tax credit investments | 3,079 | | | 2,759 | | | 8,795 | | | 9,403 | |
Telecommunications expense | 2,615 | | | 2,094 | | | 8,507 | | | 7,247 | |
Other | 20,400 | | | 18,251 | | | 56,721 | | | 53,312 | |
Total non-interest expense | $ | 174,922 | | | $ | 160,185 | | | $ | 507,028 | | | $ | 473,007 | |
Salary and employee benefits expense increased $10.4$40.6 million and $25.3$123.9 million for the three and nine months ended September 30, 2021,2022, respectively, as compared to the same periods of 20202021. The increases in both 2022 periods were primarily due to strategic increases in our headcount to enhance lending and operations (including additions to staff due to the Bank Leumi USA and Westchester acquisitions), and increases in our branch compensation to preserve staffing and service levels, and to keep pace with the increases in wage demand across the industry. In addition,
higher cash salary and stock-based incentive compensation accruals and health insurance costs also contributed to the increases in both periods.
FDIC insurance assessmentemployee benefits expense decreased $1.2included approximately $1.3 million and $4.6 million $29.3 million of merger related expenses for the three and nine months ended September 30, 2021,2022, respectively. The merger expenses, primarily consisted of change in control and severance payments, related to Bank Leumi USA during the second quarter 2022.
Net occupancy expense increased $6.5 million and $11.7 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods of 2020 mostly2021 mainly due to higher lease expense, depreciation expense and repair and maintenance costs, as well as $1.5 million of merger related expense for the Bank's improved capital positionthird quarter 2022.
Technology, furniture and overall risk profile.
Professional and legal feesequipment expense increased $4.7$18.4 million and $4.6$50.3 million forfor the three and nine months ended September 30, 2021,2022, respectively, as compared to the same periods of 2020.2021. The increases are largely driven by higher data processing costs related to the acquisitions of Bank Leumi USA and Westchester and additional investments in technology and equipment, and higher depreciation expense. Within this expense category, merger related costs totaled $1.8 million and $17.1 million for the three and nine months ended September 30, 2022, respectively.
FDIC insurance assessment expense increased $2.9 million and $5.7 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods of 2021 mainly due to the Bank Leumi USA acquisition, as well as our balance sheet organic growth.
Amortization of other intangible assets increased $5.8 million and $10.2 million for the three and nine months ended September 30, 2022, respectively, as compared to the same period of 2021 mostly due to additional core deposit and other intangible assets resulting from the Bank Leumi USA acquisition. See Notes 2 and 9 to the consolidated financial statements for additional information.
Professional and legal fees increased $4.3 million and $35.7 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods of 2021. The increases were largely attributableprimarily due to a $2.1 million accrual for general litigation reserves, $1.3 million of
higher consulting expense mainly related to technology transformation and new product initiatives, and increased managed services. Within this expense category, merger related fees, as well as increased consulting expenses duringcosts totaled $75 thousand and $11.5 million for the three and nine months ended September 30, 2021. Higher consulting expenses mostly related to our technology transformation efforts and new product initiatives.2022, respectively.
Loss on extinguishment of debt totaled $8.4 million for the nine months ended September 30, 2021 reflecting the
prepayment of approximately $248 million of long-term FHLB advances during the second quarter 2021. The loss on extinguishment of debt totaling $2.4 million during the three and nine months ended September 30, 2020 was
related to the prepayment of $50 million of long-term institutional repo borrowings. All the prepayments were funded by excess cash liquidity at the Bank. See Note 10 to the consolidated financial statements for additional information regarding our borrowed funds.
Other non-interest expense increased $2.1$8.2 million and $3.4$22.1 million for the three and nine months ended September 30, 2021,2022, respectively, as compared to the same periods of 2020. 2021. These increases were largely duewithin this expense category mostly related to higher data processing costs, OREO related expenses as well as incrementally higher operating expenses in several categories due to the expansion of our operations.
See Notes 9operations, including acquisitions of Bank Leumi USA and 14Westchester. In addition, the 2022 periods included a $2.0 million contribution to the consolidated financial statements for information regarding the amortization of other intangible assets and tax credit investments, respectively.
Efficiency Ratio
The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total non-interest income. We believe this non-GAAP measure provides a meaningful comparison of our operational performance and facilitates investors’ assessments of business performance and trends in comparison to our peers in the banking industry. Our overall efficiency ratio, and its comparability to some of our peers, is negatively impacted primarily by the amortization of tax credit investments, as well as infrequent charges within non-interest income and expense, including, but not limited to loss on extinguishment of debt, litigation reserves and merger related expenses.
The following table presents our efficiency ratio and a reconciliation of the efficiency ratio adjusted for certain items during the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| ($ in thousands) |
Total non-interest expense | $ | 174,922 | | | $ | 160,185 | | | $ | 507,028 | | | $ | 473,007 | |
Less: Loss on extinguishment of debt (pre-tax) | — | | | 2,353 | | | 8,406 | | | 2,353 | |
| | | | | | | |
Less: Amortization of tax credit investments (pre-tax) | 3,079 | | | 2,759 | | | 8,795 | | | 9,403 | |
Less: Litigation reserve (a) | 2,100 | | | — | | | 2,100 | | | — | |
Less: Merger related expenses (pre-tax) (a) | 1,287 | | | 106 | | | 1,287 | | | 1,774 | |
Total non-interest expense, adjusted | $ | 168,456 | | | $ | 154,967 | | | $ | 486,440 | | | $ | 459,477 | |
Net interest income | $ | 301,026 | | | $ | 283,086 | | | $ | 894,600 | | | $ | 830,984 | |
Total non-interest income | 42,431 | | | 49,272 | | | 116,790 | | | 135,499 | |
Add: (Gains) losses on available for sale and held to maturity securities transactions, net (pre-tax) (b) | (788) | | | 46 | | | (557) | | | 127 | |
Total net interest income and non-interest income | $ | 342,669 | | | $ | 332,404 | | | $ | 1,010,833 | | | $ | 966,610 | |
Efficiency ratio | 50.93 | % | | 48.20 | % | | 50.13 | % | | 48.94 | % |
Efficiency ratio, adjusted | 49.16 | % | | 46.62 | % | | 48.12 | % | | 47.53 | % |
(a) Included in professional and legal fees.
(b) Included in gains on securities transactions, net.
Valley Bank Charitable Fund.
Income Taxes
Income tax expense totaled $42.4$68.4 million for the third quarter 20212022 as compared to $42.9$36.6 million and $38.9$42.4 million for the second quarter 20212022 and third quarter 2020, respectively, and $124.6 million and $101.5 million for the nine months ended September 30, 2021, and 2020, respectively. Our effective tax rate was 25.727.7 percent, 26.227.5 percent and 27.525.7 percent for the third quarter 2021,2022, second quarter 20212022 and third quarter 2020,2021, respectively. The decreaseincrease in the effective tax rate in the third quarter 20212022 as compared to the secondthird quarter 2021 and the third quarter 2020 was mainlypartly due to the increase ina $3.8 million excess stock compensation benefit.
benefit recognized in the 2021 period.
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. ForBased on the remainder of 2021,current information available, we currently estimateanticipate that our effective tax rate will range from 2527 percent to 27 percent.29 percent for the remainder of 2022, exclusive of pending potential tax rate increases.
BusinessOperating Segments
We havePrior to the second quarter 2022, Valley operated as four business segments that we monitorreportable segments: Consumer Lending, Commercial Lending, Investment Management, and reportCorporate and Other Adjustments. Valley re-evaluated its segment reporting during the second quarter 2022 to consider the Bank Leumi USA acquisition on to manage our business operations. These segments are consumer lending, commercial lending, investment management, and corporate andApril 1, 2022 along with other adjustments. Our reportable segments have been determined based upon Valley’sfactors, including changes in the internal structure of operations, discrete financial information reviewed by key decision-makers, balance sheet management strategies and linespersonnel. As a result, Valley determined it operated reportable segments consisting of business.Consumer Lending, Commercial Lending and Treasury and Corporate Other at June 30, 2022. Treasury and Corporate Other was reorganized to consolidate Treasury and other corporate-wide functions, including the Treasury managed investment securities portfolios and overnight interest earning cash balances formerly reported under Investment Management. The discrete financial information related to the activities previously reported in the Investment Management segment is no longer provided to Valley's CEO, who is the chief operating decision maker. 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 related to the branch network, all other components of retail banking, along with the back office departments of the 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 transfer pricing methodology, which
involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/or liabilities outstanding for the period. The financial reporting for each segment contains allocationsValley regularly assesses its strategic plans, operations, and reporting in line with our operations, which may not necessarily be comparablestructures to any other financial institution. identify its reportable segments. There were no additional changes to Valley's reportable segments at September 30, 2022.
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. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The prior-period balances reflect reclassifications to conform the presentation in those periods to the current operating segment structure. Valley's consolidated results were not impacted by the changes discussed above and remain unchanged for all periods presented.
The following tables present the financial data for each business segmentValley's operating segments for the three months ended September 30, 20212022 and 2020:2021:
| | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2022 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,373,897 | | $ | 25,324,485 | | $ | 5,634,492 | | $ | — | | $ | 38,332,874 | Average interest earning assets | $ | 8,307,993 | | $ | 36,033,901 | | $ | 6,189,348 | | $ | 50,531,242 |
Income (loss) before income taxes | 37,132 | | 141,927 | | 2,846 | | (16,901) | | 165,004 | |
Income before income taxes | | Income before income taxes | 20,137 | | 255,802 | | (29,415) | | 246,524 |
Annualized return on average interest earning assets (before tax) | Annualized return on average interest earning assets (before tax) | 2.01 | % | | 2.24 | % | | 0.20 | % | | N/A | | 1.72 | % | Annualized return on average interest earning assets (before tax) | 0.97 | % | | 2.84 | % | | (1.90) | % | | 1.95 | % |
| | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,126,157 | | $ | 25,389,107 | | $ | 5,252,446 | | $ | — | | $ | 37,767,710 | Average interest earning assets | $ | 7,373,897 | | $ | 25,324,485 | | $ | 5,634,492 | | $ | 38,332,874 |
Income (loss) before income taxes | Income (loss) before income taxes | 34,565 | | 121,351 | | 1,066 | | (15,717) | | 141,265 | Income (loss) before income taxes | 37,132 | | 141,927 | | (14,055) | | 165,004 |
Annualized return on average interest earning assets (before tax) | Annualized return on average interest earning assets (before tax) | 1.94 | % | | 1.91 | % | | 0.08 | % | | N/A | | 1.50 | % | Annualized return on average interest earning assets (before tax) | 2.01 | % | | 2.24 | % | | (1.00) | % | | 1.72 | % |
See Note 15 to the consolidated financial statements for additional information.details.
Consumer Lending
This consumer lending segmentConsumer Lending represented 22.318.7 percent of our loan portfolio at September 30, 2021,2022, 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 13.311.5 percent of our loan portfolio at September 30, 2021)2022) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (representing 4.83.8 percent of total loans at September 30, 2021)2022) 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 Lending 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 segmentConsumer Lending increased $934.1 million$247.7 million to $7.4$8.3 billion for the three months ended September 30, 20212022 as compared to the third quarter 2020.2021. The increase was largelymostly due to loan growth from origination of new residential mortgage loans and automobile loansloan volumes originated for investment rather than sale over most of the last 12-month period.
period, as well as growth in automobile loans and secured personal lines of credit. Loans acquired from Bank Leumi USA on April 1, 2022 and Westchester on December 1, 2021 did not materially impact this operating segment.
Income before income taxes generated by the consumer lending segmenConsumer Lending t increased $2.6decreased $17.0 million to $37.120.1 million for the third quarter 20212022 as compared to the third quarter 20202021 largely due to a $10.0$11.8 million decreaseincrease in the provision for loan losses, and lower non-interest expense, partially offset by a $11.7 million decrease in non-interest income
coupled with a $2.0$5.6 million increase in the internal transfer expense and higher non-interest expense. The decrease of $11.7 millionhigher internal transfer expense and non-interest expense was mostly driven by general increases related to organic growth in non-interest income was partly due to a $6.9 million decrease in net gains on sales of loans forour retail business and the three months ended September 30, 2021. recent bank acquisitions. The decreaseincrease in the provision for loan losses was mainly due to higher quantitative reserves for residential mortgage loans, loan growth, and qualitative reserve allocations related to Hurricane Ian in this category. The negative impact of these items was partially offset by a $7.8 million increase in non-interest income for the improvement in the economic forecast component of the allowance for loan losses at September 30, 2021third quarter 2022 as compared to September 30, 2020. See further detailsthe third quarter 2021 largely due to increases in the "Allowance for Credit Losses" section of this MD&A.service charges on deposit accounts and brokerage fees within wealth management and trust fees, partially offset by
lower gains on sales of residential mortgage loans. The net interest income also increased by a $3.4 million in the third quarter 2022 as compared to the same quarter in the prior year, mainly driven by higher average loan balances.
