UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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☒ | Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended SeptemberJune 30, 20222023
OR
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☐ | Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 1-11277
Valley National Bancorp
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
New Jersey | | | 22-2477875 |
(State or other jurisdiction of Incorporation or Organization) | | | (I.R.S. Employer Identification Number) |
| | | | | |
One Penn Plaza | | | |
New York, | NY | | | 10119 |
(Address of principal executive office) | | | (Zip code) |
973-305-8800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
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 for 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):Act:
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Large accelerated filer | ☒ | Accelerated filer | ☐ | Smaller reporting company | ☐ |
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Non-accelerated filer | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock (no par value), of which 506,356,727507,634,731 shares were outstanding as of NovemberAugust 7, 2022.2023.
TABLE OF CONTENTS
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PART I | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 5. | | |
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Item 6. | | |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
/VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets | (Unaudited) | | |
Cash and due from banks | $ | 431,471 | | | $ | 205,156 | |
Interest bearing deposits with banks | 686,877 | | | 1,844,764 | |
Investment securities: | | | |
Equity securities | 43,318 | | | 36,473 | |
Trading debt securities | 4,100 | | | 38,130 | |
Available for sale debt securities | 1,271,854 | | | 1,128,809 | |
Held to maturity debt securities (net of allowance for credit losses of $1,696 at September 30, 2022 and $1,165 at December 31, 2021) | 3,720,324 | | | 2,667,532 | |
Total investment securities | 5,039,596 | | | 3,870,944 | |
Loans held for sale, at fair value | 6,073 | | | 139,516 | |
Loans | 45,185,764 | | | 34,153,657 | |
Less: Allowance for loan losses | (475,744) | | | (359,202) | |
Net loans | 44,710,020 | | | 33,794,455 | |
Premises and equipment, net | 362,203 | | | 326,306 | |
Lease right of use assets | 314,511 | | | 259,117 | |
Bank owned life insurance | 714,649 | | | 566,770 | |
Accrued interest receivable | 159,406 | | | 96,882 | |
Goodwill | 1,871,505 | | | 1,459,008 | |
Other intangible assets, net | 208,226 | | | 70,386 | |
Other assets | 1,422,964 | | | 813,139 | |
Total Assets | $ | 55,927,501 | | | $ | 43,446,443 | |
Liabilities | | | |
Deposits: | | | |
Non-interest bearing | $ | 15,420,625 | | | $ | 11,675,748 | |
Interest bearing: | | | |
Savings, NOW and money market | 23,559,662 | | | 20,269,620 | |
Time | 6,328,556 | | | 3,687,044 | |
Total deposits | 45,308,843 | | | 35,632,412 | |
Short-term borrowings | 919,283 | | | 655,726 | |
Long-term borrowings | 1,541,097 | | | 1,423,676 | |
Junior subordinated debentures issued to capital trusts | 56,673 | | | 56,413 | |
Lease liabilities | 367,428 | | | 283,106 | |
Accrued expenses and other liabilities | 1,460,348 | | | 311,044 | |
Total Liabilities | 49,653,672 | | | 38,362,377 | |
Shareholders’ Equity | | | |
Preferred stock, no par value; 50,000,000 authorized shares: | | | |
Series A (4,600,000 shares issued at September 30, 2022 and December 31, 2021) | 111,590 | | | 111,590 | |
Series B (4,000,000 shares issued at September 30, 2022 and December 31, 2021) | 98,101 | | | 98,101 | |
Common stock (no par value, authorized 650,000,000 shares; issued 507,896,910 and 423,034,027 shares at September 30, 2022 and December 31, 2021) | 178,185 | | | 148,482 | |
Surplus | 4,972,732 | | | 3,883,035 | |
Retained earnings | 1,100,838 | | | 883,645 | |
Accumulated other comprehensive loss | (165,557) | | | (17,932) | |
Treasury stock, at cost (1,545,408 common shares at September 30, 2022 and 1,596,959 common shares at December 31, 2021) | (22,060) | | | (22,855) | |
Total Shareholders’ Equity | 6,273,829 | | | 5,084,066 | |
Total Liabilities and Shareholders’ Equity | $ | 55,927,501 | | | $ | 43,446,443 | |
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Assets | (Unaudited) | | |
Cash and due from banks | $ | 463,318 | | | $ | 444,325 | |
Interest bearing deposits with banks | 1,491,091 | | | 503,622 | |
Investment securities: | | | |
Equity securities | 61,010 | | | 48,731 | |
Trading debt securities | 3,409 | | | 13,438 | |
Available for sale debt securities | 1,236,946 | | | 1,261,397 | |
Held to maturity debt securities (net of allowance for credit losses of $1,351 at June 30, 2023 and $1,646 at December 31, 2022) | 3,765,487 | | | 3,827,338 | |
Total investment securities | 5,066,852 | | | 5,150,904 | |
Loans held for sale, at fair value | 33,044 | | | 18,118 | |
Loans | 49,877,248 | | | 46,917,200 | |
Less: Allowance for loan losses | (436,432) | | | (458,655) | |
Net loans | 49,440,816 | | | 46,458,545 | |
Premises and equipment, net | 386,584 | | | 358,556 | |
Lease right of use assets | 359,751 | | | 306,352 | |
Bank owned life insurance | 717,681 | | | 717,177 | |
Accrued interest receivable | 225,918 | | | 196,606 | |
Goodwill | 1,868,936 | | | 1,868,936 | |
Other intangible assets, net | 177,946 | | | 197,456 | |
Other assets | 1,471,756 | | | 1,242,152 | |
Total Assets | $ | 61,703,693 | | | $ | 57,462,749 | |
Liabilities | | | |
Deposits: | | | |
Non-interest bearing | $ | 12,434,307 | | | $ | 14,463,645 | |
Interest bearing: | | | |
Savings, NOW and money market | 22,277,326 | | | 23,616,812 | |
Time | 14,908,182 | | | 9,556,457 | |
Total deposits | 49,619,815 | | | 47,636,914 | |
Short-term borrowings | 1,088,899 | | | 138,729 | |
Long-term borrowings | 2,443,533 | | | 1,543,058 | |
Junior subordinated debentures issued to capital trusts | 56,934 | | | 56,760 | |
Lease liabilities | 420,972 | | | 358,884 | |
Accrued expenses and other liabilities | 1,498,356 | | | 1,327,602 | |
Total Liabilities | 55,128,509 | | | 51,061,947 | |
Shareholders’ Equity | | | |
Preferred stock, no par value; 50,000,000 authorized shares: | | | |
Series A (4,600,000 shares issued at June 30, 2023 and December 31, 2022) | 111,590 | | | 111,590 | |
Series B (4,000,000 shares issued at June 30, 2023 and December 31, 2022) | 98,101 | | | 98,101 | |
Common stock (no par value, authorized 650,000,000 shares; issued 507,896,910 shares at June 30, 2023 and December 31, 2022) | 178,187 | | | 178,185 | |
Surplus | 4,974,507 | | | 4,980,231 | |
Retained earnings | 1,379,534 | | | 1,218,445 | |
Accumulated other comprehensive loss | (164,747) | | | (164,002) | |
Treasury stock, at cost (277,480 common shares at June 30, 2023 and 1,522,432 common shares at December 31, 2022) | (1,988) | | | (21,748) | |
Total Shareholders’ Equity | 6,575,184 | | | 6,400,802 | |
Total Liabilities and Shareholders’ Equity | $ | 61,703,693 | | | $ | 57,462,749 | |
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except for per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Interest Income | | | | | | | |
Interest and fees on loans | $ | 496,520 | | | $ | 309,753 | | | $ | 1,229,462 | | | $ | 938,248 | |
Interest and dividends on investment securities: | | | | | | | |
Taxable | 28,264 | | | 14,292 | | | 74,416 | | | 40,174 | |
Tax-exempt | 5,210 | | | 2,609 | | | 12,739 | | | 9,181 | |
Dividends | 2,738 | | | 1,505 | | | 7,490 | | | 5,543 | |
Interest on federal funds sold and other short-term investments | 3,996 | | | 642 | | | 6,026 | | | 1,101 | |
Total interest income | 536,728 | | | 328,801 | | | 1,330,133 | | | 994,247 | |
Interest Expense | | | | | | | |
Interest on deposits: | | | | | | | |
Savings, NOW and money market | 50,674 | | | 10,605 | | | 77,423 | | | 32,896 | |
Time | 15,174 | | | 4,394 | | | 21,274 | | | 21,766 | |
Interest on short-term borrowings | 5,160 | | | 1,464 | | | 10,049 | | | 4,390 | |
Interest on long-term borrowings and junior subordinated debentures | 11,728 | | | 11,312 | | | 31,566 | | | 40,595 | |
Total interest expense | 82,736 | | | 27,775 | | | 140,312 | | | 99,647 | |
Net Interest Income | 453,992 | | | 301,026 | | | 1,189,821 | | | 894,600 | |
Provision (credit) for credit losses for held to maturity securities | 188 | | | 35 | | | 531 | | | (353) | |
Provision for credit losses for loans | 1,835 | | | 3,496 | | | 49,047 | | | 21,287 | |
Net Interest Income After Provision for Credit Losses | 451,969 | | | 297,495 | | | 1,140,243 | | | 873,666 | |
Non-Interest Income | | | | | | | |
Wealth management and trust fees | 9,281 | | | 3,550 | | | 23,989 | | | 10,411 | |
Insurance commissions | 3,750 | | | 1,610 | | | 9,072 | | | 5,805 | |
Service charges on deposit accounts | 10,338 | | | 5,428 | | | 26,617 | | | 15,614 | |
Gains (losses) on securities transactions, net | 323 | | | 787 | | | (1,058) | | | 1,263 | |
Fees from loan servicing | 3,138 | | | 2,894 | | | 8,636 | | | 8,980 | |
Gains on sales of loans, net | 922 | | | 6,442 | | | 5,510 | | | 20,016 | |
| | | | | | | |
Bank owned life insurance | 1,681 | | | 2,018 | | | 5,840 | | | 6,824 | |
Other | 26,761 | | | 19,702 | | | 75,391 | | | 47,877 | |
Total non-interest income | 56,194 | | | 42,431 | | | 153,997 | | | 116,790 | |
Non-Interest Expense | | | | | | | |
Salary and employee benefits expense | 134,572 | | | 93,992 | | | 397,103 | | | 273,190 | |
Net occupancy expense | 26,486 | | | 19,941 | | | 70,906 | | | 59,171 | |
Technology, furniture and equipment expense | 39,365 | | | 21,007 | | | 115,245 | | | 64,956 | |
FDIC insurance assessment | 6,500 | | | 3,644 | | | 16,009 | | | 10,294 | |
Amortization of other intangible assets | 11,088 | | | 5,298 | | | 26,925 | | | 16,753 | |
Professional and legal fees | 17,840 | | | 13,492 | | | 62,998 | | | 27,250 | |
| | | | | | | |
Loss on extinguishment of debt | — | | | — | | | — | | | 8,406 | |
Amortization of tax credit investments | 3,105 | | | 3,079 | | | 9,194 | | | 8,795 | |
Other | 22,683 | | | 14,469 | | | 60,329 | | | 38,213 | |
Total non-interest expense | 261,639 | | | 174,922 | | | 758,709 | | | 507,028 | |
Income Before Income Taxes | 246,524 | | | 165,004 | | | 535,531 | | | 483,428 | |
Income tax expense | 68,405 | | | 42,424 | | | 144,271 | | | 124,626 | |
Net Income | 178,119 | | | 122,580 | | | 391,260 | | | 358,802 | |
Dividends on preferred stock | 3,172 | | | 3,172 | | | 9,516 | | | 9,516 | |
Net Income Available to Common Shareholders | $ | 174,947 | | | $ | 119,408 | | | $ | 381,744 | | | $ | 349,286 | |
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (continued)
(in thousands, except for share data)
| | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
Interest Income | | Interest Income | | | | | | | |
Interest and fees on loans | | Interest and fees on loans | $ | 715,172 | | | $ | 415,577 | | | $ | 1,370,398 | | | $ | 732,942 | |
Interest and dividends on investment securities: | | Interest and dividends on investment securities: | |
Taxable | | Taxable | 31,919 | | | 27,534 | | | 64,208 | | | 45,973 | |
Tax-exempt | | Tax-exempt | 5,575 | | | 5,191 | | | 10,900 | | | 7,708 | |
Dividends | | Dividends | 7,517 | | | 3,076 | | | 12,702 | | | 4,752 | |
Interest on federal funds sold and other short-term investments | | Interest on federal funds sold and other short-term investments | 27,276 | | | 1,569 | | | 49,481 | | | 2,030 | |
| Total interest income | | Total interest income | 787,459 | | | 452,947 | | | 1,507,689 | | | 793,405 | |
Interest Expense | | Interest Expense | |
Interest on deposits: | | Interest on deposits: | |
Savings, NOW and money market | | Savings, NOW and money market | 164,842 | | | 17,122 | | | 315,608 | | | 26,749 | |
Time | | Time | 125,764 | | | 3,269 | | | 206,062 | | | 6,100 | |
Interest on short-term borrowings | | Interest on short-term borrowings | 50,208 | | | 4,083 | | | 84,156 | | | 4,889 | |
Interest on long-term borrowings and junior subordinated debentures | | Interest on long-term borrowings and junior subordinated debentures | 26,880 | | | 10,313 | | | 46,078 | | | 19,838 | |
Total interest expense | | Total interest expense | 367,694 | | | 34,787 | | | 651,904 | | | 57,576 | |
Net Interest Income | | Net Interest Income | 419,765 | | | 418,160 | | | 855,785 | | | 735,829 | |
| (Credit) provision for credit losses for available for sale and held to maturity securities | | (Credit) provision for credit losses for available for sale and held to maturity securities | (282) | | | 286 | | | 4,705 | | | 343 | |
Provision for credit losses for loans | | Provision for credit losses for loans | 6,332 | | | 43,712 | | | 15,782 | | | 47,212 | |
Net Interest Income After Provision for Credit Losses | | Net Interest Income After Provision for Credit Losses | 413,715 | | | 374,162 | | | 835,298 | | | 688,274 | |
Non-Interest Income | | Non-Interest Income | | | | | | | |
Wealth management and trust fees | | Wealth management and trust fees | 11,176 | | | 9,577 | | | 20,763 | | | 14,708 | |
Insurance commissions | | Insurance commissions | 3,139 | | | 3,463 | | | 5,559 | | | 5,322 | |
Capital markets | | Capital markets | 16,967 | | | 14,711 | | | 27,859 | | | 29,071 | |
Service charges on deposit accounts | | Service charges on deposit accounts | 10,542 | | | 10,067 | | | 21,018 | | | 16,279 | |
Gains (losses) on securities transactions, net | | Gains (losses) on securities transactions, net | 217 | | | (309) | | | 595 | | | (1,381) | |
| Fees from loan servicing | | Fees from loan servicing | 2,702 | | | 2,717 | | | 5,373 | | | 5,498 | |
Gains on sales of loans, net | | Gains on sales of loans, net | 1,240 | | | 3,602 | | | 1,729 | | | 4,588 | |
| Bank owned life insurance | | Bank owned life insurance | 2,443 | | | 2,113 | | | 5,027 | | | 4,159 | |
Other | | Other | 11,649 | | | 12,592 | | | 26,451 | | | 19,559 | |
Total non-interest income | | Total non-interest income | 60,075 | | | 58,533 | | | 114,374 | | | 97,803 | |
Non-Interest Expense | | Non-Interest Expense | | | | | | | |
Salary and employee benefits expense | | Salary and employee benefits expense | 149,594 | | | 154,798 | | | 294,580 | | | 262,531 | |
Net occupancy expense | | Net occupancy expense | 25,949 | | | 22,429 | | | 49,205 | | | 44,420 | |
Technology, furniture and equipment expense | | Technology, furniture and equipment expense | 32,476 | | | 49,866 | | | 68,984 | | | 75,880 | |
FDIC insurance assessment | | FDIC insurance assessment | 10,426 | | | 5,351 | | | 19,581 | | | 9,509 | |
Amortization of other intangible assets | | Amortization of other intangible assets | 9,812 | | | 11,400 | | | 20,331 | | | 15,837 | |
Professional and legal fees | | Professional and legal fees | 21,406 | | | 30,409 | | | 38,220 | | | 45,158 | |
| Amortization of tax credit investments | | Amortization of tax credit investments | 5,018 | | | 3,193 | | | 9,271 | | | 6,089 | |
Other | | Other | 28,290 | | | 22,284 | | | 54,965 | | | 37,646 | |
Total non-interest expense | | Total non-interest expense | 282,971 | | | 299,730 | | | 555,137 | | | 497,070 | |
Income Before Income Taxes | | Income Before Income Taxes | 190,819 | | | 132,965 | | | 394,535 | | | 289,007 | |
Income tax expense | | Income tax expense | 51,759 | | | 36,552 | | | 108,924 | | | 75,866 | |
Net Income | | Net Income | 139,060 | | | 96,413 | | | 285,611 | | | 213,141 | |
Dividends on preferred stock | | Dividends on preferred stock | 4,030 | | | 3,172 | | | 7,904 | | | 6,344 | |
Net Income Available to Common Shareholders | | Net Income Available to Common Shareholders | $ | 135,030 | | | $ | 93,241 | | | $ | 277,707 | | | $ | 206,797 | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | 2022 | | 2021 | | 2022 | | 2021 | |
Earnings Per Common Share: | Earnings Per Common Share: | | | | | | | | Earnings Per Common Share: | |
Basic | Basic | $ | 0.35 | | | $ | 0.29 | | | $ | 0.80 | | | $ | 0.86 | | Basic | $ | 0.27 | | | $ | 0.18 | | | $ | 0.55 | | | $ | 0.45 | |
Diluted | Diluted | 0.34 | | | 0.29 | | | 0.79 | | | 0.86 | | Diluted | 0.27 | | | 0.18 | | | 0.55 | | | 0.44 | |
Cash Dividends Declared per Common Share | 0.11 | | | 0.11 | | | 0.33 | | | 0.33 | | |
Weighted Average Number of Common Shares Outstanding: | | |
Basic | 506,342,200 | | | 406,824,160 | | | 478,383,342 | | | 405,986,114 | | |
Diluted | 508,690,997 | | | 409,238,001 | | | 480,625,357 | | | 408,509,767 | | |
|
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | $ | 178,119 | | | $ | 122,580 | | | $ | 391,260 | | | $ | 358,802 | | Net income | $ | 139,060 | | | $ | 96,413 | | | $ | 285,611 | | | $ | 213,141 | |
Other comprehensive loss, net of tax: | Other comprehensive loss, net of tax: | | Other comprehensive loss, net of tax: | |
Unrealized gains and losses on available for sale securities | Unrealized gains and losses on available for sale securities | | Unrealized gains and losses on available for sale securities | |
Net losses arising during the period | Net losses arising during the period | (57,242) | | | (3,953) | | | (148,403) | | | (15,860) | | Net losses arising during the period | (18,051) | | | (52,269) | | | (881) | | | (91,161) | |
Less reclassification adjustment for net gains included in net income | Less reclassification adjustment for net gains included in net income | (12) | | | (613) | | | (22) | | | (493) | | Less reclassification adjustment for net gains included in net income | — | | | — | | | — | | | (10) | |
Total | Total | (57,254) | | | (4,566) | | | (148,425) | | | (16,353) | | Total | (18,051) | | | (52,269) | | | (881) | | | (91,171) | |
| Unrealized gains and losses on derivatives (cash flow hedges) | Unrealized gains and losses on derivatives (cash flow hedges) | | | | | | | | Unrealized gains and losses on derivatives (cash flow hedges) | | | | | | | |
Net (losses) gains on derivatives arising during the period | Net (losses) gains on derivatives arising during the period | (85) | | | (96) | | | 110 | | | (69) | | Net (losses) gains on derivatives arising during the period | (3,573) | | | (23) | | | (775) | | | 195 | |
Less reclassification adjustment for net (gains) losses included in net income | (13) | | | 743 | | | 293 | | | 1,928 | | |
Less reclassification adjustment for net losses (gains) included in net income | | Less reclassification adjustment for net losses (gains) included in net income | 516 | | | (80) | | | 895 | | | 306 | |
Total | Total | (98) | | | 647 | | | 403 | | | 1,859 | | Total | (3,057) | | | (103) | | | 120 | | | 501 | |
Defined benefit pension plan | | | | | | | | |
Defined benefit pension and postretirement benefit plans | | Defined benefit pension and postretirement benefit plans | | | | | | | |
| Amortization of actuarial net loss | Amortization of actuarial net loss | 132 | | | 279 | | | 397 | | | 837 | | Amortization of actuarial net loss | 8 | | | 133 | | | 16 | | | 265 | |
| Total other comprehensive loss | Total other comprehensive loss | (57,220) | | | (3,640) | | | (147,625) | | | (13,657) | | Total other comprehensive loss | (21,100) | | | (52,239) | | | (745) | | | (90,405) | |
Total comprehensive income | Total comprehensive income | $ | 120,899 | | | $ | 118,940 | | | $ | 243,635 | | | $ | 345,145 | | Total comprehensive income | $ | 117,960 | | | $ | 44,174 | | | $ | 284,866 | | | $ | 122,736 | |
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the NineSix Months Ended SeptemberJune 30, 20222023
| | | 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, 2021 | $ | 209,691 | | | 421,437 | | | $ | 148,482 | | | $ | 3,883,035 | | | $ | 883,645 | | | $ | (17,932) | | | $ | (22,855) | | | $ | 5,084,066 | | |
Balance - December 31, 2022 | | Balance - December 31, 2022 | $ | 209,691 | | | 506,374 | | | $ | 178,185 | | | $ | 4,980,231 | | | $ | 1,218,445 | | | $ | (164,002) | | | $ | (21,748) | | | $ | 6,400,802 | |
Adjustment due to the adoption of ASU 2022-02 | | Adjustment due to the adoption of ASU 2022-02 | — | | | — | | | — | | | — | | | 990 | | | — | | | — | | | 990 | |
Balance - January 1, 2023 | | Balance - January 1, 2023 | 209,691 | | | 506,374 | | | 178,185 | | | 4,980,231 | | | 1,219,435 | | | (164,002) | | | (21,748) | | | 6,401,792 | |
Net income | | Net income | — | | | — | | | — | | | — | | | 146,551 | | | — | | | — | | | 146,551 | |
Other comprehensive income, net of tax | | Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 20,355 | | | — | | | 20,355 | |
Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.52 per share | | Preferred stock, Series B, $0.52 per share | — | | | — | | | — | | | — | | | (2,077) | | | — | | | — | | | (2,077) | |
Common stock, $0.11 per share | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,488) | | | — | | | — | | | (56,488) | |
Effect of stock incentive plan, net | | Effect of stock incentive plan, net | — | | | 1,061 | | | 1 | | | (12,569) | | | (3,994) | | | — | | | 16,057 | | | (505) | |
Common stock issued | | Common stock issued | — | | | 327 | | | — | | | — | | | (650) | | | — | | | 4,400 | | | 3,750 | |
| Balance - March 31, 2023 | | Balance - March 31, 2023 | $ | 209,691 | | | 507,762 | | | $ | 178,186 | | | $ | 4,967,662 | | | $ | 1,300,980 | | | $ | (143,647) | | | $ | (1,291) | | | $ | 6,511,581 | |
Net income | Net income | — | | | — | | | — | | | — | | | 116,728 | | | — | | | — | | | 116,728 | | Net income | — | | | — | | | — | | | — | | | 139,060 | | | — | | | — | | | 139,060 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (38,166) | | | — | | | (38,166) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (21,100) | | | — | | | (21,100) | |
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 | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | |
Preferred stock, Series B, $0.56 per share | | Preferred stock, Series B, $0.56 per share | — | | | — | | | — | | | — | | | (2,233) | | | — | | | — | | | (2,233) | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (46,803) | | | — | | | — | | | (46,803) | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,474) | | | — | | | — | | | (56,474) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 972 | | | — | | | (10,799) | | | (5,173) | | | — | | | 13,220 | | | (2,752) | | Effect of stock incentive plan, net | — | | | 157 | | | 1 | | | 6,845 | | | (2) | | | — | | | 1,395 | | | 8,239 | |
| Purchase of treasury stock | — | | | (1,015) | | | — | | | — | | | — | | | — | | | (13,517) | | | (13,517) | | |
Balance - March 31, 2022 | 209,691 | | | 421,394 | | | 148,482 | | | 3,872,236 | | | 945,225 | | | (56,098) | | | (23,152) | | | 5,096,384 | | |
Net income | — | | | — | | | — | | | — | | | 96,413 | | | — | | | — | | | 96,413 | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (52,239) | | | — | | | (52,239) | | |
Cash dividends declared: | | |
Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | |
Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | |
Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,211) | | | — | | | — | | | (56,211) | | |
Effect of stock incentive plan, net | — | | | 72 | | | 1 | | | 5,125 | | | (109) | | | — | | | 892 | | | 5,909 | | |
Common stock issued in acquisition | — | | | 84,863 | | | 29,702 | | | 1,088,127 | | | — | | | — | | | — | | | 1,117,829 | | |
Balance - June 30, 2022 | 209,691 | | | 506,329 | | | 178,185 | | | 4,965,488 | | | 982,146 | | | (108,337) | | | (22,260) | | | 6,204,913 | | |
Net income | — | | | — | | | — | | | — | | | 178,119 | | | — | | | — | | | 178,119 | | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (57,220) | | | — | | | (57,220) | | |
Cash dividends declared: | | |
Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | |
Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | |
Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,242) | | | — | | | — | | | (56,242) | | |
Effect of stock incentive plan, net | — | | | 23 | | | — | | | 7,244 | | | (13) | | | — | | | 200 | | | 7,431 | | |
Balance - September 30, 2022 | $ | 209,691 | | | 506,352 | | | $ | 178,185 | | | $ | 4,972,732 | | | $ | 1,100,838 | | | $ | (165,557) | | | $ | (22,060) | | | $ | 6,273,829 | | |
Common stock repurchased | | Common stock repurchased | — | | (300) | | — | | — | | — | | — | | (2,092) | | (2,092) |
Balance - June 30, 2023 | | Balance - June 30, 2023 | $ | 209,691 | | | 507,619 | | | $ | 178,187 | | | $ | 4,974,507 | | | $ | 1,379,534 | | | $ | (164,747) | | | $ | (1,988) | | | $ | 6,575,184 | |
|
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (continued)
For the NineSix Months Ended SeptemberJune 30, 20212022
| | | Common Stock | | Accumulated | | | Common Stock | | Accumulated | |
| | Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity | | Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| | (in thousands) | | (in thousands) |
Balance - December 31, 2020 | $ | 209,691 | | | 403,859 | | | $ | 141,746 | | | $ | 3,637,468 | | | $ | 611,158 | | | $ | (7,718) | | | $ | (225) | | | $ | 4,592,120 | | |
Balance - December 31, 2021 | | Balance - December 31, 2021 | $ | 209,691 | | | 421,437 | | | $ | 148,482 | | | $ | 3,883,035 | | | $ | 883,645 | | | $ | (17,932) | | | $ | (22,855) | | | $ | 5,084,066 | |
Net income | Net income | — | | | — | | | — | | | — | | | 115,710 | | | — | | | — | | | 115,710 | | Net income | — | | | — | | | — | | | — | | | 116,728 | | | — | | | — | | | 116,728 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (9,287) | | | — | | | (9,287) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (38,166) | | | — | | | (38,166) | |
Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,281) | | | — | | | — | | | (45,281) | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (46,803) | | | — | | | — | | | (46,803) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 1,939 | | | 689 | | | 14,480 | | | (5,764) | | | — | | | 175 | | | 9,580 | | Effect of stock incentive plan, net | — | | | 972 | | | — | | | (10,799) | | | (5,173) | | | — | | | 13,220 | | | (2,752) | |
Common stock repurchased | | Common stock repurchased | — | | | (1,015) | | | — | | | — | | | — | | | — | | | (13,517) | | | (13,517) | |
| Balance - March 31, 2021 | 209,691 | | | 405,798 | | | 142,435 | | | 3,651,948 | | | 672,651 | | | (17,005) | | | (50) | | | 4,659,670 | | |
Balance - March 31, 2022 | | Balance - March 31, 2022 | $ | 209,691 | | | 421,394 | | | $ | 148,482 | | | $ | 3,872,236 | | | $ | 945,225 | | | $ | (56,098) | | | $ | (23,152) | | | $ | 5,096,384 | |
Net income | Net income | — | | | — | | | — | | | — | | | 120,512 | | | — | | | — | | | 120,512 | | Net income | — | | | — | | | — | | | — | | | 96,413 | | | — | | | — | | | 96,413 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (730) | | | — | | | (730) | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (52,239) | | | — | | | (52,239) | |
Cash dividends declared: | Cash dividends declared: | | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,093) | | | — | | | — | | | (45,093) | | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,211) | | | — | | | — | | | (56,211) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 286 | | | 115 | | | 6,688 | | | (130) | | | — | | | (53) | | | 6,620 | | Effect of stock incentive plan, net | — | | | 72 | | | 1 | | | 5,125 | | | (109) | | | — | | | 892 | | | 5,909 | |
Common stock issued | | Common stock issued | — | | | 84,863 | | | 29,702 | | | 1,088,127 | | | — | | | — | | | — | | | 1,117,829 | |
Balance - June 30, 2022 | | Balance - June 30, 2022 | $ | 209,691 | | | 506,329 | | | $ | 178,185 | | | $ | 4,965,488 | | | $ | 982,146 | | | $ | (108,337) | | | $ | (22,260) | | | $ | 6,204,913 | |
| Balance - June 30, 2021 | 209,691 | | | 406,084 | | | 142,550 | | | 3,658,636 | | | 744,768 | | | (17,735) | | | (103) | | | 4,737,807 | | |
Net income | — | | | — | | | — | | | — | | | 122,580 | | | — | | | — | | | 122,580 | | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | (3,640) | | | — | | | (3,640) | | |
Cash dividends declared: | | |
Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | | |
Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | | |
Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (45,228) | | | — | | | — | | | (45,228) | | |
Effect of stock incentive plan, net | — | | | 1,230 | | | 426 | | | 13,831 | | | (168) | | | — | | | 62 | | | 14,151 | | |
Balance - September 30, 2021 | $ | 209,691 | | | 407,314 | | | $ | 142,976 | | | $ | 3,672,467 | | | $ | 818,780 | | | $ | (21,375) | | | $ | (41) | | | $ | 4,822,498 | | |
|
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 391,260 | | | $ | 358,802 | | Net income | $ | 285,611 | | | $ | 213,141 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 52,545 | | | 40,799 | | Depreciation and amortization | 21,425 | | | 18,297 | |
Stock-based compensation | Stock-based compensation | 20,978 | | | 15,852 | | Stock-based compensation | 16,773 | | | 13,420 | |
Provision for credit losses | Provision for credit losses | 49,578 | | | 20,934 | | Provision for credit losses | 20,487 | | | 47,555 | |
Net amortization of premiums and accretion of discounts on securities and borrowings | Net amortization of premiums and accretion of discounts on securities and borrowings | 10,603 | | | 22,145 | | Net amortization of premiums and accretion of discounts on securities and borrowings | (639) | | | 9,680 | |
Amortization of other intangible assets | Amortization of other intangible assets | 26,925 | | | 16,753 | | Amortization of other intangible assets | 20,331 | | | 15,837 | |
Losses (gains) on securities transactions, net | 1,058 | | | (1,263) | | |
Losses (gains) on available for sale and held to maturity debt securities, net | | Losses (gains) on available for sale and held to maturity debt securities, net | 33 | | | (69) | |
Proceeds from sales of loans held for sale | Proceeds from sales of loans held for sale | 378,216 | | | 932,274 | | Proceeds from sales of loans held for sale | 72,925 | | | 331,298 | |
Gains on sales of loans, net | Gains on sales of loans, net | (5,510) | | | (20,016) | | Gains on sales of loans, net | (1,729) | | | (4,588) | |
Originations of loans held for sale | Originations of loans held for sale | (244,441) | | | (774,443) | | Originations of loans held for sale | (76,943) | | | (210,048) | |
Losses (gains) on sales of assets, net | 372 | | | (380) | | |
Loss on extinguishment of debt | — | | | 8,406 | | |
(Gains) losses on sales of assets, net | | (Gains) losses on sales of assets, net | (286) | | | 265 | |
| Net change in: | Net change in: | | Net change in: | |
Fair value of borrowings hedged by derivative transactions | Fair value of borrowings hedged by derivative transactions | (30,585) | | | — | | Fair value of borrowings hedged by derivative transactions | (291) | | | (20,194) | |
Trading debt securities | Trading debt securities | 34,030 | | | (4,797) | | Trading debt securities | 10,029 | | | 39,580 | |
Lease right of use assets | | Lease right of use assets | (53,412) | | | 521 | |
Cash surrender value of bank owned life insurance | Cash surrender value of bank owned life insurance | (5,840) | | | (6,824) | | Cash surrender value of bank owned life insurance | (5,722) | | | (4,159) | |
Accrued interest receivable | Accrued interest receivable | (36,807) | | | 8,157 | | Accrued interest receivable | (29,312) | | | (12,083) | |
Other assets | Other assets | (402,391) | | | 97,341 | | Other assets | (230,017) | | | (191,597) | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 990,607 | | | (130,698) | | Accrued expenses and other liabilities | 233,419 | | | 558,675 | |
Net cash provided by operating activities | Net cash provided by operating activities | 1,230,598 | | | 583,042 | | Net cash provided by operating activities | 282,682 | | | 805,531 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Net loan originations and purchases | Net loan originations and purchases | (5,114,908) | | | (405,204) | | Net loan originations and purchases | (3,009,649) | | | (3,495,486) | |
Equity securities: | Equity securities: | | Equity securities: | |
Purchases | Purchases | (4,148) | | | (3,163) | | Purchases | (9,662) | | | (1,538) | |
Sales | Sales | 1,725 | | | 1,227 | | Sales | 771 | | | 1,110 | |
Held to maturity debt securities: | Held to maturity debt securities: | | Held to maturity debt securities: | |
Purchases | Purchases | (666,188) | | | (1,062,202) | | Purchases | (114,544) | | | (545,934) | |
| Maturities, calls and principal repayments | Maturities, calls and principal repayments | 410,760 | | | 633,272 | | Maturities, calls and principal repayments | 175,492 | | | 294,052 | |
Available for sale debt securities: | Available for sale debt securities: | | Available for sale debt securities: | |
Purchases | Purchases | (49,618) | | | (367,866) | | Purchases | (41,470) | | | (38,000) | |
Sales | Sales | 12,846 | | | 91,978 | | Sales | 17,910 | | | 12,846 | |
Maturities, calls and principal repayments | Maturities, calls and principal repayments | 192,868 | | | 376,875 | | Maturities, calls and principal repayments | 44,534 | | | 150,262 | |
Death benefit proceeds from bank owned life insurance | Death benefit proceeds from bank owned life insurance | 4,680 | | | 3,850 | | Death benefit proceeds from bank owned life insurance | 5,218 | | | 3,089 | |
Proceeds from sales of real estate property and equipment | Proceeds from sales of real estate property and equipment | 7,400 | | | 4,982 | | Proceeds from sales of real estate property and equipment | 490 | | | 7,265 | |
Proceeds from sales of loans held for investment | — | | | 4,498 | | |
| Purchases of real estate property and equipment | Purchases of real estate property and equipment | (50,511) | | | (19,805) | | Purchases of real estate property and equipment | (49,468) | | | (35,164) | |
| Cash and cash equivalent acquired in acquisitions, net | Cash and cash equivalent acquired in acquisitions, net | 321,540 | | | — | | Cash and cash equivalent acquired in acquisitions, net | — | | | 321,540 | |
Net cash used in investing activities | Net cash used in investing activities | (4,933,554) | | | (741,558) | | Net cash used in investing activities | (2,980,378) | | | (3,325,958) | |
|
| 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, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Net change in deposits | Net change in deposits | $ | 2,646,434 | | | $ | 1,697,003 | | Net change in deposits | $ | 1,982,901 | | | $ | 1,218,642 | |
Net change in short-term borrowings | Net change in short-term borrowings | 159,763 | | | (364,612) | | Net change in short-term borrowings | 950,170 | | | 763,284 | |
Proceeds from issuance of long-term borrowings, net | Proceeds from issuance of long-term borrowings, net | 147,508 | | | 295,922 | | Proceeds from issuance of long-term borrowings, net | 1,250,000 | | | — | |
Repayments of long-term borrowings | Repayments of long-term borrowings | — | | | (1,168,465) | | Repayments of long-term borrowings | (350,000) | | | — | |
Cash dividends paid to preferred shareholders | Cash dividends paid to preferred shareholders | (9,516) | | | (9,516) | | Cash dividends paid to preferred shareholders | (7,904) | | | (6,344) | |
Cash dividends paid to common shareholders | Cash dividends paid to common shareholders | (148,345) | | | (134,860) | | Cash dividends paid to common shareholders | (113,611) | | | (92,618) | |
Purchase of common shares to treasury | Purchase of common shares to treasury | (24,013) | | | (699) | | Purchase of common shares to treasury | (11,133) | | | (23,886) | |
Common stock issued, net | Common stock issued, net | 106 | | | 15,199 | | Common stock issued, net | 3,750 | | | 106 | |
Other, net | Other, net | (553) | | | (505) | | Other, net | (15) | | | (365) | |
Net cash provided by financing activities | Net cash provided by financing activities | 2,771,384 | | | 329,467 | | Net cash provided by financing activities | 3,704,158 | | | 1,858,819 | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | (931,572) | | | 170,951 | | Net change in cash and cash equivalents | 1,006,462 | | | (661,608) | |
Cash and cash equivalents at beginning of year | Cash and cash equivalents at beginning of year | 2,049,920 | | | 1,329,205 | | Cash and cash equivalents at beginning of year | 947,947 | | | 2,049,920 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 1,118,348 | | | $ | 1,500,156 | | Cash and cash equivalents at end of period | $ | 1,954,409 | | | $ | 1,388,312 | |
| 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 | $ | 129,504 | | | $ | 109,661 | | Interest on deposits and borrowings | $ | 571,741 | | | $ | 57,151 | |
Federal and state income taxes | Federal and state income taxes | 122,170 | | | 148,674 | | Federal and state income taxes | 122,130 | | | 77,285 | |
Supplemental schedule of non-cash investing activities: | Supplemental schedule of non-cash investing activities: | | Supplemental schedule of non-cash investing activities: | |
Transfer of loans to other real estate owned | Transfer of loans to other real estate owned | $ | — | | | $ | 141 | | Transfer of loans to other real estate owned | $ | 903 | | | $ | — | |
| Transfer of loans to loans held for sale | | Transfer of loans to loans held for sale | 10,000 | | | — | |
Lease right of use assets obtained in exchange for operating lease liabilities | Lease right of use assets obtained in exchange for operating lease liabilities | 32,604 | | | 40,296 | | Lease right of use assets obtained in exchange for operating lease liabilities | 81,727 | | | 24,745 | |
Acquisitions: | Acquisitions: | | Acquisitions: | |
Non-cash assets acquired: | Non-cash assets acquired: | | Non-cash assets acquired: | |
Equity securities | Equity securities | 6,239 | | | — | | Equity securities | — | | | 6,239 | |
Investment securities available for sale | Investment securities available for sale | 505,928 | | | — | | Investment securities available for sale | — | | | 505,928 | |
Investment securities held to maturity | Investment securities held to maturity | 806,627 | | | — | | Investment securities held to maturity | — | | | 806,627 | |
Loans, net | Loans, net | 5,844,070 | | | — | | Loans, net | — | | | 5,844,070 | |
Premises and equipment, net | Premises and equipment, net | 38,827 | | | — | | Premises and equipment, net | — | | | 38,827 | |
Lease right of use assets | Lease right of use assets | 49,434 | | | — | | Lease right of use assets | — | | | 49,434 | |
Bank owned life insurance | Bank owned life insurance | 126,861 | | | — | | Bank owned life insurance | — | | | 126,861 | |
Accrued interest receivable | Accrued interest receivable | 25,717 | | | — | | Accrued interest receivable | — | | | 25,717 | |
Goodwill | Goodwill | 407,522 | | | — | | Goodwill | — | | | 407,522 | |
Other intangible assets, net | Other intangible assets, net | 159,587 | | | — | | Other intangible assets, net | — | | | 159,587 | |
Other assets | Other assets | 158,352 | | | — | | Other assets | — | | | 158,352 | |
Total non-cash assets acquired | Total non-cash assets acquired | $ | 8,129,164 | | | $ | — | | Total non-cash assets acquired | $ | — | | | $ | 8,129,164 | |
Liabilities assumed: | Liabilities assumed: | | | | Liabilities assumed: | | | |
Deposits | Deposits | 7,029,997 | | | — | | Deposits | — | | | 7,029,997 | |
Short-term borrowings | Short-term borrowings | 103,794 | | | — | | Short-term borrowings | — | | | 103,794 | |
Lease liabilities | Lease liabilities | 79,844 | | | — | | Lease liabilities | — | | | 79,844 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 119,240 | | | — | | Accrued expenses and other liabilities | — | | | 119,240 | |
Total liabilities assumed | Total liabilities assumed | $ | 7,332,875 | | | $ | — | | Total liabilities assumed | $ | — | | | $ | 7,332,875 | |
Non-cash net assets acquired | Non-cash net assets acquired | $ | 796,289 | | | $ | — | | Non-cash net assets acquired | — | | | 796,289 | |
Net cash and cash equivalents acquired in acquisition | Net cash and cash equivalents acquired in acquisition | $ | 321,540 | | | $ | — | | Net cash and cash equivalents acquired in acquisition | $ | — | | | $ | 321,540 | |
Common stock issued in acquisition | Common stock issued in acquisition | $ | 1,117,829 | | | $ | — | | Common stock issued in acquisition | $ | — | | | $ | 1,117,829 | |
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The unaudited consolidated financial statementsstatements of Valley National Bancorp, a New Jersey corporationCorporation (Valley), include the accounts of its commercial bank subsidiary, Valley National Bank (the Bank), and all other entities in which Valley has a controlling financial interest. All inter-company transactions and balances have been eliminated.eliminated. The accounting and reporting policies of Valley conform to U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation, including changes to our segment reporting structure, as further discussed in Note 9 and Note 15.presentation.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at SeptemberJune 30, 20222023 and for all periods presented have been made. The results of operations for the three and ninesix months ended SeptemberJune 30, 20222023 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, 2021.2022.
