UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, ~~2020~~2021


☐			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)

New Jersey

22-2477875

(State or other jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification Number)

One Penn Plaza

New York,

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:


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):

Large accelerated filer

☒

Accelerated filer

☐

Smaller reporting company

☐

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 which ~~403,876,309 shares~~ 406,953,610 shares were outstanding as of November ~~4, 2020.~~5, 2021.

TABLE OF CONTENTS


		Page Number
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020	2
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	3
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	5
	Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	8
	Notes to Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5146

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9082

Item 4.	Controls and Procedures	9082

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	9183

Item 1A.	Risk Factors	9183

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9584

Item 6.	Exhibits	9585

SIGNATURES		9686

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except for share data)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Assets	Assets	(Unaudited)				Assets	(Unaudited)
Cash and due from banks	Cash and due from banks	$	276,120	$	256,264	Cash and due from banks	$	304,912	$	257,845
Interest bearing deposits with banks	Interest bearing deposits with banks	654,591		178,423		Interest bearing deposits with banks	1,195,244		1,071,360
Investment securities:	Investment securities:					Investment securities:
Equity securities	Equity securities	29,026		41,410		Equity securities	36,068		29,378
Trading debt securities						Trading debt securities	4,797		—
Available for sale debt securities	Available for sale debt securities	1,526,564		1,566,801		Available for sale debt securities	1,208,277		1,339,473
Held to maturity debt securities (net of allowance for credit losses of $1,481 at September 30, 2020)		2,168,995		2,336,095
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)						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
Total investment securities	Total investment securities	3,724,585		3,944,306		Total investment securities	3,832,470		3,540,434
Loans held for sale, at fair value	Loans held for sale, at fair value	209,250		76,113		Loans held for sale, at fair value	157,084		301,427
Loans	Loans	32,415,586		29,699,208		Loans	32,606,814		32,217,112
Less: Allowance for loan losses	Less: Allowance for loan losses	(325,032)		(161,759)		Less: Allowance for loan losses	(342,527)		(340,243)
Net loans	Net loans	32,090,554		29,537,449		Net loans	32,264,287		31,876,869
Premises and equipment, net	Premises and equipment, net	323,056		334,533		Premises and equipment, net	319,763		319,797
Lease right of use assets	Lease right of use assets	265,599		285,129		Lease right of use assets	258,180		252,053
Bank owned life insurance	Bank owned life insurance	533,768		540,169		Bank owned life insurance	537,301		535,209
Accrued interest receivable	Accrued interest receivable	136,058		105,637		Accrued interest receivable	98,073		106,230
Goodwill	Goodwill	1,375,409		1,373,625		Goodwill	1,382,442		1,382,442
Other intangible assets, net	Other intangible assets, net	73,873		86,772		Other intangible assets, net	62,525		70,449
Other assets	Other assets	1,084,629		717,600		Other assets	865,726		971,961
Total Assets	Total Assets	$	40,747,492	$	37,436,020	Total Assets	$	41,278,007	$	40,686,076
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Non-interest bearing	Non-interest bearing	$	8,756,924	$	6,710,408	Non-interest bearing	$	10,789,237	$	9,205,266
Interest bearing:	Interest bearing:					Interest bearing:
Savings, NOW and money market	Savings, NOW and money market	14,893,477		12,757,484		Savings, NOW and money market	18,883,085		16,015,658
Time	Time	7,537,581		9,717,945		Time	3,960,283		6,714,678
Total deposits	Total deposits	31,187,982		29,185,837		Total deposits	33,632,605		31,935,602
Short-term borrowings	Short-term borrowings	1,430,726		1,093,280		Short-term borrowings	783,346		1,147,958
Long-term borrowings	Long-term borrowings	2,852,569		2,122,426		Long-term borrowings	1,427,444		2,295,665
Junior subordinated debentures issued to capital trusts	Junior subordinated debentures issued to capital trusts	55,978		55,718		Junior subordinated debentures issued to capital trusts	56,326		56,065
Lease liabilities	Lease liabilities	290,441		309,849		Lease liabilities	282,034		276,675
Accrued expenses and other liabilities	Accrued expenses and other liabilities	396,033		284,722		Accrued expenses and other liabilities	273,754		381,991
Total Liabilities	Total Liabilities	36,213,729		33,051,832		Total Liabilities	36,455,509		36,093,956
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Preferred stock, 0 par value; 50,000,000 authorized shares:
Series A (4,600,000 shares issued at September 30, 2020 and December 31, 2019)		111,590		111,590
Series B (4,000,000 shares issued at September 30, 2020 and December 31, 2019)		98,101		98,101
Common stock (0 par value, authorized 650,000,000 shares; issued 403,880,132 shares at September 30, 2020 and 403,322,773 shares at December 31, 2019)		141,718		141,423
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)						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)						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)						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
Surplus	Surplus	3,633,321		3,622,208		Surplus	3,672,467		3,637,468
Retained earnings	Retained earnings	553,826		443,559		Retained earnings	818,780		611,158
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,783)		(32,214)		Accumulated other comprehensive loss	(21,375)		(7,718)
Treasury stock, at cost (1,388 common shares at September 30, 2020 and 44,383 common shares at December 31, 2019)		(10)		(479)
Treasury stock, at cost (3,342 common shares at September 30, 2021 and 22,490 common shares at December 31, 2020)						Treasury stock, at cost (3,342 common shares at September 30, 2021 and 22,490 common shares at December 31, 2020)	(41)		(225)
Total Shareholders’ Equity	Total Shareholders’ Equity	4,533,763		4,384,188		Total Shareholders’ Equity	4,822,498		4,592,120
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	40,747,492	$	37,436,020	Total Liabilities and Shareholders’ Equity	$	41,278,007	$	40,686,076

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(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,
		2020		2019		2020		2019			2021		2020		2021		2020
Interest Income	Interest Income									Interest Income
Interest and fees on loans	Interest and fees on loans	$	315,788	$	298,384	$	970,739	$	883,595	Interest and fees on loans	$	309,753	$	315,788	$	938,248	$	970,739
Interest and dividends on investment securities:	Interest and dividends on investment securities:									Interest and dividends on investment securities:
Taxable	Taxable	14,845		21,801		56,225		67,166		Taxable	14,292		14,845		40,174		56,225
Tax-exempt	Tax-exempt	3,606		4,219		11,224		13,379		Tax-exempt	2,609		3,606		9,181		11,224
Dividends	Dividends	2,684		3,171		9,177		9,140		Dividends	1,505		2,684		5,543		9,177
Interest on federal funds sold and other short-term investments	Interest on federal funds sold and other short-term investments	420		1,686		2,296		3,947		Interest on federal funds sold and other short-term investments	642		420		1,101		2,296
Total interest income	Total interest income	337,343		329,261		1,049,661		977,227		Total interest income	328,801		337,343		994,247		1,049,661
Interest Expense	Interest Expense									Interest Expense
Interest on deposits:	Interest on deposits:									Interest on deposits:
Savings, NOW and money market	Savings, NOW and money market	13,323		35,944		64,463		110,247		Savings, NOW and money market	10,605		13,323		32,896		64,463
Time	Time	19,028		42,848		91,699		121,350		Time	4,394		19,028		21,766		91,699
Interest on short-term borrowings	Interest on short-term borrowings	2,588		12,953		9,275		40,362		Interest on short-term borrowings	1,464		2,588		4,390		9,275
Interest on long-term borrowings and junior subordinated debentures	Interest on long-term borrowings and junior subordinated debentures	19,318		16,891		53,240		45,761		Interest on long-term borrowings and junior subordinated debentures	11,312		19,318		40,595		53,240
Total interest expense	Total interest expense	54,257		108,636		218,677		317,720		Total interest expense	27,775		54,257		99,647		218,677
Net Interest Income	Net Interest Income	283,086		220,625		830,984		659,507		Net Interest Income	301,026		283,086		894,600		830,984
(Credit) provision for credit losses for held to maturity securities		(112)		0		688		0
Provision (credit) for credit losses for held to maturity securities										Provision (credit) for credit losses for held to maturity securities	35		(112)		(353)		688
Provision for credit losses for loans	Provision for credit losses for loans	31,020		8,700		106,059		18,800		Provision for credit losses for loans	3,496		31,020		21,287		106,059
Net Interest Income After Provision for Credit Losses	Net Interest Income After Provision for Credit Losses	252,178		211,925		724,237		640,707		Net Interest Income After Provision for Credit Losses	297,495		252,178		873,666		724,237
Non-Interest Income	Non-Interest Income									Non-Interest Income
Trust and investment services	Trust and investment services	3,068		3,296		9,307		9,296		Trust and investment services	3,550		3,068		10,411		9,307
Insurance commissions	Insurance commissions	1,816		2,748		5,426		7,922		Insurance commissions	1,610		1,816		5,805		5,426
Service charges on deposit accounts	Service charges on deposit accounts	3,952		5,904		13,189		17,634		Service charges on deposit accounts	5,428		3,952		15,614		13,189
Losses on securities transactions, net		(46)		(93)		(127)		(114)
Other-than-temporary impairment losses on securities		0		0		0		(2,928)

Gains (losses) on securities transactions, net										Gains (losses) on securities transactions, net	787		(46)		1,263		(127)
Fees from loan servicing	Fees from loan servicing	2,551		2,463		7,526		7,260		Fees from loan servicing	2,894		2,551		8,980		7,526
Gains on sales of loans, net	Gains on sales of loans, net	13,366		5,194		26,253		13,700		Gains on sales of loans, net	6,442		13,366		20,016		26,253
Gains (losses) on sales of assets, net		894		(159)		716		76,997
Gains on sales of assets, net										Gains on sales of assets, net	344		894		380		716
Bank owned life insurance	Bank owned life insurance	(1,304)		2,687		7,661		6,779		Bank owned life insurance	2,018		(1,304)		6,824		7,661
Other	Other	24,975		19,110		65,548		39,880		Other	19,358		24,975		47,497		65,548
Total non-interest income	Total non-interest income	49,272		41,150		135,499		176,426		Total non-interest income	42,431		49,272		116,790		135,499
Non-Interest Expense	Non-Interest Expense									Non-Interest Expense
Salary and employee benefits expense	Salary and employee benefits expense	83,626		77,271		247,886		236,559		Salary and employee benefits expense	93,992		83,626		273,190		247,886
Net occupancy and equipment expense	Net occupancy and equipment expense	31,116		29,203		96,774		86,789		Net occupancy and equipment expense	32,402		31,116		97,112		96,774
FDIC insurance assessment	FDIC insurance assessment	4,847		5,098		14,858		16,150		FDIC insurance assessment	3,644		4,847		10,294		14,858
Amortization of other intangible assets	Amortization of other intangible assets	6,377		4,694		18,528		13,175		Amortization of other intangible assets	5,298		6,377		16,753		18,528
Professional and legal fees	Professional and legal fees	8,762		5,870		22,646		15,286		Professional and legal fees	13,492		8,762		27,250		22,646

Loss on extinguishment of debt	Loss on extinguishment of debt	2,353		0		2,353		0		Loss on extinguishment of debt	—		2,353		8,406		2,353
Amortization of tax credit investments	Amortization of tax credit investments	2,759		4,385		9,403		16,421		Amortization of tax credit investments	3,079		2,759		8,795		9,403
Telecommunication expense	Telecommunication expense	2,094		2,698		7,247		7,317		Telecommunication expense	2,615		2,094		8,507		7,247
Other	Other	18,251		16,658		53,312		43,712		Other	20,400		18,251		56,721		53,312
Total non-interest expense	Total non-interest expense	160,185		145,877		473,007		435,409		Total non-interest expense	174,922		160,185		507,028		473,007
Income Before Income Taxes	Income Before Income Taxes	141,265		107,198		386,729		381,724		Income Before Income Taxes	165,004		141,265		483,428		386,729
Income tax expense	Income tax expense	38,891		25,307		101,486		110,035		Income tax expense	42,424		38,891		124,626		101,486
Net Income	Net Income	102,374		81,891		285,243		271,689		Net Income	122,580		102,374		358,802		285,243
Dividends on preferred stock	Dividends on preferred stock	3,172		3,172		9,516		9,516		Dividends on preferred stock	3,172		3,172		9,516		9,516
Net Income Available to Common Shareholders	Net Income Available to Common Shareholders	$	99,202	$	78,719	$	275,727	$	262,173	Net Income Available to Common Shareholders	$	119,408	$	99,202	$	349,286	$	275,727

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,
		2020		2019		2020		2019			2021		2020		2021		2020
Earnings Per Common Share:	Earnings Per Common Share:									Earnings Per Common Share:
Basic	Basic	$	0.25	$	0.24	$	0.68	$	0.79	Basic	$	0.29	$	0.25	$	0.86	$	0.68
Diluted	Diluted	0.25		0.24		0.68		0.79		Diluted	0.29		0.25		0.86		0.68
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	403,833,469		331,797,982		403,714,701		331,716,652		Basic	406,824,160		403,833,469		405,986,114		403,714,701
Diluted	Diluted	404,788,526		333,405,196		404,912,126		333,039,436		Diluted	409,238,001		404,788,526		408,509,767		404,912,126

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,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income	Net income	$	102,374	$	81,891	$	285,243	$	271,689	Net income	$	122,580	$	102,374	$	358,802	$	285,243
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:									Other comprehensive income, 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	Net (losses) gains arising during the period	(1,262)		8,135		27,819		42,890		Net (losses) gains arising during the period	(3,953)		(1,262)		(15,860)		27,819
Less reclassification adjustment for net losses included in net income		36		72		94		90
Less reclassification adjustment for net (gains) losses included in net income										Less reclassification adjustment for net (gains) losses included in net income	(613)		36		(493)		94
Total	Total	(1,226)		8,207		27,913		42,980		Total	(4,566)		(1,226)		(16,353)		27,913

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 gains (losses) on derivatives arising during the period		83		76		(2,254)		(989)
Net (losses) gains on derivatives arising during the period										Net (losses) gains on derivatives arising during the period	(96)		83		(69)		(2,254)
Less reclassification adjustment for net losses included in net income	Less reclassification adjustment for net losses included in net income	1,127		324		1,257		806		Less reclassification adjustment for net losses included in net income	743		1,127		1,928		1,257
Total	Total	1,210		400		(997)		(183)		Total	647		1,210		1,859		(997)
Defined benefit pension plan	Defined benefit pension plan									Defined benefit pension plan

Amortization of actuarial net loss	Amortization of actuarial net loss	171		56		515		166		Amortization of actuarial net loss	279		171		837		515
Total other comprehensive income		155		8,663		27,431		42,963
Total other comprehensive (loss) income										Total other comprehensive (loss) income	(3,640)		155		(13,657)		27,431
Total comprehensive income	Total comprehensive income	$	102,529	$	90,554	$	312,674	$	314,652	Total comprehensive income	$	118,940	$	102,529	$	345,145	$	312,674

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the Nine Months Ended September 30, ~~2020~~2021


				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	—		—	—		—		87,268		—		—		87,268		Net income	—		—	—		—		115,710		—		—		115,710
Other comprehensive income, net of tax		—		—	—		—		—		25,648		—		25,648
Other comprehensive loss, net of tax																	Other comprehensive loss, net of tax	—		—	—		—		—		(9,287)		—		(9,287)
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	—		—	—		—		(45,281)		—		—		(45,281)
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	—		1,939	689		14,480		(5,764)		—		175		9,580

Balance - March 31, 2020		209,691		403,744	141,613		3,624,036		452,424		(6,566)		(200)		4,420,998
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	—		—	—		—		95,601		—		—		95,601		Net income	—		—	—		—		120,512		—		—		120,512
Other comprehensive income, net of tax		—		—	—		—		—		1,628		—		1,628
Other comprehensive loss, net of tax																	Other comprehensive loss, net of tax	—		—	—		—		—		(730)		—		(730)
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	—		—	—		—		(44,750)		—		—		(44,750)		Common stock, $0.11 per share	—		—	—		—		(45,093)		—		—		(45,093)
Effect of stock incentive plan, net	Effect of stock incentive plan, net	—		52	54		4,756		(592)		—		(35)		4,183		Effect of stock incentive plan, net	—		286	115		6,688		(130)		—		(53)		6,620

Balance - June 30, 2020		209,691		403,796	141,667		3,628,792		499,511		(4,938)		(235)		4,474,488
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	—		—	—		—		102,374		—		—		102,374		Net income	—		—	—		—		122,580		—		—		122,580
Other comprehensive income, net of tax		—		—	—		—		—		155		—		155
Other comprehensive loss, net of tax																	Other comprehensive loss, 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	—		—	—		—		(44,770)		—		—		(44,770)		Common stock, $0.11 per share	—		—	—		—		(45,228)		—		—		(45,228)
Effect of stock incentive plan, net	Effect of stock incentive plan, net	—		83	51		4,529		(117)		—		225		4,688		Effect of stock incentive plan, net	—		1,230	426		13,831		(168)		—		62		14,151
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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (continued)

For the Nine Months Ended September 30, ~~2019~~2020


				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, 2018		$	209,691	331,431	$	116,240	$	2,796,499	$	299,642	$	(69,431)	$	(2,187)	$	3,350,454
Adjustment due to the adoption of ASU No. 2016-02		—		—	—		—		4,414		—		—		4,414
Adjustment due to the adoption of ASU No. 2017-08		—		—	—		—		(1,446)		—		—		(1,446)
Balance - January 1, 2019		209,691		331,431	116,240		2,796,499		302,610		(69,431)		(2,187)		3,353,422
Balance - December 31, 2019																	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																	Adjustment due to the adoption of ASU No. 2016-13	—		—	—		—		(28,187)		—		—		(28,187)
Balance - January 1, 2020																	Balance - January 1, 2020	209,691		403,278	141,423		3,622,208		415,372		(32,214)		(479)		4,356,001
Net income	Net income	—		—	—		—		113,330		—		—		113,330		Net income	—		—	—		—		87,268		—		—		87,268
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—	—		—		—		16,174		—		16,174		Other comprehensive income, net of tax	—		—	—		—		—		25,648		—		25,648
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	—		—	—		—		(36,686)		—		—		(36,686)		Common stock, $0.11 per share	—		—	—		—		(44,979)		—		—		(44,979)
Effect of stock incentive plan, net	Effect of stock incentive plan, net	—		302	226		2,935		(99)		—		(1,251)		1,811		Effect of stock incentive plan, net	—		466	190		1,828		(2,065)		—		279		232

Balance - March 31, 2019		209,691		331,733	116,466		2,799,434		375,983		(53,257)		(3,438)		3,444,879
Balance - March 31, 2020																	Balance - March 31, 2020	$	209,691	403,744	141,613		$	3,624,036	$	452,424	$	(6,566)	$	(200)	$	4,420,998
Net income	Net income	—		—	—		—		76,468		—		—		76,468		Net income	—		—	—		—		95,601		—		—		95,601
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—	—		—		—		18,126		—		18,126		Other comprehensive income, net of tax	—		—	—		—		—		1,628		—		1,628
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	—		—	—		—		(36,712)		—		—		(36,712)		Common stock, $0.11 per share	—		—	—		—		(44,750)		—		—		(44,750)
Effect of stock incentive plan, net	Effect of stock incentive plan, net	—		55	105		4,625		(377)		—		176		4,529		Effect of stock incentive plan, net	—		52	54		4,756		(592)		—		(35)		4,183

Balance - June 30, 2019		209,691		331,788	116,571		2,804,059		412,190		(35,131)		(3,262)		3,504,118
Balance - June 30, 2020																	Balance - June 30, 2020	$	209,691	403,796	$	141,667	$	3,628,792	$	499,511	$	(4,938)	$	(235)	$	4,474,488
Net income	Net income	—		—	—		—		81,891		—		—		81,891		Net income	—		—	—		—		102,374		—		—		102,374
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—	—		—		—		8,663		—		8,663		Other comprehensive income, net of tax	—		—	—		—		—		155		—		155
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	—		—	—		—		(36,732)		—		—		(36,732)		Common stock, $0.11 per share	—		—	—		—		(44,770)		—		—		(44,770)
Effect of stock incentive plan, net	Effect of stock incentive plan, net	—		18	79		3,207		(157)		—		178		3,307		Effect of stock incentive plan, net	—		83	51		4,529		(117)		—		225		4,688
Balance - September 30, 2019		$	209,691	331,806	$	116,650	$	2,807,266	$	454,020	$	(26,468)	$	(3,084)	$	3,558,075
Balance - September 30, 2020																	Balance - September 30, 2020	$	209,691	403,879	$	141,718	$	3,633,321	$	553,826	$	(4,783)	$	(10)	$	4,533,763

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

Nine Months Ended
September 30,
2020 2019
Cash flows from operating activities:
Net income $ 285,243 $ 271,689
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 43,975 38,329
Stock-based compensation 12,001 11,504
Provision for credit losses 106,747 18,800
Net amortization of premiums and accretion of discounts on securities and borrowings 26,051 21,584
Amortization of other intangible assets 18,528 13,175
Losses on securities transactions, net 127 114
Proceeds from sales of loans held for sale 716,739 341,503
Gains on sales of loans, net (26,253) (13,700)
Net impairment losses on securities recognized in earnings 0 2,928
Originations of loans held for sale (829,252) (338,996)
Gains on sales of assets, net (716) (76,997)
Net change in:
Cash surrender value of bank owned life insurance (7,661) (6,779)
Accrued interest receivable (30,421) (1,986)
Other assets (420,572) (264,228)
Accrued expenses and other liabilities 85,944 92,542
Net cash (used in) provided by operating activities (19,520) 109,482
Cash flows from investing activities:
Net loan originations and purchases (2,686,137) (1,846,329)
Equity securities:
Purchases (7,616) 0
Sales 27,867 0
Held to maturity debt securities:
Purchases (381,606) (317,794)
Maturities, calls and principal repayments 532,151 281,961
Available for sale debt securities:
Purchases (306,071) (19,892)
Maturities, calls and principal repayments 374,321 188,619
Death benefit proceeds from bank owned life insurance 14,062 6,354
Proceeds from sales of real estate property and equipment 16,136 107,132
Proceeds from sales of loans held for investment 30,020 302,951
Purchases of real estate property and equipment (20,715) (15,753)
Net cash used in investing activities (2,407,588) (1,312,751)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	358,802	$	285,243
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	40,799		43,975
Stock-based compensation	15,852		12,001
Provision for credit losses	20,934		106,747
Net amortization of premiums and accretion of discounts on securities and borrowings	22,145		26,051
Amortization of other intangible assets	16,753		18,528
(Gains) losses on securities transactions, net	(1,263)		127
Proceeds from sales of loans held for sale	932,274		716,739
Gains on sales of loans, net	(20,016)		(26,253)
Originations of loans held for sale	(774,443)		(829,252)
Gains on sales of assets, net	(380)		(716)
Loss on extinguishment of debt	8,406		2,353
Net change in:
Trading debt securities	(4,797)		—
Cash surrender value of bank owned life insurance	(6,824)		(7,661)
Accrued interest receivable	8,157		(30,421)
Other assets	97,341		(420,572)
Accrued expenses and other liabilities	(130,698)		83,591
Net cash provided by (used in) operating activities	583,042		(19,520)
Cash flows from investing activities:
Net loan originations and purchases	(405,204)		(2,686,137)
Equity securities:
Purchases	(3,163)		(7,616)
Sales	1,227		27,867
Held to maturity debt securities:
Purchases	(1,062,202)		(381,606)

Maturities, calls and principal repayments	633,272		532,151
Available for sale debt securities:
Purchases	(367,866)		(306,071)
Sales	91,978		—
Maturities, calls and principal repayments	376,875		374,321
Death benefit proceeds from bank owned life insurance	3,850		14,062
Proceeds from sales of real estate property and equipment	4,982		16,136
Proceeds from sales of loans held for investment	4,498		30,020
Purchases of real estate property and equipment	(19,805)		(20,715)

Net cash used in investing activities	(741,558)		(2,407,588)


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,
		2020		2019			2021		2020
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net change in deposits	Net change in deposits	2,002,145		1,093,148		Net change in deposits	$	1,697,003	$	2,002,145
Net change in short-term borrowings	Net change in short-term borrowings	337,446		(293,497)		Net change in short-term borrowings	(364,612)		337,446
Proceeds from issuance of long-term borrowings, net	Proceeds from issuance of long-term borrowings, net	838,388		850,000		Proceeds from issuance of long-term borrowings, net	295,922		838,388
Repayments of long-term borrowings	Repayments of long-term borrowings	(108,446)		(255,000)		Repayments of long-term borrowings	(1,168,465)		(108,446)

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	(133,536)		(110,037)		Cash dividends paid to common shareholders	(134,860)		(133,536)
Purchase of common shares to treasury	Purchase of common shares to treasury	(4,972)		(1,505)		Purchase of common shares to treasury	(699)		(4,972)
Common stock issued, net	Common stock issued, net	2,074		(351)		Common stock issued, net	15,199		2,074
Other, net	Other, net	(451)		(365)		Other, net	(505)		(451)
Net cash provided by financing activities	Net cash provided by financing activities	2,923,132		1,272,877		Net cash provided by financing activities	329,467		2,923,132
Net change in cash and cash equivalents	Net change in cash and cash equivalents	496,024		69,608		Net change in cash and cash equivalents	170,951		496,024
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	434,687		428,629		Cash and cash equivalents at beginning of year	1,329,205		434,687
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	930,711	$	498,237	Cash and cash equivalents at end of period	$	1,500,156	$	930,711

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	$	229,987	$	312,663	Interest on deposits and borrowings	$	109,661	$	229,987
Federal and state income taxes	Federal and state income taxes	108,302		106,296		Federal and state income taxes	148,674		108,302
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	$	3,716	$	1,453	Transfer of loans to other real estate owned	$	141	$	3,716
Transfer of loans to loans held for sale	Transfer of loans to loans held for sale	30,020		302,951		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	10,141		306,471		Lease right of use assets obtained in exchange for operating lease liabilities	40,296		10,141

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. 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.

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, ~~2020~~2021 and for all periods presented have been made. The results of operations for the three and nine months ended on September 30, ~~2020~~2021 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, ~~2019.~~2020.

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.

~~Impact of COVID-1~~9. Valley's primary market areas within New Jersey, New York, Florida and Alabama have all experienced significant outbreaks and resurgences of the disease caused by the novel coronavirus (COVID-19) and disruptions from the pandemic. The COVID-19 pandemic and any preventative or protective actions that Valley or its customers have taken or may take in response resulted and may continue to result in extended periods of disruption to Valley, its customers, service providers, and third parties. The full extent and duration of the adverse impacts of COVID-19 on Valley's business, financial position, results of operations, and prospects are currently unknown, but could be significant. As of the date of this report, the banking and financial services industries have been deemed essential businesses in the jurisdictions in which Valley operates. However, Valley remains subject to various protocols and practices imposed to safeguard the health and wellness of customers and employees and to comply with applicable government directives, and the implementation and extent of any further restrictions on operations could have a material effect on Valley’s business. Valley cannot predict whether and to what extent governmental and nongovernmental authorities will continue to implement policy measures or further legislative relief to assist Valley and its customers and the failure to do so could have adverse effects on Valley's business.

Note 2. Business Combinations

The Westchester Bank Holding Corporation.

On ~~December 1, 2019,~~June 29, 2021, Valley ~~completed its acquisition of Oritani Financial Corp. (Oritani)~~announced that it will acquire The Westchester Bank Holding Corporation (“Westchester”) and its ~~wholly-owned~~principal subsidiary, ~~Oritani Bank. Oritani~~The Westchester Bank which is headquartered in White Plains, New York. As of June 30, 2021, Westchester had ~~approximately $4.3~~total assets of $1.3 billion, ~~in assets, $3.4 billion in net~~total loans of $908 million, and ~~$2.9 billion in~~total deposits ~~after purchase accounting adjustments, and~~of $1.1 billion. Westchester maintains a seven branch network ~~of 26 locations. The acquisition represents a significant addition to Valley's~~in Westchester County, New ~~Jersey franchise, and meaningfully enhanced its presence in the Bergen County market.~~York. The common shareholders of ~~Oritani received 1.60~~Westchester will receive 229.645 shares of Valley common stock for each ~~Oritani~~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 ~~they owned prior to~~it will acquire Bank Leumi Le-Israel Corporation (“Leumi”), the ~~merger.~~U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA (“Bank Leumi”). Bank Leumi maintains its headquarters in New York City and also has commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida. As of June 30, 2021, Leumi had total

assets of $8.4 billion, total deposits of $7.1 billion, and gross loans of $5.4 billion. The ~~total consideration for the acquisition was approximately $835.3 million, consisting~~common stockholders of ~~71.1 million~~Leumi will receive 3.8025 shares of Valley common stock and $5.08 in cash (subject to specified adjustments) for each Leumi common share they own. Based on Valley’s closing stock price on September 22, 2021, the ~~outstanding Oritani stock-based awards.~~transaction is valued at an estimated $1.1 billion, inclusive of the value of options and upon completion of the acquisition, Leumi will own approximately 14 percent 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 payments based upon revenue growth of the acquired entities over a five-year period.

Merger expenses related to the above acquisitions totaled ~~$106 thousand and $1.8~~$1.3 million for the three and nine months ended September 30, ~~2020, respectively, which~~2021 and primarily ~~related to~~consisted of professional and legal ~~net occupancy and equipment, and other expenses included in non-interest expense on the consolidated statements of income.~~

During the first quarter 2020, Valley revised the estimated fair values of the acquired assets as of the Oritani acquisition date due to additional information obtained that existed as of December 1, 2019. The adjustments mostly related to the fair value of certain loans and deferred tax assets as of the acquisition date and resulted in a $1.8 million increase in goodwill (see Note 9 for amount of goodwill as allocated to Valley's business segments). 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.fees.

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, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands, except for share data)									(in thousands, except for share data)
Net income available to common shareholders	Net income available to common shareholders	$	99,202	$	78,719	$	275,727	$	262,173	Net income available to common shareholders	$	119,408	$	99,202	$	349,286	$	275,727
Basic weighted average number of common shares outstanding	Basic weighted average number of common shares outstanding	403,833,469		331,797,982		403,714,701		331,716,652		Basic weighted average number of common shares outstanding	406,824,160		403,833,469		405,986,114		403,714,701
Plus: Common stock equivalents	Plus: Common stock equivalents	955,057		1,607,214		1,197,425		1,322,784		Plus: Common stock equivalents	2,413,841		955,057		2,523,653		1,197,425
Diluted weighted average number of common shares outstanding	Diluted weighted average number of common shares outstanding	404,788,526		333,405,196		404,912,126		333,039,436		Diluted weighted average number of common shares outstanding	409,238,001		404,788,526		408,509,767		404,912,126
Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	0.25	$	0.24	$	0.68	$	0.79	Basic	$	0.29	$	0.25	$	0.86	$	0.68
Diluted	Diluted	0.25		0.24		0.68		0.79		Diluted	0.29		0.25		0.86		0.68

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 ~~and restricted stock units~~ 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.~~calculation along with restricted stock units. Potential anti-dilutive weighted common shares ~~equaled approximately~~were immaterial for the three and nine months ended September 30, 2021, respectively, as compared to 4.9 million ~~shares~~ and 2.2 million shares for the three and nine months ended September 30, 2020, ~~respectively, and 265 thousand shares and 475 thousand shares for the three and nine months ended September 30, 2019,~~ respectively.

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, ~~2020:~~2021:

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 June 30, 2020 $ 34,961 $ (5,936) $ (33,963) $ (4,938)
Other comprehensive (loss) income before reclassification (1,262) 83 0 (1,179)
Amounts reclassified from other comprehensive income 36 1,127 171 1,334
Other comprehensive (loss) income, net (1,226) 1,210 171 155
Balance at September 30, 2020 $ 33,735 $ (4,726) $ (33,792) $ (4,783)

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, 2019 $ 5,822 $ (3,729) $ (34,307) $ (32,214)
Other comprehensive income (loss) before reclassification 27,819 (2,254) 0 25,565
Amounts reclassified from other comprehensive income 94 1,257 515 1,866
Other comprehensive income (loss), net 27,913 (997) 515 27,431
Balance at September 30, 2020 $ 33,735 $ (4,726) $ (33,792) $ (4,783)


	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 June 30, 2021	$	21,503	$	(2,694)	$	(36,544)	$	(17,735)
Other comprehensive loss before reclassification	(3,953)		(96)		—		(4,049)
Amounts reclassified from other comprehensive (loss) income	(613)		743		279		409
Other comprehensive (loss) income, net	(4,566)		647		279		(3,640)
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, 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)

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, ~~2020~~2021 and ~~2019:~~2020:


		Amounts Reclassified from Accumulated Other Comprehensive Loss										Amounts Reclassified from Accumulated Other Comprehensive Loss
		Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
Components of Accumulated Other Comprehensive Loss	Components of Accumulated Other Comprehensive Loss	2020		2019		2020		2019		Income Statement Line Item	Components of Accumulated Other Comprehensive Loss	2021		2020		2021		2020		Income Statement Line Item
		(in thousands)										(in thousands)
Unrealized losses on AFS securities before tax		$	(46)	$	(93)	$	(127)	$	(114)	Losses on securities transactions, net
Unrealized gains (losses) on AFS securities before tax											Unrealized gains (losses) on AFS securities before tax	$	825	$	(46)	$	663	$	(127)	Gains (losses) on securities transactions, net
Tax effect	Tax effect	10		21		33		24			Tax effect	(212)		10		(170)		33
Total net of tax	Total net of tax	(36)		(72)		(94)		(90)			Total net of tax	613		(36)		493		(94)

Unrealized losses on derivatives (cash flow hedges) before tax	Unrealized losses on derivatives (cash flow hedges) before tax	(1,586)		(453)		(1,763)		(1,126)		Interest expense	Unrealized losses on derivatives (cash flow hedges) before tax	(1,044)		(1,586)		(2,708)		(1,763)		Interest expense
Tax effect	Tax effect	459		129		506		320			Tax effect	301		459		780		506
Total net of tax	Total net of tax	(1,127)		(324)		(1,257)		(806)			Total net of tax	(743)		(1,127)		(1,928)		(1,257)
Defined benefit pension plan:	Defined benefit pension plan:										Defined benefit pension plan:
Amortization of actuarial net loss	Amortization of actuarial net loss	(234)		(79)		(699)		(235)		*	Amortization of actuarial net loss	(388)		(234)		(1,163)		(699)		*

Tax effect	Tax effect	63		23		184		69			Tax effect	109		63		326		184
Total net of tax	Total net of tax	(171)		(56)		(515)		(166)			Total net of tax	(279)		(171)		(837)		(515)
Total reclassifications, net of tax	Total reclassifications, net of tax	$	(1,334)	$	(452)	$	(1,866)	$	(1,062)		Total reclassifications, net of tax	$	(409)	$	(1,334)	$	(2,272)	$	(1,866)


*			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 ~~2020~~2021

Accounting Standards Update (ASU) No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" amends the accounting guidance on the impairment of financial instruments. The FASB issued an amendment to replace the incurred loss impairment methodology under prior accounting guidance with a new current expected credit loss (CECL) model. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. 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. The measurement of expected credit loss under the CECL methodology is applicable to financial assets measured at amortized cost, including loans, held to maturity investments and purchased financial assets with credit deterioration (PCD) assets. It also applies to certain off-balance sheet credit exposures.

Valley adopted ASU No. 2016-13 on January 1, 2020 using the modified retrospective approach for all financial assets measured at amortized cost (except for PCD loans) and off-balance sheet credit exposures. Valley has established a governance structure to implement the CECL accounting guidance and has developed a methodology and set of models to be used. At adoption, Valley recorded a $100.4 million increase to its allowance for credit losses, including reserves of $92.5 million, $7.1 million and $793 thousand related to loans, unfunded credit commitments and held to maturity debt securities, respectively. Of the $92.5 million in loan reserves, $61.6 million represents PCD loan related reserves which were recognized through a gross-up that increases the amortized cost basis of loans with a corresponding increase to the allowance for credit losses, and therefore results in no impact to shareholders' equity. The remaining non-credit discount of $97.7 million related to PCD loans is accreted into interest income over the life of the loans at the effective interest rate effective January 1, 2020. The non-PCD loan related increase to the allowance for credit losses of $38.8 million, including the reserves for unfunded loan commitments and held to maturity debt securities, was offset in shareholders' equity and deferred tax assets.

For regulatory capital purposes, in connection with the Federal Reserve Board’s final interim rule as of April 3, 2020, 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, 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) net of taxes will be phased in over the same time frame.

ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test guidance) to measure a goodwill impairment charge. Instead, an entity will be required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current guidance). In addition, ASU No. 2017-04 eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. However, an entity will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 was effective for Valley on January 1, 2020 and Valley applied this new guidance in its annual goodwill impairment test performed during the second quarter 2020.

~~New Accounting Guidance issued in 2020~~

~~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 ~~will be effective for Valley for the annual and interim periods beginning~~on January 1, 2021 and ~~early adoption~~the new guidance did not have a significant impact on Valley’s consolidated financial statements.