The net interest margin on the consumer lendingConsumer Lending portfolio decreased 1116 basis points to 2.972.81 percent for the third quarter 20212022 as compared to the third quarter 20202021 mainly due to a 4037 basis point decrease in the yield on average loans, partially offset by a 29 basis point decreaseincrease in the costs associated with our funding sources. The 40sources, partially offset by a 21 basis point decreaseincrease in loanthe yield was largely due to lower yielding new loan volumes and normal loan repayments.on average loans. The decreaseincrease in our funding costs was mainly due to continued runoff of higher cost timethe rising market interest rate environment, additional funding sourced through brokered deposits and FHLB advances for loan growth and a shift in some customer migrationpreference to the interest-bearing deposit products from non-interest bearing during the third quarter 2022. The 21 basis point increase in loan yield was largely due to higher yielding new loan volumes and normal repayments of lower cost deposits without stated maturities and lower rates offered on deposit products.yielding loans over the last 12-month period. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest margin and funding sources.
Commercial Lending
The commercial lending segmentCommercial Lending 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 Lending is Valley’s business segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately $5.6$8.7 billion and represented 17.319.2 percent of the total loan portfolio at September 30, 2021.2022. Commercial real estate loans and construction loans totaled $19.7$28.1 billion and represented 60.462.1 percent of the total loan portfolio at September 30, 2021.
2022.
Average interest earning assets in this segment decreasedincreased approximately $64.6 million10.7 billion to $25.3$36.0 billion for the three months ended September 30, 20212022 as compared to the third quarter 20202021 mostly due to commercialacquired loans from Bank Leumi USA and industrial PPP loans which were paid off (forgiven), largely offset byWestchester and strong new organic loan originations primarily concentrated in the commercial real estate loan portfolio. The increases were partially offset by continued run-off of commercial and industrial PPP loans, which totaled only $85.8 million at September 30, 2022 as compared to $874.0 million at September 30, 2021, due to SBA loan forgiveness.
ForIncome before income taxes for the three months ended September 30, 2021, income before income taxes2022 for the commercial lending segmentCommercial Lending increased $20.6$113.9 million to $141.9$255.8 million as compared to the third quarter 20202021. The increase was mainly driven by a $18.5 million increaseincreases in both net interest income and a $17.5 million decrease in the non-interest income and lower provision for loan losses, partially offset by lower non-interest income an increase in the internaland higher internal transfer expense.Net interest income for this segment increased $135.6 million to $237.1$372.6 million for the third quarter 20212022 as compared to the same period in 20202021 primarily due to lower funding costs. The provision foradditional income generated on higher average loan losses decreased by $17.5 million mainly due to the improvement in the economic forecast component of the allowance forbalances and loan losses as compared to September 30, 2020.yield. Non-interest income decreased $8.8increased $11.9 million to $11.6$23.5 million for the three months ended September 30, 20212022 as compared to the third quarter 2020 mainly2021. The increase was mostly due to a $10.4 million decreasegeneral increases in service charges on commercial deposit accounts, swap fee income related tofrom derivative interest rate swaps executed with commercial loan customers.customers, foreign exchange fees and fee income from commercial letters of credit. The provision for loan losses decreased by $13.5 million as compared to the second quarter 2021. See details in the "Allowance for Credit Losses for Loans" section of this MD&A. Internal transfer expense increased $4.8$42.8 million for the third quarter 20212022 as compared to the third quarter 2020 partly2021 due to general increases related to both organic and acquired growth in our business.
The net interest margin for this segment increased 2840 basis points to 3.744.14 percent for the third quarter 20212022 as compared to the third quarter 20202021 due to a 2977 basis point decreaseincrease in the yield on average loans, partially offset by a 37 basis point increase in the cost of our funding sources, which was marginally offset by a 1 basis point decreasesources.
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 yield on average loans.
Investment Management
The investmentliquidity management segment generates a large portionneeds 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. 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. Expenses related to the branch network, all other components 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 portionretail banking, along with the back office departments 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.Bank are
allocated from Treasury and Corporate Other to the Consumer Lending and Commercial Lending 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 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 (and impairment) of tax credit investments, as well as other non-core items, including merger expenses.
Average interest earning assets in this segment increased $382.0$554.9 million during the third quarter 2021 as compared to the third quarter 2020three months ended September 30, 2022 mainly due to an increase of $1.5 billion in average taxable investment securities, partially offset by lower a $546.1 millionverage interest bearing deposits with banks. The increase in the average investment securities balance was mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA. Average interest bearing deposits with banks partially offset by a $164.1 million decreasedecreased $1.2 billion as compared to the same period in average investment securities. The increase in overnight investments and deposits with other banks was largely2021 mainly due to ourcontinued funding of loan growth, fluctuations in the timing of loan and investment activity and surge deposits from customers that drove higher levels of excess liquidity during the third quarter 2021 as we continued to experience a surge in customer deposits. The decrease in average investment securities was mainly driven by principal repayments on securities with a slower rate of reinvestment activity due to the low interest rate environment and our preference to fund loan growth. However, average investments did increase $73.9 million as compared to the linked second quarter 2021 as we modestly increased our investment purchases in the third quarter 2021.
During the second quarter 2021, income before income taxes for the investment management segment increased $1.8 million to $2.8 million as compared to $1.1 million for the third quarter 2020 mostly due to an increase in both net interest income and non-interest income, partially offset by higher internal transfer expense. The increase in net interest income totaled $753 thousand and was mainly due to the decreased cost of funding, partially offset by lower yields on our investments securities and lower average investment balances. Non-interest income increased $3.3 million in the third quarter 2021 as compared to the third quarter 2020 mainly due to higher bank owned life insurance income. See the "Non-Interest Income" section for more details.
The net interest marginpre-tax loss for this segment decreased 2 basis points to 1.18 percent for the third quarter 2021 as compared to the same quarter in 2020 largely due to a 31 basis point decrease in the yield on average investments, partially offset by a 29 basis point decrease in our cost of funding. The decrease in the yield on average investments as compared to the third quarter 2020 was largely driven by the lower yielding investment securities and the higher average holdings in low yielding overnight cash investments.
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, interest expense related to subordinated notes, amortization and impairment of tax credit investments, as well as non-core items, including merger expenses.
The corporate segment recognized pre-tax losses of $16.9 million and $15.7totaled $29.4 million for the three months ended September 30, 2021 and 2020, respectively.2022 as compared to a $14.1 million for the same period in 2021. The $1.2$15.4 million increase in the pre-tax loss forduring the third quarter 20212022 period was mainly driven by the $19.2 million increasedue to increases in non-interest expense largely causedthat were partially offset by higher salaries and employee benefitsan increase in internal transfer income. Non-interest expense and professional and legal fees forincreased $71.6 million to $205.5 million during the three months ended September 30, 2021. These items were partially offset by2022 as compared to the same period a year ago largely due to increases of $10.3 millionin technology, furniture and $8.9 million in non-interest incomeequipment, and internal transfer income, respectively. occupancy expense, as well as higher salaries and employee benefit expenses incurred during the third quarter 2022 and our expanded banking operations 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 internal transfer income increased by $48.4 million to $140.2 million for the three months ended September 30, 2022 as compared to the same period a year ago mostly due to general increases related to our growth and recent acquisitions.
The net interest margin for this segment increased 88 basis points to 2.01 percent for the for the third quarter 2022 as compared to the third quarter 2021 due to a 125 basis point increase in the yield on average investments, partially offset by a 37 basis point increase in cost of our funding sources. The increase in the yield on average investments as compared to the third quarter 2021 was largely due to investment maturities and prepayments redeployed into new higher yielding securities, as well as lower premium amortization expense caused by a decline in prepayments on mortgage-backed securities during the third quarter 2022.
The following tables present the financial data for each businessValley's operating segment for the nine months ended September 30, 20212022 and 2020:2021:
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2022 |
| | Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total | | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,176,086 | | $ | 25,465,276 | | $ | 5,261,185 | | $ | — | | $ | 37,902,547 | Average interest earning assets | $ | 7,978,732 | | $ | 32,551,062 | | $ | 6,075,623 | | $ | 46,605,417 |
Income (loss) before income taxes | 104,308 | | 411,712 | | 9,149 | | (41,741) | | 483,428 | |
Income before income taxes | | Income before income taxes | 56,796 | | 519,640 | | (40,905) | | 535,531 |
Annualized return on average interest earning assets (before tax) | Annualized return on average interest earning assets (before tax) | 1.94 | % | | 2.16 | % | | 0.23 | % | | N/A | | 1.70 | % | Annualized return on average interest earning assets (before tax) | 0.95 | % | | 2.13 | % | | (0.90) | % | | 1.53 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Consumer Lending | | Commercial Lending | | Investment Management | | Corporate and Other Adjustments | | Total |
| ($ in thousands) |
Average interest earning assets | $ | 7,187,839 | | $ | 24,334,429 | | $ | 5,221,538 | | $ | — | | $ | 36,743,806 |
Income (loss) before income taxes | 80,367 | | 326,713 | | 16,426 | | (36,777) | | 386,729 |
Annualized return on average interest earning assets (before tax) | 1.49 | % | | 1.79 | % | | 0.42 | % | | N/A | | 1.40 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| ($ in thousands) |
Average interest earning assets | $ | 7,176,086 | | $ | 25,465,276 | | $ | 5,261,185 | | $ | 37,902,547 |
Income (loss) before income taxes | 104,308 | | 411,712 | | (32,592) | | 483,428 |
Annualized return on average interest earning assets (before tax) | 1.94 | % | | 2.16 | % | | (0.83) | % | | 1.70 | % |
Consumer Lending
AverageConsumer Lending's average interest earning assets in this segment decreased $11.8increased $802.6 million to $7.2$8.0 billion for the nine months ended September 30, 20212022 as compared to the same period in 2020.2021. The decreaseincrease was largely due to runoff from principal repayments with a higher percentage of new and refinancedresidential mortgage loansloan volumes originated for saleinvestment rather than held for investmentsale over the last 12 month period. However,12-month period, as well as growth in automobile loan demand, which was tempered during muchloans and secured personal lines of 2020 due to the onset of the COVID-19 pandemic, was strong during the nine months ended September 30, 2021 due to built up demand for auto purchases by consumers.credit.
Income before income taxes generated by the consumer lending segment increased $23.9Consumer Lending decreased $47.5 million to $104.3$56.8 million for the nine months ended September 30, 20212022 as compared to the same period in 20202021 largely due to a lower$32.5 million increase in the internal transfer expense coupled with a higher provision for loan losses and higher non-interest expense, and an increase in net interest income.expense. The provision for loan losses decreased $21.8 million to a credit (negative) provision of $6.5increased $21.0 million for the nine months ended September 30, 20212022 from a $15.3$6.5 million credit (negative) provision for the same period of 2020.2021. The lowerincrease in provision was mainly due to the improved economic forecast component of the allowance forhigher reserves related to residential loan losses as compared to September 30, 2020, as well as better actual loan performance within these loan categories.growth. See further details in the "Allowance for Credit Losses" section of this MD&A. Net interest income increased $4.7$9.5 million primarily due to the lower funding costs, which wereadditional income generated on higher average loan balances. Non-interest income also increased $3.1 million mostly due to increases in wealth management and trust fees and service charges on deposit accounts caused by our recent acquisitions, partially offset by lower loan yields, as well as the modest decline in average interest earning assets. The higher net interest income was partially offset by a $7.9 million decrease in non-interest income, which was largely attributable to lower net gains on sales of residential mortgage loans for the nine months ended September 30, 20212022 as compared to the same period in 2020.2021.
The netNet interest margin on the consumer lendingConsumer Lending portfolio increased 10decreased 15 basis points to 3.042.89 percent for the nine months ended September 30, 20212022 as compared to the same period one year ago mainly due to a 46 basis point decrease in the costs associated with our funding sources, partially offset by a 3610 basis point decrease in the yield on average loans. The decreaseloans and a 5 basis point increase in the costs associated with our funding costs was mainly due to a greater mix of non-interest bearing deposits, deposits continuing to reprice at lower interest rates and the repayment of maturing higher cost borrowings.sources. The 3610 basis point decrease in loan yield was largely due to lower yielding new loan volumes prior to the second quarter 2022 and normal loan repayments.
The increase in our funding costs was mainly
due to higher interest rates on most of our interest bearing deposit products, including brokered deposits, a lower mix of non-interest bearing deposits, and higher cost short-term borrowings due to the rising interest rate environment in 2022.
Commercial Lending
Average interest earning assets in this segmentCommercial Lending increased $1.1$7.1 billion to $25.5$32.6 billion for the nine months ended September 30, 20212022 as compared to the same period in 2020.2021. This increase was mainlyprimarily due to PPPstrong organic loan originations duringgrowth over the last 12 months,12-month period ended September 30, 2022, as well as organic commercial real estate loan growth during the nine months ended September 30, 2021.loans acquired from Bank Leumi USA and Westchester.