Significant Estimates. In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include: the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results may differ from those estimates. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date.
Note 2. Business Combinations
Acquisitions
Bank Leumi Le-Israel Corporation. On April 1, 2022, Valley completed its acquisition of Bank Leumi Le-Israel Corporation, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, collectively referred to as "Bank Leumi USA". Bank Leumi USA maintained its headquarters in New York City with commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida. The common shareholders of Bank Leumi USA received 3.8025 shares of Valley common stock and $5.08 in cash for each Bank Leumi USA common share that they owned. As a result, Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the transaction. Based on Valley’s closing stock price on March 31, 2022, the transaction was valued at $1.2 billion, inclusive of the value of options. As a result of the acquisition, Bank Leumi Le-Israel B.M. owned approximately 14 percent of Valley's common stock as of April 1, 2022.2022.
The transaction was accountedMerger expenses, primarily consisting of salary and employee benefit expense, totaled $4.1 million for under the acquisition method of accountingsix months ended June 30, 2023. There were no merger expenses for the three months ended June 30, 2023. Merger expenses totaled $54.5 million and accordingly the results of Bank Leumi USA's operations have been included in Valley's consolidated financial statements $58.9 million for the three and ninesix months ended SeptemberJune 30, 2022, from the date of the acquisition.respectively,
and largely consisted of salary and employee benefit expense, professional and legal fees and technology related costs within non-interest expense on the consolidated statements of income.
The following table sets forth assets acquired and liabilities assumed in the Bank Leumi USA acquisition, at their estimated fair values as of the closing date of the transaction:
| | | | | |
| April 1, 2022 |
| (in thousands) |
Assets acquired: | |
Cash and cash equivalents | $ | 443,588 | |
Equity securities | 6,239 | |
Available for sale debt securities | 505,928 | |
Held to maturity debt securities | 806,627 | |
Loans | 5,914,389 | |
Allowance for loan losses | (70,319) | |
Loans, net | 5,844,070 | |
Premises and equipment | 38,827 | |
Lease right of use assets | 49,273 | |
Bank owned life insurance | 126,861 | |
Accrued interest receivable | 25,717 | |
Goodwill | 403,151400,582 | |
Other intangible assets | 153,380 | |
Other assets | 158,352160,921 | |
Total assets acquired | $ | 8,562,013 | |
Liabilities assumed: | |
Deposits: | |
Non-interest bearing | $ | 4,511,537 | |
Interest bearing: | |
Savings, NOW and money market | 2,224,834 | |
Time | 293,626 | |
Total deposits | 7,029,997 | |
Short-term borrowings | 103,794 | |
Lease liabilities | 79,683 | |
Accrued expense and other liabilities | 117,269 | |
Total liabilities assumed | $ | 7,330,743 | |
Common stock issued in acquisition | 1,117,829 | |
Cash paid in acquisition | 113,441 | |
The determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available.
Fair Value Measurement of Assets Acquired and Liabilities Assumed
Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Bank Leumi USA acquisition.
Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.
Investment securities. The estimated fair value of equity securities, which represents a privately held Community Reinvestment Act (CRA) fund, was measured at net asset value (NAV). Other investment securities acquired from Bank Leumi USA were classified as available for sale and held to maturity debt securities based on Valley's intent at the acquisition date. Their estimated fair values were calculated utilizing Level 2 inputs similar to the valuation techniques used for Valley's investment portfolios detailed in Note 6.
Loans. The acquired loan portfolio was recorded at its estimated fair value based on a discounted cash flow methodology. The acquired loan portfolio was segregated into categories for valuation purposes primarily based on loan type and loan risk rating. The estimated fair value incorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and other market factors such as liquidity from a market participant perspective. Management estimated the cash flows expected to be collected at the acquisition date by using valuation models that incorporated loan contractual characteristics (such as payment type, amortization type, and term to maturity) as well as estimates of key valuation assumptions (such as prepayment speeds, default rates, and loss severity rates).
The expected cash flows from the acquired loan portfolios were discounted to present value based on estimated market rates. The market rates were estimated using a buildup approach based on the following components: funding cost, servicing cost, and consideration of liquidity premium. In addition, coupon rates for recently originated loans and available market data regarding origination rates were also considered in the analysis. The methods used to estimate the Level 3 fair values of loans are sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets.
The acquired loans were also evaluated upon acquisition to determine whether they represented purchased credit-deteriorated (PCD) loans, defined as loans which have experienced a more-than-insignificant deterioration in credit quality since origination. Valley considered a variety of factors in assessing loans the PCD classification, including but not limited to risk grades, delinquency, non-performing status, current or previous troubled debt restructurings, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination.
For PCD loans, an initial allowance was determined based on Valley’s CECL methodology and was added to the acquisition date fair value of each PCD loan to establish its initial amortized cost basis. The difference between the unpaid principal balance of loans and the calculated amortized cost basis resulted in a net non-credit discount totaling $18.8 million. This net discount will be accreted into interest income over the loan's remaining life using the effective interest method.
The following table provides a reconciliation of the unpaid principal balance and fair value of loans identified as PCD acquired from Bank Leumi USA:
| | | | | | | | |
| | April 1, 2022 |
| | ($ in thousands) |
Unpaid Principal Balance of PCD loans | | $ | 1,922,272 | |
Allowance for credit losses at acquisition * | | (70,319) | |
Non-credit discount at acquisition | | (18,814) | |
Fair value of acquired PCD loans | | $ | 1,833,139 | |
* Represents the initial reserve for PCD loans, reported net of an additional $62.4 million charge-offs recognized at the date of acquisition in accordance with Valley's charge-off policy.
Other intangible assets. Other intangible assets recorded consist of core deposit intangibles (CDI) and other acquired client relationships. CDI assets are measures of the value of non-maturity checking, savings, NOW and
money market customer deposits that are acquired in a business combination. The fair value for CDI was estimated based on a discounted cash flow methodology considering expected customer attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the interest costs associated with the customer deposits. The CDI is amortized using an accelerated amortization method over an estimated useful life of 10 years. For other acquired client relationships, fair value is measured using the multi-period excess earnings methodology under the income approach. This method measures the future economic income that can be attributed to the existing client relationships acquired, after considering revenue and expense assumptions, expected client attrition rates, and subtracting returns for other complementary assets that contribute to the income over their expected remaining useful lives. The resulting net cash flows are discounted to present value using an estimated intangible asset discount rate. The other acquired client relationships are amortized using an accelerated amortization method over an estimated remaining useful life of 14 years.
Deposits. The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing accounts and savings, NOW and money market accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities.
Supplemental Pro Forma Financial Information (Unaudited). The following table summarizes supplemental pro forma financial information giving effect to the merger as if it had been completed on January 1, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
| | | (in thousands) |
Net interest income | | | $ | 453,992 | | $ | 371,178 | | $ | 1,261,442 | | $ | 1,099,597 |
Non-interest income | | | 56,194 | | 58,931 | | 175,488 | | 164,458 |
Net income | | | 178,119 | | 139,666 | | 478,891 | | 351,489 |
The supplemental pro forma financial information does not necessarily reflect the results of operations that would have occurred had Valley merged with Bank Leumi USA on January 1, 2021. Costs savings and other business synergies related to the merger are not included in the supplemental pro forma financial information.
Other Recent Acquisitions
Landmark Insurance of the Palm Beaches. On February 1, 2022, the Bank's insurance agency subsidiary, Valley Insurance Services, acquired Landmark Insurance of the Palm Beaches Inc. (Landmark) agency. The purchase price included $8.6 million in cash and $1.0 million in contingent consideration. Goodwill and other intangible assets totaled $4.4 million and $6.2 million, respectively. The transaction was accounted for under the acquisition method of accounting and accordingly the results of Landmark's operations have been included in Valley's consolidated financial statements for the three and nine months ended September 30, 2022 from the date of acquisition.
The Westchester Bank Holding Corporation. On December 1, 2021, Valley completed its acquisition of The Westchester Bank Holding Corporation (Westchester) and its principal subsidiary, The Westchester Bank, which was headquartered in White Plains, New York. As of December 1, 2021, Westchester had approximately $1.4 billion in assets, $915.0 million in loans, and $1.2 billion in deposits, after purchase accounting adjustments, and a branch network of seven locations in Westchester County, New York. The common shareholders of Westchester received 229.645 shares of Valley common stock for each Westchester share they owned prior to the merger. The total consideration for the merger was $211.1 million, consisting of approximately 15.7 million shares of Valley common stock.
During the nine months ended September 30, 2022, Valley revised the estimated fair values of the acquired assets as of the acquisition date of Westchester based upon additional information obtained that existed as of December 1, 2021. The adjustments related to the fair value of deferred tax assets and resulted in a $5.0 million increase in goodwill (see Note 9 for more information). If additional information (that existed as of the acquisition date)
becomes available, the fair value estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date.
Merger expenses mainly related to the Bank Leumi USA acquisition above totaled $4.7 million and $63.8 million for the three and nine months ended September 30, 2022, respectively. The merger expenses largely consisted of salaries and benefits expense; technology, furniture and equipment expense; and professional and legal fees within non-interest expense on the consolidated statements of income. Valley incurred merger related expenses of $1.3 million during the three and nine months ended September 30, 2021. Incremental merger expenses related to this acquisition are expected to be incurred in future periods, including professional fees, technology and other expenses related to back office consolidation of the Bank operations.
Note 3. Earnings Per Common Share
The following table shows the calculation of both basic and diluted earnings per common share for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands, except for share data) |
Net income available to common shareholders | $ | 174,947 | | | $ | 119,408 | | | $ | 381,744 | | | $ | 349,286 | |
Basic weighted average number of common shares outstanding | 506,342,200 | | | 406,824,160 | | | 478,383,342 | | | 405,986,114 | |
Plus: Common stock equivalents | 2,348,797 | | | 2,413,841 | | | 2,242,015 | | | 2,523,653 | |
Diluted weighted average number of common shares outstanding | 508,690,997 | | | 409,238,001 | | | 480,625,357 | | | 408,509,767 | |
Earnings per common share: | | | | | | | |
Basic | $ | 0.35 | | | $ | 0.29 | | | $ | 0.80 | | | $ | 0.86 | |
Diluted | 0.34 | | | 0.29 | | | 0.79 | | | 0.86 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands, except for share and per share data) |
Net income available to common shareholders | $ | 135,030 | | | $ | 93,241 | | | $ | 277,707 | | | $ | 206,797 | |
Basic weighted average number of common shares outstanding | 507,690,043 | | | 506,302,464 | | | 507,402,268 | | | 464,172,210 | |
Plus: Common stock equivalents | 952,982 | | | 2,176,742 | | | 1,674,035 | | | 2,148,473 | |
Diluted weighted average number of common shares outstanding | 508,643,025 | | | 508,479,206 | | | 509,076,303 | | | 466,320,683 | |
Earnings per common share: | | | | | | | |
Basic | $ | 0.27 | | | $ | 0.18 | | | $ | 0.55 | | | $ | 0.45 | |
Diluted | 0.27 | | | 0.18 | | | 0.55 | | | 0.44 | |
Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units and common stock options to purchase Valley’s common shares. Common stock options with exercise prices that exceed the average market price per share of Valley’s common stock during the periods presented may have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation along with restricted stock units. Potential anti-dilutive weighted common shares wtotaled approximately 7.2 million andere immaterial2.2 million for the three and ninemonths ended SeptemberJune 30, 2023 and 2022, respectively, and 2021.3.0 million and 1.1 million for the six months ended June 30, 2023 and 2022, respectively.
Note 4. Accumulated Other Comprehensive Loss
The following table presentstables present the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three and ninesix months ended SeptemberJune 30, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss |
| Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Unrealized Gains and Losses on Derivatives | | Defined Benefit Pension Plan | |
| (in thousands) |
Balance at June 30, 2022 | $ | (81,985) | | | $ | (831) | | | $ | (25,521) | | | $ | (108,337) | |
Other comprehensive loss before reclassification | (57,242) | | | (85) | | | — | | | (57,327) | |
Amounts reclassified from other comprehensive (loss) income | (12) | | | (13) | | | 132 | | | 107 | |
Other comprehensive (loss) income, net | (57,254) | | | (98) | | | 132 | | | (57,220) | |
Balance at September 30, 2022 | $ | (139,239) | | | $ | (929) | | | $ | (25,389) | | | $ | (165,557) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss |
| Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Unrealized Gains and Losses on Derivatives | | Defined Benefit Pension and Postretirement Benefit Plans | |
| (in thousands) |
Balance at March 31, 2023 | $ | (110,648) | | | $ | 5,410 | | | $ | (38,409) | | | $ | (143,647) | |
Other comprehensive loss before reclassification | (18,051) | | | (3,573) | | | — | | | (21,624) | |
Amounts reclassified from other comprehensive loss | — | | | 516 | | | 8 | | | 524 | |
Other comprehensive (loss) income, net | (18,051) | | | (3,057) | | | 8 | | | (21,100) | |
Balance at June 30, 2023 | $ | (128,699) | | | $ | 2,353 | | | $ | (38,401) | | | $ | (164,747) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss |
| Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Unrealized Gains and Losses on Derivatives | | Defined Benefit Pension Plan | |
| (in thousands) |
Balance at December 31, 2021 | $ | 9,186 | | | $ | (1,332) | | | $ | (25,786) | | | $ | (17,932) | |
Other comprehensive (loss) gain before reclassification | (148,403) | | | 110 | | | — | | | (148,293) | |
Amounts reclassified from other comprehensive (loss) income | (22) | | | 293 | | | 397 | | | 668 | |
Other comprehensive (loss) income, net | (148,425) | | | 403 | | | 397 | | | (147,625) | |
Balance at September 30, 2022 | $ | (139,239) | | | $ | (929) | | | $ | (25,389) | | | $ | (165,557) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss |
| Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Unrealized Gains and Losses on Derivatives | | Defined Benefit Pension and Postretirement Benefit Plans | |
| (in thousands) |
Balance at December 31, 2022 | $ | (127,818) | | | $ | 2,233 | | | $ | (38,417) | | | $ | (164,002) | |
Other comprehensive loss before reclassification | (881) | | | (775) | | | — | | | (1,656) | |
Amounts reclassified from other comprehensive loss | — | | | 895 | | | 16 | | | 911 | |
Other comprehensive (loss) income, net | (881) | | | 120 | | | 16 | | | (745) | |
Balance at June 30, 2023 | $ | (128,699) | | | $ | 2,353 | | | $ | (38,401) | | | $ | (164,747) | |
The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | 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 June 30, | | Six Months Ended June 30, | |
Components of Accumulated Other Comprehensive Loss | Components of Accumulated Other Comprehensive Loss | | 2022 | | 2021 | | 2022 | | 2021 | | Income Statement Line Item | Components of Accumulated Other Comprehensive Loss | | 2023 | | 2022 | | 2023 | | 2022 | | Income Statement Line Item |
| | | (in thousands) | | | | | (in thousands) | | |
Unrealized gains on AFS securities before tax | Unrealized gains on AFS securities before tax | | $ | 16 | | | $ | 825 | | | $ | 30 | | | $ | 663 | | | Gains (losses) on securities transactions, net | Unrealized gains on AFS securities before tax | | $ | — | | | $ | — | | | $ | — | | | $ | 14 | | | Gains (losses) on securities transactions, net |
Tax effect | Tax effect | | (4) | | | (212) | | | (8) | | | (170) | | | Tax effect | | — | | | — | | | — | | | (4) | | |
Total net of tax | Total net of tax | | 12 | | | 613 | | | 22 | | | 493 | | | Total net of tax | | — | | | — | | | — | | | 10 | | |
| Unrealized gains (losses) on derivatives (cash flow hedges) before tax | Unrealized gains (losses) on derivatives (cash flow hedges) before tax | | 21 | | | (1,044) | | | (405) | | | (2,708) | | | Interest expense | Unrealized gains (losses) on derivatives (cash flow hedges) before tax | | (725) | | | 116 | | | (1,256) | | | (426) | | | Interest income, interest expense |
Tax effect | Tax effect | | (8) | | | 301 | | | 112 | | | 780 | | | Tax effect | | 209 | | | (36) | | | 361 | | | 120 | | |
Total net of tax | Total net of tax | | 13 | | | (743) | | | (293) | | | (1,928) | | | Total net of tax | | (516) | | | 80 | | | (895) | | | (306) | | |
Defined benefit pension plan: | | | | | | | | | | |
Defined benefit pension and postretirement benefit plans: | | Defined benefit pension and postretirement benefit plans: | | | | | | | | | |
Amortization of actuarial net loss | Amortization of actuarial net loss | | (183) | | | (388) | | | (550) | | | (1,163) | | | * | Amortization of actuarial net loss | | (11) | | | (184) | | | (22) | | | (367) | | | * |
| Tax effect | Tax effect | | 51 | | | 109 | | | 153 | | | 326 | | | Tax effect | | 3 | | | 51 | | | 6 | | | 102 | | |
Total net of tax | Total net of tax | | (132) | | | (279) | | | (397) | | | (837) | | | Total net of tax | | (8) | | | (133) | | | (16) | | | (265) | | |
Total reclassifications, net of tax | Total reclassifications, net of tax | | $ | (107) | | | $ | (409) | | | $ | (668) | | | $ | (2,272) | | | Total reclassifications, net of tax | | $ | (524) | | | $ | (53) | | | $ | (911) | | | $ | (561) | | |
| | | | | |
* | 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 20222023
Accounting Standards Update (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 effective for all entities immediately upon issuance and may be elected retrospectively to eligible modifications as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications made on or after any date within the interim period including January 7, 2021 and it can be applied through December 31, 2022, similar to the other reference rate reform relief provided under Topic 848. ASU No. 2021-01 is not expected to have a significant impact on Valley’s consolidated financial statements.
ASU No. 2021-05 "Lessors – Certain Leases with Variable Lease Payments" updates guidance in ASC 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an
operating lease at lease commencement if: (i) the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria; and (ii) the lessor would have recognized a selling loss at lease commencement. Valley adopted ASU No. 2021-05 on January 1, 2022, and the new guidance did not have a significant impact on Valley’s consolidated financial statements.
New Accounting Guidance Issued in 2022
ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging –Portfolio Layer Method” expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. This method allows entities to designate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged. ASU No. 2022-01 also clarifies that no assets may be added to a closed portfolio once it is designated in a portfolio layer method hedge. Valley adopted ASU No. 2022-01 will be effective for Valley on January 1, 2023. Valley is currently evaluating2023 and the impact of ASU No. 2022-01 but it isguidance did not expected to have a significant impact on Valley's consolidated financial statements.
ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” eliminates the troubled debt restructuring (TDR) accounting model for creditors, such as Valley, that
have adopted Topic 326, “Financial Instruments – Credit Losses.” ASU No. 2022-02 will requirerequires all loan modifications to be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities will also beare subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public business entities within the scope of the Topic 326 vintage disclosure requirements are also will be required to prospectively disclose current-period gross write-off information by vintage. However, gross recoveries will not be required.Entities can elect to adopt the guidance on TDRs using either a prospective or modified retrospective transition method. Valley adopted ASU No. 2022-02 will be effective for Valley on January 1, 2023 with earlyand elected to apply the modified retrospective transition method. The adoption permitted. Valley is currently evaluating the impact of ASU No. 2022-02 on its consolidated financial statements.resulted in a $1.4 million decrease in the allowance for loan losses, and a $990 thousand increase to retained earnings, net of taxes. See Note 8 for required disclosures.
New Accounting Guidance Issued in 2023
ASU No. 2022-03, "Fair Value Measurement of 2023-02, Investments –“Equity Securities subjectMethod and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” is intended to Contractual Sale Restrictions” updates guidance in ASC 820, Fair Value Measurementimprove the accounting and clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities withdisclosures for investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities including (i) the nature and remaining duration of the restriction; (ii) the circumstances that could cause a lapse in restrictions; and (iii) the fair value of the securities with contractual sale restrictions.tax credit structures. ASU No. 2022-032023-02 allows the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met. ASU No. 2023-02 will be effective for Valley on January 1, 2024 and it can be early adopted in any interim period. The new guidance can also be applied prospectively,either on a modified retrospective or a retrospective basis, with any adjustments resulting from adoption recognized in earnings on the date of adoption. The adoptionValley is currently evaluating the impact of ASU No. 2022-032023-02, but it is not expected to have a significant impact on Valley's consolidated financial statements.
Note 6. Fair Value Measurement of Assets and Liabilities
ASC Topic 820, “Fair Value Measurements”Measurement” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
•Level 1 - Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date.
•Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets) for substantially the full term of the asset or liability.
•Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis
The following tables present the assets and liabilities that are measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at SeptemberJune 30, 20222023 and December 31, 2021.2022. The assets presented under “non-recurring fair value measurements” in the tables below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized).
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | Fair Value Measurements at Reporting Date Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (in thousands) |
Recurring fair value measurements: | |
Assets | | | | | | | |
Investment securities: | | | | | | | |
Equity securities (1) | $ | 34,942 | | | $ | 23,917 | | | $ | — | | | $ | — | |
Trading debt securities | 4,100 | | | 2,915 | | | 1,185 | | | — | |
Available for sale debt securities: | | | | | | | |
U.S. Treasury securities | 277,902 | | | 277,902 | | | — | | | — | |
U.S. government agency securities | 26,821 | | | — | | | 26,821 | | | — | |
Obligations of states and political subdivisions | 141,563 | | | — | | | 141,563 | | | — | |
Residential mortgage-backed securities | 646,665 | | | — | | | 646,665 | | | — | |
Corporate and other debt securities | 178,903 | | | — | | | 178,903 | | | — | |
Total available for sale debt securities | 1,271,854 | | | 277,902 | | | 993,952 | | | — | |
Loans held for sale (2) | 6,073 | | | — | | | 6,073 | | | — | |
Other assets (3) | 594,116 | | | — | | | 594,116 | | | — | |
Total assets | $ | 1,911,085 | | | $ | 304,734 | | | $ | 1,595,326 | | | $ | — | |
Liabilities | | | | | | | |
Other liabilities (3) | $ | 625,656 | | | $ | — | | | $ | 625,656 | | | $ | — | |
Total liabilities | $ | 625,656 | | | $ | — | | | $ | 625,656 | | | $ | — | |
Non-recurring fair value measurements: | | | | | | | |
| | | | | | | |
Collateral dependent loans | $ | 73,108 | | | $ | — | | | $ | — | | | $ | 73,108 | |
| | | | | | | |
Foreclosed assets | 1,122 | | | — | | | — | | | 1,122 | |
Total | $ | 74,230 | | | $ | — | | | $ | — | | | $ | 74,230 | |
| | | | | Fair Value Measurements at Reporting Date Using: | | June 30, 2023 | | Fair Value Measurements at Reporting Date Using: |
| | December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | (in thousands) | | (in thousands) |
Recurring fair value measurements: | Recurring fair value measurements: | | Recurring fair value measurements: | |
Assets | Assets | | Assets | |
Investment securities: | Investment securities: | | Investment securities: | |
Equity securities (1) | Equity securities (1) | $ | 32,844 | | | $ | 21,284 | | | $ | — | | | $ | — | | Equity securities (1) | $ | 23,635 | | | $ | 23,635 | | | $ | — | | | $ | — | |
Equity securities at net asset value (NAV) | | Equity securities at net asset value (NAV) | 12,328 | | | — | | | — | | | — | |
Trading debt securities | Trading debt securities | 38,130 | | | — | | | 38,130 | | | — | | Trading debt securities | 3,409 | | | 3,409 | | | — | | | — | |
Available for sale debt securities: | Available for sale debt securities: | | Available for sale debt securities: | |
| U.S. Treasury securities | | U.S. Treasury securities | 282,398 | | | 282,398 | | | — | | | — | |
U.S. government agency securities | U.S. government agency securities | 20,925 | | | — | | | 20,925 | | | — | | U.S. government agency securities | 24,192 | | | — | | | 24,192 | | | — | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 79,890 | | | — | | | 79,890 | | | — | | Obligations of states and political subdivisions | 171,043 | | | — | | | 171,043 | | | — | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 904,502 | | | — | | | 904,502 | | | — | | Residential mortgage-backed securities | 594,636 | | | — | | | 594,636 | | | — | |
| Corporate and other debt securities | Corporate and other debt securities | 123,492 | | | — | | | 123,492 | | | — | | Corporate and other debt securities | 164,677 | | | — | | | 164,677 | | | — | |
Total available for sale debt securities | Total available for sale debt securities | 1,128,809 | | | — | | | 1,128,809 | | | — | | Total available for sale debt securities | 1,236,946 | | | 282,398 | | | 954,548 | | | — | |
| Loans held for sale (2) | 139,516 | | | — | | | 139,516 | | | — | | |
Other assets (3) | 181,500 | | | — | | | 181,500 | | | — | | |
Loans held for sale (1) | | Loans held for sale (1) | 23,044 | | | — | | | 23,044 | | | — | |
Other assets (2) | | Other assets (2) | 571,620 | | | — | | | 571,620 | | | — | |
Total assets | Total assets | $ | 1,520,799 | | | $ | 21,284 | | | $ | 1,487,955 | | | $ | — | | Total assets | $ | 1,870,982 | | | $ | 309,442 | | | $ | 1,549,212 | | | $ | — | |
Liabilities | Liabilities | | | | | | | | Liabilities | | | | | | | |
Other liabilities (3) | $ | 52,376 | | | $ | — | | | $ | 52,376 | | | $ | — | | |
Other liabilities (2) | | Other liabilities (2) | $ | 599,226 | | | $ | — | | | $ | 599,226 | | | $ | — | |
Total liabilities | Total liabilities | $ | 52,376 | | | $ | — | | | $ | 52,376 | | | $ | — | | Total liabilities | $ | 599,226 | | | $ | — | | | $ | 599,226 | | | $ | — | |
Non-recurring fair value measurements: | Non-recurring fair value measurements: | | | | | | | | Non-recurring fair value measurements: | | | | | | | |
Non-performing loans held for sale | | Non-performing loans held for sale | $ | 10,000 | | | $ | — | | | $ | 10,000 | | | $ | — | |
Collateral dependent loans | Collateral dependent loans | $ | 47,871 | | | $ | — | | | $ | — | | | $ | 47,871 | | Collateral dependent loans | 63,972 | | | — | | | — | | | 63,972 | |
| Foreclosed assets | Foreclosed assets | 2,931 | | | — | | | — | | | 2,931 | | Foreclosed assets | 2,132 | | | — | | | — | | | 2,132 | |
Total | Total | $ | 50,802 | | | $ | — | | | $ | — | | | $ | 50,802 | | Total | $ | 76,104 | | | $ | — | | | $ | 10,000 | | | $ | 66,104 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
| December 31, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (in thousands) |
Recurring fair value measurements: | | | | | | | |
Assets | | | | | | | |
Investment securities: | | | | | | | |
Equity securities | $ | 23,494 | | | $ | 23,494 | | | $ | — | | | $ | — | |
Equity securities at net asset value (NAV) | 10,099 | | | — | | | — | | | — | |
Trading debt securities | 13,438 | | | 3,282 | | | 10,156 | | | — | |
Available for sale debt securities: | | | | | | | |
U.S. Treasury securities | 279,498 | | | 279,498 | | | — | | | — | |
U.S. government agency securities | 26,964 | | | — | | | 26,964 | | | — | |
Obligations of states and political subdivisions | 146,811 | | | — | | | 146,811 | | | — | |
Residential mortgage-backed securities | 629,818 | | | — | | | 629,818 | | | — | |
| | | | | | | |
Corporate and other debt securities | 178,306 | | | — | | | 178,306 | | | — | |
Total available for sale debt securities | 1,261,397 | | | 279,498 | | | 981,899 | | | — | |
| | | | | | | |
Loans held for sale (1) | 18,118 | | | — | | | 18,118 | | | — | |
Other assets (2) | 467,127 | | | — | | | 467,127 | | | — | |
Total assets | $ | 1,793,673 | | | $ | 306,274 | | | $ | 1,477,300 | | | $ | — | |
Liabilities | | | | | | | |
Other liabilities (2) | $ | 607,237 | | | $ | — | | | $ | 607,237 | | | $ | — | |
Total liabilities | $ | 607,237 | | | $ | — | | | $ | 607,237 | | | $ | — | |
Non-recurring fair value measurements: | | | | | | | |
Collateral dependent loans | $ | 92,923 | | | $ | — | | | $ | — | | | $ | 92,923 | |
Foreclosed assets | 1,937 | | | — | | | — | | | 1,937 | |
Total | $ | 94,860 | | | $ | — | | | $ | — | | | $ | 94,860 | |
(1)Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $11.0 million and $11.6 million at September 30, 2022 and December 31, 2021, respectively. These securities have not been classified in the fair value hierarchy.
(2)Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $6.2$23.0 million and $136.3$17.9 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
(3)(2)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.securities. The fair value of equity securities consists of a publicly traded mutual fund, a CRACommunity Reinvestment Act (CRA) investment fund and an investment related to the development of new financial technologies that are carried at quoted prices in active markets.
Equity securities at NAV. Valley also has privately held CRA funds at fair value measured at NAV whichusing the most recently available financial information from the investee. Investments measured at NAV (or its equivalent) as a practical expedient are excluded from fair value hierarchy levels in the tables above.
Trading debt securities.Trading debt securities consist. The fair value of U.Strading debt securities, consisting of U.S. Treasury securities are reported at fair value utilizing Level 1 inputs at June 30, 2023. At December 31, 2022, trading debt securities consisted of U.S. Treasury securities and municipal bonds reported at fair value utilizing Level 1 and Level 2 inputs, respectively. The prices for municipal bonds areinvestments were derived from market quotations and matrix pricing obtained through an independent pricing service. Management reviews the data and
assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data.
Available for sale debt securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for sale debt securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.
Loans held for sale. Residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at SeptemberJune 30, 20222023 and December 31, 20212022 based on the short duration these assets were held, and the credit quality of these loans.
Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR, Overnight Index Swap and Secured Overnight Financing Rate (SOFR) curves for all cleared derivatives.curves. The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at SeptemberJune 30, 20222023 and December 31, 2021)2022), 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 SeptemberJune 30, 20222023 and December 31, 2021.
2022.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
The following valuation techniques were used for certain non-financial assets measured at fair value on a non-recurring basis, including collateral dependent loans reported at the fair value of the underlying collateral and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.
Non-performing loans held for sale. Valley transferred one non-performing construction loan totaling $10.0 million, net of charge-offs, to loans held for sale at June 30, 2023. The transfer at the loan's fair value resulted in a $4.2 million charge-off to the allowance of loan losses for the three months ended June 30, 2023. The fair value of the loan was determined using Level 2 inputs, including bids from a third party broker engaged to solicit interest from potential purchasers. The broker coordinated loan level due diligence with interested parties and established a
formal bidding process in which each participant was required to provide an indicative non-binding bid. Fair value was determined based on a non-binding sale agreement selected by Valley during the bidding process that is expected to close during the third quarter 2023.
Collateral dependent loans. 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 SeptemberJune 30, 2022,2023, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses based on the fair value of the underlying collateral. At SeptemberJune 30, 2022,2023, collateral dependent loans with a total amortized cost of $171.3$125.0 million, including our taxi medallion loan portfolio, were reduced by specific allowance for loan losses allocations totaling $98.2$61.0 million to a reported total net carrying amount of $73.1$64.0 million.
Foreclosed assets. Certain foreclosed assets (consisting of other real estate owned and other repossessed assets included in other assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value
using Level 3 inputs, consisting of a third-party appraisal less estimated cost to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If further declines in the estimated fair value of the asset occur, an asset is re-measured and reported at fair value through a write-down recorded in non-interest expense. There were no adjustments to the appraisals of foreclosed assets at SeptemberJune 30, 2023 and December 31, 2022.
Other Fair Value Disclosures
ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.
The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation,operations, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at SeptemberJune 30, 20222023 and December 31, 20212022 were as follows:
| | | Fair Value Hierarchy | | September 30, 2022 | | December 31, 2021 | | Fair Value Hierarchy | | June 30, 2023 | | December 31, 2022 |
| | 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 | | $ | 431,471 | | | $ | 431,471 | | | $ | 205,156 | | | $ | 205,156 | | Cash and due from banks | Level 1 | | $ | 463,318 | | | $ | 463,318 | | | $ | 444,325 | | | $ | 444,325 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | Level 1 | | 686,877 | | | 686,877 | | | 1,844,764 | | | 1,844,764 | | Interest bearing deposits with banks | Level 1 | | 1,491,091 | | | 1,491,091 | | | 503,622 | | | 503,622 | |
Equity securities (1) | Equity securities (1) | Level 3 | | 8,376 | | | 8,376 | | | 3,629 | | | 3,629 | | Equity securities (1) | Level 3 | | 25,047 | | | 25,047 | | | 15,138 | | | 15,138 | |
Held to maturity debt securities: | Held to maturity debt securities: | | Held to maturity debt securities: | |
U.S. Treasury securities | U.S. Treasury securities | Level 1 | | 67,075 | | | 66,030 | | | 67,558 | | | 71,661 | | U.S. Treasury securities | Level 1 | | 66,579 | | | 65,675 | | | 66,911 | | | 65,889 | |
U.S. government agency securities | U.S. government agency securities | Level 2 | | 259,869 | | | 214,314 | | | 6,265 | | | 6,378 | | U.S. government agency securities | Level 2 | | 261,197 | | | 215,039 | | | 260,392 | | | 212,712 | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | Level 2 | | 471,189 | | | 430,134 | | | 337,962 | | | 344,164 | | Obligations of states and political subdivisions | Level 2 | | 465,115 | | | 438,991 | | | 480,298 | | | 453,195 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | Level 2 | | 2,811,582 | | | 2,373,581 | | | 2,166,142 | | | 2,152,301 | | Residential mortgage-backed securities | Level 2 | | 2,861,227 | | | 2,461,519 | | | 2,909,106 | | | 2,495,797 | |
Trust preferred securities | Trust preferred securities | Level 2 | | 37,038 | | | 31,417 | | | 37,020 | | | 31,916 | | Trust preferred securities | Level 2 | | 37,052 | | | 29,344 | | | 37,043 | | | 31,106 | |
Corporate and other debt securities | Corporate and other debt securities | Level 2 | | 75,267 | | | 71,176 | | | 53,750 | | | 54,185 | | Corporate and other debt securities | Level 2 | | 75,668 | | | 68,380 | | | 75,234 | | | 70,771 | |
Total held to maturity debt securities (2) | Total held to maturity debt securities (2) | | 3,722,020 | | | 3,186,652 | | | 2,668,697 | | | 2,660,605 | | Total held to maturity debt securities (2) | | 3,766,838 | | | 3,278,948 | | | 3,828,984 | | | 3,329,470 | |
Net loans | Net loans | Level 3 | | 44,710,020 | | | 41,945,829 | | | 33,794,455 | | | 33,283,251 | | Net loans | Level 3 | | 49,440,816 | | | 47,472,065 | | | 46,458,545 | | | 44,910,049 | |
Accrued interest receivable | Accrued interest receivable | Level 1 | | 159,406 | | | 159,406 | | | 96,882 | | | 96,882 | | Accrued interest receivable | Level 1 | | 225,918 | | | 225,918 | | | 196,606 | | | 196,606 | |
Federal Reserve Bank and Federal Home Loan Bank stock (3) | Federal Reserve Bank and Federal Home Loan Bank stock (3) | Level 2 | | 267,319 | | | 267,319 | | | 206,450 | | | 206,450 | | Federal Reserve Bank and Federal Home Loan Bank stock (3) | Level 2 | | 326,959 | | | 326,959 | | | 238,056 | | | 238,056 | |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits without stated maturities | Deposits without stated maturities | Level 1 | | 38,980,287 | | | 38,980,287 | | | 31,945,368 | | | 31,945,368 | | Deposits without stated maturities | Level 1 | | 34,711,633 | | | 34,711,633 | | | 38,080,457 | | | 38,080,457 | |
Deposits with stated maturities | Deposits with stated maturities | Level 2 | | 6,328,556 | | | 6,194,389 | | | 3,687,044 | | | 3,670,113 | | Deposits with stated maturities | Level 2 | | 14,908,182 | | | 14,783,271 | | | 9,556,457 | | | 9,443,253 | |
Short-term borrowings | Short-term borrowings | Level 1 | | 919,283 | | | 883,100 | | | 655,726 | | | 637,490 | | Short-term borrowings | Level 1 | | 1,088,899 | | | 1,066,450 | | | 138,729 | | | 138,729 | |
Long-term borrowings | Long-term borrowings | Level 2 | | 1,541,097 | | | 1,424,946 | | | 1,423,676 | | | 1,404,184 | | Long-term borrowings | Level 2 | | 2,443,533 | | | 2,340,324 | | | 1,543,058 | | | 1,395,991 | |
Junior subordinated debentures issued to capital trusts | Junior subordinated debentures issued to capital trusts | Level 2 | | 56,673 | | | 56,543 | | | 56,413 | | | 46,306 | | Junior subordinated debentures issued to capital trusts | Level 2 | | 56,934 | | | 48,117 | | | 56,760 | | | 50,923 | |
Accrued interest payable (4) | Accrued interest payable (4) | Level 1 | | 16,519 | | | 16,519 | | | 4,909 | | | 4,909 | | Accrued interest payable (4) | Level 1 | | 125,873 | | | 125,873 | | | 45,617 | | | 45,617 | |
(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 totaled
$43.3$61.0 million and
$36.5$48.7 million at
SeptemberJune 30,
20222023 and December 31,
2021,2022, respectively. See Note
6 for further details on equity securities.
Trading Debt Securities
The fair value of trading debt securities totaled $4.1$3.4 million and $38.1$13.4 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. Net trading gains and losses were included in net gains and losses on securities transactions within non-interest income. We recorded net trading losses of $1.2 million and net trading gains of $705$226 thousand and $628 thousand for the ninethree and six months ended SeptemberJune 30, 2022and 2021,2023, respectively. TheWe recorded net trading gainslosses of $387 thousand and losses$1.4 million for the three and six months ended SeptemberJune 30, 2022, and 2021 were not material. respectively.