New Accounting Guidance issued in 2021

ASU No. 2021-01 "Reference Rate Reform (Topic 848)" extends some of 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 ~~not permitted. This~~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 ~~guidance~~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. ~~2020-04, "Reference Rate Reform (Topic 848)" provides optional expedients~~2021-05 "Lessors – Certain Leases with Variable Lease Payments". The ASU No. 2021-05 updates guidance in Accounting Standards Codification (ASC) 842, Leases and ~~exceptions~~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. ASU No. 2021-05 is effective for ~~applying U.S. GAAP to contract modifications~~Valley for fiscal years and ~~hedging relationships that reference LIBOR or another reference rate~~interim periods beginning after December 15, 2021, with early adoption permitted. The ASU No. 2021-05 is not expected to ~~be discontinued, subject to meeting certain criteria. Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of~~have a contract affected by reference rate reform as a continuation of the existing contract, if certain conditions are met. In addition, the new guidance allows an entity to elect on a hedge-by-hedge basis to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain conditions are met. A one-time election to sell and/or transfer held-to-maturity debt securities that reference a rate affected by reference rate reform is also allowed. ASU No. 2020-04 became effective for all entities as of March 12, 2020 and will apply to all LIBOR reference rate modifications through December 31, 2022. Management is currently evaluating thesignificant impact ~~of the ASU~~ 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 ~~nonrecurring~~non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The assets presented under ~~“nonrecurring~~“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, 2020		Fair Value Measurements at Reporting Date Using:							September 30, 2021		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)	$	26,527	$	19,136	$	0	$	0	Equity securities (1)	$	32,300	$	20,890	$	—	$	—
Available for sale:
U.S. Treasury securities		51,578		51,578		0		0
Trading debt securities										Trading debt securities	4,797		—		4,797		—
Available for sale debt securities:										Available for sale debt securities:

U.S. government agency securities	U.S. government agency securities	26,448		0		26,448		0		U.S. government agency securities	21,442		—		21,442		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	134,193		0		133,410		783		Obligations of states and political subdivisions	83,149		—		83,149		—
Residential mortgage-backed securities	Residential mortgage-backed securities	1,233,436		0		1,233,436		0		Residential mortgage-backed securities	992,828		—		992,828		—
Corporate and other debt securities	Corporate and other debt securities	80,909		0		80,909		0		Corporate and other debt securities	110,858		—		110,858		—
Total available for sale debt securities	Total available for sale debt securities	1,526,564		51,578		1,474,203		783		Total available for sale debt securities	1,208,277		—		1,208,277		—
Loans held for sale (2)	Loans held for sale (2)	209,250		0		209,250		0		Loans held for sale (2)	157,084		—		157,084		—
Other assets (3)	Other assets (3)	455,565		0		455,565		0		Other assets (3)	215,919		—		215,919		—
Total assets	Total assets	$	2,217,906	$	70,714	$	2,139,018	$	783	Total assets	$	1,618,377	$	20,890	$	1,586,077	$	—
Liabilities	Liabilities									Liabilities
Other liabilities (3)	Other liabilities (3)	$	190,049	$	0	$	190,049	$	0	Other liabilities (3)	$	66,733	$	—	$	66,733	$	—
Total liabilities	Total liabilities	$	190,049	$	0	$	190,049	$	0	Total liabilities	$	66,733	$	—	$	66,733	$	—
Non-recurring fair value measurements:	Non-recurring fair value measurements:									Non-recurring fair value measurements:

Collateral dependent loans	Collateral dependent loans	$	35,907	$	0	$	0	$	35,907	Collateral dependent loans	$	68,162	$	—	$	—	$	68,162
Loan servicing rights		14,000		0		0		14,000

Foreclosed assets	Foreclosed assets	7,747		0		0		7,747		Foreclosed assets	2,037		—		—		2,037
Total	Total	$	57,654	$	0	$	0	$	57,654	Total	$	70,199	$	—	$	—	$	70,199

1514


				Fair Value Measurements at Reporting Date Using:									Fair Value Measurements at Reporting Date Using:
		December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			December 31, 2020		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 at fair value		$	41,410	$	41,410	$	0	$	0
Available for sale:
Equity securities (1)										Equity securities (1)	$	26,379	$	18,600	$	—	$	—
Available for sale debt securities:										Available for sale debt securities:
U.S. Treasury securities	U.S. Treasury securities	50,943		50,943		0		0		U.S. Treasury securities	51,393		51,393		—		—
U.S. government agency securities	U.S. government agency securities	29,243		0		29,243		0		U.S. government agency securities	26,157		—		26,157		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	170,051		0		169,371		680		Obligations of states and political subdivisions	79,950		—		79,135		815
Residential mortgage-backed securities	Residential mortgage-backed securities	1,254,786		0		1,254,786		0		Residential mortgage-backed securities	1,090,022		—		1,090,022		—
Trust preferred securities		0		0		0		0

Corporate and other debt securities	Corporate and other debt securities	61,778		0		61,778		0		Corporate and other debt securities	91,951		—		91,951		—
Total available for sale	Total available for sale	1,566,801		50,943		1,515,178		680		Total available for sale	1,339,473		51,393		1,287,265		815
Trading securities		0		0		0		0

Loans held for sale (2)	Loans held for sale (2)	76,113		0		76,113		0		Loans held for sale (2)	301,427		—		301,427		—
Other assets (3)	Other assets (3)	158,532		0		158,532		0		Other assets (3)	387,452		—		387,452		—
Total assets	Total assets	$	1,842,856	$	92,353	$	1,749,823	$	680	Total assets	$	2,054,731	$	69,993	$	1,976,144	$	815
Liabilities	Liabilities									Liabilities
Other liabilities (3)	Other liabilities (3)	$	43,926	$	0	$	43,926	$	0	Other liabilities (3)	$	156,281	$	—	$	156,281	$	—
Total liabilities	Total liabilities	$	43,926	$	0	$	43,926	$	0	Total liabilities	$	156,281	$	—	$	156,281	$	—
Non-recurring fair value measurements:	Non-recurring fair value measurements:									Non-recurring fair value measurements:
Collateral dependent impaired loans	Collateral dependent impaired loans	$	39,075	$	0	$	0	$	39,075	Collateral dependent impaired loans	$	35,228	$	—	$	—	$	35,228
Loan servicing rights	Loan servicing rights	1,591		0		0		1,591		Loan servicing rights	15,603		—		—		15,603
Foreclosed assets	Foreclosed assets	10,807		0		0		10,807		Foreclosed assets	7,387		—		—		7,387
Total	Total	$	51,473	$	0	$	0	$	51,473	Total	$	58,218	$	—	$	—	$	58,218

(1)Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling ~~$7.4~~$11.4 million and $7.8 million at September 30, ~~2020.~~2021 and December 31, 2020, respectively. These securities have not been classified inthe fair value hierarchy.

(2)Represents residential mortgage loans ~~originated~~held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately ~~$199.4~~$152.4 million and ~~$74.5~~$286.4 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

(3)Derivative financial instruments are included in this ~~category.~~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 ~~largely~~ consists of a publicly traded mutual fund, a Community Reinvestment Act (CRA) investment fund and an investment related to the development of new financial technologies that isare carried at quoted prices in active ~~markets and~~markets. Valley also has privately held CRA funds measured at ~~NAV.~~NAV, which are excluded from fair value hierarchy levels in the tables above.

Trading debt securities. The fair value of trading debt securities, consisting of municipal bonds, is reported at fair value utilizing Level 2 inputs. The prices for these investments 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 securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.

In calculating the fair value of one impaired special revenue bond (within obligations of states and political subdivisions in the table above) under Level 3, Valley prepared its best estimate of the present value of the cash flows to determine an internal price estimate. In determining the internal price, Valley utilized recent financial information and developments provided by the issuer, as well as other unobservable inputs which reflect Valley’s own assumptions about the inputs that market participants would use in pricing of the defaulted security. A quoted price received from an independent pricing service was weighted with the internal price estimate to determine the fair value of the instrument at September 30, 2020 and December 31, 2019.

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, ~~2020~~2021 and December 31, ~~2019~~2020 based on the short duration these assets were held, and the ~~high~~ credit quality of these loans.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair 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, ~~and~~ Overnight Index Swap ~~rate curves.~~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, ~~2020~~2021 and December 31, ~~2019)~~2020), 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, ~~2020~~2021 and December 31, ~~2019.~~2020.

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 ~~nonrecurring~~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 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, ~~2020,~~2021, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for ~~credit~~ loan losses ~~and/or a specific~~

~~valuation allowance allocation~~ based on the fair value of the underlying collateral. At September 30, ~~2020,~~2021, collateral dependent ~~loans, primarily consisting of taxi medallion~~ loans with a total amortized cost of ~~$99.3~~$136.1 million, including our taxi medallion loan portfolio, were reduced by specific ~~valuation~~ allowance for loan losses allocations totaling ~~$63.4~~$67.9 million to a reported total net carrying amount of ~~$35.9~~$68.2 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, ~~2020,~~2021, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of ~~18.4~~13.6 percent and a discount rate of ~~9.6~~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, ~~2020, certain~~2021, there was no re-measurement of loan servicing rights ~~were re-measured~~ at fair ~~value totaling $14.0 million.~~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 ~~adjusted to the lower of cost or estimated fair value,~~ 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. ~~There were no discount~~The adjustments ofto the appraisals of foreclosed assets ranged from 0.6 percent to 4.6 percentat September 30, ~~2020.~~2021.

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.

1817

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, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


		Fair Value Hierarchy	September 30, 2020				December 31, 2019					Fair Value Hierarchy	September 30, 2021				December 31, 2020
			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	$	276,120	$	276,120	$	256,264	$	256,264	Cash and due from banks	Level 1	$	304,912	$	304,912	$	257,845	$	257,845
Interest bearing deposits with banks	Interest bearing deposits with banks	Level 1	654,591		654,591		178,423		178,423		Interest bearing deposits with banks	Level 1	1,195,244		1,195,244		1,071,360		1,071,360
Equity securities (1)	Equity securities (1)	Level 3	2,499		2,499		0		0		Equity securities (1)	Level 3	3,768		3,768		2,999		2,999
Investment securities held to maturity:
Held to maturity debt securities:											Held to maturity debt securities:
U.S. Treasury securities	U.S. Treasury securities	Level 1	138,224		146,429		138,352		144,113		U.S. Treasury securities	Level 1	67,716		72,898		68,126		75,484
U.S. government agency securities	U.S. government agency securities	Level 2	6,302		6,634		7,345		7,362		U.S. government agency securities	Level 2	4,817		5,015		6,222		6,513
Obligations of states and political subdivisions	Obligations of states and political subdivisions	Level 2	464,051		479,824		500,705		513,607		Obligations of states and political subdivisions	Level 2	353,406		360,903		470,259		484,506
Residential mortgage-backed securities	Residential mortgage-backed securities	Level 2	1,491,808		1,528,703		1,620,119		1,629,572		Residential mortgage-backed securities	Level 2	2,072,700		2,076,597		1,550,306		1,589,655
Trust preferred securities	Trust preferred securities	Level 2	37,341		30,000		37,324		31,382		Trust preferred securities	Level 2	37,014		31,507		37,348		30,033
Corporate and other debt securities	Corporate and other debt securities	Level 2	32,750		33,381		32,250		32,684		Corporate and other debt securities	Level 2	48,750		49,391		40,750		41,421
Total investment securities held to maturity (2)			2,170,476		2,224,971		2,336,095		2,358,720
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
Net loans	Net loans	Level 3	32,090,554		31,883,095		29,537,449		28,964,396		Net loans	Level 3	32,264,287		32,113,934		31,876,869		31,635,060
Accrued interest receivable	Accrued interest receivable	Level 1	136,058		136,058		105,637		105,637		Accrued interest receivable	Level 1	98,073		98,073		106,230		106,230
Federal Reserve Bank and Federal Home Loan Bank stock (3)	Federal Reserve Bank and Federal Home Loan Bank stock (3)	Level 2	287,628		287,628		214,421		214,421		Federal Reserve Bank and Federal Home Loan Bank stock (3)	Level 2	207,701		207,701		250,116		250,116
Financial liabilities	Financial liabilities										Financial liabilities
Deposits without stated maturities	Deposits without stated maturities	Level 1	23,650,401		23,650,401		19,467,892		19,467,892		Deposits without stated maturities	Level 1	29,672,322		29,672,322		25,220,924		25,220,924
Deposits with stated maturities	Deposits with stated maturities	Level 2	7,537,581		7,466,794		9,717,945		9,747,867		Deposits with stated maturities	Level 2	3,960,283		3,957,008		6,714,678		6,639,022
Short-term borrowings	Short-term borrowings	Level 2	1,430,726		1,544,596		1,093,280		1,081,879		Short-term borrowings	Level 1	783,346		765,636		1,147,958		1,151,478
Long-term borrowings	Long-term borrowings	Level 2	2,852,569		3,115,757		2,122,426		2,181,401		Long-term borrowings	Level 2	1,427,444		1,417,368		2,295,665		2,405,345
Junior subordinated debentures issued to capital trusts	Junior subordinated debentures issued to capital trusts	Level 2	55,978		44,771		55,718		53,889		Junior subordinated debentures issued to capital trusts	Level 2	56,326		46,057		56,065		57,779
Accrued interest payable (4)	Accrued interest payable (4)	Level 1	21,756		21,756		33,066		33,066		Accrued interest payable (4)	Level 1	8,824		8,824		18,839		18,839

(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 ~~$29.0~~$36.1 million and ~~$41.4~~$29.4 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. At September 30, ~~2020,~~2021, Valley's equity securities consisted of one publicly traded ~~money market~~ mutual fund, CRA investments ~~both publicly traded and privately held~~ and to a lesser extent, equity ~~securities~~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 securities, consisting of municipal bonds, totaled $4.8 million at September 30, 2021. We had no trading debt securities at December 31, 2020. Net trading gains and losses are included in net gains and losses on securities transactions within non-interest income. We recorded net trading losses of $2 thousand and net trading gains of $705 thousand for three and nine months ended September 30, 2021, respectively.

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, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
(in thousands)
September 30, 2020
U.S. Treasury securities $ 50,035 $ 1,543 $ 0 $ 51,578
U.S. government agency securities 25,302 1,164 (18) 26,448
Obligations of states and political subdivisions:
Obligations of states and state agencies 58,807 1,151 (30) 59,928
Municipal bonds 73,063 1,276 (74) 74,265
Total obligations of states and political subdivisions 131,870 2,427 (104) 134,193
Residential mortgage-backed securities 1,193,052 41,326 (942) 1,233,436
Corporate and other debt securities 79,707 1,539 (337) 80,909
Total investment securities available for sale $ 1,479,966 $ 47,999 $ (1,401) $ 1,526,564
December 31, 2019
U.S. Treasury securities $ 50,952 $ 12 $ (21) $ 50,943
U.S. government agency securities 28,982 280 (19) 29,243
Obligations of states and political subdivisions:
Obligations of states and state agencies 78,116 540 (83) 78,573
Municipal bonds 90,662 902 (86) 91,478
Total obligations of states and political subdivisions 168,778 1,442 (169) 170,051
Residential mortgage-backed securities 1,248,814 11,234 (5,262) 1,254,786
Corporate and other debt securities 61,261 628 (111) 61,778
Total investment securities available for sale $ 1,558,787 $ 13,596 $ (5,582) $ 1,566,801


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
September 30, 2021

U.S. government agency securities	$	20,408	$	1,041	$	(7)	$	21,442
Obligations of states and political subdivisions:
Obligations of states and state agencies	29,752		239		(39)		29,952
Municipal bonds	53,186		440		(429)		53,197
Total obligations of states and political subdivisions	82,938		679		(468)		83,149
Residential mortgage-backed securities	973,543		21,761		(2,476)		992,828

Corporate and other debt securities	107,901		3,262		(305)		110,858
Total	$	1,184,790	$	26,743	$	(3,256)	$	1,208,277
December 31, 2020
U.S. Treasury securities	$	50,031	$	1,362	$	—	$	51,393
U.S. government agency securities	25,067		1,103		(13)		26,157
Obligations of states and political subdivisions:
Obligations of states and state agencies	40,861		970		(32)		41,799
Municipal bonds	37,489		731		(69)		38,151
Total obligations of states and political subdivisions	78,350		1,701		(101)		79,950
Residential mortgage-backed securities	1,050,369		40,426		(773)		1,090,022

Corporate and other debt securities	89,689		2,294		(32)		91,951

Total	$	1,293,506	$	46,886	$	(919)	$	1,339,473

2019

The age of unrealized losses and fair value of the related ~~securities~~ available for sale debt securities at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 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, 2020
September 30, 2021														September 30, 2021

U.S. government agency securities	U.S. government agency securities	$	0	$	0	$	1,585	$	(18)	$	1,585	$	(18)	U.S. government agency securities	$	—	$	—	$	1,355��	$	(7)	$	1,355	$	(7)
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	1,319		(6)		1,023		(24)		2,342		(30)		Obligations of states and state agencies	10,344		(39)		—		—		10,344		(39)
Municipal bonds	Municipal bonds	6,767		(74)		0		0		6,767		(74)		Municipal bonds	25,100		(429)		—		—		25,100		(429)
Total obligations of states and political subdivisions	Total obligations of states and political subdivisions	8,086		(80)		1,023		(24)		9,109		(104)		Total obligations of states and political subdivisions	35,444		(468)		—		—		35,444		(468)
Residential mortgage-backed securities	Residential mortgage-backed securities	111,973		(526)		33,346		(416)		145,319		(942)		Residential mortgage-backed securities	264,495		(2,138)		12,058		(338)		276,553		(2,476)

Corporate and other debt securities	Corporate and other debt securities	14,656		(337)		0		0		14,656		(337)		Corporate and other debt securities	19,175		(305)		—		—		19,175		(305)
Total	Total	$	134,715	$	(943)	$	35,954	$	(458)	$	170,669	$	(1,401)	Total	$	319,114	$	(2,911)	$	13,413	$	(345)	$	332,527	$	(3,256)
December 31, 2019
U.S. Treasury securities		$	25,019	$	(21)	$	0	$	0	$	25,019	$	(21)
December 31, 2020														December 31, 2020

U.S. government agency securities	U.S. government agency securities	0		0		1,783		(19)		1,783		(19)		U.S. government agency securities	$	—	$	—	$	1,479	$	(13)	$	1,479	$	(13)
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	18,540		(21)		8,755		(62)		27,295		(83)		Obligations of states and state agencies	—		—		1,010		(32)		1,010		(32)
Municipal bonds	Municipal bonds	0		0		13,177		(86)		13,177		(86)		Municipal bonds	6,777		(69)		—		—		6,777		(69)
Total obligations of states and political subdivisions	Total obligations of states and political subdivisions	18,540		(21)		21,932		(148)		40,472		(169)		Total obligations of states and political subdivisions	6,777		(69)		1,010		(32)		7,787		(101)
Residential mortgage-backed securities	Residential mortgage-backed securities	240,412		(1,194)		282,798		(4,068)		523,210		(5,262)		Residential mortgage-backed securities	41,418		(500)		27,911		(273)		69,329		(773)

Corporate and other debt securities	Corporate and other debt securities	5,139		(111)		0		0		5,139		(111)		Corporate and other debt securities	12,517		(32)		—		—		12,517		(32)

Total	Total	$	289,110	$	(1,347)	$	306,513	$	(4,235)	$	595,623	$	(5,582)	Total	$	60,712	$	(601)	$	30,400	$	(318)	$	91,112	$	(919)

Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 64111 and ~~182~~58 at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

As of September 30, ~~2020,~~2021, 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 ~~$868.9~~$547.5 million.

The contractual maturities of available for sale debt securities at September 30, ~~2020~~2021 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, 2020					September 30, 2021
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
		(in thousands)					(in thousands)
Due in one year	Due in one year	$	20,975	$	20,991	Due in one year	$	10,183	$	10,294
Due after one year through five years	Due after one year through five years	92,873		95,436		Due after one year through five years	31,000		31,750
Due after five years through ten years	Due after five years through ten years	107,004		108,746		Due after five years through ten years	84,781		87,587
Due after ten years	Due after ten years	66,062		67,955		Due after ten years	85,283		85,818
Residential mortgage-backed securities	Residential mortgage-backed securities	1,193,052		1,233,436		Residential mortgage-backed securities	973,543		992,828
Total investment securities available for sale		$	1,479,966	$	1,526,564
Total						Total	$	1,184,790	$	1,208,277

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 ~~3.9~~4.9 years at September 30, ~~2020.~~2021.

Impairment Analysis of Available For Sale Debt Securities

Valley's available for sale debt securities portfolio includes corporate bonds and ~~special~~ revenue bonds, among other securities. These ~~type~~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 the economic effects of ~~COVID-19.~~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. In performing an assessment of whether any decline in fair value is due to a credit loss, Valley considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level such as credit deterioration of the issuer or collateral underlying the security. In assessing the impairment, Valley compares the present value of cash flows expected to be collected with the amortized cost basis of the security. If it is determined that the decline in fair value was due to credit losses, an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis. The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax. Valley also assesses the intent to sell the securities (as well as the likelihood of a near-term recovery). If Valley intends to sell an available for sale debt security or it is more likely than not that Valley will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged to the debt security’s fair value at the reporting date with any incremental impairment reported in earnings.

Val

The obligations of states and political subdivisions classified as available for sale include special revenue bonds which had an aggregate amortized cost and fair value of $70.6 million and $71.9 million, respectively, at September 30, 2020. The gross unrealized losses associated with the special revenue bonds as of September 30, 2020 were not material. Approximately 41 percent of the special revenue bonds were issued by the states of (or municipalities within) Utah and Illinois. As part of Valley’s pre-purchase analysis and on-going quarterly assessment of impairment of the obligations of states and political subdivisions, the Credit Risk Management Department conducts a financial analysis and risk rating assessment of each security issuer based on the issuer’s most recently issued financial statements and other publicly available information. These investments are a mix of municipal bonds with investment grade ratings or non-rated revenue bonds paying in accordance with their contractual terms. The vast majority of the bonds not rated by the rating agencies are state housing finance agency

revenue bonds secured by Ginnie Mae securities that are commonly referred to as Tax Exempt Mortgage Securities (TEMS). Valley continues to monitor the special revenue bond portfolio as part of its quarterly impairment analysis.

~~Valley~~ley has evaluated available for sale debt securities that are in an unrealized loss position as of September 30, ~~2020~~2021 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 0no impairment during the three and nine months ended September 30, ~~2020~~2021 and ~~as a result, there~~2020. There was 0no allowance for credit losses for available for sale debt securities at September 30, ~~2020.~~

During the nine months ended September 30, 2019, Valley recognized a $2.9 million other-than-temporary credit impairment charge on one special revenue bond classified as available for sale (within the obligations of states2021 and state agencies in the tables above). The credit impairment was due to severe credit deterioration disclosed by the issuer in the second quarter 2019, as well as the issuer's default on its contractual payment. At September 30, 2020, the non-accruing impaired security had an adjusted amortized cost and fair valuDecember 31, 2020.~~e of $680 thousand and $783 thousand,~~ ~~respectively.~~

Valley discontinues the recognition of interest on debt securities if the securities meet both of the following criteria: (i) regularly scheduled interest payments have not been paid or have been deferred by the issuer, and (ii) full collection of all contractual principal and interest payments is not deemed to be the most likely outcome, resulting in the recognition of other-than-temporary impairment of the security.

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, ~~2020~~2021 and December 31, ~~2019~~2020 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, 2020
September 30, 2021										September 30, 2021
U.S. Treasury securities	U.S. Treasury securities	$	138,224	$	8,205	$	0	$	146,429	U.S. Treasury securities	$	67,716	$	5,182	$	—	$	72,898
U.S. government agency securities	U.S. government agency securities	6,302		332		0		6,634		U.S. government agency securities	4,817		198		—		5,015
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	271,038		9,040		(176)		279,902		Obligations of states and state agencies	161,929		3,866		(293)		165,502
Municipal bonds	Municipal bonds	193,013		6,909		0		199,922		Municipal bonds	191,477		4,066		(142)		195,401
Total obligations of states and political subdivisions	Total obligations of states and political subdivisions	464,051		15,949		(176)		479,824		Total obligations of states and political subdivisions	353,406		7,932		(435)		360,903
Residential mortgage-backed securities	Residential mortgage-backed securities	1,491,808		37,819		(924)		1,528,703		Residential mortgage-backed securities	2,072,700		21,898		(18,001)		2,076,597
Trust preferred securities	Trust preferred securities	37,341		52		(7,393)		30,000		Trust preferred securities	37,014		4		(5,511)		31,507
Corporate and other debt securities	Corporate and other debt securities	32,750		637		(6)		33,381		Corporate and other debt securities	48,750		650		(9)		49,391
Total investment securities held to maturity		$	2,170,476	$	62,994	$	(8,499)	$	2,224,971
December 31, 2019
Total										Total	$	2,584,403	$	35,864	$	(23,956)	$	2,596,311
December 31, 2020										December 31, 2020
U.S. Treasury securities	U.S. Treasury securities	$	138,352	$	5,761	$	0	$	144,113	U.S. Treasury securities	$	68,126	$	7,358	$	—	$	75,484
U.S. government agency securities	U.S. government agency securities	7,345		58		(41)		7,362		U.S. government agency securities	6,222		291		—		6,513
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	297,454		7,745		(529)		304,670		Obligations of states and state agencies	262,762		8,060		(105)		270,717
Municipal bonds	Municipal bonds	203,251		5,696		(10)		208,937		Municipal bonds	207,497		6,292		—		213,789
Total obligations of states and political subdivisions	Total obligations of states and political subdivisions	500,705		13,441		(539)		513,607		Total obligations of states and political subdivisions	470,259		14,352		(105)		484,506
Residential mortgage-backed securities	Residential mortgage-backed securities	1,620,119		14,803		(5,350)		1,629,572		Residential mortgage-backed securities	1,550,306		39,603		(254)		1,589,655
Trust preferred securities	Trust preferred securities	37,324		39		(5,981)		31,382		Trust preferred securities	37,348		50		(7,365)		30,033
Corporate and other debt securities	Corporate and other debt securities	32,250		454		(20)		32,684		Corporate and other debt securities	40,750		672		(1)		41,421
Total investment securities held to maturity		$	2,336,095	$	34,556	$	(11,931)	$	2,358,720
Total										Total	$	2,173,011	$	62,326	$	(7,725)	$	2,227,612

2321

The age of unrealized losses and fair value of related debt securities held to maturity at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 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, 2020
September 30, 2021														September 30, 2021

Obligations of states and political subdivisions:
Obligations of states and state agencies		$	5,493	$	(176)	$	0	$	0	$	5,493	$	(176)

Total obligations of states and political subdivisions		5,493		(176)		0		0		5,493		(176)
Residential mortgage-backed securities		237,070		(919)		2,677		(5)		239,747		(924)
Trust preferred securities		0		0		28,595		(7,393)		28,595		(7,393)
Corporate and other debt securities		7,494		(6)		0		0		7,494		(6)
Total		$	250,057	$	(1,101)	$	31,272	$	(7,398)	$	281,329	$	(8,499)
December 31, 2019

U.S. government agency securities		$	5,183	$	(41)	$	0	$	0	$	5,183	$	(41)
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	11,178		(55)		32,397		(474)		43,575		(529)		Obligations of states and state agencies	$	10,541	$	(218)	$	5,519	$	(75)	$	16,060	$	(293)
Municipal bonds	Municipal bonds	0		0		798		(10)		798		(10)		Municipal bonds	14,917		(142)		—		—		14,917		(142)
Total obligations of states and political subdivisions	Total obligations of states and political subdivisions	11,178		(55)		33,195		(484)		44,373		(539)		Total obligations of states and political subdivisions	25,458		(360)		5,519		(75)		30,977		(435)
Residential mortgage-backed securities	Residential mortgage-backed securities	307,885		(1,387)		254,915		(3,963)		562,800		(5,350)		Residential mortgage-backed securities	1,292,965		(17,978)		2,546		(23)		1,295,511		(18,001)
Trust preferred securities	Trust preferred securities	0		0		29,990		(5,981)		29,990		(5,981)		Trust preferred securities	—		—		30,503		(5,511)		30,503		(5,511)
Corporate and other debt securities	Corporate and other debt securities	0		0		4,980		(20)		4,980		(20)		Corporate and other debt securities	6,991		(9)		—		—		6,991		(9)
Total	Total	$	324,246	$	(1,483)	$	323,080	$	(10,448)	$	647,326	$	(11,931)	Total	$	1,325,414	$	(18,347)	$	38,568	$	(5,609)	$	1,363,982	$	(23,956)
December 31, 2020														December 31, 2020

Obligations of states and state agencies														Obligations of states and state agencies	$	5,546	$	(105)	$	—	$	—	$	5,546	$	(105)

Residential mortgage-backed securities														Residential mortgage-backed securities	21,599		(245)		2,470		(9)		24,069		(254)
Trust preferred securities														Trust preferred securities	—		—		28,630		(7,365)		28,630		(7,365)
Corporate and other debt securities														Corporate and other debt securities	10,749		(1)		—		—		10,749		(1)
Total														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 2062 and 8213 at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

As of September 30, ~~2020,~~2021, 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 ~~$1.0 billion.~~$955.9 million.

The contractual maturities of investments in debt securities held to maturity at September 30, ~~2020~~2021 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, 2020
Amortized
Cost Fair
Value
(in thousands)
Due in one year $ 113,188 $ 113,628
Due after one year through five years 201,101 213,801
Due after five years through ten years 162,911 168,821
Due after ten years 201,468 200,018
Residential mortgage-backed securities 1,491,808 1,528,703
Total investment securities held to maturity $ 2,170,476 $ 2,224,971


	September 30, 2021
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	22,683	$	22,845
Due after one year through five years	231,112		239,893
Due after five years through ten years	66,064		67,333
Due after ten years	191,844		189,643
Residential mortgage-backed securities	2,072,700		2,076,597
Total	$	2,584,403	$	2,596,311

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 ~~2.5~~5.9 years at September 30, ~~2020.~~2021.

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, ~~2020~~2021 and December 31, ~~2019.~~2020.


		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, 2020
September 30, 2021												September 30, 2021
U.S. Treasury securities	U.S. Treasury securities	$	138,224	$	0	$	0	$	0	$	138,224	U.S. Treasury securities	$	67,716	$	—	$	—	$	—	$	67,716
U.S. government agency securities	U.S. government agency securities	6,302		0		0		0		6,302		U.S. government agency securities	4,817		—		—		—		4,817
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	233,581		0		5,669		31,788		271,038		Obligations of states and state agencies	135,122		—		5,595		21,212		161,929
Municipal bonds	Municipal bonds	171,766		0		0		21,247		193,013		Municipal bonds	150,468		—		—		41,009		191,477
Total obligations of states and political subdivisions	Total obligations of states and political subdivisions	405,347		0		5,669		53,035		464,051		Total obligations of states and political subdivisions	285,590		—		5,595		62,221		353,406
Residential mortgage-backed securities	Residential mortgage-backed securities	1,491,808		0		0		0		1,491,808		Residential mortgage-backed securities	2,072,700		—		—		—		2,072,700
Trust preferred securities	Trust preferred securities	0		0		0		37,341		37,341		Trust preferred securities	—		—		—		37,014		37,014
Corporate and other debt securities	Corporate and other debt securities	0		5,000		0		27,750		32,750		Corporate and other debt securities	2,000		6,000		—		40,750		48,750
Total investment securities held to maturity		$	2,041,681	$	5,000	$	5,669	$	118,126	$	2,170,476
December 31, 2019
Total												Total	$	2,432,823	$	6,000	$	5,595	$	139,985	$	2,584,403
December 31, 2020												December 31, 2020
U.S. Treasury securities	U.S. Treasury securities	$	138,352	$	0	$	0	$	0	$	138,352	U.S. Treasury securities	$	68,126	$	—	$	—	$	—	$	68,126
U.S. government agency securities	U.S. government agency securities	7,345		0		0		0		7,345		U.S. government agency securities	6,222		—		—		—		6,222
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	248,533		5,722		0		43,199		297,454		Obligations of states and state agencies	228,286		—		5,650		28,826		262,762
Municipal bonds	Municipal bonds	202,642		0		0		609		203,251		Municipal bonds	166,408		—		—		41,089		207,497
Total obligations of states and political subdivisions	Total obligations of states and political subdivisions	451,175		5,722		0		43,808		500,705		Total obligations of states and political subdivisions	394,694		—		5,650		69,915		470,259
Residential mortgage-backed securities	Residential mortgage-backed securities	1,620,119		0		0		0		1,620,119		Residential mortgage-backed securities	1,550,306		—		—		—		1,550,306
Trust preferred securities	Trust preferred securities	0		0		0		37,324		37,324		Trust preferred securities	—		—		—		37,348		37,348
Corporate and other debt securities	Corporate and other debt securities	0		5,000		0		27,250		32,250		Corporate and other debt securities	—		5,000		—		35,750		40,750
Total investment securities held to maturity		$	2,216,991	$	10,722	$	0	$	108,382	$	2,336,095
Total												Total	$	2,019,348	$	5,000	$	5,650	$	143,013	$	2,173,011

Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At September 30, ~~2020,~~2021, 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 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.

To measure the 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. The model is adjusted for a probability weighted multi-scenario economic forecast to estimate future credit losses. Valley uses 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 investment security. The economic forecast methodology and governance for debt securities is aligned with Valley's economic forecast used for the loan portfolio discussed in more detail in Note 8. Accrued interest receivable is excluded from the estimate of credit losses.

At September 30, ~~2020,~~2021, held to maturity debt securities were carried net of allowance for credit losses totaling $1.1 million and $~~1.5~~1.4 million~~. Valley recorded a negative (credit) provision~~ at September 30, 2021 and December 31, 2020, respectively. There were no net charge-offs of held to maturity debt securities for ~~credit losses of $112 thousand during~~ the three ~~months ended September 30, 2020~~ and ~~a net provision for credit losses of $688 thousand for the~~ nine months ended September 30, 2021 and 2020. ~~There were 0 net charge-offs of debt securities in the respective periods.~~

Note 8. Loans and Allowance for Credit Losses for Loans

The detail of the loan portfolio as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 was as follows:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Loans:	Loans:					Loans:
Commercial and industrial *		$	6,903,345	$	4,825,997
Commercial and industrial:						Commercial and industrial:
Commercial and industrial						Commercial and industrial	$	4,761,227	$	4,709,569
Commercial and industrial PPP loans *						Commercial and industrial PPP loans *	874,033		2,152,139
Total commercial and industrial loans						Total commercial and industrial loans	5,635,260		6,861,708
Commercial real estate:	Commercial real estate:					Commercial real estate:
Commercial real estate	Commercial real estate	16,815,587		15,996,741		Commercial real estate	17,912,070		16,724,998
Construction	Construction	1,720,775		1,647,018		Construction	1,804,580		1,745,825
Total commercial real estate loans	Total commercial real estate loans	18,536,362		17,643,759		Total commercial real estate loans	19,716,650		18,470,823
Residential mortgage	Residential mortgage	4,284,595		4,377,111		Residential mortgage	4,332,422		4,183,743
Consumer:	Consumer:					Consumer:
Home equity	Home equity	457,083		487,272		Home equity	402,658		431,553
Automobile	Automobile	1,341,659		1,451,623		Automobile	1,563,698		1,355,955
Other consumer	Other consumer	892,542		913,446		Other consumer	956,126		913,330
Total consumer loans	Total consumer loans	2,691,284		2,852,341		Total consumer loans	2,922,482		2,700,838
Total loans	Total loans	$	32,415,586	$	29,699,208	Total loans	$	32,606,814	$	32,217,112

*~~Includes $2.3 billion of loans originated under the~~Represents SBA Paycheck Protection Program (PPP), loans, net of unearned fees totaling ~~$54.4~~$27.6 million and $43.2 million at September 30, ~~2020.~~2021 and December 31, 2020, respectively.

Total loans includes net unearned discounts and ~~deferred~~deferred loan fees of ~~$116.2~~$73.0 million and $95.8 million at September 30, ~~2020~~2021 and ~~net unearned premiums and deferred loan costs of $12.6 million at~~ December 31, ~~2019.~~2020, respectively. Net unearned discounts and deferred loan fees ~~at September 30, 2020~~ include the non-credit discount on ~~PCD~~purchased credit deterioration (PCD) loans and net unearned fees related to PPP ~~loans.~~loans at September 30, 2021 and December 31, 2020.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled ~~$117.9~~$83.4 million and ~~$86.3~~$90.2 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and is presented separately in the consolidated statements of financial condition.

Valley transferred and sold approximately ~~$30.0 million~~ ~~and $303.0~~$30.0 million of residential mortgage loans from the loan portfolio to loans held for sale during the nine months ended September 30, 2020 ~~and 2019, respectively.~~

. Excluding the loan transfers, there were 0no other material sales of loans from the held for investment portfolio during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

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, ~~2019~~2020 for further details.

Credit Quality

Loans are deemed to be past due when the contractually required principal and interest payments have not been received as they become due. Loans are placed on non-accrual status generally, when they become 90 days past due and the full and timely collection of principal and interest becomes uncertain. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Cash collections from non-accrual loans are generally applied against principal, and no interest income is recognized on these loans until the principal balance has been determined to be fully collectible.

A loan in which the borrowers’ obligation has not been released in bankruptcy courts may be restored to an accruing basis when it becomes well secured and is in the process of collection, or all past due amounts become current under the loan agreement and collectability is no longer doubtful.