For the nine months ended September 30, 2021,2022, income before income taxes for the commercial lending segmentCommercial Lending increased $85.0$107.9 million to $411.7$519.6 million as compared to the same period in 20202021 mainly driven by an increase inincreases net interest income and a lower non-interest income, partially offset by higher internal transfer expense and provision for loan losses. Net interest income increased $67.8$248.3 million to $703.6$951.9 million for the nine months ended September 30, 20212022 as compared to the same period in 2020 largely2021 mainly due to lower funding costs and the higher average commercial loan balances and loan yield during the current2022 period. The provision for credit losses decreased $63.0 million to $27.8 million during the nine months ended September 30, 2021 as compared to $90.8 million for the same period in 2020. The decrease in the provision for loan losses was mainly due to an improvement in the economic forecast component of the allowance for loan losses and other qualitative factors related to the COVID-19 pandemic as compared to September 30, 2020. See the "Allowance for Credit Losses" section below for further details. The positive impact of the aforementioned items was partially offset by a decrease in non-interest income, as well as higher non-interest expense and internal transfer expense. Non-interest income decreased $23.0increased $25.7 million for the nine months ended September 30, 20212022 as compared to the same period in 2020 primarily2021 mainly due to a $25.5$13.2 million decreaseincrease in fee income related to derivative interest rate swaps executed with commercial loan customers.customers, a $4.0 million increase in foreign exchange fees and higher service charges on commercial deposit accounts. Internal transfer expense increased $15.5$158.3 million to $212.9 $371.2
million for the nine months ended September 30, 20212022 as compared to the same period in 2020.2021 largely due to the significant acquired and organic expansion of our operations over the last 12-month period. The provision for credit losses increased $6.8 million to $34.6 million during the nine months ended September 30, 2022 as compared to $27.8 million for the same period in 2021 mainly due to the provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA on April 1, 2022. See the "Allowance for Credit Losses for Loans" section below for further details.
The net interest margin for this segment increased 2022 basis points to 3.683.90 percent for the nine months ended September 30, 20212022 as compared to the same period in 20202021 due to a 4627 basis point decreaseincrease in yield on average loans, partially offset by a 5 basis point increase in the cost of our funding sources, partially offset by a 26 basis point decrease in yield on average loans.sources.
Investment Management
AverageTreasury and Corporate Other
Treasury and Corporate Other's average interest earning assets in this segment increased $39.6$814.4 million during the nine months ended September 30, 20212022 as compared to the same period in 2020.2021. Within the category, a $458.4$1.3 billion increase in taxable investment securities was partially offset by a $613.1 million increasedecrease in average interest bearing deposits with banks was largely offset by $418.8 million decrease in average investment securities.banks. The increase in ouraverage taxable investment securities was mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA. The lower levels of excess liquidity held in overnight interest bearing deposits with banks waswere mainly caused bydue to the strong depositsorganic loan growth over the last 12-month period and management's lower ratea reduction in the impact of reinvestment in investment securities for most ofsurge customer deposits as compared to the same2021 period.
ForThe pre-tax loss for this segment totaled $40.9 million for the nine months ended September 30, 2021, income before income taxes2022 as compared to $32.6 million for the investment management segment decreased $7.3same period in 2021. The $8.3 million increase in pre-tax loss was mainly due to an increase in non-interest expense largely offset by higher in internal transfer income and net interest income. Non-interest expense increased $244.1 million to $9.1$617.7 million for the nine months ended September 30, 2022 as compared to the same period in 2020 mainly2021 partially due to decreasesa $62.6 million increase in merger related expenses, as well as other additional expenses related to our expanded banking operations and organic business growth. However, the comparative 2021 period also included an $8.4 million pre-tax loss on extinguishment of debt. See further details in the net interest"Non-Interest Income" and "Non-Interest Expense" sections of this MD&A. Internal transfer income and non-interest income and a higher internal expense transfer. The negative impact of these items was partially offset by a decline in the provision for credit losses for heldincreased $190.8 million to maturity debt securities from a $688 thousand provision$463.8 million for the nine months ended September 30, 20202022 as compared to a creditthe same period in 2021 due to the higher allocation of $353 thousandnon-interest expense over the same period.
Treasury and Corporate Other's net interest margin increased 74 basis points to 1.87 percent for the nine months ended September 30, 2021.
The net interest margin for this segment decreased15basis points to 1.19 percentfor the nine months ended September 30, 20212022 as compared to the same period in 2020 largely2021 due to a 6179 basis point decreaseincrease in the yield on average investments, partially offset byand a 465 basis point decreaseincrease in costs associated withcost of our funding sources. The decreaseincrease in the yield on average investments as compared to the same period in 2021 was largely driven by new higher yielding investments and lower premium amortization expense caused, in part, by slower principal repayments in the rising interest rate environment of 2020 was mainly due to lower yielding investment securities and excess liquidity held in low yielding overnight investments.
Corporate and other adjustments
The pre-tax net loss for the corporate segment totaled $41.7 million for the nine months ended September 30, 2021 as compared to $36.8 million for the same period in 2020. The negative change of $5.0 million was mainly due to an increase in non-interest expense, partially offset by higher internal transfer income and greater non-interest
income. Non-interest expense increased $33.3 million to $372.2 million for the nine months ended September 30, 2021 as compared to the same period in 2020 partially due to increases in salaries and employee benefits expenses, professional and legal fees and the loss on extinguishment of debt during the current period as compared to prior. Internal transfer income increased $18.5 million to $316.7 million for the nine months ended September 30, 2021 as compared to the same period in 2020.2022.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
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 attempt to achieve consistent accounting and economic benefits for financial assets and their related funding sources. We have predominantly 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 September 30, 2021.2022. 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 September 30, 2021.2022. The impact of interest rate derivatives, such as interest rate swaps, is also included in the model.
Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of September 30, 2021.2022. Although the size of Valley’s balance sheet is forecasted to remain static as of September 30, 20212022 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 third quarter 2021.2022. The model also utilizes an immediate parallel shift in market interest rates at September 30, 2021.
2022.
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 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 considering 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 |
Changes in Interest Rates | Dollar Change | | Percentage Change |
(in basis points) | ($ in thousands) |
+200 | $ | 104,613 | | | 8.88 | % |
+100 | 52,462 | | | 4.45 | |
–100 | (54,113) | | | (4.59) | |
–200 | (78,513) | | | (6.66) | |
| | | | | | | | | | | |
| Estimated Change in Future Net Interest Income |
Changes in Interest Rates | Dollar Change | | Percentage Change |
(in basis points) | ($ in thousands) |
+300 | $ | 343,087 | | | 17.72 | % |
+200 | 231,412 | | | 11.95 | |
+100 | 117,300 | | | 6.06 | |
–100 | (109,262) | | | (5.64) | |
–200 | (233,970) | | | (12.08) | |
–300 | (378,853) | | | (19.57) | |
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 increase net interest income over the next 12 month12-month period by 4.456.06 percent. Management believes the interest rate sensitivity of our balance sheet remains within an acceptable tolerance range at September 30, 2021.2022. However, the level of net interest income sensitivity may increase or decrease in the future as a result of several factors, including potential changes in our balance sheet strategies, the slope of the yield curve and projected cash flows.
Liquidity and Cash Requirements
Bank Liquidity
Liquidity measures the ability to satisfy current and future cash flow needs as they become due. A bank’s liquidity reflects its ability to meet loan demand, to accommodate possible outflows in deposits and to take advantage of interest rate opportunities in the marketplace. Liquidity management is carefully performed and routinely reported by our Treasury Department to two board committees. Among other actions, Treasury reviews historical funding requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting 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 an internal liquidity policy. The current policy maintains that we may not have a ratio of loans to deposits in excess of 110 percent or reliance on wholesale funding greater than 25 percent of total funding. The Bank was in compliance with the foregoing policies at September 30, 2021.
2022.
Valley's short and long-term cash requirements include contractual obligations under borrowings, deposits, payment related to leases, capital expenditures and other purchase commitments. In the ordinary course of operations, the Bank also enters into various financial obligations, including contractual obligations that may require future cash payments. Management believes the 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
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 classified as trading and available for sale, loans held for sale, and from time to time, federal funds sold and receivables related to unsettled securities transactions. Total liquid assets were approximately $3.0$2.6 billion, representing 7.95.2 percent of earning assets at September 30, 20212022 and $3.1$3.5 billion, representing 8.38.7 percent of earning assets at December 31, 2020.2021. Of the $3.0$2.6 billion of liquid assets at September 30, 2021,2022, approximately $547.5$348 million of various investment securities were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of approximately $747$310 million in principal payments from securities in the total investment portfolio at September 30, 2022 over the
next 12 month12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.
Additional liquidity is derived from scheduled loan payments of principal and interest, as well as prepayments received. Loan principal payments (includingfrom total loans and loans held for sale at September 30, 2021)2022 are projected in accordance with their scheduled contractual terms to be approximately $10.4$11.2 billion over the next 12 month12-month period. As a contingency plan for any liquidity constraints, liquidity could also be derived from the sale of conforming residential mortgages from our loan portfolio or alleviated from the temporary curtailment of lending activities.
On the liability side of the balance sheet, we utilize multiple sources of funds to meet liquidity needs, including retail and commercial deposits, brokered and municipal deposits, and short-term and long-term borrowings. Our core deposit base, which generally excludes fully insured brokered deposits and both retail and brokered certificates of deposit over $250 thousand, represents the largest of these sources. Average core deposits totaled approximately $29.2$37.9 billion and $25.8$29.4 billion for the nine months ended September 30, 20212022 and for the year ended December 31, 2020,2021, respectively, representing 77.681.4 percent and 69.878.3 percent of average 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 and the need to match the maturities of assets and liabilities.
Additional funding may be provided through deposit gathering networks and in the form of federal funds purchased through our well establishedwell-established relationships with numerous banks. While these lending lines are uncommitted, management believes that the Bank could borrow approximately $1.5$2.1 billion 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 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. Additionally, Valley's collateral pledged to the FHLB may be used to obtain Municipal Letters of Credit (MULOC) to collateralize certain municipal deposits held by Valley. At September 30, 2021,2022, Valley had $1.0had $1.6 billion of MULOCs outstandingoutstanding for this purpose. Furthermore, we can obtain overnight borrowings from the Federal Reserve Bank of New York via the discount window as a contingency for additional liquidity. At September 30, 2021,2022, our borrowing capacity (excluding added capacity available to us by pledging PPP loans) under the Federal Reserve Bank's discount window was $1.8$2.1 billion.
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). Short-term borrowings (consisting of FHLB advances, repos, and from time to time, federal funds purchased) decreasedincreased approximately $364.6$263.6 million to $783.3$919.3 million at September 30, 20212022 as compared to December 31, 20202021 mainly due to normala higher utilization of FHLB advance repayments.advances, partially offset by lower repo balances at September 30, 2022.
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 and subordinated notes. 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. 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 up to five years, but not beyond the stated maturity dates, and subject to other conditions.
During the second quarter 2021, Valley redeemed $60 million of callable subordinated notes and issued $300 million of 3.00 percent subordinated notes. See Note 10 to the consolidated financial statements for additional information.
Investment Securities Portfolio
As of September 30, 2021,2022, we had $36.1$43.3 million, $4.8 million, $1.2$1.3 billion, and $2.6$3.7 billion in equity, trading debt, available for sale and held to maturity debt securities, respectively. OurThere were $4.1 million of trading debt securities portfolio wholly consistsat September 30, 2022 consisting of investment grade municipal bonds.bonds and U.S. Treasury securities. The equity securities consisted of onetwo publicly traded mutual fund,funds, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in a partnershippartnerships that investsinvest in such companies. Our CRA and other equity investments are a mixturemix of both publicly traded entities and privately held entities. Held to maturity andThe available for sale and held to maturity debt securities portfolios, which comprise the majority of the securities we own, include U.S. Treasury securities, U.S. government agency securities, tax-exempt and taxable issuances of states and political subdivisions, residential mortgage-backed securities, single-issuer trust preferred securities principally issued by bank holding companies, and high quality corporate bonds. Among other securities, our available for sale debt securities include securities such as bank issued and other corporate bonds, as well as municipal special revenue bonds, thatwhich 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 issuers.
There were noWe acquired $6.2 million, $505.9 million, and $806.6 million of equity securities, in the name of any one issuer exceeding 10 percent of shareholders’ equity, exceptavailable for residential mortgage-backedsale debt and held to maturity debt securities, issued by Ginnie Mae and Fannie Mae. Certain securities with limited marketability and/or restrictions, such as Federal Home Loanrespectively, from Bank and Federal Reserve Bank stocks, are carried at cost and are included in other assets.Leumi USA on April 1, 2022.
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 the fair value is less than amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income,loss, net of applicable taxes.
We have evaluated all available for sale debt securities that are in an unrealized loss position as of September 30, 2022 and December 31, 2021 and determined that the declines in fair value arewere 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, management recognized no impairment charges during the three and nine months ended September 30, 20212022 and asthe year ended December 31, 2021. As a result, there was no allowance for credit losses for available for sale debt securities at September 30, 2021. There was no allowance for credit losses for available for sale debt securities at2022 and December 31, 2020.
2021.
Held to maturity debt securities. Valley estimates the expected credit losses on held to maturity debt securities that have loss expectations using a discounted cash flow model developed by a third party. Valley has a zero losszero-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, which are excluded frombonds. To measure the model.expected credit losses on held to maturity debt securities that have loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by a third party. Assumptions used in the model for pools of securities with common risk characteristics include the historical lifetime probability of default and severity of loss in the 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 were carried net of an allowance for credit losses totaling $1.1approximately $1.7 million and $1.4$1.2 million at September 30, 20212022 and December 31, 2020,2021, respectively. There were no net charge-offs of held to maturity debt securities for the three and nine months ended September 30, 20212022 and 2020.