Available for Sale Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities at SeptemberJune 30, 20222023 and December 31, 20212022 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, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
U.S. Treasury securities | U.S. Treasury securities | $ | 306,748 | | | $ | — | | | $ | (28,846) | | | $ | 277,902 | | U.S. Treasury securities | $ | 310,936 | | | $ | — | | | $ | (28,538) | | | $ | 282,398 | |
U.S. government agency securities | U.S. government agency securities | 29,529 | | | 50 | | | (2,758) | | | 26,821 | | U.S. government agency securities | 26,799 | | | 19 | | | (2,626) | | | 24,192 | |
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 | 12,576 | | | — | | | (565) | | | 12,011 | | Obligations of states and state agencies | 9,425 | | | — | | | (776) | | | 8,649 | |
Municipal bonds | Municipal bonds | 173,574 | | | — | | | (44,022) | | | 129,552 | | Municipal bonds | 193,920 | | | — | | | (31,526) | | | 162,394 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 186,150 | | | — | | | (44,587) | | | 141,563 | | Total obligations of states and political subdivisions | 203,345 | | | — | | | (32,302) | | | 171,043 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 744,547 | | | 66 | | | (97,948) | | | 646,665 | | Residential mortgage-backed securities | 681,513 | | | 20 | | | (86,897) | | | 594,636 | |
| Corporate and other debt securities | Corporate and other debt securities | 197,847 | | | 15 | | | (18,959) | | | 178,903 | | Corporate and other debt securities | 192,087 | | | — | | | (27,410) | | | 164,677 | |
Total | Total | $ | 1,464,821 | | | $ | 131 | | | $ | (193,098) | | | $ | 1,271,854 | | Total | $ | 1,414,680 | | | $ | 39 | | | $ | (177,773) | | | $ | 1,236,946 | |
December 31, 2021 | | | | | | | | |
| December 31, 2022 | | December 31, 2022 | | | | | | | |
U.S. Treasury securities | | U.S. Treasury securities | $ | 308,137 | | | $ | — | | | $ | (28,639) | | | $ | 279,498 | |
U.S. government agency securities | U.S. government agency securities | $ | 20,323 | | | $ | 608 | | | $ | (6) | | | $ | 20,925 | | U.S. government agency securities | 29,494 | | | 47 | | | (2,577) | | | 26,964 | |
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 | 26,088 | | | 132 | | | (93) | | | 26,127 | | Obligations of states and state agencies | 10,899 | | | — | | | (493) | | | 10,406 | |
Municipal bonds | Municipal bonds | 53,530 | | | 349 | | | (116) | | | 53,763 | | Municipal bonds | 171,586 | | | — | | | (35,181) | | | 136,405 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 79,618 | | | 481 | | | (209) | | | 79,890 | | Total obligations of states and political subdivisions | 182,485 | | | — | | | (35,674) | | | 146,811 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 895,279 | | | 14,986 | | | (5,763) | | | 904,502 | | Residential mortgage-backed securities | 719,868 | | | 64 | | | (90,114) | | | 629,818 | |
| Corporate and other debt securities | Corporate and other debt securities | 120,871 | | | 3,177 | | | (556) | | | 123,492 | | Corporate and other debt securities | 197,927 | | | — | | | (19,621) | | | 178,306 | |
| Total | Total | $ | 1,116,091 | | | $ | 19,252 | | | $ | (6,534) | | | $ | 1,128,809 | | Total | $ | 1,437,911 | | | $ | 111 | | | $ | (176,625) | | | $ | 1,261,397 | |
Accrued interest on investments, which is excluded from the amortized cost of available for sale debt securities, totaled $4.9 million and $5.6 million at June 30, 2023 and December 31, 2022, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.
The age of unrealized losses and fair value of the related available for sale debt securities at SeptemberJune 30, 20222023 and December 31, 20212022 were as follows:
| | | Less than Twelve Months | | More than Twelve Months | | Total | | Less than 12 Months | | More than 12 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, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
U.S. Treasury securities | U.S. Treasury securities | $ | 277,902 | | | $ | (28,846) | | | $ | — | | | $ | — | | | $ | 277,902 | | | $ | (28,846) | | U.S. Treasury securities | $ | — | | | $ | — | | | $ | 282,398 | | | $ | (28,538) | | | $ | 282,398 | | | $ | (28,538) | |
U.S. government agency securities | U.S. government agency securities | 22,614 | | | (2,720) | | | 1,142 | | | (38) | | | 23,756 | | | (2,758) | | U.S. government agency securities | — | | | — | | | 22,818 | | | (2,626) | | | 22,818 | | | (2,626) | |
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 | 4,402 | | | (56) | | | 7,610 | | | (509) | | | 12,012 | | | (565) | | Obligations of states and state agencies | 1,223 | | | (20) | | | 7,426 | | | (756) | | | 8,649 | | | (776) | |
Municipal bonds | Municipal bonds | 119,722 | | | (40,475) | | | 9,305 | | | (3,547) | | | 129,027 | | | (44,022) | | Municipal bonds | 1,405 | | | (20) | | | 137,180 | | | (31,506) | | | 138,585 | | | (31,526) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 124,124 | | | (40,531) | | | 16,915 | | | (4,056) | | | 141,039 | | | (44,587) | | Total obligations of states and political subdivisions | 2,628 | | | (40) | | | 144,606 | | | (32,262) | | | 147,234 | | | (32,302) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 376,683 | | | (39,604) | | | 266,591 | | | (58,344) | | | 643,274 | | | (97,948) | | Residential mortgage-backed securities | 30,949 | | | (1,919) | | | 562,383 | | | (84,978) | | | 593,332 | | | (86,897) | |
| Corporate and other debt securities | Corporate and other debt securities | 160,743 | | | (14,670) | | | 15,145 | | | (4,289) | | | 175,888 | | | (18,959) | | Corporate and other debt securities | 44,404 | | | (7,239) | | | 120,273 | | | (20,171) | | | 164,677 | | | (27,410) | |
Total | Total | $ | 962,066 | | | $ | (126,371) | | | $ | 299,793 | | | $ | (66,727) | | | $ | 1,261,859 | | | $ | (193,098) | | Total | $ | 77,981 | | | $ | (9,198) | | | $ | 1,132,478 | | | $ | (168,575) | | | $ | 1,210,459 | | | $ | (177,773) | |
December 31, 2021 | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2022 | | | | | | | | | | | |
U.S. Treasury securities | | U.S. Treasury securities | $ | 279,498 | | | $ | (28,639) | | | $ | — | | | $ | — | | | $ | 279,498 | | | $ | (28,639) | |
U.S. government agency securities | U.S. government agency securities | $ | — | | | $ | — | | | $ | 1,326 | | | $ | (6) | | | $ | 1,326 | | | $ | (6) | | U.S. government agency securities | 22,831 | | | (2,538) | | | 1,116 | | | (39) | | | 23,947 | | | (2,577) | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | 10,549 | | | (93) | | | — | | | — | | | 10,549 | | | (93) | | Obligations of states and state agencies | 2,943 | | | (54) | | | 7,462 | | | (439) | | | 10,405 | | | (493) | |
Municipal bonds | Municipal bonds | 19,100 | | | (116) | | | — | | | — | | | 19,100 | | | (116) | | Municipal bonds | 112,029 | | | (26,044) | | | 24,127 | | | (9,137) | | | 136,156 | | | (35,181) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 29,649 | | | (209) | | | — | | | — | | | 29,649 | | | (209) | | Total obligations of states and political subdivisions | 114,972 | | | (26,098) | | | 31,589 | | | (9,576) | | | 146,561 | | | (35,674) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 371,256 | | | (4,770) | | | 25,960 | | | (993) | | | 397,216 | | | (5,763) | | Residential mortgage-backed securities | 311,836 | | | (27,152) | | | 314,834 | | | (62,962) | | | 626,670 | | | (90,114) | |
| Corporate and other debt securities | Corporate and other debt securities | 59,039 | | | (556) | | | — | | | — | | | 59,039 | | | (556) | | Corporate and other debt securities | 144,924 | | | (12,581) | | | 33,382 | | | (7,040) | | | 178,306 | | | (19,621) | |
| Total | Total | $ | 459,944 | | | $ | (5,535) | | | $ | 27,286 | | | $ | (999) | | | $ | 487,230 | | | $ | (6,534) | | Total | $ | 874,061 | | | $ | (97,008) | | | $ | 380,921 | | | $ | (79,617) | | | $ | 1,254,982 | | | $ | (176,625) | |
Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 743725 and 139730 at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
As of SeptemberJune 30, 2022,2023, 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 $348.1$847.1 million.
The contractual maturities of available for sale debt securities at SeptemberJune 30, 20222023 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, 2022 |
| Amortized Cost | | Fair Value |
| (in thousands) |
Due in one year | $ | 8,593 | | | $ | 8,553 | |
Due after one year through five years | 184,748 | | | 174,982 | |
Due after five years through ten years | 271,404 | | | 246,134 | |
Due after ten years | 255,529 | | | 195,520 | |
Residential mortgage-backed securities | 744,547 | | | 646,665 | |
Total | $ | 1,464,821 | | | $ | 1,271,854 | |
| | | | | | | | | | | |
| June 30, 2023 |
| Amortized Cost | | Fair Value |
| (in thousands) |
Due in one year | $ | 2,350 | | | $ | 2,322 | |
Due after one year through five years | 282,534 | | | 265,870 | |
Due after five years through ten years | 175,056 | | | 148,811 | |
Due after ten years | 273,227 | | | 225,307 | |
Residential mortgage-backed securities | 681,513 | | | 594,636 | |
Total | $ | 1,414,680 | | | $ | 1,236,946 | |
Actual maturities of available for sale debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted average remaining expected life for residential mortgage-backed securities available for sale was 6.67.68 years at SeptemberJune 30, 2022.2023.
Impairment Analysis of Available For Sale Debt Securities
Valley's available for sale debt securities portfolio includes corporate bonds and revenue bonds, among other securities. These types of securities may pose a higher risk of future impairment charges by Valley as a result of the changes in market interest rates, unpredictable nature of the U.S. economy and itstheir potential negative effect on the future performance of the security issuers, including due to current economic conditions and the effects of the COVID-19 pandemic.
issuers.
Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. ValBased on a comparison of the present value of expected cash flows to the amortized cost, Valley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in a provision for credit losses and full charge-off of the bond totaling $5.0 million during the three months ended March 31, 2023. ley hasValley also evaluated available for sale debt securities that are in an unrealized loss position as of SeptemberJune 30, 20222023 included in the table above and has determined that the declines in fair value are mainly attributable to interest rates, credit spreads, market volatility and liquidity conditions, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognizedThere was no impairment recognized during the three months endedJune 30, 2023 and the three and ninesix months ended SeptemberJune 30, 20222022.
The following table details the activity in the allowance for credit losses for the six months endedJune 30, 2023.
| | | | | | | | | |
| | | Six Months Ended June 30, 2023 |
| | | |
| | (in thousands) |
Beginning balance | | | $ | — | |
Provision for credit losses | | | 5,000 | |
Charge-offs | | | (5,000) | |
Ending balance | | | $ | — | |
Valley does not intend to sell any of its available for sale debt securities in an unrealized loss position prior to recovery of their amortized cost basis, and 2021. Thereit is more likely than not that Valley will not be required to sell any of its securities prior to recovery of their amortized cost basis. None of the available for sale debt securities were past due as of June 30, 2023 and there was no allowance for credit losses for available for sale debt securities at SeptemberJune 30, 2023, December 31, 2022 and December 31, 2021.
June 30, 2022.
Held to Maturity Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at SeptemberJune 30, 20222023 and December 31, 20212022 were as follows:
| | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses | | Net Carrying Value |
| | (in thousands) | | (in thousands) |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
U.S. Treasury securities | U.S. Treasury securities | $ | 67,075 | | | $ | — | | | $ | (1,045) | | | $ | 66,030 | | U.S. Treasury securities | $ | 66,579 | | | $ | — | | | $ | (904) | | | $ | 65,675 | | | $ | — | | | $ | 66,579 | |
U.S. government agency securities | U.S. government agency securities | 259,869 | | | — | | | (45,555) | | | 214,314 | | U.S. government agency securities | 261,197 | | | — | | | (46,158) | | | 215,039 | | | — | | | 261,197 | |
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 | 88,276 | | | 16 | | | (5,127) | | | 83,165 | | Obligations of states and state agencies | 88,561 | | | 91 | | | (5,112) | | | 83,540 | | | 409 | | | 88,152 | |
Municipal bonds | Municipal bonds | 382,913 | | | 17 | | | (35,961) | | | 346,969 | | Municipal bonds | 376,554 | | | 27 | | | (21,130) | | | 355,451 | | | 57 | | | 376,497 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 471,189 | | | 33 | | | (41,088) | | | 430,134 | | Total obligations of states and political subdivisions | 465,115 | | | 118 | | | (26,242) | | | 438,991 | | | 466 | | | 464,649 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,811,582 | | | 250 | | | (438,251) | | | 2,373,581 | | Residential mortgage-backed securities | 2,861,227 | | | 906 | | | (400,614) | | | 2,461,519 | | | — | | | 2,861,227 | |
Trust preferred securities | Trust preferred securities | 37,038 | | | 1 | | | (5,622) | | | 31,417 | | Trust preferred securities | 37,052 | | | 1 | | | (7,709) | | | 29,344 | | | 559 | | | 36,493 | |
Corporate and other debt securities | Corporate and other debt securities | 75,267 | | | — | | | (4,091) | | | 71,176 | | Corporate and other debt securities | 75,668 | | | — | | | (7,288) | | | 68,380 | | | 326 | | | 75,342 | |
Total | Total | $ | 3,722,020 | | | $ | 284 | | | $ | (535,652) | | | $ | 3,186,652 | | Total | $ | 3,766,838 | | | $ | 1,025 | | | $ | (488,915) | | | $ | 3,278,948 | | | $ | 1,351 | | | $ | 3,765,487 | |
December 31, 2021 | | | | | | | | |
December 31, 2022 | | December 31, 2022 | | | | | | | | | | | |
U.S. Treasury securities | U.S. Treasury securities | $ | 67,558 | | | $ | 4,103 | | | $ | — | | | $ | 71,661 | | U.S. Treasury securities | $ | 66,911 | | | $ | — | | | $ | (1,022) | | | $ | 65,889 | | | $ | — | | | $ | 66,911 | |
U.S. government agency securities | U.S. government agency securities | 6,265 | | | 113 | | | — | | | 6,378 | | U.S. government agency securities | 260,392 | | | — | | | (47,680) | | | 212,712 | | | — | | | 260,392 | |
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 | 141,015 | | | 3,065 | | | (312) | | | 143,768 | | Obligations of states and state agencies | 99,238 | | | 305 | | | (3,869) | | | 95,674 | | | 252 | | | 98,986 | |
Municipal bonds | Municipal bonds | 196,947 | | | 3,536 | | | (87) | | | 200,396 | | Municipal bonds | 381,060 | | | 76 | | | (23,615) | | | 357,521 | | | 41 | | | 381,019 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 337,962 | | | 6,601 | | | (399) | | | 344,164 | | Total obligations of states and political subdivisions | 480,298 | | | 381 | | | (27,484) | | | 453,195 | | | 293 | | | 480,005 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,166,142 | | | 14,599 | | | (28,440) | | | 2,152,301 | | Residential mortgage-backed securities | 2,909,106 | | | 1,723 | | | (415,032) | | | 2,495,797 | | | — | | | 2,909,106 | |
Trust preferred securities | Trust preferred securities | 37,020 | | | 5 | | | (5,109) | | | 31,916 | | Trust preferred securities | 37,043 | | | 1 | | | (5,938) | | | 31,106 | | | 888 | | | 36,155 | |
Corporate and other debt securities | Corporate and other debt securities | 53,750 | | | 559 | | | (124) | | | 54,185 | | Corporate and other debt securities | 75,234 | | | — | | | (4,463) | | | 70,771 | | | 465 | | | 74,769 | |
Total | Total | $ | 2,668,697 | | | $ | 25,980 | | | $ | (34,072) | | | $ | 2,660,605 | | Total | $ | 3,828,984 | | | $ | 2,105 | | | $ | (501,619) | | | $ | 3,329,470 | | | $ | 1,646 | | | $ | 3,827,338 | |
Accrued interest on investments, which is excluded from the amortized cost of held to maturity debt securities, totaled $13.6 million and $13.5 million at June 30, 2023 and December 31, 2022, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition. Held to maturity debt securities are carried net of an allowance for credit losses.
The age of unrealized losses and fair value of related debt securities held to maturity at SeptemberJune 30, 20222023 and December 31, 20212022 were as follows:
| | | Less than Twelve Months | | More than Twelve Months | | Total | | Less than 12 Months | | More than 12 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, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
U.S. Treasury securities | U.S. Treasury securities | $ | 66,030 | | | $ | (1,045) | | | $ | — | | | $ | — | | | $ | 66,030 | | | $ | (1,045) | | U.S. Treasury securities | $ | 30,998 | | | $ | (598) | | | $ | 34,677 | | | $ | (306) | | | $ | 65,675 | | | $ | (904) | |
U.S. government agency securities | U.S. government agency securities | 213,129 | | | (45,555) | | | — | | | — | | | 213,129 | | | (45,555) | | U.S. government agency securities | — | | | — | | | 213,885 | | | (46,158) | | | 213,885 | | | (46,158) | |
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 | 69,161 | | | (3,397) | | | 12,403 | | | (1,730) | | | 81,564 | | | (5,127) | | Obligations of states and state agencies | 25,298 | | | (623) | | | 44,869 | | | (4,489) | | | 70,167 | | | (5,112) | |
Municipal bonds | Municipal bonds | 284,323 | | | (34,193) | | | 7,674 | | | (1,768) | | | 291,997 | | | (35,961) | | Municipal bonds | 84,224 | | | (1,437) | | | 200,924 | | | (19,693) | | | 285,148 | | | (21,130) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 353,484 | | | (37,590) | | | 20,077 | | | (3,498) | | | 373,561 | | | (41,088) | | Total obligations of states and political subdivisions | 109,522 | | | (2,060) | | | 245,793 | | | (24,182) | | | 355,315 | | | (26,242) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1,354,304 | | | (200,314) | | | 1,007,883 | | | (237,937) | | | 2,362,187 | | | (438,251) | | Residential mortgage-backed securities | 182,290 | | | (6,756) | | | 2,107,464 | | | (393,858) | | | 2,289,754 | | | (400,614) | |
Trust preferred securities | Trust preferred securities | — | | | — | | | 30,416 | | | (5,622) | | | 30,416 | | | (5,622) | | Trust preferred securities | — | | | — | | | 28,343 | | | (7,709) | | | 28,343 | | | (7,709) | |
Corporate and other debt securities | Corporate and other debt securities | 57,181 | | | (3,336) | | | 7,245 | | | (755) | | | 64,426 | | | (4,091) | | Corporate and other debt securities | 18,056 | | | (1,194) | | | 50,324 | | | (6,094) | | | 68,380 | | | (7,288) | |
Total | Total | $ | 2,044,128 | | | $ | (287,840) | | | $ | 1,065,621 | | | $ | (247,812) | | | $ | 3,109,749 | | | $ | (535,652) | | Total | $ | 340,866 | | | $ | (10,608) | | | $ | 2,680,486 | | | $ | (478,307) | | | $ | 3,021,352 | | | $ | (488,915) | |
December 31, 2021 | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2022 | | | | | | | | | | | |
U.S. Treasury securities | | U.S. Treasury securities | $ | 65,889 | | | $ | (1,022) | | | $ | — | | | $ | — | | | $ | 65,889 | | | $ | (1,022) | |
U.S. government agency securities | | U.S. government agency securities | 209,863 | | | (47,508) | | | 1,673 | | | (172) | | | 211,536 | | | (47,680) | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | Obligations of states and state agencies | $ | 17,000 | | | $ | (254) | | | $ | 5,517 | | | $ | (58) | | | $ | 22,517 | | | $ | (312) | | Obligations of states and state agencies | 62,443 | | | (2,020) | | | 18,231 | | | (1,849) | | | 80,674 | | | (3,869) | |
Municipal bonds | Municipal bonds | 9,403 | | | (87) | | | — | | | — | | | 9,403 | | | (87) | | Municipal bonds | 251,970 | | | (20,457) | | | 15,534 | | | (3,158) | | | 267,504 | | | (23,615) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 26,403 | | | (341) | | | 5,517 | | | (58) | | | 31,920 | | | (399) | | Total obligations of states and political subdivisions | 314,413 | | | (22,477) | | | 33,765 | | | (5,007) | | | 348,178 | | | (27,484) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 1,381,405 | | | (22,365) | | | 206,520 | | | (6,075) | | | 1,587,925 | | | (28,440) | | Residential mortgage-backed securities | 962,690 | | | (109,532) | | | 1,413,590 | | | (305,500) | | | 2,376,280 | | | (415,032) | |
Trust preferred securities | Trust preferred securities | — | | | — | | | 30,912 | | | (5,109) | | | 30,912 | | | (5,109) | | Trust preferred securities | — | | | — | | | 30,105 | | | (5,938) | | | 30,105 | | | (5,938) | |
Corporate and other debt securities | Corporate and other debt securities | 32,627 | | | (124) | | | — | | | — | | | 32,627 | | | (124) | | Corporate and other debt securities | 57,245 | | | (2,989) | | | 13,525 | | | (1,474) | | | 70,770 | | | (4,463) | |
Total | Total | $ | 1,440,435 | | | $ | (22,830) | | | $ | 242,949 | | | $ | (11,242) | | | $ | 1,683,384 | | | $ | (34,072) | | Total | $ | 1,610,100 | | | $ | (183,528) | | | $ | 1,492,658 | | | $ | (318,091) | | | $ | 3,102,758 | | | $ | (501,619) | |
Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 826811 and 108802 at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
As of SeptemberJune 30, 2022,2023, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $619.5 million.
$2.4 billion.
The contractual maturities of investments in debt securities held to maturity at SeptemberJune 30, 20222023 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, 2022 | | June 30, 2023 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | (in thousands) | | (in thousands) |
Due in one year | Due in one year | $ | 31,783 | | | $ | 31,721 | | Due in one year | $ | 68,033 | | | $ | 67,619 | |
Due after one year through five years | Due after one year through five years | 195,679 | | | 191,824 | | Due after one year through five years | 126,908 | | | 123,033 | |
Due after five years through ten years | Due after five years through ten years | 86,011 | | | 79,844 | | Due after five years through ten years | 95,472 | | | 87,948 | |
Due after ten years | Due after ten years | 596,965 | | | 509,682 | | Due after ten years | 615,198 | | | 538,829 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,811,582 | | | 2,373,581 | | Residential mortgage-backed securities | 2,861,227 | | | 2,461,519 | |
Total | Total | $ | 3,722,020 | | | $ | 3,186,652 | | Total | $ | 3,766,838 | | | $ | 3,278,948 | |
Actual maturities of held to maturity debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 8.810.05 years at SeptemberJune 30, 2022.
2023.
Credit Quality Indicators
Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at SeptemberJune 30, 20222023 and December 31, 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| AAA/AA/A Rated | | BBB rated | | Non-investment grade rated | | Non-rated | | Total |
| (in thousands) |
September 30, 2022 | | | | | | | | | |
U.S. Treasury securities | $ | 67,075 | | | $ | — | | | $ | — | | | $ | — | | | $ | 67,075 | |
U.S. government agency securities | 259,869 | | | — | | | — | | | — | | | 259,869 | |
Obligations of states and political subdivisions: | | | | | | | | | |
Obligations of states and state agencies | 63,434 | | | — | | | 5,517 | | | 19,325 | | | 88,276 | |
Municipal bonds | 348,330 | | | — | | | — | | | 34,583 | | | 382,913 | |
Total obligations of states and political subdivisions | 411,764 | | | — | | | 5,517 | | | 53,908 | | | 471,189 | |
Residential mortgage-backed securities | 2,811,582 | | | — | | | — | | | — | | | 2,811,582 | |
Trust preferred securities | — | | | — | | | — | | | 37,038 | | | 37,038 | |
Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 67,267 | | | 75,267 | |
Total | $ | 3,552,290 | | | $ | 6,000 | | | $ | 5,517 | | | $ | 158,213 | | | $ | 3,722,020 | |
December 31, 2021 | | | | | | | | | |
U.S. Treasury securities | $ | 67,558 | | | $ | — | | | $ | — | | | $ | — | | | $ | 67,558 | |
U.S. government agency securities | 6,265 | | | — | | | — | | | — | | | 6,265 | |
Obligations of states and political subdivisions: | | | | | | | | | |
Obligations of states and state agencies | 118,368 | | | — | | | 5,576 | | | 17,071 | | | 141,015 | |
Municipal bonds | 148,854 | | | — | | | — | | | 48,093 | | | 196,947 | |
Total obligations of states and political subdivisions | 267,222 | | | — | | | 5,576 | | | 65,164 | | | 337,962 | |
Residential mortgage-backed securities | 2,166,142 | | | — | | | — | | | — | | | 2,166,142 | |
Trust preferred securities | — | | | — | | | — | | | 37,020 | | | 37,020 | |
Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 45,750 | | | 53,750 | |
Total | $ | 2,509,187 | | | $ | 6,000 | | | $ | 5,576 | | | $ | 147,934 | | | $ | 2,668,697 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| AAA/AA/A Rated | | BBB rated | | Non-investment grade rated | | Non-rated | | Total |
| (in thousands) |
June 30, 2023 | | | | | | | | | |
U.S. Treasury securities | $ | 66,579 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66,579 | |
U.S. government agency securities | 261,197 | | | — | | | — | | | — | | | 261,197 | |
Obligations of states and political subdivisions: | | | | | | | | | |
Obligations of states and state agencies | 65,768 | | | — | | | 5,416 | | | 17,377 | | | 88,561 | |
Municipal bonds | 321,860 | | | — | | | — | | | 54,694 | | | 376,554 | |
Total obligations of states and political subdivisions | 387,628 | | | — | | | 5,416 | | | 72,071 | | | 465,115 | |
Residential mortgage-backed securities | 2,861,227 | | | — | | | — | | | — | | | 2,861,227 | |
Trust preferred securities | — | | | — | | | — | | | 37,052 | | | 37,052 | |
Corporate and other debt securities | — | | | 6,000 | | | — | | | 69,668 | | | 75,668 | |
Total | $ | 3,576,631 | | | $ | 6,000 | | | $ | 5,416 | | | $ | 178,791 | | | $ | 3,766,838 | |
December 31, 2022 | | | | | | | | | |
U.S. Treasury securities | $ | 66,911 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66,911 | |
U.S. government agency securities | 260,392 | | | — | | | — | | | — | | | 260,392 | |
Obligations of states and political subdivisions: | | | | | | | | | |
Obligations of states and state agencies | 74,943 | | | — | | | 5,497 | | | 18,798 | | | 99,238 | |
Municipal bonds | 333,488 | | | — | | | — | | | 47,572 | | | 381,060 | |
Total obligations of states and political subdivisions | 408,431 | | | — | | | 5,497 | | | 66,370 | | | 480,298 | |
Residential mortgage-backed securities | 2,909,106 | | | — | | | — | | | — | | | 2,909,106 | |
Trust preferred securities | — | | | — | | | — | | | 37,043 | | | 37,043 | |
Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 67,234 | | | 75,234 | |
Total | $ | 3,646,840 | | | $ | 6,000 | | | $ | 5,497 | | | $ | 170,647 | | | $ | 3,828,984 | |
Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At SeptemberJune 30, 2022,2023, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the "non-rated" category included TEMStax exempt mortgage securities (TEMS) secured by Ginnie Mae securities. Trust preferred securities consist of non-rated single-issuer securities, issued by bank holding companies. Corporate bondsand other debt securities in the non-rated category mostly consist of debt primarilyhigh quality foreign issued by banks.
bonds.
Allowance for Credit Losses for Held to Maturity Debt Securities
Valley has a zero-loss expectation for certain securities within the held to maturity portfolio, and therefore it is not 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 TEMS collateralized municipal bonds called TEMS.bonds.
Held to maturity debt securities were carried net of allowance for credit losses totaling $1.7 million at September 30, 2022, and $1.2 million at December 31, 2021. Valley recorded a provision for credit losses of $188 thousand and $531 thousand for the three and nine months ended September 30, 2022, respectively. Valley recorded
a provisionThe following table details the activity in the allowance for credit losses of $35 thousand and a credit (negative) provision for credit losses of $353 thousand for the three and ninesix months ended SeptemberJune 30, 2021, respectively. 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Beginning balance | $ | 1,633 | | | $ | 1,222 | | | $ | 1,646 | | | $ | 1,165 | |
(Credit) provision for credit losses | (282) | | | 286 | | | (295) | | | 343 | |
Ending balance | $ | 1,351 | | | $ | 1,508 | | | $ | 1,351 | | | $ | 1,508 | |
There were no charge-offssales of available for allsale and held to maturity debt securities during the respective periods ofthree and six months ended June 30, 2023 and 2022, and 2021.respectively.
Note 8. Loans and Allowance for Credit Losses for Loans
The detail of the loan portfolio as of SeptemberJune 30, 20222023 and December 31, 20212022 was as follows:
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
Loans: | Loans: | | Loans: | |
Commercial and industrial: | | |
| Commercial and industrial | Commercial and industrial | $ | 8,615,557 | | | $ | 5,411,601 | | Commercial and industrial | $ | 9,287,309 | | | $ | 8,804,830 | |
Commercial and industrial PPP loans * | 85,820 | | | 435,950 | | |
Total commercial and industrial loans | 8,701,377 | | | 5,847,551 | | |
Commercial real estate: | Commercial real estate: | | | | Commercial real estate: | |
Commercial real estate | Commercial real estate | 24,493,445 | | | 18,935,486 | | Commercial real estate | 27,793,072 | | | 25,732,033 | |
Construction | Construction | 3,571,818 | | | 1,854,580 | | Construction | 3,815,761 | | | 3,700,835 | |
Total commercial real estate loans | Total commercial real estate loans | 28,065,263 | | | 20,790,066 | | Total commercial real estate loans | 31,608,833 | | | 29,432,868 | |
Residential mortgage | Residential mortgage | 5,177,128 | | | 4,545,064 | | Residential mortgage | 5,560,356 | | | 5,364,550 | |
Consumer: | Consumer: | | Consumer: | |
Home equity | Home equity | 467,135 | | | 400,779 | | Home equity | 535,493 | | | 503,884 | |
Automobile | Automobile | 1,711,086 | | | 1,570,036 | | Automobile | 1,632,875 | | | 1,746,225 | |
Other consumer | Other consumer | 1,063,775 | | | 1,000,161 | | Other consumer | 1,252,382 | | | 1,064,843 | |
Total consumer loans | Total consumer loans | 3,241,996 | | | 2,970,976 | | Total consumer loans | 3,420,750 | | | 3,314,952 | |
Total loans | Total loans | $ | 45,185,764 | | | $ | 34,153,657 | | Total loans | $ | 49,877,248 | | | $ | 46,917,200 | |
|
*Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $1.4 million and $12.1 million at September 30, 2022 and December 31, 2021, respectively.
Total loans include net unearned discounts and deferreddeferred loan fees of $136.5$119.1 million and $78.5 and $120.5 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. The increase in total loans at September 30, 2022 is partially attributed to $5.9 billion of loans acquired in the Bank Leumi USA acquisition, which was inclusive of a $98.6 million net purchase discount at the acquisition date.
Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $139.6$202.1 million and $83.7$175.9 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.condition.
During the three months ended June 30, 2023, Valley transferred a non-performing construction loan totaling $10.0 million, net of $4.2 million charge-offs from the held for investment loan portfolio to loans held for sale. See Note 6 for further details. There
werewere no sales of loans from the held for investment portfolio during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.
2022.
Credit Risk Management
For all of its loan types, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk 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. Additionally, Valley does not accept crypto assets as loan collateral for any of its loan portfolio classes. See Valley’s Annual Report on Form 10-K for the year ended December 31, 20212022 for further details.
Credit Quality
The following table presents past due, current and non-accrual loans without an allowance for loan losses by loan portfolio class at SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | 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 Loan Losses | | 30-59 Days Past Due Loans | | 60-89 Days Past Due Loans | | 90 Days or More Past Due Loans | | Non-Accrual Loans | | Total Past Due Loans | | Current Loans | | Total Loans | | Non-Accrual Loans Without Allowance for Loan Losses |
| | (in thousands) | | (in thousands) |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Commercial and industrial | Commercial and industrial | $ | 19,526 | | | $ | 2,188 | | | $ | 15,072 | | | $ | 135,187 | | | $ | 171,973 | | | $ | 8,529,404 | | | $ | 8,701,377 | | | $ | 5,043 | | Commercial and industrial | $ | 6,229 | | | $ | 7,468 | | | $ | 6,599 | | | $ | 84,449 | | | $ | 104,745 | | | $ | 9,182,564 | | | $ | 9,287,309 | | | $ | 8,221 | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Commercial real estate | Commercial real estate | 6,196 | | | 383 | | | 15,082 | | | 67,319 | | | 88,980 | | | 24,404,465 | | | 24,493,445 | | | 64,260 | | Commercial real estate | 3,612 | | | — | | | 2,242 | | | 82,712 | | | 88,566 | | | 27,704,506 | | | 27,793,072 | | | 76,438 | |
Construction | Construction | — | | | 12,969 | | | — | | | 61,098 | | | 74,067 | | | 3,497,751 | | | 3,571,818 | | | 14,941 | | Construction | — | | | — | | | 3,990 | | | 63,043 | | | 67,033 | | | 3,748,728 | | | 3,815,761 | | | 15,476 | |
Total commercial real estate loans | Total commercial real estate loans | 6,196 | | | 13,352 | | | 15,082 | | | 128,417 | | | 163,047 | | | 27,902,216 | | | 28,065,263 | | | 79,201 | | Total commercial real estate loans | 3,612 | | | — | | | 6,232 | | | 145,755 | | | 155,599 | | | 31,453,234 | | | 31,608,833 | | | 91,914 | |
Residential mortgage | Residential mortgage | 13,045 | | | 5,947 | | | 550 | | | 26,564 | | | 46,106 | | | 5,131,022 | | | 5,177,128 | | | 14,378 | | Residential mortgage | 15,565 | | | 1,348 | | | 1,165 | | | 20,819 | | | 38,897 | | | 5,521,459 | | | 5,560,356 | | | 16,151 | |
Consumer loans: | Consumer loans: | | Consumer loans: | |
Home equity | Home equity | 321 | | | 168 | | | 312 | | | 2,845 | | | 3,646 | | | 463,489 | | | 467,135 | | | 123 | | Home equity | 959 | | | 46 | | | — | | | 2,737 | | | 3,742 | | | 531,751 | | | 535,493 | | | — | |
Automobile | Automobile | 4,999 | | | 702 | | | 109 | | | 286 | | | 6,096 | | | 1,704,990 | | | 1,711,086 | | | — | | Automobile | 5,963 | | | 568 | | | 332 | | | 248 | | | 7,111 | | | 1,625,764 | | | 1,632,875 | | | — | |
Other consumer | Other consumer | 876 | | | 304 | | | — | | | 96 | | | 1,276 | | | 1,062,499 | | | 1,063,775 | | | — | | Other consumer | 1,509 | | | 3,512 | | | 674 | | | 83 | | | 5,778 | | | 1,246,604 | | | 1,252,382 | | | — | |
Total consumer loans | Total consumer loans | 6,196 | | | 1,174 | | | 421 | | | 3,227 | | | 11,018 | | | 3,230,978 | | | 3,241,996 | | | 123 | | Total consumer loans | 8,431 | | | 4,126 | | | 1,006 | | | 3,068 | | | 16,631 | | | 3,404,119 | | | 3,420,750 | | | — | |
Total | Total | $ | 44,963 | | | $ | 22,661 | | | $ | 31,125 | | | $ | 293,395 | | | $ | 392,144 | | | $ | 44,793,620 | | | $ | 45,185,764 | | | $ | 98,745 | | Total | $ | 33,837 | | | $ | 12,942 | | | $ | 15,002 | | | $ | 254,091 | | | $ | 315,872 | | | $ | 49,561,376 | | | $ | 49,877,248 | | | $ | 116,286 | |
| | | 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 Loan Losses | | 30-59 Days Past Due Loans | | 60-89 Days Past Due Loans | | 90 Days or More Past Due Loans | | Non-Accrual Loans | | Total Past Due Loans | | Current Loans | | Total Loans | | Non-Accrual Loans Without Allowance for Loan Losses |
| | (in thousands) | | | | (in thousands) | | |
December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Commercial and industrial | Commercial and industrial | $ | 6,717 | | | $ | 7,870 | | | $ | 1,273 | | | $ | 99,918 | | | $ | 115,778 | | | $ | 5,731,773 | | | $ | 5,847,551 | | | $ | 9,066 | | Commercial and industrial | $ | 11,664 | | | $ | 12,705 | | | $ | 18,392 | | | $ | 98,881 | | | $ | 141,642 | | | $ | 8,663,188 | | | $ | 8,804,830 | | | $ | 5,659 | |
Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
Commercial real estate | Commercial real estate | 14,421 | | | — | | | 32 | | | 83,592 | | | 98,045 | | | 18,837,441 | | | 18,935,486 | | | 70,719 | | Commercial real estate | 6,638 | | | 3,167 | | | 2,292 | | | 68,316 | | | 80,413 | | | 25,651,620 | | | 25,732,033 | | | 66,066 | |
Construction | Construction | 1,941 | | | — | | | — | | | 17,641 | | | 19,582 | | | 1,834,998 | | | 1,854,580 | | | — | | Construction | — | | | — | | | 3,990 | | | 74,230 | | | 78,220 | | | 3,622,615 | | | 3,700,835 | | | 16,120 | |
Total commercial real estate loans | Total commercial real estate loans | 16,362 | | | — | | | 32 | | | 101,233 | | | 117,627 | | | 20,672,439 | | | 20,790,066 | | | 70,719 | | Total commercial real estate loans | 6,638 | | | 3,167 | | | 6,282 | | | 142,546 | | | 158,633 | | | 29,274,235 | | | 29,432,868 | | | 82,186 | |
Residential mortgage | Residential mortgage | 10,999 | | | 3,314 | | | 677 | | | 35,207 | | | 50,197 | | | 4,494,867 | | | 4,545,064 | | | 20,401 | | Residential mortgage | 16,146 | | | 3,315 | | | 1,866 | | | 25,160 | | | 46,487 | | | 5,318,063 | | | 5,364,550 | | | 14,224 | |
Consumer loans: | Consumer loans: | | Consumer loans: | |
Home equity | Home equity | 242 | | | 98 | | | — | | | 3,517 | | | 3,857 | | | 396,922 | | | 400,779 | | | 4 | | Home equity | 955 | | | 254 | | | — | | | 2,810 | | | 4,019 | | | 499,865 | | | 503,884 | | | 117 | |
Automobile | Automobile | 6,391 | | | 656 | | | 271 | | | 240 | | | 7,558 | | | 1,562,478 | | | 1,570,036 | | | — | | Automobile | 5,974 | | | 630 | | | 1 | | | 271 | | | 6,876 | | | 1,739,349 | | | 1,746,225 | | | — | |
Other consumer | Other consumer | 178 | | | 266 | | | 518 | | | 101 | | | 1,063 | | | 999,098 | | | 1,000,161 | | | — | | Other consumer | 2,158 | | | 695 | | | 46 | | | 93 | | | 2,992 | | | 1,061,851 | | | 1,064,843 | | | — | |
Total consumer loans | Total consumer loans | 6,811 | | | 1,020 | | | 789 | | | 3,858 | | | 12,478 | | | 2,958,498 | | | 2,970,976 | | | 4 | | Total consumer loans | 9,087 | | | 1,579 | | | 47 | | | 3,174 | | | 13,887 | | | 3,301,065 | | | 3,314,952 | | | 117 | |
Total | Total | $ | 40,889 | | | $ | 12,204 | | | $ | 2,771 | | | $ | 240,216 | | | $ | 296,080 | | | $ | 33,857,577 | | | $ | 34,153,657 | | | $ | 100,190 | | Total | $ | 43,535 | | | $ | 20,766 | | | $ | 26,587 | | | $ | 269,761 | | | $ | 360,649 | | | $ | 46,556,551 | | | $ | 46,917,200 | | | $ | 102,186 | |
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. Pass rated loans do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants.