The following table presents past due, current and non-accrual loans without an allowance for credit losses by loan portfolio class ~~(including PCD loans)~~ at September 30, ~~2020.~~2021 and December 31, 2020:


		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 Credit Losses
		(in thousands)																	(in thousands)
September 30, 2020
September 30, 2021																		September 30, 2021
Commercial and industrial	Commercial and industrial	$	6,587	$	3,954	$	6,759	$	115,667	$	132,967	$	6,770,378	$	6,903,345	$	16,812	Commercial and industrial	$	2,677	$	985	$	2,083	$	100,614	$	106,359	$	5,528,901	$	5,635,260	$	10,407
Commercial real estate:	Commercial real estate:																	Commercial real estate:
Commercial real estate	Commercial real estate	26,038		610		1,538		41,627		69,813		16,745,774		16,815,587		35,798		Commercial real estate	22,956		5,897		1,942		95,843		126,638		17,785,432		17,912,070		55,621
Construction	Construction	142		0		0		2,497		2,639		1,718,136		1,720,775		2,405		Construction	—		—		—		17,653		17,653		1,786,927		1,804,580		—
Total commercial real estate loans	Total commercial real estate loans	26,180		610		1,538		44,124		72,452		18,463,910		18,536,362		38,203		Total commercial real estate loans	22,956		5,897		1,942		113,496		144,291		19,572,359		19,716,650		55,621
Residential mortgage	Residential mortgage	22,528		3,760		891		23,877		51,056		4,233,539		4,284,595		12,356		Residential mortgage	9,293		974		1,002		33,648		44,917		4,287,505		4,332,422		21,032
Consumer loans:	Consumer loans:																	Consumer loans:
Home equity	Home equity	1,281		299		0		6,969		8,549		448,534		457,083		70		Home equity	606		225		—		3,541		4,372		398,286		402,658		5
Automobile	Automobile	4,797		808		538		472		6,615		1,335,044		1,341,659		0		Automobile	4,218		555		233		420		5,426		1,558,272		1,563,698		—
Other consumer	Other consumer	2,901		245		215		0		3,361		889,181		892,542		0		Other consumer	639		837		92		112		1,680		954,446		956,126		—
Total consumer loans	Total consumer loans	8,979		1,352		753		7,441		18,525		2,672,759		2,691,284		70		Total consumer loans	5,463		1,617		325		4,073		11,478		2,911,004		2,922,482		5
Total	Total	$	64,274	$	9,676	$	9,941	$	191,109	$	275,000	$	32,140,586	$	32,415,586	$	67,441	Total	$	40,389	$	9,473	$	5,352	$	251,831	$	307,045	$	32,299,769	$	32,606,814	$	87,065

2825

The following table presents past due, non-accrual and current loans by loan portfolio class at December 31, 2019. At December 31, 2019, purchased credit-impaired (PCI) loans were excluded from past due and non-accrual loans reported because they continued to earn interest income from the accretable yield at the pool level. The PCI loan pools are accounted for as PCD loans (on a loan level basis with a related allowance for credit losses) under the CECL standard adopted at January 1, 2020 and reported in the past due loans and non-accrual loans in the tables above at September 30, 2020.


		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 Non-PCI Loans		PCI 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
		(in thousands)															(in thousands)
December 31, 2019
December 31, 2020																December 31, 2020
Commercial and industrial	Commercial and industrial	$	11,700	$	2,227	$	3,986	$	68,636	$	86,549	$	4,057,434	$	682,014	Commercial and industrial	$	6,393	$	2,252	$	9,107	$	106,693	$	124,445	$	6,737,263	$	6,861,708	$	4,075
Commercial real estate:	Commercial real estate:															Commercial real estate:
Commercial real estate	Commercial real estate	2,560		4,026		579		9,004		16,169		10,886,724		5,093,848		Commercial real estate	35,030		1,326		993		46,879		84,228		16,640,770		16,724,998		32,416
Construction	Construction	1,486		1,343		0		356		3,185		1,492,532		151,301		Construction	315		—		—		84		399		1,745,426		1,745,825		—
Total commercial real estate loans	Total commercial real estate loans	4,046		5,369		579		9,360		19,354		12,379,256		5,245,149		Total commercial real estate loans	35,345		1,326		993		46,963		84,627		18,386,196		18,470,823		32,416
Residential mortgage	Residential mortgage	17,143		4,192		2,042		12,858		36,235		3,760,707		580,169		Residential mortgage	17,717		10,351		3,170		25,817		57,055		4,126,688		4,183,743		11,610
Consumer loans:	Consumer loans:															Consumer loans:
Home equity	Home equity	1,051		80		0		1,646		2,777		373,243		111,252		Home equity	953		492		—		4,936		6,381		425,172		431,553		50
Automobile	Automobile	11,482		1,581		681		334		14,078		1,437,274		271		Automobile	8,056		1,107		245		338		9,746		1,346,209		1,355,955		—
Other consumer	Other consumer	1,171		866		30		224		2,291		900,411		10,744		Other consumer	1,248		224		26		535		2,033		911,297		913,330		—
Total consumer loans	Total consumer loans	13,704		2,527		711		2,204		19,146		2,710,928		122,267		Total consumer loans	10,257		1,823		271		5,809		18,160		2,682,678		2,700,838		50
Total	Total	$	46,593	$	14,315	$	7,318	$	93,058	$	161,284	$	22,908,325	$	6,629,599	Total	$	69,712	$	15,752	$	13,541	$	185,282	$	284,287	$	31,932,825	$	32,217,112	$	48,151

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. Loans rated as Pass 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.

2926

The following table presents the internal loan classification risk by loan portfolio class by origination year ~~(including PCD loans)~~ based on the most recent analysis performed at September 30, 2021 and December 31, 2020:


		Term Loans																			Term Loans
		Amortized Cost Basis by Origination Year																			Amortized Cost Basis by Origination Year
September 30, 2020		2020		2019		2018		2017		2016		Prior to 2016		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
September 30, 2021																				September 30, 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	$	2,656,655	$	609,142	$	523,833	$	246,684	$	185,298	$	804,896	$	1,613,011	$	417	$	6,639,936	Pass	$	1,526,393	$	840,868	$	462,843	$	388,482	$	149,991	$	328,289	$	1,716,736	$	269	$	5,413,871
Special Mention	Special Mention	724		10,634		11,786		10,236		11,310		14,895		44,412		68		104,065		Special Mention	1,809		1,558		1,342		10,770		1,930		14,950		59,905		53		92,317
Substandard	Substandard	5,411		3,181		2,780		1,789		4,095		26,720		18,092		24		62,092		Substandard	4,587		6,507		3,972		7,853		886		2,532		15,066		288		41,691
Doubtful	Doubtful	0		5,207		7		17,162		2,632		72,244		0		0		97,252		Doubtful	—		—		2,736		5		16,364		68,276		—		—		87,381

Total commercial and industrial	Total commercial and industrial	$	2,662,790	$	628,164	$	538,406	$	275,871	$	203,335	$	918,755	$	1,675,515	$	509	$	6,903,345	Total commercial and industrial	$	1,532,789	$	848,933	$	470,893	$	407,110	$	169,171	$	414,047	$	1,791,707	$	610	$	5,635,260
Commercial real estate	Commercial real estate																			Commercial real estate
Risk Rating:	Risk Rating:																			Risk Rating:
Pass	Pass	$	2,456,797	$	3,236,056	$	2,360,488	$	1,993,600	$	1,929,677	$	4,281,267	$	189,008	$	15,626	$	16,462,519	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
Special Mention	Special Mention	23,864		0		26,028		7,197		42,882		86,098		3,481		0		189,550		Special Mention	1,988		45,305		44,596		43,593		51,875		169,460		38,594		—		395,411
Substandard	Substandard	17,539		9,450		24,168		22,014		10,329		78,322		0		0		161,822		Substandard	743		33,817		39,817		40,568		68,190		165,574		2,531		—		351,240
Doubtful	Doubtful	—		0		0		787		0		909		0		0		1,696		Doubtful	—		—		—		—		—		191		—		—		191

Total commercial real estate	Total commercial real estate	$	2,498,200	$	3,245,506	$	2,410,684	$	2,023,598	$	1,982,888	$	4,446,596	$	192,489	$	15,626	$	16,815,587	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
Construction	Construction																			Construction
Risk Rating:	Risk Rating:																			Risk Rating:
Pass	Pass	$	105,422	$	157,407	$	123,416	$	16,196	$	47,202	$	60,663	$	1,162,297	$	0	$	1,672,603	Pass	$	160,031	$	109,843	$	62,330	$	65,581	$	6,181	$	28,498	$	1,329,163	$	—	$	1,761,627
Special Mention	Special Mention	0		0		0		0		10,058		0		32,407		0		42,465		Special Mention	4,131		—		1,018		—		—		—		9,497		—		14,646
Substandard	Substandard	0		31		246		2,628		2,422		380		0		0		5,707		Substandard	—		23		13		646		—		17,842		9,783		—		28,307

Total construction	Total construction	$	105,422	$	157,438	$	123,662	$	18,824	$	59,682	$	61,043	$	1,194,704	$	0	$	1,720,775	Total construction	$	164,162	$	109,866	$	63,361	$	66,227	$	6,181	$	46,340	$	1,348,443	$	—	$	1,804,580

3027


	Term Loans
	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
	(in thousands)
Commercial and industrial
Risk Rating:
Pass	$	3,058,596	$	605,112	$	556,284	$	212,215	$	162,483	$	337,484	$	1,677,559	$	350	$	6,610,083
Special Mention	819		10,236		2,135		9,502		10,228		14,165		49,883		51		97,019
Substandard	5,215		3,876		12,481		1,798		4,215		12,965		18,913		462		59,925
Doubtful	—		5,203		1		17,010		2,596		69,871		—		—		94,681

Total commercial and industrial	$	3,064,630	$	624,427	$	570,901	$	240,525	$	179,522	$	434,485	$	1,746,355	$	863	$	6,861,708
Commercial real estate
Risk Rating:
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
Special Mention	50,193		68,203		44,336		48,813		66,845		109,295		1,705		—		389,390
Substandard	18,936		17,049		30,997		59,618		11,541		118,725		2,531		—		259,397
Doubtful	—		—		—		—		—		207		—		—		207

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
Construction
Risk Rating:
Pass	$	145,246	$	120,800	$	111,174	$	15,497	$	47,971	$	20,029	$	1,199,034	$	—	$	1,659,751
Special Mention	—		1,043		—		—		9,996		17,414		47,311		—		75,764
Substandard	—		26		246		2,628		17		380		7,013		—		10,310

Total construction	$	145,246	$	121,869	$	111,420	$	18,125	$	57,984	$	37,823	$	1,253,358	$	—	$	1,745,825

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 ~~(including PCD loans)~~ based on payment activity by origination year as of September 30, ~~2020.~~

Term Loans
Amortized Cost Basis by Origination Year
September 30, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total
(in thousands)
Residential mortgage
Performing $ 560,875 $ 807,219 $ 778,367 $ 645,289 $ 407,412 $ 1,019,903 $ 52,783 $ 0 $ 4,271,848
90 days or more past due 0 1,459 2,947 2,849 3,895 1,597 0 0 12,747
Total residential mortgage $ 560,875 $ 808,678 $ 781,314 $ 648,138 $ 411,307 $ 1,021,500 $ 52,783 $ 0 $ 4,284,595
Consumer loans
Home equity
Performing $ 6,436 $ 12,015 $ 13,310 $ 10,178 $ 6,505 $ 17,626 $ 336,434 $ 52,986 $ 455,490
90 days or more past due 0 0 0 0 25 111 617 840 1,593
Total home equity 6,436 12,015 13,310 10,178 6,530 17,737 337,051 53,826 457,083
Automobile
Performing 292,584 479,860 303,799 175,359 62,193 26,843 0 0 1,340,638
90 days or more past due 40 304 270 246 16 145 0 0 1,021
Total automobile 292,624 480,164 304,069 175,605 62,209 26,988 0 0 1,341,659
Other Consumer
Performing 5,061 5,751 11,529 1,254 1,093 6,387 860,895 0 891,970
90 days or more past due 0 0 8 0 0 20 136 408 572
Total other consumer 5,061 5,751 11,537 1,254 1,093 6,407 861,031 408 892,542
Total Consumer $ 304,121 $ 497,930 $ 328,916 $ 187,037 $ 69,832 $ 51,132 $ 1,198,082 $ 54,234 $ 2,691,284

~~The following table presents the credit exposure by internally assigned risk rating by class of loans (excluding PCI loans) based on the most recent analysis performed at~~2021 and December 31, ~~2019:~~ 2020.

Credit exposure—
by internally assigned risk rating Special Total Non-PCI
Pass Mention Substandard Doubtful Loans
(in thousands)
December 31, 2019
Commercial and industrial $ 3,982,453 $ 33,718 $ 66,511 $ 61,301 $ 4,143,983
Commercial real estate 10,781,587 77,884 42,560 862 10,902,893
Construction 1,487,877 7,486 354 0 1,495,717
Total $ 16,251,917 $ 119,088 $ 109,425 $ 62,163 $ 16,542,593


	Term Loans
	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
	(in thousands)
Residential mortgage
Performing	$	1,084,533	$	661,418	$	619,942	$	467,876	$	405,847	$	1,019,676	$	60,510	$	—	$	4,319,802
90 days or more past due	—		234		2,093		4,072		3,150		3,071		—		—		12,620
Total residential mortgage	$	1,084,533	$	661,652	$	622,035	$	471,948	$	408,997	$	1,022,747	$	60,510	$	—	$	4,332,422
Consumer loans
Home equity
Performing	$	11,096	$	6,593	$	8,055	$	8,745	$	6,031	$	14,327	$	303,235	$	43,502	$	401,584
90 days or more past due	—		—		—		—		—		68		542		464		1,074
Total home equity	11,096		6,593		8,055		8,745		6,031		14,395		303,777		43,966		402,658
Automobile
Performing	611,329		342,584		315,330		182,973		89,463		21,302		—		—		1,562,981
90 days or more past due	73		52		130		162		179		121		—		—		717
Total automobile	611,402		342,636		315,460		183,135		89,642		21,423		—		—		1,563,698
Other Consumer
Performing	6,518		6,794		6,543		7,231		1,017		9,017		918,946		—		956,066
90 days or more past due	—		—		—		—		—		—		60		—		60
Total other consumer	6,518		6,794		6,543		7,231		1,017		9,017		919,006		—		956,126
Total consumer	$	629,016	$	356,023	$	330,058	$	199,111	$	96,690	$	44,835	$	1,222,783	$	43,966	$	2,922,482

3129

For residential mortgages, automobile, home equity and other consumer loan portfolio classes (excluding PCI loans), Valley also evaluates credit quality based on the aging status of the loan, which is presented above, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2019:

Credit exposure—
by payment activity Performing
Loans Non-Performing
Loans Total Non-PCI
Loans
(in thousands)
December 31, 2019
Residential mortgage $ 3,784,084 $ 12,858 $ 3,796,942
Home equity 374,374 1,646 376,020
Automobile 1,451,018 334 1,451,352
Other consumer 902,478 224 902,702
Total $ 6,511,954 $ 15,062 $ 6,527,016

~~The following table summarizes information pertaining to loans that were identified as PCI loans by class based on individual loan payment activity as of December 31, 2019:~~

Credit exposure—
by payment activity Performing
Loans Non-Performing
Loans Total Non-PCI
Loans
(in thousands)
December 31, 2019
Commercial and industrial $ 653,997 $ 28,017 $ 682,014
Commercial real estate 5,065,388 28,460 5,093,848
Construction 148,692 2,609 151,301
Residential mortgage 571,006 9,163 580,169
Consumer 120,356 1,911 122,267
Total $ 6,559,439 $ 70,160 $ 6,629,599


	Term Loans
	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
	(in thousands)
Residential mortgage
Performing	$	730,764	$	778,161	$	684,761	$	582,650	$	380,723	$	943,616	$	64,798	$	—	$	4,165,473
90 days or more past due	—		3,085		4,212		3,464		4,144		3,365		—		—		18,270
Total residential mortgage	$	730,764	$	781,246	$	688,973	$	586,114	$	384,867	$	946,981	$	64,798	$	—	$	4,183,743
Consumer loans
Home equity
Performing	$	8,580	$	10,634	$	11,756	$	8,886	$	5,340	$	15,393	$	318,869	$	50,879	$	430,337
90 days or more past due	—		—		—		—		25		83		378		730		1,216
Total home equity	8,580		10,634		11,756		8,886		5,365		15,476		319,247		51,609		431,553
Automobile
Performing	426,121		438,181		272,075		151,523		50,853		16,550		—		—		1,355,303
90 days or more past due	19		108		173		223		35		94		—		—		652
Total automobile	426,140		438,289		272,248		151,746		50,888		16,644		—		—		1,355,955
Other Consumer
Performing	12,271		5,558		6,815		1,112		1,077		5,314		880,748		—		912,895
90 days or more past due	—		—		—		—		—		22		5		408		435
Total other consumer	12,271		5,558		6,815		1,112		1,077		5,336		880,753		408		913,330
Total consumer	$	446,991	$	454,481	$	290,819	$	161,744	$	57,330	$	37,456	$	1,200,000	$	52,017	$	2,700,838

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). ~~At the adoption of ASU 2016-13, Valley was not required to reassess whether modifications to individual PCI loans prior to January 1, 2020 met the TDR loan criteria.~~

~~The majority of~~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 ~~$58.1~~$64.8 million and ~~$73.0~~$57.4 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Non-performing TDRs totaled ~~$96.8~~$116.7 million and ~~$65.1~~$92.8 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

3230

The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs ~~(excluding PCI loans prior to the adoption of ASU 2016-13)~~ during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. Post-modification amounts are presented as of September 30, ~~2020~~2021 and ~~2019.~~2020.


		Three Months Ended September 30,											Three Months Ended September 30,
		2020					2019						2021					2020
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 Amortized Carrying Amount		Post-Modification Amortized Carrying Amount		Number of Contracts	Pre-Modification Amortized Carrying Amount		Post-Modification Amortized Carrying Amount
		($ in thousands)											($ in thousands)
Commercial and industrial	Commercial and industrial	28	$	31,237	$	30,938	53	$	42,902	$	41,772	Commercial and industrial	4	$	2,446	$	2,414	28	$	31,237	$	30,938

Commercial real estate:												Commercial real estate:
Commercial real estate	Commercial real estate	2	4,249		4,240		1	75		75		Commercial real estate	5	14,473		14,539		2	4,249		4,240

Construction												Construction	2	17,599		17,599		—	—		—
Total commercial real estate												Total commercial real estate	7	32,072		32,138		2	4,249		4,240
Residential mortgage	Residential mortgage	1	247		247		0	0		0		Residential mortgage	4	356		350		1	247		247
Consumer	Consumer	1	72		72		1	19		19		Consumer	—	—		—		1	72		72
Total	Total	32	$	35,805	$	35,497	55	$	42,996	$	41,866	Total	15	$	34,874	$	34,902	32	$	35,805	$	35,497


		Nine Months Ended September 30,											Nine Months Ended September 30,
		2020					2019						2021					2020
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 Amortized Carrying Amount		Post-Modification Amortized Carrying Amount		Number of Contracts	Pre-Modification Amortized Carrying Amount		Post-Modification Amortized Carrying Amount
		($ in thousands)											($ in thousands)
Commercial and industrial	Commercial and industrial	33	$	40,537	$	38,204	104	$	78,601	$	72,183	Commercial and industrial	16	$	21,822	$	19,060	33	$	40,537	$	38,204

Commercial real estate:												Commercial real estate:
Commercial real estate	Commercial real estate	4	8,996		9,000		3	4,740		4,699		Commercial real estate	11	26,710		26,730		4	8,996		9,000

Construction												Construction	2	17,599		17,599		—	—		—
Total commercial real estate												Total commercial real estate	13	44,309		44,329		4	8,996		9,000
Residential mortgage	Residential mortgage	1	247		247		1	155		154		Residential mortgage	12	2,974		2,909		1	247		247
Consumer	Consumer	1	72		72		1	19		19		Consumer	1	170		163		1	72		72
Total	Total	39	$	49,852	$	47,523	109	$	83,515	$	77,055	Total	42	$	69,275	$	66,461	39	$	49,852	$	47,523

The total TDRs presented in the above table had allocated ~~reserves~~allowance for loan losses of ~~$18.7~~$8.2 million and ~~$29.6~~$18.7 million at September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. There were ~~$1.9~~$206 thousand and $6.0 million ~~and $5.6 million~~ of ~~partial~~ charge-offs related to TDRs for the three and nine months ended September 30, ~~2020,~~2021, respectively. There were ~~no partial charge-offs related to TDR loan modifications during three months ended September 30, 2020~~$1.9 million and ~~$2.0~~$5.6 million of ~~partial~~ charge-offs related to TDRs for the three and nine months ended September 30, ~~2019,~~2020, 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, ~~2020~~2021 and ~~2019.~~2020.

Loans modified as TDRs ~~(excluding PCI loan modifications prior to the adoption of ASU 2016-13)~~ 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, ~~2020~~2021 and ~~2019~~2020 were as follows:

Three Months Ended September 30,
2020 2019
Troubled Debt Restructurings Subsequently Defaulted Number of
Contracts Amortized Cost Number of
Contracts Recorded
Investment
($ in thousands)
Commercial and industrial 30 $ 17,496 1 $ 604
Residential mortgage 0 0 1 154
Total 30 $ 17,496 2 $ 758


		Nine Months Ended September 30,							Three Months Ended September 30,
		2020			2019				2021			2020
Troubled Debt Restructurings Subsequently Defaulted	Troubled Debt Restructurings Subsequently Defaulted	Number of Contracts	Amortized Cost		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	35	$	20,099	19	$	12,235	Commercial and industrial	—	$	—	30	$	17,496
Commercial real estate	Commercial real estate	0	0		1	283		Commercial real estate	1	419		—	—
Residential mortgage	Residential mortgage	0	0		3	369		Residential mortgage	1	129		—	—
Consumer		1	18		1	18

Total	Total	36	$	20,117	24	$	12,905	Total	2	$	548	30	$	17,496


	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, ~~that were insignificant,~~ when requested by ~~customers. These modifications complied with the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide temporary payment relief to those borrowers directly impacted by COVID-19 who~~customers, all of which were not more than 30 days past due as of December 31, 2019. Generally, the modification terms allow for a deferral of payments for up to 90 days, which Valley may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis.insignificant. As of September 30, ~~2020,~~2021, Valley had approximately ~~1,400~~$98.6 million of ~~these~~outstanding loans ~~with total outstanding balances of $1.1 billion~~ remaining in their payment deferral period under short-term ~~modifications.~~modifications as compared to $361.0 million of loans in deferral at December 31, 2020. Under the applicable guidance, none of these loans were ~~considered~~classified as TDRs ~~as of~~at September 30, 2021 and December 31, 2020.

Loans in Process of Foreclosure. Other real estate owned (OREO) totaled ~~$7.7~~$4.0 million and ~~$9.4~~$5.1 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. OREO included foreclosed residential real estate properties ~~totaling $799 thousand~~which wer~~and $2.1 million~~e immaterial at September 30, ~~2020~~2021 and totaled $1.0 million at December 31, ~~2019, respectively.~~2020. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled ~~$2.0~~$3.0 million and ~~$2.8~~$1.9 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

~~Allowance for Credit Losses for~~Collateral dependent loans. Loans

~~The allowance for credit losses for loans under~~ are collateral-dependent when the ~~new CECL standard adopted on January 1, 2020, consisted of the allowance for loan losses~~debtor is experiencing financial difficulty and ~~the allowance for unfunded credit commitments. Prior periods reflect the allowance for credit losses for loans under the incurred loss model.~~

~~The following table summarizes the allowance for credit losses for loans at September 30, 2020 and December 31, 2019:~~

September 30,
2020 December 31,
2019
(in thousands)
Components of allowance for credit losses for loans:
Allowance for loan losses $ 325,032 $ 161,759
Allowance for unfunded credit commitments 10,296 2,845
Total allowance for credit losses for loans $ 335,328 $ 164,604

~~The following table summarizes the provision for credit losses for loans for the periods indicated:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(in thousands)
Components of provision for credit losses for loans:
Provision for loan losses $ 30,833 $ 8,757 $ 105,709 $ 20,319
Provision for unfunded credit commitments 187 (57) 350 (1,519)
Total provision for credit losses for loans $ 31,020 $ 8,700 $ 106,059 $ 18,800

~~Allowance for Loan Losses~~

~~The allowance for loan losses~~repayment is ~~a valuation account that is deducted from loans' amortized cost basis to present the net amount~~ expected to be ~~collected on loans. Valley's methodology to establish~~provided substantially through the allowance for loan losses has 2 basic components: (1) a collective (pooled) reserve component for estimated lifetime expected credit losses for pools of loans that share similar risk characteristics and (2) an individual reserve component for loans that do not share common risk characteristics.

~~Reserves for loans that share common risk characteristics.~~ ~~In estimating the component~~sale or operation of the allowance on a collective basis, Valley uses 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 incurred. 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) lending policies and procedures, (ii) current business conditions and economic developments that affect the loan collectability, (iii) concentration risks by size, type, and geography, (iv) the potential volume and migration of loan forbearances to non-performing status, and (v) the effect of external factors such as legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

~~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. The forecasts consist of a multi-scenario economic forecast model to estimate future credit losses that 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. Valley has identified and selected key variables that most closely correlated to its historical credit performance, which include: GDP, unemployment and the Case-Shiller Home Price Index.

~~Reserves for loans that that do not share common risk characteristics.~~ Valley measures specific reserves for individual loans that do not share common risk characteristics with other loans, consisting of collateral dependent, TDR, and expected TDR loans, based on the amount of lifetime expected credit losses calculated on those loans and charge-offs of those amounts determined to be uncollectible. Factors considered by Valley in measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due. If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as the allowance for credit losses. The effective interest rate used to discount expected cash flows is adjusted to incorporate expected prepayments, if applicable.

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) ~~of each loan’s underlying collateral~~ 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.

3532

the Bank’s collection process. Valley elected a practical expedient to use the estimated current fair value (less estimated selling costs) of the collateral to measure expected credit losses on collateral dependent loans when foreclosure is not probable.

The following table presents collateral dependent loans by class as of September 30, 2021 and December 31, 2020:


	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, 2020
	~~(in thousands)~~

~~Commercial and industrial~~	$	~~115,877~~
~~Commercial real estate:~~
~~Commercial real estate~~	~~44,638~~
~~Construction~~	~~2,405~~
~~Total commercial real estate loans~~	~~47,043~~
~~Residential mortgage~~	~~28,856~~
~~Home equity~~	88
~~Total~~	$	~~191,864~~

Commercial and industrial loans are primarily collateralized by taxi medallions in the table above. Commercial real estate loans are collateralized by real estate and construction loans are generally secured by the real estate to be developed and may also be secured by additional real estate to mitigate the risk. Residential and home equity loans are collateralized by residential real estate.medallions.

Allowance for ~~Unfunded~~ Credit ~~Commitments~~Losses for Loans

The following table summarizes the allowance for credit losses for loans at September 30, 2021 and December 31, 2020:


	September 30, 2021		December 31, 2020
	(in thousands)
Components of allowance for credit losses for loans:
Allowance for loan losses	$	342,527	$	340,243
Allowance for unfunded credit commitments	14,400		11,111
Total allowance for credit losses for loans	$	356,927	$	351,354

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,
	2021		2020		2021		2020
	(in thousands)
Components of provision for credit losses for loans:
Provision for loan losses	$	3,496	$	30,833	$	17,998	$	105,709
Provision for unfunded credit commitments	—		187		3,289		350
Total provision for credit losses for loans	$	3,496	$	31,020	$	21,287	$	106,059

~~The~~

allowance for unfunded credit commitments generally consists of undisbursed non-cancellable lines of credit, new loan commitments and commercial letters of credit valued using a similar methodology as used for loans. Management's estimate of expected losses inherent in these off-balance sheet credit exposures also incorporates estimated usage factors over the commitment's contractual period or an expected pull-through rate for new loan commitments. The allowance for unfunded credit commitments totaling $10.3 million at September 30, 2020 is included in accrued expenses and other liabilities on the consolidated statements of financial condition.

3633

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, ~~2020~~2021 and ~~2019:~~2020:


		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, 2020
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	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 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
Three Months Ended September 30, 2019
Three Months Ended September 30, 2020												Three Months Ended September 30, 2020
Allowance for losses:	Allowance for losses:											Allowance for losses:
Beginning balance	Beginning balance	$	94,384	$	48,978	$	5,219	$	6,524	$	155,105	Beginning balance	$	132,039	$	131,702	$	29,630	$	16,243	$	309,614

Loans charged-off	Loans charged-off	(527)		(158)		(111)		(2,191)		(2,987)		Loans charged-off	(13,965)		(695)		(7)		(2,458)		(17,125)
Charged-off loans recovered	Charged-off loans recovered	330		28		3		617		978		Charged-off loans recovered	428		100		31		1,151		1,710
Net charge-offs		(197)		(130)		(108)		(1,574)		(2,009)
Provision for loan losses		6,815		(77)		191		1,828		8,757
Net (charge-offs) recoveries												Net (charge-offs) recoveries	(13,537)		(595)		24		(1,307)		(15,415)
Provision (credit) for loan losses												Provision (credit) for loan losses	11,907		13,543		(1,040)		6,423		30,833
Ending balance	Ending balance	$	101,002	$	48,771	$	5,302	$	6,778	$	161,853	Ending balance	$	130,409	$	144,650	$	28,614	$	21,359	$	325,032


		Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total			Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
		(in thousands)											(in thousands)
Nine Months Ended September 30, 2020
Nine Months Ended September 30, 2021												Nine Months Ended September 30, 2021
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
Beginning balance	Beginning balance	$	104,059	$	45,673	$	5,060	$	6,967	$	161,759	Beginning balance	$	131,070	$	164,113	$	28,873	$	16,187	$	340,243
Loans charged-off												Loans charged-off	(19,283)		(382)		(139)		(3,389)		(23,193)
Charged-off loans recovered												Charged-off loans recovered	2,781		763		576		3,359		7,479
Net (charge-offs) recoveries												Net (charge-offs) recoveries	(16,502)		381		437		(30)		(15,714)
(Credit) provision for loan losses												(Credit) provision for loan losses	(10,691)		35,227		(4,578)		(1,960)		17,998
Ending balance												Ending balance	$	103,877	$	199,721	$	24,732	$	14,197	$	342,527
Nine Months Ended September 30, 2020												Nine Months Ended September 30, 2020
Allowance for losses:												Allowance for losses:
Beginning balance												Beginning balance	$	104,059	$	45,673	$	5,060	$	6,967	$	161,759
Impact of ASU 2016-13 adoption*	Impact of ASU 2016-13 adoption*	15,169		49,797		20,575		6,990		92,531		Impact of ASU 2016-13 adoption*	15,169		49,797		20,575		6,990		92,531
Beginning balance, adjusted												Beginning balance, adjusted	119,228		95,470		25,635		13,957		254,290
Loans charged-off	Loans charged-off	(31,349)		(766)		(348)		(7,624)		(40,087)		Loans charged-off	(31,349)		(766)		(348)		(7,624)		(40,087)
Charged-off loans recovered	Charged-off loans recovered	1,796		244		626		2,454		5,120		Charged-off loans recovered	1,796		244		626		2,454		5,120
Net (charge-offs) recoveries	Net (charge-offs) recoveries	(29,553)		(522)		278		(5,170)		(34,967)		Net (charge-offs) recoveries	(29,553)		(522)		278		(5,170)		(34,967)
Provision for loan losses	Provision for loan losses	40,734		49,702		2,701		12,572		105,709		Provision for loan losses	40,734		49,702		2,701		12,572		105,709
Ending balance	Ending balance	$	130,409	$	144,650	$	28,614	$	21,359	$	325,032	Ending balance	$	130,409	$	144,650	$	28,614	$	21,359	$	325,032
Nine Months Ended September 30, 2019
Allowance for losses:
Beginning balance		$	90,956	$	49,650	$	5,041	$	6,212	$	151,859
Loans charged-off		(7,882)		(158)		(126)		(5,971)		(14,137)
Charged-off loans recovered		2,008		71		13		1,720		3,812
Net charge-offs		(5,874)		(87)		(113)		(4,251)		(10,325)
Provision for loan losses		15,920		(792)		374		4,817		20,319
Ending balance		$	101,002	$	48,771	$	5,302	$	6,778	$	161,853

* Includes a $61.6 million increase representing the estimated expected credit losses for PCD loans as a result of the ASU 2016-13 adoption ~~of CECL~~ on January 1, 2020.

3734

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, ~~2020~~2021 and December 31, ~~2019.~~2020.


		Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total			Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
		(in thousands)											(in thousands)
September 30, 2020
September 30, 2021												September 30, 2021
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
Individually evaluated for credit losses	Individually evaluated for credit losses	$	66,444	$	2,058	$	830	$	1,232	$	70,564	Individually evaluated for credit losses	$	62,661	$	8,093	$	489	$	574	$	71,817
Collectively evaluated for credit losses	Collectively evaluated for credit losses	63,965		142,592		27,784		20,127		254,468		Collectively evaluated for credit losses	41,216		191,628		24,243		13,623		270,710

Total	Total	$	130,409	$	144,650	$	28,614	$	21,359	$	325,032	Total	$	103,877	$	199,721	$	24,732	$	14,197	$	342,527
Loans:	Loans:											Loans:
Individually evaluated for credit losses	Individually evaluated for credit losses	$	136,696	$	70,145	$	35,551	$	4,019	$	246,411	Individually evaluated for credit losses	$	117,656	$	143,181	$	42,441	$	3,264	$	306,542
Collectively evaluated for credit losses	Collectively evaluated for credit losses	6,766,649		18,466,217		4,249,044		2,687,265		32,169,175		Collectively evaluated for credit losses	5,517,604		19,573,469		4,289,981		2,919,218		32,300,272
Total	Total	$	6,903,345	$	18,536,362	$	4,284,595	$	2,691,284	$	32,415,586	Total	$	5,635,260	$	19,716,650	$	4,332,422	$	2,922,482	$	32,606,814
December 31, 2019
December 31, 2020												December 31, 2020
Allowance for loan losses:	Allowance for loan losses:											Allowance for loan losses:
Individually evaluated for credit losses	Individually evaluated for credit losses	$	36,662	$	1,338	$	518	$	58	$	38,576	Individually evaluated for credit losses	$	73,063	$	1,338	$	1,206	$	264	$	75,871
Collectively evaluated for credit losses	Collectively evaluated for credit losses	67,397		44,335		4,542		6,909		123,183		Collectively evaluated for credit losses	58,007		162,775		27,667		15,923		264,372

Total	Total	$	104,059	$	45,673	$	5,060	$	6,967	$	161,759	Total	$	131,070	$	164,113	$	28,873	$	16,187	$	340,243
Loans:	Loans:											Loans:
Individually evaluated for credit losses	Individually evaluated for credit losses	$	100,860	$	51,242	$	10,689	$	853	$	163,644	Individually evaluated for credit losses	$	131,057	$	61,754	$	35,151	$	1,631	$	229,593
Collectively evaluated for credit losses	Collectively evaluated for credit losses	4,043,123		12,347,368		3,786,253		2,729,221		22,905,965		Collectively evaluated for credit losses	6,730,651		18,409,069		4,148,592		2,699,207		31,987,519
Loans acquired with discounts related to credit quality		682,014		5,245,149		580,169		122,267		6,629,599
Total	Total	$	4,825,997	$	17,643,759	$	4,377,111	$	2,852,341	$	29,699,208	Total	$	6,861,708	$	18,470,823	$	4,183,743	$	2,700,838	$	32,217,112

~~Impaired loans~~. Impaired loans disclosures presented below as of December 31, 2019 represent requirements prior to the adoption of ASU No. 2016-13 on January 1, 2020. Impaired loans, consisting of non-accrual commercial and industrial loans, commercial real estate loans over $250 thousand and all loans which were modified in troubled debt restructurings, were individually evaluated for impairment. PCI loans were not classified as impaired loans because they are accounted for on a pool basis and were paying as expected.

~~The following table presents information about impaired loans by loan portfolio class at December 31, 2019:~~

Recorded
Investment
With No
Related
Allowance Recorded
Investment
With
Related
Allowance Total
Recorded
Investment Unpaid
Contractual
Principal
Balance Related
Allowance
(in thousands)
December 31, 2019
Commercial and industrial $ 14,617 $ 86,243 $ 100,860 $ 114,875 $ 36,662
Commercial real estate:
Commercial real estate 26,046 24,842 50,888 51,258 1,338
Construction 354 0 354 354 0
Total commercial real estate loans 26,400 24,842 51,242 51,612 1,338
Residential mortgage 5,836 4,853 10,689 11,800 518
Consumer loans:
Home equity 366 487 853 956 58
Total consumer loans 366 487 853 956 58
Total $ 47,219 $ 116,425 $ 163,644 $ 179,243 $ 38,576

~~Purchased Credit-Impaired Loans~~

The table below includes disclosure requirements prior to the adoption of ASU No. 2016-13 on January 1, 2020, and presents the changes in the accretable yield for PCI loans during the three and nine months ended September 30, 2019:

Three Months Ended
September 30, 2019 Nine Months Ended
September 30, 2019
(in thousands)
Balance, beginning of period $ 853,887 $ 875,958
Accretion (47,475) (155,981)
Net (decrease) increase in expected cash flows (58,268) 28,167
Balance, end of period $ 748,144 $ 748,144

Note 9. Goodwill and Other Intangible Assets

~~The~~Goodwill totaled $1.4 billion at both September 30, 2021 and December 31, 2020. There were no changes into the carrying ~~amount~~amounts of goodwill as allocated to ~~Valley's~~Valley’s business segments, or reporting units thereof, for goodwill impairment analysis ~~were:~~

Business Segment / Reporting Unit*
Wealth
Management Consumer
Lending Commercial
Lending Investment
Management Total
(in thousands)
Balance at December 31, 2019 $ 21,218 $ 306,572 $ 825,767 $ 220,068 $ 1,373,625
Goodwill from business combinations 0 121 1,654 9 1,784
Balance at September 30, 2020 $ 21,218 $ 306,693 $ 827,421 $ 220,077 $ 1,375,409

* (as reported in Valley’s ~~Wealth Management Division is comprised of trust, asset management and insurance services. This reporting unit is included in~~Annual Report on Form 10-K for the ~~Consumer Lending segment for financial reporting purposes.~~year ended December 31, 2020).