2021.
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 held to maturity and available for sale debt securities portfolios by investment grades at September 30, 2021:2022:
| | | September 30, 2021 | | September 30, 2022 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | (in thousands) | | (in thousands) |
Available for sale investment grades: * | Available for sale investment grades: * | | Available for sale investment grades: * | |
AAA Rated | AAA Rated | $ | 1,016,325 | | | $ | 23,138 | | | $ | (2,483) | | | $ | 1,036,980 | | AAA Rated | $ | 1,116,870 | | | $ | 116 | | | $ | (137,597) | | | $ | 979,389 | |
AA Rated | AA Rated | 63,001 | | | 339 | | | (722) | | | 62,618 | | AA Rated | 152,126 | | | — | | | (38,172) | | | 113,954 | |
A Rated | A Rated | 6,173 | | | 89 | | | — | | | 6,262 | | A Rated | 10,066 | | | 15 | | | (984) | | | 9,097 | |
BBB Rated | BBB Rated | 29,313 | | | 891 | | | — | | | 30,204 | | BBB Rated | 84,667 | | | — | | | (8,132) | | | 76,535 | |
Non-investment grade | 4,996 | | | 42 | | | — | | | 5,038 | | |
| Not rated | Not rated | 64,982 | | | 2,244 | | | (51) | | | 67,175 | | Not rated | 101,092 | | | — | | | (8,213) | | | 92,879 | |
Total | Total | $ | 1,184,790 | | | $ | 26,743 | | | $ | (3,256) | | | $ | 1,208,277 | | Total | $ | 1,464,821 | | | $ | 131 | | | $ | (193,098) | | | $ | 1,271,854 | |
Held to maturity investment grades: * | Held to maturity investment grades: * | | | | | | | | Held to maturity investment grades: * | | | | | | | |
AAA Rated | AAA Rated | $ | 2,260,843 | | | $ | 30,971 | | | $ | (18,015) | | | $ | 2,273,799 | | AAA Rated | $ | 3,290,361 | | | $ | 258 | | | $ | (498,324) | | | $ | 2,792,295 | |
AA Rated | AA Rated | 159,468 | | | 3,862 | | | (129) | | | 163,201 | | AA Rated | 252,632 | | | 7 | | | (25,167) | | | 227,472 | |
A Rated | A Rated | 12,512 | | | 389 | | | — | | | 12,901 | | A Rated | 9,297 | | | 2 | | | (204) | | | 9,095 | |
BBB Rated | BBB Rated | 6,000 | | | 418 | | | — | | | 6,418 | | BBB Rated | 6,000 | | | — | | | (317) | | | 5,683 | |
Non-investment grade | Non-investment grade | 5,595 | | | — | | | (75) | | | 5,520 | | Non-investment grade | 5,517 | | | — | | | (1,061) | | | 4,456 | |
Not rated | Not rated | 139,985 | | | 224 | | | (5,737) | | | 134,472 | | Not rated | 158,213 | | | 17 | | | (10,579) | | | 147,651 | |
Total | Total | $ | 2,584,403 | | | $ | 35,864 | | | $ | (23,956) | | | $ | 2,596,311 | | Total | $ | 3,722,020 | | | $ | 284 | | | $ | (535,652) | | | $ | 3,186,652 | |
Allowance for credit losses | | Allowance for credit losses | 1,696 | | | — | | | — | | | 1,696 | |
Total, net of allowance for credit losses | | Total, net of allowance for credit losses | $ | 3,720,324 | | | $ | 284 | | | $ | (535,652) | | | $ | 3,184,956 | |
| | | | | |
* | Rated using external rating 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 categorycategories of both the held to maturity and available for sale debt securities portfolios (in the above table) arewere mainly related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Fannie Mae.Freddie Mac and continued to be driven by the rising interest rate environment during the third quarter 2022. The investment securities held to maturity portfolio included $140.0$158.2 million of investments not rated by the rating agencies with aggregate unrealized losses of $5.7$10.6 million at September 30, 20212022 mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million.million and several corporate and other debt securities.
See Note 7 to the consolidated financial statements for additional information regarding our investmentsinvestment securities portfolio.
Loan Portfolio
The following table reflects the composition of the loan portfolio as of the dates presented: | | | September 30, 2021 | | June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | September 30, 2022 | | June 30, 2022 | | December 31, 2021 | |
| | ($ in thousands) | | ($ in thousands) |
Loans | Loans | | Loans | | |
Commercial and industrial: | Commercial and industrial: | | Commercial and industrial: | | |
Commercial and industrial | Commercial and industrial | $ | 4,761,227 | | | $ | 4,733,771 | | | $ | 4,784,017 | | | $ | 4,709,569 | | | $ | 4,625,880 | | Commercial and industrial | $ | 8,615,557 | | | $ | 8,378,454 | | | $ | 5,411,601 | | |
Commercial and industrial PPP loans | Commercial and industrial PPP loans | 874,033 | | | 1,350,684 | | | 2,364,627 | | | 2,152,139 | | | 2,277,465 | | Commercial and industrial PPP loans | 85,820 | | | 136,004 | | | 435,950 | | |
Total commercial and industrial * | Total commercial and industrial * | 5,635,260 | | | 6,084,455 | | | 7,148,644 | | | 6,861,708 | | | 6,903,345 | | Total commercial and industrial * | 8,701,377 | | | 8,514,458 | | | 5,847,551 | | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | | |
Commercial real estate | Commercial real estate | 17,912,070 | | | 17,512,142 | | | 16,923,627 | | | 16,724,998 | | | 16,815,587 | | Commercial real estate | 24,493,445 | | | 23,535,086 | | | 18,935,486 | | |
Construction | Construction | 1,804,580 | | | 1,752,838 | | | 1,786,331 | | | 1,745,825 | | | 1,720,775 | | Construction | 3,571,818 | | | 3,374,373 | | | 1,854,580 | | |
Total commercial real estate | Total commercial real estate | 19,716,650 | | | 19,264,980 | | | 18,709,958 | | | 18,470,823 | | | 18,536,362 | | Total commercial real estate | 28,065,263 | | | 26,909,459 | | | 20,790,066 | | |
Residential mortgage | Residential mortgage | 4,332,422 | | | 4,226,975 | | | 4,060,492 | | | 4,183,743 | | | 4,284,595 | | Residential mortgage | 5,177,128 | | | 5,005,069 | | | 4,545,064 | | |
Consumer: | Consumer: | | Consumer: | | |
Home equity | Home equity | 402,658 | | | 410,856 | | | 409,576 | | | 431,553 | | | 457,083 | | Home equity | 467,135 | | | 431,455 | | | 400,779 | | |
Automobile | Automobile | 1,563,698 | | | 1,531,262 | | | 1,444,883 | | | 1,355,955 | | | 1,341,659 | | Automobile | 1,711,086 | | | 1,673,482 | | | 1,570,036 | | |
Other consumer | Other consumer | 956,126 | | | 938,926 | | | 912,863 | | | 913,330 | | | 892,542 | | Other consumer | 1,063,775 | | | 1,026,854 | | | 1,000,161 | | |
Total consumer loans | Total consumer loans | 2,922,482 | | | 2,881,044 | | | 2,767,322 | | | 2,700,838 | | | 2,691,284 | | Total consumer loans | 3,241,996 | | | 3,131,791 | | | 2,970,976 | | |
Total loans* | Total loans* | $ | 32,606,814 | | | $ | 32,457,454 | | | $ | 32,686,416 | | | $ | 32,217,112 | | | $ | 32,415,586 | | Total loans* | $ | 45,185,764 | | | $ | 43,560,777 | | | $ | 34,153,657 | | |
As a percent of total loans: | As a percent of total loans: | | | | | | | | | | As a percent of total loans: | | | | | | |
Commercial and industrial | Commercial and industrial | 17.3 | % | | 18.7 | % | | 21.9 | % | | 21.3 | % | | 21.3 | % | Commercial and industrial | 19.2 | % | | 19.5 | % | | 17.1 | % | |
Commercial real estate | Commercial real estate | 60.4 | | | 59.4 | | | 57.2 | | | 57.3 | | | 57.2 | | Commercial real estate | 62.1 | | | 61.8 | | | 60.9 | | |
Residential mortgage | Residential mortgage | 13.3 | | | 13.0 | | | 12.4 | | | 13.0 | | | 13.2 | | Residential mortgage | 11.5 | | | 11.5 | | | 13.3 | | |
Consumer loans | Consumer loans | 9.0 | | | 8.9 | | | 8.5 | | | 8.4 | | | 8.3 | | Consumer loans | 7.2 | | | 7.2 | | | 8.7 | | |
Total | Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | 100.0 | % | | 100.0 | % | | 100.0 | % | |
* Includes net unearned discount and deferred loan fees of $73.0$136.5 million, $86.1 million, $108.6 million, $95.8$141.2 million, and $116.2$78.5 million at September 30, 2021,2022, June 30, 2021, March2022, and December 31, 2021, respectively. The increases from December 31, 2020, and September 30, 2020, respectively. Net unearned discounts and deferred loan fees included $27.62021 were largely due to a $98 million $40.9 million, $57.2 million, $43.2 million and $54.4 million of net unearned fees relatedpurchase discount associated with the loans acquired from Bank Leumi USA on April 1, 2022.
Loans increased $1.6 billion to PPP loansapproximately $45.2 billion at September 30, 2021,2022 from June 30, 2021, March 31, 2021, December 31, 2020,2022 largely due to solid organic loan originations and September 30, 2020, respectively.
slower paydown activity of existing loans. C
ommercial and industrial, total commercial real estate (including construction) and residential mortgage loans increased 9 percent, 17 percent and 14 percent, respectively, on an annualized basis during the third quarter 2022.
Commercial and industrial loans decreased $449.2increased $186.9 million or 29.5 percent on an annualized basis, to $5.6$8.7 billion at September 30, 20212022 as compared to June 30, 2021 mostly due to $476.7 million of2022. Excluding PPP loans, that were forgiven (i.e., repaid) during the third quarter 2021. As of September 30, 2021, nearly 100 percent of the PPP loan balances from the first two rounds of our funding under the SBA program have been forgiven. Valley expects the majority of the remaining $874 million of PPP loans on September 30, 2021 to qualify for forgiveness under the guidelines of the SBA program, which is expected to negatively impact our ability to grow the commercial and industrial loan portfolio. Non-PPPorganic growth totaled $237.1 million during the third quarter 2022 mainly due to solid organic loan volumes largely amongst our pre-existing long-term customer base across most of our primary market areas. In addition, the new loan pipeline was driven by direct calling efforts of our commercial and industriallending team. SBA Paycheck Protection Program (PPP) loans modestly increased bydecreased $50.2 million to $85.8 million at September 30, 2022 compared to $27.5136.0 million at September 30, 2021 as compared to June 30, 2021.2022 mainly due to loan forgiveness (repayments).
Commercial real estate loans (excluding construction loans) increased $399.9 million, or 9.1 percent on an annualized basis,$1.0 billion to $17.9$24.5 billion at September 30, 20212022 from June 30, 2021 reflecting2022 driven by solid organic growth mainly due to strong demand forin the non-owner occupied loansand multifamily loan portfolios. The new loan volumes were generated across most of our geographic footprint driven by low interest rates. footprints. Construction loans increased $51.7$197.4 million to $1.8$3.6 billion at September 30, 20212022 from June 30, 2021 partially2022 mainly due to higher demand for commerciala high volume of advances on new, and residentialto a lesser extent, pre-existing construction projects.projects during the third quarter 2022.
Residential mortgage loans increased $105.4$172.1 million, or 10.013.8 percent on an annualized basis, during the third quarter 20212022 primarily due to continued strong origination of new loan activity in the purchased home market and an increase in such loans originated for investment rather than sale. New and refinanced residential mortgage loans totalingloan originations totaled $622.1342.9 millionfor the third quarter 20212022 as compared to $753.2$540.7 millionand $540.2$622.1 million for the second quarter 20212022 and third
quarter 2020,2021, respectively. Florida originations totaled approximately $163$92.1 million and represented 2627 percent of total originations.residential mortgage loan originations in the quarter. Of the total originations in the third quarter 2021, approximately $232.82022, only $36.7 million of residential mortgage loans were originated for sale rather than held for investment as compared to $253.9$61.9 million during the second quarter 2021.2022. During the third quarter 20212022, we retained over 60approximately 89 percent of the total residential mortgages originations in our held for investment loan portfolio. We sold approximately $235$48.4 million of residential mortgage loans held for sale during the third quarter 2021 and2022. We may continue to sellretain a large portionhigher percentage of our new fixed rate residential mortgage loan originationsvolumes during the fourth quarter 2021 based upon normal2022 due to several factors, including consumer demand and preferences for certain mortgage products and our management of the interest rate risk and the mix of the interest earning assets on our balance sheet. Additionally, the volume of both new and refinanced loan applications have continued to decline in the early stages of the fourth quarter 2022 due to the increase in the level of mortgage interest rates and may challenge our ability to grow this loan category.
Home equity loans decreasedincreased by $8.2$35.7 million to $402.7$467.1 million at September 30, 2021 from2022 compared to June 30, 2021. New2022. However, new home equity loan volumes and customer usage of existing home equity lines of credit continue to be modest despiteand we anticipate growth in this loan category to be challenged by the favorable lowunfavorable rising interest rate environment.