The following table presents the internal loan classification risk by loan portfolio class by origination year based on the most recent analysis performed at SeptemberJune 30, 20222023 and December 31, 2021:2022, as well as the gross loan charge-offs by year of origination for the six months ended June 30, 2023:
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
September 30, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
June 30, 2023 | | June 30, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Commercial and industrial | Commercial and industrial | | Commercial and industrial | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 1,451,283 | | | $ | 1,193,937 | | | $ | 663,575 | | | $ | 352,556 | | | $ | 279,803 | | | $ | 395,216 | | | $ | 4,076,834 | | | $ | 159 | | | $ | 8,413,362 | | Pass | | $ | 978,383 | | | $ | 1,233,039 | | | $ | 987,984 | | | $ | 490,159 | | | $ | 267,719 | | | $ | 565,910 | | | $ | 4,420,712 | | | $ | 306 | | | $ | 8,944,212 | |
Special Mention | Special Mention | | 15,224 | | | 3,433 | | | 20,292 | | | 5,246 | | | 9,320 | | | 3,852 | | | 56,973 | | | 9 | | | 114,349 | | Special Mention | | 16,582 | | | 43,260 | | | 3,257 | | | 19,948 | | | 4,125 | | | 7,005 | | | 131,677 | | | 1,488 | | | 227,342 | |
Substandard | Substandard | | — | | | 2,279 | | | 5,285 | | | 2,082 | | | 4,467 | | | 5,312 | | | 71,792 | | | — | | | 91,217 | | Substandard | | 6,056 | | | 754 | | | 3,288 | | | 1,706 | | | 1,703 | | | 2,819 | | | 25,681 | | | — | | | 42,007 | |
Doubtful | Doubtful | | — | | | — | | | — | | | 2,701 | | | 2,636 | | | 77,112 | | | — | | | — | | | 82,449 | | Doubtful | | 1,500 | | | 669 | | | 2,768 | | | — | | | 2,674 | | | 63,427 | | | 2,710 | | | — | | | 73,748 | |
| Total commercial and industrial | Total commercial and industrial | | $ | 1,466,507 | | | $ | 1,199,649 | | | $ | 689,152 | | | $ | 362,585 | | | $ | 296,226 | | | $ | 481,492 | | | $ | 4,205,599 | | | $ | 168 | | | $ | 8,701,377 | | Total commercial and industrial | | $ | 1,002,521 | | | $ | 1,277,722 | | | $ | 997,297 | | | $ | 511,813 | | | $ | 276,221 | | | $ | 639,161 | | | $ | 4,580,780 | | | $ | 1,794 | | | $ | 9,287,309 | |
Commercial real estate | Commercial real estate | | | | | | | | | | | | | | | | | | | Commercial real estate | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 5,326,845 | | | $ | 5,193,267 | | | $ | 3,280,227 | | | $ | 2,733,365 | | | $ | 1,553,479 | | | $ | 5,161,982 | | | $ | 284,891 | | | $ | 3,599 | | | $ | 23,537,657 | | Pass | | $ | 3,006,116 | | | $ | 6,675,372 | | | $ | 4,997,069 | | | $ | 3,073,019 | | | $ | 2,453,918 | | | $ | 6,040,604 | | | $ | 542,644 | | | $ | 3,310 | | | $ | 26,792,052 | |
Special Mention | Special Mention | | 102,150 | | | 63,572 | | | 90,429 | | | 43,812 | | | 75,328 | | | 155,873 | | | 15,074 | | | — | | | 546,239 | | Special Mention | | 86,078 | | | 52,939 | | | 51,208 | | | 111,268 | | | 100,524 | | | 205,971 | | | 6,621 | | | — | | | 614,609 | |
Substandard | Substandard | | 17,641 | | | 31,910 | | | 37,797 | | | 40,394 | | | 63,254 | | | 210,011 | | | 8,372 | | | — | | | 409,379 | | Substandard | | 10,972 | | | 30,664 | | | 35,577 | | | 27,280 | | | 36,320 | | | 237,578 | | | 7,830 | | | — | | | 386,221 | |
Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | 170 | | | — | | | — | | | 170 | | Doubtful | | — | | | — | | | — | | | 190 | | | — | | | — | | | — | | | — | | | 190 | |
| Total commercial real estate | Total commercial real estate | | $ | 5,446,636 | | | $ | 5,288,749 | | | $ | 3,408,453 | | | $ | 2,817,571 | | | $ | 1,692,061 | | | $ | 5,528,036 | | | $ | 308,337 | | | $ | 3,599 | | | $ | 24,493,445 | | Total commercial real estate | | $ | 3,103,166 | | | $ | 6,758,975 | | | $ | 5,083,854 | | | $ | 3,211,757 | | | $ | 2,590,762 | | | $ | 6,484,153 | | | $ | 557,095 | | | $ | 3,310 | | | $ | 27,793,072 | |
Construction | Construction | | | | | | | | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 743,720 | | | $ | 607,441 | | | $ | 120,837 | | | $ | 30,246 | | | $ | 10,572 | | | $ | 17,069 | | | $ | 1,952,786 | | | $ | — | | | $ | 3,482,671 | | Pass | | $ | 390,550 | | | $ | 702,031 | | | $ | 342,403 | | | $ | 32,129 | | | $ | 18,878 | | | $ | 20,230 | | | $ | 2,251,552 | | | $ | — | | | $ | 3,757,773 | |
Special Mention | | 12,917 | | | — | | | — | | | — | | | — | | | 13,084 | | | — | | | 26,001 | | |
| Substandard | Substandard | | — | | | 11,376 | | | — | | | 982 | | | 17,599 | | | 20,183 | | | — | | | 50,140 | | Substandard | | 8,538 | | | 12,969 | | | 7,427 | | | — | | | 955 | | | 17,668 | | | 3,501 | | | — | | | 51,058 | |
Doubtful | Doubtful | | — | | | 643 | | | — | | | — | | | 12,364 | | | — | | | — | | | 13,006 | | Doubtful | | — | | | 6,930 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,930 | |
Total construction | Total construction | | $ | 756,637 | | | $ | 619,460 | | | $ | 120,837 | | | $ | 31,228 | | | $ | 10,572 | | | $ | 47,032 | | | $ | 1,986,053 | | | $ | — | | | $ | 3,571,818 | | Total construction | | $ | 399,088 | | | $ | 721,930 | | | $ | 349,830 | | | $ | 32,129 | | | $ | 19,833 | | | $ | 37,898 | | | $ | 2,255,053 | | | $ | — | | | $ | 3,815,761 | |
Gross loan charge-offs | | Gross loan charge-offs | | $ | — | | | $ | 7,288 | | | $ | 24,658 | | | $ | 6,479 | | | $ | 908 | | | $ | 2,524 | | | $ | 26 | | | $ | — | | | $ | 41,883 | |
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
December 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
December 31, 2022 | | December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Commercial and industrial | Commercial and industrial | | Commercial and industrial | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 1,563,050 | | | $ | 743,165 | | | $ | 461,022 | | | $ | 362,748 | | | $ | 143,753 | | | $ | 337,713 | | | $ | 1,968,513 | | | $ | 247 | | | $ | 5,580,211 | | Pass | | $ | 1,600,747 | | | $ | 1,089,386 | | | $ | 590,406 | | | $ | 322,564 | | | $ | 250,031 | | | $ | 386,085 | | | $ | 4,307,163 | | | $ | 144 | | | $ | 8,546,526 | |
Special Mention | Special Mention | | 4,182 | | | 1,195 | | | 3,217 | | | 14,143 | | | 1,726 | | | 9,869 | | | 102,145 | | | 40 | | | 136,517 | | Special Mention | | 31,557 | | | 3,367 | | | 19,492 | | | 4,732 | | | 4,369 | | | 3,558 | | | 51,021 | | | 7 | | | 118,103 | |
Substandard | Substandard | | 8,248 | | | 4,823 | | | 3,139 | | | 7,077 | | | 910 | | | 408 | | | 19,642 | | | 109 | | | 44,356 | | Substandard | | 288 | | | 1,734 | | | 4,121 | | | 1,412 | | | 4,256 | | | 4,879 | | | 31,698 | | | — | | | 48,388 | |
Doubtful | Doubtful | | — | | | — | | | 2,733 | | | — | | | 16,355 | | | 67,379 | | | — | | | — | | | 86,467 | | Doubtful | | 886 | | | 20,844 | | | — | | | 2,692 | | | — | | | 64,158 | | | 3,233 | | | — | | | 91,813 | |
| Total commercial and industrial | Total commercial and industrial | | $ | 1,575,480 | | | $ | 749,183 | | | $ | 470,111 | | | $ | 383,968 | | | $ | 162,744 | | | $ | 415,369 | | | $ | 2,090,300 | | | $ | 396 | | | $ | 5,847,551 | | Total commercial and industrial | | $ | 1,633,478 | | | $ | 1,115,331 | | | $ | 614,019 | | | $ | 331,400 | | | $ | 258,656 | | | $ | 458,680 | | | $ | 4,393,115 | | | $ | 151 | | | $ | 8,804,830 | |
Commercial real estate | Commercial real estate | | | | | | | | | | | | | | | | | | | Commercial real estate | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 4,517,917 | | | $ | 2,983,140 | | | $ | 2,702,580 | | | $ | 1,734,922 | | | $ | 1,474,770 | | | $ | 4,557,011 | | | $ | 195,851 | | | $ | 13,380 | | | $ | 18,179,571 | | Pass | | $ | 6,815,115 | | | $ | 5,168,127 | | | $ | 3,246,885 | | | $ | 2,672,223 | | | $ | 1,536,327 | | | $ | 5,027,128 | | | $ | 452,461 | | | $ | 3,504 | | | $ | 24,921,770 | |
Special Mention | Special Mention | | 7,700 | | | 50,019 | | | 46,911 | | | 44,187 | | | 65,623 | | | 143,540 | | | 50,168 | | | — | | | 408,148 | | Special Mention | | 93,286 | | | 48,007 | | | 60,169 | | | 45,447 | | | 62,111 | | | 125,414 | | | 8,188 | | | — | | | 442,622 | |
Substandard | Substandard | | 735 | | | 34,655 | | | 29,029 | | | 41,231 | | | 70,941 | | | 169,041 | | | 1,949 | | | — | | | 347,581 | | Substandard | | 15,088 | | | 34,475 | | | 32,630 | | | 34,622 | | | 59,337 | | | 183,341 | | | 7,986 | | | — | | | 367,479 | |
Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | 186 | | | — | | | — | | | 186 | | Doubtful | | — | | | — | | | — | | | — | | | — | | | 162 | | | — | | | — | | | 162 | |
| Total commercial real estate | Total commercial real estate | | $ | 4,526,352 | | | $ | 3,067,814 | | | $ | 2,778,520 | | | $ | 1,820,340 | | | $ | 1,611,334 | | | $ | 4,869,778 | | | $ | 247,968 | | | $ | 13,380 | | | $ | 18,935,486 | | Total commercial real estate | | $ | 6,923,489 | | | $ | 5,250,609 | | | $ | 3,339,684 | | | $ | 2,752,292 | | | $ | 1,657,775 | | | $ | 5,336,045 | | | $ | 468,635 | | | $ | 3,504 | | | $ | 25,732,033 | |
Construction | Construction | | | | | | | | | | | | | | | | | | | Construction | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | | Risk Rating: | |
Pass | Pass | | $ | 274,097 | | | $ | 98,609 | | | $ | 48,555 | | | $ | 32,781 | | | $ | 6,061 | | | $ | 28,419 | | | $ | 1,313,555 | | | $ | — | | | $ | 1,802,077 | | Pass | | $ | 942,380 | | | $ | 512,046 | | | $ | 61,131 | | | $ | 22,845 | | | $ | 8,676 | | | $ | 20,599 | | | $ | 2,040,866 | | | $ | — | | | $ | 3,608,543 | |
Special Mention | Special Mention | | 4,131 | | | — | | | 1,009 | | | — | | | — | | | — | | | 18,449 | | | — | | | 23,589 | | Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | 14,268 | | | — | | | 14,268 | |
Substandard | Substandard | | 199 | | | 19 | | | 6 | | | 246 | | | — | | | 17,842 | | | 10,602 | | | — | | | 28,914 | | Substandard | | 12,969 | | | 12,601 | | | — | | | 974 | | | — | | | 17,599 | | | 20,138 | | | — | | | 64,281 | |
| Doubtful | | Doubtful | | — | | | — | | | — | | | — | | | — | | | 13,743 | | | — | | | — | | | 13,743 | |
Total construction | Total construction | | $ | 278,427 | | | $ | 98,628 | | | $ | 49,570 | | | $ | 33,027 | | | $ | 6,061 | | | $ | 46,261 | | | $ | 1,342,606 | | | $ | — | | | $ | 1,854,580 | | Total construction | | $ | 955,349 | | | $ | 524,647 | | | $ | 61,131 | | | $ | 23,819 | | | $ | 8,676 | | | $ | 51,941 | | | $ | 2,075,272 | | | $ | — | | | $ | 3,700,835 | |
For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley also evaluates credit quality based on the aging status of the loan and by payment activity. The following table presents the amortized cost in those loan classes based on payment activity, by origination year as of SeptemberJune 30, 20222023 and December 31, 2021.2022, as well as the gross loan charge-offs by year of origination for the six months ended June 30, 2023:
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
September 30, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
June 30, 2023 | | June 30, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Residential mortgage | Residential mortgage | | Residential mortgage | |
Performing | Performing | | $ | 1,040,542 | | | $ | 1,508,300 | | | $ | 586,418 | | | $ | 505,502 | | | $ | 351,579 | | | $ | 1,113,157 | | | $ | 63,694 | | | $ | — | | | $ | 5,169,192 | | Performing | | $ | 369,607 | | | $ | 1,304,327 | | | $ | 1,524,988 | | | $ | 562,263 | | | $ | 455,463 | | | $ | 1,263,659 | | | $ | 73,983 | | | $ | — | | | $ | 5,554,290 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | 129 | | | 1,508 | | | 2,526 | | | 3,773 | | | — | | | — | | | 7,936 | | 90 days or more past due | | — | | | 178 | | | — | | | — | | | 797 | | | 5,091 | | | — | | | — | | | 6,066 | |
Total residential mortgage | Total residential mortgage | | $ | 1,040,542 | | | $ | 1,508,300 | | | $ | 586,547 | | | $ | 507,010 | | | $ | 354,105 | | | $ | 1,116,930 | | | $ | 63,694 | | | $ | — | | | $ | 5,177,128 | | Total residential mortgage | | $ | 369,607 | | | $ | 1,304,505 | | | $ | 1,524,988 | | | $ | 562,263 | | | $ | 456,260 | | | $ | 1,268,750 | | | $ | 73,983 | | | $ | — | | | $ | 5,560,356 | |
Consumer loans | Consumer loans | | | | | | | | | | | | | | | | | | | Consumer loans | | | | | | | | | | | | | | | | | | |
Home equity | Home equity | | Home equity | |
Performing | Performing | | $ | 36,133 | | | $ | 12,728 | | | $ | 4,788 | | | $ | 5,279 | | | $ | 5,822 | | | $ | 15,602 | | | $ | 346,709 | | | $ | 39,105 | | | $ | 466,166 | | Performing | | $ | 19,442 | | | $ | 45,601 | | | $ | 11,873 | | | $ | 4,326 | | | $ | 4,660 | | | $ | 17,396 | | | $ | 392,898 | | | $ | 38,391 | | | $ | 534,587 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 424 | | | 545 | | | 969 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 263 | | | 643 | | | 906 | |
Total home equity | Total home equity | | 36,133 | | | 12,728 | | | 4,788 | | | 5,279 | | | 5,822 | | | 15,602 | | | 347,133 | | | 39,650 | | | 467,135 | | Total home equity | | 19,442 | | | 45,601 | | | 11,873 | | | 4,326 | | | 4,660 | | | 17,396 | | | 393,161 | | | 39,034 | | | 535,493 | |
Automobile | Automobile | | | | | | | | | | | | | | | | | | | Automobile | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 589,413 | | | 570,603 | | | 226,848 | | | 188,741 | | | 95,798 | | | 39,039 | | | — | | | — | | | 1,710,442 | | Performing | | 205,170 | | | 633,269 | | | 437,528 | | | 161,245 | | | 123,616 | | | 71,682 | | | — | | | — | | | 1,632,510 | |
90 days or more past due | 90 days or more past due | | 75 | | | 111 | | | 78 | | | 167 | | | 132 | | | 81 | | | — | | | — | | | 644 | | 90 days or more past due | | 47 | | | 105 | | | 73 | | | — | | | 9 | | | 131 | | | — | | | — | | | 365 | |
Total automobile | Total automobile | | 589,488 | | | 570,714 | | | 226,926 | | | 188,908 | | | 95,930 | | | 39,120 | | | — | | | — | | | 1,711,086 | | Total automobile | | 205,217 | | | 633,374 | | | 437,601 | | | 161,245 | | | 123,625 | | | 71,813 | | | — | | | — | | | 1,632,875 | |
Other consumer | Other consumer | | | | | | | | | | | | | | | | | | | Other consumer | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 21,110 | | | 2,934 | | | 7,262 | | | 7,476 | | | 7,560 | | | 16,546 | | | 1,000,795 | | | — | | | 1,063,683 | | Performing | | 17,973 | | | 20,979 | | | (1,549) | | | 3,729 | | | 8,720 | | | 12,707 | | | 1,189,191 | | | — | | | 1,251,750 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 92 | | | — | | | 92 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 38 | | | 594 | | | — | | | 632 | |
Total other consumer | Total other consumer | | 21,110 | | | 2,934 | | | 7,262 | | | 7,476 | | | 7,560 | | | 16,546 | | | 1,000,887 | | | — | | | 1,063,775 | | Total other consumer | | 17,973 | | | 20,979 | | | (1,549) | | | 3,729 | | | 8,720 | | | 12,745 | | | 1,189,785 | | | — | | | 1,252,382 | |
Total consumer | Total consumer | | $ | 646,731 | | | $ | 586,376 | | | $ | 238,976 | | | $ | 201,663 | | | $ | 109,312 | | | $ | 71,268 | | | $ | 1,348,020 | | | $ | 39,650 | | | $ | 3,241,996 | | Total consumer | | $ | 242,632 | | | $ | 699,954 | | | $ | 447,925 | | | $ | 169,300 | | | $ | 137,005 | | | $ | 101,954 | | | $ | 1,582,946 | | | $ | 39,034 | | | $ | 3,420,750 | |
Gross loan charge-offs | | Gross loan charge-offs | | $ | 11 | | | $ | 226 | | | $ | 206 | | | $ | 90 | | | $ | 428 | | | $ | 953 | | | $ | 103 | | | $ | — | | | $ | 2,017 | |
| | | | Term Loans | | | | | | | Term Loans | | | | |
| | Amortized Cost Basis by Origination Year | | | Amortized Cost Basis by Origination Year | |
December 31, 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior to 2017 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total | |
December 31, 2022 | | December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Residential mortgage | Residential mortgage | | Residential mortgage | |
Performing | Performing | | $ | 1,448,602 | | | $ | 635,531 | | | $ | 572,911 | | | $ | 425,152 | | | $ | 368,164 | | | $ | 1,014,190 | | | $ | 70,342 | | | $ | — | | | $ | 4,534,892 | | Performing | | $ | 1,302,279 | | | $ | 1,502,622 | | | $ | 571,390 | | | $ | 500,197 | | | $ | 338,062 | | | $ | 1,073,995 | | | $ | 66,706 | | | $ | — | | | $ | 5,355,251 | |
90 days or more past due | 90 days or more past due | | — | | | 357 | | | 2,627 | | | 2,056 | | | 2,794 | | | 2,338 | | | — | | | — | | | 10,172 | | 90 days or more past due | | — | | | 197 | | | 217 | | | 1,835 | | | 2,876 | | | 4,174 | | | — | | | — | | | 9,299 | |
Total residential mortgage | Total residential mortgage | | $ | 1,448,602 | | | $ | 635,888 | | | $ | 575,538 | | | $ | 427,208 | | | $ | 370,958 | | | $ | 1,016,528 | | | $ | 70,342 | | | $ | — | | | $ | 4,545,064 | | Total residential mortgage | | $ | 1,302,279 | | | $ | 1,502,819 | | | $ | 571,607 | | | $ | 502,032 | | | $ | 340,938 | | | $ | 1,078,169 | | | $ | 66,706 | | | $ | — | | | $ | 5,364,550 | |
Consumer loans | Consumer loans | | | | | | | | | | | | | | | | | | | Consumer loans | | | | | | | | | | | | | | | | | | |
Home equity | Home equity | | Home equity | |
Performing | Performing | | $ | 13,847 | | | $ | 5,723 | | | $ | 6,994 | | | $ | 7,384 | | | $ | 5,359 | | | $ | 13,597 | | | $ | 303,888 | | | $ | 42,822 | | | $ | 399,614 | | Performing | | $ | 47,084 | | | $ | 12,432 | | | $ | 4,592 | | | $ | 5,024 | | | $ | 5,581 | | | $ | 13,007 | | | $ | 376,608 | | | $ | 38,570 | | | $ | 502,898 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 35 | | | 536 | | | 594 | | | 1,165 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 276 | | | 710 | | | 986 | |
Total home equity | Total home equity | | 13,847 | | | 5,723 | | | 6,994 | | | 7,384 | | | 5,359 | | | 13,632 | | | 304,424 | | | 43,416 | | | 400,779 | | Total home equity | | 47,084 | | | 12,432 | | | 4,592 | | | 5,024 | | | 5,581 | | | 13,007 | | | 376,884 | | | 39,280 | | | 503,884 | |
Automobile | Automobile | | | | | | | | | | | | | | | | | | | Automobile | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 735,446 | | | 309,856 | | | 278,828 | | | 157,450 | | | 72,753 | | | 15,171 | | | — | | | — | | | 1,569,504 | | Performing | | 724,557 | | | 525,017 | | | 204,578 | | | 166,103 | | | 80,012 | | | 45,415 | | | — | | | — | | | 1,745,682 | |
90 days or more past due | 90 days or more past due | | 129 | | | — | | | 78 | | | 163 | | | 81 | | | 81 | | | — | | | — | | | 532 | | 90 days or more past due | | 38 | | | 116 | | | 36 | | | 180 | | | 101 | | | 72 | | | — | | | — | | | 543 | |
Total automobile | Total automobile | | 735,575 | | | 309,856 | | | 278,906 | | | 157,613 | | | 72,834 | | | 15,252 | | | — | | | — | | | 1,570,036 | | Total automobile | | 724,595 | | | 525,133 | | | 204,614 | | | 166,283 | | | 80,113 | | | 45,487 | | | — | | | — | | | 1,746,225 | |
Other consumer | Other consumer | | | | | | | | | | | | | | | | | | | Other consumer | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 2,949 | | | 6,717 | | | 6,468 | | | 7,017 | | | 1,009 | | | 14,483 | | | 961,027 | | | — | | | 999,670 | | Performing | | 24,140 | | | 10,144 | | | 8,206 | | | 7,435 | | | 7,406 | | | 15,736 | | | 991,737 | | | — | | | 1,064,804 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 491 | | | — | | | 491 | | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 38 | | | 1 | | | — | | | 39 | |
Total other consumer | Total other consumer | | 2,949 | | | 6,717 | | | 6,468 | | | 7,017 | | | 1,009 | | | 14,483 | | | 961,518 | | | — | | | 1,000,161 | | Total other consumer | | 24,140 | | | 10,144 | | | 8,206 | | | 7,435 | | | 7,406 | | | 15,774 | | | 991,738 | | | — | | | 1,064,843 | |
Total consumer | Total consumer | | $ | 752,371 | | | $ | 322,296 | | | $ | 292,368 | | | $ | 172,014 | | | $ | 79,202 | | | $ | 43,367 | | | $ | 1,265,942 | | | $ | 43,416 | | | $ | 2,970,976 | | Total consumer | | $ | 795,819 | | | $ | 547,709 | | | $ | 217,412 | | | $ | 178,742 | | | $ | 93,100 | | | $ | 74,268 | | | $ | 1,368,622 | | | $ | 39,280 | | | $ | 3,314,952 | |
Troubled debt restructured loans
Loan modifications to borrowers experiencing financial difficulty.. From time to time, Valley mayextend, 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. IfPrior to 2023, a loan was classified as a troubled debt restructuring (TDR) if the borrower iswas experiencing financial difficulties and a concession has been made at the time of such modification,modification.
Effective January 1, 2023, Valley adopted ASU No. 2022-02 which eliminated the accounting guidance for TDR loans while enhancing disclosure requirements for certain loan modifications by creditors when a borrower is experiencing financial difficulty. Valley adopted ASU No. 2022-02 using the modified retrospective transition method. At the date of adoption, Valley was no longer required to utilize a loan-level discounted cash flow approach for determining the allowance for certain modified loans previously classified as TDR loans. As a troubled debt restructured loan (TDR).
Generally,result, Valley elected to utilize its collective reserve methodology for pools of loans that share common risk characteristic for determining the concessions madereserves for TDRs involve lowering the monthly payments onmodified 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 reflectedformerly classified as TDR loans. This change resulted in the interest rate, orrecognition of a combinationcumulative-effect adjustment which decreased the allowance for loan losses with an offsetting entry to retained earnings, net 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 $69.7 million and $71.3 million as of September 30, 2022 and December 31, 2021, respectively. Non-performing TDRs totaled $155.7 million and $117.2 million as of September 30, 2022 and December 31, 2021, respectively.
deferred taxes, at January 1, 2023.
The following table shows the amortized cost basis of loans to borrowers experiencing financial difficulty at June 30, 2023 that were modified during the three and six months ended June 30, 2023, disaggregated by class of financing receivable and type of modification. Each of the types of modifications was less than one percent of their respective loan categories.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2023 | | Six Months Ended June 30, 2023 |
| | Term extension | | | | | | | | Term extension and interest rate reduction | | Total | | Term extension | | Term extension and interest rate reduction | | Total | | | | | | |
| | ($ in thousands) | | | | | | |
Commercial and industrial | | $ | 37,762 | | | | | | | | | $ | 1,482 | | | $ | 39,244 | | | $ | 39,033 | | | $ | 2,003 | | | $ | 41,036 | | | | | | | |
Commercial real estate | | 3,512 | | | | | | | | | 3,754 | | | 7,266 | | | 49,617 | | | 3,754 | | | 53,371 | | | | | | | |
Residential mortgage | | 578 | | | | | | | | | — | | | 578 | | | 790 | | | — | | | 790 | | | | | | | |
Consumer | | — | | | | | | | | | — | | | — | | | 53 | | | — | | | 53 | | | | | | | |
Total | | $ | 41,852 | | | | | | | | | $ | 5,236 | | | $ | 47,088 | | | $ | 89,493 | | | $ | 5,757 | | | $ | 95,250 | | | | | | | |
The following table describes the types of modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023:
| | | | | | | | | | | | |
| | |
| | Types of Modifications | | | | |
Commercial and industrial | | 12 month term extensions; and one 12 month term extension combined with a reduction in interest rate from 9.38 percent to 6.50 percent | | | | |
Commercial real estate | | 6 to 36 month term extensions and one term extension combined with a reduction in interest rate from 8.75 percent to 6.00 percent | | | | |
| | | | | | |
Residential mortgage | | 12 month term extensions | | | | |
Consumer | | 60 month term extensions | | | | |
Valley closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts. All loans to borrowers experiencing financial difficulty that have been modified during the three and six months ended June 30, 2023 were current to their contractual payments as of June 30, 2023.
Valley did not extend any commitments to lend additional funds to borrowers experiencing financial difficulty whose loans had been modified during the three and six months ended June 30, 2023.
Troubled debt restructured loans. The following tables present the pre- and post-modification amortized cost of TDR loans by loan class modified as TDRs during the three and ninesix months ended SeptemberJune 30, 2022 and 2021.2022. Post-modification amounts are presented as of SeptemberJune 30, 2022 and 2021.using the allowance methodology for TDRs prior to the adoption of ASU 2022-02.
| | | Three Months Ended September 30, | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | | Three Months Ended June 30, 2022 |
Troubled Debt Restructurings | Troubled Debt Restructurings | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | Troubled Debt Restructurings | | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | | ($ in thousands) | | | | ($ in thousands) |
Commercial and industrial | Commercial and industrial | | 65 | | | $ | 54,586 | | | $ | 54,747 | | | 4 | | | $ | 2,446 | | | $ | 2,414 | | Commercial and industrial | | | 49 | | | $ | 82,120 | | | $ | 78,051 | |
Commercial real estate: | | |
| Commercial real estate | Commercial real estate | | 1 | | | 2,187 | | | 2,187 | | | 5 | | | 14,473 | | | 14,539 | | Commercial real estate | | | 1 | | | 8,811 | | | 8,735 | |
Construction | | 2 | | | 11,025 | | | 7,811 | | | 2 | | | 17,599 | | | 17,599 | | |
Total commercial real estate | | 3 | | | 13,212 | | | 9,998 | | | 7 | | | 32,072 | | | 32,138 | | |
| Residential mortgage | Residential mortgage | | 1 | | | 44 | | | 44 | | | 4 | | | 356 | | | 350 | | Residential mortgage | | | 7 | | | 4,970 | | | 4,969 | |
| Consumer | | Consumer | | | 1 | | | 125 | | | 124 | |
Total | Total | | 69 | | | $ | 67,842 | | | $ | 64,789 | | | 15 | | | $ | 34,874 | | | $ | 34,902 | | Total | | | 58 | | | $ | 96,026 | | | $ | 91,879 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
Troubled Debt Restructurings | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | ($ in thousands) |
Commercial and industrial | | 79 | | | $ | 109,779 | | | $ | 105,495 | | | 16 | | | $ | 21,822 | | | $ | 19,060 | |
Commercial real estate: | | | | | | | | | | | | |
Commercial real estate | | 4 | | | 16,259 | | | 15,660 | | | 11 | | | 26,710 | | | 26,730 | |
Construction | | 2 | | | 11,025 | | | 7,811 | | | 2 | | | 17,599 | | | 17,599 | |
Total commercial real estate | | 6 | | | 27,284 | | | 23,471 | | | 13 | | | 44,309 | | | 44,329 | |
Residential mortgage | | 9 | | | 5,135 | | | 5,116 | | | 12 | | | 2,974 | | | 2,909 | |
Consumer | | 1 | | | 125 | | | 123 | | | 1 | | | 170 | | | 163 | |
Total | | 95 | | | $ | 142,323 | | | $ | 134,205 | | | 42 | | | $ | 69,275 | | | $ | 66,461 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Six Months Ended June 30, 2022 |
Troubled Debt Restructurings | | | | | | | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | | | | | | ($ in thousands) |
Commercial and industrial | | | | | | | | 60 | | | $ | 91,804 | | | $ | 87,685 | |
| | | | | | | | | | | | |
Commercial real estate | | | | | | | | 3 | | | 14,072 | | | 13,986 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Residential mortgage | | | | | | | | 8 | | | 5,090 | | | 5,087 | |
Consumer | | | | | | | | 1 | | | 125 | | | 124 | |
Total | | | | | | | | 72 | | | $ | 111,091 | | | $ | 106,882 | |
|
The total TDRs presented in the above tables had allocated allowance for loan losses of $71.5$56.0 million and $8.2 millionat SeptemberJune 30, 2022 and 2021, respectively.2022. There were $3.8 million and $5.4$1.5 million in charge-offs related to TDRs for the three and ninesix months ended SeptemberJune 30, 2022. There were charge-offs of $206 thousand and $6.0 million related to TDRs for the three and nine months ended September 30, 2021, respectively. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three and ninesix months ended SeptemberJune 30, 20222022.
Performing TDRs (not reported as non-accrual loans) and 2021.
non-performing TDRs totaled $67.3 million and $154.4 million as of June 30, 2022.Loans modified as TDRs within the previous 12 months and for which there was a payment default (90 or more days past due) for the three and ninesix months ended SeptemberJune 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2022 | | 2021 |
Troubled Debt Restructurings Subsequently Defaulted | | Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment |
| | ($ in thousands) |
Commercial and industrial | | 1 | | | $ | 42,771 | | | — | | | $ | — | |
| | | | | | | | |
Commercial real estate | | 2 | | | 5,207 | | | 1 | | | 419 | |
| | | | | | | | |
| | | | | | | | |
Residential mortgage | | 1 | | | 1,071 | | | 1 | | | 129 | |
| | | | | | | | |
Total | | 4 | | | $ | 49,049 | | | 2 | | | $ | 548 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
Troubled Debt Restructurings Subsequently Defaulted | | Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment |
| | ($ in thousands) |
Commercial and industrial | | 1 | | | $ | 42,771 | | | — | | | $ | — | |
| | | | | | | | |
Commercial real estate | | 2 | | | 5,207 | | | 1 | | | 419 | |
| | | | | | | | |
| | | | | | | | |
Residential mortgage | | 1 | | | 1,071 | | | 1 | | | 129 | |
| | | | | | | | |
Total | | 4 | | | $ | 49,049 | | | 2 | | | $ | 548 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
Troubled Debt Restructurings Subsequently Defaulted | | | | | | Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment |
| | | | | | ($ in thousands) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Construction | | | | | | 2 | | | $ | 17,599 | | | 2 | | | $ | 17,599 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total | | | | | | 2 | | | $ | 17,599 | | | 2 | | | $ | 17,599 | |
Loans in Processprocess of Foreclosure.foreclosure. Other real estate owned (OREO) totaled $824 thousand and $286 thousand and $2.3 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. There were no foreclosedforeclosed residential real estate properties included in OREO at SeptemberJune 30, 20222023 and December 31, 2021.2022. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $1.9 million$454 thousand and $2.5$2.6 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
Collateral dependent loans. Loans are collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process.
The following table presents collateral dependent loans by class as of SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
Collateral dependent loans: | Collateral dependent loans: | | Collateral dependent loans: | |
Commercial and industrial * | Commercial and industrial * | $ | 129,776 | | | $ | 95,335 | | Commercial and industrial * | $ | 77,364 | | | $ | 94,433 | |
Commercial real estate: | | |
| Commercial real estate | Commercial real estate | 73,862 | | | 110,174 | | Commercial real estate | 138,032 | | | 130,199 | |
Construction | 41,726 | | | — | | |
Total commercial real estate loans | 115,588 | | | 110,174 | | |
| Residential mortgage | Residential mortgage | 32,487 | | | 35,745 | | Residential mortgage | 16,151 | | | 33,865 | |
Home equity | Home equity | — | | | 4 | | Home equity | — | | | 195 | |
Total | Total | $ | 277,851 | | | $ | 241,258 | | Total | $ | 231,547 | | | $ | 258,692 | |
* The majority ofCommercial and industrial loans presented in the loanstable above are primarily collateralized by taxi medallions for all periods.
Allowance for Credit Losses for Loans
The allowance for credit losses (ACL) for loans consists of the allowance for loan losses and the allowance for unfunded credit commitments. The ACL for loans at September 30, 2022 increased $122.7decreased $24.6 million from December 31, 2021 largely reflecting a net ACL of $70.3 million for PCD loans acquired from Bank Leumi USA that was recorded at April 1, 2022 and recognition of a $41.0 million provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA during the three months ended June 30, 2022. Overall, an increased economic forecast reserve component of our CECL model caused by elevated uncertainty in economic conditions was largely offset by lower expected quantitative loss experience at September 30, 20222023 as compared to December 31, 2021.
2022.
The following table summarizes the ACL for loans at SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (in thousands) |
Components of allowance for credit losses for loans: | | | |
Allowance for loan losses | $ | 475,744 | | | $ | 359,202 | |
Allowance for unfunded credit commitments | 22,664 | | | 16,500 | |
Total allowance for credit losses for loans | $ | 498,408 | | | $ | 375,702 | |
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| (in thousands) |
Components of allowance for credit losses for loans: | | | |
Allowance for loan losses | $ | 436,432 | | | $ | 458,655 | |
Allowance for unfunded credit commitments | 22,244 | | | 24,600 | |
Total allowance for credit losses for loans | $ | 458,676 | | | $ | 483,255 | |
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, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Components of provision for credit losses for loans: | | | | | | | |
Provision for loan losses | $ | 1,315 | | | $ | 3,496 | | | $ | 42,883 | | | $ | 17,998 | |
Provision for unfunded credit commitments | 520 | | | — | | | 6,164 | | | 3,289 | |
Total provision for credit losses for loans | $ | 1,835 | | | $ | 3,496 | | | $ | 49,047 | | | $ | 21,287 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Components of provision for credit losses for loans: | | | | | | | |
Provision for loan losses | $ | 8,159 | | | $ | 38,310 | | | $ | 18,138 | | | $ | 41,568 | |
(Credit) provision for unfunded credit commitments | (1,827) | | | 5,402 | | | (2,356) | | | 5,644 | |
Total provision for credit losses for loans | $ | 6,332 | | | $ | 43,712 | | | $ | 15,782 | | | $ | 47,212 | |
The following table details the activity in the allowance for loan losses by loan portfolio segment for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| | (in thousands) | | (in thousands) |
Three Months Ended September 30, 2022 | | |
Allowance for loan losses: | | |
Beginning balance | $ | 144,539 | | | $ | 277,227 | | | $ | 29,889 | | | $ | 17,164 | | | $ | 468,819 | | |
| Loans charged-off | (5,033) | | | (4,000) | | | — | | | (962) | | | (9,995) | | |
Charged-off loans recovered | 13,236 | | | 1,729 | | | 163 | | | 477 | | | 15,605 | | |
Net recoveries (charge-offs) | 8,203 | | | (2,271) | | | 163 | | | (485) | | | 5,610 | | |
Provision (credit) for loan losses | 1,309 | | | (7,176) | | | 6,105 | | | 1,077 | | | 1,315 | | |
Ending balance | $ | 154,051 | | | $ | 267,780 | | | $ | 36,157 | | | $ | 17,756 | | | $ | 475,744 | | |
Three Months Ended September 30, 2021 | | | | | | | | | | |
Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2023 | |
Allowance for loan losses: | Allowance for loan losses: | | Allowance for loan losses: | |
Beginning balance | Beginning balance | $ | 109,689 | | | $ | 189,139 | | | $ | 25,303 | | | $ | 15,193 | | | $ | 339,324 | | Beginning balance | $ | 127,992 | | | $ | 243,332 | | | $ | 41,708 | | | $ | 23,866 | | | $ | 436,898 | |
| Loans charged-off | Loans charged-off | (1,248) | | | — | | | — | | | (771) | | | (2,019) | | Loans charged-off | (3,865) | | | (6,273) | | | (149) | | | (1,040) | | | (11,327) | |
Charged-off loans recovered | Charged-off loans recovered | 514 | | | 29 | | | 228 | | | 955 | | | 1,726 | | Charged-off loans recovered | 2,173 | | | 4 | | | 135 | | | 390 | | | 2,702 | |
Net charge-offs | | Net charge-offs | (1,692) | | | (6,269) | | | (14) | | | (650) | | | (8,625) | |
Provision for loan losses | | Provision for loan losses | 1,945 | | | 2,632 | | | 2,459 | | | 1,123 | | | 8,159 | |
Ending balance | | Ending balance | $ | 128,245 | | | $ | 239,695 | | | $ | 44,153 | | | $ | 24,339 | | | $ | 436,432 | |
Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2022 | | | | | | | | | |
Allowance for loan losses: | | Allowance for loan losses: | |
Beginning balance | | Beginning balance | $ | 101,203 | | | $ | 219,949 | | | $ | 28,189 | | | $ | 13,169 | | | $ | 362,510 | |
Allowance for purchased credit deteriorated (PCD) loans * | | Allowance for purchased credit deteriorated (PCD) loans * | 33,452 | | | 36,618 | | | 206 | | | 43 | | | 70,319 | |
| Loans charged-off | | Loans charged-off | (4,540) | | | — | | | (1) | | | (726) | | | (5,267) | |
Charged-off loans recovered | | Charged-off loans recovered | 1,952 | | | 224 | | | 74 | | | 697 | | | 2,947 | |
Net (charge-offs) recoveries | Net (charge-offs) recoveries | (734) | | | 29 | | | 228 | | | 184 | | | (293) | | Net (charge-offs) recoveries | (2,588) | | | 224 | | | 73 | | | (29) | | | (2,320) | |
(Credit) provision for loan losses | (5,078) | | | 10,553 | | | (799) | | | (1,180) | | | 3,496 | | |
Provision for loan losses | | Provision for loan losses | 12,472 | | | 20,436 | | | 1,421 | | | 3,981 | | | 38,310 | |
Ending balance | Ending balance | $ | 103,877 | | | $ | 199,721 | | | $ | 24,732 | | | $ | 14,197 | | | $ | 342,527 | | Ending balance | $ | 144,539 | | | $ | 277,227 | | | $ | 29,889 | | | $ | 17,164 | | | $ | 468,819 | |
| | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total | |
| (in thousands) | |
Nine Months Ended September 30, 2022 | | |
Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2023 | |
Allowance for loan losses: | | Allowance for loan losses: | |
Beginning balance | | Beginning balance | $ | 139,941 | | | $ | 259,408 | | | $ | 39,020 | | | $ | 20,286 | | | $ | 458,655 | |
Impact of the adoption of ASU No. 2022-02 | | Impact of the adoption of ASU No. 2022-02 | (739) | | | (589) | | | (12) | | | (28) | | | (1,368) | |
Beginning balance, adjusted | | Beginning balance, adjusted | $ | 139,202 | | | $ | 258,819 | | | $ | 39,008 | | | $ | 20,258 | | | $ | 457,287 | |
Loans charged-off | | Loans charged-off | (29,912) | | | (11,971) | | | (149) | | | (1,868) | | | (43,900) | |
Charged-off loans recovered | | Charged-off loans recovered | 3,572 | | | 28 | | | 156 | | | 1,151 | | | 4,907 | |
Net (charge-offs) recoveries | | Net (charge-offs) recoveries | (26,340) | | | (11,943) | | | 7 | | | (717) | | | (38,993) | |
Provision (credit) for loan losses | | Provision (credit) for loan losses | 15,383 | | | (7,181) | | | 5,138 | | | 4,798 | | | 18,138 | |
Ending balance | | Ending balance | $ | 128,245 | | | $ | 239,695 | | | $ | 44,153 | | | $ | 24,339 | | | $ | 436,432 | |
Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 | | | | | | | | | |
Allowance for loan losses: | Allowance for loan losses: | | Allowance for loan losses: | |
Beginning balance | Beginning balance | $ | 103,090 | | | $ | 217,490 | | | $ | 25,120 | | | $ | 13,502 | | | $ | 359,202 | | Beginning balance | $ | 103,090 | | | $ | 217,490 | | | $ | 25,120 | | | $ | 13,502 | | | $ | 359,202 | |
Allowance for PCD loans * | Allowance for PCD loans * | 33,452 | | | 36,618 | | | 206 | | | 43 | | | 70,319 | | Allowance for PCD loans * | 33,452 | | | 36,618 | | | 206 | | | 43 | | | 70,319 | |
Loans charged-off | (11,144) | | | (4,173) | | | (27) | | | (2,513) | | | (17,857) | | |
Charged-off loans recovered | 16,012 | | | 2,060 | | | 694 | | | 2,431 | | | 21,197 | | |
Net recoveries (charge-offs) | 4,868 | | | (2,113) | | | 667 | | | (82) | | | 3,340 | | |
Provision for loan losses | 12,641 | | | 15,785 | | | 10,164 | | | 4,293 | | | 42,883 | | |
Ending balance | $ | 154,051 | | | $ | 267,780 | | | $ | 36,157 | | | $ | 17,756 | | | $ | 475,744 | | |
Nine Months Ended September 30, 2021 | | | | | | | | | | |
Allowance for loan losses: | | |
Beginning balance | $ | 131,070 | | | $ | 164,113 | | | $ | 28,873 | | | $ | 16,187 | | | $ | 340,243 | | |
| Loans charged-off | Loans charged-off | (19,283) | | | (382) | | | (139) | | | (3,389) | | | (23,193) | | Loans charged-off | (6,111) | | | (173) | | | (27) | | | (1,551) | | | (7,862) | |
Charged-off loans recovered | Charged-off loans recovered | 2,781 | | | 763 | | | 576 | | | 3,359 | | | 7,479 | | Charged-off loans recovered | 2,776 | | | 331 | | | 531 | | | 1,954 | | | 5,592 | |
Net (charge-offs) recoveries | Net (charge-offs) recoveries | (16,502) | | | 381 | | | 437 | | | (30) | | | (15,714) | | Net (charge-offs) recoveries | (3,335) | | | 158 | | | 504 | | | 403 | | | (2,270) | |
(Credit) provision for loan losses | (10,691) | | | 35,227 | | | (4,578) | | | (1,960) | | | 17,998 | | |
Provision for loan losses | | Provision for loan losses | 11,332 | | | 22,961 | | | 4,059 | | | 3,216 | | | 41,568 | |
Ending balance | Ending balance | $ | 103,877 | | | $ | 199,721 | | | $ | 24,732 | | | $ | 14,197 | | | $ | 342,527 | | Ending balance | $ | 144,539 | | | $ | 277,227 | | | $ | 29,889 | | | $ | 17,164 | | | $ | 468,819 | |
|
* Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $62.4 million in the second quarter 2022 related to the Bank Leumi USA acquisition.