During the nine months ended September 30, 2020, Valley recorded additional goodwill as set forth in the table above related to the Oritani acquisition, reflecting the effect of the combined adjustments to the fair value of certain loans and deferred tax assets as of the acquisition date. Certain estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date. See Note 2 for further details.

~~During the~~ second quarter ~~2020,~~2021, Valley performed the annual goodwill impairment test at its normal assessment

date. There was ~~0 impairment~~ no impairment of goodwill recognized during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

The following table summarizes other intangible assets as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		Gross Intangible Assets		Accumulated Amortization		Valuation Allowance		Net Intangible Assets			Gross Intangible Assets		Accumulated Amortization		Valuation Allowance		Net Intangible Assets
		(in thousands)									(in thousands)
September 30, 2020
September 30, 2021										September 30, 2021
Loan servicing rights	Loan servicing rights	$	100,456	$	(77,404)	$	(1,013)	$	22,039	Loan servicing rights	$	111,978	$	(89,039)	$	—	$	22,939
Core deposits	Core deposits	101,160		(50,472)		0		50,688		Core deposits	101,160		(62,511)		—		38,649
Other	Other	3,945		(2,799)		0		1,146		Other	3,945		(3,008)		—		937
Total other intangible assets	Total other intangible assets	$	205,561	$	(130,675)	$	(1,013)	$	73,873	Total other intangible assets	$	217,083	$	(154,558)	$	—	$	62,525
December 31, 2019
December 31, 2020										December 31, 2020
Loan servicing rights	Loan servicing rights	$	94,827	$	(70,095)	$	(47)	$	24,685	Loan servicing rights	$	103,150	$	(80,340)	$	(865)	$	21,945
Core deposits	Core deposits	101,160		(40,384)		0		60,776		Core deposits	101,160		(53,747)		—		47,413
Other	Other	3,945		(2,634)		0		1,311		Other	3,945		(2,854)		—		1,091
Total other intangible assets	Total other intangible assets	$	199,932	$	(113,113)	$	(47)	$	86,772	Total other intangible assets	$	208,255	$	(136,941)	$	(865)	$	70,449

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. 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. Valley recorded net impairment charges on its loan servicing rights totaling $64 thousand and net recoveries of impairment charges on its loan servicing rights totaling $20 thousand for the three and nine months ended September 30, 2019, 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 have a weighted average amortization period of 8.9 years. The line item labeled “Other” included in the table above primarily consists of customer lists 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 7.6 years. Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. ~~NaN~~No impairment was recognized during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

The following table presents the estimated future amortization expense of other intangible assets for the remainder of ~~2020~~2021 through ~~2024:~~2025:


		Loan Servicing Rights		Core Deposits		Other			Loan Servicing Rights		Core Deposits		Other
		(in thousands)							(in thousands)
2020		$	1,477	$	3,275	$	55
2021	2021	4,980		11,607		206		2021	$	1,063	$	2,843	$	51
2022	2022	3,789		9,876		191		2022	3,705		9,876		191
2023	2023	2,869		8,146		131		2023	3,015		8,146		131
2024	2024	2,205		6,537		117		2024	2,473		6,537		117
2025								2025	2,047		4,929		103

Valley recognized amortization expense on other intangible assets, including net (recoveries of) impairment ~~(or recovery of impairment)~~ charges on loan servicing rights, totaling approximately ~~$6.4~~$5.3 million and ~~$4.7~~$6.4 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$18.5~~$16.8 million and ~~$13.2~~$18.5 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Note 10. Borrowed Funds

Short-Term Borrowings

Short-term borrowings at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following:

September 30,
2020 December 31,
2019
(in thousands)
FHLB advances $ 1,275,000 $ 940,000
Securities sold under agreements to repurchase 155,726 153,280
Total short-term borrowings $ 1,430,726 $ 1,093,280


	September 30, 2021		December 31, 2020
	(in thousands)
FHLB advances	$	600,000	$	1,000,000
Securities sold under agreements to repurchase	183,346		147,958
Total short-term borrowings	$	783,346	$	1,147,958

The ~~contractual~~ weighted average interest rate for short-term ~~borrowings~~FHLB advances was ~~0.44~~0.35 percent and ~~1.68~~0.38 percent at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. ~~Short-term~~The interest payments on the FHLB advances totaling ~~$1.1 billion~~$600 million were hedged with ~~cash flow~~ interest rate swaps ~~during the nine months ended~~at September 30, ~~2020.~~2021. See Note 12 for additional details.

Long-Term Borrowings

Long-term borrowings at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following:

September 30,
2020 December 31,
2019
(in thousands)
FHLB advances, net (1)
$ 2,148,633 $ 1,480,012
Subordinated debt, net (2)
403,936 292,414
Securities sold under agreements to repurchase 300,000 350,000
Total long-term borrowings $ 2,852,569 $ 2,122,426


	September 30, 2021		December 31, 2020
	(in thousands)
FHLB advances, net (1)	$	789,185	$	1,592,252
Subordinated debt, net (2)	638,259		403,413
Securities sold under agreements to repurchase	—		300,000
Total long-term borrowings	$	1,427,444	$	2,295,665


(1)			FHLB advances ~~are~~is presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling ~~$503 thousand~~$2.6 million at December 31, 2020. The prepayment penalties and ~~$2.8 million~~other purchase accounting adjustments were fully amortized at September 30, ~~2020 and December 31, 2019, respectively.~~2021.
(2)			Subordinated debt is presented net of unamortized debt issuance costs totaling ~~$2.8~~$6.1 million and ~~$1.2~~$2.7 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

FHLB ~~advances.~~Advances. Long-term FHLB advances had a weighted average interest rate of ~~2.11~~1.88 percent and ~~2.23~~2.02 percent at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans.

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, ~~2020~~2021 are scheduled for contractual balance repayments as follows:


Year	Year	Amount		Year	Amount
		(in thousands)			(in thousands)
2020		$	25,000
2021		994,768
2022		121,420

2023	2023	428,163		2023	$	350,000
2024	2024	300,000		2024	165,000
Thereafter		279,785
2025				2025	273,000

Total long-term FHLB advances	Total long-term FHLB advances	$	2,149,136	Total long-term FHLB advances	$	788,000

There are no FHLB advances with scheduled repayments in years ~~2020~~2023 and thereafter, reported in the table above, which are callable for early redemption by the FHLB during ~~2020.~~

~~Securities sold under agreements to repurchase (repos).~~ Long-term repos had a weighted average interest rate of 3.33 percent and 1.94 percent at September 30, 2020 and December 31, 2019, respectively. Long-term repos outstanding as of September 30, 2020 have maturities in 2021.

In September 2020, Valley prepaid $50 million of long-term institutional repo borrowings with an interest rate of 3.70 percent and an original contractual maturity date in January 2022. The debt prepayment was funded by excess cash liquidity. The transaction was accounted for as an early debt extinguishment resulting in a loss, reported within non-interest expense, of $2.4 million for the ~~third quarter 2020.~~next 12 months.

Subordinated debt.On ~~June 5, 2020,~~April 1, 2021, Valley redeemed, at par value, $60 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 ~~$115.0~~$300 million of ~~5.25~~3.00 percent Fixed-to-Floating Rate subordinated notes due June 15, ~~2030~~ ~~and~~2031. The subordinated notes are callable in whole or in part on or after June 15, ~~2025~~2026 or upon the occurrence of certain events. Interest on the subordinated notes during the initial five year term through June 15, ~~2025~~2026 is payable semi-annually on June 15 and December 15. Thereafter, interest is expected to be set based on ~~Three-Month Term SOFR~~three-month Secured Overnight Financing Rate (SOFR) plus ~~514~~236 basis points and paid quarterly through maturity of the notes. At September 30, 2021, the subordinated notes had a carrying value of $296.2 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, ~~2020:~~2021:

•$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;

•$~~125~~115 million aggregate principal amount of ~~5.125~~5.25 percent subordinated notes due ~~September 27, 2023 with no call dates~~June 15, 2030 and callable in whole or ~~prepayments allowed except upon the occurrence of certain events;~~

•~~$60 million aggregate principal amount of 6.25 percent subordinated notes due April 1, 2026 that are callable~~in part on or after ~~April 1, 2021~~June 15, 2025 or ~~anytime~~ upon the occurrence of certain events.

~~See Note 11 in Valley’s Annual Report on Form 10-K for the year ended~~

Long-term securities sold under agreements to repurchase (repos). The long-term repos had a weighted average interest rate of 3.37 percent at December 31, ~~2019 for further details.~~2020. Long-term repos outstanding as of December 31, 2020 were repaid upon their respective contractual maturity dates during the third quarter 2021.

Note 11. Stock–Based Compensation

On April 19, 2021, Valley's shareholders approved the Valley ~~currently has 1 active employee stock plan, the 2016 Long-Term Stock~~National Bancorp 2021 Incentive Compensation Plan (the ~~2016 Stock~~2021 Plan)~~, adopted by Valley’s Board of Directors on January 29, 2016 and approved by its shareholders on April 28, 2016. The 2016 Stock Plan is~~ administered by the Compensation and Human Resources Committee (the Committee) as appointed by Valley's Board of Directors. The ~~Committee can grant awards to officers and key employees of Valley. The primary purpose~~purposes of the ~~2016 Stock~~2021 Plan isare to provide additional ~~incentive~~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 ~~competent~~officers, other employees and ~~dedicated officers and other key employees~~non-employee directors whose efforts will result in the continued and long-term growth of ~~Valley’s~~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 ~~2016 Stock~~2021 Plan, Valley may ~~award~~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 ~~its employees and non-employee directors (for acting in their roles as board members).~~such award, the shares will be added to the 2021 Plan's share reserve. As of September 30, ~~2020, 3.1~~2021, 7.4 million shares of common stock were available for issuance under the ~~2016 Stock~~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~~Valley's common stock on the last sale price reported for ~~Valley’s~~Valley's common stock on such date or the last sale price reported preceding such date, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third-party specialist using a Monte Carlo valuation model.

~~Restricted Stock Units (RSUs).~~

Valley granted 2630 thousand and 4226 thousand of time-based RSUs during the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and 1.2 million ~~and 868 thousand during~~for both the nine months ended September 30, ~~2020~~2021 and ~~2019, respectively.~~2020. Generally, time-based RSUs vest ratably ~~one-third each year~~ over a ~~three-year vesting~~three-year period. The average grant date fair value of the RSUs granted during the nine months ended September 30, 2021 and 2020 was $11.98 per share and ~~2019 was~~ $10.41 per share, ~~and $10.43 per share,~~ respectively.

Valley granted ~~589~~604 thousand and ~~532~~589 thousand of performance-based RSUs to certain executive officers for the nine months ended September 30, 2021 and 2020, respectively. There were no grants of performance-based RSUs during the three months ended September 30, 2021 and ~~2019,~~2020, 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, 2021 and 2020 was $11.75 per share and ~~2019 was~~ $10.82 per share, ~~and $10.43 per share,~~ respectively.

Valley recorded total stock-based compensation expense of ~~$4.1~~$5.2 million and ~~$3.2~~$4.1 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$12.3~~$15.9 million and ~~$11.5~~$12.3 million for the nine months ended September 30, 2021 and 2020, ~~and2019,~~ respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period. As of September 30, ~~2020,~~2021, the unrecognized amortization expense for all stock-based employee compensation totaled approximately ~~$21.3~~$23.9 million and will be recognized over an average remaining vesting period of ~~1.84~~approximately two 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 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 these 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.

During the nine months ended September 30, 2020, Valley entered into new interest rate swap agreements designated as cash flow hedges with a total notional amount of $1.1 billion. The swaps are intended to hedge the changes in cash flows associated with certain FHLB advances and brokered deposits. Valley is required to pay fixed-rates of interest ranging from ~~0.05 percent~~ ~~to 0.67 percent and receives variable rates of interest that reset quarterly based on three-month LIBOR. Expiration dates for the swaps range from April 2021 to August 2022.~~

~~Fair Value Hedges of Fixed Rate Assets and Liabilities~~. Valley is exposed to changes in the fair value of certain of its fixed rate assets or liabilities due to changes in benchmark interest rates based on one-month LIBOR. From time to time, Valley has used interest rate swaps to manage its exposure to changes in fair value. Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for

Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. Valley includes the gain or loss on the hedged items in the same income statement line item as the loss or gain on the related derivatives.

Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes.

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, ~~2020,~~ 2021, Valley h~~ad 23 cred~~ithad 27 credit swaps with an aggregate notional amount of ~~$181.5~~$263.9 million related to risk participation agreements.

At September 30, ~~2020,~~2021, Valley had 2 “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.

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, 2020						December 31, 2019							September 30, 2021						December 31, 2020
		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	$	0	$	4,233	$	1,175,000	$	0	$	1,484	$	180,000	Cash flow hedge interest rate swaps	$	—	$	273	$	800,000	$	—	$	179	$	1,100,000
Fair value hedge interest rate swaps	Fair value hedge interest rate swaps	0		59		7,079		0		229		7,281		Fair value hedge interest rate swaps	—		316		300,000		—		—		—
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	0	$	4,292	$	1,182,079	$	0	$	1,713	$	187,281	Total derivatives designated as hedging instruments	$	—	$	589	$	1,100,000	$	—	$	179	$	1,100,000
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:													Derivatives not designated as hedging instruments:
Interest rate swaps and embedded derivatives		$	455,404	$	182,741	$	8,306,557	$	158,382	$	42,020	$	4,113,106
Interest rate swaps and other derivatives *														Interest rate swaps and other derivatives *	$	215,046	$	64,623	$	10,296,468	$	387,008	$	154,025	$	8,889,557
Mortgage banking derivatives	Mortgage banking derivatives	161		3,016		521,418		150		193		142,760		Mortgage banking derivatives	873		1,521		327,116		444		2,077		321,486
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	455,565	$	185,757	$	8,827,975	$	158,532	$	42,213	$	4,255,866	Total derivatives not designated as hedging instruments	$	215,919	$	66,144	$	10,623,584	$	387,452	$	156,102	$	9,211,043

* Other derivatives include risk participation agreements.

The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account with the ~~fair value of certain~~ cash flow hedges and over-the-counter (OTC) non-designated derivative instruments. As a result, the fair value of the ~~designated cash flow interest rate swaps~~applicable derivative assets and ~~designated~~liabilities are reported net of variation margin at September 30, 2021 and ~~non-designated interest rate swaps liabilities were offset by variation margins posted by (with) the applicable counterparties and reported~~December 31, 2020 in the table above ~~on a net basis at September 30, 2020 and December 31, 2019~~.

Gains ~~and~~ (losses) included in the consolidated statements of income and other comprehensive income (loss), on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Amount of loss reclassified from accumulated other comprehensive loss to interest expense	Amount of loss reclassified from accumulated other comprehensive loss to interest expense	$	(1,586)	$	(453)	$	(1,763)	$	(1,126)	Amount of loss reclassified from accumulated other comprehensive loss to interest expense	$	(1,044)	$	(1,586)	$	(2,708)	$	(1,763)
Amount of gain (loss) recognized in other comprehensive income		95		108		3,158		(1,404)
Amount of (loss) gain recognized in other comprehensive income										Amount of (loss) gain recognized in other comprehensive income	(144)		95		(125)		3,158

The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were ~~$4.7~~$2.0 million and ~~$3.7~~$4.0 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 $~~3.8~~1.8 million 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,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Derivative - interest rate swaps:
Derivative - interest rate swap:										Derivative - interest rate swap:
Interest income	Interest income	$	88	$	48	$	170	$	121	Interest income	$	—	$	88	$	—	$	170

Hedged item - loans:
Interest expense										Interest expense	(396)		—		(316)		—
Hedged item - subordinated debt and loans:										Hedged item - subordinated debt and loans:
Interest income	Interest income	$	(88)	$	(48)	$	(170)	$	(121)	Interest income	$	—	$	(88)	$	—	$	(170)

Interest expense										Interest expense	405		—		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 ~~items~~item related to interest rate derivatives designated as ~~hedges of~~ fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged ~~items~~item at September 30, ~~2020 and December 31, 2019.~~2021.

Line Item in the Statement of Financial Condition in Which the Hedged Item is Included Carrying Amount of the Hedged Asset Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset
September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019
(in thousands)
Loans $ 7,138 $ 7,510 $ 59 $ 229


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)
Long-term borrowings	$	(299,678)	$	322

The net (gains) losses ~~(gains)~~ 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,
2020 2019 2020 2019
(in thousands)
Non-designated hedge interest rate swaps and credit derivatives
Other non-interest expense $ 600 $ (468) $ 2,105 $ (1,225)

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 ~~$19.2~~$8.8 million and ~~$13.9~~$19.2 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$48.1~~$22.6 million and ~~$23.4~~$48.1 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, 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, ~~2020,~~2021, Valley was in compliance with all of the provisions of its derivative counterparty

agreements. As of September 30, ~~2020,~~2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was ~~$184.1~~$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 OTC derivatives (mostly interest rate ~~swap derivatives~~swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated ~~balance sheet~~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 (i.e., the threshold for posting collateral is reduced to zero, subject to certain minimum transfer amounts).~~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, ~~2020~~2021 and December 31, ~~2019.~~2020.


								Gross Amounts Not Offset														Gross Amounts Not Offset
		Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Presented		Financial Instruments			Cash Collateral		Net Amount			Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Presented		Financial Instruments			Cash Collateral (1)		Net Amount
		(in thousands)														(in thousands)
September 30, 2020
September 30, 2021															September 30, 2021
Assets:															Assets:
Interest rate swaps															Interest rate swaps	$	215,046	$	—	$	215,046	$	—		$	—	$	215,046
Liabilities:															Liabilities:
Interest rate swaps															Interest rate swaps	$	65,212	$	—	$	65,212	$	—		$	(60,177)	$	5,035

Total															Total	$	65,212	$	—	$	65,212	$	—		$	(60,177)	$	5,035
December 31, 2020															December 31, 2020
Assets:	Assets:														Assets:
Interest rate swaps	Interest rate swaps	$	455,404	$	0	$	455,404	$	0		$	0	$	455,404	Interest rate swaps	$	150,487	$	—	$	150,487	$	—		$	—	$	150,487
Liabilities:	Liabilities:														Liabilities:
Interest rate swaps	Interest rate swaps	$	187,033	$	0	$	187,033	$	0		$	(184,050)	$	2,983	Interest rate swaps	$	150,487	$	—	$	150,487	$	—		$	(150,487)	$	—
Repurchase agreements	Repurchase agreements	300,000		0		300,000		(300,000)		*	0		0		Repurchase agreements	300,000		—		300,000		(300,000)		(2)	—		—
Total	Total	$	487,033	$	0	$	487,033	$	(300,000)		$	(184,050)	$	2,983	Total	$	450,487	$	—	$	450,487	$	(300,000)		$	(150,487)	$	—
December 31, 2019
Assets:
Interest rate swaps		$	158,382	$	0	$	158,382	$	(118)		$	0	$	158,264
Liabilities:
Interest rate swaps		$	43,733	$	0	$	43,733	$	(118)		$	(16,881)	$	26,734
Repurchase agreements		350,000		0		350,000		(350,000)		*	0		0
Total		$	393,733	$	0	$	393,733	$	(350,118)		$	(16,881)	$	26,734

*(1) Cash collateral 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). 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, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Other Assets:	Other Assets:					Other Assets:
Affordable housing tax credit investments, net	Affordable housing tax credit investments, net	$	21,647	$	25,049	Affordable housing tax credit investments, net	$	17,231	$	20,074
Other tax credit investments, net	Other tax credit investments, net	49,907		59,081		Other tax credit investments, net	46,880		47,301
Total tax credit investments, net	Total tax credit investments, net	$	71,554	$	84,130	Total tax credit investments, net	$	64,111	$	67,375
Other Liabilities:	Other Liabilities:					Other Liabilities:
Unfunded affordable housing tax credit commitments	Unfunded affordable housing tax credit commitments	$	1,397	$	1,539	Unfunded affordable housing tax credit commitments	$	1,379	$	1,379
Unfunded other tax credit commitments		1,139		1,139

Total unfunded tax credit commitments	Total unfunded tax credit commitments	$	2,536	$	2,678	Total unfunded tax credit commitments	$	1,379	$	1,379

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, ~~2020~~2021 and ~~2019:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(in thousands)
Components of Income Tax Expense:
Affordable housing tax credits and other tax benefits $ 1,352 $ 1,666 $ 3,979 $ 5,087
Other tax credit investment credits and tax benefits 1,727 1,902 5,567 6,863
Total reduction in income tax expense $ 3,079 $ 3,568 $ 9,546 $ 11,950
Amortization of Tax Credit Investments:
Affordable housing tax credit investment losses $ 642 $ 530 $ 1,733 $ 1,796
Affordable housing tax credit investment impairment losses 585 857 1,668 2,381
Other tax credit investment losses 12 1,093 1,235 4,589
Other tax credit investment impairment losses 1,520 1,905 4,767 7,655
Total amortization of tax credit investments recorded in non-interest expense $ 2,759 $ 4,385 $ 9,403 $ 16,421
2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Components of Income Tax Expense:
Affordable housing tax credits and other tax benefits	$	948	$	1,352	$	2,744	$	3,979
Other tax credit investment credits and tax benefits	2,702		1,727		8,130		5,567
Total reduction in income tax expense	$	3,650	$	3,079	$	10,874	$	9,546
Amortization of Tax Credit Investments:
Affordable housing tax credit investment losses	$	681	$	642	$	1,684	$	1,733
Affordable housing tax credit investment impairment losses	387		585		1,159		1,668
Other tax credit investment losses	256		12		780		1,235
Other tax credit investment impairment losses	1,755		1,520		5,172		4,767
Total amortization of tax credit investments recorded in non-interest expense	$	3,079	$	2,759	$	8,795	$	9,403

Note 15. Business Segments

Valley has 4 business segments that it monitors and reports on to manage Valley’s business operations. These segments are consumer lending, commercial lending, investment management, and corporate and other adjustments. Valley’s reportable segments have been determined based upon its internal structure of operations and lines of business. Each business 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 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 following tables represent the financial data for Valley’s 4 business segments for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		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			Investment Management			Corporate and Other Adjustments		Total
		($ in thousands)															($ in thousands)
Average interest earning assets	Average interest earning assets	$	7,126,157		$	25,389,107		$	5,252,446		$	0	$	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		$	19,766		$	(718)	$	328,801
Interest expense	Interest expense	9,048			33,330			6,728			5,151		54,257			Interest expense	4,032			13,795			3,228			6,720		27,775
Net interest income (loss)	Net interest income (loss)	54,908			218,590			15,785			(6,197)		283,086			Net interest income (loss)	54,855			237,071			16,538			(7,438)		301,026
Provision for credit losses		5,383			25,637			(112)			0		30,908
Provision (credit) for credit losses																Provision (credit) for credit losses	(4,614)			8,110			35			—		3,531
Net interest income (loss) after provision for credit losses	Net interest income (loss) after provision for credit losses	49,525			192,953			15,897			(6,197)		252,178			Net interest income (loss) after provision for credit losses	59,469			228,961			16,503			(7,438)		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			2,018			16,957		42,431
Non-interest expense	Non-interest expense	19,877			25,633			(186)			114,861		160,185			Non-interest expense	13,520			27,504			(150)			134,048		174,922
Internal expense transfer		18,614			66,390			13,713			(98,717)		0
Internal transfer expense (income)																Internal transfer expense (income)	20,662			71,141			15,825			(107,628)		—
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		$	2,846		$	(16,901)	$	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		%	0.20		%	N/A		1.72		%


	Three Months Ended September 30, 2020
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,126,157		$	25,389,107		$	5,252,446		$	—	$	37,767,710

Interest income	$	63,956		$	251,920		$	22,513		$	(1,046)	$	337,343
Interest expense	9,048			33,330			6,728			5,151		54,257
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
Non-interest income	23,531			20,421			(1,304)			6,624		49,272
Non-interest expense	19,877			25,633			(186)			114,861		160,185
Internal transfer expense (income)	18,614			66,390			13,713			(98,717)		—
Income (loss) before income taxes	$	34,565		$	121,351		$	1,066		$	(15,717)	$	141,265
Return on average interest earning assets (pre-tax)	1.94		%	1.91		%	0.08		%	N/A		1.50		%

4945


		Three Months Ended September 30, 2019															Nine Months Ended September 30, 2021
		Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total				Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
		($ in thousands)															($ in thousands)
Average interest earning assets	Average interest earning assets	$	6,858,216		$	19,278,529		$	4,357,824		$	0	$	30,494,569		Average interest earning assets	$	7,176,086		$	25,465,276		$	5,261,185		$	—	$	37,902,547

Interest income	Interest income	$	68,253		$	230,183		$	31,999		$	(1,174)	$	329,261		Interest income	$	179,151		$	759,097		$	58,514		$	(2,515)	$	994,247
Interest expense	Interest expense	23,552			66,209			14,965			3,910		108,636			Interest expense	15,639			55,497			11,466			17,045		99,647
Net interest income (loss)	Net interest income (loss)	44,701			163,974			17,034			(5,084)		220,625			Net interest income (loss)	163,512			703,600			47,048			(19,560)		894,600
Provision for credit losses		2,003			6,697			0			0		8,700
(Credit) provision for credit losses																(Credit) provision for credit losses	(6,538)			27,825			(353)			—		20,934
Net interest income (loss) after provision for credit losses	Net interest income (loss) after provision for credit losses	42,698			157,277			17,034			(5,084)		211,925			Net interest income (loss) after provision for credit losses	170,050			675,775			47,401			(19,560)		873,666
Non-interest income	Non-interest income	15,108			15,057			2,687			8,298		41,150			Non-interest income	47,445			29,144			6,824			33,377		116,790
Non-interest expense	Non-interest expense	19,748			25,161			381			100,587		145,877			Non-interest expense	53,161			80,276			1,370			372,221		507,028
Internal expense transfer		19,758			55,544			12,559			(87,861)		0
Internal transfer expense (income)																Internal transfer expense (income)	60,026			212,931			43,706			(316,663)		—
Income (loss) before income taxes	Income (loss) before income taxes	$	18,300		$	91,629		$	6,781		$	(9,512)	$	107,198		Income (loss) before income taxes	$	104,308		$	411,712		$	9,149		$	(41,741)	$	483,428
Return on average interest earning assets (pre-tax)	Return on average interest earning assets (pre-tax)	1.07		%	1.90		%	0.62		%	N/A		1.41		%	Return on average interest earning assets (pre-tax)	1.94		%	2.16		%	0.23		%	N/A		1.70		%


		Nine Months Ended September 30, 2020															Nine Months Ended September 30, 2020
		Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total				Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
		($ in thousands)															($ in thousands)
Average interest earning assets	Average interest earning assets	$	7,187,839		$	24,334,429		$	5,221,538		$	0	$	36,743,806		Average interest earning assets	$	7,187,839		$	24,334,429		$	5,221,538		$	—	$	36,743,806

Interest income	Interest income	$	199,018		$	771,947		$	81,905		$	(3,209)	$	1,049,661		Interest income	$	199,018		$	771,947		$	81,905		$	(3,209)	$	1,049,661
Interest expense	Interest expense	40,217			136,156			29,216			13,088		218,677			Interest expense	40,217			136,156			29,216			13,088		218,677
Net interest income (loss)	Net interest income (loss)	158,801			635,791			52,689			(16,297)		830,984			Net interest income (loss)	158,801			635,791			52,689			(16,297)		830,984
Provision for credit losses	Provision for credit losses	15,274			90,785			688			0		106,747			Provision for credit losses	15,274			90,785			688			—		106,747
Net interest income (loss) after provision for credit losses	Net interest income (loss) after provision for credit losses	143,527			545,006			52,001			(16,297)		724,237			Net interest income (loss) after provision for credit losses	143,527			545,006			52,001			(16,297)		724,237
Non-interest income	Non-interest income	55,383			52,192			7,661			20,263		135,499			Non-interest income	55,383			52,192			7,661			20,263		135,499
Non-interest expense	Non-interest expense	60,188			73,041			843			338,935		473,007			Non-interest expense	60,188			73,041			843			338,935		473,007
Internal expense transfer		58,355			197,444			42,393			(298,192)		0
Internal transfer expense (income)																Internal transfer expense (income)	58,355			197,444			42,393			(298,192)		—
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	$	80,367		$	326,713		$	16,426		$	(36,777)	$	386,729
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)	1.49		%	1.79		%	0.42		%	N/A		1.40		%

Nine Months Ended September 30, 2019
Consumer
Lending Commercial
Lending Investment
Management Corporate
and Other
Adjustments Total
($ in thousands)
Average interest earning assets $ 6,812,001 $ 18,839,194 $ 4,330,504 $ 0 $ 29,981,699
Interest income $ 203,897 $ 679,833 $ 97,189 $ (3,692) $ 977,227
Interest expense 69,504 192,221 44,185 11,810 317,720
Net interest income (loss) 134,393 487,612 53,004 (15,502) 659,507
Provision for credit losses 4,986 13,814 0 0 18,800
Net interest income (loss) after provision for credit losses 129,407 473,798 53,004 (15,502) 640,707
Non-interest income 41,927 29,527 7,365 97,607 176,426
Non-interest expense 56,845 76,729 684 301,151 435,409
Internal expense transfer 58,476 161,803 37,245 (257,524) 0
Income (loss) before income taxes $ 56,013 $ 264,793 $ 22,440 $ 38,478 $ 381,724
Return on average interest earning assets (pre-tax) 1.10 % 1.87 % 0.69 % N/A 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, 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. These statements may be identified by such forward-looking terminology as “should,” “expect,” “believe,” “view,” “will,” “opportunity,” “allow,” “continues,” “would,” “could,” “typically,” “usually,” “anticipate,” "may," "estimate," or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our 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 acquisitions in amounts or in the timeframe anticipated;

•costs or difficulties relating to Westchester and Bank Leumi integration matters might be greater than expected;

•the inability to retain customers and qualified employees of the Westchester and Bank Leumi;

•changes in estimates of non-recurring charges related to Westchester and Bank Leumi acquisitions;

•the continued impact of COVID-19 on the U.S. and global economies, including business disruptions, reductions in employment 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 of COVID-19 may arise in our primary markets;

•potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic or as a result of our actions in response to, or failure to implement or effectively implement, federal, state and local laws, rules or executive orders requiring that we grant forbearances or not act to collect our loans;

•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 and Alabama, 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; and~~

•~~the failure of other financial institutions with whom we have trading, clearing, counterparty and other financial relationships.~~

factors.

A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and Part II, Item 1A of this ~~report.~~Quarterly Report.

Critical Accounting Policies and Estimates

WeValley’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. At September 30, 2021, 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.

~~Determining~~ Management has reviewed the ~~allowance for loan losses has historically been identified as a~~application of these policies with the Audit Committee of Valley’s Board of Directors. Our critical accounting estimate. On January 1, 2020, we adopted new accounting guidance which requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans, unfunded credit commitments and held to maturity debt securities measured at amortized cost. Previously, an allowance for credit losses on loans was recognized based on probable incurred losses. See Notes 5, 7 and 8 to the consolidated financial statements for further discussion of our accounting policies ~~and methodologies for establishing the allowance for credit losses.~~

~~The accounting estimates relating to the allowance for credit losses remains a "critical accounting estimate" for the following reasons:~~

•~~Changes in the provision for credit losses can materially affect our financial results;~~

•Estimates relating to the allowance for credit losses require us to project future borrower performance, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate probability of default and loss given default;

•The allowance for credit losses is influenced by factors outside of our control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions such as trends in housing prices, interest rates, gross domestic product (GDP), inflation, energy prices and unemployment; and

•Judgment is required to determine whether the models used to generate the allowance for credit losses produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses.

Our estimation process is subject to risks and uncertainties, including a reliance on historical loss and trend information that may not be representative of current conditions and indicative of future performance. Changes in such estimates could significantly impact our allowance and provision for credit losses. Accordingly, our actual credit loss experience may not be in line with our expectations.

As discussed further in the "Allowance for Credit Losses" section in this MD&A, we incorporated a multi-scenario economic forecast for estimating lifetime expected credit losses at September 30, 2020. As a result of the deterioration in economic conditions caused by the COVID-19 pandemic during the nine months ended September 30, 2020 and the related increase in economic uncertainty, we increased our probability weighting for the most severe economic scenario as compared to those at January 1, 2020. As a result, approximately 32 percent of the provision of credit losses for loans totaling $106.1 million for the nine months ended September 30, 2020 reflected the impact of the adverse economic forecast within Valley's lifetime expected credit loss estimate.

~~Details regarding our critical accounting policies for goodwill and other intangible assets, and income taxes~~ are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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, ~~2020,~~2021, Valley had consolidated total assets of approximately ~~$40.7~~$41.3 billion, total net loans of ~~$32.1~~$32.3 billion, total deposits of ~~$31.2~~$33.6 billion and total shareholders’ equity of ~~$4.5~~$4.8 billion. Our commercial bank operations include branch office locations in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn, Queens, and Long Island, Florida and ~~Alabama.~~Alabama. Of our current ~~236~~226 branch network, 5958 percent, 1617 percent, 18 percent and 7 percent of the branches are in New Jersey, New York, Florida and Alabama, respectively. Despite targeted branch consolidation activity, wewe have significantly grown both in asset size and locations over the past several years primarily through bank ~~acquisitions, including our~~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 which 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 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. The acquisition ~~of Oritani Financial Corp. (Oritani)~~is anticipated to close on December 1, ~~2019. See Note 2~~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). 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. Bank Leumi has its headquarters in New York City and also operates commercial banking offices 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 close in the ~~consolidated financial statements for more information regarding~~first half of 2022, 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 in the ~~Oritani acquisition.~~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 payments based upon revenue growth of the acquired entities over a five-year period. The acquisition of Dudley Ventures is expected to support our efforts to build differentiated sources of non-interest income.

Impact of COVID-19. ~~The outbreak of the disease caused by the novel coronavirus (COVID-19)~~Economic activity and the resulting pandemic have greatly disrupted consumer, business and government activity during the nine months ended September 30, 2020, including within the markets we serve. While the overall level of economic activity improvedbusinesses continued to rebound in the third quarter ~~2020 following~~2021. However, the ~~steep economic downturn in second quarter 2020, certain industries~~U.S. is experiencing significant global supply chain disruptions and ~~businesses~~labor shortages which have also increased inflation. We continue to ~~be adversely impacted with a significant loss~~monitor the impact of ~~their normal revenue streams~~COVID-19 closely, including its impact on our employees, customers, communities and ~~continue~~results of operations and other government stimulus or Federal Reserve actions. The extent to experience business interruptions. Our outlook since the end of the second quarter indicates continued macroeconomic deterioration with higher levels of credit stress related to borrowers impacted by COVID-19 and lower valuations of collateral securing our non-performing taxi medallion loan portfolio. Uncertainties and disruptions resulting fromwhich the COVID-19 pandemic ~~have slowed~~will impact our ~~traditional new commercial loan volumes~~operations and financial results during the ~~loan balances for residential~~fourth quarter 2021 and many consumer loan products have seen moderate declines in the third quarter 2020, including the impact of a higher level of residential mortgage loans originated for sale due to our current interest rate risk management strategies. Any sustained economic downturn due to COVID-19 and other factors, or other long-term changes in consumer and business behaviors from COVID-19 may adversely impact the value of assets that serve as collateral for our loans.

~~The Paycheck ProtectionProgram (PPP) provided for in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as supplemented by the Paycheck Protection Program and~~Health Care Enhancement Act (Enhancement Act), was designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee 8 to 24 weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. Valley National Bankbeyond is a certified Small Business Administration (SBA) lender and facilitated approximately 13,000 SBA-approved PPP loans totaling $2.3 billion through the close of the program on August 8, 2020. While difficult to accurately predict, we expect the majority of these loans to be forgiven in accordance with rules, application and documentation requirements for this program.

We have reopened all bank branches in our network that were either temporarily closed or had reduced lobby services due to COVID-19, however we continue to act with an abundance of caution in order to safeguard the health and wellness of our customers and employees and may limit capacity in our branch locations and/or require scheduled appointments.highly uncertain. We continue to closely monitor local conditions in the areas we serve and will take actions as circumstances warrant ~~which may necessitate certain branch or other office closures~~ and ~~reduced lobby services. Our business continuity plan continues~~will follow proper protocols designed to ~~remain in effect with many~~ensure safety of our ~~non-customer facing~~ employees ~~continuing~~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 ~~work remotely as~~receive loan forgiveness by the SBA under this program. Valley extended a total of $3.2 billion PPP loans under the program, of which $2.3 billion of these loans have received forgiveness from the SBA, including $476.7 million during the third quarter 2021. As of September 30, 2021, we ~~monitor the level~~had $874.0 million of ~~the health crisis in our primary markets.~~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. ~~Generally, the modification terms allow for a deferral of payments for up to 90 days, which Valley may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis.~~ As of September 30, ~~2020, Valley~~2021, Valley had ~~approximately 1,400~~ $98.6 million of outstanding loans ~~with total unpaid principal balances of $1.1 billion~~ remaining in their payment deferral period under short-term ~~modification. The $1.1 billion of loans in deferral represented~~modifications representing approximately ~~3.3~~0.3 percent of our total loan portfolio at September 30, ~~2020, decreasing from approximately $2.7 billion,~~2021 as compared to $361 million, or ~~8.4~~1.1 percent of total loans ~~near the start of the third quarter~~at December 31, 2020.