Automobile loans increased by $32.4$37.6 million, or 8.59.0 percent on an annualized basis, to $1.6$1.7 billion at September 30, 20212022 as compared to June 30, 2021. Consumer demand seen across the auto industry was solid2022 as loan originations volumes continued to outpace loan repayments during the first half of 2021 but started to slow inthird quarter 2022. However, loan originations slowed significantly during the third quarter 2021. We2022 as demand for new and used vehicle financing declined due to the higher interest rate environment. We originated $201$196.6 million in auto loans through our dealership network during the third quarter 20212022 as compared to $251$278.2 million in the second quarter 2021.2022. Of the total originations, our Florida dealership network contributed $30.4$33.7 million in auto loan originations, representing approximately 1517 percent of new loans, during the third quarter 2021. Strong auto2022. Despite increased new automobile inventories available to consumers, we anticipate that the impact of inflation on average new vehicle prices coupled with rising interest rates could have a negative impact on our ability to grow this loan originations experienced in the first half of 2021 slowedcategory during the third quarter 2021 due to inventory and auto part shortages caused by supply chain disruptions affecting auto industry. In the early stages of the fourth quarter 2021, vehicle inventories are near record lows, driving prices higher. This trend may negatively impact our auto loan growth in fourth quarter 2021 and beyond.2022.
Other consumer loans increased $17.2$36.9 million to $956.1 million$1.1 billion at September 30, 2021 as compared to $938.9 million at2022 from June 30, 2021 mainly due to higher new loan originations and consumer usage of collateralized personal lines of credit.2022.
MostA large part of our lending is in northern and central New Jersey, New York City, Long Island, Florida and Alabama, except for smaller auto and residential mortgage loan portfolios derived from other neighboring states of New Jersey.Florida. To mitigate our geographic risks, we make 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.
For
Despite the remainder of 2021, we continue to believe that our non-PPPmoderate decline in new loan growth will remain strong. In the early stages of the fourth quarter 2021, we are encouraged that our loan origination pipelines remain robust. Duringoriginations for the third quarter 2021, approximately 57 percent of our2022, we anticipate solid organic commercial and industrial non-PPP and commercial real estate loan growth came fromto continue in the New York and New Jersey market area.fourth quarter 2022. Based upon current projections, we anticipate a range of 8 to 10 percent annualized loan growth for the fourth quarter 2022. However, there can be no assurance that those positive trends will continue, or balances will not decline from September 30, 2021 given2022 due to several factors, including, but not limited to persistently high inflation, the effects of the COVID-19 pandemicFederal Reserve's rapid monetary policy tightening, and the potential for unforeseen changes in consumer confidence andongoing negative impact of Russia-Ukraine war on the economy,global economy. In addition, we anticipate that residential mortgage and other market conditions and supply chain issues. We believe that many of our SBA PPP loansconsumer loan activity will continue to be forgivenslow meaningfully in the fourth quarter 2021 in accordance with the rules of this program resulting in further reduction in these loan balances.2022.
Non-performing Assets
Non-performing assets (NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consists of automobiles and taxi medallions) at September 30, 2021.2022. 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 estimated cost to sell.
Our NPAs increased $31.1decreased $19.9 million to $257.7$294.8 million at September 30, 20212022 as compared to June 30, 2021 mainly2022 mostly due to a $37.0 million increasedeclines in non-accrual commercial and industrial and commercial real estate loans (see table below).mainly caused by a few large loan repayments, and, to a lesser extent, loan charge-offs during the third quarter 2022. NPAs as a percentage of total loans and NPAs totaled 0.780.65 percent and 0.690.72 percent at September 30, 20212022 and June 30, 2021,2022, respectively (as shown in the table below). We believe our total NPAs has remained relatively low as a percentage
of the total loan portfolio overand the past 12 months, despite the uptick in non-accrual borrowers mainly caused by COVID-19 pandemic. The level of NPAs is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased from third parties. For additional details, 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. However, dueDuring the nine months ended September 30, 2022, our overall credit trends have remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the potential for future credit deterioration caused by the uncertain pathchallenges of the recovery fromglobal supply chain issues, high inflation and overall uncertain economy and the COVID -19 pandemic and someongoing impact of our borrowers that are still performing under forbearance agreements,COVID-19. However, management cannot provide assurance that ourthe non-performing assets will not materially increase substantially from the levels reported at September 30, 2021.2022 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 at the dates indicated in conjunction with our asset quality ratios:
| | | September 30, 2021 | | June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | September 30, 2022 | | June 30, 2022 | | March 31, 2021 |
| | ($ in thousands) | | ($ in thousands) |
Accruing past due loans: | Accruing past due loans: | | Accruing past due loans: | | |
30 to 59 days past due: | 30 to 59 days past due: | | 30 to 59 days past due: | |
Commercial and industrial | Commercial and industrial | $ | 2,677 | | | $ | 3,867 | | | $ | 3,763 | | | $ | 6,393 | | | $ | 6,587 | | Commercial and industrial | $ | 19,526 | | | $ | 7,143 | | | $ | 6,723 | |
Commercial real estate | Commercial real estate | 22,956 | | | 40,524 | | | 11,655 | | | 35,030 | | | 26,038 | | Commercial real estate | 6,196 | | | 10,516 | | | 30,807 | |
Construction | Construction | — | | | — | | | — | | | 315 | | | 142 | | Construction | — | | | 9,108 | | | 1,708 | |
Residential mortgage | Residential mortgage | 9,293 | | | 8,479 | | | 16,004 | | | 17,717 | | | 22,528 | | Residential mortgage | 13,045 | | | 12,326 | | | 9,266 | |
Total Consumer | 5,463 | | | 6,242 | | | 5,480 | | | 10,257 | | | 8,979 | | |
Total consumer | | Total consumer | 6,196 | | | 6,009 | | | 5,862 | |
Total 30 to 59 days past due | Total 30 to 59 days past due | 40,389 | | | 59,112 | | | 36,902 | | | 69,712 | | | 64,274 | | Total 30 to 59 days past due | 44,963 | | | 45,102 | | | 54,366 | |
60 to 89 days past due: | 60 to 89 days past due: | | | | | | | | | | 60 to 89 days past due: | | | | | |
Commercial and industrial | Commercial and industrial | 985 | | | 1,361 | | | 1,768 | | | 2,252 | | | 3,954 | | Commercial and industrial | 2,188 | | | 3,870 | | | 14,461 | |
Commercial real estate | Commercial real estate | 5,897 | | | 11,451 | | | 5,455 | | | 1,326 | | | 610 | | Commercial real estate | 383 | | | 630 | | | 6,314 | |
| Construction | | Construction | 12,969 | | | 3,862 | | | 3,125 | |
Residential mortgage | Residential mortgage | 974 | | | 1,608 | | | 2,233 | | | 10,351 | | | 3,760 | | Residential mortgage | 5,947 | | | 2,410 | | | 2,560 | |
Total Consumer | 1,617 | | | 985 | | | 1,021 | | | 1,823 | | | 1,352 | | |
Total consumer | | Total consumer | 1,174 | | | 702 | | | 554 | |
Total 60 to 89 days past due | Total 60 to 89 days past due | 9,473 | | | 15,405 | | | 10,477 | | | 15,752 | | | 9,676 | | Total 60 to 89 days past due | 22,661 | | | 11,474 | | | 27,014 | |
90 or more days past due: | 90 or more days past due: | | | | | | | | | | 90 or more days past due: | | | | | |
Commercial and industrial | Commercial and industrial | 2,083 | | | 2,351 | | | 2,515 | | | 9,107 | | | 6,759 | | Commercial and industrial | 15,072 | | | 15,470 | | | 9,261 | |
Commercial real estate | Commercial real estate | 1,942 | | | 1,948 | | | — | | | 993 | | | 1,538 | | Commercial real estate | 15,082 | | | — | | | — | |
| Residential mortgage | Residential mortgage | 1,002 | | | 956 | | | 2,472 | | | 3,170 | | | 891 | | Residential mortgage | 550 | | | 1,188 | | | 1,746 | |
Total Consumer | 325 | | | 463 | | | 417 | | | 271 | | | 753 | | |
Total consumer | | Total consumer | 421 | | | 267 | | | 400 | |
Total 90 or more days past due | Total 90 or more days past due | 5,352 | | | 5,718 | | | 5,404 | | | 13,541 | | | 9,941 | | Total 90 or more days past due | 31,125 | | | 16,925 | | | 11,407 | |
Total accruing past due loans | Total accruing past due loans | $ | 55,214 | | | $ | 80,235 | | | $ | 52,783 | | | $ | 99,005 | | | $ | 83,891 | | Total accruing past due loans | $ | 98,749 | | | $ | 73,501 | | | $ | 92,787 | |
Non-accrual loans: | Non-accrual loans: | | | | | | | | | | Non-accrual loans: | | | | | |
Commercial and industrial | Commercial and industrial | $ | 100,614 | | | $ | 102,594 | | | $ | 108,988 | | | $ | 106,693 | | | $ | 115,667 | | Commercial and industrial | $ | 135,187 | | | $ | 148,404 | | | $ | 96,631 | |
Commercial real estate | Commercial real estate | 95,843 | | | 58,893 | | | 54,004 | | | 46,879 | | | 41,627 | | Commercial real estate | 67,319 | | | 85,807 | | | 79,180 | |
Construction | Construction | 17,653 | | | 17,660 | | | 71 | | | 84 | | | 2,497 | | Construction | 61,098 | | | 49,780 | | | 17,618 | |
Residential mortgage | Residential mortgage | 33,648 | | | 35,941 | | | 33,655 | | | 25,817 | | | 23,877 | | Residential mortgage | 26,564 | | | 25,847 | | | 33,275 | |
Total Consumer | 4,073 | | | 4,924 | | | 7,292 | | | 5,809 | | | 7,441 | | |
Total consumer | | Total consumer | 3,227 | | | 3,279 | | | 3,754 | |
Total non-accrual loans | Total non-accrual loans | 251,831 | | | 220,012 | | | 204,010 | | | 185,282 | | | 191,109 | | Total non-accrual loans | 293,395 | | | 313,117 | | | 230,458 | |
| Other real estate owned (OREO) | Other real estate owned (OREO) | 3,967 | | | 4,523 | | | 4,521 | | | 5,118 | | | 7,746 | | Other real estate owned (OREO) | 286 | | | 422 | | | 1,024 | |
Other repossessed assets | Other repossessed assets | 1,896 | | | 2,060 | | | 1,857 | | | 3,342 | | | 3,988 | | Other repossessed assets | 1,122 | | | 1,200 | | | 1,176 | |
Non-accrual debt securities | — | | | — | | | 129 | | | 815 | | | 783 | | |
Total non-performing assets (NPAs) | Total non-performing assets (NPAs) | $ | 257,694 | | | $ | 226,595 | | | $ | 210,517 | | | $ | 194,557 | | | $ | 203,626 | | Total non-performing assets (NPAs) | $ | 294,803 | | | $ | 314,739 | | | $ | 232,658 | |
Performing troubled debt restructured loans | Performing troubled debt restructured loans | $ | 64,832 | | | $ | 64,080 | | | $ | 67,102 | | | $ | 57,367 | | | $ | 58,090 | | Performing troubled debt restructured loans | $ | 69,748 | | | $ | 67,274 | | | $ | 56,538 | |
Total non-accrual loans as a % of loans | Total non-accrual loans as a % of loans | 0.77 | % | | 0.68 | % | | 0.62 | % | | 0.58 | % | | 0.59 | % | Total non-accrual loans as a % of loans | 0.65 | % | | 0.72 | % | | 0.65 | % |
Total NPAs as a % of loans and NPAs | Total NPAs as a % of loans and NPAs | 0.78 | | | 0.69 | | | 0.64 | | | 0.60 | | | 0.62 | | Total NPAs as a % of loans and NPAs | 0.65 | | | 0.72 | | | 0.65 | |
Total accruing past due and non-accrual loans as a % of loans | Total accruing past due and non-accrual loans as a % of loans | 0.94 | | | 0.93 | | | 0.79 | | | 0.88 | | | 0.85 | | Total accruing past due and non-accrual loans as a % of loans | 0.87 | | | 0.89 | | | 0.91 | |
Allowance for loan losses as a % of non-accrual loans | Allowance for loan losses as a % of non-accrual loans | 136.01 | | | 154.23 | | | 168.07 | | | 183.64 | | | 170.08 | | Allowance for loan losses as a % of non-accrual loans | 162.15 | | | 149.73 | | | 157.30 | |
Loans past due 30 to 59 days decreased $18.7 million$139 thousand to $40.4$45.0 million at September 30, 20212022 as compared to June 30, 2021. 2022. Construction loans within this delinquency category decreased $9.1 million due to one loan acquired from Bank Leumi USA included in this category at June 30, 2022 that is reported as 60 to 89 days past due at September 30, 2022. Commercial real estate loans past due 30 to 59 days decreased $17.6$4.3 million to $23.0$6.2 million at September 30, 20212022 as compared to June 30, 2021 largely2022 mainly due to twoone loan relationships totaling $22.2 million that migratedbecame current as to non-accrual loan statusall contractual payments at September 30, 2021.