2022.
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 SeptemberJune 30, 20222023 and December 31, 2021.2022.
| | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| | (in thousands) | | (in thousands) |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Allowance for loan losses: | Allowance for loan losses: | | Allowance for loan losses: | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 89,822 | | | $ | 8,544 | | | $ | 4,592 | | | $ | 100 | | | $ | 103,058 | | Individually evaluated for credit losses | $ | 54,311 | | | $ | 6,749 | | | $ | 34 | | | $ | — | | | $ | 61,094 | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 64,229 | | | 259,236 | | | 31,565 | | | 17,656 | | | 372,686 | | Collectively evaluated for credit losses | 73,934 | | | 232,946 | | | 44,119 | | | 24,339 | | | 375,338 | |
Total | Total | $ | 154,051 | | | $ | 267,780 | | | $ | 36,157 | | | $ | 17,756 | | | $ | 475,744 | | Total | $ | 128,245 | | | $ | 239,695 | | | $ | 44,153 | | | $ | 24,339 | | | $ | 436,432 | |
Loans: | Loans: | | | | | | | | | | Loans: | | | | | | | | | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 151,415 | | | $ | 149,775 | | | $ | 42,911 | | | $ | 1,507 | | | $ | 345,608 | | Individually evaluated for credit losses | $ | 77,364 | | | $ | 138,032 | | | $ | 16,151 | | | $ | — | | | $ | 231,547 | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 8,549,962 | | | 27,915,488 | | | 5,134,217 | | | 3,240,489 | | | 44,840,156 | | Collectively evaluated for credit losses | 9,209,945 | | | 31,470,801 | | | 5,544,205 | | | 3,420,750 | | | 49,645,701 | |
Total | Total | $ | 8,701,377 | | | $ | 28,065,263 | | | $ | 5,177,128 | | | $ | 3,241,996 | | | $ | 45,185,764 | | Total | $ | 9,287,309 | | | $ | 31,608,833 | | | $ | 5,560,356 | | | $ | 3,420,750 | | | $ | 49,877,248 | |
December 31, 2021 | | | | | | | | | | |
December 31, 2022 | | December 31, 2022 | | | | | | | | | |
Allowance for loan losses: | Allowance for loan losses: | | Allowance for loan losses: | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 64,359 | | | $ | 6,277 | | | $ | 470 | | | $ | 390 | | | $ | 71,496 | | Individually evaluated for credit losses | $ | 68,745 | | | $ | 13,174 | | | $ | 337 | | | $ | 4,338 | | | $ | 86,594 | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 38,731 | | | 211,213 | | | 24,650 | | | 13,112 | | | 287,706 | | Collectively evaluated for credit losses | 71,196 | | | 246,234 | | | 38,683 | | | 15,948 | | | 372,061 | |
Total | Total | $ | 103,090 | | | $ | 217,490 | | | $ | 25,120 | | | $ | 13,502 | | | $ | 359,202 | | Total | $ | 139,941 | | | $ | 259,408 | | | $ | 39,020 | | | $ | 20,286 | | | $ | 458,655 | |
Loans: | Loans: | | | | | | | | | | Loans: | | | | | | | | | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 119,760 | | | $ | 134,135 | | | $ | 42,469 | | | $ | 2,431 | | | $ | 298,795 | | Individually evaluated for credit losses | $ | 117,644 | | | $ | 213,522 | | | $ | 28,869 | | | $ | 14,058 | | | $ | 374,093 | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 5,727,791 | | | 20,655,931 | | | 4,502,595 | | | 2,968,545 | | | 33,854,862 | | Collectively evaluated for credit losses | 8,687,186 | | | 29,219,346 | | | 5,335,681 | | | 3,300,894 | | | 46,543,107 | |
Total | Total | $ | 5,847,551 | | | $ | 20,790,066 | | | $ | 4,545,064 | | | $ | 2,970,976 | | | $ | 34,153,657 | | Total | $ | 8,804,830 | | | $ | 29,432,868 | | | $ | 5,364,550 | | | $ | 3,314,952 | | | $ | 46,917,200 | |
Note 9. Goodwill and Other Intangible Assets
The changes in the carrying amountamounts of goodwill as allocated to Valley's business segments, or reporting units thereof, for goodwill impairment analysis were:at both June 30, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Business Segment / Reporting Unit * |
| Wealth Management | | Consumer Lending | | Commercial Lending | | | | Total |
| (in thousands) |
Balance at December 31, 2021 | $ | 38,851 | | | $ | 222,390 | | | $ | 1,197,767 | | | | | $ | 1,459,008 | |
Goodwill from business combinations | 10,984 | | | 62,875 | | | 338,638 | | | | | 412,497 | |
Balance at September 30, 2022 | $ | 49,835 | | | $ | 285,265 | | | $ | 1,536,405 | | | | | $ | 1,871,505 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Business Segment / Reporting Unit * |
| Wealth Management | | Consumer Banking | | Commercial Banking | | | | Total |
| (in thousands) |
| | | | | | | | | |
| | | | | | | | | |
| $ | 49,767 | | | $ | 284,873 | | | $ | 1,534,296 | | | | | $ | 1,868,936 | |
* Valley’s Wealth Management and Insurance Division is comprised of trust, asset management, brokerage, insurance and tax credit advisory services. This reporting unit is included in the Consumer LendingBanking segment for financial reporting purposes.
During the second quarter 2022,2023, Valley performed the annual goodwill impairment test at its normal assessment date. The results of the 2023 annual impairment test resulted in no impairment of goodwill. During the six months ended June 30, 2023, there were no triggering events that would more likely than not reduce the fair value of any reporting unit below its carrying amount. There was no impairmentimpairment of goodwill recognized during the three and ninesix months ended SeptemberJune 30, 2022 and 2021.
As discussed in Note 15, Valley made changes to its operating structure and strategy during the second quarter 2022 (and subsequent to the annual goodwill impairment test), which resulted in changes in its operating segments and reporting units to reflect how the CEO, who is the chief operating decision maker, intends to manage Valley, allocate resources and measure performance. Goodwill balances were reallocated across the new operating segments and reporting units (as reflected in the table above) based on their relative fair values using the valuation performed during the second quarter 2022.
The goodwill from business combinations set forth in the above table during the nine months ended September 30, 2022, related to the acquisitions of Bank Leumi USA and Landmark totaled $403.2 million and $4.4 million, respectively. The goodwill from Landmark transaction was allocated entirely to the Wealth Management reporting unit. During the nine months ended September 30, 2022, Valley recorded $5.0 million of additional goodwill reflecting an adjustment to the deferred tax assets acquired from Westchester as of the acquisition date. See Note 2 for details related to these acquisitions.
The following table summarizes other intangible assets as of SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | Gross Intangible Assets | | Accumulated Amortization | | | Net Intangible Assets | | Gross Intangible Assets | | Accumulated Amortization | | | Net Intangible Assets |
| | (in thousands) | | (in thousands) |
September 30, 2022 | | | | |
June 30, 2023 | | June 30, 2023 | | | |
Loan servicing rights | Loan servicing rights | $ | 119,813 | | | $ | (94,956) | | | | $ | 24,857 | | Loan servicing rights | $ | 120,764 | | | $ | (98,453) | | | | $ | 22,311 | |
Core deposits | Core deposits | 223,670 | | | (84,511) | | | | 139,159 | | Core deposits | 215,620 | | | (99,129) | | | | 116,491 | |
Other | Other | 51,299 | | | (7,089) | | | | 44,210 | | Other | 50,393 | | | (11,249) | | | | 39,144 | |
Total other intangible assets | Total other intangible assets | $ | 394,782 | | | $ | (186,556) | | | | $ | 208,226 | | Total other intangible assets | $ | 386,777 | | | $ | (208,831) | | | | $ | 177,946 | |
December 31, 2021 | | | | | | | |
December 31, 2022 | | December 31, 2022 | | | | | | |
Loan servicing rights | Loan servicing rights | $ | 114,636 | | | $ | (90,951) | | | | $ | 23,685 | | Loan servicing rights | $ | 119,943 | | | $ | (96,136) | | | | $ | 23,807 | |
Core deposits | Core deposits | 109,290 | | | (65,488) | | | | 43,802 | | Core deposits | 223,670 | | | (92,486) | | | | 131,184 | |
Other | Other | 6,092 | | | (3,193) | | | | 2,899 | | Other | 51,299 | | | (8,834) | | | | 42,465 | |
Total other intangible assets | Total other intangible assets | $ | 230,018 | | | $ | (159,632) | | | | $ | 70,386 | | Total other intangible assets | $ | 394,912 | | | $ | (197,456) | | | | $ | 197,456 | |
Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets over the period of the economic life of the assets arising from estimated net servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Impairment charges on loan servicing rights are recognized in earnings when the book value of a stratified group of loan servicing rights exceeds its estimated fair value. There was no net impairment recognized during the three and ninesix months ended SeptemberJune 30, 2022. Valley recorded net recoveries of impairment charges on its loan servicing rights totaling $32 thousand2023 and $864 thousand for the three and nine months ended September 30, 2021, respectively.
2022.
Core deposits are amortized using an accelerated method over a period of 1010.0 years. Valley recorded $114.4 million of core deposit intangibles resulting from the Bank Leumi USA acquisition.
The line item labeled “Other” included in the table above primarily consists of customer lists, certain financial asset servicing contracts and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 13.313.4 years. Valley recorded $39.0 million and $6.2 million of other intangible assets during the nine months ended September 30, 2022 resulting from the Bank Leumi USA and Landmark acquisitions, respectively.
Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. No impairment was recognized during the three and ninesix months ended SeptemberJune 30, 20222023 and 2021.2022.
The following table presents the estimated future amortization expense of other intangible assets for the remainder of 20222023 through 2026:2027:
| | | | | | | | | | | | | | | | | |
| Loan Servicing Rights | | Core Deposits | | Other |
| (in thousands) |
2022 | $ | 865 | | | $ | 7,975 | | | $ | 1,745 | |
2023 | 3,195 | | | 28,746 | | | 6,522 | |
2024 | 2,817 | | | 24,897 | | | 5,951 | |
2025 | 2,471 | | | 21,048 | | | 5,380 | |
2026 | 2,156 | | | 17,223 | | | 4,805 | |
| | | | | | | | | | | | | | | | | |
Year | Loan Servicing Rights | | Core Deposits | | Other |
| (in thousands) |
2023 | $ | 1,579 | | | $ | 14,054 | | | $ | 3,201 | |
2024 | 2,863 | | | 24,897 | | | 5,951 | |
2025 | 2,506 | | | 21,048 | | | 5,380 | |
2026 | 2,181 | | | 17,223 | | | 4,805 | |
2027 | 1,890 | | | 13,544 | | | 4,205 | |
Valley recognized amortization expense on other intangible assets (including net recoveries of impairment charges on loan servicing rights) totaling approximately $11.1$9.8 million and $5.3$11.4 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively and $26.9$20.3 million and $16.8$15.8 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
Note 10. Deposits
Included in time deposits are certificates of deposit over $250 thousand totaling $2.0 billion and $1.8 billion at June 30, 2023 and December 31, 2022, respectively. Interest expense on time deposits of $250 thousand or more totaled $5.1 million and $444 thousand for the three months ended June 30, 2023 and 2022, respectively and $7.5 million and $545 thousand for the six months ended June 30, 2023 and 2022, respectively.
The scheduled maturities of time deposits as of June 30, 2023 were as follows:
| | | | | | | | |
Year | | Amount |
| | (in thousands) |
2023 | | 8,020,778 | |
2024 | | 6,574,934 | |
2025 | | 70,994 | |
2026 | | 160,144 | |
2027 | | 41,691 | |
Thereafter | | 39,641 | |
Total time deposits | | $ | 14,908,182 | |
Note 11. Borrowed Funds
Short-Term Borrowings
Short-term borrowings at SeptemberJune 30, 20222023 and December 31, 20212022 consisted of the following:
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
FHLB advances | FHLB advances | $ | 785,767 | | | $ | 500,000 | | FHLB advances | $ | 1,000,000 | | | $ | 24,035 | |
| Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 133,516 | | | 155,726 | | Securities sold under agreements to repurchase | 88,899 | | | 114,694 | |
Total short-term borrowings | Total short-term borrowings | $ | 919,283 | | | $ | 655,726 | | Total short-term borrowings | $ | 1,088,899 | | | $ | 138,729 | |
The weighted average interest rate for short-term FHLB advances was 3.215.30 percent and 0.371.60 percent at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
Long-Term Borrowings
Long-term borrowings at SeptemberJune 30, 20222023 and December 31, 20212022 consisted of the following:
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
FHLB advances, net (1) | FHLB advances, net (1) | $ | 788,574 | | | $ | 789,033 | | FHLB advances, net (1) | $ | 1,688,311 | | | $ | 788,419 | |
Subordinated debt, net (2) | Subordinated debt, net (2) | 752,523 | | | 634,643 | | Subordinated debt, net (2) | 755,222 | | | 754,639 | |
| Total long-term borrowings | Total long-term borrowings | $ | 1,541,097 | | | $ | 1,423,676 | | Total long-term borrowings | $ | 2,443,533 | | | $ | 1,543,058 | |
| | | | | |
(1) | FHLB advances are presented net of unamortized premiums totaling $574$311 thousand and $1.0 million$419 thousand at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. |
(2) | Subordinated debt is presented net of unamortized debt issuance costs totaling $7.3$6.0 million and $5.8$6.9 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. |
FHLB Advances. Long-term FHLB advances had a weighted average interest rate of 3.75 percent and 1.88 percent at both SeptemberJune 30, 20222023 and December 31, 2021.2022, respectively. FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket
assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans.
The long-term FHLB advances at SeptemberJune 30, 20222023 are scheduled for contractual balance repayments as follows:
| Year | Year | | Amount | Year | | Amount |
| | | (in thousands) | | | (in thousands) |
| 2023 | | $ | 350,000 | | |
2024 | 2024 | | 165,000 | | 2024 | | $ | 165,000 | |
2025 | 2025 | | 273,000 | | 2025 | | 273,000 | |
| 2026 | | 2026 | | 350,000 | |
2027 | | 2027 | | 675,000 | |
Thereafter | | Thereafter | | 225,000 | |
Total long-term FHLB advances | Total long-term FHLB advances | | $ | 788,000 | | Total long-term FHLB advances | | $ | 1,688,000 | |
There areare no FHLB advances with scheduled repayments in years 2023 and thereafter, reported in the table above, which are callable for early redemption by the FHLB during the next 12 months.
Subordinated debt. On September 20,There were no new issuances of the subordinated debt during the six months ended June 30, 2023. See Note 10 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2022 Valley issued $150 million of 6.25 percent fixed-to-floating rate subordinated notes due September 30, 2032. Interestfor details on the outstanding subordinated notes during the initial five year term through September 30, 2027, is payable semi-annually in arrears on March 30 and September 30, commencing on March 30, 2023. Thereafter, interest is expected to be set based on three-month Secured Overnight Financing Rate (SOFR) plus 278 basis points and paid quarterly through maturity of the notes. At September 30, 2022, the subordinated notes had a carrying value of $147.5 million, net of unamortized debt issuance costs.
Valley also had the following subordinated debt outstanding at September 30, 2022:
•$125 million aggregate principal amount of 5.125 percent subordinated notes due September 27, 2023 with no call dates or prepayments allowed except upon the occurrence of certain events;
•$100 million aggregate principal amount of 4.55 percent subordinated notes due June 30, 2025 with no call dates or prepayments allowed except upon the occurrence of certain events;
•$115 million aggregate principal amount of 5.25 percent fixed-to-floating rate subordinated notes due June 15, 2030 and callable in whole or in part on or after June 15, 2025 or upon the occurrence of certain events; and
•$300 million aggregate principal amount of 3.00 percent fixed-to-floating rate subordinated notes due June 15, 2031 and are callable in whole or in part on or after June 15, 2026 or upon the occurrence of certain events.
debt.
Note 11.12. Stock–Based Compensation
On April 19, 2021,25, 2023, Valley's shareholders approved the Valley National Bancorp 2023 Incentive Compensation Plan (the 2023 Plan). The purpose of the 2023 Plan is to provide additional long-term incentives to employees, directors and officers whose contributions are essential to the continued growth and success of Valley. Upon shareholder approval of the 2023 Plan, Valley ceased granting awards under the Valley National Bancorp 2021 Incentive Compensation Plan (the 2021 Plan) administered by. Under the Compensation and Human Capital Management Committee as appointed by Valley's Board of Directors. The purposes of the 20212023 Plan, areValley may issue awards to provide additional incentives toits officers, and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain officers, other employees and non-employee directors whose efforts will result in the continued and long-term growth of Valley's business.
As of September 30, 2022, 5.1amounts up to 14.5 million shares of common stock, were availableless one share for issuanceevery share granted after December 31, 2022 under the 2021 Plan. The essential features of each award are described in the award agreement relating to that award. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair value of Valley's common stock on the last sale price reported for Valley's common stock on such date or the last sale price reported preceding such date, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third-party specialist using a Monte Carlo valuation model.
On April 1, 2022, Valley issued replacement options for the pre-existing and fully vested stock awards consisting of Bank Leumi USA options for 2.7 million shares of Valley common stock (which all remained outstanding at
September 30, 2022) at a weighted average exercise price of $8.47. The stock plan under which the original Bank Leumi stock awards were issued is no longer active at the acquisition date.
Valley granted 234 thousand and 30 thousand of time-based restrictedRestricted stock units (RSUs) during the three months ended September 30, 2022are awarded as performance-based RSUs and 2021, respectively, and 2.3 million and 1.2 million for the nine months ended September 30, 2022 and 2021, respectively. Generally, time-based RSUs vest ratably over a three-year period.RSUs. The average grant date fair value of the RSUsperformance-based RSU awards are granted during the nine months ended September 30, 2022 and 2021 was $13.31 per share and $11.98 per share, respectively.
Valley granted 619 thousand and 604 thousand of performance-based RSUs to certain officers for the nine months ended September 30, 2022 and 2021, 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 dividendsdividends; 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 accumulatedtable below summarizes RSU awards granted and paid to the grantee at the vesting date or forfeited if the performance conditions are not met. Theaverage grant date fair value of the performance-based RSUs granted during the nine months ended September 30, 2022 and 2021 was $14.72 per share and $12.36 per share, respectively.
Valley recorded total stock-based compensation expense of $7.6 million and $5.2 millionvalues for the three and six months ended SeptemberJune 30, 20222023 and2021, respectively, and $21.0 million and $15.9 million for the nine months ended September 30, 2022 and 2021, respectively. The 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands, except per share data) |
Award shares granted: | | | | | | | |
Performance-based RSUs | — | | | 52 | | | 723 | | | 619 | |
Time-based RSUs | 178 | | | 937 | | | 1,731 | | | 2,104 | |
Average grant date fair value per share: | | | | | | | |
Performance-based RSUs | $ | — | | | $ | 13.60 | | | $ | 12.80 | | | $ | 14.72 | |
Time-based RSUs | $ | 8.35 | | | $ | 12.85 | | | $ | 11.55 | | | $ | 13.51 | |
Stock award fair values of stock awards are expensed over the shorter of the vesting or required service period. Valley recorded total stock-based compensation expense of $8.7 million and $6.2 million for the three months ended June 30, 2023
and 2022, respectively and $16.8 million and $13.4 million for the six months ended June 30, 2023 and 2022, respectively. As of SeptemberJune 30, 2022,2023, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $40.0 million and$49.4 million. This expense will be recognized over an average remaining vesting period of approximately 2.12.0 years. See Note 12 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2022 for details on the stock-based compensation awards.
Note 12.13. Derivative Instruments and Hedging Activities
Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest and currency rates.
Cash Flow Hedges of Interest Rate Risk. 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 second quarter 2023, Valley terminated six interest rate swaps with a total notional amount of $600 million. The terminated swaps, originally maturing between November 2024 to November 2026, were used to hedge the changes in cash flows associated with certain variable rate loans. The transaction resulted in a pre-tax gain totaling $3.6 million reported in accumulated other comprehensive loss within shareholders' equity that will be amortized to interest income over the life of the previously hedged loans.
Fair Value Hedges of Fixed Rate Assets and LiabilitiesLiabilities. . Valley is exposed to changes in the fair value of fixed-rate subordinated debt due to changes in interest rates. Valley uses interest rate swaps to manage its exposure to changes in fair value on fixed rate debt instruments attributable to changes in the designated benchmark interest rate. 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.
Cash Flow Hedges of Interest Rate Risk. Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively.
Valley had six interest rate swaps with a total notional amount of $700 million that matured during the nine months ended September 30, 2022. These swaps were used to hedge the changes in cash flows associated with certain short-term FHLB advances and brokered deposits.
Non-designated Hedges. Derivatives not designated as hedges aremay be used to manage Valley’s exposure to interest rate movements foreign currency risk, credit risk, andor to provide servicesa service to customers or for other purposes. These
derivativesbut 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 SeptemberJune 30, 2022,2023, Valley had 2836 credit swaps with an aggregate notional amount of $290.7$492.8 million related to risk participation agreements.
At SeptemberJune 30, 2022,2023, Valley had two “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 (modified to the three-month Term SOFR rate effective July 1, 2023) and, therefore, provide an effective economic hedge.
Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rate on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.
Valley enters into foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments. Upon the origination of a certain foreign currency denominated transactions (including foreign currency holdings and non-U.S. dollar denominated loans) with a client, we enter into a respective hedging contract with a third party financial institution to mitigate the economic impact of foreign currency exchange rate fluctuation.
Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows:
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | 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 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 310 | | | $ | 700,000 | | Cash flow hedge interest rate swaps | $ | — | | | $ | — | | | $ | — | | | $ | 3,971 | | | $ | 4 | | | $ | 600,000 | |
Fair value hedge interest rate swaps | Fair value hedge interest rate swaps | — | | | 32,566 | | | 300,000 | | | — | | | 3,335 | | | 300,000 | | Fair value hedge interest rate swaps | — | | | 28,992 | | | 300,000 | | | — | | | 29,794 | | | 300,000 | |
Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | $ | — | | | $ | 32,566 | | | $ | 300,000 | | | $ | — | | | $ | 3,645 | | | $ | 1,000,000 | | Total derivatives designated as hedging instruments | $ | — | | | $ | 28,992 | | | $ | 300,000 | | | $ | 3,971 | | | $ | 29,798 | | | $ | 900,000 | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | | | |
Interest rate swaps and other contracts* | Interest rate swaps and other contracts* | $ | 576,213 | | | $ | 575,917 | | | $ | 13,347,157 | | | $ | 180,701 | | | $ | 47,044 | | | $ | 10,179,294 | | Interest rate swaps and other contracts* | $ | 548,592 | | | $ | 548,217 | | | $ | 15,837,195 | | | $ | 449,280 | | | $ | 564,678 | | | $ | 14,753,330 | |
Foreign currency derivatives | Foreign currency derivatives | 17,873 | | | 17,142 | | | 1,205,558 | | | 311 | | | 233 | | | 122,166 | | Foreign currency derivatives | 22,635 | | | 21,710 | | | 1,331,575 | | | 13,709 | | | 12,604 | | | 1,273,735 | |
Mortgage banking derivatives | Mortgage banking derivatives | 30 | | | 31 | | | 1,875 | | | 488 | | | 1,454 | | | 312,428 | | Mortgage banking derivatives | 393 | | | 307 | | | 105,948 | | | 167 | | | 157 | | | 31,299 | |
Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | $ | 594,116 | | | $ | 593,090 | | | $ | 14,554,590 | | | $ | 181,500 | | | $ | 48,731 | | | $ | 10,613,888 | | Total derivatives not designated as hedging instruments | $ | 571,620 | | | $ | 570,234 | | | $ | 17,274,718 | | | $ | 463,156 | | | $ | 577,439 | | | $ | 16,058,364 | |
* IncludesOther derivative contracts include risk participation agreements.
TheDuring the second quarter 2023, certain cash flow hedges and other non-designated derivative hedging instruments previously cleared through the Chicago Mercantile Exchange and London Clearing House were no longer subject to the variation margins are classified as amargin netting under the single-unit of account as settlements of the cash flow hedges and other non-designated derivative instruments. As a result, the. At December 31, 2022, fair value of the applicablethese non-designated derivative assets and liabilities areinstruments were reported net of variation margin at September 30, 2022 and December 31, 2021 in the table above.as settlements using a single-unit of account.
Gains (losses) included in the consolidated statements of income and other comprehensive loss, on a pre-tax basis, elatedrelated 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 June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) | | (in thousands) |
Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense | $ | 21 | | | $ | (1,044) | | | $ | (405) | | | $ | (2,708) | | |
Amount of (loss) gain reclassified from accumulated other comprehensive loss to interest income and expense | | Amount of (loss) gain reclassified from accumulated other comprehensive loss to interest income and expense | $ | (725) | | | $ | 116 | | | $ | (1,256) | | | $ | (426) | |
Amount of (loss) gain recognized in other comprehensive loss | Amount of (loss) gain recognized in other comprehensive loss | (6) | | | (144) | | | 435 | | | (125) | | Amount of (loss) gain recognized in other comprehensive loss | (4,991) | | | 121 | | | (1,093) | | | 441 | |
The accumulated after-tax lossesgains related to effective cash flow hedges included in accumulated other comprehensive loss were $929 thousand$2.4 million and $1.3$2.2 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest income and expense as interest payments are madereceived and paid on the hedged variable interest rate assets and liabilities. Valley estimates that $995$1.2 million and $238 thousand before tax (before tax) will be reclassified as an increase to interest income and a decrease to interest expense, respectively, over the next 12 months.
Gains (losses)(Losses) gains included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | (in thousands) |
Derivative - interest rate swap: | Derivative - interest rate swap: | | Derivative - interest rate swap: | |
| Interest expense | Interest expense | $ | (989) | | | $ | (396) | | | $ | (383) | | | $ | (316) | | Interest expense | $ | (3,790) | | | $ | 76 | | | $ | 902 | | | $ | 606 | |
Hedged item - subordinated debt | Hedged item - subordinated debt | | Hedged item - subordinated debt | |
| Interest expense | Interest expense | $ | 325 | | | $ | 405 | | | $ | 802 | | | $ | 322 | | Interest expense | $ | 3,952 | | | $ | (147) | | | $ | (820) | | | $ | (477) | |
The changes in the fair value of the hedged item designated as a qualifying hedge are captured as an
adjustment to the carrying amount of the hedged item (basis adjustment). The following table presents the hedged item related to interest rate derivatives designated as fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at SeptemberJune 30, 2022.2023 and December 31, 2022, respectively.
| Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Carrying Amount of the Hedged Liability | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability | Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Net Carrying Amount of the Hedged Liability * | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability |
| | (in thousands) | | (in thousands) |
June 30, 2023 | | June 30, 2023 | |
Long-term borrowings | Long-term borrowings | $ | 267,640 | | | $ | (32,360) | | Long-term borrowings | $ | 268,300 | | | $ | (29,312) | |
December 31, 2022 | | December 31, 2022 | |
Long-term borrowings | | Long-term borrowings | $ | 267,076 | | | $ | (30,132) | |
* Net carrying amount includes unamortized debt issuance costs of $2.4 million and $2.8 million at June 30, 2023 and December 31, 2022, respectively.
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, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) | | (in thousands) |
Non-designated hedge interest rate swaps and credit derivatives | Non-designated hedge interest rate swaps and credit derivatives | | Non-designated hedge interest rate swaps and credit derivatives | |
Other non-interest expense | Other non-interest expense | $ | 463 | | | $ | 216 | | | $ | (1,191) | | | $ | (209) | | Other non-interest expense | $ | (368) | | | $ | 1,143 | | | $ | (160) | | | $ | (1,654) | |
OtherCapital markets income reported in non-interest income included fee income related to non-designated hedge derivative interest rate swaps executed with commercial loan customers and foreign exchange contracts (not designated as hedging instruments) executed with commercial loan customers totaling $10.7a combined total of $14.1 million and $8.8$13.2 million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively and $35.8$24.0 million and $22.6$27.6 million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively.
Collateral Requirements and Credit Risk Related Contingent Features.Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board of Directors.
Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterpartycounterparties could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of SeptemberJune 30, 2022,2023, Valley was in compliance with all of the provisions of its derivative counterparty agreements. AsThe aggregate fair value of September 30, 2022, there were no derivativesall derivative financial instruments with credit risk-related contingent features in an aggregatea net liability position. position at June 30, 2023 was not material. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.
Note 13.14. Balance Sheet Offsetting
Certain financial instruments, including certain over-the-counter (OTC) derivatives (mostly interest rate swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated statements of financial condition and/or subject to master netting arrangements or similar agreements. OTC derivatives include interest rate swaps executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house (presented in the table below). The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements.
Valley is party to master netting arrangements with its financial institution counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts. In such cases, the collateral would be used to settle the fair value of the swap or repurchase agreement should Valley be in default. The total amount of collateral held or pledged cannot exceed the net derivative fair values with the counterparty.
The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of SeptemberJune 30, 20222023 and December 31, 2021.2022.
| | | | | | | | | 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 * | | Net Amount |
| | (in thousands) | | (in thousands) |
September 30, 2022 | | |
June 30, 2023 | | June 30, 2023 | |
Assets | Assets | | Assets | |
Interest rate swaps | Interest rate swaps | $ | 576,213 | | | $ | — | | | $ | 576,213 | | | $ | (914) | | | $ | (374,030) | | | $ | 201,269 | | Interest rate swaps | $ | 548,592 | | | $ | — | | | $ | 548,592 | | | $ | 9,929 | | | $ | (468,200) | | | $ | 90,321 | |
Liabilities | Liabilities | | Liabilities | |
Interest rate swaps | Interest rate swaps | $ | 608,483 | | | $ | — | | | $ | 608,483 | | | $ | (914) | | | $ | (454) | | | $ | 607,115 | | Interest rate swaps | $ | 577,209 | | | $ | — | | | $ | 577,209 | | | $ | (9,929) | | | $ | — | | | $ | 567,280 | |
| December 31, 2021 | | |
December 31, 2022 | | December 31, 2022 | |
Assets | Assets | | Assets | |
Interest rate swaps | Interest rate swaps | $ | 180,701 | | | $ | — | | | $ | 180,701 | | | $ | — | | | $ | — | | | $ | 180,701 | | Interest rate swaps | $ | 453,251 | | | $ | — | | | $ | 453,251 | | | $ | 12,766 | | | $ | (342,480) | | | $ | 123,537 | |
Liabilities | Liabilities | | Liabilities | |
Interest rate swaps | Interest rate swaps | $ | 50,689 | | | $ | — | | | $ | 50,689 | | | $ | — | | | $ | (44,231) | | | $ | 6,458 | | Interest rate swaps | $ | 594,476 | | | $ | — | | | $ | 594,476 | | | $ | (12,766) | | | $ | (432) | | | $ | 581,278 | |
|
* Cash collateral received from or pledged to our counterparties in relation to market value exposures of OTC derivative contacts in a an asset/liability position.
Note 14.15. Tax Credit Investments
Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the CRA.Community Reinvestment Act. Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense.
Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization
of tax credit investments, including impairment losses, within non-interest expense 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 SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | September 30, 2022 | | December 31, 2021 | | June 30, 2023 | | December 31, 2022 |
| | (in thousands) | | (in thousands) |
Other Assets: | Other Assets: | | Other Assets: | |
Affordable housing tax credit investments, net | Affordable housing tax credit investments, net | $ | 25,139 | | | $ | 15,343 | | Affordable housing tax credit investments, net | $ | 21,427 | | | $ | 24,198 | |
Other tax credit investments, net | Other tax credit investments, net | 52,749 | | | 57,006 | | Other tax credit investments, net | 80,145 | | | 56,551 | |
Total tax credit investments, net | Total tax credit investments, net | $ | 77,888 | | | $ | 72,349 | | Total tax credit investments, net | $ | 101,572 | | | $ | 80,749 | |
Other Liabilities: | Other Liabilities: | | | | Other Liabilities: | | | |
Unfunded affordable housing tax credit commitments | Unfunded affordable housing tax credit commitments | $ | 1,360 | | | $ | 1,360 | | Unfunded affordable housing tax credit commitments | $ | 1,327 | | | $ | 1,338 | |
| Total unfunded tax credit commitments | Total unfunded tax credit commitments | $ | 1,360 | | | $ | 1,360 | | Total unfunded tax credit commitments | $ | 1,327 | | | $ | 1,338 | |
The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) | | (in thousands) |
Components of Income Tax Expense: | Components of Income Tax Expense: | | Components of Income Tax Expense: | |
Affordable housing tax credits and other tax benefits | Affordable housing tax credits and other tax benefits | $ | 1,184 | | | $ | 948 | | | $ | 3,542 | | | $ | 2,744 | | Affordable housing tax credits and other tax benefits | $ | 1,460 | | | $ | 1,614 | | | $ | 2,919 | | | $ | 2,358 | |
Other tax credit investment credits and tax benefits | Other tax credit investment credits and tax benefits | 2,557 | | | 2,702 | | | 7,647 | | | 8,130 | | Other tax credit investment credits and tax benefits | 3,430 | | | 2,539 | | | 6,651 | | | 5,090 | |
Total reduction in income tax expense | Total reduction in income tax expense | $ | 3,741 | | | $ | 3,650 | | | $ | 11,189 | | | $ | 10,874 | | Total reduction in income tax expense | $ | 4,890 | | | $ | 4,153 | | | $ | 9,570 | | | $ | 7,448 | |
Amortization of Tax Credit Investments: | Amortization of Tax Credit Investments: | | | | | | | | Amortization of Tax Credit Investments: | | | | | | | |
Affordable housing tax credit investment losses | Affordable housing tax credit investment losses | $ | 598 | | | $ | 681 | | | $ | 1,666 | | | $ | 1,684 | | Affordable housing tax credit investment losses | $ | 938 | | | $ | 653 | | | $ | 1,875 | | | $ | 1,068 | |
Affordable housing tax credit investment impairment losses | Affordable housing tax credit investment impairment losses | 266 | | | 387 | | | 891 | | | 1,159 | | Affordable housing tax credit investment impairment losses | 448 | | | 363 | | | 896 | | | 625 | |
Other tax credit investment losses | Other tax credit investment losses | 308 | | | 256 | | | 1,003 | | | 780 | | Other tax credit investment losses | 719 | | | 386 | | | 725 | | | 695 | |
Other tax credit investment impairment losses | Other tax credit investment impairment losses | 1,933 | | | 1,755 | | | 5,634 | | | 5,172 | | Other tax credit investment impairment losses | 2,913 | | | 1,791 | | | 5,775 | | | 3,701 | |
Total amortization of tax credit investments recorded in non-interest expense | Total amortization of tax credit investments recorded in non-interest expense | $ | 3,105 | | | $ | 3,079 | | | $ | 9,194 | | | $ | 8,795 | | Total amortization of tax credit investments recorded in non-interest expense | $ | 5,018 | | | $ | 3,193 | | | $ | 9,271 | | | $ | 6,089 | |
Note 15.16. Operating Segments
Prior to the second quarter 2022, Valley operated as four reportable segments: Consumer Lending, Commercial Lending, Investment Management, and Corporate and Other Adjustments. Valley re-evaluatedmanages its segment reporting during the second quarter 2022 to consider the Bank Leumi USA acquisition on April 1, 2022 along with other factors, including changes in the internal structure ofbusiness operations discrete financial information reviewed by key decision-makers, balance sheet management strategies and personnel. As a result, Valley determined it operatedunder reportable segments consisting of Consumer Lending,Banking, Commercial LendingBanking and Treasury and Corporate Other at June 30, 2022. Treasury and Corporate Other was reorganized to consolidate Treasury and other corporate-wide functions, including the Treasury managed investment securities portfolios and overnight interest earning cash balances formerly reported under Investment Management. The discrete financial information related to the
activities previously reported in the Investment Management segment is no longer provided to Valley's CEO, who is the chief operating decision maker.Other. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations and reporting structures to identify its reportable segments. There weresegments and no additional changes to Valley'sthe reportable segments at were determined necessary dSeptember 30, 2022.
uring the first half of 2023.
Consumer LendingBanking is mainly comprised of residential mortgages and automobile loans, and to a lesser extent, secured personal lines of credit, home equity loans and other consumer loans. The duration of the residential mortgage loan portfolio is subject to movements in the market level of interest rates and forecasted prepayment speeds. The average weighted life of the automobile loans within the portfolio is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. Consumer LendingBanking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.
Commercial LendingBanking is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, commercial lendingCommercial Banking is Valley’s operating segment that is most sensitive to movements in market interest rates.
Treasury and Corporate Other largely consists of the Treasury managed held to maturity debt securities and available for sale debt securities portfolios mainly utilized in the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment. Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the Federal Reserve Bank of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to the Consumer Lending and Commercial LendingBanking segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which involves the allocation of operating and
funding costs based on each segment's respective mix of average interest 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. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The prior period balances presented in the tables below reflect reclassifications to conform the presentation in those periods to the current operating segment structure. Valley's consolidated results were not impacted by the changes discussed above and remain unchanged for all periods presented.