Significant uncertainties as to future economic conditions exist with significant economic stress on our customers. The severe adverse economic pressures, coupled with the implementation of an expected loss methodology for determining our provision for credit losses as required by CECL, have contributed to a sharply increased provision for credit losses for the nine months ended September 30, 2020, following our initial adoption of CECL on January 1, 2020. We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act, Enhancement Act and other government stimulus or Federal Reserve actions. However, the extent to which the COVID-19 pandemic will impact our operations and financial results during the fourth quarter 2020 and during 2021 is highly uncertain. See the "Operating Environment" section and our risk factors under Part II, Item 1A below for more details.

~~Branch Transformation.~~ As previously disclosed, Valley has embarked on a strategy to overhaul its retail network. Over one year ago, we established the foundation of what the transformation of our branch network would look like in coming years. At that time, we identified 74 branches that did not meet certain internal performance measures, including 20 branches that were closed and consolidated by the end of the first quarter 2019. For the remaining 54 branches, we implemented tailored action plans focused on improving profitability and deposit levels, as well as upgrades in staffing and training, within a defined timeline. During the first quarter 2020, we permanently closed an additional 9 branches located in New Jersey, including the consolidation of 6 acquired Oritani branches into nearby legacy Valley branches. We currently plan to permanently close 7 New Jersey branches and 2 Florida branches during fourth quarter 2020, and one additional New Jersey branch in first quarter 2021. For the remaining branch network, we continue to monitor the operating performance of each branch and implement tailored action plans focused on improving profitability and deposit levels for those branches that underperform.

Quarterly Results. Net income for the third quarter ~~2020~~2021 was $122.6 million, or $0.29 per diluted common share, compared to $102.4 million, or $0.25 per diluted common share, ~~compared to $81.9 million, or $0.24 per diluted common share,~~ for the third quarter ~~2019.~~2020. The ~~$20.5~~$20.2 million increase in quarterly net income as compared to the same quarter one year ago was largely due to: ~~(i)~~

•a ~~$62.5~~$17.9 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 costs driven by ~~organic~~normal maturities of FHLB

advances and ~~Oritani acquired loan growth over the last 12 months combined with~~long-term repos, as well as our ~~ability to significantly reduce our deposit~~prepayments of $534 million and ~~other funding costs~~$248 million of long-term FHLB borrowings in ~~the current low interest rate environment, (ii)~~ December 2020 and June 2021, respectively; and

•a ~~$8.1~~$27.4 million increase in non-interest income mainly caused by strong commercial loan customer swap fees and additional gains on the sales of residential mortgage loans, partially offset by (iii) a $22.2 million increasedecrease in our provision for credit losses mainly due to the ~~adoption of CECL and the impact~~improved economic forecast component of the ~~COVID-19 pandemic~~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 ~~the model results, (iv)~~ 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 ~~$14.3~~$14.7 million increase in non-interest expense primarily due to higher salary and employee benefits expenses, and increased professional and legal fees, including an accrual of $2.1 million for general litigation reserves, partially offset by a $2.4 million decrease in the ~~Oritani acquisition, higher cash incentive accruals, increased technology consulting expense, certain additional expenses due~~loss on the early extinguishment as compared to ~~COVID-19, and~~ the ~~charge incurred in~~ third quarter ~~2020 on~~ 2020; and

•a ~~debt extinguishment, and (v) a $13.6~~$3.5 million increase in income tax ~~expense.~~ expense mainly due to higher income before income taxes.

See the “Net Interest Income”, “Non-Interest Income”, “Non-Interest Expense”, and “Income Taxes” sections below for more details on the items above impacting our third quarter ~~2020 results, as well as other items discussed elsewhere in this MD&A, for more details on the impact of the items above on our third quarter 2020~~2021 results.

Operating Environment.During the third quarter ~~2020,~~2021, real ~~GDP increased over 33~~gross domestic product expanded 0.5 percent, ~~with lower rates of COVID-19 transmission~~compared to 6.7 percent growth in the second quarter 2021. The deceleration in growth was driven by personal consumption and ~~a gradual resumption of many personal,~~ business fixed investment as inflation remained elevated, partly offset by inventory restocking and government ~~activities following the steep decline in GDP during the second quarter.~~ spending.

The ~~unemployment rate also improved~~Federal Reserve continued to ~~7.9 percent~~maintain an accommodative stance on monetary policy to keep interest rates low and promote liquidity. At their meeting in September ~~2020 as compared~~2021, the Federal Open Market Committee (the "Committee") maintained the target range for the federal funds rate between 0.00 and 0.25 percent. Additionally, the Committee decided to ~~11.1 percent in June 2020. Government policy measures,~~maintain several programs, including ~~the CARES Act improved~~purchasing U.S. Treasury and mortgage backed securities to support the flow of credit to households and businesses ~~with~~in order to promote its maximum employment ~~increasing sharply~~ and ~~prices for goods and services stabilized. In addition,~~price stability goals. Notwithstanding this, the ~~Federal Reserve maintained its low target range for~~Committee indicated that a moderation in the ~~federal funds rate which was reduced earlier this year and began purchasing Treasury securities, as well as agency issued mortgage-backed securities.~~ pace of asset purchases may soon be warranted.

The ~~federal funds rate target rate remains between zero and 0.25 percent and the~~ 10-year U.S. Treasury note yield ended the third quarter at ~~0.69~~1.52 percent, ~~which was 99~~7 basis points ~~lower~~higher, as compared with ~~September~~June 30, ~~2019.~~2021. The spread between the 2- and 10-year U.S. Treasury note yields ended the third quarter 2021 at 1.24 percent, 4 basis points higher, as compared to the end of the second quarter 2021 and 68 basis points higher, as compared to June 30, 2020.

~~The current economic environment is expected~~For all commercial banks in the U.S., loans and leases increased approximately 0.9 percent in the third quarter 2021, as compared to ~~mute~~the previous quarter. For 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 stronger loan growth. In the third quarter 2021, Valley continued to see strong organic growth demand for commercial real estate loans and several other loan types across its geographic footprint. Inflation has been elevated, which could 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 ~~overall growth~~business operations as highlighted throughout the remaining MD&A discussion below.

Loans. Total loans increased $149.4 million to $32.6 billion at September 30, 2021 from June 30, 2021 in spite of ~~our~~a $476.7 million decrease in PPP loans within the commercial and industrial loan category. Our non-PPP loan portfolio ~~however, the strength~~increased $626.0 million, or 8.0 percent on an annualized basis, to $31.7 billion at September 30, 2021 from $31.1 billion at June 30, 2021. The increase in non-PPP loans was largely driven by increases of ~~our loan origination pipeline has remained fairly resilient~~$399.9 million, $51.7 million and $105.4 million in the ~~early stages of the fourth quarter 2020. The low market interest rates for new loans will continue to put pressure on our loan yields~~commercial real estate, construction and ~~net margin, as well as influence our decision to originate most~~ residential mortgage ~~loans for sale versus portfolio investment. The COVID-19 pandemic~~categories, respectively. Additionally, our third quarter 2021 new and ~~its recent resurgences across the U.S. are expected to impact the level of economic~~refinanced loan originations included

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activity, employment and household and business confidence in the fourth quarter 2020 and beyond. A prolonged COVID-19 pandemic and economic recovery are likely to weigh on the Bank’s financial results, as highlighted in the remaining MD&A discussion below.

~~Loans~~. ~~Loans increased $101.0~~approximately $233 million to approximately $32.4 billion at September 30, 2020 from June 30, 2020 largely due to controlled growth in our commercial real estate loan portfolio and a $63 million increase in SBA PPP loans classified as commercial and industrial loans during the third quarter. Commercial real estate loans increased $243.7 million, or 5.9 percent on an annualized basis, to $16.8 billion at September 30, 2020 as compared to June 30, 2020 mainly due to our solid loan commitment pipeline at June 30, 2020 and slower repayment activity in the third quarter. The residential mortgage and most consumer loan categories experienced moderate declines in the third quarter due to the impact of COVID-19, including a higher level of residential mortgage loans originated for ~~sale due to current interest rate risk management strategies. During~~sale. Net gains on sales of residential loans were $6.4 million and $10.1 million in the third quarter ~~2020, we originated $385.6 million of residential mortgage loans for sale rather than held for investment~~2021 and ~~sold approximately $301.2 million of these loans. Residential mortgage loans held for sale at fair value totaled $209.3 million and $120.6 million at September 30, 2020 and June 30, 2020,~~second quarter 2021, respectively. See further details on our loan activities under the “Loan Portfolio” section below.

Asset Quality. Total non-performing assets (NPAs), consisting of non-accrual loans, other real estate owned (OREO), and other repossessed assets ~~and non-accrual debt security decreased $20.5~~increased $31.1 million to ~~$203.6~~$257.7 million at September 30, ~~2020~~2021 as compared to June 30, ~~2020.~~2021. Non-accrual loans ~~decreased $19.5~~increased $31.8 million to ~~$191.1~~$251.8 million at September 30, ~~2020~~2021 as compared to June 30, ~~2020~~2021 mainly due to ~~charge-offs within~~ the $33.1 million increase in non-accrual commercial ~~and industrial~~real estate loans from three loan ~~category, including charge-offs from our taxi medallion loan portfolio caused by a decline in collateral valuations at~~relationships which have $3.7 million of related allowance reserves as of September 30, ~~2020.~~2021. Non-accrual loans represented ~~0.59~~0.77 percent of total loans at September 30, ~~2020,~~2021, as compared to ~~0.65~~0.68 percent at June 30, ~~2020.~~2021.

Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) decreased ~~$9.2~~$25.0 million to ~~$83.9~~$55.2 million, or ~~0.26~~0.17 percent of total loans, at September 30, ~~2020~~2021 as compared to ~~$93.1~~$80.2 million, or ~~0.29~~0.25 percent of total loans, at June 30, ~~2020 mainly due to declines in residential mortgage and consumer loans in all delinquency categories. This~~2021. The decrease was ~~largely due to improved customer performance, including CARES Act qualifying forbearance loans that resumed their scheduled monthly payments during~~driven by the ~~third quarter 2020. Commercial~~transition of the aforementioned three commercial real estate ~~loans~~loan delinquencies from accruing past due 30loans to ~~59 days increased $12.1 million as compared to June 30, 2020 mainly due to three~~non-accrual loan ~~relationships included in this delinquency category at September 30, 2020.~~ status.

See further details in the "Non-performing Assets" section below.

Deposits and Other Borrowings. ~~Average~~Overall, average deposits increased by $876.6 million to $33.6 billion for the third quarter 2021 as compared to the second quarter 2021 due to continued growth in both commercial and retail customer balances. Average non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 2832 percent, 4656 percent and 2612 percent of total deposits as of September 30, ~~2020,~~2021, respectively. ~~Overall,~~Our mix of average deposits ~~increased by $552.7 million to $31.4 billion~~ for the third quarter ~~2020~~2021 also continued to shift away from time deposits into the non-maturity deposit categories as compared to the second quarter ~~2020. Our mix of the deposit categories of total average deposits for the third quarter 2020~~2021, as ~~compared~~some funding from maturing retail CDs migrate to the ~~second quarter 2020 experienced a partial migration from time deposits to non-interest bearing~~more liquid deposit products and ~~lower-cost transaction account types.~~normal growth in such categories.

Actual ending balances for deposits ~~decreased $240.0~~increased $437.8 million to approximately ~~$31.2~~$33.6 billion at September 30, ~~2020~~2021 from June 30, ~~2020~~2021 largely due to ~~decreases~~increases of ~~$735.2~~$524.8 million and ~~$232.9~~$260.3 million in ~~time deposits~~the non-maturity interest bearing deposit and non-interest bearing ~~deposits,~~deposit categories, respectively, ~~which were mostly~~partially offset by ~~an increase~~a $347.3 million decrease in time deposits. The decrease of ~~$728.1~~$347.3 million ~~in the money market, now and savings account category. The decrease~~ in time deposits was driven by normal run-off of maturing ~~high cost~~ retail CDs ~~and partial~~with the aforementioned migration of some retail balances to more liquid, lower cost deposit product ~~categories, while the decline in non-interest bearing balances was partially caused by normal period end fluctuations and lower deposit balances with PPP loan customers.~~categories. Total brokered deposits ~~(consisting of both time and~~(within money market deposit accounts) ~~were $3.3~~decreased approximately $315 million to $1.7 billion at September 30, ~~2020~~2021 as compared to ~~$3.6~~$2.0 billion at June 30, ~~2020.~~2021, as our funding profile has benefited from the surge in commercial and retail 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. While we believe the current operating environment will likely continue to be favorable for Valley’s deposit gathering initiatives, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at September 30, 2020. Additionally, the vast majority of the PPP loan customers that are Valley depositors are expected to continue to use PPP funds for qualifying payroll and other costs over an 8 to 24 week total period to obtain loan forgiveness. The resulting outflow of funds for such expenditures may contribute to lower levels of deposit balances in the fourth quarter 2020.

2021.

Average short-term borrowings decreased ~~$784.7~~$13.5 million to ~~$1.5 billion~~$860.5 million for the third quarter ~~2020~~2021 as compared to the second quarter ~~2020~~2021 due to ~~a decline in overnight borrowings, comprised mainly of federal funds purchased, and corresponding reductions in our~~normal debt maturities funded with excess ~~liquidity levels which were prudently elevated by management in the first half of 2020 due to the COVID-19 pandemic.~~cash liquidity. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) ~~increased~~decreased by ~~$73.7~~$605.0 million to ~~$3.0~~$1.6 billion for the third quarter ~~2020~~2021 as compared to the second quarter ~~2020 mainly~~2021 largely due to combination of (i) the ~~$115~~$248 million of FHLB advances which were prepaid in late June 2021, (ii) repayments upon maturities of FHLB advances and (iii) $300 million of long-term repurchase agreements which matured during the third quarter 2021, with these decreases partially offset by (iv) the $300 million subordinated ~~note issuance~~notes issued in ~~June 2020,~~late May 2021 which ~~was~~were outstanding for the ~~entire~~full quarter in third ~~quarter.~~quarter 2021.

Actual ending balances for short-term borrowings decreased by ~~$652.2~~$71.0 million to $783.3 million at September 30, 2021 as compared to June 30, 2021 largely due to repayments of FHLB advances. Long-term borrowings decreased by $458.2 million to $1.4 billion at September 30, ~~2020 from the second quarter 2020 due to the decline in overnight borrowings. Long-term borrowings decreased by $55.0 million to $2.9 billion at September 30, 2020~~2021 as compared to June 30, ~~2020~~2021 mainly due to the ~~prepayment~~maturity of ~~a $50~~$300 million ~~institutional repo borrowing~~of long-term repurchase agreements and $158 million of FHLB advances which were repaid with ~~a stated interest rate of 3.7 percent. The prepayment resulted in a $2.4 million prepayment penalty charge recognized in non-interest expense~~excess liquidity during the third quarter ~~2020.~~2021. See Note 10 to the consolidated financial statements for additional information.

Selected Performance Indicators. The following table presents our annualized performance ratios for the periods indicated:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Return on average assets	Return on average assets	0.99	%	0.98	%	0.94	%	1.10	%	Return on average assets	1.18	%	0.99	%	1.16	%	0.94	%
Return on average assets, as adjusted	Return on average assets, as adjusted	1.01		1.00		0.95		0.96		Return on average assets, as adjusted	1.20		1.01		1.19		0.95

Return on average shareholders’ equity	Return on average shareholders’ equity	9.04		9.26		8.50		10.44		Return on average shareholders’ equity	10.23		9.04		10.14		8.50
Return on average shareholders’ equity, as adjusted	Return on average shareholders’ equity, as adjusted	9.20		9.40		8.59		9.10		Return on average shareholders’ equity, as adjusted	10.41		9.20		10.37		8.59

Return on average tangible shareholders’ equity (ROATE)	Return on average tangible shareholders’ equity (ROATE)	13.30		13.75		12.61		15.65		Return on average tangible shareholders’ equity (ROATE)	14.64		13.30		14.63		12.61
ROATE, as adjusted	ROATE, as adjusted	13.53		13.96		12.75		13.65		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 in the table above are non-GAAP measures. Management believes these measures provide information useful to management and investors in understanding our underlying operational performance, business and performance trends, and the measures facilitate comparisons of our prior performance 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. The non-GAAP measure reconciliations are presented below.

Adjusted net income is computed as follows:

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(in thousands)
Net income, as reported $ 102,374 $ 81,891 $ 285,243 $ 271,689
Add: Loss on extinguishment of debt (net of tax) 1,691 — 1,691 —
Add: Net impairment losses on securities (net of tax) — — — 2,078
Add: Losses on securities transactions (net of tax) 33 67 91 82
Add: Severance expense (net of tax) (1)
— — — 3,433
Add: Tax credit investment impairment (net of tax) (2)
— — — 1,757
Add: Merger related expenses (net of tax) (3)
76 1,043 1,275 1,068
Add: Income tax expense (4)
— 133 — 12,456
Less: Gain on sale-leaseback transaction (net of tax) (5)
— — — (55,707)
Net income, as adjusted $ 104,174 $ 83,134 $ 288,300 $ 236,856


	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

~~(1)~~(a) ~~Severance expense is included~~Included in ~~salary and employee benefits expense.~~gains on securities transactions, net.

~~(2)~~(b) ~~Impairment is included~~Included in ~~the amortization of tax credit investments.~~

~~(3)~~ ~~Merger related expenses are primarily within salary and employee benefits expense,~~ professional and legal ~~fees, and other non-interest expenses.~~fees.

~~(4)Income tax expense related to reserves for uncertain tax positions.~~

~~(5)~~ ~~The gain on sale leaseback transactions is included in net gains on the sales of assets within other non-interest income.~~

~~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,
2020 2019 2020 2019
($ in thousands)
Net income, as adjusted $ 104,174 $ 83,134 $ 288,300 $ 236,856
Average assets $ 41,356,737 $ 33,419,137 $ 40,304,956 $ 32,811,565
Annualized return on average assets, as adjusted 1.01 % 1.00 % 0.95 % 0.96 %

~~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,
2020 2019 2020 2019
($ in thousands)
Net income, as adjusted $ 104,174 $ 83,134 $ 288,300 $ 236,856
Average shareholders' equity $ 4,530,671 $ 3,536,528 $ 4,472,447 $ 3,471,432
Annualized return on average shareholders' equity, as adjusted 9.20 % 9.40 % 8.59 % 9.10 %

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,
2020 2019 2020 2019
($ in thousands)
Net income $ 102,374 $ 81,891 $ 285,243 $ 271,689
Net income, as adjusted $ 104,174 $ 83,134 $ 288,300 $ 236,856
Average shareholders’ equity $ 4,530,671 $ 3,536,528 $ 4,472,447 $ 3,471,432
Less: Average goodwill and other intangible assets 1,451,889 1,154,462 1,456,536 1,157,203
Average tangible shareholders’ equity $ 3,078,782 $ 2,382,066 $ 3,015,911 $ 2,314,229
Annualized ROATE 13.30 % 13.75 % 12.61 % 15.65 %
Annualized ROATE, as adjusted 13.53 % 13.96 % 12.75 % 13.65 %

In addition to the items used to calculate net income, as adjusted, in the ~~tables~~table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans 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, ~~bulk~~ loan portfolio sales 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		%

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,
	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		%

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.

Net interest income on a tax equivalent basis totaling ~~$284.1~~$301.7 million for the third quarter ~~2020 increased $62.4 million as compared to the third quarter 2019 and increased $579~~2021 decreased $43 thousand as compared to the second quarter ~~2020. Our~~2021 and increased $17.6 million from the third quarter 2020 net interest income results benefited from the prudent management of the level of interest rates offered on our deposits products, as well as a shift in customer preference towards deposits without stated maturities.2020. Interest expense of ~~$54.3~~$27.8 million for the third quarter ~~2020~~2021 decreased ~~$11.7~~$5.0 million as compared to the second quarter ~~2020 largely due~~2021 as we continue to ~~the maturity~~reduce our cost of funding from both deposits and ~~run-off~~our repayment of ~~higher cost time deposits, reduced interest rates on all deposit products and a reduction in average short-term~~other borrowings, ~~within our funding mix during the third quarter.~~primarily FHLB advances. Interest income ~~for~~on a tax equivalent basis in the third quarter ~~2020~~2021 decreased by ~~$11.1~~$5.0 million to $329.5 million as compared to the second quarter ~~2020 driven by (i)~~ 2021 largely due to a ~~$6.0~~$9.4 million ~~decrease~~decline in PPP loan related interest ~~income from our loan portfolio largely~~and fees caused by ~~new and refinanced loan originations at~~ lower current interest rates and a moderate decline in discount accretion related to purchased credit deteriorated loans, and (ii) a $5.1 million decrease in interest and dividends from investment securities due to normal repayments of higher yielding securities and the acceleration of premium amortization expense related to the increased prepayment of mortgage-backed securities.

Average interest earning assets increased $7.3 billion to $37.8 billion for the third quarter 2020 as compared to the third quarter 2019 primarily due to $3.8 billion of interest earning assets acquired from Oritani and organic loan growth over the 12-month period, including $2.3 billion of PPP loans. As compared to the second quarter 2020, average interest earning assets decreased by $10.7 million from $37.8 billion driven by lower excess liquidity held in overnight interest-bearing deposits with banks and normal repayments of investment securities, mostly offset by a $474.1 million increase in average loan balances during the third quarter 2020.

Average interest bearing liabilities increased $4.2 billion to $27.1 billion for the third quarter 2020 as compared to the third quarter 2019 mainly due to deposits and borrowings totaling a combined $3.4 billion assumed in the Oritani acquisition, organic growth of retail deposits and additional long-term borrowings caused by the fundinglevels of loan ~~growth and our increased liquidity in response to COVID-19. As compared to the second quarter 2020, average interest bearing liabilities decreased by $516.0 million~~forgiveness (prepayments) in the third quarter ~~2020 primarily due to a decline in overnight borrowings, partially offset by higher average deposit levels caused by general increases in customer~~2021 and lower yields on non-PPP new and renewed loans.

5953

Average interest earning assets increased $565.2 million to $38.3 billion for the third quarter 2021 as compared to the third quarter 2020 primarily due to higher levels of excess liquidity held in overnight investments with banks caused by the surge in customer deposit balances and fluctuations in the timing of loan and investment funding. As compared to the second quarter 2021, average interest earning assets increased by $425.5 million from $37.9 billion, mostly driven by higher levels of excess overnight liquidity and purchases of new taxable investments, partially offset by principal repayments in both the taxable and non-taxable investment portfolios.

Average interest bearing liabilities decreased $1.7 billion to $25.4 billion for the third quarter 2021 as ~~well as funded PPP loans~~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 ~~placed into~~largely offset by the surge in both commercial and retail customer ~~deposit accounts.~~deposits. Total average deposits increased $876.6 million to $33.6 billion for the third quarter 2021 as compared to the second quarter 2021. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.

Our net interest margin on a tax equivalent basis of ~~3.01~~3.15 percent for the third quarter ~~2020~~2021 decreased by 3 basis points and increased by ~~1 basis point and 10~~14 basis points from ~~3.00~~3.18 percent and ~~2.91~~3.01 percent for the second quarter ~~2020~~2021 and third quarter ~~2019,~~2020, respectively. The yield on average interest earning assets decreased by 129 basis points on a linked quarter basis mostly due to the ~~impact of~~lower yield on new and renewed loans, partially offset by one additional day in the ~~lower interest rate environment.~~third quarter 2021 as compared to the second quarter 2021. The yield on average loans decreased by 138 basis points to ~~3.89~~3.79 percent for the third quarter ~~2020~~2021 as compared to the second quarter ~~2020 largely due to the continued repayment of higher yield loans and the lower yield on new loans.~~2021. The overall cost of average interest bearing liabilities decreased 167 basis points to ~~0.80~~0.44 percent for the third quarter ~~2020~~2021 as compared to the ~~linked~~ second quarter ~~2020 primarily~~2021. The decrease was mainly due toto: (i) the ~~lower rates offered on deposit products,~~continued run-off of maturing higher cost time deposits, (ii) repayment of maturing FHLB advances and ~~a decrease~~other borrowings during the third quarter 2021, (iii) the prepayment of $248 million of long-term FHLB advances in ~~average short-term borrowings.~~June 2021 and (iv) the overall lower cost of deposits. Our cost of total average deposits was ~~0.41~~0.18 percent for the third quarter ~~2020~~2021 as compared to ~~0.60~~0.21 percent for the second quarter ~~2020.~~2021.

~~As previously noted, the Federal Reserve has signaled that it expects to hold~~Looking forward, we expect moderate ongoing interest ~~rates near zero for several years to support the economic recovery. While~~rate pressures on our net interest ~~income~~margin for the fourth quarter 2021 and ~~margin was positively impacted~~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 ~~repricing of deposits which outpaced the decline in yield on interest earning assets~~continued potential opportunity to selectively redeploy low yielding excess cash liquidity into new loans and investments during the ~~third~~fourth quarter ~~2020, we expect continued pressure on our margin~~2021, as ~~this positive spread could potentially narrow in future periods.~~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.

6054

The following table reflects the components of net interest income for the three months ended September 30, ~~2020,~~2021, June 30, ~~2020~~2021 and September 30, ~~2019:~~2020:

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, 2020						June 30, 2020						September 30, 2019							September 30, 2021						June 30, 2021						September 30, 2020
		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)	$	32,515,264	$	315,863	3.89	%	$	32,041,200	$	321,883	4.02	%	$	26,136,745	$	298,384	4.57	%	Loans (1)(2)	$	32,698,382	$	309,778	3.79	%	$	32,635,298	$	315,339	3.87	%	$	32,515,264	$	315,863	3.89	%
Taxable investments (3)	Taxable investments (3)	3,354,373		17,529		2.09		3,673,090		22,539		2.45		3,411,330		24,972		2.93		Taxable investments (3)	3,302,803		15,797		1.91		3,159,842		14,883		1.88		3,354,373		17,529		2.09
Tax-exempt investments (1)(3)	Tax-exempt investments (1)(3)	542,450		4,564		3.37		562,172		4,673		3.32		632,709		5,341		3.38		Tax-exempt investments (1)(3)	429,941		3,302		3.07		498,971		4,071		3.26		542,450		4,564		3.37
Interest bearing deposits with banks	Interest bearing deposits with banks	1,355,623		420		0.12		1,501,925		411		0.11		313,785		1,686		2.15		Interest bearing deposits with banks	1,901,748		642		0.14		1,613,303		235		0.06		1,355,623		420		0.12
Total interest earning assets	Total interest earning assets	37,767,710		338,376		3.58		37,778,387		349,506		3.70		30,494,569		330,383		4.33		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
Allowance for loan losses		(309,382)						(284,184)						(157,176)
Allowance for credit losses																				Allowance for credit losses	(346,437)						(350,388)						(309,382)
Cash and due from banks	Cash and due from banks	291,803						424,625						267,331						Cash and due from banks	213,452						335,083						291,803
Other assets	Other assets	3,558,927						3,540,513						2,812,665						Other assets	3,314,308						3,237,689						3,558,927
Unrealized gains on securities available for sale, net	Unrealized gains on securities available for sale, net	47,679						44,173						1,748						Unrealized gains on securities available for sale, net	29,733						31,661						47,679
Total assets	Total assets	$	41,356,737					$	41,503,514					$	33,419,137					Total assets	$	41,543,930					$	41,161,459					$	41,356,737
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	$	14,542,470	$	13,323	0.37	%	$	13,788,951	$	16,627	0.48	%	$	11,065,959	$	35,944	1.30	%	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	%
Time deposits	Time deposits	8,027,346		19,028		0.95		8,585,782		29,857		1.39		7,383,202		42,848		2.32		Time deposits	4,126,253		4,394		0.43		4,609,778		6,279		0.54		8,027,346		19,028		0.95
Total interest bearing deposits	Total interest bearing deposits	22,569,816		32,351		0.57		22,374,733		46,484		0.83		18,449,161		78,792		1.71		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
Short-term borrowings	Short-term borrowings	1,533,246		2,588		0.68		2,317,992		1,980		0.34		2,265,528		12,953		2.29		Short-term borrowings	860,474		1,464		0.68		873,927		1,168		0.53		1,533,246		2,588		0.68
Long-term borrowings (4)	Long-term borrowings (4)	2,959,728		19,318		2.61		2,886,016		17,502		2.43		2,143,432		16,891		3.15		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
Total interest bearing liabilities	Total interest bearing liabilities	27,062,790		54,257		0.80		27,578,741		65,966		0.96		22,858,121		108,636		1.90		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
Non-interest bearing deposits	Non-interest bearing deposits	8,820,877						8,463,230						6,387,188						Non-interest bearing deposits	10,701,948						10,328,412						8,820,877
Other liabilities	Other liabilities	942,399						984,097						637,300						Other liabilities	692,979						654,724						942,399
Shareholders’ equity	Shareholders’ equity	4,530,671						4,477,446						3,536,528						Shareholders’ equity	4,794,843						4,708,797						4,530,671
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	41,356,737					$	41,503,514					$	33,419,137					Total liabilities and shareholders’ equity	$	41,543,930					$	41,161,459					$	41,356,737
Net interest income/interest rate spread (5)	Net interest income/interest rate spread (5)			$	284,119	2.78	%			$	283,540	2.74	%			$	221,747	2.43	%	Net interest income/interest rate spread (5)			$	301,744	3.00	%			$	301,787	3.02	%			$	284,119	2.78	%
Tax equivalent adjustment	Tax equivalent adjustment			(1,033)						(981)						(1,122)				Tax equivalent adjustment			(718)						(880)						(1,033)
Net interest income, as reported	Net interest income, as reported			$	283,086					$	282,559					$	220,625			Net interest income, as reported			$	301,026					$	300,907					$	283,086
Net interest margin (6)	Net interest margin (6)					3.00	%					2.99	%					2.89	%	Net interest margin (6)					3.14	%					3.18	%					3.00	%
Tax equivalent effect	Tax equivalent effect					0.01	%					0.01	%					0.02	%	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)					3.01	%					3.00	%					2.91	%	Net interest margin on a fully tax equivalent basis (6)					3.15	%					3.18	%					3.01	%

6155

The following table reflects the components of net interest income for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Nine Months Ended													Nine Months Ended
		September 30, 2020						September 30, 2019							September 30, 2021						September 30, 2020
		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)	$	31,522,268	$	970,814	4.11	%	$	25,651,195	$	883,595	4.59	%	Loans (1)(2)	$	32,641,362	$	938,323	3.83	%	$	31,522,268	$	970,814	4.11	%
Taxable investments (3)	Taxable investments (3)	3,527,823		65,402		2.47		3,418,614		76,306		2.98		Taxable investments (3)	3,191,930		45,717		1.91		3,527,823		65,402		2.47
Tax-exempt investments (1)(3)	Tax-exempt investments (1)(3)	563,459		14,207		3.36		660,162		16,936		3.42		Tax-exempt investments (1)(3)	480,599		11,621		3.22		563,459		14,207		3.36
Interest bearing deposits with banks	Interest bearing deposits with banks	1,130,257		2,296		0.27		251,728		3,947		2.09		Interest bearing deposits with banks	1,588,656		1,101		0.09		1,130,257		2,296		0.27
Total interest earning assets	Total interest earning assets	36,743,807		1,052,719		3.82		29,981,699		980,784		4.36		Total interest earning assets	37,902,547		996,762		3.51		36,743,807		1,052,719		3.82
Allowance for loan losses		(283,508)						(155,643)
Allowance for credit losses														Allowance for credit losses	(348,011)						(283,508)
Cash and due from banks	Cash and due from banks	318,370						273,191						Cash and due from banks	263,910						318,370
Other assets	Other assets	3,492,846						2,734,304						Other assets	3,290,439						3,492,846
Unrealized gains (losses) on securities available for sale, net		33,441						(21,986)
Unrealized gains on securities available for sale, net														Unrealized gains on securities available for sale, net	35,490						33,441
Total assets	Total assets	$	40,304,956					$	32,811,565					Total assets	$	41,144,375					$	40,304,956
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	$	13,834,930	$	64,463	0.62	%	$	11,268,852	$	110,247	1.30	%	Savings, NOW and money market deposits	$	17,730,438	$	32,896	0.25	%	$	13,834,930	$	64,463	0.62	%
Time deposits	Time deposits	8,501,949		91,699		1.44		7,215,745		121,350		2.24		Time deposits	4,853,891		21,766		0.60		8,501,949		91,699		1.44
Total interest bearing deposits	Total interest bearing deposits	22,336,879		156,162		0.93		18,484,597		231,597		1.67		Total interest bearing deposits	22,584,329		54,662		0.32		22,336,879		156,162		0.93
Short-term borrowings	Short-term borrowings	1,723,947		9,275		0.72		2,220,014		40,362		2.42		Short-term borrowings	966,544		4,390		0.61		1,723,947		9,275		0.72
Long-term borrowings (4)	Long-term borrowings (4)	2,873,912		53,240		2.47		1,807,503		45,761		3.38		Long-term borrowings (4)	2,037,312		40,595		2.66		2,873,912		53,240		2.47
Total interest bearing liabilities	Total interest bearing liabilities	26,934,738		218,677		1.08		22,512,114		317,720		1.88		Total interest bearing liabilities	25,588,185		99,647		0.52		26,934,738		218,677		1.08
Non-interest bearing deposits	Non-interest bearing deposits	7,995,759						6,288,382						Non-interest bearing deposits	10,147,130						7,995,759
Other liabilities	Other liabilities	902,012						539,637						Other liabilities	690,100						902,012
Shareholders’ equity	Shareholders’ equity	4,472,447						3,471,432						Shareholders’ equity	4,718,960						4,472,447
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	40,304,956					$	32,811,565					Total liabilities and shareholders’ equity	$	41,144,375					$	40,304,956
Net interest income/interest rate spread (5)	Net interest income/interest rate spread (5)			$	834,042	2.74	%			$	663,064	2.48	%	Net interest income/interest rate spread (5)			$	897,115	2.99	%			$	834,042	2.74	%
Tax equivalent adjustment	Tax equivalent adjustment			(3,058)						(3,557)				Tax equivalent adjustment			(2,515)						(3,058)
Net interest income, as reported	Net interest income, as reported			$	830,984					$	659,507			Net interest income, as reported			$	894,600					$	830,984
Net interest margin (6)	Net interest margin (6)					3.02	%					2.93	%	Net interest margin (6)					3.15	%					3.02	%
Tax equivalent effect	Tax equivalent effect					0.01	%					0.02	%	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)					3.03	%					2.95	%	Net interest margin on a fully tax equivalent basis (6)					3.16	%					3.03	%

_____________

(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, 2020 Compared to September 30, 2019						Nine Months Ended September 30, 2020 Compared to September 30, 2019							Three Months Ended September 30, 2021 Compared to September 30, 2020						Nine Months Ended September 30, 2021 Compared to September 30, 2020
		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*	$	66,080	$	(48,601)	$	17,479	$	187,593	$	(100,374)	$	87,219	Loans*	$	1,771	$	(7,856)	$	(6,085)	$	33,667	$	(66,158)	$	(32,491)
Taxable investments	Taxable investments	(410)		(7,033)		(7,443)		2,372		(13,276)		(10,904)		Taxable investments	(266)		(1,466)		(1,732)		(5,809)		(13,876)		(19,685)
Tax-exempt investments*	Tax-exempt investments*	(759)		(18)		(777)		(2,443)		(286)		(2,729)		Tax-exempt investments*	(889)		(373)		(1,262)		(2,022)		(564)		(2,586)
Interest bearing deposits with banks	Interest bearing deposits with banks	1,489		(2,755)		(1,266)		4,178		(5,829)		(1,651)		Interest bearing deposits with banks	182		40		222		697		(1,892)		(1,195)
Total increase (decrease) in interest income	Total increase (decrease) in interest income	66,400		(58,407)		7,993		191,700		(119,765)		71,935		Total increase (decrease) in interest income	798		(9,655)		(8,857)		26,533		(82,490)		(55,957)
Interest Expense:	Interest Expense:													Interest Expense:
Savings, NOW and money market deposits	Savings, NOW and money market deposits	8,825		(31,446)		(22,621)		21,120		(66,904)		(45,784)		Savings, NOW and money market deposits	3,234		(5,952)		(2,718)		14,669		(46,236)		(31,567)
Time deposits	Time deposits	3,454		(27,274)		(23,820)		19,055		(48,706)		(29,651)		Time deposits	(6,860)		(7,774)		(14,634)		(29,613)		(40,320)		(69,933)
Short-term borrowings	Short-term borrowings	(3,259)		(7,106)		(10,365)		(7,489)		(23,598)		(31,087)		Short-term borrowings	(1,144)		20		(1,124)		(3,606)		(1,279)		(4,885)
Long-term borrowings and junior subordinated debentures	Long-term borrowings and junior subordinated debentures	5,671		(3,244)		2,427		22,020		(14,541)		7,479		Long-term borrowings and junior subordinated debentures	(9,548)		1,542		(8,006)		(16,428)		3,783		(12,645)
Total increase (decrease) in interest expense		14,691		(69,070)		(54,379)		54,706		(153,749)		(99,043)
Total decrease in interest expense														Total decrease in interest expense	(14,318)		(12,164)		(26,482)		(34,978)		(84,052)		(119,030)
Total increase in net interest income	Total increase in net interest income	$	51,709	$	10,663	$	62,372	$	136,994	$	33,984	$	170,978	Total increase in net interest income	$	15,116	$	2,509	$	17,625	$	61,511	$	1,562	$	63,073

*Interest income is presented on a tax equivalent basis using 21 percent as the federal tax rate.