2022. These decreases were largely offset by higher commercial and industrial loans
delinquencies mostly driven by matured loans in the process of renewal included in this category at September 30, 2022.
Loans past due 60 to 89 days decreased $5.9increased $11.2 million to $9.5$22.7 million at September 30, 20212022 as compared to June 30, 2021. Commercial real estate loans in2022 mainly due to the one aforementioned construction loan that migrated to this delinquency category decreased $5.6 million to $5.9 million at September 30, 2021 mainly as a result of one $10.9 million loan negatively impacted by the COVID-19 pandemic that migrated to non-accrual status at September 30, 2021, partially offset by the addition of a $5.5 million matured commercial real estate loan in the process of renewal in this delinquency category at September 30, 2021.2022.
Loans past due 90 days or more and still accruing interest totaled $5.4increased $14.2 million to $31.1 million at September 30, 20212022 as compared to $5.7 million at June 30, 2021. All of2022. The increase was mainly driven by the two commercial real estate loan relationships totaling $9.7 million and $5.4 million, respectively, included in this delinquency category at September 30, 2022. All loans past due 90 days or more past due and still accruing reported at September 30, 2021interest are considered to be well securedwell-secured and in the process of collection.
Non-accrual loans increased $31.8decreased $19.7 million to $251.8$293.4 million at September 30, 20212022 as compared to $220.0$313.1 million at June 30, 2021 mostly driven by a $37.0 million increase2022 mainly due to decreases in the non-performing commercial and industrial and commercial real estate loans. This increase was causedloans, partially offset by twoone construction loan relationship totaling $12.7 million put on non-accrual status at September 30, 2022.
Non-accrual commercial and industrial loans totaled $135.2 million at September 30, 2022 and included non-performing taxi medallion loans totaling $22.2$76.3 million. Non-performing taxi medallion loans decreased $4.1 million and one loan totaling $10.9from $80.4 million that migrated to non-accrual status from the 30-59 days and 60 to 89 days past due categories reported at June 30, 2021, respectively. These non-accrual loans2022 mostly due to partial loan charge-offs totaling $33.1$3.8 million have allocated reserves of $3.7 million withinrelated to one borrower during the third quarter 2022. The partial loan charge-offs were fully reserved for in our allowance for loan losses at June 30, 2022. At September 30, 2021.
We continue to closely monitor our non-performing New York City and Chicago taxi medallion loans totaling $86.3 million and $577 thousand, respectively, within the commercial and industrial loan category at September 30, 2021.
Due to continued negative trends in estimated fair valuations of the underlying taxi medallion collateral, a weak operating environment for ride services and uncertain borrower performance, all of2022, the taxi medallion loans are on non-accrual status. At September 30, 2021, the taxi medallion loans totaling $86.9 million(primarily collateralized by New York City medallions) had related reservesreserves of $58.6$51.4 million, or 67.467.3 percent of such loans. The related reserves were relatively unchanged as compared to June 30, 2021.l
oans.
Potential declines in the market valuation of taxi medallions and the stressed operating environment mainly within New York City due to the COVID-19 pandemic or general deterioration in economic conditions could negatively impact the future performance of this portfolio. For example, a 25 percent further decline in our current estimated market value of the taxi medallions would require additional allocated reservesreserves of $5.9$4.7 million within the allowanceallowance for loan losses based upon the taxi medallion loan balances at September 30, 2021.2022. See the "Allowance for Credit Losses"Losses for Loans" section below for further details on our reserves.
OREO properties totaled $4.0 million$286 thousand at September 30, 20212022 and declined $556$136 thousand as compared to June 30, 2021. Net losses and gains from2022. During the third quarter 2022, OREO activity continues to trend downward as sales of owned properties outpaced new foreclosures. The sales of OREO properties totaled a $67 thousand loss and a $268 thousandresulted in net gain for the three and nine months ended September 30, 2021, respectively, and net gains totaling $109losses of $69 thousand and $540$692 thousand for the three and nine months ended September 30, 2020,2022, respectively, and net losses of $67 thousand and net gains of $268 thousand for the three and nine months ended September 30, 2021, respectively. The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $3.0totaled $1.9 million and $1.9$2.5 million at September 30, 20212022 and December 31, 2020,2021, respectively.
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 due and still accruing interest or as non-accrual loans) totaled $64.8$69.7 million at September 30, 20212022 as compared to $64.1$67.3 million at June 30, 2021.2022. Performing TDRs consisted of 9687 loans at September 30, 2021.2022. On an aggregate basis, the $64.8$69.7 million in performing TDRs at September 30, 20212022 had a modified weighted average interest rate of approximately 4.364.90 percent as compared to a pre-modification weighted average interest rate of 4.604.32 percent.
Loan Forbearance. In response to the COVID-19 pandemic and its economic impact on certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment, when requested by customers, all of which were insignificant. Under the applicable guidance, none of these loans were classified as TDRs at September 30, 2021 and December 31, 2020.
The following table presents the outstanding loan balances and number of loans in an active payment deferral period under short-term modifications as of September 30, 2021:
| | | | | | | | | | | |
| September 30, 2021 |
| Amount | | Number of loans |
| ($ in thousands) |
Commercial and industrial | $ | 2,579 | | | 4 | |
Commercial real estate | 64,927 | | | 17 | |
Residential mortgage | 29,485 | | | 63 | |
Consumer | 1,603 | | | 76 | |
Total | $ | 98,594 | | | 160 | |
As of September 30, 2021, Valley had approximately $98.6 million of outstanding loans remaining in their payment deferral period under short-term modifications as compared to $142.0 million of loans in deferral at June 30, 2021. Commercial real estate forbearances representing approximately 66 percent of the active deferrals at September 30, 2021 decreased $28.6 million from $93.6 million at June 30, 2021 mainly due to loans being returned to normal interest accrual status following the end of their forebearance periods during the third quarter 2021.
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 credit commitments. Under CECL, our methodology to establish the allowance for loan losses has two basic components: (1)(i) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (2)(ii) an individual reserve component for loans that do not share risk characteristics, consisting of collateral dependent, TDR, and expected TDR 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.
Valley 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 balances. 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 migration of loans 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 they do not exist in the historical loss information, and (iii) net expected recoveries of charged offcharged-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 a multi-scenario economic forecast model to estimate future credit losses and is 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 selected key variables that most closely correlated to our historical credit performance, which include: GDP, unemployment and the Case-Shiller Home Price Index.
For the third quarter 2021,2022, we continued to incorporateincorporated a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and S-1S-4 scenarios. At September 30, 2021,2022, Valley maintained the majority ofmoderately increased its
probability weighting to the Moody’s Baseline scenario and modestly reduced its combined emphasis on the Moody’sMoody's S-3 downside and S-1 upsideS-4 (most adverse) scenarios from the Moody's Baseline scenario as compared to with such weighting in the June 30, 2021. The Baseline2022 ACL analysis. Our scenario weighting and the S-1 scenario reflect the positive economic developments including federal stimulus and increasing vaccination levels that are expected to improve labor market conditions and promote stronger economic growth during the remainder of 2021. However, this positive outlook could still be tempered by, among other factors, the uncertain ongoing impact of the COVID-19 pandemic on the economic recovery,at September 30, 2022, as well as supply chain constrains contributing to inventory shortagesthe standalone Moody's Baseline scenario, reflects a less optimistic outlook than at June 30, 2022 in terms of GDP growth, unemployment levels and longer than anticipated elevated levels of inflation.potential near term negative economic impacts, given present uncertain economic conditions.
At September 30, 2021,2022, the Moody's Baseline forecast included the following specific assumptions:
•GDP expansion by over 7.5about 1.6 percent in the fourth quarter 2021;2022;
•Unemployment of 4.53.7 percent in the fourth quarter 20212022 and improving3.9 to 3.44.1 percent byover the remainder of the forecast period ending in the third quarter 2022;2024; and
•Strong U.S. economic growth drivencontinues in 2022; however, it is expected to be challenged by continueda strained supply chain, rising interest rates and elevated inflation that will negatively affect consumer spending and congressional passage of another fiscal stimulus package.spending.
See more details regarding our allowance for credit losses for loans in Note 8 to the consolidated financial 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.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, 2021 | | June 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 | | September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| | ($ in thousands) | | ($ in thousands) |
Average loans outstanding | Average loans outstanding | $ | 32,698,382 | | $ | 32,635,298 | | $ | 32,515,264 | | $ | 32,641,362 | | $ | 31,522,268 | Average loans outstanding | $ | 44,341,894 | | $ | 42,517,287 | | $ | 32,698,382 | | $ | 40,529,794 | | $ | 32,641,362 |
Beginning balance - Allowance for credit losses for loans | 353,724 | | 354,313 | | 319,723 | | 351,354 | | 164,604 | |
Impact of ASU No. 2016-13 adoption on January 1, 2020 * | — | | — | | — | | — | | 37,989 | |
Allowance for purchased credit deteriorated (PCD) loans * | — | | — | | — | | — | | 61,643 | |
Beginning balance, adjusted | 353,724 | | 354,313 | | 319,723 | | 351,354 | | 264,236 | |
Allowance for credit losses for loans | | Allowance for credit losses for loans | | | | | | | | | |
Beginning balance | | Beginning balance | $ | 490,963 | | $ | 379,252 | | $ | 353,724 | | $ | 375,702 | | $ | 351,354 |
Allowance for purchased credit deteriorated (PCD) loans (1) | | Allowance for purchased credit deteriorated (PCD) loans (1) | — | | 70,319 | | — | | 70,319 | | — |
Loans charged-off: | Loans charged-off: | | Loans charged-off: | |
Commercial and industrial | Commercial and industrial | (1,248) | | (10,893) | | (13,965) | | (19,283) | | (31,349) | Commercial and industrial | (5,033) | | (4,540) | | (1,248) | | (11,144) | | (19,283) |
Commercial real estate | Commercial real estate | — | | — | | (695) | | (382) | | (766) | Commercial real estate | (4,000) | | — | | — | | (4,173) | | (382) |
| Residential mortgage | Residential mortgage | — | | (1) | | (7) | | (139) | | (348) | Residential mortgage | — | | (1) | | — | | (27) | | (139) |
Total consumer | Total consumer | (771) | | (1,480) | | (2,458) | | (3,389) | | (7,624) | Total consumer | (962) | | (726) | | (771) | | (2,513) | | (3,389) |
Total charge-offs | Total charge-offs | (2,019) | | (12,374) | | (17,125) | | (23,193) | | (40,087) | Total charge-offs | (9,995) | | (5,267) | | (2,019) | | (17,857) | | (23,193) |
Charged-off loans recovered: | Charged-off loans recovered: | | | | | | | | | | Charged-off loans recovered: | | | | | | | | | |
Commercial and industrial | Commercial and industrial | 514 | | 678 | | 428 | | 2,781 | | 1,796 | Commercial and industrial | 13,236 | | 1,952 | | 514 | | 16,012 | | 2,781 |
Commercial real estate | Commercial real estate | 29 | | 665 | | 60 | | 759 | | 164 | Commercial real estate | 1,729 | | 224 | | 29 | | 2,060 | | 759 |
Construction | Construction | — | | — | | 40 | | 4 | | 80 | Construction | — | | — | | — | | — | | 4 |
Residential mortgage | Residential mortgage | 228 | | 191 | | 31 | | 576 | | 626 | Residential mortgage | 163 | | 74 | | 228 | | 694 | | 576 |
Total consumer | Total consumer | 955 | | 1,474 | | 1,151 | | 3,359 | | 2,454 | Total consumer | 477 | | 697 | | 955 | | 2,431 | | 3,359 |
Total recoveries | Total recoveries | 1,726 | | 3,008 | | 1,710 | | 7,479 | | 5,120 | Total recoveries | 15,605 | | 2,947 | | 1,726 | | 21,197 | | 7,479 |
Net charge-offs | (293) | | (9,366) | | (15,415) | | (15,714) | | (34,967) | |
Net loan recoveries (charge-offs) | | Net loan recoveries (charge-offs) | 5,610 | | (2,320) | | (293) | | 3,340 | | (15,714) |
Provision charged for credit losses | Provision charged for credit losses | 3,496 | | 8,777 | | 31,020 | | 21,287 | | 106,059 | Provision charged for credit losses | 1,835 | | 43,712 | | 3,496 | | 49,047 | | 21,287 |
Ending balance - Allowance for credit losses for loans | $ | 356,927 | | $ | 353,724 | | $ | 335,328 | | $ | 356,927 | | $ | 335,328 | |
Ending balance | | Ending balance | $ | 498,408 | | $ | 490,963 | | $ | 356,927 | | $ | 498,408 | | $ | 356,927 |
Components of allowance for credit losses for loans: | Components of allowance for credit losses for loans: | | | | | | | | | | Components of allowance for credit losses for loans: | | | | | | | | | |
Allowance for loan losses | Allowance for loan losses | $ | 342,527 | | $ | 339,324 | | $ | 325,032 | | $ | 342,527 | | $ | 325,032 | Allowance for loan losses | $ | 475,744 | | $ | 468,819 | | $ | 342,527 | | $ | 475,744 | | $ | 342,527 |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 14,400 | | 14,400 | | 10,296 | | 14,400 | | 10,296 | Allowance for unfunded credit commitments | 22,664 | | 22,144 | | 14,400 | | 22,664 | | 14,400 |
Allowance for credit losses for loans | Allowance for credit losses for loans | $ | 356,927 | | $ | 353,724 | | $ | 335,328 | | $ | 356,927 | | $ | 335,328 | Allowance for credit losses for loans | $ | 498,408 | | $ | 490,963 | | $ | 356,927 | | $ | 498,408 | | $ | 356,927 |
Components of provision for credit losses for loans: | Components of provision for credit losses for loans: | | | | | | | | | | Components of provision for credit losses for loans: | | | | | | | | | |
Provision for credit losses for loans | $ | 3,496 | | $ | 5,810 | | $ | 30,833 | | $ | 17,998 | | $ | 105,709 | |
Provision for unfunded credit commitments | — | | 2,967 | | 187 | | 3,289 | | 350 | |
Provision for credit losses for loans (2) | | Provision for credit losses for loans (2) | $ | 1,315 | | $ | 38,310 | | $ | 3,496 | | $ | 42,883 | | $ | 17,998 |
Provision for unfunded credit commitments (2) | | Provision for unfunded credit commitments (2) | 520 | | 5,402 | | — | | 6,164 | | 3,289 |
Total provision for credit losses for loans | Total provision for credit losses for loans | $ | 3,496 | | $ | 8,777 | | $ | 31,020 | | $ | 21,287 | | $ | 106,059 | Total provision for credit losses for loans | $ | 1,835 | | $ | 43,712 | | $ | 3,496 | | $ | 49,047 | | $ | 21,287 |
| Annualized ratio of net charge-offs to average loans outstanding | 0.00 | % | | 0.11 | % | | 0.19 | % | | 0.06 | % | | 0.15 | % | |
Annualized ratio of net (recoveries) charge-offs to average loans outstanding | | Annualized ratio of net (recoveries) charge-offs to average loans outstanding | (0.05) | % | | 0.02 | % | | 0.00 | % | | (0.01) | % | | 0.06 | % |
* The adjustment represents an increase in(1) Represents the allowance for credit losses foracquired PCD loans, as a resultnet of the adoption of ASU No. 2016-13 effective January 1, 2020.