The following tables represent the financial data for Valley’s operating segments for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Three Months Ended September 30, 2022 | | Three Months Ended June 30, 2023 |
| | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total | | Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 8,307,993 | | | $ | 36,033,901 | | | $ | 6,189,348 | | $ | 50,531,242 | | Average interest earning assets | $ | 8,904,483 | | | $ | 40,553,454 | | | $ | 7,893,871 | | $ | 57,351,808 | |
| Interest income | Interest income | $ | 70,590 | | | $ | 425,930 | | | $ | 40,208 | | $ | 536,728 | | Interest income | $ | 90,602 | | | $ | 624,569 | | | $ | 72,288 | | $ | 787,459 | |
Interest expense | Interest expense | 12,288 | | | 53,294 | | | 17,154 | | 82,736 | | Interest expense | 55,198 | | | 250,871 | | | 61,625 | | 367,694 | |
Net interest income | Net interest income | 58,302 | | | 372,636 | | | 23,054 | | 453,992 | | Net interest income | 35,404 | | | 373,698 | | | 10,663 | | 419,765 | |
Provision (credit) for credit losses | Provision (credit) for credit losses | 7,182 | | | (5,347) | | | 188 | | 2,023 | | Provision (credit) for credit losses | 3,492 | | | 2,840 | | | (282) | | 6,050 | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 51,120 | | | 377,983 | | | 22,866 | | 451,969 | | Net interest income after provision for credit losses | 31,912 | | | 370,858 | | | 10,945 | | 413,715 | |
Non-interest income | Non-interest income | 19,637 | | | 23,510 | | | 13,047 | | 56,194 | | Non-interest income | 25,529 | | | 14,361 | | | 20,185 | | 60,075 | |
Non-interest expense | Non-interest expense | 24,352 | | | 31,759 | | | 205,528 | | 261,639 | | Non-interest expense | 23,223 | | | 35,365 | | | 224,383 | | 282,971 | |
Internal transfer expense (income) | Internal transfer expense (income) | 26,268 | | | 113,932 | | | (140,200) | | — | | Internal transfer expense (income) | 22,018 | | | 102,395 | | | (124,413) | | — | |
Income before income taxes | $ | 20,137 | | | $ | 255,802 | | | $ | (29,415) | | $ | 246,524 | | |
Income (loss) before income taxes | | Income (loss) before income taxes | $ | 12,200 | | | $ | 247,459 | | | $ | (68,840) | | $ | 190,819 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 0.97 | % | | 2.84 | % | | (1.90) | % | | 1.95 | % | Return on average interest earning assets (pre-tax) | 0.55 | % | | 2.44 | % | | (3.49) | % | | 1.33 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| ($ in thousands) |
Average interest earning assets | $ | 7,373,897 | | | $ | 25,324,485 | | | $ | 5,634,492 | | $ | 38,332,874 | |
| | | | | | | |
Interest income | $ | 58,887 | | | $ | 250,866 | | | $ | 19,048 | | $ | 328,801 | |
Interest expense | 4,032 | | | 13,795 | | | 9,948 | | 27,775 | |
Net interest income | 54,855 | | | 237,071 | | | 9,100 | | 301,026 | |
(Credit) provision for credit losses | (4,614) | | | 8,110 | | | 35 | | 3,531 | |
Net interest income after provision for credit losses | 59,469 | | | 228,961 | | | 9,065 | | 297,495 | |
Non-interest income | 11,845 | | | 11,611 | | | 18,975 | | 42,431 | |
Non-interest expense | 13,520 | | | 27,504 | | | 133,898 | | 174,922 | |
Internal transfer expense (income) | 20,662 | | | 71,141 | | | (91,803) | | — | |
Income (loss) before income taxes | $ | 37,132 | | | $ | 141,927 | | | $ | (14,055) | | $ | 165,004 | |
Return on average interest earning assets (pre-tax) | 2.01 | % | | 2.24 | % | | (1.00) | % | | 1.72 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
| Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| ($ in thousands) |
Average interest earning assets | $ | 7,967,305 | | | $ | 34,549,982 | | | $ | 6,373,943 | | $ | 48,891,230 | |
| | | | | | | |
Interest income | $ | 63,137 | | | $ | 352,440 | | | $ | 37,370 | | $ | 452,947 | |
Interest expense | 4,723 | | | 19,735 | | | 10,329 | | 34,787 | |
Net interest income | 58,414 | | | 332,705 | | | 27,041 | | 418,160 | |
Provision for credit losses | 5,402 | | | 38,310 | | | 286 | | 43,998 | |
Net interest income after provision for credit losses | 53,012 | | | 294,395 | | | 26,755 | | 374,162 | |
Non-interest income | 17,086 | | | 14,425 | | | 27,022 | | 58,533 | |
Non-interest expense | 18,791 | | | 24,448 | | | 256,491 | | 299,730 | |
Internal transfer expense (income) | 37,629 | | | 157,365 | | | (194,994) | | — | |
Income (loss) before income taxes | $ | 13,678 | | | $ | 127,007 | | | $ | (7,720) | | $ | 132,965 | |
Return on average interest earning assets (pre-tax) | 0.69 | % | | 1.47 | % | | (0.48) | % | | 1.09 | % |
| | | Nine Months Ended September 30, 2022 | | Six Months Ended June 30, 2023 |
| | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total | | Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,978,732 | | | $ | 32,551,062 | | | $ | 6,075,623 | | $ | 46,605,417 | | Average interest earning assets | $ | 8,836,859 | | | $ | 39,826,630 | | | $ | 7,699,305 | | $ | 56,362,794 | |
| Interest income | Interest income | $ | 193,186 | | | $ | 1,036,276 | | | $ | 100,671 | | $ | 1,330,133 | | Interest income | $ | 175,918 | | | $ | 1,194,479 | | | $ | 137,292 | | $ | 1,507,689 | |
Interest expense | Interest expense | 20,218 | | | 84,356 | | | 35,738 | | 140,312 | | Interest expense | 98,204 | | | 442,594 | | | 111,106 | | 651,904 | |
Net interest income | Net interest income | 172,968 | | | 951,920 | | | 64,933 | | 1,189,821 | | Net interest income | 77,714 | | | 751,885 | | | 26,186 | | 855,785 | |
Provision for credit losses | Provision for credit losses | 14,457 | | | 34,590 | | | 531 | | 49,578 | | Provision for credit losses | 9,936 | | | 5,846 | | | 4,705 | | 20,487 | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 158,511 | | | 917,330 | | | 64,402 | | 1,140,243 | | Net interest income after provision for credit losses | 67,778 | | | 746,039 | | | 21,481 | | 835,298 | |
Non-interest income | Non-interest income | 50,540 | | | 54,815 | | | 48,642 | | 153,997 | | Non-interest income | 39,819 | | | 30,108 | | | 44,447 | | 114,374 | |
Non-interest expense | Non-interest expense | 59,711 | | | 81,292 | | | 617,706 | | 758,709 | | Non-interest expense | 41,472 | | | 71,088 | | | 442,577 | | 555,137 | |
Internal transfer expense (income) | Internal transfer expense (income) | 92,544 | | | 371,213 | | | (463,757) | | — | | Internal transfer expense (income) | 52,901 | | | 233,990 | | | (286,891) | | — | |
Income before income taxes | $ | 56,796 | | | $ | 519,640 | | | $ | (40,905) | | $ | 535,531 | | |
Income (loss) before income taxes | | Income (loss) before income taxes | $ | 13,224 | | | $ | 471,069 | | | $ | (89,758) | | $ | 394,535 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 0.95 | % | | 2.13 | % | | (0.90) | % | | 1.53 | % | Return on average interest earning assets (pre-tax) | 0.30 | % | | 2.37 | % | | (2.33) | % | | 1.40 | % |
|
| | | Nine Months Ended September 30, 2021 | | Six Months Ended June 30, 2022 |
| | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total | | Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,176,086 | | | $ | 25,465,276 | | | $ | 5,261,185 | | $ | 37,902,547 | | Average interest earning assets | $ | 7,848,764 | | | $ | 30,743,387 | | | $ | 6,017,817 | | $ | 44,609,968 | |
| Interest income | Interest income | $ | 179,151 | | | $ | 759,097 | | | $ | 55,999 | | $ | 994,247 | | Interest income | $ | 122,596 | | | $ | 610,346 | | | $ | 60,463 | | $ | 793,405 | |
Interest expense | Interest expense | 15,639 | | | 55,497 | | | 28,511 | | 99,647 | | Interest expense | 7,930 | | | 31,062 | | | 18,584 | | 57,576 | |
Net interest income | Net interest income | 163,512 | | | 703,600 | | | 27,488 | | 894,600 | | Net interest income | 114,666 | | | 579,284 | | | 41,879 | | 735,829 | |
(Credit) provision for credit losses | (6,538) | | | 27,825 | | | (353) | | 20,934 | | |
Provision for credit losses | | Provision for credit losses | 7,275 | | | 39,937 | | | 343 | | 47,555 | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 170,050 | | | 675,775 | | | 27,841 | | 873,666 | | Net interest income after provision for credit losses | 107,391 | | | 539,347 | | | 41,536 | | 688,274 | |
Non-interest income | Non-interest income | 47,445 | | | 29,144 | | | 40,201 | | 116,790 | | Non-interest income | 30,903 | | | 31,305 | | | 35,595 | | 97,803 | |
Non-interest expense | Non-interest expense | 53,161 | | | 80,276 | | | 373,591 | | 507,028 | | Non-interest expense | 35,359 | | | 49,533 | | | 412,178 | | 497,070 | |
Internal transfer expense (income) | Internal transfer expense (income) | 60,026 | | | 212,931 | | | (272,957) | | — | | Internal transfer expense (income) | 66,276 | | | 257,281 | | | (323,557) | | — | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 104,308 | | | $ | 411,712 | | | $ | (32,592) | | $ | 483,428 | | Income (loss) before income taxes | $ | 36,659 | | | $ | 263,838 | | | $ | (11,490) | | $ | 289,007 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 1.94 | % | | 2.16 | % | | (0.83) | % | | 1.70 | % | Return on average interest earning assets (pre-tax) | 0.93 | % | | 1.72 | % | | (0.38) | % | | 1.30 | % |
|
Item 2. Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations
The following MD&A should be read in conjunction with the consolidated financial statements and notes thereto appearing in Part I, Item 1 of this report. The words "Valley," the "Company," "we," "our" and "us" refer to Valley National Bancorp and its 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. These statements may be identified by such forward-looking terminology as “intend,” “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “would,” “could,” “typically,” “usually,” “anticipate,” “may,” “estimate,” “outlook,” “project,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties. 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:
•the impact of Federal Reserve actions affecting the level of market interest rates and increases in business failures, specifically among our clients, as well as on our business, our employees and our ability to provide services to our customers;
•the impact of recent and possible future bank failures on the business environment in which we operate and resulting market volatility and reduced confidence in depository institutions, including impact on stock price, customer deposit withdrawals from Valley National Bank, or business disruptions or liquidity issues that have or may affect our customers;
•the impact of unfavorable macroeconomic conditions or downturns, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by and factors outside of our control, such as geopolitical instabilities or events; natural and other disasters (including severe weather events) and health emergencies, acts of terrorism or other external events;
•risks associated with our acquisition of Bank Leumi Le-Israel Corporation (Bank Leumi USA), including (i) the inability to realize expected cost savings and synergies from the Bank Leumi USA acquisition in the amounts or timeframe anticipated;
•anticipated and (ii) greater than expected costs or difficulties relating to Bank Leumi USA integration matters;
•the loss of or decrease in lower-cost funding sources within our deposit base;
•the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
•the inability to retain customers and qualified employees of Bank Leumi USA;
•greater than expected non-recurring charges related to the Bank Leumi USA acquisition;
•macroeconomic factors in the U.S. and globally due to COVID-19 or otherwise, including business disruptions, reductions in employment, supply chain interruptions, inflation, Federal Reserve actions impacting the level of market interest rates and an increase in business failures, specifically among our clients;
•the continued impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases andattract new variants of COVID-19 may arise in our primary markets;
•continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets;
•the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral;
•the risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and litigation and the effectiveness of hedging strategies;
•damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;
•a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California, and Illinois, as well as an unexpected decline in commercial real estate values within our market areas;
•higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
•the inability to grow customer deposits to keep pace with loan growth;growth strategies;
•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 lossrisks related to the replacement of or decrease in lower-cost funding sources within our deposit base,the London Interbank Offered Rate with Secured Overnight Financing Rate and other reference rates, including our inability to achieve deposit retention targets under Valley's branch transformation strategy;increased expenses, risk of litigation and the effectiveness of hedging strategies;
•cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
•damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of
fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;
•changes to laws and regulations, including changes affecting oversight of the financial services industry; changes in the enforcement and interpretation of such laws and regulations; and changes in accounting and reporting standards;
•higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
•results of examinations by the 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,a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California, and other potential negative effects onIllinois, as well as an unexpected decline in commercial real estate values within our business caused by severe weather, the COVID-19 pandemic or other external events;market areas; and
•unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors.
A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.2022, and in Part II, Item 1A of this Form 10-Q.
We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Critical Accounting Policies and Estimates
Valley’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions in accordance with these policies that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. At SeptemberJune 30, 2022,2023, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed the application of these policies and estimates with the Audit Committee of Valley’s Board of Directors. Our critical accounting policies and estimates are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, and there have been no material changes in such policies and estimates since the date of such report.
New Authoritative Accounting Guidance
See Note 5 to the consolidated financial statements for a description of new authoritative accounting guidance, including the respective dates of adoption and effects on results of operations and financial condition.
Executive Summary
Company Overview. At SeptemberAt June 30, 2022,2023, Valley had consolidated total assets of approximately $55.9$61.7 billion, total net loans of $44.7$49.4 billion, total deposits of $45.3$49.6 billion and total shareholders’ equity of $6.3$6.6 billion. Valley operates many convenient branch office locations and commercial banking offices in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida, California, Alabama and Illinois. Of our current 238230 branch network, 5556 percent, 1918 percent, and 18 percent of the branches are in New Jersey, New York and Florida, respectively, with the remaining 8 percent of the branches in Alabama, California, and Illinois combined. Despite targeted branch consolidation activity, weWe have grown significantly grown both in asset size and locations over the past several years both through organic efforts and bank acquisitions. Our most recent bank acquisition is discussed below.
Bank Leumi Le-Israel Corporation. On April 1, 2022, Valley completed its acquisition of Bank Leumi Le-Israel Corporation, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, collectively referred to as "Bank Leumi USA". At the acquisition date, Bank Leumi USA had approximately $8.1 billion in assets, $5.9 billion of loans and $7.0 billion of deposits, after purchase accounting adjustments. Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the transaction. The consideration for the acquisition totaled approximately $1.2 billion, inclusive of the value of stock options. The transaction resulted in $403.2 million of goodwill and $153.4 million of combined core deposit and other intangible assets subject to amortization. See Note 2 to the consolidated financial statements for additional details regarding theacquisitions, including our acquisition of Bank Leumi USA and other recent acquisition activities.on April 1, 2022.
ImpactIndustry Developments. The combination of COVID-19. rapidly rising interest rates, increased competition and economic uncertainty continues to weigh on the banking industry in the wake of the recent bank failures. We have consistently operated the Bank with a focus on diversification to maintain stability through various economic cycles. During the thirdsecond quarter 2022, worldwide inflationary concerns2023, we continued to outweighposition our balance sheet to mitigate potential risks from the other negative impactsmarket uncertainty affecting the banking industry in general and Valley, its clients and communities in particular.
•Total assets decreased to $61.7 billion at June 30, 2023, a decrease of COVID-19. Among other factors, China's "zero COVID" policy has created disruption4.1 percent from March 31, 2023. Liquidity remained strong with total liquid assets of China's manufacturing industry which could have prolonged negative consequences for the global economy as China exports up to one-thirdapproximately $13.1 billion at June 30, 2023, representing 6.0 percent of the world's intermediate goods. Winterest earning assets. eWe continue to monitor the impact of COVID-19 including the emergence of new variants closely, including its impact on our employees, customers, communitiesmaintain significant access to readily available, diverse funding sources to fulfill both short-term and results of operations and other government or Federal Reserve actions.long-term funding needs. See "Bank Liquidity" section for additional information.
•Total deposits increased $2.0 billion to $49.6 billion at June 30, 2023 as compared to $47.6 billion at March 31, 2023 largely due to higher CD balances. See the "Operating Environment""Deposits and Other Borrowings" 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•Capital remained strong with ratios of both Valley and the American Rescue Plan ActBank exceeding all capital adequacy requirements at June 30, 2023. Total shareholders' equity increased $63.6 million to $6.6 billion at June 30, 2023 as compared to March 31, 2023. See the "Capital Adequacy" section for additional details.
•Total loans increased $1.2 billion, or 10.0 percent on an annualized basis to $49.9 billion at June 30, 2023 from March 31, 2023 mainly due to continued organic loan growth in commercial loan categories and relatively low levels of 2021 provided fundingprepayment activity during the second quarter 2023. See "Loan Portfolio" section for more information.
•Asset quality continued to reflect our disciplined underwriting and lending practices during the SBA's Paycheck Protection Program (PPP) and established rules for qualifying borrowers to receive loan forgiveness by the SBA under this program. Valley extended a total of $3.2 billion PPP loans under the program, of which $3.1 billion have received forgiveness from the SBA. As of September 30, 2022, we had $85.8 millionsecond quarter (including $35.5 mi2023. Non-performing assets (NPAs) as a percentage of total loans and NPAs totaled 0.51 percent and 0.50 percent at June 30, 2023 and March 31, 2023, respectively. See the "Non-Performing Assets" section for additional information.
•llion acquired from Bank Leumi USA)Total investment securities were $5.1 billion, or 8.2 percent of PPP loans still outstanding.total assets, at June 30, 2023 and remained relatively unchanged as compared to March 31, 2023. See the "Investment Securities Portfolio" section for more details.
Quarterly Results. Net income for the thirdsecond quarter 20222023 was $178.1$139.1 million, or $0.34$0.27 per diluted common share as compared to $122.6$96.4 million, or $0.29$0.18 per diluted common share, for the thirdsecond quarter 2021.2022. The $55.5$42.6 million increase in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:
•a $153.0$37.9 million decrease in our provision for credit losses mainly due to a provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA in the second quarter 2022;
•a $1.6 million increase in net interest income mainly due to increased yields on both new loan originations and adjustable-rate loans and higher average loan balances, drivenlargely offset by both acquired and organic loan volumes andthe increased yields on new and adjustable-rate loans;cost of deposits;
•a $13.8$1.5 million increase in non-interest income primarily driven by increasesdue to an increase in capital markets fees and wealth management and trust fees, service charges on deposit accounts and other income totaling $5.7 million, $4.9 million and $7.1 million, respectively, related to additional income resulting from the Bank Leumi USA acquisition, partially offset by lower netnet gains on sales of residential mortgage loans;loans; and
•a $1.5$16.8 million decrease in non-interest expense was due, in part, to a $40.2 million decrease in our provision for credit losses,merger expenses, partially offset by:by a $11.2 million restructuring charge and various other increases;
•an $86.7 million increase in non-interest expense largely due to increases in salary and employee benefits; technology, furniture and equipment expenses; and net occupancy caused by our expanded banking operations resulting from the acquisitions of Bank Leumi USA on April 1, 2022 and The Westchester Bank Holding Corporation (Westchester) on December 1, 2021; andThese items were partially offset by:
•a $26.0$15.2 million increase in income tax expense mostly due to higher pre-tax income in the thirdsecond quarter 20222023.
See the “Net"Net Interest Income”Income", “Non-Interest Income”"Non-Interest Income", “Non-Interest Expense”,"Non-Interest Expense" and “Income Taxes”"Income Taxes" sections below for more details on the impact of the items above on our thirdsecond quarter 20222023 results.
Operating Environment.U.S. Economic Conditions. During the thirdthe second quarter of 2022,2023, real gross domestic product (GDP) increased 2.8at an annual rate of 2.4 percent as compared to a declinean increase of 0.62.0 percent during the first quarter 2023. The 2.4 percent increase in real GDP reflected robust consumer spending, private inventory investment, nonresidential fixed investment, and government spending, as well as improved supply chain. Inflation moderately cooled, but remained well above the Federal Reserve’s target of 2 percent in the second quarter of 2022. The increase in economic activity was driven in large part by household spending on goods and services, and a favorable mix of export activity outpacing imports.
Residential fixed investments declined as mortgage rates increased markedly which weighed on the headline result. Business fixed investment, inventory restocking and government spending increased at a tepid rate.
2023.
During the thirdfirst quarter 2022,2023, the Federal Reserve raised the target range for the federal funds rate by 150an additional 25 basis points in May 2023 and paused rate increases in June to a target rangeobserve the full impact of 3.00 percent to 3.25 percent atits changes over the end of the third quarter. Following its meeting in November,past year. In July 2023, the Federal Reserve raised the federal fund ratetarget again by another 7525 basis points to a target range of 3.75 percent5.25 to 4.005.5 percent. In addition, the Federal Reserve has continued to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities. Consistent with its previously announced plan, the Federal Reserve targeted a reduction of its Treasury and agency securities portfolio by $47.5 billion per month through September 21, 2022 and, effective September 22, 2022, raised its target reduction of securities to $95 billion per month. These actions reflect the Federal Reserve’s strong commitment to returning inflation to its 2 percent objective.
The 10-year U.S. Treasury note yield ended the thirdsecond quarter of 20222023 at 3.833.81 percent, 85or 33 basis points higher as compared to June 30, 2022. The spread between the 2-first quarter 2023, and 10-yearthe 2-year U.S. Treasury note yieldsyield ended the second quarter 2023 at negative 0.394.87 percent, a 45or 81 basis point decline from June 30, 2022.
points higher as compared to the first quarter 2023.
For all U.S. commercial banks, in the U.S., loans and leases increased approximately 2.5 percent from June 30, 2022 to September 30, 2022. While loan growth moderated somewhat during the quarter, survey data from the industry reported that demand for most commercial and industrial loan products increased.loans decreased approximately by 1.3 percent at June 30, 2023 as compared to March 31, 2023, while consumer loans increased by 1.3 percent. Alternatively, demand for most real estate related loans declined, particularly for commercial real estate loans with construction and land development purposes. During the third quarter 2022, Valley’s new loan originations decreased across most product types asremained flat compared to the secondprior quarter. Overall the commercial real estate market was constricted by the financial environment this quarter but loan growth remained at robust levels partly due to slower paydowns on existing loans due to theas rising market interest rate environment. While confident in our commercial loan pipelines, we expect a more challenging overall loan origination environment moving forward, especially in the residential mortgage and consumer loan portfolios, due to the impact of higher market interest rates on customereroded investment profitability. Despite higher mortgage rates, demand and selective tightening of certain underwriting standardsfor residential real estate remained steady, although sales were constrained by Valley.low inventories.
Further expectedWhile many economic measures continue to defy recessionary concerns, further increases in market interest rates, persistentlythe inverted yield curve, high inflation, and the lingering impact of supply chain issues, tight labor market conditions, and global economicpotential for additional fallout from the Russia-Ukraine war,recent banking crisis, including bank regulatory actions, among other factors, hashave added a higher level of uncertainty to the future path of the U.S. economy and an elevated risk ofcreated a recession.challenging banking environment. Should economic conditions deteriorate, causing business activity, spending and investment to decline, it wouldmay adversely impact our financial results, as highlighted below in this MD&A.
Loans. Total loans increased $1.6 billion to $45.2 billion at September 30, 2022 from June 30, 2022 primarily due to strong organic loan growth. Our loan portfolio increased 15 percent on an annualized basis during the third quarter 2022 from the second quarter 2022 as a result of solid commercial loan volumes and a continued increase in new residential mortgage loans originated for investment rather than sale. During the third quarter 2022, we sold only $48 million of residential mortgage loans. See further details on our loan activities under the “Loan Portfolio” section.
Asset Quality. Non-accrual loans represented 0.65 percent and 0.72 percent of total loans at September 30, 2022 and June 30, 2022, respectively. Net recoveries of loan charge-offs totaled $5.6 million for the third quarter 2022 as compared to net loan charge-offs of $2.3 million for the second quarter 2022. Total accruing past due loans increased $25.2 million to $98.7 million, or 0.22 percent of total loans, at September 30, 2022 as compared to $73.5 million, or 0.17 percent of total loans, at June 30, 2022. See further details in the "Non-performing Assets" section below.
Deposits and Other Borrowings
.Overall, average deposits increased by $1.9 billion$311.6 million to $44.8$47.5 billion for the thirdsecond quarter 20222023 as compared to the secondfirst quarter 2022 2023 mostly due to growth in ourhigher time deposits driven by successful retail and brokered CD portfolios. The retail growth resulted from strategic CD campaigns, while the brokered CD growth resulted from ourgeneration and increased utilization of brokeredfully insured indirect customer (i.e., brokered) deposits, partially offset by a decrease in average non-interest bearing deposits. The decline in non-interest bearing deposits was largely due to a moderate shift in customer balances to our interest bearing deposit products in a rising interest rate environment and outflows due to attractive investment alternatives to deposits in the marketplace. Average non-interest-bearing deposits; savings,
NOW and money market deposits; and time deposits represented approximately 27 percent, 47 percent and 26 percent of total deposits as of June 30, 2023, respectively.
Actual ending balances for deposits increased $2.0 billion to approximately $49.6 billion at June 30, 2023 from March 31, 2023 mainly due to a favorable funding alternative, during the third quarter 2022. Average non-interest-bearing$3.8 billion increase in time deposits, partially offset by decreases in non-interest bearing deposits, and savings, NOW and money market deposits totaling $1.1 billion and $626.1 million, respectively. The increase in time deposits from March 31, 2023 was partially driven by higher fully-insured indirect customer CD balances at June 30, 2023. Total fully-insured indirect customer deposits, consisting of both brokered time deposit and money market accounts, increased $3.2 billion to $10.3 billion at June 30, 2023 from March 31, 2023. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 3625 percent, 5345 percent and 1230 percent of total deposits as of September 30, 2022, respectively.
Actual ending balances for deposits increased $1.4 billion to approximately $45.3 billion at September 30, 2022 from June 30, 2022 largely due to the increased utilization of brokered deposits, consisting of both money market and time deposit accounts, in our funding mix. Total brokered deposits increased to $3.7 billion at September 30, 20222023, respectively, as compared to $2.3 billion29 percent, 48 percent and 23 percent of total deposits as of March 31, 2023, respectively.
The following table lists, by maturity, uninsured certificates of deposit at June 30, 2022. Non-interest bearing2023:
| | | | | |
| |
| (in thousands) |
Less than three months | $ | 410,010 | |
Three to six months | 445,585 | |
Six to twelve months | 922,713 | |
More than twelve months | 261,279 | |
Total | $ | 2,039,587 | |
Total estimated uninsured deposits, decreased $718.9 millionexcluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $12.1 billion, or 24 percent of total deposits, at SeptemberJune 30, 20222023 as compared to June 30, 2022 largely$14.9 billion, or 31 percent of total deposits, at March 31, 2023.
While our diversified commercial and consumer deposit base has remained relatively stable during the early stages of the third quarter 2023, deposit gathering initiatives could remain challenging due to fluctuations in certain commercial customer balances,market competition, attractive investment alternatives, such as well as some migration of both commercialU.S. Treasury securities, and retail balances to interest bearing deposit products. While our overall deposit levels increased during the third quarter 2022, we believe the current operating environment will likely remain very challenging for Valley’s deposit gathering initiatives.other factors. As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at SeptemberJune 30, 2022.2023.
The following table presents average short-term and long-term borrowings for the periods indicated:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | | June 30, 2023 | | March 31, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| | (in thousands) | | (in thousands) |
Average short-term borrowings: | Average short-term borrowings: | | Average short-term borrowings: | |
FHLB advances | FHLB advances | $ | 438,267 | | | $ | 822,913 | | | $ | 690,217 | | | $ | 565,222 | | | $ | 797,070 | | FHLB advances | $ | 3,656,593 | | | $ | 2,513,983 | | | $ | 822,913 | | | $ | 3,088,445 | | | $ | 629,753 | |
Securities sold under repurchase agreements | Securities sold under repurchase agreements | 140,777 | | | 142,790 | | | 170,257 | | | 144,019 | | | 160,793 | | Securities sold under repurchase agreements | 99,327 | | | 99,546 | | | 142,790 | | | 99,436 | | | 145,666 | |
Federal funds purchased | Federal funds purchased | 437,196 | | | 637,495 | | | — | | | 363,550 | | | 8,681 | | Federal funds purchased | 122,537 | | | 190,214 | | | 637,495 | | | 156,188 | | | 326,116 | |
Total | Total | $ | 1,016,240 | | | $ | 1,603,198 | | | $ | 860,474 | | | $ | 1,072,791 | | | $ | 966,544 | | Total | $ | 3,878,457 | | | $ | 2,803,743 | | | $ | 1,603,198 | | | $ | 3,344,069 | | | $ | 1,101,535 | |
| Average long-term borrowings: | Average long-term borrowings: | | Average long-term borrowings: | |
FHLB advances | FHLB advances | $ | 788,651 | | | $ | 788,803 | | | $ | 814,224 | | | $ | 788,802 | | | $ | 1,253,785 | | FHLB advances | $ | 1,523,500 | | | $ | 875,053 | | | $ | 788,803 | | | $ | 1,201,068 | | | $ | 788,879 | |
Subordinated debt | Subordinated debt | 632,627 | | | 617,291 | | | 638,349 | | | 626,997 | | | 499,124 | | Subordinated debt | 759,334 | | | 754,972 | | | 617,291 | | | 757,165 | | | 624,135 | |
Securities sold under repurchase agreements | — | | | — | | | 86,957 | | | — | | | 228,205 | | |
| Junior subordinated debentures issued to capital trusts | Junior subordinated debentures issued to capital trusts | 56,631 | | | 56,544 | | | 56,284 | | | 56,545 | | | 56,198 | | Junior subordinated debentures issued to capital trusts | 56,893 | | | 56,805 | | | 56,544 | | | 56,848 | | | 56,501 | |
| Total | Total | $ | 1,477,909 | | | $ | 1,462,638 | | | $ | 1,595,814 | | | $ | 1,472,344 | | | $ | 2,037,312 | | Total | $ | 2,339,727 | | | $ | 1,686,830 | | | $ | 1,462,638 | | | $ | 2,015,081 | | | $ | 1,469,515 | |
Average short-term borrowings increased $155.8 million$1.1 billion during the thirdsecond quarter 20222023 as compared to the thirdfirst quarter 20212023 mostly due to an increase in the balance of federal funds purchased as a part of our overall funding strategy, partially offset by lesshigher utilization of FHLB advances.advances in March 2023 to increase our excess liquidity
position. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased $117.9increased $652.9 million fromas compared to the thirdfirst quarter 2021 largely2023 mainly due to the repayment of long-term repurchase agreements during the third quarter 2021 and, to a lesser extent, maturities ofnew FHLB advances overissued in March 2023 and the last 12 months.second quarter 2023.
Actual ending balances for short-term borrowings decreased $603.5 million$5.3 billion to $919.3 million at September 30, 2022 as compared to June 30, 2022 largely due to the maturity of FHLB advances during the third quarter 2022 and our increased utilization of broker deposits, as a favorable alternative funding source, in our funding mix at September 30, 2022. Long-term borrowings increased to approximately $1.5 billion at September 30, 2022 as compared to $1.4$1.1 billion at June 30, 2022 primarily2023 as compared to March 31, 2023 mainly due to maturities and repayment of FHLB advances. In March 2023, we increased our short-term borrowings to bolster our liquidity position out of an abundance of caution in the issuancewake of new subordinated notesthe two bank failures and subsequently managed these balances to a lower level during the thirdsecond quarter 2022. On September 20, 2022, Valley issued $150 million2023, partially through the greater use of 6.25 percent fixed-to-floating rate subordinated notes due Septembertime deposits. We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity. Actual ending balances for long-term borrowings totaled $2.4 billion at June 30, 2032. At September 30, 2022,2023 and remained relatively unchanged as compared to March 31, 2023. See the subordinated notes had a carrying value of $147.5 million, net of unamortized debt issuance costs."Bank Liquidity" section for more details on our available funding sources.
Non-GAAP Financial Measures.Measures
The table below presents selected performance indicators, their comparative non-GAAP measures and the (non-GAAP) efficiency ratio for the periods indicated. The CompanyValley believes that the non-GAAP financial measures provide useful supplemental information to both management and investors in understanding Valley’sits underlying operational performance, business, and performance trends, and may facilitate comparisons of our current and prior performance with the performance of others in the financial services industry.
Management utilizes these measures for internal planning, forecasting and analysis purposes. Management believes that Valley’s presentation and discussion of this supplemental information, together with the accompanying reconciliations to the GAAP financial measures, also allows investors to view performance in a manner similar to management. These non-GAAP financial measures should not be considered in isolation, or as a substitute for or superior to financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Selected Performance Indicators | ($ in thousands, except for %) |
GAAP measures: | | | | | | | |
Net income, as reported | $ | 178,119 | | | $ | 122,580 | | | $ | 391,260 | | | $ | 358,802 | |
Return on average assets | 1.30 | % | | 1.18 | % | | 1.03 | % | | 1.16 | % |
Return on average shareholders’ equity | 11.39 | | | 10.23 | | | 8.89 | | | 10.14 | |
Non-GAAP measures: | | | | | | | |
Net income, as adjusted | $ | 181,455 | | | $ | 124,727 | | | $ | 467,571 | | | $ | 367,139 | |
Return on average assets, as adjusted | 1.32 | % | | 1.20 | % | | 1.23 | % | | 1.19 | % |
Return on average shareholders' equity, as adjusted | 11.60 | | | 10.41 | | | 10.62 | | | 10.37 | |
Return on average tangible shareholders' equity (ROATE) | 17.21 | | | 14.64 | | | 13.20 | | | 14.63 | |
ROATE, as adjusted | 17.54 | | | 14.90 | | | 15.77 | | | 14.97 | |
Efficiency ratio | 49.76 | | | 49.16 | | | 51.03 | | | 48.12 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Common Equity Per Share Data: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Book value per common share (GAAP) | $ | 11.98 | | | $ | 11.57 | |
Tangible book value per common share (non-GAAP) | 7.87 | | | 7.94 | |
The following table presents our annualized performance ratios:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Selected Performance Indicators | ($ in thousands) |
GAAP measures: | | | | | | | |
Net income, as reported | $ | 139,060 | | | $ | 96,413 | | | $ | 285,611 | | | $ | 213,141 | |
Return on average assets | 0.90 | % | | 0.72 | % | | 0.94 | % | | 0.88 | % |
Return on average shareholders’ equity | 8.50 | | | 6.18 | | | 8.80 | | | 7.51 | |
Non-GAAP measures: | | | | | | | |
Net income, as adjusted | $ | 147,081 | | | $ | 165,803 | | | $ | 301,611 | | | $ | 286,116 | |
Return on average assets, as adjusted | 0.95 | % | | 1.25 | % | | 0.99 | % | | 1.18 | % |
Return on average shareholders' equity, as adjusted | 8.99 | | | 10.63 | | | 9.29 | | | 10.09 | |
Return on average tangible shareholders' equity (ROATE) | 12.37 | | | 9.33 | | | 12.87 | | | 11.07 | |
ROATE, as adjusted | 13.09 | | | 16.05 | | | 13.59 | | | 14.87 | |
Efficiency ratio | 55.59 | | | 50.78 | | | 54.69 | | | 51.81 | |
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Common Equity Per Share Data: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Book value per common share (GAAP) | $ | 12.54 | | | $ | 12.23 | |
Tangible book value per common share (non-GAAP) | 8.51 | | | 8.15 | |
Non-GAAP Reconciliations to GAAP Financial Measures
Adjusted net income is computed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Net income, as reported (GAAP) | $ | 178,119 | | | $ | 122,580 | | | $ | 391,260 | | | $ | 358,802 | |
Add: Loss on extinguishment of debt (net of tax) | — | | | — | | | — | | | 6,024 | |
Less: Gains on available for sale and held to maturity securities transactions (net of tax) (a) | (24) | | | (565) | | | (74) | | | (399) | |
| | | | | | | |
Add: Provision for credit losses (net of tax) (b) | — | | | — | | | 29,282 | | | — | |
Add: Merger related expenses (net of tax) (c) | 3,360 | | | 1,207 | | | 47,103 | | | 1,207 | |
Add: Litigation reserves (net of tax) (d) | — | | | 1,505 | | | — | | | 1,505 | |
| | | | | | | |
Net income, as adjusted (non-GAAP) | $ | 181,455 | | | $ | 124,727 | | | $ | 467,571 | | | $ | 367,139 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Net income, as reported (GAAP) | $ | 139,060 | | | $ | 96,413 | | | $ | 285,611 | | | $ | 213,141 | |
| | | | | | | |
Add: Losses (gains) on available for sale and held to maturity debt securities, net (net of tax) (a) | 6 | | | (56) | | | 23 | | | (50) | |
Add: Restructuring charge (net of tax) (b) | 8,015 | | | — | | | 8,015 | | | — | |
Add: Provision for credit losses for available for sale securities (c) | — | | | — | | | 5,000 | | | — | |
Add: Non-PCD provision for credit losses, (net of tax) (d) | — | | | 29,282 | | | — | | | 29,282 | |
Add: Merger related expenses (net of tax) (e) | — | | | 40,164 | | | 2,962 | | | 43,743 | |
| | | | | | | |
| | | | | | | |
Net income, as adjusted (non-GAAP) | $ | 147,081 | | | $ | 165,803 | | | $ | 301,611 | | | $ | 286,116 | |
(a) Included in gains (losses) on securities transactions, net.
(b) Represents theseverance expense related to workforce reductions within salary and employee benefits expense.
(c) Included in provision for credit losses for available for sale and held to maturity securities (tax disallowed).
(d) Represents provision for credit losses for non-PCD loans and unfunded credit commitments and held to maturity debt securities acquired from Bank Leumi USA on April 1, 2022.during the period.
(c)(e) Merger related expenses areIncluded primarily within salary and employee benefits expense, technology, furniture and equipment expense, and professional and legal fees for the nine months ended September 30, 2022.expense.
(d)
Included in professional and legal fees.
In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans, wealth management fees, and swap fees recognized from commercial loan customer transactions.transactions reported in capital markets fees. These amounts can vary widely from period to period due to, among other factors, the amount of residential mortgage loans originated for sale, loan portfolio sales, brokerage fees, and commercial loan customer demand for certain products. See the “Non-Interest Income” section below for more details.
Adjusted annualized return on average assets is computed by dividing adjusted net income by average assets, as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in thousands) |
Net income, as adjusted (non-GAAP) | $ | 147,081 | | $ | 165,803 | | $ | 301,611 | | $ | 286,116 |
Average assets | $ | 61,877,464 | | $ | 53,211,422 | | $ | 60,877,792 | | $ | 48,417,469 |
Annualized return on average assets, as adjusted (non-GAAP) | 0.95 | % | | 1.25 | % | | 0.99 | % | | 1.18 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Net income, as adjusted (non-GAAP) | $ | 181,455 | | $ | 124,727 | | $ | 467,571 | | $ | 367,139 |
Average assets | $ | 54,858,306 | | $ | 41,543,930 | | $ | 50,588,010 | | $ | 41,144,375 |
Annualized return on average assets, as adjusted (non-GAAP) | 1.32 | % | | 1.20 | % | | 1.23 | % | | 1.19 | % |
Adjusted annualized return on average shareholders' equity is computed by dividing adjusted net income by average shareholders' equity, as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Net income, as adjusted (non-GAAP) | $ | 181,455 | | $ | 124,727 | | $ | 467,571 | | $ | 367,139 |
Average shareholders' equity | $ | 6,256,767 | | $ | 4,794,843 | | $ | 5,869,736 | | $ | 4,718,960 |
Annualized return on average shareholders' equity, as adjusted (non-GAAP) | 11.60 | % | | 10.41 | % | | 10.62 | % | | 10.37 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in thousands) |
Net income, as adjusted (non-GAAP) | $ | 147,081 | | $ | 165,803 | | $ | 301,611 | | $ | 286,116 |
Average shareholders' equity | $ | 6,546,452 | | $ | 6,238,985 | | $ | 6,493,627 | | $ | 5,673,014 |
Annualized return on average shareholders' equity, as adjusted (non-GAAP) | 8.99 | % | | 10.63 | % | | 9.29 | % | | 10.09 | % |
ROATE and adjusted ROATE are computed by dividing net income and adjusted net income, respectively, by average shareholders’ equity less average goodwill and average other intangible assets, as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Net income, as reported (GAAP) | $ | 178,119 | | $ | 122,580 | | $ | 391,260 | | $ | 358,802 |
Net income, as adjusted (non-GAAP) | 181,455 | | 124,727 | | $ | 467,571 | | $ | 367,139 |
Average shareholders’ equity | $ | 6,256,767 | | $ | 4,794,843 | | $ | 5,869,736 | | $ | 4,718,960 |
Less: Average goodwill and other intangible assets | 2,117,818 | | 1,446,760 | | 1,917,217 | | 1,449,285 |
Average tangible shareholders’ equity | $ | 4,138,949 | | $ | 3,348,083 | | $ | 3,952,519 | | $ | 3,269,675 |
Annualized ROATE (non-GAAP) | 17.21 | % | | 14.64 | % | | 13.20 | % | | 14.63 | % |
Annualized ROATE, as adjusted (non-GAAP) | 17.54 | % | | 14.90 | % | | 15.77 | % | | 14.97 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in thousands) |
Net income, as reported (GAAP) | $ | 139,060 | | $ | 96,413 | | $ | 285,611 | | $ | 213,141 |
Net income, as adjusted (non-GAAP) | 147,081 | | 165,803 | | 301,611 | | 286,116 |
Average shareholders’ equity (GAAP) | $ | 6,546,452 | | $ | 6,238,985 | | $ | 6,493,627 | | $ | 5,673,014 |
Less: Average goodwill and other intangible assets | 2,051,591 | | 2,105,585 | | 2,056,487 | | 1,823,538 |
Average tangible shareholders’ equity (non-GAAP) | $ | 4,494,861 | | $ | 4,133,400 | | $ | 4,437,140 | | $ | 3,849,476 |
Annualized ROATE (non-GAAP) | 12.37 | % | | 9.33 | % | | 12.87 | % | | 11.07 | % |
Annualized ROATE, as adjusted (non-GAAP) | 13.09 | % | | 16.05 | % | | 13.59 | % | | 14.87 | % |
The efficiency ratio is computed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| ($ in thousands) |
Total non-interest expense, as reported (GAAP) | $ | 261,639 | | | $ | 174,922 | | | $ | 758,709 | | | $ | 507,028 | |
Less: Loss on extinguishment of debt (pre-tax) | — | | | — | | | — | | | 8,406 | |
| | | | | | | |
Less: Amortization of tax credit investments (pre-tax) | 3,105 | | | 3,079 | | | 9,194 | | | 8,795 | |
Less: Merger related expenses (pre-tax) (a) | 4,707 | | | 1,287 | | | 63,831 | | | 1,287 | |
Less: Litigation reserve (pre-tax) (b) | — | | | 2,100 | | | — | | | 2,100 | |
Total non-interest expense, as adjusted (non-GAAP) | $ | 253,827 | | | $ | 168,456 | | | $ | 685,684 | | | $ | 486,440 | |
Net interest income, as reported (GAAP) | $ | 453,992 | | | $ | 301,026 | | | $ | 1,189,821 | | | $ | 894,600 | |
Total non-interest income, as reported (GAAP) | 56,194 | | | 42,431 | | | 153,997 | | | 116,790 | |
Less: Gains on available for sale and held to maturity securities transactions, net (pre-tax) (c) | (33) | | | (788) | | | (102) | | | (557) | |
Total net interest income and non-interest income, as adjusted (non-GAAP) | $ | 510,153 | | | $ | 342,669 | | | $ | 1,343,716 | | | $ | 1,010,833 | |
| | | | | | | |
Efficiency ratio (non-GAAP) | 49.76 | % | | 49.16 | % | | 51.03 | % | | 48.12 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| ($ in thousands) |
Total non-interest expense, as reported (GAAP) | $ | 282,971 | | | $ | 299,730 | | | $ | 555,137 | | | $ | 497,070 | |
| | | | | | | |
Less: Restructuring charge (pre-tax) (a) | 11,182 | | | — | | | 11,182 | | | — | |
Less: Amortization of tax credit investments (pre-tax) | 5,018 | | | 3,193 | | | 9,271 | | | 6,089 | |
Less: Merger related expenses (pre-tax) (b) | — | | | 54,496 | | | 4,133 | | | 59,124 | |
Total non-interest expense, as adjusted (non-GAAP) | $ | 266,771 | | | $ | 242,041 | | | $ | 530,551 | | | $ | 431,857 | |
Net interest income, as reported (GAAP) | $ | 419,765 | | | $ | 418,160 | | | $ | 855,785 | | | $ | 735,829 | |
Total non-interest income, as reported (GAAP) | 60,075 | | | 58,533 | | | 114,374 | | | 97,803 | |
Add: Losses (gains) on available for sale and held to maturity debt securities, net (pre-tax) (c) | 9 | | | (78) | | | 33 | | | (69) | |
Total net interest income and non-interest income, as adjusted (non-GAAP) | $ | 479,849 | | | $ | 476,615 | | | $ | 970,192 | | | $ | 833,563 | |
| | | | | | | |
Efficiency ratio (non-GAAP) | 55.59 | % | | 50.78 | % | | 54.69 | % | | 51.81 | % |
(a) Represents severance expense related to workforce reductions within salary and employee benefits expense.