Non-Interest Income

Non-interest income ~~increased $8.1~~decreased $6.8 million and ~~decreased $40.9~~$18.7 million for the three and nine months ended September 30, ~~2020~~2021 as compared to the same periods of ~~2019.~~2020. The following table presents the components of non-interest income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~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

Three Months Ended
September 30, Nine Months Ended
September 30,
2020 2019 2020 2019
(in thousands)
Trust and investment services $ 3,068 $ 3,296 $ 9,307 $ 9,296
Insurance commissions 1,816 2,748 5,426 7,922
Service charges on deposit accounts 3,952 5,904 13,189 17,634
Losses on securities transactions, net (46) (93) (127) (114)
Net impairment losses on securities recognized in earnings — — — (2,928)
Fees from loan servicing 2,551 2,463 7,526 7,260
Gains on sales of loans, net 13,366 5,194 26,253 13,700
Gains (losses) on sales of assets, net 894 (159) 716 76,997
Bank owned life insurance (1,304) 2,687 7,661 6,779
Other 24,975 19,110 65,548 39,880
Total non-interest income $ 49,272 $ 41,150 $ 135,499 $ 176,426

~~Insurance commissions declined $932 thousand~~

Service charges on deposits accounts increased by $1.5 million and ~~$2.5~~$2.4 million for the three and nine months ended September 30, ~~2020, respectively, as compared to the corresponding periods in 2019 mainly due to lower volumes of business generated by the Bank's insurance agency subsidiary.~~

~~Service charges on deposit accounts decreased by $2.0 million and $4.4 million for the three and nine months ended September 30, 2020,~~2021, respectively, as compared to the same periods ~~of 2019~~in 2020, mostly due to a decline in waived fees largely related to COVID-19 customer relief efforts during the second and third quarters of 2020.

The other-than-temporary impairment losses on securities for the nine months ended September 30, 2019 related to one special revenue bond in default of its contractual payments starting in the second quarter 2019.

~~Gains~~Net gains on sales of loans ~~net increased $8.2~~decreased $6.9 million and ~~$12.6~~$6.2 million for the three and nine months ended September 30, ~~2020,~~2021, respectively, as compared to the ~~corresponding~~same periods ~~in 2019. Our net~~of 2020. Net gains on sales of loans for each period are comprised of both gains on sales of residential mortgages and the net change in the mark to market gains and losses on our loans originated for sale and carried at fair value at each period end. The net ~~gains~~losses from the change in the fair value of loans held for sale totaled $403 thousand and $10.4 million ~~$4.3~~for the three and nine months ended September 30, 2021, respectively, as compared to net gains of $4.3 million and $8.3 million for the three and nine months ended September 30, 2020, ~~respectively, as compared to the $1.4 million increase and $4.4 million decrease for the three and nine months ended September 30, 2019,~~ respectively. During the third quarter ~~2020,~~2021, we sold approximately ~~$301.2~~$234.6 million of residential mortgage loans as compared to ~~$219.6~~$301.2 million during the third quarter ~~2019.~~2020. See further ~~discussions~~discussion of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.

~~Net gains on sales of assets decreased~~$76.3 million for the nine months ended September 30, 2020 as compared to the same period of 2019 primarily due to a $78.5 million gain on the sale (and leaseback) of 26 locations recognized during the first quarter 2019.

Bank owned life insurance income ~~decreased~~increased $~~4.0~~3.3 million for the ~~third quarter 2020~~three months ended September 30, 2021 as compared to the same period in ~~2019 largely due~~2020. The increase was attributable to ~~several periodic death benefits claims received in the second quarter 2020 and~~ a ~~related credit~~

~~adjustment of $3.3 million to the~~ mortality contingency ~~reserves component of our BOLI assets recognized during the~~reserve adjustment recorded in third quarter ~~2020 with a corresponding reduction in BOLI income.~~2020.

Other non-interest income ~~increased $5.9~~decreased $5.6 million and ~~$25.7~~$18.1 million for the three and nine months ended September 30, ~~2020,~~2021, respectively, as compared to the same periods in ~~2019~~2020 primarily due to ~~increased swap~~lower fee income related to derivative interest rate swaps executed with commercial ~~loan customers.~~lending customers caused by lower transaction volumes. Swap ~~fees~~fee income totaled ~~$19.2~~$8.8 million and ~~$13.9~~$19.2 million for the three months ended September 30, ~~2020~~2021 and ~~2019~~,2020, respectively, and ~~$48.1~~$22.6 million and ~~$23.4~~$48.1 million for the nine months ended September 30, 2021 and 2020, ~~and 2019~~respectively.

~~, respectively.~~

Non-Interest Expense

Non-interest expense increased ~~$14.3~~$14.7 million and ~~$37.6~~$34.0 million for the three and nine months ended September 30, ~~2020~~2021, respectively, as compared to the same periods of ~~2019.~~2020. The following table presents the components of non-interest expense for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Salary and employee benefits expense	Salary and employee benefits expense	$	83,626	$	77,271	$	247,886	$	236,559	Salary and employee benefits expense	$	93,992	$	83,626	$	273,190	$	247,886
Net occupancy and equipment expense	Net occupancy and equipment expense	31,116		29,203		96,774		86,789		Net occupancy and equipment expense	32,402		31,116		97,112		96,774
FDIC insurance assessment	FDIC insurance assessment	4,847		5,098		14,858		16,150		FDIC insurance assessment	3,644		4,847		10,294		14,858
Amortization of other intangible assets	Amortization of other intangible assets	6,377		4,694		18,528		13,175		Amortization of other intangible assets	5,298		6,377		16,753		18,528
Professional and legal fees	Professional and legal fees	8,762		5,870		22,646		15,286		Professional and legal fees	13,492		8,762		27,250		22,646
Loss on extinguishment of debt	Loss on extinguishment of debt	2,353		—		2,353		—		Loss on extinguishment of debt	—		2,353		8,406		2,353
Amortization of tax credit investments	Amortization of tax credit investments	2,759		4,385		9,403		16,421		Amortization of tax credit investments	3,079		2,759		8,795		9,403
Telecommunications expense	Telecommunications expense	2,094		2,698		7,247		7,317		Telecommunications expense	2,615		2,094		8,507		7,247
Other	Other	18,251		16,658		53,312		43,712		Other	20,400		18,251		56,721		53,312
Total non-interest expense	Total non-interest expense	$	160,185	$	145,877	$	473,007	$	435,409	Total non-interest expense	$	174,922	$	160,185	$	507,028	$	473,007

Salary and employee benefits expense increased ~~$6.4~~$10.4 million and ~~$11.3~~$25.3 million for the three and nine months ended September 30, ~~2020,~~2021, respectively, as compared to the same periods of ~~2019. The~~2020 primarily due to strategic increases in our headcount to enhance lending and operations 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 and stock-based incentive compensation accruals and health insurance costs also contributed to the increases in both periods were largely due to additional salaries related to bank branch and other operational staff retained from the Oritani acquisition, as well as higher accrued cash incentive compensation and increased medical expenses. These additional expenses were partially offset by cost reductions from our ongoing branch transformation efforts and other operational improvements over the last 12 months. The increase for the nine months ended September 30, 2020 as compared to the same period in 2019 was also partly driven by a $1.8 million special bonus paid to hourly employees impacted by COVID-19 that was incurred in the first quarter 2020.periods.

~~Net occupancy and equipment~~FDIC insurance assessment expense ~~increased $1.9~~decreased $1.2 million and ~~$10.0~~$4.6 million for the three and nine months ended September 30, ~~2020,~~2021, respectively, as compared to the same periods of ~~2019. These increases were~~2020 mostly due to ~~additional costs associated with branches~~the Bank's improved capital position and ~~other facilities acquired from Oritani, which~~overall risk profile.

Professional and legal fees increased $4.7 million and $4.6 million for the three and nine months ended September 30, 2021, respectively, as compared to the same periods of 2020. The increases were ~~partially offset by costs savings from branch closures over~~largely attributable to a $2.1 million accrual for general litigation reserves, $1.3 million of merger related fees, as well as increased consulting expenses during the ~~last 12 months. During~~three and nine months ended September 30, 2021. Higher consulting expenses mostly related to our technology transformation efforts and new product initiatives.

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 we incurred higher equipment and certain other COVID-19 related expenses which included additional cleaning services for facilities to maintain employee and customer safety. In addition, the increase for the nine months September 30, 2020 was ~~driven by higher rental expenses resulting from a sale leaseback transaction completed near the end of the first quarter 2019 and higher depreciation expense related to computer equipment and new data centers placed into service in fourth quarter 2019.~~

~~Loss on extinguishment of debt totaling $2.4 million for the three and nine months ended September 30, 2020~~ related to the prepayment of $50 million of long-term institutional repo ~~borrowings during September 2020. The~~

~~debt prepayment was~~borrowings. All the prepayments were funded by excess cash ~~liquidity.~~liquidity at the Bank. See Note 10 to the consolidated financial statements for additional ~~information.~~information regarding our borrowed funds.

~~Amortization of other intangibles~~Other non-interest expense increased ~~$1.7~~$2.1 million and ~~$5.4~~$3.4 million ~~for~~for the three and nine months ended September 30, ~~2020,~~2021, respectively, as compared to the same periods of 2019 largely due to higher amortization expense of loan servicing rights and core deposit intangible amortization acquired in the recent Oritani acquisition, as well as $966 thousand of net impairment of loan servicing rights for the nine months ended September 30, 2020. ~~See Note 9 to the consolidated financial statements for additional information.~~

Professional and legal fees increased $2.9 million and $7.4 million for the three and nine months ended September 30, 2020, respectively, as compared to the same periods of 2019, largely due to higher costs from technology transformation consulting services, as well as remote work readiness costs largely incurred in the second quarter 2020 impacting the nine month period.

Amortization of tax credit investments decreased $1.6 million and $7.0 million for the three and nine months ended September 30, 2020, respectively, as compared to the same periods of 2019 largely due to a decline in impairment. The nine months ended September 30, 2019 included a $2.4 million impairment charge related to investments in three federal renewable energy tax credit funds sponsored by DC Solar. The remainder of the variances from the prior periods were mainly due to normal differences in the timing and amount of such investments and recognition of the related tax credits. Tax credit investments, while negatively impacting the level of our operating expenses and efficiency ratio, produce tax credits that reduce our income tax expense and effective tax rate. See Note 14 to the consolidated financial statements for more details on our tax credit investments.

~~Other non-interest expense increased $1.6 million and $9.6 million for the three and nine months ended September 30, 2020, respectively, as compared to the same periods of 2019.~~ These increases were largely due to higher data processing costs, ~~certain PPP loan costs, such as advertising, and other COVID-19~~OREO related ~~costs,~~expenses as well as incrementally higher operating expenses in several categories due to the expansion of our ~~operations both organically~~operations.

See Notes 9 and through the acquisition of Oritani in the fourth quarter 2019. Within the category, net gains on the sale of OREO properties decreased $782 thousand for the nine months ended September 30, 2020 as compared14 to the ~~same period in 2019.~~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, ~~such as the~~including, but not limited to loss on extinguishment of debt, litigation reserves and merger related expenses.

6659

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, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019				2021			2020			2021			2020
		($ in thousands)													($ in thousands)
Total non-interest expense	Total non-interest expense	$	160,185		$	145,877		$	473,007		$	435,409		Total non-interest expense	$	174,922		$	160,185		$	507,028		$	473,007
Less: Loss on extinguishment of debt (pre-tax)	Less: Loss on extinguishment of debt (pre-tax)	2,353			—			2,353			—			Less: Loss on extinguishment of debt (pre-tax)	—			2,353			8,406			2,353
Less: Severance expense (pre-tax)		—			—			—			4,838

Less: Amortization of tax credit investments (pre-tax)	Less: Amortization of tax credit investments (pre-tax)	2,759			4,385			9,403			16,421			Less: Amortization of tax credit investments (pre-tax)	3,079			2,759			8,795			9,403

Less: Merger related expenses (pre-tax)		106			1,434			1,774			1,469
Less: Litigation reserve (a)														Less: Litigation reserve (a)	2,100			—			2,100			—
Less: Merger related expenses (pre-tax) (a)														Less: Merger related expenses (pre-tax) (a)	1,287			106			1,287			1,774
Total non-interest expense, adjusted	Total non-interest expense, adjusted	$	154,967		$	140,058		$	459,477		$	412,681		Total non-interest expense, adjusted	$	168,456		$	154,967		$	486,440		$	459,477
Net interest income	Net interest income	$	283,086		$	220,625		$	830,984		$	659,507		Net interest income	$	301,026		$	283,086		$	894,600		$	830,984
Total non-interest income	Total non-interest income	49,272			41,150			135,499			176,426			Total non-interest income	42,431			49,272			116,790			135,499
Less: Gain on sale-leaseback transaction (pre-tax)		—			—			—			78,505
Add: Losses on securities transactions, net (pre-tax)		46			93			127			114
Add: Net impairment losses on securities (pre-tax)		—			—			—			2,928

Add: (Gains) losses on available for sale and held to maturity securities transactions, net (pre-tax) (b)														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	Total net interest income and non-interest income	$	332,404		$	261,868		$	966,610		$	760,470		Total net interest income and non-interest income	$	342,669		$	332,404		$	1,010,833		$	966,610
Efficiency ratio	Efficiency ratio	48.20		%	55.73		%	48.94		%	52.09		%	Efficiency ratio	50.93		%	48.20		%	50.13		%	48.94		%
Efficiency ratio, adjusted	Efficiency ratio, adjusted	46.62		%	53.48		%	47.53		%	54.27		%	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.

Income Taxes

Income tax expense totaled ~~$38.9~~$42.4 million for the third quarter ~~2020~~2021 as compared to ~~$33.5~~$42.9 million and ~~$25.3~~$38.9 million for the second quarter ~~2020~~2021 and third quarter ~~2019, respectively. Our effective tax rate was 27.5 percent, 25.9 percent~~2020, respectively, and ~~23.6 percent for the third quarter 2020, second quarter 2020~~$124.6 million and third quarter 2019, respectively. The increase in the third quarter 2020 effective tax rate was mainly due to higher pre-tax income and the retroactive increase in New Jersey’s corporate business income tax surtax from 1.5 percent to 2.5 percent caused by a change in state tax laws which went into effect in the third quarter 2020. The change in the New Jersey surtax resulted in an additional $1.1$101.5 million ~~net of federal tax benefit, charge to income tax expense for the third quarter 2020.~~

~~The CARES Act did not have a material impact on our reported income tax expense~~ for the nine months ended September 30, ~~2020.~~2021 and 2020, respectively. Our effective tax rate was 25.7 percent, 26.2 percent and 27.5 percent for the third quarter 2021, second quarter 2021 and third quarter 2020, respectively. The decrease in the effective tax rate in the third quarter 2021 as compared to the second quarter 2021 and the third quarter 2020 was mainly due to the increase in excess stock compensation benefit.

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.~~strategies. For the remainder of 2021, we currently estimate that our effective tax rate will range from 25 percent to 27 percent.

Business Segments

We have four business segments that we monitor and report on to manage our business operations. These segments are consumer lending, commercial lending, investment management, and corporate and other adjustments. Our reportable segments have been determined based upon Valley’s internal structure of operations and lines of business. Each business 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~~

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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 allocations and reporting in line with our 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 following tables present the financial data for each business segment for the three months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		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			Investment Management			Corporate and Other Adjustments		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			2,846			(16,901)		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		%	0.20		%	N/A		1.72		%


		Three Months Ended September 30, 2019															Three Months Ended September 30, 2020
		Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total				Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
		($ in thousands)															($ in thousands)
Average interest earning assets	Average interest earning assets	$	6,858,216		$	19,278,529		$	4,357,824		$	—	$	30,494,569		Average interest earning assets	$	7,126,157		$	25,389,107		$	5,252,446		$	—	$	37,767,710
Income (loss) before income taxes	Income (loss) before income taxes	18,300			91,629			6,781			(9,512)		107,198			Income (loss) before income taxes	34,565			121,351			1,066			(15,717)		141,265
Annualized return on average interest earning assets (before tax)	Annualized return on average interest earning assets (before tax)	1.07		%	1.90		%	0.62		%	N/A		1.41		%	Annualized return on average interest earning assets (before tax)	1.94		%	1.91		%	0.08		%	N/A		1.50		%

See Note 15 to the consolidated financial statements for additional information.

Consumer Lending

This consumer lending segment ~~representing approximately 21.5~~represented 22.3 percent of our loan portfolio at September 30, ~~2020, is~~2021, 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 ~~13.2~~13.3 percent of our loan portfolio at September 30, ~~2020)~~2021) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (representing ~~4.1~~4.8 percent of total loans at September 30, ~~2020)~~2021) 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 segment also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, and insurance services.

Average interest earning assets in this segment increased ~~$267.9~~$247.7 million to ~~$7.1~~$7.4 billion for the three months ended September 30, ~~2020~~2021 as compared to the third quarter ~~2019.~~2020. The increase was largely due to ~~approximately $255 million of loans acquired from Oritani,~~ loan growth from origination of new residential mortgage ~~loan originations for investment~~loans and automobile loans over most of the last 12 month period, as well as solid demand for both automobile loans and collateralized personal lines of credit prior to the economic slowdown starting in the second quarter 2020 due to the COVID-19 pandemic.12-month period.

Income before income taxes generated by the consumer lending ~~segment~~segment increased ~~$16.3~~$2.6 million to ~~$34.6~~$37.1 million for the third quarter ~~2020~~2021 as compared to the third quarter ~~2019~~2020 largely due to ~~increases~~a $10.0 million decrease in ~~both net interest income~~the provision for loan losses and lower non-interest expense, partially offset by a $11.7 million decrease in non-interest income ~~totaling $10.2~~

coupled with a $2.0 million ~~and $8.4 million, respectively. The~~ increase in ~~net interest income was mainly driven by lower funding costs and~~ the ~~increase in average loans.~~internal transfer expense. The ~~increase~~decrease of $11.7 million in non-interest income was ~~mostly driven by an $8.2~~partly due to a $6.9 million ~~increase~~decrease in ~~the~~ net gains on sales of loans ~~caused by~~for the ~~higher level of residential mortgage sales during the third quarter 2020.~~three months ended September 30, 2021. The ~~positive impact of the aforementioned items was partially offset by a $3.4 million increase~~decrease in the provision for loan losses ~~for the third quarter 2020 as compared to the third quarter 2019~~was mainly due to the ~~impact~~improvement in the economic forecast component of the ~~adverse economic forecast caused by COVID-19 included in our estimate of lifetime expected credit~~allowance for loan losses ~~for this segment.~~at September 30, 2021 as compared to September 30, 2020. See further details in the "Allowance for Credit Losses" section of this MD&A.

The net interest margin on the consumer lending portfolio ~~increased 47~~decreased 11 basis points to ~~3.08~~2.97 percent for the third quarter ~~2020~~2021 as compared to the third quarter ~~2019~~2020 mainly due to a 8640 basis point decrease in the yield on average loans, partially offset by a 29 basis point decrease in the costs associated with our funding ~~sources, partially offset by a 39 basis point decrease in the yield on average loans.~~sources. The decrease in our funding costs was mainly due to deposits and borrowings continuing to reprice at lower interest rates and the prepayment of the $635 million high cost FHLB advances in December 2019. The 3940 basis point decrease in loan yield was largely due to lower yielding new loan ~~volumes.~~volumes and normal loan repayments. The decrease in our funding costs was mainly due to continued runoff of higher cost time deposits, some customer migration to lower cost deposits without stated maturities and lower rates offered on deposit products. 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 segment 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 business segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately ~~$6.9~~$5.6 billion and represented ~~21.3~~17.3 percent of the total loan portfolio at September 30, ~~2020.~~2021. Commercial real estate loans and construction loans totaled ~~$18.5~~$19.7 billion and represented ~~57.2~~60.4 percent of the total loan portfolio at September 30, ~~2020.~~2021.

Average interest earning assets in this segment ~~increased~~decreased approximately $~~6.1 billion~~64.6 million to ~~$25.4~~$25.3 billion for the three months ended September 30, ~~2020~~2021 as compared to the third quarter ~~2019. The increase was~~2020 mostly due to ~~strong organic loan growth within the~~ commercial and industrial ~~and~~PPP loans which were paid off (forgiven), largely offset by strong new loan originations concentrated in the commercial real estate loan portfolios over most of the last 12-month period, including $2.3 billion of PPP loans originated in the second and third quarters of 2020, as well as $3.4 billion of loans acquired from Oritani during the fourth quarter 2019.portfolio.

For the three months ended September 30, ~~2020,~~2021, income before income taxes for the commercial lending segment increased ~~$29.7~~$20.6 million to ~~$121.4~~$141.9 million as compared to the third quarter ~~2019~~2020 mainly ~~due to increases~~driven by a $18.5 million increase in ~~both~~ net interest income and a $17.5 million decrease in the provision for loan losses, partially offset by lower non-interest ~~income.~~income and higher internal expense. Net interest income for this segment increased~~$54.6 million~~ to ~~$218.6~~$237.1 million for the third quarter ~~2020~~2021 as compared to the same period in ~~2019 mostly driven by~~2020 primarily due to lower funding ~~costs and~~costs. The provision for loan losses decreased by $17.5 million mainly due to the ~~increase~~improvement in ~~average loans.~~the economic forecast component of the allowance for loan losses as compared to September 30, 2020. Non-interest income ~~increased $5.4~~decreased $8.8 million to ~~$20.4~~$11.6 million ~~during~~for the three months ended September 30, ~~2020~~2021 as compared to the third quarter ~~2019~~2020 mainly due to a ~~$5.3~~$10.4 million ~~increase~~decrease in swap fee income related to derivative interest rate swaps executed with commercial loan customers. The positive impact of the aforementioned items was partially offset by a $18.9 million increase in the provision for credit losses caused by several factors, including the adverse economic forecast for lifetime expected credit losses, additional qualitative management adjustments to reflect the potential for higher levels of credit stress related to borrowers impacted by COVID-19, and the impact of lower valuations of collateral securing our non-performing taxi medallion loan portfolio. Internal transfer expense ~~also~~ increased ~~$10.8~~$4.8 million for the third quarter ~~2020~~2021 as compared to the third quarter ~~2019~~2020 partly due to general increases related to ~~acquired and~~ organic growth in our business.

The net interest margin for this segment increased 328 basis points to ~~3.44~~3.74 percent for the third quarter ~~2020~~2021 as compared to the third quarter ~~2019 largely~~2020 due to a 8429 basis point decrease in the cost of our funding sources, ~~partially~~which was marginally offset by a 811 basis point decrease in the yield on average loans.

Investment Management

The investment management segment generates a large portion of our income through investments in various types of securities and interest-bearing deposits with other banks. These investments are mainly comprised of fixed rate securities and, depending on our liquid cash position, federal funds sold and interest-bearing deposits with banks (primarily the Federal Reserve Bank of New York) as part of our asset/liability management strategies. The fixed

rate investments are one of Valley’s least sensitive assets to changes in market interest rates. However, a portion of the investment portfolio is invested in shorter-duration securities to maintain the overall asset sensitivity of our balance sheet. See the “Asset/Liability Management” section below for further analysis.

Average interest earning assets in this segment increased ~~$894.6~~$382.0 million during the third quarter ~~2020~~2021 as compared to the third quarter ~~2019 primarily~~2020 due to a ~~$1.0 billion~~$546.1 million increase in average interest bearing deposits with ~~banks.~~banks, partially offset by a $164.1 million decrease in average investment securities. The increase in ~~average~~ overnight ~~interest bearing~~investments and deposits with other banks was ~~mostly caused by~~largely due to our ~~prudent maintenance~~higher levels of ~~higher~~ excess liquidity ~~levels~~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 ~~COVID-19 pandemic during~~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 ~~2020, as well as the normal timing of loan and investment activity, including sales of residential mortgage loans.~~2021.

~~For~~During the ~~third~~second quarter ~~2020,~~2021, income before income taxes for the investment management segment ~~decreased $5.7~~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 ~~2019 mostly~~2020 mainly due to decreases in non-interest income and net interest income totaling $4.0 million and $1.2 million, respectively. The decrease in non-interest income was primarily due to lower BOLI income due to a periodic adjustment to the BOLI assets recognized in the three months ended September 30, 2020.higher bank owned life insurance income. See ~~further details in~~ the "Non-Interest Income" ~~sections of this MD&A.~~section for more details.

The net interest margin for this segment decreased 372 basis points to ~~1.20~~1.18 percent for the third quarter ~~2020~~2021 as compared to the same quarter ~~2019~~in 2020 largely due to a ~~123~~31 basis point decrease in the yield on average investments, partially offset by a 8629 basis point decrease in ~~costs associated with~~ our ~~funding sources.~~cost of funding. The decrease in the yield on average investments as compared to the third quarter ~~2019~~2020 was largely driven by ~~repayment and prepayment of higher yield residential mortgage-backed securities, acceleration of premium amortization expense related to~~ the ~~increased prepayment of mortgage-backed securities and purchases of~~ lower yielding investment securities ~~over~~and the ~~last 12 months.~~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 ~~the loss on extinguishment of debt and~~ merger expenses.

The corporate segment recognized a pre-tax losses of $16.9 million and $15.7 million and $9.5 million pre-tax loss for the three months ended September 30, 2020 and 2019, respectively. Higher pre-tax loss for the third quarter 2020 was mainly due to a $14.3 million increase in non-interest expense, partially offset by a $10.9 million increase in internal transfer income. The increase in non-interest expense was largely driven by increases in salaries and employee benefits expenses, net occupancy and equipment expense, professional and legal fees, and a $2.4 million loss on extinguishment of debt recognized in the third quarter 2020. Non-interest income also decreased $1.7 million for the three months ended September 30, 2021 and 2020, ~~from~~respectively. The $1.2 million increase in the pre-tax loss for the third quarter ~~2019.~~2021 was mainly driven by the $19.2 million increase in non-interest expense largely caused by higher salaries and employee benefits expense, and professional and legal fees for the three months ended September 30, 2021. These items were partially offset by increases of $10.3 million and $8.9 million in non-interest income and internal transfer income, respectively. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.

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The following tables present the financial data for each business segment for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


	Nine Months Ended September 30, 2021
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		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			9,149			(41,741)		483,428
Annualized return on average interest earning assets (before tax)	1.94		%	2.16		%	0.23		%	N/A		1.70		%


	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, 2019
Consumer
Lending Commercial
Lending Investment
Management Corporate
and Other
Adjustments Total
($ in thousands)
Average interest earning assets $ 6,812,001 $ 18,839,194 $ 4,330,504 $ — $ 29,981,699
Income before income taxes 56,013 264,793 22,440 38,478 381,724
Annualized return on average interest earning assets (before tax) 1.10 % 1.87 % 0.69 % N/A 1.70 %

Consumer Lending

Average interest earning assets in this segment ~~increased $375.8~~decreased $11.8 million to $7.2 billion for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019.~~2020. The ~~increase~~decrease was largely due to ~~approximately $255 million~~runoff from principal repayments with a higher percentage of new and refinanced mortgage loans ~~acquired from Oritani, loan growth from residential mortgage loan originations~~originated for sale rather than held for investment over ~~most of~~ the last 12 month ~~period, as well as solid~~period. However, automobile loan demand, ~~for both automobile loans and collateralized personal lines~~which was tempered during much of ~~credit prior to the economic slowdown in the second quarter~~ 2020 due to the onset of the COVID-19 ~~pandemic.~~pandemic, was strong during the nine months ended September 30, 2021 due to built up demand for auto purchases by consumers.

Income before income taxes generated by the consumer lending segment increased ~~$24.4~~$23.9 million to ~~$80.4~~$104.3 million for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 largely due to ~~increases of $24.4 million and $13.5 million in net interest income~~a lower provision for loan losses and non-interest ~~income, respectively. The~~expense, and an increase in net interest ~~income~~income. The provision for loan losses decreased $21.8 million to a credit (negative) provision of $6.5 million for the nine months ended September 30, 2021 from a $15.3 million provision for the same period of 2020. The lower provision was mainly ~~driven by~~due to the improved economic forecast component of the allowance for loan losses as compared to September 30, 2020, as well as better actual loan performance within these loan categories. See further details in the "Allowance for Credit Losses" section of this MD&A. Net interest income increased $4.7 million primarily due to the lower funding costs, ~~and~~which were partially offset by lower loan yields, as well as the ~~increase~~modest decline in average ~~loans.~~interest earning assets. The ~~increase~~higher net interest income was partially offset by a $7.9 million decrease in non-interest income, which was largely attributable to ~~higher~~lower net gains on sales of loans for the nine months ended September 30, ~~2020~~2021 as compared to the same period in 2019. The positive impact of the aforementioned items was partially offset by increases of $10.3 million and $3.3 million in the provision for loan losses and non-interest expense, respectively. The increase in the provision for loan losses for the nine months ended September 30, 2020 as compared to the same period of 2019 was mainly due to the adverse economic forecast caused by COVID-19 included in our estimate of lifetime expected credit losses for this segment as well as additional qualitative management adjustments to reflect the potential for higher levels of credit stress related to COVID-19 impacted borrowers. See further details in the "Allowance for Credit Losses" section of this MD&A.2020.

The net interest margin on the consumer lending portfolio increased 3110 basis points to ~~2.94~~3.04 percent for the nine months ended September 30, ~~2020~~2021 as compared to the same period one year ago mainly due to a 6146 basis point decrease in the costs associated with our funding sources, partially offset by a 3036 basis point decrease in the yield on average loans. The decrease in our funding costs was mainly due to ~~both~~a greater mix of non-interest bearing deposits, ~~and borrowings~~deposits continuing to reprice at lower interest rates and the ~~prepayment~~repayment of ~~the $635 million high~~maturing higher cost ~~FHLB advances in December 2019.~~borrowings. The 3036 basis point decrease in loan yield was largely due to lower yielding new loan ~~volumes.~~volumes and normal loan repayments.

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Commercial Lending

Average interest earning assets in this segment increased~~$5.5~~ $1.1 billion to ~~$24.3~~$25.5 billion for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019.~~2020. This increase was ~~primarily~~mainly due to PPP loan originations during the last 12 months, as well as organic commercial real estate loan growth ~~over the last 12-month period, including PPP loans originations of $2.3 billion~~ during the ~~second and the third quarters 2020, and loans acquired from Oritani on December 1, 2019.~~nine months ended September 30, 2021.

For the nine months ended September 30, ~~2020,~~2021, income before income taxes for the commercial lending segment increased ~~$61.9~~$85.0 millionto ~~$326.7~~$411.7 million as compared to the same period in ~~2019.~~2020 mainly driven by an increase in net interest income and a lower provision for loan losses. Net interest income increased~~$148.2~~ $67.8 million to ~~$635.8~~$703.6 million for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 largely due to lower funding costs and the higher average commercial loan ~~balances.~~ balances during the current 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 ~~also increased $22.7~~decreased $23.0 million for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 primarily due to a ~~$24.7~~$25.5 million ~~increase~~decrease in fee income related to derivative interest rate swaps executed with commercial loan customers. The positive impact of the aforementioned items was partially offset by a $77.0 million increase in the provision for credit losses to $90.8 million during the nine months ended September 30, 2020 as compared to $13.8 million for the same period in 2019. The increase in the provision for credit losses was mainly due to the adverse economic forecast for lifetime expected credit losses during the first half of 2020, higher specific reserves for tax medallion loans and qualitative adjustments for potential credit stress related to borrowers impacted by the COVID-19 pandemic. See the "Allowance for Credit Losses" section below for further details. Internal transfer expense increased ~~$35.6~~$15.5 million to ~~$197.4~~$212.9 million for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019.~~2020.

The net interest margin for this segment increased 320 basis points to ~~3.48~~3.68 percent for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 due to a 6146 basis point decrease in the cost of our funding sources, partially offset by a 5826 basis point decrease in yield on average loans.

Investment Management

Average interest earning assets in this segment increased ~~$891.0~~$39.6 million during the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019 largely due to increases of $878.5~~2020. Within the category, a $458.4 million increase in average interest bearing deposits with banks ~~and, to a much lesser extent, an increase~~was largely offset by $418.8 million decrease in ~~the~~average investment ~~securities portfolio.~~securities. The increase in ~~average~~our excess liquidity held in overnight interest bearing deposits with banks was mainly ~~due to our higher levels~~caused by strong deposits growth over the 12-month period and management's lower rate of ~~excess liquidity levels that were maintained~~reinvestment in investment securities for most of the ~~2020 period in response to the uncertainties created by the COVID-19 pandemic.~~same period.

For the nine months ended September 30, ~~2020,~~2021, income before income taxes for the investment management segment decreased ~~$6.0~~$7.3 million to ~~$16.4~~$9.1 million as compared to the same period in ~~2019~~2020 mainly due to ~~increases~~decreases in the net interest income and non-interest income and a higher internal ~~transfer~~ expense ~~and~~transfer. The negative impact of these items was partially offset by a decline in the provision for credit losses for ~~debt securities~~ held to maturity ~~totaling $5.1 million and~~debt securities from a $688 thousand ~~respectively.~~provision for the nine months ended September 30, 2020 to a credit of $353 thousand for the nine months ended September 30, 2021.

The net interest margin for this segment decreased 2915 basis points to ~~1.34~~1.19 percent for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019~~2020 largely due to a 9061 basis point decrease in the yield on average investments, partially offset by a 6146 basis point decrease in costs associated with our funding sources. The decrease in the yield on average investments as compared to the same period of ~~2019~~2020 was mainly due to ~~repayment and prepayment of higher yield residential mortgage-backed securities, increased premium amortization and~~ lower yielding ~~new investments purchased over the last 12 months,~~investment securities and ~~low yielding~~ excess liquidity held in low yielding overnight investments.

Corporate and other adjustments

The pre-tax net loss for the corporate segment totaled ~~$36.8~~$41.7 million for the nine months ended September 30, ~~2020~~2021 as compared to ~~the net income of $38.5~~$36.8 million for the same period in ~~2019.~~2020. The negative change of ~~$75.3~~$5.0 million was mainly due to ~~a decrease in non-interest income coupled with~~ an increase in non-interest ~~expense. The~~expense, partially offset by higher internal transfer income and greater non-interest income decreased $77.3 million to $20.3 million for the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to a $78.5 million gain on the sale (and leaseback) of several

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~~bank locations recognized during the nine months ended September 30, 2019.~~income. Non-interest expense increased ~~$37.8~~$33.3 million to ~~$338.9 million~~for the nine months ended September 30, 2020 as compared to the same period in 2019 largely due to increases in net occupancy and equipment expense, salaries and employee benefits expenses and professional and legal fees. See further details in the "Non-Interest Expense" section above. Internal transfer income increased $40.7 million to $298.2$372.2 million for the nine months ended September 30, ~~2020~~2021 as compared to the same period in ~~2019 largely~~2020 partially due to ~~general~~ increases ~~related~~in salaries and employee benefits expenses, professional and legal fees and the loss on extinguishment of debt during the current period as compared to ~~our growth.~~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.

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, ~~2020.~~2021. 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, ~~2020.~~2021. 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, ~~2020.~~2021. Although the size of Valley’s balance sheet is forecasted to remain static as of September 30, ~~2020~~2021 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 ~~2020.~~2021. The model also utilizes an immediate parallel shift in market interest rates at September 30, ~~2020.~~2021.

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 ~~in light of~~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					Estimated Change in Future Net Interest Income
Changes in Interest Rates	Changes in Interest Rates	Dollar Change		Percentage Change		Changes in Interest Rates	Dollar Change		Percentage Change
(in basis points)	(in basis points)	($ in thousands)				(in basis points)	($ in thousands)
+200	+200	$	53,334	4.82	%	+200	$	104,613	8.88	%
+100	+100	32,868		2.97		+100	52,462		4.45
–100	–100	(23,054)		(2.08)		–100	(54,113)		(4.59)

–200						–200	(78,513)		(6.66)

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 ~~months~~month period by ~~2.97~~4.45 percent. Management believes the interest rate sensitivity remains within an acceptable tolerance range at September 30, ~~2020.~~2021. 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 ~~deposit and borrowings~~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 ~~the Investment Committee established by the Board of Directors and also to the Asset and Liability Committee.~~two board committees. Among other actions, Treasury reviews historical funding requirements, 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~~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, ~~2020.~~

At September 30, 2020, our cash and cash equivalents totaled $930.7 million as compared to $1.9 billion and $434.7 million at June 30, 2020 and December 31, 2019, respectively. The decrease from June 30, 2020 was largely attributable to our managed reduction of elevated excess liquidity levels that were maintained in the first half of 2020 in response to the uncertainties created by COVID-19. We continue to closely monitor external events and adjust our mix and levels of various funding sources accordingly. See the "Deposits and Other Borrowings" section and Note 10 to the consolidated financial statements for more information.2021.