NetPCD loan charge-offs totaled $293 thousand for the third quarter 2021 as compared to $9.4totaling $62.4 million and $15.4 million forin the second quarter 20212022.
(2) The three months ended June 30, 2022 and thirdnine months ended September 30, 2022 both include $36.3 million and $4.7 million of provision related to non-PCD loans and unfunded credit commitments, respectively, acquired from Bank Leumi USA in the second quarter 2020, respectively. The decrease in net loan charge-offs for the third quarter 2021 was mainly due to lower commercial and industrial loan charge-offs. The partial gross charge-offs of2022.
The following table presents the relationship among net loans charged-off and recoveries, and average loan balances outstanding for the indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| ($ in thousands) |
Net loan recoveries (charge-offs) | | | | | | | | | |
Commercial and industrial | $ | 8,203 | | $ | (2,588) | | $ | (734) | | $ | 4,868 | | $ | (16,502) |
Commercial real estate | (2,271) | | 224 | | 29 | | (2,113) | | 377 |
Construction | — | | — | | — | | — | | 4 |
Residential mortgage | 163 | | 73 | | 228 | | 667 | | 437 |
Total consumer | (485) | | (29) | | 184 | | (82) | | (30) |
Total | $ | 5,610 | | $ | (2,320) | | $ | (293) | | $ | 3,340 | | $ | (15,714) |
Average loans outstanding | | | | | | | | | |
Commercial and industrial | $ | 8,540,485 | | $ | 8,304,822 | | $ | 5,927,149 | | $ | 7,529,507 | | $ | 6,572,931 |
Commercial real estate | 24,306,684 | | 23,319,419 | | 17,733,591 | | 22,416,996 | | 17,139,756 |
Construction | 3,186,732 | | 2,925,741 | | 1,663,745 | | 2,604,559 | | 1,752,589 |
Residential mortgage | 5,134,769 | | 4,727,481 | | 4,458,345 | | 4,925,469 | | 4,358,519 |
Total consumer | 3,173,224 | | 3,239,824 | | 2,915,552 | | 3,053,263 | | 2,817,567 |
Total | $ | 44,341,894 | | $ | 42,517,287 | | $ | 32,698,382 | | $ | 40,529,794 | | $ | 32,641,362 |
Net loan (recoveries) charge-offs to average loans outstanding | | | | | | | | | |
Commercial and industrial | (0.10)% | | 0.03% | | 0.01% | | (0.06)% | | 0.25% |
Commercial real estate | 0.01 | | 0.00 | | 0.00 | | 0.01 | | 0.00 |
Construction | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
Residential mortgage | 0.00 | | 0.00 | | (0.01) | | (0.01) | | (0.01) |
Total consumer | 0.02 | | 0.00 | | (0.01) | | 0.00 | | 0.00 |
Net recoveries of loan charge-offs totaled $5.6 million for the third quarter 2022 as compared to net loan charge-offs of $2.3 million (excluding $62.4 million of Day 1 PCD loan charge-offs related to the Bank Leumi USA acquisition) for the second quarter 2022 and net loan charge-offs of $293 thousand for the third quarter 2021. The net recoveries of loan charge-offs for the third quarter 2022 were largely driven by two commercial and industrial loan relationships totaling $11.2 million in gross recoveries for the period.
Partial loan charge-offs of taxi medallion loans totaled $3.8 million within the commercial and industrial loan category totaled $143 thousand for the third quarter 20212022 as compared to $1.4$143 thousand and $1.9 million and $6.1 million forduring the secondthird quarter 2021 and thirdsecond quarter 2020, respectively.2022, respectively. The overall level of loan charge-offs (as presented in the above table) continued to remain very low and trend well within management's expectations for the credit quality of the loan portfolio for the third quarter 2021.2022.
The following table summarizes the allocation of the allowance for credit losses for loans to loan portfolio categories and the allocations as a percentage of each loan category:
| | | September 30, 2021 | | June 30, 2021 | | September 30, 2020 | | September 30, 2022 | | June 30, 2022 | | September 30, 2021 |
| | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category |
| | ($ in thousands) | | ($ in thousands) |
Loan Category: | Loan Category: | | Loan Category: | |
Commercial and Industrial loans | $ | 103,877 | | | 1.84 | % | | $ | 109,689 | | | 1.80 | % | | $ | 130,409 | | | 1.89 | % | |
Commercial and industrial loans | | Commercial and industrial loans | $ | 154,051 | | | 1.77 | % | | $ | 144,539 | | | 1.70 | % | | $ | 103,877 | | | 1.84 | % |
Commercial real estate loans: | Commercial real estate loans: | | Commercial real estate loans: | |
Commercial real estate | Commercial real estate | 178,206 | | | 0.99 | | | 168,220 | | | 0.96 | | | 128,699 | | | 0.77 | | Commercial real estate | 217,124 | | | 0.89 | | | 227,457 | | | 0.97 | | | 178,206 | | | 0.99 | |
Construction | Construction | 21,515 | | | 1.19 | | | 20,919 | | | 1.19 | | | 15,951 | | | 0.93 | | Construction | 50,656 | | | 1.42 | | | 49,770 | | | 1.47 | | | 21,515 | | | 1.19 | |
Total commercial real estate loans | Total commercial real estate loans | 199,721 | | | 1.01 | | | 189,139 | | | 0.98 | | | 144,650 | | | 0.78 | | Total commercial real estate loans | 267,780 | | | 0.95 | | | 277,227 | | | 1.03 | | | 199,721 | | | 1.01 | |
Residential mortgage loans | Residential mortgage loans | 24,732 | | | 0.57 | | | 25,303 | | | 0.60 | | | 28,614 | | | 0.67 | | Residential mortgage loans | 36,157 | | | 0.70 | | | 29,889 | | | 0.60 | | | 24,732 | | | 0.57 | |
Consumer loans: | Consumer loans: | | Consumer loans: | |
Home equity | Home equity | 4,110 | | | 1.02 | | | 4,602 | | | 1.12 | | | 5,972 | | | 1.31 | | Home equity | 4,083 | | | 0.87 | | | 3,907 | | | 0.91 | | | 4,110 | | | 1.02 | |
Auto and other consumer | Auto and other consumer | 10,087 | | | 0.40 | | | 10,591 | | | 0.43 | | | 15,387 | | | 0.69 | | Auto and other consumer | 13,673 | | | 0.49 | | | 13,257 | | | 0.49 | | | 10,087 | | | 0.40 | |
Total consumer loans | Total consumer loans | 14,197 | | | 0.49 | | | 15,193 | | | 0.53 | | | 21,359 | | | 0.79 | | Total consumer loans | 17,756 | | | 0.55 | | | 17,164 | | | 0.55 | | | 14,197 | | | 0.49 | |
Total allowance for loan losses | 342,527 | | | 1.05 | | | 339,324 | | | 1.05 | | | 325,032 | | | 1.00 | | |
Allowance for loan losses | | Allowance for loan losses | 475,744 | | | 1.05 | | | 468,819 | | | 1.08 | | | 342,527 | | | 1.05 | |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 14,400 | | | 14,400 | | | 10,296 | | | Allowance for unfunded credit commitments | 22,664 | | | 22,144 | | | 14,400 | | |
Total allowance for credit losses for loans | Total allowance for credit losses for loans | $ | 356,927 | | | $ | 353,724 | | | $ | 335,328 | | | Total allowance for credit losses for loans | $ | 498,408 | | | $ | 490,963 | | | $ | 356,927 | | |
Allowance for credit losses for loans as a % loans | | | 1.09 | % | | | | 1.09 | % | | | | 1.03 | % | |
Allowance for credit losses for loans as a % total loans | | Allowance for credit losses for loans as a % total loans | | | 1.10 | % | | | | 1.13 | % | | | | 1.09 | % |
The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, (including standby letters of credit), as a percentage of total loans was 1.09 percent at both September 30, 2021 and June 30, 2021, and 1.031.10 percent at September 30, 2020. 2022 as compared to 1.13 percent and 1.09 percent at June 30, 2022 and September 30, 2021, respectively. During the third quarter 2021, we recorded a $3.5 million2022, the provision for credit losses for loans totaled $1.8 million as compared to $8.8$43.7 million and $31.0$3.5 million for the second quarter 20212022 and the third quarter 2020, respectively. The third quarter 2021, respectively. The second quarter 2022 provision reflects, among other factors, additionalwas largely elevated due to $41 million of provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA. Overall, an increased economic forecast reserve component of our CECL model (driven by a more pessimistic outlook incorporated into the updated Moody's scenarios) was largely offset by lower expected quantitative loss experience at September 30, 2022.
As part of our CECL model analysis at September 30, 2022, we closely assessed the expected credit losses in our Florida loan portfolio in the wake of Hurricane Ian. As a result, our management adjustment and allocated reserves related to certain segments of our commercial real estate portfolio, an increase in specific reserves, and non-PPP loan growth, largely offset by a decline in the economic forecast component of the reservehurricane were immaterial at September 30, 20212022. We will continue to support our impacted customers as compared to June 30, 2021. There was no provisionthey recover from the storm and diligently monitor our loss assessment for unfunded credit commitments for the third quarter 2021 as the overall level of such reserves remained materially unchanged at September 30, 2021 as compared to June 30, 2021.material changes.
At September 30, 2021, the allowance allocations for credit losses as a percentage of total loans increased in commercial and industrial and commercial real estate loan categories as compared to June 30, 2021. The allocated reserves as a percentage of commercial and industrial loans increased by 4 basis points mainly due to the third quarter 2021 repayments (loan forgiveness) of PPP loans guaranteed by the SBA with no related allowance at September 30, 2021. The allocated reserves as a percentage of commercial real estate loans increased 3 basis points largely due to higher quantitative reserves for the non-owner occupied loan portfolio during the third quarter 2021. The allowance for credit losses as a percentage of total non-PPP loans was 1.12 percent, 1.14 percent and 1.11 percent for the third quarter 2021, second quarter 2021 and third quarter 2020, respectively.
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At September 30, 20212022 and December 31, 2020,2021, shareholders’ equity totaled approximately $4.8$6.3 billion and $4.6$5.1 billion, respectively, which represented 11.711.2 percent and 11.311.7 percent of total assets, respectively. During the nine months ended September 30, 2021,2022, total shareholders’ equity increased by $230.4 millionapproximately $1.2 billion primarily due to to:
•additional capital of $1.1 billion issued in the Bank Leumi USA acquisition,
•net income of $391.3 million,
•$358.8 million and a $30.410.6 million iincreasencrease attributable to the effect of our stock incentive plan. These positive changes wereplan, partially offset by
•cash dividends declared on common and preferred stock totaling a combined $145.1168.8 million,
and •an increase in other comprehensive loss of $13.7$147.6 million, and
•.repurchases of $13.5 million of our common stock with these shares held as treasury stock.
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.
We 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 minimum leverage ratio of 4.0 percent, plus a 2.5 percent capital conservation buffer added to the minimum requirements for capital adequacy purposes. As of September 30, 20212022 and December 31, 2020,2021, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).