(b)Included primarily within salary and employee benefits expense, technology, furniture and equipment expense, and professional and legal fees for the nine months ended September 30, 2022.
(b) Included in professional and legal fees.expense.
(c) Included in gains (losses) on securities transactions, net.
Tangible book value per common share is computed by dividing shareholders’ equity less preferred stock, goodwill and other intangible assets by common shares outstanding, as follows:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| ($ in thousands, except for share data) |
Common shares outstanding | 506,351,502 | | | 421,437,068 | |
Shareholders’ equity | $ | 6,273,829 | | | $ | 5,084,066 | |
Less: Preferred stock | 209,691 | | | 209,691 | |
Less: Goodwill and other intangible assets | 2,079,731 | | | 1,529,394 | |
Tangible common shareholders’ equity | $ | 3,984,407 | | | $ | 3,344,981 | |
Tangible book value per common share (non-GAAP) | $ | 7.87 | | | $ | 7.94 | |
Book value per common share (GAAP) | $ | 11.98 | | | $ | 11.57 | |
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| ($ in thousands, except for share data) |
Common shares outstanding | 507,619,430 | | | 506,374,478 | |
Shareholders’ equity (GAAP) | $ | 6,575,184 | | | $ | 6,400,802 | |
Less: Preferred stock | 209,691 | | | 209,691 | |
Less: Goodwill and other intangible assets | 2,046,882 | | | 2,066,392 | |
Tangible common shareholders’ equity (non-GAAP) | $ | 4,318,611 | | | $ | 4,124,719 | |
Book value per common share (GAAP) | $ | 12.54 | | | $ | 12.23 | |
Tangible book value per common share (non-GAAP) | $ | 8.51 | | | $ | 8.15 | |
Net Interest Income
Net interest income 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 $455.3$421.3 million for the thirdsecond quarter 2022 increased $35.72023 decreased $16.2 million as compared to the secondfirst quarter 20222023 and increased $153.6$1.7 million from the third quarter 2021. Interest income on a tax equivalent basis in the third quarter 2022 increased $83.7 million to $538.0 million as compared to the second quarter 2022. The decrease as compared to the first quarter 2023 was mainly due to a $3.3 billion increase in average interest bearing liabilities and higher interest rates on most interest bearing deposit products and short-term borrowings, partially offset by higher loan yields. As a result, interest expense increased $83.5 million to $367.7 million for the second quarter 2023 as compared to the first quarter 2023. Interest income on a tax equivalent basis increased $67.3 million to $789.0 million in the second quarter 2023 as compared to the first quarter 2023. The increase was mostly due to higher average loan balances driven by our organic loan growth and increased yields on both new originations and adjustable rate loans in our portfolio. Interest expenseportfolio and a $1.6 billion increase in average loan balances driven by organic new loan volumes and a continuation of $82.7 millionslower loan prepayments.
Average interest earning assets increased $8.5 billion to $57.4 billion for the thirdsecond quarter 2022 increased $47.9 million2023 as compared to the second quarter 2022 largelymainly due to higher interest rates on both non-maturity depositsa $6.9 billion increase in average loan balances and short-term borrowings, as well as a $1.5$1.4 billion increase in average interest bearing liabilities.cash balances largely due to higher excess cash held overnight as part of our prudent liquidity management navigating the fallout from the recent bank failures. Compared to the first quarter 2023,
Average interest earning assets increased $12.2 billion to $50.5 billion for the third quarter 2022 as compared to the third quarter 2021 primarily due to the acquisitions of Bank Leumi USA and Westchester on April 1, 2022 and December 1, 2021, respectively, as well as strong organic loan growth over the 12-month period ended September 30, 2022. Compared to the second quarter 2022, average interest earning assets increased by $1.6$2.0 billion during the thirdsecond quarter 2022.2023. The increase was primarily driven by a $1.8$1.6 billion increase in average loan balances mainly due to organic commercial loan growth mainlyand a $351.6 million increase in average interest bearing cash as compared to the commercial loan categories, as well as residential mortgage loans.prior linked quarter.
Average interest bearing liabilities increased $5.9$11.2 billion to $31.2$40.9 billion for the thirdsecond quarter 20222023 as compared to the third quarter 2021 mainly due to $2.5 billion of interest bearing deposits assumed from Bank Leumi USA, growth in commercial and retail customer deposit balances without stated maturities and brokered deposits, and $727 million of interest bearing deposits assumed from Westchester. As compared to the second quarter 2022 mainly due to increases of $8.1 billion and $2.3 billion in average time deposits and short-term borrowings, respectively. The increases in average time deposits and short-term borrowings were largely due to the enhanced liquidity management efforts during the first half of 2023, including increased usage of fully FDIC-insured indirect customer CD and successful retail CD initiatives. As compared to the first quarter 2023, average interest bearing liabilities increased by $1.5$3.3 billion in the thirdsecond quarter 2022 mainly2023 largely due to growtha $2.5 billion increase in ouraverage time deposits mainly driven by increased usage of fully FDIC-insured indirect customer CD and successful retail and brokered CD portfolios, partially offset by maturities and less use ofinitiatives, as well as an increase in short-term borrowings, as apart of our funding source. The retail growth resulted from successful targeted CD campaigns, while the brokered CD growth resulted from our increased utilization of such deposits as a cost-effective funding alternative. Total average deposits, including non-interest bearing deposits, increased $1.9 billion to $44.8 billion for the third quarter 2022 as compared to the second quarter 2022.and liquidity sources. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.
Our netNet interest margin on a tax equivalent basis of 3.60 percent for the third quarter 2022 increased by 17 basis points and 45 basis points from 3.43 percent and 3.152.94 percent for the second quarter 2023 decreased by 22 basis points and 49 basis points from 3.16 percent and 3.43 percent for the first quarter 2023 and the second quarter 2022, respectively. The decrease as compared to the first quarter 2023 was largely driven by higher interest rates on interest bearing deposits and third quarter 2021, respectively. Theshort-term borrowings, partially offset by a 29 basis point increase in the yield on average interest earning assets increased by 54 basis points on a linked quarter basis mostly due to the aforementioned higher yields on new and adjustable rate loans in the third quarter 2022 as compared to the second quarter 2022. assets. The yield on average loans increased by 5730 basis points to 4.485.78 percent for the thirdsecond quarter 20222023 as compared to the secondfirst quarter 20222023 largely due to the higher level of market interest rates.rates on new originations and adjustable rate loans. The yields on average taxable and non-taxable investments also increased 913 basis points and 2516 basis points, respectively, from the secondfirst quarter 2022 largely2023 mostly due to investment maturities and prepayments redeployed into new higher yielding securities as well as lower premium amortization expense caused by a decline in prepayments on mortgage-backed securities during the third quarter 2022.first half of 2023. Our cost of total average deposits increased to 0.59 percent for the third quarter 2022 from 0.192.45 percent for the second quarter 2022.2023 from 1.96 percent and 0.19 percent for the first quarter 2023 and the second quarter 2022, respectively. The overall cost of average interest bearing liabilities also increased 5957 basis points to 1.063.59 percent for the thirdsecond quarter 20222023 as compared to the secondfirst quarter 2022. The increased cost of funds was mainly due to higher2023 primarily driven by the rising market interest rates on most of our interest bearing deposit products combined with greater utilization of brokered and retail CDs in our funding mixdeposits during the third quarter 2022.first half of 2023.
The Federal Reserve continued to raise the federal funds rate by 75 basis points after each of their meetings in July, September, and November 2022 resulting in aBased upon our current target range of 3.75 percent to 4.00 percent. The higher levels of market interest rates will benefit certain interest earning assets on our balance sheet and are likely to provide us the opportunity to reinvest any excess cash, including normal repayments of loans and investments,estimates at higher rates. Funding costs also increased during the third quarter 2022 and the early stages of the fourth quarter 2022, however at this time,June 30, 2023, we expect a continued benefit to ouranticipate net interest income fromgrowth in the immediate repricinglow single digits (i.e., less than 10 percent) for the full year of certain earning assets and a degree2023, revised down from 16 to 18 percent previously estimated in the MD&A of lagValley's Form 10-K for the year ended December 31, 2022. While we are seeing initial signs of stabilization in higher funding costs due to the current market and our ability to manage the balance sheet. While our outlook for our net interest income and margin as compared to the declines in both experienced in the fourthfirst quarter 2022 and beyond is positive,2023, we cannot provide any assurances with respect to the future trajectory of market interest rates or that our net interest margin or income will remain at the levels reported for the third second quarter 2022.2023.
The following table reflects the components of net interest income for the three months ended September 30, 2022, June 30, 20222023, March 31, 2023 and SeptemberJune 30, 2021:2022:
Quarterly Analysis of Average Assets, Liabilities and Shareholders’ Equity and
Net Interest Income on a Tax Equivalent Basis
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2022 | | June 30, 2022 | | September 30, 2021 |
| Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| ($ in thousands) |
Assets | | | | | | | | | | | | | | | | | |
Interest earning assets: | | | | | | | | | | | | | | | | | |
Loans (1)(2) | $ | 44,341,894 | | | $ | 496,545 | | | 4.48 | % | | $ | 42,517,287 | | | $ | 415,602 | | | 3.91 | % | | $ | 32,698,382 | | | $ | 309,778 | | | 3.79 | % |
Taxable investments (3) | 4,815,181 | | | 31,002 | | | 2.58 | | | 4,912,994 | | | 30,610 | | | 2.49 | | | 3,302,803 | | | 15,797 | | | 1.91 | |
Tax-exempt investments (1)(3) | 635,795 | | | 6,501 | | | 4.09 | | | 684,471 | | | 6,571 | | | 3.84 | | | 429,941 | | | 3,302 | | | 3.07 | |
Interest bearing deposits with banks | 738,372 | | | 3,996 | | | 2.16 | | | 776,478 | | | 1,569 | | | 0.81 | | | 1,901,748 | | | 642 | | | 0.14 | |
Total interest earning assets | 50,531,242 | | | 538,044 | | | 4.26 | | | 48,891,230 | | | 454,352 | | | 3.72 | | | 38,332,874 | | | 329,519 | | | 3.44 | |
Allowance for credit losses | (486,747) | | | | | | | (428,193) | | | | | | | (346,437) | | | | | |
Cash and due from banks | 426,796 | | | | | | | 426,187 | | | | | | | 213,452 | | | | | |
Other assets | 4,499,739 | | | | | | | 4,362,789 | | | | | | | 3,314,308 | | | | | |
Unrealized gains on securities available for sale, net | (112,724) | | | | | | | (40,591) | | | | | | | 29,733 | | | | | |
Total assets | $ | 54,858,306 | | | | | | | $ | 53,211,422 | | | | | | | $ | 41,543,930 | | | | | |
Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | |
Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
Savings, NOW and money market deposits | $ | 23,541,694 | | | $ | 50,674 | | | 0.86 | % | | $ | 23,027,347 | | | $ | 17,122 | | | 0.30 | % | | $ | 18,771,619 | | | $ | 10,605 | | | 0.23 | % |
Time deposits | 5,192,896 | | | 15,174 | | | 1.17 | | | 3,601,088 | | | 3,269 | | | 0.36 | | | 4,126,253 | | | 4,394 | | | 0.43 | |
Total interest bearing deposits | 28,734,590 | | | 65,848 | | | 0.92 | | | 26,628,435 | | | 20,391 | | | 0.31 | | | 22,897,872 | | | 14,999 | | | 0.26 | |
Short-term borrowings | 1,016,240 | | | 5,160 | | | 2.03 | | | 1,603,198 | | | 4,083 | | | 1.02 | | | 860,474 | | | 1,464 | | | 0.68 | |
Long-term borrowings (4) | 1,477,909 | | | 11,728 | | | 3.17 | | | 1,462,638 | | | 10,313 | | | 2.82 | | | 1,595,814 | | | 11,312 | | | 2.84 | |
Total interest bearing liabilities | 31,228,739 | | | 82,736 | | | 1.06 | | | 29,694,271 | | | 34,787 | | | 0.47 | | | 25,354,160 | | | 27,775 | | | 0.44 | |
Non-interest bearing deposits | 16,035,778 | | | | | | | 16,267,946 | | | | | | | 10,701,948 | | | | | |
Other liabilities | 1,337,022 | | | | | | | 1,010,220 | | | | | | | 692,979 | | | | | |
Shareholders’ equity | 6,256,767 | | | | | | | 6,238,985 | | | | | | | 4,794,843 | | | | | |
Total liabilities and shareholders’ equity | $ | 54,858,306 | | | | | | | $ | 53,211,422 | | | | | | | $ | 41,543,930 | | | | | |
Net interest income/interest rate spread (5) | | | $ | 455,308 | | | 3.20 | % | | | | $ | 419,565 | | | 3.25 | % | | | | $ | 301,744 | | | 3.00 | % |
Tax equivalent adjustment | | | (1,316) | | | | | | | (1,405) | | | | | | | (718) | | | |
Net interest income, as reported | | | $ | 453,992 | | | | | | | $ | 418,160 | | | | | | | $ | 301,026 | | | |
Net interest margin (6) | | | | | 3.59 | % | | | | | | 3.42 | % | | | | | | 3.14 | % |
Tax equivalent effect | | | | | 0.01 | | | | | | | 0.01 | | | | | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | | | | | 3.60 | % | | | | | | 3.43 | % | | | | | | 3.15 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2023 | | March 31, 2023 | | June 30, 2022 |
| Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| ($ in thousands) |
Assets | | | | | | | | | | | | | | | | | |
Interest earning assets: | | | | | | | | | | | | | | | | | |
Loans (1)(2) | $ | 49,457,937 | | | $ | 715,195 | | | 5.78 | % | | $ | 47,859,371 | | | $ | 655,250 | | | 5.48 | % | | $ | 42,517,287 | | | $ | 415,602 | | | 3.91 | % |
Taxable investments (3) | 5,065,812 | | | 39,436 | | | 3.11 | | | 5,033,134 | | | 37,474 | | | 2.98 | | | 4,912,994 | | | 30,610 | | | 2.49 | |
Tax-exempt investments (1)(3) | 629,342 | | | 7,062 | | | 4.49 | | | 623,145 | | | 6,739 | | | 4.33 | | | 684,471 | | | 6,571 | | | 3.84 | |
Interest bearing deposits with banks | 2,198,717 | | | 27,276 | | | 4.96 | | | 1,847,140 | | | 22,205 | | | 4.81 | | | 776,478 | | | 1,569 | | | 0.81 | |
Total interest earning assets | 57,351,808 | | | 788,969 | | | 5.50 | | | 55,362,790 | | | 721,668 | | | 5.21 | | | 48,891,230 | | | 454,352 | | | 3.72 | |
Allowance for credit losses | (446,098) | | | | | | | (466,837) | | | | | | | (428,193) | | | | | |
Cash and due from banks | 415,075 | | | | | | | 445,005 | | | | | | | 426,187 | | | | | |
Other assets | 4,709,061 | | | | | | | 4,702,376 | | | | | | | 4,362,789 | | | | | |
Unrealized gains on securities available for sale, net | (152,382) | | | | | | | (176,332) | | | | | | | (40,591) | | | | | |
Total assets | $ | 61,877,464 | | | | | | | $ | 59,867,002 | | | | | | | $ | 53,211,422 | | | | | |
Liabilities and shareholders’ equity | | | | | | | | | | | | | | | | | |
Interest bearing liabilities: | | | | | | | | | | | | | | | | | |
Savings, NOW and money market deposits | $ | 22,512,128 | | | $ | 164,843 | | | 2.93 | % | | $ | 23,389,569 | | | $ | 150,766 | | | 2.58 | % | | $ | 23,027,347 | | | $ | 17,122 | | | 0.30 | % |
Time deposits | 12,195,479 | | | 125,764 | | | 4.12 | | | 9,738,608 | | | 80,298 | | | 3.30 | | | 3,601,088 | | | 3,269 | | | 0.36 | |
Total interest bearing deposits | 34,707,607 | | | 290,607 | | | 3.35 | | | 33,128,177 | | | 231,064 | | | 2.79 | | | 26,628,435 | | | 20,391 | | | 0.31 | |
Short-term borrowings | 3,878,457 | | | 50,207 | | | 5.18 | | | 2,803,743 | | | 33,948 | | | 4.84 | | | 1,603,198 | | | 4,083 | | | 1.02 | |
Long-term borrowings (4) | 2,339,727 | | | 26,880 | | | 4.60 | | | 1,686,830 | | | 19,198 | | | 4.55 | | | 1,462,638 | | | 10,313 | | | 2.82 | |
Total interest bearing liabilities | 40,925,791 | | | 367,694 | | | 3.59 | | | 37,618,750 | | | 284,210 | | | 3.02 | | | 29,694,271 | | | 34,787 | | | 0.47 | |
Non-interest bearing deposits | 12,756,862 | | | | | | | 14,024,742 | | | | | | | 16,267,946 | | | | | |
Other liabilities | 1,648,359 | | | | | | | 1,783,295 | | | | | | | 1,010,220 | | | | | |
Shareholders’ equity | 6,546,452 | | | | | | | 6,440,215 | | | | | | | 6,238,985 | | | | | |
Total liabilities and shareholders’ equity | $ | 61,877,464 | | | | | | | $ | 59,867,002 | | | | | | | $ | 53,211,422 | | | | | |
Net interest income/interest rate spread (5) | | | $ | 421,275 | | | 1.91 | % | | | | $ | 437,458 | | | 2.19 | % | | | | $ | 419,565 | | | 3.25 | % |
Tax equivalent adjustment | | | (1,510) | | | | | | | (1,438) | | | | | | | (1,405) | | | |
Net interest income, as reported | | | $ | 419,765 | | | | | | | $ | 436,020 | | | | | | | $ | 418,160 | | | |
Net interest margin (6) | | | | | 2.93 | % | | | | | | 3.15 | % | | | | | | 3.42 | % |
Tax equivalent effect | | | | | 0.01 | | | | | | | 0.01 | | | | | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | | | | | 2.94 | % | | | | | | 3.16 | % | | | | | | 3.43 | % |
The following table reflects the components of net interest income for the ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Nine Months Ended | | Six Months Ended |
| | September 30, 2022 | | September 30, 2021 | | June 30, 2023 | | June 30, 2022 |
| | 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) | $ | 40,529,794 | | | $ | 1,229,536 | | | 4.04 | % | | $ | 32,641,362 | | | $ | 938,323 | | | 3.83 | % | Loans (1)(2) | $ | 48,663,070 | | | $ | 1,370,446 | | | 5.63 | % | | $ | 38,592,151 | | | $ | 732,991 | | | 3.80 | % |
Taxable investments (3) | Taxable investments (3) | 4,525,323 | | | 81,906 | | | 2.41 | % | | 3,191,930 | | | 45,717 | | | 1.91 | | Taxable investments (3) | 5,049,563 | | | 76,910 | | | 3.05 | | | 4,377,990 | | | 50,725 | | | 2.32 | |
Tax-exempt investments (1)(3) | Tax-exempt investments (1)(3) | 574,699 | | | 16,079 | | | 3.73 | % | | 480,599 | | | 11,621 | | | 3.22 | | Tax-exempt investments (1)(3) | 626,261 | | | 13,800 | | | 4.41 | | | 543,646 | | | 9,757 | | | 3.59 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | 975,601 | | | 6,026 | | | 0.82 | % | | 1,588,656 | | | 1,101 | | | 0.09 | | Interest bearing deposits with banks | 2,023,900 | | | 49,481 | | | 4.89 | | | 1,096,181 | | | 2,030 | | | 0.37 | |
Total interest earning assets | Total interest earning assets | 46,605,417 | | | 1,333,547 | | | 3.82 | % | | 37,902,547 | | | 996,762 | | | 3.51 | | Total interest earning assets | 56,362,794 | | | 1,510,637 | | | 5.36 | | | 44,609,968 | | | 795,503 | | | 3.57 | |
Allowance for credit losses | Allowance for credit losses | (428,078) | | | | | (348,011) | | | | | Allowance for credit losses | (456,410) | | | | | (398,258) | | | | |
Cash and due from banks | Cash and due from banks | 378,819 | | | 263,910 | | | Cash and due from banks | 429,957 | | | 354,433 | | |
Other assets | Other assets | 4,078,903 | | | 3,290,439 | | | Other assets | 4,705,742 | | | 3,864,997 | | |
Unrealized gains on securities available for sale, net | Unrealized gains on securities available for sale, net | (47,051) | | | 35,490 | | | Unrealized gains on securities available for sale, net | (164,291) | | | (13,671) | | |
Total assets | Total assets | $ | 50,588,010 | | | $ | 41,144,375 | | | Total assets | $ | 60,877,792 | | | $ | 48,417,469 | | |
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 | $ | 22,374,949 | | | $ | 77,423 | | | 0.46 | % | | 17,730,438 | | | 32,896 | | | 0.25 | % | Savings, NOW and money market deposits | $ | 22,948,425 | | | $ | 315,608 | | | 2.75 | % | | $ | 21,781,907 | | | $ | 26,749 | | | 0.25 | % |
Time deposits | Time deposits | 4,122,169 | | | 21,274 | | | 0.69 | | | 4,853,891 | | | 21,766 | | | 0.60 | | Time deposits | 10,973,830 | | | 206,062 | | | 3.76 | | | 3,577,933 | | | 6,100 | | | 0.34 | |
Total interest bearing deposits | Total interest bearing deposits | 26,497,118 | | | 98,697 | | | 0.50 | | | 22,584,329 | | | 54,662 | | | 0.32 | | Total interest bearing deposits | 33,922,255 | | | 521,670 | | | 3.08 | | | 25,359,840 | | | 32,849 | | | 0.26 | |
Short-term borrowings | Short-term borrowings | 1,072,791 | | | 10,049 | | | 1.25 | | | 966,544 | | | 4,390 | | | 0.61 | | Short-term borrowings | 3,344,069 | | | 84,156 | | | 5.03 | | | 1,101,535 | | | 4,889 | | | 0.89 | |
Long-term borrowings (4) | Long-term borrowings (4) | 1,472,344 | | | 31,566 | | | 2.86 | | | 2,037,312 | | | 40,595 | | | 2.66 | | Long-term borrowings (4) | 2,015,081 | | | 46,078 | | | 4.57 | | | 1,469,515 | | | 19,838 | | | 2.70 | |
Total interest bearing liabilities | Total interest bearing liabilities | 29,042,253 | | | 140,312 | | | 0.64 | | | 25,588,185 | | | 99,647 | | | 0.52 | | Total interest bearing liabilities | 39,281,405 | | | 651,904 | | | 3.32 | | | 27,930,890 | | | 57,576 | | | 0.41 | |
Non-interest bearing deposits | Non-interest bearing deposits | 14,679,354 | | | | | 10,147,130 | | | | | Non-interest bearing deposits | 13,387,299 | | | | | 13,989,897 | | | | |
Other liabilities | Other liabilities | 996,667 | | | 690,100 | | | Other liabilities | 1,715,461 | | | 823,668 | | |
Shareholders’ equity | Shareholders’ equity | 5,869,736 | | | 4,718,960 | | | Shareholders’ equity | 6,493,627 | | | 5,673,014 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 50,588,010 | | | $ | 41,144,375 | | | Total liabilities and shareholders’ equity | $ | 60,877,792 | | | $ | 48,417,469 | | |
Net interest income/interest rate spread (5) | Net interest income/interest rate spread (5) | | | $ | 1,193,235 | | | 3.18 | % | | | | $ | 897,115 | | | 2.99 | % | Net interest income/interest rate spread (5) | | | $ | 858,733 | | | 2.04 | % | | | | $ | 737,927 | | | 3.16 | % |
Tax equivalent adjustment | Tax equivalent adjustment | | (3,414) | | | | | (2,515) | | | | Tax equivalent adjustment | | (2,948) | | | | | (2,098) | | | |
Net interest income, as reported | Net interest income, as reported | | $ | 1,189,821 | | | $ | 894,600 | | | Net interest income, as reported | | $ | 855,785 | | | $ | 735,829 | | |
Net interest margin (6) | Net interest margin (6) | | | | 3.40 | % | | | | 3.15 | % | Net interest margin (6) | | | | 3.04 | % | | | | 3.30 | % |
Tax equivalent effect | Tax equivalent effect | | 0.01 | | | 0.01 | | Tax equivalent effect | | 0.01 | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | Net interest margin on a fully tax equivalent basis (6) | | 3.41 | % | | 3.16 | % | Net interest margin on a fully tax equivalent basis (6) | | 3.05 | % | | 3.31 | % |
_____________
(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, 2022 Compared to September 30, 2021 | | Nine Months Ended September 30, 2022 Compared to September 30, 2021 | | Three Months Ended June 30, 2023 Compared to June 30, 2022 | | Six Months Ended June 30, 2023 Compared to June 30, 2022 |
| | Change Due to Volume | | Change Due to Rate | | Total Change | | Change Due to Volume | | Change Due to Rate | | Total Change | | 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* | $ | 123,594 | | | $ | 63,173 | | | $ | 186,767 | | | $ | 236,972 | | | $ | 54,241 | | | $ | 291,213 | | Loans* | $ | 76,106 | | | $ | 223,487 | | | $ | 299,593 | | | $ | 223,680 | | | $ | 413,775 | | | $ | 637,455 | |
Taxable investments | Taxable investments | 8,660 | | | 6,546 | | | 15,206 | | | 22,185 | | | 14,004 | | | 36,189 | | Taxable investments | 978 | | | 7,848 | | | 8,826 | | | 8,583 | | | 17,602 | | | 26,185 | |
Tax-exempt investments* | Tax-exempt investments* | 1,891 | | | 1,308 | | | 3,199 | | | 2,474 | | | 1,984 | | | 4,458 | | Tax-exempt investments* | (558) | | | 1,049 | | | 491 | | | 1,618 | | | 2,425 | | | 4,043 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | (624) | | | 3,978 | | | 3,354 | | | (581) | | | 5,506 | | | 4,925 | | Interest bearing deposits with banks | 6,755 | | | 18,952 | | | 25,707 | | | 3,078 | | | 44,373 | | | 47,451 | |
Total increase in interest income | Total increase in interest income | 133,521 | | | 75,005 | | | 208,526 | | | 261,050 | | | 75,735 | | | 336,785 | | Total increase in interest income | 83,281 | | | 251,336 | | | 334,617 | | | 236,959 | | | 478,175 | | | 715,134 | |
Interest Expense: | Interest Expense: | | | | | | | | | | | | Interest Expense: | | | | | | | | | | | |
Savings, NOW and money market deposits | Savings, NOW and money market deposits | 3,323 | | | 36,745 | | | 40,068 | | | 10,350 | | | 34,177 | | | 44,527 | | Savings, NOW and money market deposits | (392) | | | 148,113 | | | 147,721 | | | 1,509 | | | 287,350 | | | 288,859 | |
Time deposits | Time deposits | 1,392 | | | 9,388 | | | 10,780 | | | (3,529) | | | 3,037 | | | (492) | | Time deposits | 22,935 | | | 99,560 | | | 122,495 | | | 34,214 | | | 165,748 | | | 199,962 | |
Short-term borrowings | Short-term borrowings | 309 | | | 3,387 | | | 3,696 | | | 531 | | | 5,128 | | | 5,659 | | Short-term borrowings | 11,897 | | | 34,227 | | | 46,124 | | | 24,064 | | | 55,203 | | | 79,267 | |
Long-term borrowings and junior subordinated debentures | Long-term borrowings and junior subordinated debentures | (874) | | | 1,290 | | | 416 | | | (11,929) | | | 2,900 | | | (9,029) | | Long-term borrowings and junior subordinated debentures | 8,083 | | | 8,484 | | | 16,567 | | | 9,146 | | | 17,094 | | | 26,240 | |
Total increase (decrease) in interest expense | 4,150 | | | 50,810 | | | 54,960 | | | (4,577) | | | 45,242 | | | 40,665 | | |
Total increase in interest expense | | Total increase in interest expense | 42,523 | | | 290,384 | | | 332,907 | | | 68,933 | | | 525,395 | | | 594,328 | |
Total increase (decrease) in net interest income | Total increase (decrease) in net interest income | $ | 129,371 | | | $ | 24,195 | | | $ | 153,566 | | | $ | 265,627 | | | $ | 30,493 | | | $ | 296,120 | | Total increase (decrease) in net interest income | $ | 40,758 | | | $ | (39,048) | | | $ | 1,710 | | | $ | 168,026 | | | $ | (47,220) | | | $ | 120,806 | |
*Interest income is presented on a tax equivalent basis using 21 percent as the federal tax rate.
Non-Interest Income
Non-interest income increased $13.8$1.5 million and $37.2$16.6 million for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, as compared to the same periodsperiod of 2021.2022. The following table presents the components of non-interest income for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) |
Wealth management and trust fees | $ | 9,281 | | | $ | 3,550 | | | $ | 23,989 | | | $ | 10,411 | |
Insurance commissions | 3,750 | | | 1,610 | | | 9,072 | | | 5,805 | |
Service charges on deposit accounts | 10,338 | | | 5,428 | | | 26,617 | | | 15,614 | |
Gains (losses) on securities transactions, net | 323 | | | 787 | | | (1,058) | | | 1,263 | |
Fees from loan servicing | 3,138 | | | 2,894 | | | 8,636 | | | 8,980 | |
Gains on sales of loans, net | 922 | | | 6,442 | | | 5,510 | | | 20,016 | |
| | | | | | | |
Bank owned life insurance | 1,681 | | | 2,018 | | | 5,840 | | | 6,824 | |
Other | 26,761 | | | 19,702 | | | 75,391 | | | 47,877 | |
Total non-interest income | $ | 56,194 | | | $ | 42,431 | | | $ | 153,997 | | | $ | 116,790 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| (in thousands) |
Wealth management and trust fees | $ | 11,176 | | | $ | 9,577 | | | $ | 20,763 | | | $ | 14,708 | |
Insurance commissions | 3,139 | | | 3,463 | | | 5,559 | | | 5,322 | |
Capital markets | 16,967 | | | 14,711 | | | 27,859 | | | 29,071 | |
Service charges on deposit accounts | 10,542 | | | 10,067 | | | 21,018 | | | 16,279 | |
Gains (losses) on securities transactions, net | 217 | | | (309) | | | 595 | | | (1,381) | |
| | | | | | | |
Fees from loan servicing | 2,702 | | | 2,717 | | | 5,373 | | | 5,498 | |
Gains on sales of loans, net | 1,240 | | | 3,602 | | | 1,729 | | | 4,588 | |
| | | | | | | |
Bank owned life insurance | 2,443 | | | 2,113 | | | 5,027 | | | 4,159 | |
Other | 11,649 | | | 12,592 | | | 26,451 | | | 19,559 | |
Total non-interest income | $ | 60,075 | | | $ | 58,533 | | | $ | 114,374 | | | $ | 97,803 | |
Wealth management and trust fees income increased by $5.7$1.6 million and $13.6$6.1 million for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, as compared to the same periods in 2021 mostly due2022. The increase as compared to brokerage fees resulting from the acquisition of Bank Leumi USA and its wholly owned broker dealer subsidiary now legally named Valley Financial Management, Inc. The brokerage fees totaled $3.9 million and $9.3 million for the three and nine months ended September 30,second quarter 2022 respectively. The increases in both 2022 periods were also supplementedwas mainly driven by additionalhigher revenues generated by our advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments, which weinvestments. The increase for the six months ended June 30, 2023 was largely related to higher brokerage fees related to our broker dealer subsidiary, Valley Financial Management, Inc., acquired in October 2021.
Insurance commissions increased $2.1on April 1, 2022 from Bank Leumi USA. Brokerage fees totaled $9.7 million and $3.3$4.9 million for the six months ended June 30, 2023 and 2022, respectively.
Capital markets income increased $2.3 million and decreased $1.2 million for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, as compared to the same periods in 2021 mostly2022 mainly due to stronger business volumes generated by the Bank's insurance agency subsidiary.changes in volume of interest rate swap transactions executed for commercial loan customers.
Service charges on deposit accounts increased by $4.9$4.7 million for the six months ended June 30, 2023compared to the same period in 2022 largely due to the additional deposit accounts acquired from Bank Leumi USA on April 1, 2022.
Net gains on sales of loans decreased $2.4 million and $11.0$2.9 million for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, as compared to the same periods in 2021 largely related to revenues resulting from deposit accounts acquired from Bank Leumi USA.
Net losses on securities transactions of $1.1 million for the nine months ended September 30, 2022 were mostly due to net trading losses related to our trading municipal bond portfolio.
Net gains on sales of loans for each period are comprised of both gains on sales of residential mortgages and the net change in the mark to market gains and losses on our loans originated for sale and carried at fair value at each reporting period end. Net gains on sales of loans decreased $5.5 million and $14.5 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods of 2021. The third quarter 2022 decrease was mostly due to lower loan sale volumes as we continued to retain a higher percentage of new loan volumes during the first half of 2023. During the six months ended June 30, 2023, we sold approximately $48.4$71.8 million of residential mortgage loans as compared to $234.6 million during the third quarter 2021. The mark to market change on loans held for sale at fair value resulted in net losses totaling $116 thousand and $403 thousand for the three months ended September 30, 2022 and2021, respectively, and $3.4 million and $10.4$326.2 million for the nine months ended September 30, 2022 and2021, respectively. Our ability to generate net gains on sales of loans could continue to be challenged by a number of factors, including increasessame period in market interest rates, lower customer demand for conforming loan products and our decision to originate certain residential mortgage loans for investment in our loan portfolio rather than sale. See further discussion of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.2022.
Other non-interest income increased $7.1 million and $27.5$6.9 million for the three and ninesix months ended SeptemberJune 30, 2022 2023 as compared to the same periodsperiod in 2021, respectively, partially2022. The increase for the six months ended June 30, 2023 was mostly due to higher feeincremental increases in several operating non-interest income from derivative interest rate swaps executed with commercial lending customerscategories caused by a greater volumethe acquisition of transactionsBank Leumi USA and higher foreign exchange fees. Swap fee income totaled $10.7 million and $8.8 million fororganic growth of our business operations over the three months ended September 30, 2022 and 2021, respectively, and $35.8 million and $22.6 million for the nine months ended September 30, 2022 and2021, respectively. While we believe our commercial loan swap based product will remain attractive to borrowers in the current interest rate environment, we can provide no assurance that our swap fees will remain at the level reported for the third quarter 2022. Foreign exchange fees totaled $1.5 million and $4.0 million three and nine months ended September 30, 2022, respectively. Foreign exchange fees for the respective reporting periods in 2021 were not material.last 12 months.
Non-Interest Expense
Non-interest expense increased $86.7decreased $16.8 million and $251.7increased $58.1 million for the three and ninesix months ended SeptemberJune 30, 20222023, respectively, as compared to the same periods in 2021, respectively.2022. The following table presents the components of non-interest expense for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| | (in thousands) | | (in thousands) |
Salary and employee benefits expense | Salary and employee benefits expense | $ | 134,572 | | | $ | 93,992 | | | $ | 397,103 | | | $ | 273,190 | | Salary and employee benefits expense | $ | 149,594 | | | $ | 154,798 | | | $ | 294,580 | | | $ | 262,531 | |
Net occupancy expense | Net occupancy expense | 26,486 | | | 19,941 | | | 70,906 | | | 59,171 | | Net occupancy expense | 25,949 | | | 22,429 | | | 49,205 | | | 44,420 | |
Technology, furniture and equipment expense | Technology, furniture and equipment expense | 39,365 | | | 21,007 | | | 115,245 | | | 64,956 | | Technology, furniture and equipment expense | 32,476 | | | 49,866 | | | 68,984 | | | 75,880 | |
FDIC insurance assessment | FDIC insurance assessment | 6,500 | | | 3,644 | | | 16,009 | | | 10,294 | | FDIC insurance assessment | 10,426 | | | 5,351 | | | 19,581 | | | 9,509 | |
Amortization of other intangible assets | Amortization of other intangible assets | 11,088 | | | 5,298 | | | 26,925 | | | 16,753 | | Amortization of other intangible assets | 9,812 | | | 11,400 | | | 20,331 | | | 15,837 | |
Professional and legal fees | Professional and legal fees | 17,840 | | | 13,492 | | | 62,998 | | | 27,250 | | Professional and legal fees | 21,406 | | | 30,409 | | | 38,220 | | | 45,158 | |
Loss on extinguishment of debt | — | | | — | | | — | | | 8,406 | | |
| Amortization of tax credit investments | Amortization of tax credit investments | 3,105 | | | 3,079 | | | 9,194 | | | 8,795 | | Amortization of tax credit investments | 5,018 | | | 3,193 | | | 9,271 | | | 6,089 | |
Other | Other | 22,683 | | | 14,469 | | | 60,329 | | | 38,213 | | Other | 28,290 | | | 22,284 | | | 54,965 | | | 37,646 | |
Total non-interest expense | Total non-interest expense | $ | 261,639 | | | $ | 174,922 | | | $ | 758,709 | | | $ | 507,028 | | Total non-interest expense | $ | 282,971 | | | $ | 299,730 | | | $ | 555,137 | | | $ | 497,070 | |
Salary and employee benefits expense increased $40.6decreased $5.2 million and $123.9increased $32.0 million for the three and ninesix months ended SeptemberJune 30, 2023, respectively, as compared to the same periods in 2022. As compared to second quarter 2022, the decline was largely due to decreases in cash incentive compensation expense and Bank Leumi USA merger related costs (which totaled $28.0 million in the second quarter 2022), partially offset by higher salary expense and a restructuring charge of $11.2 million, consisting of severance expense related to recent workforce reductions. The increase for the six months ended June 30, 2023 was primarily driven by higher headcount from the Bank Leumi USA acquisition and organic growth in our operations, the aforementioned restructuring charge, and inflationary pressures on our overall labor costs. These increases were partially offset by lower cash incentive compensation expense and merger related costs. The merger related costs totaled $4.1 million for the six months ended June 30, 2023 as compared to $28.0 million for the same period in 2022.
Net occupancy expense increased $3.5 million and $4.8 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 mainly driven by increased lease expense.
Technology, furniture and equipment expense decreased $17.4 million and $6.9 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022. The second quarter 2023 decrease was largely due to Bank Leumi USA merger related expenses (largely consisting of technology related costs) totaling $15.3 million for the second quarter 2022. The decrease for the six months ended June 30, 2023 was mainly due to decline in merger related expense, partially offset by higher depreciation expense as compared to the same period in 2022.
FDIC insurance assessment expense increased $5.1 million and $10.1 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods of 2021. The increases in both 2022 periods were primarily due to strategic increases in our headcount to enhance lending and operations (including additions to staff due to the Bank Leumi USA and Westchester acquisitions), and increases in our branch compensation to preserve staffing and service levels, and to keep pace with the increases in wage demand across the industry. In addition, salary and employee benefits expense included approximately $1.3 million and $29.3 million of merger related expenses for the three and nine months ended September 30, 2022, respectively. The merger expenses, primarily consisted of change in control and severance payments, related to Bank Leumi USA during the second quarter 2022.
Net occupancy expense increased $6.5 million and $11.7 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods of 2021 mainly due to higher lease expense, depreciation expense and repair and maintenance costs,growth in our balance sheet, as well as $1.5 million of merger related expensea two basis point increase in the initial base rate effective for the third quarter 2022.