74Valley'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 ~~$2.7~~$3.0 billion, representing ~~7.4~~7.9 percent of earning assets at September 30, ~~2020~~2021 and ~~$2.2~~$3.1 billion, representing ~~6.4~~8.3 percent of earning assets at December 31, ~~2019.~~2020. Of the ~~$2.7~~$3.0 billion of liquid assets at September 30, ~~2020,~~2021, approximately ~~$868.9~~$547.5 million of various investment securities were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of ~~approximately $1.2 billion~~approximately $747 million in principal payments from securities in the total investment portfolio over the next 12 ~~months~~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 (including loans held for sale at September 30, ~~2020)~~2021) are projected in accordance with their scheduled contractual terms to be approximately ~~$9.6~~$10.4 billion over the next 12 ~~months.~~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~~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 ~~$25.7~~$29.2 billion and ~~$20.4~~$25.8 billion for the nine months ended September 30, ~~2020~~2021 and for the year ended December 31, ~~2019,~~2020, respectively, representing ~~70.0~~77.6 percent and ~~66.8~~69.8 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 established relationships with numerous banks. While these lending lines are uncommitted, management believes that the Bank could borrow approximately ~~$1.4~~$1.5 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, ~~2020,~~2021, Valley had ~~$700 million~~$1.0 billion of MULOCs outstanding for this purpose. Furthermore, we can obtain overnight borrowings from the ~~FRB~~Federal Reserve Bank of New York via the discount window as a contingency for additional liquidity. At September 30, ~~2020,~~2021, our ~~traditional~~ borrowing capacity ~~excluding~~(excluding added capacity available to us by pledging PPP ~~loans,~~loans) under the Federal ~~Reserve's~~Reserve Bank's discount window was ~~$1.6~~$1.8 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) ~~increased~~decreased approximately ~~$337.4~~$364.6 million to ~~$1.4 billion~~$783.3 million at September 30, ~~2020~~2021 as compared to December 31, ~~2019. The increase in short-term borrowings, mainly consisting of~~2020 due to normal FHLB advances at September 30, 2020, was primarily driven by increase liquidity levels in response to the COVID-19 pandemic, as well as funding of PPP loan originations primarily in the second quarter 2020.

~~The following table sets forth information regarding Valley’s short-term FHLB advances at the dates and for the year to date periods ended September 30, 2020 and December 31, 2019:~~

September 30,
2020 December 31,
2019
($ in thousands)
FHLB advances:
Average balance outstanding $ 1,322,226 $ 1,681,844
Maximum outstanding at any month-end during the period 1,930,000 2,510,000
Balance outstanding at end of period 1,275,000 940,000
Weighted average interest rate during the period 0.37 % 1.88 %
Weighted average interest rate at the end of the period 0.46 1.85
advance repayments.

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-going 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. These~~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.

~~Valley's ability~~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 ~~maintain quarterly dividends to its preferred and common shareholders is heavily dependent on~~ the ability of its principal subsidiary, the Bank, to pay dividends to Valley. However, we cannot accurately predict the extent of the economic decline due to COVID-19 or other factors that may result in inadequate earnings (primarily by the Bank), regulatory restrictions and limitations, changes in our capital requirements, or a decision to increase capital by retention of earnings, that may result in Valley's inability or determination by its Board not to pay dividends at current levels, or at all.consolidated financial statements for additional information.

Investment Securities ~~Portfolios~~Portfolio

As of September 30, ~~2020,~~2021, we had ~~$29.0~~$36.1 million, ~~$1.5~~$4.8 million, $1.2 billion and ~~$2.2~~$2.6 billion in ~~equities,~~equity, trading debt, available for sale ~~debt securities~~ and held to maturity debt securities, respectively. Our trading securities portfolio wholly consists of investment grade municipal bonds. The equity securities ~~portfolio is mainly comprised~~consisted of ~~a money market~~one publicly traded mutual fund, CRA investments and several other equity investments we have made in ~~public~~companies that develop new financial technologies and ~~private Community Reinvestment Act funds.~~in a partnership that invests in such companies. Our CRA and other equity investments are a mixture of both publicly traded entities and privately held entities. Held to maturity and available for sale debt securities portfolios ~~were comprised of~~include U.S. Treasury securities, U.S. government agency securities, tax-exempt and taxable issuances of states and political subdivisions, ~~(including special revenue bonds),~~ 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, ~~issued by banks at September 30, 2020.~~ as well as municipal special revenue bonds, that 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 no securities in the name of any one issuer exceeding 10 percent of shareholders’ equity, except for residential mortgage-backed securities issued by Ginnie Mae and Fannie Mae. ~~Additionally, certain~~Certain securities with limited marketability and/or restrictions, such as ~~FHLB~~Federal Home Loan Bank and ~~FRB~~Federal Reserve Bank stocks, are carried at cost and are included in other assets. ~~See Note 7 to the consolidated financial statements for additional information.~~

Allowance for Credit Losses and Impairment Analysis

Effective January 1, 2020, Valley adopted ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires an estimate of lifetime expected credit losses for held to maturity debt securities established as an allowance for credit losses and replaces the other-than-temporarily impaired model for available for sale debt securities.

Available for sale debt securities. The new guidance in ASC Topic 326-30 requires credit losses to be presented as an allowance, rather than as a write-down if management does not intend to sell an available for sale debt security before recovery of its amortized cost basis. 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, net of applicable taxes.

We have evaluated all available for sale debt securities that are in an unrealized loss position as of September 30, ~~2020~~2021 and determined that the declines in fair value are 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, ~~2020~~2021 and, 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 at December 31, 2020.

Held to maturity debt securities. ~~As discussed in Note 7~~Valley estimates the expected credit losses on held to ~~the consolidated financial statements,~~maturity debt securities that have loss expectations using a discounted cash flow model developed by a third party. Valley has a zero loss expectation for certain securities within the held to maturity portfolio, including U.S. Treasury securities, U.S. agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and

collateralized municipal ~~bonds. To measure~~bonds, which are excluded from the ~~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.~~model. 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. ~~At September 30, 2020, held~~Held to maturity debt securities were carried net of allowance for credit losses totaling $1.5 million. We recorded a negative (credit) provision of $112 thousand during the third quarter 2020 mostly due to modest improvement in expected default rates for certain securities as compared to June 30, 2020. The provision totaled $688 thousand for the nine months ended$1.1 million and $1.4 million at September 30, 2021 and December 31, 2020, ~~driven mainly by our negative economic forecast incorporated within the allowance model since the onset of the COVID-19 pandemic.~~respectively. There were no net charge-offs of held to maturity debt securities infor the ~~respective periods.~~three and nine months ended September 30, 2021 and 2020.

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 ~~investment~~debt securities portfolios by investment grades at September 30, ~~2020:~~2021:


		September 30, 2020									September 30, 2021
		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: *
AAA Rated										AAA Rated	$	1,016,325	$	23,138	$	(2,483)	$	1,036,980
AA Rated										AA Rated	63,001		339		(722)		62,618
A Rated										A Rated	6,173		89		—		6,262
BBB Rated										BBB Rated	29,313		891		—		30,204
Non-investment grade										Non-investment grade	4,996		42		—		5,038
Not rated										Not rated	64,982		2,244		(51)		67,175
Total										Total	$	1,184,790	$	26,743	$	(3,256)	$	1,208,277
Held to maturity investment grades: *	Held to maturity investment grades: *									Held to maturity investment grades: *
AAA Rated	AAA Rated	$	1,836,858	$	54,293	$	(924)	$	1,890,227	AAA Rated	$	2,260,843	$	30,971	$	(18,015)	$	2,273,799
AA Rated	AA Rated	190,266		7,067		—		197,333		AA Rated	159,468		3,862		(129)		163,201
A Rated	A Rated	14,557		441		—		14,998		A Rated	12,512		389		—		12,901
BBB Rated	BBB Rated	5,000		463		—		5,463		BBB Rated	6,000		418		—		6,418
Non-investment grade	Non-investment grade	5,669		—		(176)		5,493		Non-investment grade	5,595		—		(75)		5,520
Not rated	Not rated	118,126		730		(7,399)		111,457		Not rated	139,985		224		(5,737)		134,472
Total investment securities held to maturity		$	2,170,476	$	62,994	$	(8,499)	$	2,224,971
Available for sale investment grades: *
AAA Rated		$	1,319,492	$	45,008	$	(960)	$	1,363,540
AA Rated		45,422		916		(24)		46,314
A Rated		14,264		416		—		14,680
BBB Rated		24,379		594		(6)		24,967
Non-investment grade		11,833		—		(179)		11,654
Not rated		64,576		1,065		(232)		65,409
Total investment securities available for sale		$	1,479,966	$	47,999	$	(1,401)	$	1,526,564
Total										Total	$	2,584,403	$	35,864	$	(23,956)	$	2,596,311


*			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 rated category of the held to maturity debt securities (in the above table) are mainly related to residential mortgage-backed securities issued by Ginnie Mae and Fannie Mae. The investment securities held to maturity portfolio included ~~$118.1~~$140.0 million of investments not rated by the rating agencies with aggregate unrealized losses of ~~$7.4~~$5.7 million at September 30, ~~2020~~2021 related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million.

See Note 7 to the consolidated financial statements for additional information regarding our ~~available for sale and held to maturity securities.~~investments securities portfolio.

7870

Loan Portfolio

The following table reflects the composition of the loan portfolio as of the dates presented:

September 30,
2020 June 30,
2020 March 31,
2020 December 31,
2019 September 30,
2019
($ in thousands)
Loans
Commercial and industrial $ 6,903,345 $ 6,884,689 $ 4,998,731 $ 4,825,997 $ 4,695,608
Commercial real estate:
Commercial real estate 16,815,587 16,571,877 16,390,236 15,996,741 13,365,454
Construction 1,720,775 1,721,352 1,727,046 1,647,018 1,537,590
Total commercial real estate 18,536,362 18,293,229 18,117,282 17,643,759 14,903,044
Residential mortgage 4,284,595 4,405,147 4,478,982 4,377,111 4,133,331
Consumer:
Home equity 457,083 471,115 481,751 487,272 489,808
Automobile 1,341,659 1,369,489 1,436,734 1,451,623 1,436,608
Other consumer 892,542 890,942 914,587 913,446 908,760
Total consumer loans 2,691,284 2,731,546 2,833,072 2,852,341 2,835,176
Total loans*
$ 32,415,586 $ 32,314,611 $ 30,428,067 $ 29,699,208 $ 26,567,159
As a percent of total loans:
Commercial and industrial 21.3 % 21.3 % 16.5 % 16.2 % 17.7 %
Commercial real estate 57.2 56.6 59.5 59.5 56.1
Residential mortgage 13.2 13.6 14.6 14.7 15.5
Consumer loans 8.3 8.5 9.4 9.6 10.7
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %


	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
	($ in thousands)
Loans
Commercial and industrial:
Commercial and industrial	$	4,761,227		$	4,733,771		$	4,784,017		$	4,709,569		$	4,625,880
Commercial and industrial PPP loans	874,033			1,350,684			2,364,627			2,152,139			2,277,465
Total commercial and industrial *	5,635,260			6,084,455			7,148,644			6,861,708			6,903,345
Commercial real estate:
Commercial real estate	17,912,070			17,512,142			16,923,627			16,724,998			16,815,587
Construction	1,804,580			1,752,838			1,786,331			1,745,825			1,720,775
Total commercial real estate	19,716,650			19,264,980			18,709,958			18,470,823			18,536,362
Residential mortgage	4,332,422			4,226,975			4,060,492			4,183,743			4,284,595
Consumer:
Home equity	402,658			410,856			409,576			431,553			457,083
Automobile	1,563,698			1,531,262			1,444,883			1,355,955			1,341,659
Other consumer	956,126			938,926			912,863			913,330			892,542
Total consumer loans	2,922,482			2,881,044			2,767,322			2,700,838			2,691,284
Total loans*	$	32,606,814		$	32,457,454		$	32,686,416		$	32,217,112		$	32,415,586
As a percent of total loans:
Commercial and industrial	17.3		%	18.7		%	21.9		%	21.3		%	21.3		%
Commercial real estate	60.4			59.4			57.2			57.3			57.2
Residential mortgage	13.3			13.0			12.4			13.0			13.2
Consumer loans	9.0			8.9			8.5			8.4			8.3
Total	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

* Includes net unearned discount and deferred loan fees of ~~$116.2~~$73.0 million, ~~$131.3~~$86.1 million, $108.6 million, $95.8 million, and ~~$76.4~~$116.2 million at September 30, ~~2020,~~2021, June 30, ~~2020, and~~2021, March 31, ~~2020, respectively, and net unearned premiums and deferred loan fees of $12.6 million and $18.3 million at~~2021, December 31, ~~2019~~2020, and September 30, ~~2019,~~2020, respectively. Net unearned discounts and deferred loan fees ~~at September 30, 2020, June 30, 2020, and March 31, 2020 include the non-credit discount on purchased credit deteriorated (PCD) loans, and $54.4~~included $27.6 million, $40.9 million, $57.2 million, $43.2 million and ~~$62.1~~$54.4 million of net unearned fees related to PPP loans at September 30, 2021, June 30, 2021, March 31, 2021, December 31, 2020, and ~~June~~September 30, 2020, respectively.

~~Loans increased $101.0~~Commercial and industrial loans decreased $449.2 million, or 29.5 percent on an annualized basis, to ~~approximately $32.4~~$5.6 billion at September 30, ~~2020 from~~2021 as compared to June 30, ~~2020 largely~~2021 mostly due to ~~controlled commercial real estate loan growth and~~ a ~~$63~~$476.7 million ~~increase in~~of PPP loans ~~within~~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 category during the third quarter 2020. The residential mortgage and most consumer loan categories experienced moderate declines in loan balances in the third quarter largely due to loan principal repayment and refinance activity, as well as higher level of residential mortgage loans originated for sale due to current interest rate risk management strategies. Residential mortgage loans held for sale totaled $209.3 million and $120.6 million at September 30, 2020 and June 30, 2020, respectively. See additional information regarding our residential mortgage loan activities below.

~~Total~~portfolio. Non-PPP commercial and industrial loans modestly increased ~~only $18.7~~by $27.5 million ~~from June 30, 2020 to approximately $6.9 billion~~ at September 30, ~~2020 largely due~~2021 as compared to ~~the $55.4 million of PPP loan originations in the third quarter. Excluding the PPP~~June 30, 2021.

Commercial real estate loans ~~commercial and industrial loans decreased $44.5~~(excluding construction loans) increased $399.9 million, or 49.1 percent on an annualized basis, ~~at September 30, 2020 compared~~ to June 30, 2020 as the continued weak economic environment caused by the COVID-19 pandemic has weighed on loan demand particularly in the New Jersey and New York markets, and our existing small to middle market lending relationships have become more strategic with new capital expenditures. Commercial and industrial loans included PPP loans of approximately $2.3 billion and $2.2$17.9 billion at September 30, ~~2020 and~~2021 from June 30, ~~2020, respectively, net of unearned net deferred fees totaling $54.4~~2021 reflecting solid organic growth mainly due to strong demand for non-owner occupied loans across our geographic footprint driven by low interest rates. Construction loans increased $51.7 million to $1.8 billion at September 30, 2021 from June 30, 2021 partially due to higher demand for commercial and ~~$62.1 million, respectively.~~residential construction projects.

Residential mortgage loans increased $105.4 million, or 10.0 percent on an annualized basis during the third quarter 2021 due to continued strong origination of new and refinanced residential mortgage loans totaling $622.1 million for the third quarter 2021 as compared to $753.2 millionand $540.2 million for the second quarter 2021 and third

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~~Commercial real estate loans (excluding construction loans) increased $243.7 million, or 5.9 percent on an annualized basis, to $16.8 billion at September 30,~~quarter 2020, from June 30, 2020 mainly due to strong underwriting within our loan commitment pipeline at June 30, 2020, including many pre-existing, longstanding borrowers, as well as slower repayment activity during the third quarter. However, construction loans decreased $577 thousand to $1.7 billion at September 30, 2020 from June 30, 2020 mainly due to run-off of completed existing projects, and to a lesser extent, migration of such completed projects to permanent financing during the third quarter 2020. Construction demand in ourrespectively. Florida markets, which have mostly reopened during the current COVID-19 pandemic, remains robust as compared to the Northeast and we intend to be strategically competitive for the strongest borrowers and projects.

Total residential mortgage loans decreased $120.6 million to approximately $4.3 billion at September 30, 2020 from June 30, 2020 largely due to loan principal repayment and refinance activity and higher level of residential mortgage loans originated for sale due to current interest rate risk management strategies. New and refinanced residential mortgage loan originations totaled approximately ~~$540.2~~$163 million ~~for the third quarter 2020, as compared to $494.2 million~~and ~~$477.2 million for the second quarter 2020 and third quarter 2019, respectively.~~represented 26 percent of total originations. Of the total originations ~~for~~in the third quarter ~~2020, $385.6~~2021, approximately $232.8 million of residential mortgage loans were originated for sale rather than held for investment ~~and~~as compared to $253.9 million during the second quarter 2021. During the third quarter 2021 we retained over 60 percent of the total residential mortgages originations in our held for investment loan portfolio. We sold approximately ~~$301.2~~$235 million of ~~these loans. We~~residential mortgage loans held for sale during the third quarter 2021 and may continue to sell a large portion of our new fixed rate residential mortgage loan originations during the ~~remainder of 2020~~fourth quarter 2021 based upon normal management of the interest rate risk and mix of the interest earning assets on our balance sheet.

Home equity loans ~~totaled $457.1~~decreased by $8.2 million to $402.7 million at September 30, ~~2020, and moderately decreased $14.0 million~~2021 from June 30, ~~2020.~~2021. New home equity loan volumes and customer usage of existing home equity lines of credit continue to be modest, despite the favorable low interest rate ~~environment caused by the COVID-19 pandemic.~~environment.

Automobile loans ~~decreased~~increased by ~~$27.8~~$32.4 million, or 8.5 percent on an annualized basis, to ~~$1.3~~$1.6 billion at September 30, ~~2020~~2021 as compared to June 30, ~~2020. The~~2021. Consumer demand seen across the auto industry was solid during the first half of 2021 but started to slow in the third quarter ~~annualized decline was 8.1 percent~~2021. We originated as$201 million in auto loans through our ~~new indirect auto loan volumes did not keep pace with the normal portfolio repayment and refinance activity. However, the volume of indirect loans and application activity was higher~~dealership network during the third quarter ~~2020~~2021 as compared to $251 million in the second quarter ~~2020.~~ ~~Our~~2021. Of the total originations our Florida dealership network ~~remained relatively unchanged from the second quarter totaling $14.4~~contributed $30.4 million in auto loan originations, representing approximately 1115 percent of new loans, during the third quarter ~~2020, as compared to $14.3 million, representing approximately 20 percent~~2021. Strong auto loan originations experienced in the first half of ~~new loans,~~2021 slowed during the ~~second~~third quarter ~~2020.~~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.

Other consumer loans increased ~~$1.6~~$17.2 million to ~~$892.5~~$956.1 million at September 30, ~~2020~~2021 as compared to ~~$890.9~~$938.9 million at June 30, ~~2020. The modest increase was~~2021 mainly due to ~~lower~~higher new loan originations and consumer usage ~~and demand within our~~ of collateralized personal lines of ~~credit portfolio.~~credit.

Most of our ~~lending~~lending is in northern and central New Jersey, New York City, Long Island, Florida and ~~Florida,~~Alabama, except for smaller auto and residential mortgage loan portfolios derived from other neighboring states of New Jersey, which could present a geographic and credit risk due to the recent economic downturn within these regions caused by the COVID-19 pandemic and the uncertain path forward to restart the U.S. economy.Jersey. 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.

80For the remainder of 2021, we continue to believe that our non-PPP loan growth will remain strong. In the early stages of the fourth quarter 2021, we are encouraged that our loan origination pipelines remain robust. During the third quarter 2021, approximately 57 percent of our commercial real estate loan growth came from the New York and New Jersey market area. However, there can be no assurance that those positive trends will continue, or balances will not decline from September 30, 2021 given the effects of the COVID-19 pandemic and the potential for unforeseen changes in consumer confidence and the economy, and other market conditions and supply chain issues. We believe that many of our SBA PPP loans will continue to be forgiven in the fourth quarter 2021 in accordance with the rules of this program resulting in further reduction in these loan balances.

Non-performing Assets

Prior to our adoption of the CECL standard on January 1, 2020, our past due loans and non-accrual loans discussed further below excluded those loans which were classified as purchased credit impaired (PCI) loans. Under previous U.S. GAAP, the PCI loans (acquired at a discount that is due, in part, to credit quality) were accounted for on a pool basis and were not subject to delinquency classification in the same manner as loans originated by Valley. Under the CECL standard, Valley's former PCI loan pools are accounted for as purchased credit deteriorated (PCD) loans on a loan level basis and, if applicable, are reported in our past due and non-accrual loans at September 30, 2020, June 30, 2020 and March 31, 2020.

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) ~~and non-accrual debt securities~~ at September 30, ~~2020.~~2021. 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 ~~non-performing assets decreased $20.5~~NPAs increased $31.1 million to ~~$203.6~~$257.7 million at September 30, ~~2020~~2021 as compared to June 30, ~~2020,~~2021 mainly due to a ~~$19.5~~$37.0 million ~~decrease~~increase in non-accrual commercial real estate loans ~~in the third quarter 2020. Non-performing assets~~(see table below). NPAs as a percentage of total loans and ~~non-performing assets~~NPAs totaled ~~0.62~~0.78 percent and 0.69 percent at September 30, ~~2020~~2021 and June 30, ~~2020,~~2021, respectively (as shown in the table below). We believe our total NPAs has remained relatively low as a percentage

of the total loan portfolio over 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, due to the potential for future credit deterioration caused by the uncertain ~~economic~~path of the recovery from the COVID -19 pandemic ~~recession, lack of additional federal stimulus~~ and ~~a number~~some of our borrowers that are still performing under ~~short-term~~ forbearance agreements, management cannot provide assurance that our non-performing assets will not increase substantially from the levels reported at September 30, ~~2020.~~

2021.

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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,
2020 June 30,
2020 March 31,
2020 December 31,
2019 September 30,
2019
($ in thousands)
Accruing past due loans: *
30 to 59 days past due:
Commercial and industrial $ 6,587 $ 6,206 $ 9,780 $ 11,700 $ 5,702
Commercial real estate 26,038 13,912 41,664 2,560 20,851
Construction 142 — 7,119 1,486 11,523
Residential mortgage 22,528 35,263 38,965 17,143 12,945
Total Consumer 8,979 12,962 19,508 13,704 13,079
Total 30 to 59 days past due 64,274 68,343 117,036 46,593 64,100
60 to 89 days past due:
Commercial and industrial 3,954 4,178 7,624 2,227 3,158
Commercial real estate 610 1,543 15,963 4,026 735
Construction — — 49 1,343 7,129
Residential mortgage 3,760 4,169 9,307 4,192 4,417
Total Consumer 1,352 3,786 2,309 2,527 1,577
Total 60 to 89 days past due 9,676 13,676 35,252 14,315 17,016
90 or more days past due:
Commercial and industrial 6,759 5,220 4,049 3,986 4,133
Commercial real estate 1,538 — 161 579 1,125
Residential mortgage 891 3,812 1,798 2,042 1,347
Total Consumer 753 2,082 1,092 711 756
Total 90 or more days past due 9,941 11,114 7,100 7,318 7,361
Total accruing past due loans $ 83,891 $ 93,133 $ 159,388 $ 68,226 $ 88,477
Non-accrual loans: *
Commercial and industrial $ 115,667 $ 130,876 $ 132,622 $ 68,636 $ 75,311
Commercial real estate 41,627 43,678 41,616 9,004 9,560
Construction 2,497 3,308 2,972 356 356
Residential mortgage 23,877 25,776 24,625 12,858 13,772
Total Consumer 7,441 6,947 4,095 2,204 2,050
Total non-accrual loans 191,109 210,585 205,930 93,058 101,049
Other real estate owned (OREO) 7,746 8,283 10,198 9,414 6,415
Other repossessed assets 3,988 3,920 3,842 1,276 2,568
Non-accrual debt securities 783 1,365 531 680 680
Total non-performing assets (NPAs) $ 203,626 $ 224,153 $ 220,501 $ 104,428 $ 110,712
Performing troubled debt restructured loans $ 58,090 $ 53,936 $ 48,024 $ 73,012 $ 79,364
Total non-accrual loans as a % of loans 0.59 % 0.65 % 0.68 % 0.31 % 0.38 %
Total NPAs as a % of loans and NPAs 0.62 0.69 0.72 0.35 0.41
Total accruing past due and non-accrual loans as a % of loans 0.85 0.94 1.20 0.54 0.71
Allowance for loan losses as a % of non-accrual loans 170.08 147.03 137.59 173.83 160.17

* Past due loans and non-accrual loans presented at December 31, 2019 and September 30, 2019 exclude PCI loans. Prior to January 1, 2020, PCI loans were accounted for on a pool basis under U.S. GAAP and were not subject to delinquency classification.


	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
	($ in thousands)
Accruing past due loans:
30 to 59 days past due:
Commercial and industrial	$	2,677		$	3,867		$	3,763		$	6,393		$	6,587
Commercial real estate	22,956			40,524			11,655			35,030			26,038
Construction	—			—			—			315			142
Residential mortgage	9,293			8,479			16,004			17,717			22,528
Total Consumer	5,463			6,242			5,480			10,257			8,979
Total 30 to 59 days past due	40,389			59,112			36,902			69,712			64,274
60 to 89 days past due:
Commercial and industrial	985			1,361			1,768			2,252			3,954
Commercial real estate	5,897			11,451			5,455			1,326			610

Residential mortgage	974			1,608			2,233			10,351			3,760
Total Consumer	1,617			985			1,021			1,823			1,352
Total 60 to 89 days past due	9,473			15,405			10,477			15,752			9,676
90 or more days past due:
Commercial and industrial	2,083			2,351			2,515			9,107			6,759
Commercial real estate	1,942			1,948			—			993			1,538

Residential mortgage	1,002			956			2,472			3,170			891
Total Consumer	325			463			417			271			753
Total 90 or more days past due	5,352			5,718			5,404			13,541			9,941
Total accruing past due loans	$	55,214		$	80,235		$	52,783		$	99,005		$	83,891
Non-accrual loans:
Commercial and industrial	$	100,614		$	102,594		$	108,988		$	106,693		$	115,667
Commercial real estate	95,843			58,893			54,004			46,879			41,627
Construction	17,653			17,660			71			84			2,497
Residential mortgage	33,648			35,941			33,655			25,817			23,877
Total Consumer	4,073			4,924			7,292			5,809			7,441
Total non-accrual loans	251,831			220,012			204,010			185,282			191,109

Other real estate owned (OREO)	3,967			4,523			4,521			5,118			7,746
Other repossessed assets	1,896			2,060			1,857			3,342			3,988
Non-accrual debt securities	—			—			129			815			783
Total non-performing assets (NPAs)	$	257,694		$	226,595		$	210,517		$	194,557		$	203,626
Performing troubled debt restructured loans	$	64,832		$	64,080		$	67,102		$	57,367		$	58,090
Total non-accrual loans as a % of loans	0.77		%	0.68		%	0.62		%	0.58		%	0.59		%
Total NPAs as a % of loans and NPAs	0.78			0.69			0.64			0.60			0.62
Total accruing past due and non-accrual loans as a % of loans	0.94			0.93			0.79			0.88			0.85
Allowance for loan losses as a % of non-accrual loans	136.01			154.23			168.07			183.64			170.08

Loans past due 30 to 59 days decreased ~~$4.1~~$18.7 million to ~~$64.3~~$40.4 million at September 30, ~~2020~~2021 as compared to June 30, 2020 largely due to improved performance in the residential mortgage and consumer loan categories, including CARES Act qualifying forbearance loans that resumed their scheduled monthly payments during the third quarter 2020.2021. Commercial real estate loans ~~increased by $12.1~~past due 30 to 59 days decreased $17.6 million to $23.0 million at September 30, 2021 as compared to June 30, ~~2020 mainly~~2021 largely due to ~~three~~two loan relationships ~~with a combined total of $20.3~~totaling $22.2 million ~~reported in this delinquency category~~that migrated to non-accrual loan status at September 30, ~~2020.~~2021.

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~~While the three loan relationships are internally classified as substandard, management believes they are well secured and in the process of collection.~~

Loans past due 60 to 89 days decreased ~~$4.0~~$5.9 million to ~~$9.7~~$9.5 million at September 30, ~~2020~~2021 as compared to June 30, ~~2020 partly due~~2021. Commercial real estate loans in this delinquency category decreased $5.6 million to ~~improved residential and consumer~~$5.9 million at September 30, 2021 mainly as a result of one $10.9 million loan ~~performance and collection effort results during~~negatively impacted by the ~~third quarter 2020.~~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.

Loans past due 90 days or more and still accruing interest ~~decreased $1.2 million to $9.9~~totaled $5.4 million at September 30, ~~2020~~2021 as compared to ~~$11.1~~$5.7 million at June 30, ~~2020 mainly due to lower residential and consumer delinquencies, partially offset by higher commercial and industrial and commercial real estate delinquencies during the third quarter 2020. All~~2021. All of the loans past due 90 days or more and still accruing reported at September 30, 2021 are considered to be well secured and in the process of collection.

Non-accrual loans ~~decreased $19.5~~increased $31.8 million to ~~$191.1~~$251.8 million at September 30, ~~2020~~2021 as compared to ~~$210.6~~$220.0 million at June 30, ~~2020 largely due to~~2021 mostly driven by a ~~$15.2~~$37.0 million ~~decrease~~increase in the commercial and industrial loan category. The third quarter 2020 loan charge-offs were mostly comprised of the full charge-off of a $6.0 million loan relationship, as well as partial taxi medallion loan charge-offs totaling $6.1 millionreal estate loans. This increase was caused by ~~lower estimated collateral valuations~~two loans totaling $22.2 million and one loan totaling $10.9 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 loans totaling $33.1 million have allocated reserves of $3.7 million within our allowance for loan losses at September 30, ~~2020. Non-accrual loans represented 0.59 percent of total loans at September 30, 2020 compared to 0.65 percent at June 30, 2020.~~2021.

~~During the third quarter 2020, we continued~~We continue to closely monitor our non-performing New York City and Chicago taxi medallion loans totaling ~~$93.1~~$86.3 million and ~~$7.0 million,~~$577 thousand, respectively, within the commercial and industrial loan ~~portfolio~~category at September 30, ~~2020.~~ 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, ~~the remainder~~all of ~~our previously accruing~~the taxi medallion loans ~~were placed~~are on non-accrual ~~status during the first quarter 2020.~~ status. At September 30, ~~2020, non-accrual~~2021, the taxi medallion loans totaling ~~$100.1~~$86.9 million had related reserves of ~~$60.4~~$58.6 million, ~~within the allowance for loan losses~~or 67.4 percent of such loans. The related reserves were relatively unchanged as compared to ~~$106.8 million with related reserves of $61.6 million at~~ June 30, ~~2020.~~2021.

Valley's historical taxi medallion lending criteria had been conservative regarding capping the loan amounts in relation to market valuations, as well as obtaining personal guarantees and other collateral in certain instances. However, the severe decline in the market valuation of taxi medallions has adversely affected the estimated fair valuation of these loans and, as a result, we increased the level of our allowance for loan losses at September 30, 2020. See the "Allowance for Credit Losses" section below for further details. Potential ~~further~~ declines in the market valuation of taxi medallions and the stressed operating environment mainly within ~~both~~ New York City ~~and Chicago~~ due to the COVID-19 pandemic could ~~also~~ 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 reserves of ~~$14.2~~$5.9 million within the allowance for loan losses based upon the ~~impaired~~ taxi medallion loan balances at September 30, ~~2020.~~2021. See the "Allowance for Credit Losses" section below for further details on our reserves.

OREO properties ~~decreased $537 thousand to $7.7~~totaled $4.0 million at September 30, ~~2020 from $8.3 million at~~2021 and declined $556 thousand as compared to June 30, ~~2020 due to normal~~2021. Net losses and gains from the sales ~~activity in the third quarter. Sales~~ of OREO properties ~~resulted in~~totaled a $67 thousand loss and a $268 thousand net gain for the three and nine months ended September 30, 2021, respectively, and net gains oftotaling $109 thousand and $540 thousand for the three and nine months ended September 30, 2020, ~~respectively, as compared to net losses of $417 thousand and net gains of $1.3 million for the three and nine months ended September 30, 2019,~~ respectively. The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled ~~$2.0~~$3.0 million and $1.9 million at September 30, ~~2020.~~2021 and December 31, 2020, 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 or as non-accrual loans) ~~increased $4.2 million to $58.1~~totaled $64.8 million at September 30, ~~2020~~2021 as compared to ~~$53.9~~$64.1 million at June 30, ~~2020.~~2021. Performing TDRs consisted of 8196 loans at September 30, ~~2020.~~2021. On an aggregate basis, the ~~$58.1~~$64.8 million in performing TDRs at September 30, ~~2020~~2021 had a modified weighted average interest rate of approximately ~~4.81~~4.36 percent as compared to a pre-modification weighted average interest rate of ~~4.10~~4.60 percent.

Loan ~~Forbearance.~~Forbearance. In response to the ~~COVID-19~~COVID-19 pandemic and its economic impact toon certain customers, 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. Generally,~~customers, all of which were insignificant. Under the ~~modification terms allow for a~~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 asof ~~payments for up to 90 days, which Valley may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis.~~ 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, ~~2020,~~2021, Valley had approximately ~~1,400~~$98.6 million of outstanding loans ~~with total outstanding balances of $1.1 billion~~ remaining in their payment deferral period under short-term ~~modifications.~~

~~Higher Risk COVID-19 Credit Exposures~~modifications as compared to $142.0 million of loans in deferral at June 30, 2021.. Valley has identified certain borrower industries as being potentially exposed to the effects of economic shutdowns related to the COVID-19 pandemic. These industries include doctor and surgery centers, retail trade, hotels and hospitality, restaurants and food service, and entertainment and recreation. As of September 30, 2020, Valley had outstanding loans of approximately $2.2 billion to borrowers in these industries Commercial real estate forbearances representing approximately ~~7.4~~66 percent of ~~total outstanding loans. Active~~the active deferrals ~~in this category totaled $158 million, or 7.1 percent of total loans~~ at September 30, ~~2020. A large majority~~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 ~~loans within~~their forebearance periods during the ~~higher risk industries were pass-rated under Valley’s internal risk rating system as of September 30, 2020.~~third quarter 2021.

Allowance for Credit Losses for Loans

The allowance for credit losses (ACL) for loans ~~consists of~~includes the allowance for loan losses and the reserve for unfunded credit commitments. ~~Effective January 1, 2020, we adopted the new~~Under CECL, standard, which is based on lifetime expected credit losses rather than incurred losses. At adoption, Valley recorded a $99.6 million increase to its allowance for credit losses for loans, including reserves of $61.6 million related to PCD loans. See Note 5 to the consolidated financial statements for further details on the Day 1 CECL adoption.

~~Our~~our methodology to establish the allowance for loan losses has two basic components: (1) a collective ~~(pooled)~~ reserve component for estimated expected credit losses for pools of loans that share ~~similar~~common risk characteristics and (2) 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 incurred.~~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) ~~lending policies~~the impact of the reasonable and ~~procedures;~~supportable economic forecast, relative probability weightings and reversion period, (ii) ~~current business conditions~~other asset specific risks to the extent they do not exist in the historical loss information, and ~~economic developments that affect~~(iii) net expected recoveries of charged off loan balances. These adjustments are based on qualitative factors not reflected in the ~~loan collectability; (iii) concentration risks by size, type, and geography; (iv)~~quantitative model but are likely to impact the ~~potential volume and migration of loan forbearances to non-performing status;~~ ~~and (v) the effect of external factors such as legal and regulatory requirements on the level~~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 inare the ~~existing portfolio.~~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.~~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 ~~2020,~~2021, we continued to incorporate a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and ~~S-4~~S-1 scenarios. ~~During~~At September 30, 2021, Valley maintained the third quarter 2020, Valley placed increased weightings on S-3 and S-4 alternative downside scenarios as compared to the second quarter due to many factors, including, but not limited to the uncertainty related to additional federal economic stimulus, the resultsmajority of ~~the presidential election, loan customers in deferral of payments, the timing of a COVID-19 vaccine and the severity of future COVID-19~~its

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~~outbreaks and resulting business disruptions. The S-4 forecast is~~weighting to the ~~most severe economic~~Moody’s Baseline scenario and ~~includes~~modestly reduced its combined emphasis on the Moody’s S-3 downside and S-1 upside scenarios as compared to June 30, 2021. The Baseline 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, as well as supply chain constrains contributing to inventory shortages and longer than anticipated elevated levels of inflation.

At September 30, 2021, the Moody's Baseline forecast included the following specific assumptions:

•GDP expansion by over 7.5 percent in the fourth quarter 2021;

•~~Assumes that the COVID-19 crisis will persist and meaningfully impact the economy;~~

•~~National unemployment rate will remain elevated throughout 2020 to 2022, with a peak at 12.3~~Unemployment of 4.5 percent in the ~~second~~fourth quarter ~~2022;~~

•~~Federal funds interest rates will remain at or near zero for~~2021 and improving to 3.4 percent by the ~~foreseeable future;~~third quarter 2022; and

•~~A prolonged~~Strong U.S. economic ~~downturn until the fourth quarter 2021.~~growth driven by continued consumer spending and congressional passage of another fiscal stimulus package.