For regulatory capital purposes, in connectionaccordance 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 equaling $28.2 million after-tax will be deferred over a two-year period ending January 1, 2022, at which time it will be phased in on a pro-rata basis over a three-year period ending January 1, 2025. Additionally,plus 25 percent of the reserve build since adoption (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 be phased in overincrease 25 percent per year until fully phased-in on January 1, 2025. As of September 30, 2022, approximately $11.8 million of the same time frame.$47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk-based capital ratios by approximately 3 basis points.
The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at September 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Minimum Capital Requirements | | To Be Well Capitalized Under Prompt Corrective Action Provision |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| ($ in thousands) |
As of September 30, 2021 | | | | | | | | | | | |
Total Risk-based Capital | | | | | | | | | | | |
Valley | $ | 4,264,369 | | | 13.24 | % | | $ | 3,382,946 | | | 10.50 | % | | N/A | | N/A |
Valley National Bank | 4,368,271 | | | 13.55 | | | 3,385,194 | | | 10.50 | | | $ | 3,223,994 | | | 10.00 | % |
Common Equity Tier 1 Capital | | | | | | | | | | | |
Valley | 3,241,285 | | | 10.06 | | | 2,255,297 | | | 7.00 | | | N/A | | N/A |
Valley National Bank | 4,119,028 | | | 12.78 | | | 2,256,796 | | | 7.00 | | | 2,095,596 | | | 6.50 | |
Tier 1 Risk-based Capital | | | | | | | | | | | |
Valley | 3,456,126 | | | 10.73 | | | 2,738,575 | | | 8.50 | | | N/A | | N/A |
Valley National Bank | 4,119,028 | | | 12.78 | | | 2,740,395 | | | 8.50 | | | 2,579,195 | | | 8.00 | |
Tier 1 Leverage Capital | | | | | | | | | | | |
Valley | 3,456,126 | | | 8.63 | | | 1,602,010 | | | 4.00 | | | N/A | | N/A |
Valley National Bank | 4,119,028 | | | 10.28 | | | 1,602,931 | | | 4.00 | | | 2,003,664 | | | 5.00 | |
As of December 31, 2020 | | | | | | | | | | | |
Total Risk-based Capital | | | | | | | | | | | |
Valley | $ | 3,802,223 | | | 12.64 | % | | $ | 3,159,019 | | | 10.50 | % | | N/A | | N/A |
Valley National Bank | 3,839,922 | | | 12.76 | | | 3,158,842 | | | 10.50 | | | $ | 3,008,421 | | | 10.00 | % |
Common Equity Tier 1 Capital | | | | | | | | | | | |
Valley | 2,991,085 | | | 9.94 | | | 2,106,013 | | | 7.00 | | | N/A | | N/A |
Valley National Bank | 3,607,625 | | | 11.99 | | | 2,105,894 | | | 7.00 | | | 1,955,473 | | | 6.50 | |
Tier 1 Risk-based Capital | | | | | | | | | | | |
Valley | 3,205,926 | | | 10.66 | | | 2,557,301 | | | 8.50 | | | N/A | | N/A |
Valley National Bank | 3,607,625 | | | 11.99 | | | 2,557,158 | | | 8.50 | | | 2,406,736 | | | 8.00 | |
Tier 1 Leverage Capital | | | | | | | | | | | |
Valley | 3,205,926 | | | 8.06 | | | 1,591,852 | | | 4.00 | | | N/A | | N/A |
Valley National Bank | 3,607,625 | | | 9.07 | | | 1,591,457 | | | 4.00 | | | 1,989,321 | | | 5.00 | |
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, 2021 | | December 31, 2020 |
| ($ in thousands, except for share data) |
Common shares outstanding | 407,313,664 | | | 403,858,998 | |
Shareholders’ equity | $ | 4,822,498 | | | $ | 4,592,120 | |
Less: Preferred stock | 209,691 | | | 209,691 | |
Less: Goodwill and other intangible assets | 1,444,967 | | | 1,452,891 | |
Tangible common shareholders’ equity | $ | 3,167,840 | | | $ | 2,929,538 | |
Tangible book value per common share | $ | 7.78 | | | $ | 7.25 | |
Book value per common share | $ | 11.32 | | | $ | 10.85 | |
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 September 30, 2022 | | | | | | | | | | | |
Total Risk-based Capital | | | | | | | | | | | |
Valley | $ | 5,439,636 | | | 11.84 | % | | $ | 4,825,155 | | | 10.50 | % | | N/A | | N/A |
Valley National Bank | 5,503,746 | | | 11.99 | | | 4,820,817 | | | 10.50 | | | $ | 4,591,254 | | | 10.00 | % |
Common Equity Tier 1 Capital | | | | | | | | | | | |
Valley | 4,178,402 | | | 9.09 | | | 3,216,770 | | | 7.00 | | | N/A | | N/A |
Valley National Bank | 5,121,353 | | | 11.15 | | | 3,213,878 | | | 7.00 | | | 2,984,315 | | | 6.50 | |
Tier 1 Risk-based Capital | | | | | | | | | | | |
Valley | 4,393,243 | | | 9.56 | | | 3,906,078 | | | 8.50 | | | N/A | | N/A |
Valley National Bank | 5,121,353 | | | 11.15 | | | 3,902,566 | | | 8.50 | | | 3,673,004 | | | 8.00 | |
Tier 1 Leverage Capital | | | | | | | | | | | |
Valley | 4,393,243 | | | 8.31 | | | 2,114,427 | | | 4.00 | | | N/A | | N/A |
Valley National Bank | 5,121,353 | | | 9.69 | | | 2,114,252 | | | 4.00 | | | 2,642,815 | | | 5.00 | |
As of December 31, 2021 | | | | | | | | | | | |
Total Risk-based Capital | | | | | | | | | | | |
Valley | $ | 4,454,485 | | | 13.10 | % | | $ | 3,569,144 | | | 10.50 | % | | N/A | | N/A |
Valley National Bank | 4,571,448 | | | 13.45 | | | 3,567,618 | | | 10.50 | | | $ | 3,397,732 | | | 10.00 | % |
Common Equity Tier 1 Capital | | | | | | | | | | | |
Valley | 3,417,930 | | | 10.06 | | | 2,379,429 | | | 7.00 | | | N/A | | N/A |
Valley National Bank | 4,308,734 | | | 12.68 | | | 2,378,412 | | | 7.00 | | | 2,208,526 | | | 6.50 | |
Tier 1 Risk-based Capital | | | | | | | | | | | |
Valley | 3,632,771 | | | 10.69 | | | 2,889,307 | | | 8.50 | | | N/A | | N/A |
Valley National Bank | 4,308,734 | | | 12.68 | | | 2,888,072 | | | 8.50 | | | 2,718,185 | | | 8.00 | |
Tier 1 Leverage Capital | | | | | | | | | | | |
Valley | 3,632,771 | | | 8.88 | | | 1,635,508 | | | 4.00 | | | N/A | | N/A |
Valley National Bank | 4,307,734 | | | 10.53 | | | 1,636,097 | | | 4.00 | | | 2,045,121 | | | 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 shareholders) per common share. Our retention ratio was approximately 61.658.2 percent for the nine months ended September 30, 20212022 as compared to 52.760.7 percent for the year ended December 31, 2020.2021.
Cash dividends declared amounted to $0.33 per common share for each of the nine months ended September 30, 20212022 and 2020.2021. 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.
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, 20202021 in the MD&A section - “Liquidity and Cash Requirements” and Notes 12 and 13 to the consolidated financial statements included in this report.
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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 6672 for a discussion of interest rate sensitivity.
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Item 4. | Controls and Procedures |
(a) Disclosure controls 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 were effective as of the end of the period covered by this report.
(b) Changes in internal controls over financial reporting. During the third quarter 2021, we completed the implementation of our SAP S/4HANA general ledger and enterprise resource planning system. The new system was subject to various testing and review procedures before, during and after implementation. As a result of this implementation, we have experienced certain changes to our processes and procedures which, in turn, resulted in changes to our internal control over financial reporting. Valley’s CEO and CFO have also concluded that except for those changes there were nohave not been any changes in Valley’s internal control over financial reporting in the quarter ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, Valley’s internal control over financial reporting.
Valley has not experienced any material impact to its internal controls over financial reporting due to the fact that most of Valley’s employees responsible for financial reporting are working remotely during the COVID-19
pandemic. Valley is continually monitoring and assessing the impact of the COVID-19 pandemic on Valley’s internal controls over financial reporting to minimize the impact to their design and operating effectiveness.
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 errors and all fraud. A system of internal control, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the system of internal control are met. The design of a system of internal control 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 internal 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; 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 are a party to various outstanding legal proceedings and claims. There have been no material changes in the legal proceedings, if any, previously disclosed under Part I, Item 3 of Valley’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.
TheThere have been no material changes in the risk factors previously disclosed in the section titled Risk Factors"Risk Factors" in Part I, Item 1A of our 2020Valley’s Annual Report on Form 10-K includes a discussion offor the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity). The information presented below provides an update to, and should be read in conjunction with, the risk factors and other information contained in our 2020 Annual Report on Form 10-K. Except as presented below, there have been no material changes to these risk factors.
Cyber-attacks could compromise our information or result in the data of our customers being improperly divulged or our systems being disrupted which could expose us to liability, losses and escalating operating costs.
Valley regularly collects, processes, transmits and stores confidential information regarding its customers, employees and others for whom it services loans. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on Valley’s behalf. Information security risks have increased because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. Many financial institutions and companies engaged in data processing have reported significant breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, denial-of-service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. In addition, recently there have been well-publicized “ransomware” attacks against various U.S. companies with the intent to materially disrupt their computer network and services. Valley frequently experiences attempted cybersecurity attacks against its systems. In 2021, there was a breach by a threat actor of a legacy network from an acquired bank. The breach resulted in the unauthorized access of certain data stored on the legacy network. The legacy network was isolated from Valley’s network, which was not affected by the incident. There can be no assurances that Valley will not incur breaches of our systems or that of our vendors which may expose the data of our customers or disrupt our services, exposing us to significant damage, on-going operational costs and/or reputational harm.
Cyber risk exposure will remain elevated or increase in the future due to, among other things, the increasing size and prominence of Valley in the financial services industry, our expansion of Internet and mobile banking tools and new products based on customer needs, and the system and customer account conversions associated with the integration of merger targets. Successful attacks on any one of many our third-party service providers may adversely affect our business and result in the disclosure or misuse of our confidential information or that of our customers. There can be no assurance that we or our third-party service providers will not suffer a cyber-attack that exposes us to significant damages, operational costs, or reputational harm.year ended December 31, 2021.
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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 September 30, 20212022 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, 2021 to July 31, 2021 | | 2,073 | | | $ | 13.30 | | | — | | | 4,112,465 | |
August 1, 2021 to August 31, 2021 | | 7,937 | | | 12.85 | | | — | | | 4,112,465 | |
September 1, 2021 to September 30, 2021 | | — | | | — | | | — | | | 4,112,465 | |
Total | | 10,010 | | | $ | 12.95 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans (2) (3) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (3) |
July 1, 2022 to July 31, 2022 | | 1,916 | | | $ | 10.49 | | | — | | | 25,000,000 | |
August 1, 2022 to August 31, 2022 | | 7,971 | | | 11.69 | | | — | | | 25,000,000 | |
September 1, 2022 to September 30, 2022 | | 1,220 | | | 11.62 | | | — | | | 25,000,000 | |
Total | | 11,107 | | | $ | 11.47 | | | — | | | |
(1)RepresentsIncludes repurchases made in connection with the vesting of employee restricted stock awards.
(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. On April 26, 2022, Valley terminated its 2007 stock repurchase plan.
(3)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 plan has no stated expiration date. No repurchase plans or programs expired or terminated during the three months ended September 30, 2021.will expire on April 25, 2024.
None.
| | | | | | | | | | | |
(3) | Articles of Incorporation and By-laws: | |
| (3.1) | | |
| (3.2) | | |
(10) | Material Contracts: |
| (10.2)(10.1) | Agreement and Plan of Merger,Second Supplemental Indenture, dated as of September 22, 2021,20, 2022, by and amongbetween Valley National Bancorp and U.S. Bank Leumi Le-Israel Corporation, a New York corporation and Volcano Merger Sub Corporation, a New York corporation and subsidiary of Valley, incorporated hereinTrust Company, National Association (incorporated by reference to Exhibit 1.14.2 to the Registrant’s Current Report on Form 8-K Current Report filed on September 27, 2021.20, 2022). | |
| | | |
(31.1) | | |
(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 |
| |
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.
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| | | | | |
| | | | | VALLEY NATIONAL BANCORP |
| | | | | (Registrant) |
| | | |
Date: | | | | | /s/ Ira Robbins |
November 8, 20212022 | | | | | Ira Robbins |
| | | | | Chairman of the Board Presidentand |
| | | | | and Chief Executive Officer |
| | | | | (Principal Executive Officer) |
| | | |
Date: | | | | | /s/ Michael D. Hagedorn |
November 8, 20212022 | | | | | Michael D. Hagedorn |
| | | | | Senior Executive Vice President and |
| | | | | Chief Financial Officer |
| | | | | (Principal Financial Officer) |