~~The~~See more details regarding our allowance for credit losses for loans ~~methodology and accounting policy are fully described~~ 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, 2020			June 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019				September 30, 2021			June 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
		($ in thousands)																($ in thousands)
Average loans outstanding	Average loans outstanding	$	32,515,264		$	32,041,200		$	26,136,745		$	31,522,268		$	25,651,195		Average loans outstanding	$	32,698,382		$	32,635,298		$	32,515,264		$	32,641,362		$	31,522,268
Beginning balance - Allowance for credit losses for loans	Beginning balance - Allowance for credit losses for loans	319,723			293,361			158,079			164,604			156,295			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 (1)		—			—			—			37,989			—
Allowance for purchased credit deteriorated (PCD) loans (1)		—			—			—			61,643			—
Impact of ASU No. 2016-13 adoption on January 1, 2020 *																	Impact of ASU No. 2016-13 adoption on January 1, 2020 *	—			—			—			—			37,989
Allowance for purchased credit deteriorated (PCD) loans *																	Allowance for purchased credit deteriorated (PCD) loans *	—			—			—			—			61,643
Beginning balance, adjusted	Beginning balance, adjusted	319,723			293,361			158,079			264,236			156,295			Beginning balance, adjusted	353,724			354,313			319,723			351,354			264,236
Loans charged-off: ~~(2)~~	Loans charged-off: ~~(2)~~																Loans charged-off: ~~(2)~~
Commercial and industrial	Commercial and industrial	(13,965)			(14,024)			(527)			(31,349)			(7,882)			Commercial and industrial	(1,248)			(10,893)			(13,965)			(19,283)			(31,349)
Commercial real estate	Commercial real estate	(695)			(27)			(158)			(766)			(158)			Commercial real estate	—			—			(695)			(382)			(766)

Residential mortgage	Residential mortgage	(7)			(5)			(111)			(348)			(126)			Residential mortgage	—			(1)			(7)			(139)			(348)
Total Consumer		(2,458)			(2,601)			(2,191)			(7,624)			(5,971)
Total consumer																	Total consumer	(771)			(1,480)			(2,458)			(3,389)			(7,624)
Total charge-offs	Total charge-offs	(17,125)			(16,657)			(2,987)			(40,087)			(14,137)			Total charge-offs	(2,019)			(12,374)			(17,125)			(23,193)			(40,087)
Charged-off loans recovered:	Charged-off loans recovered:																Charged-off loans recovered:
Commercial and industrial	Commercial and industrial	428			799			330			1,796			2,008			Commercial and industrial	514			678			428			2,781			1,796
Commercial real estate	Commercial real estate	60			31			28			164			71			Commercial real estate	29			665			60			759			164
Construction	Construction	40			20			—			80			—			Construction	—			—			40			4			80
Residential mortgage	Residential mortgage	31			545			3			626			13			Residential mortgage	228			191			31			576			626
Total Consumer		1,151			509			617			2,454			1,720
Total consumer																	Total consumer	955			1,474			1,151			3,359			2,454
Total recoveries	Total recoveries	1,710			1,904			978			5,120			3,812			Total recoveries	1,726			3,008			1,710			7,479			5,120
Net charge-offs	Net charge-offs	(15,415)			(14,753)			(2,009)			(34,967)			(10,325)			Net charge-offs	(293)			(9,366)			(15,415)			(15,714)			(34,967)
Provision charged for credit losses	Provision charged for credit losses	31,020			41,115			8,700			106,059			18,800			Provision charged for credit losses	3,496			8,777			31,020			21,287			106,059
Ending balance - Allowance for credit for losses		$	335,328		$	319,723		$	164,770		$	335,328		$	164,770
Ending balance - Allowance for credit losses for loans																	Ending balance - Allowance for credit losses for loans	$	356,927		$	353,724		$	335,328		$	356,927		$	335,328
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	$	325,032		$	309,614		$	161,853		$	325,032		$	161,853		Allowance for loan losses	$	342,527		$	339,324		$	325,032		$	342,527		$	325,032
Allowance for unfunded credit commitments	Allowance for unfunded credit commitments	10,296			10,109			2,917			10,296			2,917			Allowance for unfunded credit commitments	14,400			14,400			10,296			14,400			10,296
Allowance for credit losses for loans	Allowance for credit losses for loans	$	335,328		$	319,723		$	164,770		$	335,328		$	164,770		Allowance for credit losses for loans	$	356,927		$	353,724		$	335,328		$	356,927		$	335,328
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	Provision for credit losses for loans	$	30,833		$	41,025		$	8,757		$	105,709		$	20,319		Provision for credit losses for loans	$	3,496		$	5,810		$	30,833		$	17,998		$	105,709
Provision for unfunded credit commitments ~~(3)~~	Provision for unfunded credit commitments ~~(3)~~	187			90			(57)			350			(1,519)			Provision for unfunded credit commitments ~~(3)~~	—			2,967			187			3,289			350
Total provision for credit losses for loans	Total provision for credit losses for loans	$	31,020		$	41,115		$	8,700		$	106,059		$	18,800		Total provision for credit losses for loans	$	3,496		$	8,777		$	31,020		$	21,287		$	106,059

Annualized ratio of net charge-offs to average loans outstanding	Annualized ratio of net charge-offs to average loans outstanding	0.19		%	0.18		%	0.03		%	0.15		%	0.05		%	Annualized ratio of net charge-offs to average loans outstanding	0.00		%	0.11		%	0.19		%	0.06		%	0.15		%

~~(1)~~* The adjustment represents an increase in the allowance for credit losses for loans as a result of the adoption of ASU No. 2016-13 effective January 1, 2020.

~~(2) Charge-offs and recoveries presented for periods prior to January 1, 2020 exclude loans formerly accounting for as PCI loans.~~

~~(3) Periods prior to January 1, 2020 represent the allowance and provision for unfunded letters of credit only~~.

Net loan charge-offs totaled $293 thousand for the third quarter 2021 as compared to $9.4 million and $15.4 million for the second quarter 2021 and third 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 of

~~Net~~taxi medallion loans within the commercial and industrial loan ~~charge-offs totaled $15.4 million~~category totaled $143 thousand for the third quarter ~~2020~~2021 as compared to ~~$14.8~~$1.4 million and ~~$2.0~~$6.1 million for the second quarter ~~2020~~2021 and third quarter ~~2019, respectively. The increase in net loan charge-offs for the third quarter~~ 2020, was mostly driven by the full charge-off of one commercial and industrial loan totaling $6.0 million, which was fully reserved for in our allowance for loan losses at June 30, 2020. The commercial and industrial loan category also included partial charge-offs of taxi medallion loans totaling $6.1 million for the third quarter 2020 as compared to $3.2 million for the second quarter 2020. re~~There were no taxi medallion loan charge-offs during the third quarter 2019.~~spectively. The overall level of loan charge-offs (as presented in the above table) ~~continues~~continued to trend within management's expectations for the credit quality of the loan ~~portfolio.~~portfolio for the third quarter 2021.

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, 2020 June 30, 2020 September 30, 2019
Allowance
Allocation * Allocation
as a % of
Loan
Category Allowance
Allocation* Allocation
as a % of
Loan
Category Allowance
Allocation* Allocation
as a % of
Loan
Category
($ in thousands)
Loan Category:
Commercial and Industrial loans $ 130,409 1.89 % $ 132,039 1.92 % $ 101,002 2.15 %
Commercial real estate loans:
Commercial real estate 128,699 0.77 % 117,743 0.71 % 23,044 0.17 %
Construction 15,951 0.93 % 13,959 0.81 % 25,727 1.67 %
Total commercial real estate loans 144,650 0.78 % 131,702 0.72 % 48,771 0.33 %
Residential mortgage loans 28,614 0.67 % 29,630 0.67 % 5,302 0.13 %
Consumer loans:
Home equity 5,972 1.31 % 4,766 1.01 % 487 0.10 %
Auto and other consumer 15,387 0.69 % 11,477 0.51 % 6,291 0.27 %
Total consumer loans 21,359 0.79 % 16,243 0.59 % 6,778 0.24 %
Total allowance for loan losses 325,032 1.00 % 309,614 0.96 % 161,853 0.61 %
Allowance for unfunded credit commitments 10,296 10,109 2,917
Total allowance for credit losses for loans $ 335,328 $ 319,723 $ 164,770
Allowance for credit losses for loans as a % loans 1.03 % 0.99 % 0.62 %

~~CECL was adopted January 1, 2020. Prior periods reflect the allowance for credit losses for loans under the incurred loss model.~~


	September 30, 2021				June 30, 2021				September 30, 2020
	Allowance Allocation		Allocation as a % of Loan Category		Allowance Allocation		Allocation as a % of Loan Category		Allowance Allocation		Allocation as a % of Loan Category
	($ in thousands)
Loan Category:
Commercial and Industrial loans	$	103,877	1.84	%	$	109,689	1.80	%	$	130,409	1.89	%
Commercial real estate loans:
Commercial real estate	178,206		0.99		168,220		0.96		128,699		0.77
Construction	21,515		1.19		20,919		1.19		15,951		0.93
Total commercial real estate loans	199,721		1.01		189,139		0.98		144,650		0.78
Residential mortgage loans	24,732		0.57		25,303		0.60		28,614		0.67
Consumer loans:
Home equity	4,110		1.02		4,602		1.12		5,972		1.31
Auto and other consumer	10,087		0.40		10,591		0.43		15,387		0.69
Total consumer loans	14,197		0.49		15,193		0.53		21,359		0.79
Total allowance for loan losses	342,527		1.05		339,324		1.05		325,032		1.00
Allowance for unfunded credit commitments	14,400				14,400				10,296
Total allowance for credit losses for loans	$	356,927			$	353,724			$	335,328
Allowance for credit losses for loans as a % loans			1.09	%			1.09	%			1.03	%

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 ~~1.03~~1.09 percent ~~0.99 percent~~at both September 30, 2021 and ~~0.62~~June 30, 2021, and 1.03 percent at September 30, ~~2020, June 30, 2020 and September 30, 2019, respectively.~~2020. During the third quarter ~~2020,~~2021, we recorded a ~~$31.0~~$3.5 million provision for credit losses as compared to ~~$41.1~~$8.8 million and ~~$8.7~~$31.0 million for the second quarter ~~2020~~2021 and the third quarter ~~2019,~~2020, respectively. The third quarter 2021 provision reflects, among other factors, additional quantitative 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 reserve ~~build in~~at September 30, 2021 as compared to June 30, 2021. There was no provision for unfunded credit commitments for the third quarter ~~2020 reflects several factors, including deterioration in Valley's macroeconomic outlook since~~2021 as the ~~end~~overall level of ~~the second quarter, additional qualitative management adjustments~~such reserves remained materially unchanged at September 30, 2021 as compared to reflect the potential for higher levels of credit stress related to borrowers impacted by the COVID-19 pandemic, and the impact of lower valuations of collateral securing our non-performing taxi medallion loan portfolio.June 30, 2021.

At September 30, ~~2020,~~2021, the allowance allocations for credit losses as a percentage of total loans increased ~~for most~~in commercial and industrial and commercial real estate loan categories as compared to June 30, ~~2020. However, the~~2021. The allocated reserves as a percentage of commercial and industrial loans ~~declined~~increased by ~~0.03 percent largely~~4 basis points mainly due to the ~~aforementioned net loan charge-offs in~~third quarter 2021 repayments (loan forgiveness) of PPP loans guaranteed by the ~~third quarter~~

~~2020, as well as moderate growth within the PPP loan portfolio which had~~SBA with no related allowance at September 30, ~~2020 and June 30, 2020.~~ 2021. The ~~allowance for credit losses for loans~~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 ~~1.06 percent at September 30, 2020 and June 30,~~third quarter 2020, respectively.

Capital Adequacy

A significant measure of the strength of a financial institution is its shareholders’ equity. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, shareholders’ equity totaled approximately ~~$4.5~~$4.8 billion and ~~$4.4~~$4.6 billion, respectively, which represented ~~11.1~~11.7 percent and ~~11.7~~11.3 percent of total assets, respectively. During the nine months ended September 30, ~~2020,~~2021, total shareholders’ equity increased by ~~$149.6~~$230.4 million primarily due to ~~(i)~~ net income of ~~$285.2~~$358.8 million ~~(ii) an increase in other comprehensive income of $27.4~~ and a $30.4 million ~~and (iii) a $9.2 million~~ increase attributable to the effect of our stock incentive plan. These positive changes were partially offset by ~~(i)~~ cash dividends declared on common and preferred stock totaling a combined ~~$144.0~~$145.1 million and ~~(ii) a $28.2~~an increase in other comprehensive loss of $13.7 million ~~net cumulative effect adjustment to retained earnings for the adoption of new accounting guidance as of January 1, 2020.~~.

Valley and Valley National Bank are subject to the regulatory capital requirements administered by the ~~FRB~~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, ~~2020~~2021 and December 31, ~~2019,~~2020, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

For regulatory capital purposes, in connection with the Federal Reserve Board’s final interim rule as of April 3, 2020, 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, 25 percent of the reserve build since adoption (i.e., provision for credit losses less net charge-offs) ~~for the nine months ended September 30, 2020~~ will be phased in over the same time frame.

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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, ~~2020~~2021 and December 31, ~~2019:~~2020:


		Actual				Minimum Capital Requirements				To Be Well Capitalized Under Prompt Corrective Action Provision					Actual				Minimum Capital Requirements				To Be Well Capitalized Under Prompt Corrective Action Provision
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
		($ in thousands)													($ in thousands)
As of September 30, 2020
As of September 30, 2021														As of September 30, 2021
Total Risk-based Capital	Total Risk-based Capital													Total Risk-based Capital
Valley	Valley	$	3,733,338	12.37	%	$	3,169,791	10.50	%	N/A		N/A		Valley	$	4,264,369	13.24	%	$	3,382,946	10.50	%	N/A		N/A
Valley National Bank	Valley National Bank	3,772,443		12.50		3,168,912		10.50		$	3,018,011	10.00	%	Valley National Bank	4,368,271		13.55		3,385,194		10.50		$	3,223,994	10.00	%
Common Equity Tier 1 Capital	Common Equity Tier 1 Capital													Common Equity Tier 1 Capital
Valley	Valley	2,930,220		9.71		2,113,194		7.00		N/A		N/A		Valley	3,241,285		10.06		2,255,297		7.00		N/A		N/A
Valley National Bank	Valley National Bank	3,448,166		11.43		2,112,608		7.00		1,961,707		6.50		Valley National Bank	4,119,028		12.78		2,256,796		7.00		2,095,596		6.50
Tier 1 Risk-based Capital	Tier 1 Risk-based Capital													Tier 1 Risk-based Capital
Valley	Valley	3,145,061		10.42		2,566,022		8.50		N/A		N/A		Valley	3,456,126		10.73		2,738,575		8.50		N/A		N/A
Valley National Bank	Valley National Bank	3,448,166		11.43		2,565,310		8.50		2,414,409		8.00		Valley National Bank	4,119,028		12.78		2,740,395		8.50		2,579,195		8.00
Tier 1 Leverage Capital	Tier 1 Leverage Capital													Tier 1 Leverage Capital
Valley	Valley	3,145,061		7.89		1,593,845		4.00		N/A		N/A		Valley	3,456,126		8.63		1,602,010		4.00		N/A		N/A
Valley National Bank	Valley National Bank	3,448,166		8.66		1,593,506		4.00		1,991,882		5.00		Valley National Bank	4,119,028		10.28		1,602,931		4.00		2,003,664		5.00
As of December 31, 2019
As of December 31, 2020														As of December 31, 2020
Total Risk-based Capital	Total Risk-based Capital													Total Risk-based Capital
Valley	Valley	$	3,427,134	11.72	%	$	3,070,687	10.50	%	N/A		N/A		Valley	$	3,802,223	12.64	%	$	3,159,019	10.50	%	N/A		N/A
Valley National Bank	Valley National Bank	3,416,674		11.69		3,069,894		10.50		$	2,923,709	10.00	%	Valley National Bank	3,839,922		12.76		3,158,842		10.50		$	3,008,421	10.00	%
Common Equity Tier 1 Capital	Common Equity Tier 1 Capital													Common Equity Tier 1 Capital
Valley	Valley	2,754,524		9.42		2,047,125		7.00		N/A		N/A		Valley	2,991,085		9.94		2,106,013		7.00		N/A		N/A
Valley National Bank	Valley National Bank	3,152,070		10.78		2,046,596		7.00		1,900,411		6.50		Valley National Bank	3,607,625		11.99		2,105,894		7.00		1,955,473		6.50
Tier 1 Risk-based Capital	Tier 1 Risk-based Capital													Tier 1 Risk-based Capital
Valley	Valley	2,968,530		10.15		2,485,795		8.50		N/A		N/A		Valley	3,205,926		10.66		2,557,301		8.50		N/A		N/A
Valley National Bank	Valley National Bank	3,152,070		10.78		2,485,153		8.50		2,338,967		8.00		Valley National Bank	3,607,625		11.99		2,557,158		8.50		2,406,736		8.00
Tier 1 Leverage Capital	Tier 1 Leverage Capital													Tier 1 Leverage Capital
Valley	Valley	2,968,530		8.76		1,355,378		4.00		N/A		N/A		Valley	3,205,926		8.06		1,591,852		4.00		N/A		N/A
Valley National Bank	Valley National Bank	3,152,070		9.31		1,354,693		4.00		1,693,366		5.00		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, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		($ in thousands, except for share data)					($ in thousands, except for share data)
Common shares outstanding	Common shares outstanding	403,878,744		403,278,390		Common shares outstanding	407,313,664		403,858,998
Shareholders’ equity	Shareholders’ equity	$	4,533,763	$	4,384,188	Shareholders’ equity	$	4,822,498	$	4,592,120
Less: Preferred stock	Less: Preferred stock	209,691		209,691		Less: Preferred stock	209,691		209,691
Less: Goodwill and other intangible assets	Less: Goodwill and other intangible assets	1,449,282		1,460,397		Less: Goodwill and other intangible assets	1,444,967		1,452,891
Tangible common shareholders’ equity	Tangible common shareholders’ equity	$	2,874,790	$	2,714,100	Tangible common shareholders’ equity	$	3,167,840	$	2,929,538
Tangible book value per common share	Tangible book value per common share	$	7.12	$	6.73	Tangible book value per common share	$	7.78	$	7.25
Book value per common share	Book value per common share	$	10.71	$	10.35	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

8981

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.

Typically, our primary source of capital growth is through retention of earnings. Our rate of earnings retention is derived by dividing undistributed earnings per common share by earnings (or net income available to common ~~stockholders)~~shareholders) per common share. Our retention ratio was approximately ~~51.5~~61.6 percent for the nine months ended September 30, ~~2020~~2021 as compared to ~~49.4~~52.7 percent for the year ended December 31, ~~2019.~~2020.

Cash dividends declared amounted to $0.33 per common share for each of the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. 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. The Federal Reserve has cautioned all bank holding companies about distributing dividends which may reduce the level of capital or not allow capital to grow considering the increased capital levels as required under the Basel III rules. Prior to the date of this filing, Valley has received no objection or adverse guidance from the FRB or the OCC regarding the current level of its quarterly common stock dividend. However, the FRB recently reiterated its long-standing guidance that banking organizations should consult them before declaring dividends in excess of earnings for the corresponding quarter. The renewed guidance was largely due to the increased risk of the COVID-19 pandemic negatively impacting the future level of bank earnings. See the risk factors at Part II, Item 1A of this report for additional information.

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, ~~2019~~2020 in the MD&A section - ~~“Contractual Obligations~~“Liquidity and ~~Off-Balance Sheet Arrangements”~~Cash Requirements” and Notes 12 and 13 to the consolidated financial statements included in this report.


Item 3.			Quantitative and Qualitative Disclosures About Market Risk

Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, and commodity prices. Valley’s market risk is composed primarily of interest rate risk. See ~~page 73~~page 66 for a discussion of interest rate sensitivity.


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. ~~Beginning January 1, 2020, Valley adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement~~During the third quarter 2021, we completed the implementation of ~~Credit Losses on Financial~~

~~Instruments”. Valley implemented~~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 ~~the policies,~~our processes and ~~controls~~procedures which, in turn, resulted in changes to our internal control over the estimation of the allowance for credit losses to support the adoption of ASU No. 2016-13. Many controls under this new standard remained unchanged under prior GAAP. New controls were established over the review of economic forecasting projections obtained externally. Except as related to the adoption of ASU No. 2016-13,financial reporting. Valley’s CEO and CFO have ~~also~~ concluded that except for those changes there ~~have not been any~~were no changes in Valley’s internal control over financial reporting in the quarter ended September 30, ~~2020~~2021 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 ~~Valley’s~~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


Item 1.			Legal Proceedings

In the normal course of business, we ~~may be~~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, ~~2019.~~2020.


Item 1A.			Risk Factors

The section titled Risk Factors inPart I, Item 1A of our ~~2019~~2020 Annual Report on Form 10-K includes a discussion of 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 ~~2019~~2020 Annual Report on Form 10-K. Except as presented below, there have been no material changes to these risk factors.

~~We anticipate that~~Cyber-attacks could compromise our information or result in the ~~COVID-19 pandemic will continue to adversely affect us and~~data of our customers ~~counterparties,~~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 ~~third-party service providers. The full extent and duration~~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 ~~adverse impacts on our business,~~proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. Many financial ~~position, results~~institutions and companies engaged in data processing have reported significant breaches in the security of ~~operations,~~their websites or other systems, some of which have involved sophisticated and ~~prospects are currently unknown~~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 ~~could be significant.~~

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 ~~spread of COVID-19 has created a global public-health crisis that has~~breach resulted in ~~widespread volatility and deterioration in business, economic, and market conditions and household incomes, including in~~ the ~~states~~unauthorized access of ~~New Jersey, New York, Florida and Alabama where we conduct nearly all~~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 ~~business. The extent~~systems or that of our vendors which may expose the ~~impact~~data of ~~the COVID-19 pandemic on~~ our ~~capital and liquidity, and on~~customers or disrupt our ~~business, results of operations, financial position and prospects generally will depend on a number of evolving factors, including:~~services, exposing us to significant damage, on-going operational costs and/or reputational harm.

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~~The duration, extent, and severity of the pandemic~~.COVID-19 has not yet been contained and could affect significantly more households and businesses. The duration and severity of the pandemic, including the degree of resurgence in the upcoming late fall and winter months and the timing of any vaccine, continue to be impossible to predict. There remains substantial uncertainty surrounding the pace of economic recovery and the return of business and consumer confidence.

~~The response of governmental and nongovernmental authorities~~. Many of their actions have been directed toward curtailing household and business activity to contain COVID-19 while simultaneously deploying fiscal- and monetary-policy measures to partially mitigate the adverse effects on individual households and businesses. These actions are not always coordinated or consistent across jurisdictions but, in general, have rapidly expanded in scope and intensity, contributing to substantial market volatility. We cannot predict whether and to what extent governmental and nongovernmental authoritiesCyber risk exposure will ~~continue to implement policy measures to assist us and our customers and the failure to do so could have adverse effects on our business.~~

~~The effect on our customers, counterparties, employees, and third-party service providers.~~ COVID-19 and its associated consequences and uncertainties, including increased unemployment rates, are affecting individuals, households, and businesses differently and unevenly and we anticipate will continue to do so. Many, however, have already changed their behavior in response to governmental mandates and advisories to sharply restrain commercial and social interactions and discretionary spending. As a result, our credit, operational, and other risks have generally increased and, for the foreseeable future, are expected to remain elevated or increase ~~further.~~

~~The effect on economies and markets~~.~~Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19~~ in the future ~~is unclear. National, regional,~~due to, among other things, the increasing size and ~~local economies (including the local economies~~prominence of Valley in the ~~markets areas which we serve)~~financial services industry, our expansion of Internet and ~~markets could suffer disruptions that are lasting. Governmental actions are meaningfully influencing~~mobile banking tools and new products based on customer needs, and the ~~interest-rate environment~~system and ~~financial-market activity, which could~~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 ~~results of operations~~business and ~~financial condition. We can provide no assurance that governmental or nongovernmental mitigation efforts will continue or be effective~~result in the ~~future.~~

During the first nine months of 2020, the most notable impacts to our results of operations were a higher provision expense for credit losses, which we expect to continue. Our provision expense was $106.1 million for the first nine months of 2020 as compared to $18.8 million for the same period in 2019. With recent increases in COVID-19 infection rates in our market areas, our forecast of macroeconomic conditions and operating results, including expected lifetime credit losses on our loan portfolio, remains subject to meaningful uncertainty.

Governments have taken unprecedented steps to partially mitigate the adverse effects of their containment measures. For example, on March 27, 2020, the CARES Act was enacted to inject more than $2 trillion of financial assistance into the U.S. economy. The FRB has taken decisive and sweeping actions as well. Since March 15, 2020, these have included a reduction in the target range for the federal funds rate to 0 to 0.25 percent, a program to purchase an indeterminate amount of Treasury securities and agency mortgage-backed securities, and numerous facilities to support the flow of credit to households and businesses.

While there is evidence that our actions and those of governments and others have assisted our customers, counterparties, and third-party service providers and advanced our business and the economy generally it is uncertain how much, if at all, these actions will be effective in the future. For example, while our short-term loan modifications granted to certain customers impacted by COVID-19 may better position them to resume their regular payments to us in the future and enhance our brand and customer loyalty, these modifications have and may continue to negatively impact our cash flows and results of operations, may produce a higher degree of requests for extensions and rewrites than we have anticipated, and may not be as successful as we expect in managing our credit risk. In addition, while the FRB’s monetary policy may benefit us to some degree by supporting economic activity among our customers, this policy and sudden shifts in it may inhibit our ability to growdisclosure or ~~sustain net interest income and effectively manage interest rate risk.~~

~~In order to safeguard the health and wellness~~misuse of our customers and employees, and to comply with applicable government directives, we have modified our business practices, including temporarily closure of certain offices, restricting employee travel and directing employees to work from home whenever possible, temporary closure of some branches and, in branches that remain open, offering only restricted drive-up service or lobby service by

~~appointment, and have implemented our business continuity plans to the extent necessary. These measures, and further actions we may take as required by government authorities~~confidential information or that ~~we otherwise determine are in the best interests~~ of our ~~customers and employees, could increase certain risks, including cybersecurity risks, impair our ability to perform critical functions and adversely impact our results of operations.~~

We are unable to estimate the near-term and ultimate impacts of COVID-19 on our business and operations at this time. The pandemic could cause us to experience higher credit losses in our lending portfolio, additional increases in our allowance for credit losses, impairment of our goodwill and other financial assets, diminished access to capital markets and other funding sources, further reduced demand for our products and services, and other negative impacts on our financial position, results of operations, and prospects. In addition, sustained adverse effects may impair our capital and liquidity positions, require us to take capital actions, prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements, result in downgrades in our credit ratings, and the reduction or elimination of our common stock dividend in future periods.

As a participating lender in the SBA Paycheck Protection Program, we are subject to additional risks of litigation from our customers or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties, which could have a significant adverse impact on our business, financial position, results of operations, and prospects.

The CARES Act included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. On April 16, 2020, the SBA notified lenders that the original $349.0 billion of funding under the PPP was exhausted, and on April 24, 2020, Congress allocated an additional $310.0 billion to the program. We participated as a lender in both rounds of the PPP. Due to the short timeframe between the passing of the CARES Act and the opening of the PPP, there was and continues to be some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. Since the opening of the PPP banks have been subject to class action litigation regarding the process and procedures that such banks used in processing applications for the PPP and their refusal to pay agent fees. Class action litigation has been filed against us, along with many other banks claiming the banks are obligated to pay agent fees. If these cases are not resolved in a manner favorable to us, it may result in significant financial liability and adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial position, results of operations and prospects.

We may have a credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by us, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us, which could adversely impact our business, financial position, results of operations and prospects.

We may be required to consult with the Federal Reserve Bank (FRB) before declaring cash dividends on our common stock, which ultimately may delay, reduce, or eliminate such dividends and adversely affect the market price of our common stock.

Holders of our common stock are only entitled to receive such cash dividends as our Board of Directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so. We may reduce or eliminate our common stock cash dividend in the future depending upon our results of operations, financial condition or other metrics which could be adversely impacted by the ultimate impact of the COVID-19 pandemic, which remains unknown.

In July 2020, the FRB updated its supervisory guidance to provide greater clarity regarding the situations in which bank holding companies, like Valley, may expect an expedited consultation in connection with the declaration of

dividends that exceed quarterly earnings. To qualify, amongst other criteria, total commercial real estate loan concentrations cannot represent 300 percent or more of total capital and the outstanding balance of the commercial real estate loan portfolio cannot increase by 50 percent or more during the prior 36 months. Currently, we believe that Valley does not meet this standard for expedited consultation and approval of its dividend, should it be required, due to strong organic and acquired commercial real estate loan growth over the past three years. As a result, Valley could be subject to a lengthier and possibly more burdensome review process by the FRB when considering paying dividends that exceed quarterly earnings. The delay, reduction or elimination of our quarterly dividend could adversely affect the market price of our common stock. See additional information regarding our quarterly cash dividend and the current rate of earnings retention at the "Capital Adequacy" section of the MD&A.

~~We recently implemented new deposit services for businesses in the cannabis industry which could expose us to additional liabilities and regulatory compliance costs.~~

~~We recently implemented specialized deposit services intended for a limited number of state licensed medical-use (only) cannabis~~ customers. Currently, we provide this new service to one customer; although we anticipate expanding this service to other customers in the future. Medical-use cannabis businesses are legal in numerous states and the District of Columbia, including our primary markets of New Jersey, New York, and Florida. However, such businesses are not legal at the federal level and cannabis remains a Schedule I drug under the Controlled Substances Act of 1970. In 2014, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published guidelines for financial institutions servicing state legal cannabis businesses. We have implemented a comprehensive control framework that includes written policies and procedures related to the on-boarding of such businesses and the monitoring and maintenance of such business accounts that comports with the FinCEN guidance. Additionally, our policies call for due diligence review of the cannabis business before the business is on-boarded, including confirmation that the business is properly licensed and maintains the license in good standing in the applicable state. Throughout the relationship, our policies call for continued monitoring of the business, including site visits, to determine if the business continues to meet our requirements, including maintenance of required licenses and calls for undertaking periodic financial reviews of the business. The Bank’s program is limited to depository products and deposit transactions are monitored for compliance with the applicable state medical program rules and other regulations before approval and acceptance by the Bank’s BSA/AML department.

~~While we believe our policies and procedures will allow us to operate in compliance with the FinCEN guidelines, there~~There can be no assurance that ~~compliance with the FinCEN guidelines will protect us from federal prosecution~~we or ~~other regulatory sanctions. Federal prosecutors have significant discretion and there can be no assurance that the federal prosecutors~~our third-party service providers will not ~~choose to strictly enforce the federal laws governing cannabis. Any change in the federal government’s enforcement position, could potentially subject~~suffer a cyber-attack that exposes us to criminal prosecution and other regulatory sanctions. While we also believe our BSA/AML policies and programs for this new business are sufficient, the medical marijuana business is considered high-risk, thus increasing the risk of a regulatory action against our BSA/AML program that has adverse consequences, including but not limited to, preventing us from undertaking mergers, acquisitions and other expansion activities.

significant damages, operational costs, or reputational harm.


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, ~~2020~~2021 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, 2020 to July 31, 2020 99 $ 7.09 — 4,112,465
August 1, 2020 to August 31, 2020 10,694 7.63 — 4,112,465
September 1, 2020 to September 30, 2020 672 6.60 — 4,112,465
Total 11,465 $ 7.56 —


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	—

(1)Represents 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. The repurchase plan has no stated expiration date. No repurchase plans or programs expired or terminated during the three months ended September 30, ~~2020.~~2021.


Item 6.			Exhibits


(3)	Articles of Incorporation and By-laws:
	(3.1)	Restated Certificate of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 10-Q Quarterly Report filed on August 7, 2020.
	(3.2)	By-laws of the Registrant, as amended and restated, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form 8-K Current Report filed on October 24, 2018.
(10)			Material ~~Contracts~~Contracts:
	~~(10.1)~~(10.2)	Agreement and Plan of Merger , dated as of September 22 , 2021, by and among Valley National Bancorp, ~~2016 Long-Term Stock Incentive Plan, as amended~~Bank Leumi Le-Israel Corporation, a New York corporation and ~~restated~~Volcano Merger Sub Corporation, a New York corporation and subsidiary of Valley , incorporated herein by reference to Exhibit 1.1 to the Registrant’s Form 8-K Current Report filed on ~~January 28,~~September ~~2020.~~2 *7 , 2021.
(31.1)	Certification ~~pursuant to Securities Exchange Rule 13a-14(a)/15d-14(a) signed by~~of Ira Robbins, Chairman of the Board, President and Chief Executive Officer of the ~~Company.~~Company, pursuant to Securities Exchange Rule 13a-14(a).*
(31.2)	Certification ~~pursuant to Securities Exchange Rule 13a-14(a)/15d-14(a) signed by~~of Michael D. Hagedorn, Senior Executive Vice President and Chief Financial Officer of the ~~Company.~~Company, pursuant to Securities Exchange Rule 13a-14(a).*
(32)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ira Robbins, Chairman of the Board, President and Chief Executive Officer of the Company, and Michael D. Hagedorn, Senior Executive Vice President and Chief Financial Officer of the Company.**
(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

9585

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VALLEY NATIONAL BANCORP

(Registrant)

Date:

/s/ Ira Robbins

November ~~6, 2020~~8, 2021

Ira Robbins

Chairman of the Board, President

and Chief Executive Officer

(Principal Executive Officer)

Date:

/s/ Michael D. Hagedorn

November ~~6, 2020~~8, 2021

Michael D. Hagedorn

Senior Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

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Credit exposure— by internally assigned risk rating			Special						Total Non-PCI
	Pass		Mention		Substandard		Doubtful		Loans
	(in thousands)
December 31, 2019
Commercial and industrial	$	3,982,453	$	33,718	$	66,511	$	61,301	$	4,143,983
Commercial real estate	10,781,587		77,884		42,560		862		10,902,893
Construction	1,487,877		7,486		354		0		1,495,717
Total	$	16,251,917	$	119,088	$	109,425	$	62,163	$	16,542,593


Credit exposure— by payment activity	Performing Loans		Non-Performing Loans		Total Non-PCI Loans
	(in thousands)
December 31, 2019
Residential mortgage	$	3,784,084	$	12,858	$	3,796,942
Home equity	374,374		1,646		376,020
Automobile	1,451,018		334		1,451,352
Other consumer	902,478		224		902,702
Total	$	6,511,954	$	15,062	$	6,527,016


	Recorded Investment With No Related Allowance		Recorded Investment With Related Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance
	(in thousands)
December 31, 2019
Commercial and industrial	$	14,617	$	86,243	$	100,860	$	114,875	$	36,662
Commercial real estate:
Commercial real estate	26,046		24,842		50,888		51,258		1,338
Construction	354		0		354		354		0
Total commercial real estate loans	26,400		24,842		51,242		51,612		1,338
Residential mortgage	5,836		4,853		10,689		11,800		518
Consumer loans:
Home equity	366		487		853		956		58
Total consumer loans	366		487		853		956		58
Total	$	47,219	$	116,425	$	163,644	$	179,243	$	38,576


	Business Segment / Reporting Unit*
	Wealth Management		Consumer Lending		Commercial Lending		Investment Management		Total
	(in thousands)
Balance at December 31, 2019	$	21,218	$	306,572	$	825,767	$	220,068	$	1,373,625
Goodwill from business combinations	0		121		1,654		9		1,784
Balance at September 30, 2020	$	21,218	$	306,693	$	827,421	$	220,077	$	1,375,409


Line Item in the Statement of Financial Condition in Which the Hedged Item is Included	Carrying Amount of the Hedged Asset				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(in thousands)
Loans	$	7,138	$	7,510	$	59	$	229


	Nine Months Ended September 30, 2019
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	6,812,001		$	18,839,194		$	4,330,504		$	0	$	29,981,699

Interest income	$	203,897		$	679,833		$	97,189		$	(3,692)	$	977,227
Interest expense	69,504			192,221			44,185			11,810		317,720
Net interest income (loss)	134,393			487,612			53,004			(15,502)		659,507
Provision for credit losses	4,986			13,814			0			0		18,800
Net interest income (loss) after provision for credit losses	129,407			473,798			53,004			(15,502)		640,707
Non-interest income	41,927			29,527			7,365			97,607		176,426
Non-interest expense	56,845			76,729			684			301,151		435,409
Internal expense transfer	58,476			161,803			37,245			(257,524)		0
Income (loss) before income taxes	$	56,013		$	264,793		$	22,440		$	38,478	$	381,724
Return on average interest earning assets (pre-tax)	1.10		%	1.87		%	0.69		%	N/A		1.70		%


	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
	($ in thousands)
Loans
Commercial and industrial	$	6,903,345		$	6,884,689		$	4,998,731		$	4,825,997		$	4,695,608
Commercial real estate:
Commercial real estate	16,815,587			16,571,877			16,390,236			15,996,741			13,365,454
Construction	1,720,775			1,721,352			1,727,046			1,647,018			1,537,590
Total commercial real estate	18,536,362			18,293,229			18,117,282			17,643,759			14,903,044
Residential mortgage	4,284,595			4,405,147			4,478,982			4,377,111			4,133,331
Consumer:
Home equity	457,083			471,115			481,751			487,272			489,808
Automobile	1,341,659			1,369,489			1,436,734			1,451,623			1,436,608
Other consumer	892,542			890,942			914,587			913,446			908,760
Total consumer loans	2,691,284			2,731,546			2,833,072			2,852,341			2,835,176
Total loans*	$	32,415,586		$	32,314,611		$	30,428,067		$	29,699,208		$	26,567,159
As a percent of total loans:
Commercial and industrial	21.3		%	21.3		%	16.5		%	16.2		%	17.7		%
Commercial real estate	57.2			56.6			59.5			59.5			56.1
Residential mortgage	13.2			13.6			14.6			14.7			15.5
Consumer loans	8.3			8.5			9.4			9.6			10.7
Total	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%