Technology, furniture and equipment expense increased $18.4 million and $50.3 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods of 2021. The increases are largely driven by higher data processing costs related to the acquisitions of Bank Leumi USA and Westchester and additional investments in technology and equipment, and higher depreciation expense. Within this expense category, merger related costs totaled $1.8 million and $17.1 million for the three and nine months ended September 30, 2022, respectively.
FDIC insurance assessment expense increased $2.9 million and $5.7 million for the three and nine months ended September 30, 2022, respectively, as compared to the same periods of 2021 mainly due to the Bank Leumi USA acquisition, as well as our balance sheet organic growth.2023.
Amortization of other intangible assets increased $5.8 million and $10.2$4.5 million for the three and ninesix months ended SeptemberJune 30, 20222023 , respectively,as compared to the same period of 2021 mostlyin 2022 mainly due to additionalhigher amortization expense of core depositdeposits and other intangible assets resulting from the Bank Leumi USA acquisition. See Notes 2 and Note 9 to the consolidated financial statements for additional information. Professional and legal fees increased $4.3decreased $9.0 million and $35.7$6.9 million for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, as compared to the same periods of 2021. The increases were primarilyin 2022, largely due to declines in merger related expense, partially offset by higher technology transformation consulting and managed services. Within the category, merger
higher consulting expense mainly related expenses (related to technology transformationthe Bank Leumi USA acquisition) totaled $11.4 million and new product initiatives, and increased managed services. Within this expense category, merger related costs totaled $75 thousand and $11.5$12.2 million for the three and ninesix months ended SeptemberJune 30, 2023 and 2022, respectively.
Loss on extinguishment of debt totaled $8.4 million for the nine months ended September 30, 2021 reflecting the
prepayment of approximately $248 million of long-term FHLB advances during the second quarter 2021.
Other non-interest expense increased $8.2$6.0 million and $22.1$17.3 million forfor the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively, as compared to the same periods of 2021. Thesein 2022 primarily due to general increases within this expense category mostlyin several categories caused by our acquired and organic growth in operations, higher charitable contributions, and increased charges related to incrementally highercollateral liabilities in connection with derivative transactions.
We continuously monitor and closely manage our non-interest expense in an effort to optimize our operating expenses dueefficiency. To offset the current headwinds impacting our net interest income and margin, we began the implementation of a new cost saving initiative in late June 2023. The identified cost savings are expected to primarily come from workforce reductions, more efficient third-party consulting and service usage, and specific technology cost reductions. As noted above, we incurred $11.2 million of severance expense associated with these efforts during the expansionsecond quarter 2023. Overall, the new initiative is expected to generate more than $40 million of our operations, including acquisitions of Bank Leumi USAannual pre-tax cost savings and Westchester. In addition,be realized over the 2022 periods included a $2.0 million contribution to the Valley Bank Charitable Fund.next 12 months.
Income Taxes
Income tax expense totaled $68.4 millionfor the third quarter 2022 as compared to $36.6 million and $42.4$51.8 million for the second quarter 20222023 as compared to $57.2 million and third$36.6 million for the first quarter 2021,2023 and second quarter 2022, respectively. Our effective tax rate was 27.727.1 percent, 27.528.1 percent and 25.727.5 percent for the thirdsecond quarter 2022,2023, first quarter 2023 and second quarter 2022, and third quarter 2021, respectively. The increasedecline in the effective tax rate in the second quarter 2023 third quarter 2022 as comparedwas primarily due to the third quarter 2021 was partly duerelease of a state valuation allowance related to a $3.8 million excess stock compensation benefit recognized in the 2021 period.New Jersey net operating loss carryforwards.
U.S. GAAP requires that any change in judgment or change in measurement of a tax position taken in a prior annual period be recognized as a discrete event in the quarter in which it occurs, rather than being recognized as a change in effective tax rate for the current year. Our adherence to these tax guidelines may result in volatile effective income tax rates in future quarterly and annual periods. Factors that could impact management’s judgment include changes in income, tax laws and regulations and tax planning strategies. Based on the current information available, we anticipate that our effective tax rate will range from 27 percent to 29 percent for the remainder of 2022, exclusive of pending potential tax rate increases.strategies.
Operating Segments
Prior to the second quarter 2022, Valley operated as four reportable segments: Consumer Lending, Commercial Lending, Investment Management, and Corporate and Other Adjustments. Valley re-evaluatedmanages its segment reporting during the second quarter 2022 to consider the Bank Leumi USA acquisition on April 1, 2022 along with other factors, including changes in the internal structure ofbusiness operations discrete financial information reviewed by key decision-makers, balance sheet management strategies and personnel. As a result, Valley determined it operatedunder reportable segments consisting of Consumer Lending,Banking, Commercial LendingBanking and Treasury and Corporate Other at June 30, 2022. Treasury and Corporate Other was reorganized to consolidate Treasury and other corporate-wide functions, including the Treasury managed investment securities portfolios and overnight interest earning cash balances formerly reported under Investment Management. The discrete financial information related to the activities previously reported in the Investment Management segment is no longer provided to Valley's CEO, who is the chief operating decision maker.Other. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations and reporting structures to identify its reportable segments. There weresegments and no additional changes to Valley'sthe reportable segments at September 30, 2022.were determined necessary during the first half of 2023.
The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to those of any other financial institution. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The prior-period balances reflect reclassifications to conform the presentation in those periods to the current operating segment structure. Valley's consolidated results were not impacted by the changes discussed above and remain unchanged for all periods presented.
The following tables present the financial data for Valley's operating segments for the three months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Three Months Ended September 30, 2022 | | Three Months Ended June 30, 2023 |
| | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total | | Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 8,307,993 | | $ | 36,033,901 | | $ | 6,189,348 | | $ | 50,531,242 | Average interest earning assets | $ | 8,904,483 | | $ | 40,553,454 | | $ | 7,893,871 | | $ | 57,351,808 |
Income before income taxes | 20,137 | | 255,802 | | (29,415) | | 246,524 | |
Income (loss) before income taxes | | Income (loss) before income taxes | 12,200 | | 247,459 | | (68,840) | | 190,819 |
Annualized return on average interest earning assets (before tax) | Annualized return on average interest earning assets (before tax) | 0.97 | % | | 2.84 | % | | (1.90) | % | | 1.95 | % | Annualized return on average interest earning assets (before tax) | 0.55 | % | | 2.44 | % | | (3.49) | % | | 1.33 | % |
| | | Three Months Ended September 30, 2021 | | Three Months Ended June 30, 2022 |
| | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total | | Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,373,897 | | $ | 25,324,485 | | $ | 5,634,492 | | $ | 38,332,874 | Average interest earning assets | $ | 7,967,305 | | $ | 34,549,982 | | $ | 6,373,943 | | $ | 48,891,230 |
Income (loss) before income taxes | Income (loss) before income taxes | 37,132 | | 141,927 | | (14,055) | | 165,004 | Income (loss) before income taxes | 13,678 | | 127,007 | | (7,720) | | 132,965 |
Annualized return on average interest earning assets (before tax) | Annualized return on average interest earning assets (before tax) | 2.01 | % | | 2.24 | % | | (1.00) | % | | 1.72 | % | Annualized return on average interest earning assets (before tax) | 0.69 | % | | 1.47 | % | | (0.48) | % | | 1.09 | % |
See Note
1516 to the consolidated financial statements for additional details.
Consumer LendingBanking
Consumer LendingBanking represented 18.718.0 percent of our loan portfolio at SeptemberJune 30, 2022,2023, 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 11.511.1 percentof our loan portfolio at SeptemberJune 30, 2022)2023) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (representing 3.8(which represented 3.3 percent of total loans at SeptemberJune 30, 2022)2023) is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. Consumer LendingBanking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.
Average interest earning assets inwithin Consumer LendingBanking increased $934.1$937.2 million to $8.3$8.9 billion for the three months ended SeptemberJune 30, 20222023 as compared to the third quarter 2021.same period of 2022. The increase was mostlylargely due to new residential mortgage loan volumes originated for investment rather than sale over the last 12-month period, as well asand, to a lesser extent, growth in automobile loanshome equity and secured personal lines of credit. Loans acquired from Bank Leumi USA on April 1, 2022 and Westchester on December 1, 2021 did not materially impact this operating segment.
Income before income taxes generated byfor Consumer Lending Banking decreased $17.0$1.5 millionto $20.1$12.2 millionfor the thirdsecond quarter 20222023 as compared to the thirdsecond quarter 2021 largely2022 mainly driven by lower net interest income and, to a lesser extent, an increase in non-interest expense. Net interest income decreased $23.0 million in the second quarter 2023 as compared to the same period of 2022 due to a $11.8 millionadditional interest expense generated from higher average deposit and other borrowing balances, as well as an increase in the provision for loan losses, a $5.6 million increase in the internal transfer expense and higher non-interest expense. The higher internal transfer expense and non-interest expense was mostly driven bycost of such interest bearing liabilities general increases related to organic growth in our retail business and the recent bank acquisitions. The increase in the provision for loan losses was mainly due to higher quantitative reserves for residential mortgage loans, loan growth, and qualitative reserve allocations related to Hurricane Ian in this category.. The negative impact of these items was partially offset by a $7.8 millionan increase in non-interest income for the third quarter 2022 as compared to the third quarter 2021 largelyand lower internal transfer expense. Non-interest income increased $8.4 million mainly due to increases in wealth management and trust fees, capital markets and service charges on deposit accounts, and brokerage fees within wealth management and trust fees, partially ooffset by lower gains on sales of loans.ffset byInternal transfer expense decreased $15.6 million for the second quarter 2023 as compared to the second quarter 2022 due to the lower allocation of non-interest expense over the same period. The provision for loan losses decreased $1.9 million for the three months ended June 30, 2023 due to a decrease in non-economic qualitative factors as compared to one year ago. See further details in the “Allowance for Credit Losses” section of this MD&A.
lower gains on sales of residential mortgage loans. The net interest income also increased by a $3.4 million in the third quarter 2022 as compared to the same quarter in the prior year, mainly driven by higher average loan balances.
The netNet interest margin on the Consumer LendingBanking portfolio decreased 16134 basis points to 2.811.60 percent for the thirdsecond quarter 20222023 as compared to the thirdsecond quarter 20212022 mainly due to a 37224 basis point increase in the costs associated with our funding sources, partially offset by a 2190 basis point increase in the yield on average loans. The increase in our funding costs was mainly due to the rising marketdriven by higher interest rate environment, additional funding sourced through brokeredrates on most of our interest bearing commercial and retail deposit products, increased utilization of fully FDIC-insured indirect customer deposits and FHLB advances for loan growth and a shift in some customer preference to the interest-bearing deposit products from non-interest bearinghigher cost of other borrowings held during the thirdsecond quarter 20222023. The 2190 basis point increase in loan yield was largely due to higher yielding new loan volumes and normal repayments of lower yieldingadjustable rate loans over the last 12-month period.in our portfolio. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest margin and funding sources.
The return on average interest earning assets before income taxes for the consumer banking segment was 0.55 percent for the second quarter 2023 compared to 0.69 percent for the second quarter 2022.
Commercial LendingBanking
Commercial LendingBanking 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 LendingBanking is Valley’s business segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately $8.7$9.3 billionand represented 19.218.6 percent of the total loan portfolio at SeptemberJune 30, 2022.2023. Commercial real estate loans and construction loans totaled $28.1$31.6 billion and represented 62.163.4 percentof the total loan portfolio at SeptemberJune 30, 2022.2023.
Average interest earning assets in this segmentCommercial Banking increasedapproximately$10.7 $6.0 billion to $36.0$40.6 billion for the three months ended SeptemberJune 30, 20222023 as compared to the thirdsecond quarter 2021 mostly2022 primarily due to acquired loans from Bank Leumi USA and Westchester and strong new organic loan originations primarilygrowth concentrated in the commercial real estate loan portfolio. The increases were partially offset by continued run-off of commercial and industrial PPP loans, which totaled only $85.8 million at September 30, 2022 as compared to $874.0 million at September 30, 2021, due to SBA loan forgiveness.
Income before income taxes for Commercial Banking increased $120.5 million to $247.5 million for the three months ended SeptemberJune 30, 2022 for Commercial Lending increased $113.9 millionto $255.8 million2023 as compared to the third quarter 2021. Thesame period of 2022 mainly due to an increase was mainly driven by increases in both net interest income and non-interest incomedecreases in the provision for credit losses and lower provision for loan losses,internal transfer expense, partially offset by an increase in the internal transferhigher non-interest expense. Net interest income for this segment increased $135.6$41.0 million to $372.6$373.7 million for the thirdsecond quarter 20222023 as compared to the same period in 20212022 primarily due to additional income generated on higher average commercial loan balances and loan yield. Non-interest income increased $11.9higher interest rates on new and adjustable loans. Internal transfer expense decreased $55.0 million to $23.5$102.4 million for the three months ended SeptemberJune 30, 2022 as compared to the third quarter 2021. The increase was mostly due to general increases in service charges on commercial deposit accounts, swap fee income from derivative interest rate swaps executed with commercial loan customers, foreign exchange fees and fee income from commercial letters of credit. The provision for loan losses decreased by $13.5 million2023 as compared to the second quarter 2021.2022. The provision for credit losses decreased $35.5 million to $2.8 million as compared to the same period in 2022 mainly due to elevated provision for credit losses for the second quarter 2022 related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA. See details in the "Allowance for Credit Losses for Loans" section of this MD&A. Internal transferNon-interest expense increased $42.8$10.9 million to $35.4 million for the third quarter 2022three months ended June 30, 2023 as compared to the thirdsecond quarter 2021 due to general increases related to both organic and acquired growth in our business.2022.
The net interest margin for this segment increased 40decreased 16 basis pointspoints to 4.143.69 percent for the thirdsecond quarter 20222023 as compared to the thirdsecond quarter 20212022 due to a 77 basis point increase in the yield on average loans, partially offset by a 37224 basis point increase in the cost of our funding sources.sources, partially offset by a 208 basis point increase in the yield on average loans.
The return on average interest earning assets before income taxes for the commercial banking segment was 2.44 percent for the three months ended June 30, 2023 compared to 1.47 percent for the same period in 2022.
Treasury and Corporate Other
Treasury and Corporate Other largely consists of the Treasury managed held to maturity and available for sale debt securities portfolios mainly utilized in the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment. Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the Federal Reserve Bank of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are
allocated from Treasury and Corporate Other to the Consumer LendingBanking and Commercial LendingBanking segments. Interest
expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average interest earning assets and/or liabilities outstanding for the period. Other items disclosed in this segment include net gains and losses on available for sale and held to maturity securities transactions, interest expense related to subordinated notes, amortization (and impairment) of tax credit investments, as well as other non-core items, including merger expenses.
Average interest earning assets in this segmentwithin Treasury and Corporate Other increased $554.9 million during$1.5 billion to $7.9 billion for the three months ended SeptemberJune 30, 20222023 mainly due to ana $1.4 billion increase of $1.5 billion in average taxable investment securities, partially offset by lower averageovernight interest bearing deposits with banks. The increase in the average investment securities balance was mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA. Average interest bearing deposits with banks decreased $1.2 billion as compared to the same period in 2021 mainly due to continued funding of loan growth, fluctuations2022. Our average overnight cash levels increased in the timing of loansecond quarter2023 as a cautionary liquidity management measure resulting from the bank failures in March and investment activity and surge deposits from customers that drove higher levels of excess liquidity in the third quarter 2021.April 2023.
The pre-tax loss for this segment totaled $29.4 million forFor the three months ended SeptemberJune 30, 2022 as2023, loss before income taxes in this segment totaled $68.8 million compared to a $14.1$7.7 million for the same period in 2021.2022. The $15.4$61.1 million increase in the pre-tax loss during the 2022second quarter 2023 period was mainly due to increases in non-interest expense that werelower internal transfer income and net interest income, partially offset by an increasea decrease in non-interest expense. The internal transfer income. Non-interest expense increased $71.6income decreased $70.6 million to $205.5$124.4 million duringfor the three months ended SeptemberJune 30, 20222023 as compared to the same period a year ago largely due to increasesthe lower allocation of non-interest expense over the same period. Non-interest expense decreased $32.1 million to $224.4 million during the three months ended June 30, 2023 as compared to the same period in technology, furniture and equipment, and occupancy expense, as well as higher salaries and employee benefit2022 mainly attributable to merger expenses incurred during the thirdsecond quarter 2022 and our expanded banking operations resulting from the Bank Leumi USA acquisition. acquisition. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A. The internal transfer income increased by $48.4 million to $140.2 million for the three months ended September 30, 2022 as compared to the same period a year ago mostly due to general increases related to our growth and recent acquisitions.
The net interest margin for this segment increased 88decreased 93 basis points to 2.011.19 percent for the for the thirdsecond quarter 20222023 as compared to the thirdsecond quarter 20212022 due to a 125224 basis point increase in cost of our funding sources, partially offset by a 131 basis point increase in the yield on average investments, partially offset by a 37 basis point increase in cost of our funding sources.investments. The increase in the yield on average investments as compared to the third quarter 2021same period a year ago was largely due to investment maturities and prepayments redeployed intodriven by new higher yielding securities, as well as lowerinvestments and a reduction in premium amortization expense mostly caused by a declineslower principal repayments in prepayments on mortgage-backed securities during the third quarter 2022.
rising interest rate environment.
The following tables present the financial data for Valley's operating segmentsegments for the ninesix months ended SeptemberJune 30, 20222023 and 2021:2022:
| | | Nine Months Ended September 30, 2022 | | Six Months Ended June 30, 2023 |
| | Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total | | Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| | ($ in thousands) | | ($ in thousands) |
Average interest earning assets | Average interest earning assets | $ | 7,978,732 | | $ | 32,551,062 | | $ | 6,075,623 | | $ | 46,605,417 | Average interest earning assets | $ | 8,836,859 | | $ | 39,826,630 | | $ | 7,699,305 | | $ | 56,362,794 |
Income before income taxes | Income before income taxes | 56,796 | | 519,640 | | (40,905) | | 535,531 | Income before income taxes | 13,224 | | 471,069 | | (89,758) | | 394,535 |
Annualized return on average interest earning assets (before tax) | Annualized return on average interest earning assets (before tax) | 0.95 | % | | 2.13 | % | | (0.90) | % | | 1.53 | % | Annualized return on average interest earning assets (before tax) | 0.30 | % | | 2.37 | % | | (2.33) | % | | 1.40 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
| Consumer Banking | | Commercial Banking | | Treasury and Corporate Other | | Total |
| ($ in thousands) |
Average interest earning assets | $ | 7,848,764 | | $ | 30,743,387 | | $ | 6,017,817 | | $ | 44,609,968 |
Income (loss) before income taxes | 36,659 | | 263,838 | | (11,490) | | 289,007 |
Annualized return on average interest earning assets (before tax) | 0.93 | % | | 1.72 | % | | (0.38) | % | | 1.30 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Consumer Lending | | Commercial Lending | | Treasury and Corporate Other | | Total |
| ($ in thousands) |
Average interest earning assets | $ | 7,176,086 | | $ | 25,465,276 | | $ | 5,261,185 | | $ | 37,902,547 |
Income (loss) before income taxes | 104,308 | | 411,712 | | (32,592) | | 483,428 |
Annualized return on average interest earning assets (before tax) | 1.94 | % | | 2.16 | % | | (0.83) | % | | 1.70 | % |
Consumer Banking
Consumer Lending
Consumer Lending'sBanking's average interest earning assets increased $802.6$988.1 million to $8.0$8.8 billion for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021.2022. The increase was largely due to new residential mortgage loan volumes originated for investment rather than sale over the last 12-month period, as well as growth in automobilehome equity loans and secured personal lines of credit.
Income before income taxes generated by Consumer LendingBanking decreased $47.5$23.4 million to $56.8$13.2 million for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021 largely due2022 mainly driven by lower net interest income, and, to a $32.5 million increaselesser extent, increases in the internal transfernon-interest expense coupled with a higherand the provision for loan losses andlosses. Net interest income decreased $37.0 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to additional interest expense generated from higher non-interest expense. average deposit balances, as well as an increase in interest rates on such balances. The provision for loan losses increased $21.0$2.7 million for the ninesix months ended SeptemberJune 30, 2022 from $6.5 million credit (negative) provision for the same period of 2021. The increase in provision was mainly 2023 due to higheradditional reserves related to residential loan growth.growth, and changes in the economic forecast component within our CECL model as compared to one year ago. See further details in the "Allowance“Allowance for Credit Losses"Losses” section of this MD&A. Net interestThe negative impact of these items was partially offset by an $8.9 million increase in non-interest income increased $9.5coupled with a $13.4 million primarily duedecrease in the internal transfer expense for the six months ended June 30, 2023 as compared to additionalthe same period in 2022. The increase in non-interest income generated on higher average loan balances. Non-interest income also increased $3.1 million mostly due towas mainly driven by increases in wealth management and trust fees and service charges on deposit accounts caused by our recent acquisitions, partially offset by lower net gains on sales of residential mortgage loans for the nine months ended September 30, 2022 as compared to the same period in 2021.accounts.
Net interest margin on the Consumer LendingBanking portfolio decreased 15116 basis points to 2.891.76 percent for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period one year ago mainly due to a 10 basis point decrease in the yield on average loans and a 5202 basis point increase in the costs associated with our funding sources. The 10sources, partially offset by an 86 basis point decreaseincrease in the yield on average loans. The 86 basis point increase in loan yield was largely due to lowerhigher yielding new loan volumes priorand adjustable rate loans in our portfolio. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest margin and funding sources.
The return on average interest earning assets before income taxes for the consumer banking segment was 0.30 percent for the six months ended June 30, 2023 compared to 0.93 percent as compared to the second quarter 2022 and normal loan repayments. The increase in our funding costs was mainly same period one year agodue to higher interest rates on most of our interest bearing deposit products, including brokered deposits, a lower mix of non-interest bearing deposits, and higher cost short-term borrowings due to the rising interest rate environment in 2022..
Commercial LendingBanking
Average interest earning assets in Commercial LendingBanking increased $7.1$9.1 billion to $32.6$39.8 billion for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021.2022. This increase was primarily due to strong organic loan growth, especially in the commercial real estate portfolio over the 12-month period ended SeptemberJune 30, 2022,2023, as well as loans acquired from Bank Leumi USA and Westchester.on April 1, 2022.
For the ninesix months ended SeptemberJune 30, 2022,2023, income before income taxes for Commercial LendingBanking increased $107.9$207.2 million to $519.6$471.1 million as compared to the same period in 20212022 mainly driven by increasesdue to an increase in net interest income and non-interest income,a lower provision for credit losses, partially offset by higher internal transfer expense and provision for loan losses.non-interest expense. Net interest income increased $248.3$172.6 million to $951.9$751.9 million for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021 mainly2022 primarily due to higher average commercial loan balances and loan yield during the 2022 period. higher interest rates on new and adjustable loans.Non-interest income increased $25.7 millionfor the nine months ended September 30, 2022 as compared to the same period in 2021 mainly due to a $13.2 million increase in fee income related to derivative interest rate swaps executed with commercial loan customers, a $4.0 million increase in foreign exchange fees and higher service charges on commercial deposit accounts. Internal transfer expense increased $158.3 million to $371.2
million for the nine months ended September 30, 2022 as compared to the same period in 2021 largely due to the significant acquired and organic expansion of our operations over the last 12-month period. The provision for credit losses increased $6.8decreased $34.1 million to $34.6$5.8 million during the ninesix months ended SeptemberJune 30, 20222023 as compared to $27.8$39.9 million for the same period in 20212022 mainly due to thea provision related tofor non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA on April 1,in the second quarter 2022. See details in the "Allowance for Credit Losses for Loans" section belowof this MD&A. Non-interest expense increased $21.6 million to $71.1 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to acquired and organic growth in our commercial operations. See further details. details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.
The net interest margin for this segment increased 221 basis pointspoint to 3.903.78 percent for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 20212022 due to a 27203 basis point increase in yield on average loans, partially offset by a 5202 basis point increase in the cost of our funding sources.
The return on average interest earning assets before income taxes for the commercial banking segment was 2.37 percent for the six months ended June 30, 2023 compared to 1.72 percent for the same period in 2022.
Treasury and Corporate Other
Treasury and Corporate Other's average interest earning assets increased $814.4 million$1.7 billion during the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021. Within the category, a $1.3 billion increase in taxable investment securities was partially offset by a $613.1 million decrease in average interest bearing deposits with banks. The increase in average taxable investment securities was2022 mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA. The lower levels of excess liquidity were mainly due to the strong organic loan growthUSA, as well as other select new investment securities purchases over the last 12-month period and a reduction in the impact of surge customer. Average interest bearing deposits with banks increased $47.5 million as compared to the 2021 period.same period in 2022 due to additional cash held as a cautionary liquidity management measur
e starting in March 2023 and through most of the second quarter 2023.
The pre-tax loss before income taxes for this segment totaled $40.9$89.8 million for the ninesix months ended SeptemberJune 30, 20222023 as compared to $32.6$11.5 million for the same period in 2021.2022. The $8.3$78.3 million increase in pre-tax loss was mainly due to an increase in non-interest expense largelyand decreases in both net interest income and internal transfer income, partially offset by higher in internal transfer income and net interestnon-interest income. Non-interest expense increased $244.1$30.4 million to $617.7$442.6 million for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 2021 partially2022 largely due to a $62.6 million increase in merger related expenses, as well as other additional expenses related to our expanded banking operations and organic business growth. However,growth including higher salary and employee benefits expense, technology, furniture and equipment and professional and legal fees. Internal transfer income decreased $36.7 million to $286.9 million for the comparative 2021six months ended June 30, 2023 as compared to the same period also included an $8.4in 2022 due to the higher allocation of non-interest expense over the same period. Non-interest income increased $8.9 million pre-tax loss on extinguishment during the six months ended June 30, 2023 as compared to the same period in 2022 mostly due to incremental increases in several operating non-interest income categories caused by acquired and organic growth of debt.our business operations over the last 12-month period. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A. Internal transfer incomeProvision for credit losses increased $190.8$4.4 million to $463.8 million for the nine months ended September 30, 2022 as compared to the same period in 2021mainly due to a corporate bond issued by Signature Bank within our AFS debt securities portfolio that was fully charged-off during the higher allocation of non-interest expense over the same period.first quarter 2023.
Treasury and Corporate Other's net interest margin increased 74decreased 46 basis points to 1.871.35 percent for the ninesix months ended SeptemberJune 30, 20222023 as compared to the same period in 20212022 due to a 79202 basis point increase in cost of our funding sources, partially offset by a 156 basis point increase in the yield on average investments, and a 5 basis point increase in cost of our funding sources.investments. The increase in theincreased yield on average investments as compared to the same period in 20212022 was largely driven by new higher yielding investments and lowera reduction in premium amortization expense mostly caused in part, by slower principal repayments in the rising interest rate environment of 2022.environment.
ASSET/LIABILITY MANAGEMENT
Interest Rate SensitivityRisk
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 SeptemberJune 30, 2022.2023. The model assumes immediate changes in interest rates without any proactive change in the composition or size of the balance sheet, or other future actions that management might undertake to mitigate this risk. In the model, the forecasted shape of the yield curve remains static as of SeptemberJune 30, 2022.2023. 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 SeptemberJune 30, 2022.2023. Although the size of Valley’s balance sheet is forecasted to remain static as of SeptemberJune 30, 20222023 in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the thirdsecond quarter 2022.2023. The model also utilizes an immediate parallel shift in market interest rates at SeptemberJune 30, 2022.2023.
The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the table below due to the frequency and timing of changes in interest rates and changes in spreads between maturity and re-pricing categories. Overall, our net interest income is affected by changes in interest rates and cash flows from our loan and investment portfolios. We actively manage these cash flows in conjunction with our liability mix, duration and interest rates to optimize the net interest income, while structuring the balance sheet in response to actual or potential changes in interest rates. Additionally, our net interest income is impacted by the level of competition within our marketplace. Competition can negatively impact the level of interest rates attainable on loans and increase the cost of deposits, which may result in downward pressure on our net interest margin in future periods. Other factors, including, but not limited to, the slope of the yield curve and projected cash flows will impact our net interest income results and may increase or decrease the level of asset sensitivity of our balance sheet.
Convexity is a measure of how the duration of a financial instrument changes as market interest rates change. Potential movements in the convexity of bonds held in our investment portfolio, as well as the duration of the loan portfolio may have a positive or negative impact on our net interest income in varying interest rate environments. As a result, the increase or decrease in forecasted net interest income may not have a linear relationship to the results reflected in the table below. Management cannot provide any assurance about the actual effect of changes in interest rates on our net interest income.
The following table reflects management’s expectations of the change in our net interest income over the next 12- month period considering the aforementioned assumptions. While an instantaneous and severe shift in interest rates was used in this simulation model, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact than shown in the table below.
| | | Estimated Change in Future Net Interest Income | | 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) |
+300 | +300 | $ | 343,087 | | | 17.72 | % | +300 | $ | 215,671 | | | 12.16 | % |
+200 | +200 | 231,412 | | | 11.95 | | +200 | 143,021 | | | 8.06 | |
+100 | +100 | 117,300 | | | 6.06 | | +100 | 70,754 | | | 3.99 | |
–100 | –100 | (109,262) | | | (5.64) | | –100 | (72,077) | | | (4.06) | |
–200 | –200 | (233,970) | | | (12.08) | | –200 | (143,067) | | | (8.06) | |
–300 | –300 | (378,853) | | | (19.57) | | –300 | (213,209) | | | (12.02) | |
As noted in the table above, a 100 basis point immediate increase in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to increase net
interest income over the next 12-month period by 6.063.99 percent. Management believes the interest rate sensitivity of our balance sheet remains within an acceptable tolerance range at SeptemberJune 30, 2022.2023. However, the level of net interest income sensitivity may increase or decrease in the future as a result of several factors, including potential changes in our balance sheet strategies, the slope of the yield curve and projected cash flows.
Liquidity and Cash Requirements
Bank Liquidity
Liquidity measures theValley's ability to satisfy its current and future cash flow needs as they become due. A bank’sneeds. Our objective is to have liquidity reflects its abilityavailable to meetfulfill loan demand, to accommodate possible outflows indemands, repay deposits and other liabilities, and execute balance sheet strategies in all market conditions while adhering to take advantage of interest rate opportunities ininternal controls and income targets. Valley's liquidity program is managed by the marketplace. Liquidity management is carefully performedTreasury Department and routinely reportedmonitored by our Treasury Department tothe Asset and Liability Management Committee and two board committees. Among other actions, Treasury reviews historical funding requirements, ouractively monitors Valley's current liquidity position,profile, sources and stability of funding, marketabilityavailability of assets options for attractingpledging or sale, opportunities to gather additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient liquidity to cover current and potential funding requirements.
The Bank has no required regulatory liquidity ratios to maintain; however, it adheres to ancertain internal liquidity policy. The current policy maintains that we may not have a ratiomeasures including ratios of loans to deposits in excess ofbelow 110 percent or reliance onand wholesale funding greater thanto total funding below 25 percent, ofas summarized in the table below. Management maintains flexibility to temporarily exceed these thresholds in certain operating environments.
The following table presents Valley's loan to deposits and wholesale funding to total funding. The Bank was in compliance with the foregoing policiesfunding ratios at SeptemberJune 30, 2022.2023 and December 31, 2022: | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | | | |
Loans to deposits | | 100.5 | % | | 98.5 | % |
Wholesale funding to total funding | | 24.8 | | | 13.8 | |
Valley's short and long-term cash requirements include contractual obligations under borrowings, deposits, paymentpayments 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 and other sources. The following table summarizes Valley's sources of liquid assets: | | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
| | (in thousands) |
Cash and due from banks | | $ | 463,318 | | | $ | 444,325 | |
Interest bearing deposits with banks | | 1,491,091 | | | 503,622 | |
Trading debt securities | | 3,409 | | | 13,438 | |
Held to maturity debt securities (1) | | 182,280 | | | 177,614 | |
Available for sale debt securities (2) | | 1,236,946 | | | 1,261,397 | |
Loans held for sale | | 33,044 | | | 18,118 | |
Total liquid assets | | $ | 3,410,088 | | | $ | 2,418,514 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(1) Represents securities held to maturity that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid), investment securities classified as trading within the held to maturity debt security portfolio.
(2) Includes approximately $847 million 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 $2.6 billion, representing 5.2 percent of earning assets at September 30, 2022 and $3.5 billion, representing 8.7 percent of earning assets at December 31, 2021. Of the $2.6 billion of liquid assets at September 30, 2022, approximately $348$333 million of various investment securities that were pledged to counterparties to support our earning asset funding strategies. We anticipatestrategies at June 30, 2023 and December 31, 2022, respectively.
Total liquid assets represented 6.0 percent and 4.6 percent of earning assets at June 30, 2023 and December 31, 2022, respectively.
Other sources of funds on the receipt of approximately $310 million in principal payments from securities in the total investment portfolio at September 30, 2022 over the
next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.
Additional liquidity isasset side are derived from scheduled loan payments of principal and interest, as well as prepayments received. Loan principal paymentsAt June 30, 2023, estimated cash inflows from total loans and loans held for sale at September 30, 2022 are projected in accordance with their scheduled contractual terms to be approximately $11.2$14.7 billion over the next 12-month period. As a contingency plan for any liquidity constraints, liquidity could also be derived from the sale of conforming residential mortgages from our loan portfolio or alleviated from the temporary curtailment of lending activities. We anticipate the receipt of approximately $386.2 million in principal payments from securities in the total investment portfolio at June 30, 2023 over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.
On the liability side of the balance sheet, we utilize multiple sources of funds to meet liquidity needs, including retail and commercial deposits, brokered andfully FDIC-insured indirect customer deposits, collateralized municipal deposits, and short-term and long-term borrowings. Our core deposit base, which generally excludes all fully insured brokeredindirect customer deposits, and bothas well as retail and brokered certificates of deposit over $250 thousand, represents the largest of these sources.sources. Average core deposits totaled approximately $37.9$42.0 billion and $29.4$38.1 billion for the ninesix months ended SeptemberJune 30, 20222023 and for the year ended December 31, 2021,2022, respectively, representing 81.474.6 percent and 78.379.2 percent of average interest earning assets for the respective periods. The level of interest bearing deposits is affected by interest rates offered, which is often influenced by our need for funds, rates prevailing in the capital markets, competition, and the need to match the maturities of assets and liabilities.manage interest rate risk sensitivity.
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 thatIn addition to customer deposits, the Bank could borrow approximately $2.1 billion from these banks on a collective basis. has ample access to readily available borrowing sources available to supplement its current and projected funding needs. The Bank is also a member offollowing table presents short-term borrowings outstanding at June 30, 2023 and December 31, 2022:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| (in thousands) |
FHLB advances | $ | 1,000,000 | | | $ | 24,035 | |
| | | |
Securities sold under agreements to repurchase | 88,899 | | | 114,694 | |
Total short-term borrowings | $ | 1,088,899 | | | $ | 138,729 | |
The following table summarizes the Federal Home Loan Bank of New York (FHLB)Bank's estimated unused available non-deposit borrowing capacities at June 30, 2023 and has the ability to borrow from them in the form of December 31, 2022:
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| (in thousands) |
FHLB borrowing capacity* | $ | 13,093,000 | | | $ | 6,891,000 | |
Unused FRB discount window* | 7,684,000 | | | 2,099,000 | |
Unused federal funds lines available from commercial banks | 2,065,000 | | | 1,940,000 | |
Unencumbered investment securities | 1,326,000 | | | 3,502,000 | |
Total | $ | 24,168,000 | | | $ | 14,432,000 | |
* FHLB advances securedand FRB borrowings are collateralized by pledges of certain eligible collateral,pledged securities, including but not limited to U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of bothon certain real estate and residential mortgage and commercial real estatesecured loans.
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, 2022, Valley had $1.6 billion of MULOCs outstanding for this purpose. Furthermore, we can obtain overnight borrowings from the Federal Reserve established the Bank of New York via the discount windowTerm Funding Program on March 12, 2023 as a contingencyfunding source for additional liquidity. At September 30, 2022, our borrowing capacityeligible depository institutions. The Program can provide short-term liquidity (up to one year) against the par value of certain high-quality collateral, such as U.S. Treasury securities, and eliminate the potential need for an
institution to sell those securities in times of stress. Advances under the Federal Reserve Bank's discount window was $2.1 billion.
We also have access to otherProgram can be requested until March 11, 2024. This Program is currently another short-term and long-term borrowing sources to support our asset base, such as repos (i.e., securities soldliquidity source for Valley. Valley had no outstanding borrowings under agreements to repurchase). Short-term borrowings (consisting of FHLB advances, repos, and from time to time, federal funds purchased) increased approximately $263.6 million to $919.3 millionthe Program at SeptemberJune 30, 2022 as compared to December 31, 2021 mainly due a higher utilization of FHLB advances, partially offset by lower repo balances at September 30, 2022.2023.
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 ongoing asset/liability management strategies, Valley could also use cash to repurchase shares of its outstanding common stock under its share repurchase program or redeem its callable junior subordinated debentures and subordinated notes.notes (including $125 million of 5.125 percent subordinated notes which are maturing on September 27, 2023). Valley's cash needs are routinely satisfied by dividends collected from the Bank. Projected cash flows from the Bank are expected to be adequate to pay preferred and common dividends, if declared, and interest expense payable to subordinated note holders and capital trusts, given the current capital levels and current profitable operations of the Bank. In addition to dividends received from the Bank, Valley can satisfy its cash requirements by utilizing its own cash and potential new funds borrowed from outside sources or capital issuances. Valley also has the right to defer interest payments on the junior subordinated debentures, and therefore distributions on its trust preferred securities for consecutive quarterly periods of up to five years, but not beyond the stated maturity dates, and subject to other conditions.
Investment Securities Portfolio
As of SeptemberJune 30, 2022,2023, we had $43.3$61.0 million, $1.3$1.2 billion, and $3.7$3.8 billion in equity, available for sale debt securities and held to maturity debt securities, respectively. There were $4.1 million of trading debt securities at September 30, 2022 consisting of investment grade municipal bonds and U.S. Treasury securities. The equity securities consisted of two publicly traded mutual funds, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in partnerships that invest in such companies. Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities. The available for sale and held to maturity debt securities portfolios, which comprise the majority of the securities we own, includeinclude: U.S. Treasury securities, U.S. government agency securities, tax-exempt and taxable issuances of states and political subdivisions, residential mortgage-backed securities, single-issuer trust preferred securities principally issued by bank holding companies and high quality corporate bonds. Among other securities, our available for sale debt securities include securities such as bank issued and other corporate bonds, as well as municipal special revenue bonds, which may pose a higher risk of future impairment charges to us as a result of the uncertain economic environment and its potential negative effect on the future performance of the security issuers.
The equity securities consisted
of two publicly traded mutual funds, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in partnerships that invest in such companies. Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities. We also had $3.4 million of trading debt securities at June 30, 2023 consisting of U.S. Treasury securities.
We acquired $6.2 million, $505.9 million,continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and $806.6 millionthe level of equityinterest rate risk to which we are exposed to. These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments primarily made into the available for sale debt and held to maturity debt securities respectively, from Bank Leumi USA on April 1, 2022.portfolios.
Allowance for Credit Losses and Impairment Analysis
Available for sale debt securities. Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. In assessing whether a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses,
such as declines due to changes in market interest rates, are recorded through other comprehensive loss,income, net of applicable taxes.
We have evaluated all available for sale debt securities that are in an unrealized loss position as of SeptemberJune 30, 20222023 and December 31, 20212022 and determined that the declines in fair value were mainly attributable to changes in market volatility,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, managementValley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in both a provision for credit losses and full charge-off of the security totaling $5.0 million during the six months ended June 30, 2023. There was no other impairment chargesrecognized within the available for sale debt securities portfolio during the three and nine months ended SeptemberJune 30, 20222023 and the yearthree and six months ended December 31, 2021. As a result, thereJune 30, 2022.
Valley does not intend to sell any of its available for sale debt securities in an unrealized loss position prior to
recovery of our amortized cost basis, and it is more likely than not that Valley will not be required to sell any of its securities prior to recovery of our amortized cost basis. None of the available for sale debt securities were past due as of June 30, 2023 and there was no allowance for credit losses for available for sale debt securities at SeptemberJune 30, 20222023 and December 31, 2021.2022.
Held to maturity debt securities. Valley estimates the expected credit losses on held to maturity debt securities that have loss expectations using a discounted cash flow model developed by a third party. Valley has a zero-loss expectation for certain securities within the held to maturity portfolio, including U.S. Treasury securities, U.S. agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds. To measure the expected credit losses on held to maturity debt securities that have loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by a third party. Assumptions used in the model for pools of securities with common risk characteristics include the historical lifetime probability of default and severity of loss in the event of default, with the model incorporating several economic cycles of loss history data to calculate expected credit losses given default at the individual security level. Held to maturity debt securities were carried net of an allowance for credit losses totaling approximately $1.7$1.4 million and $1.2$1.6 million at SeptemberJune 30, 20222023 and December 31, 2021,2022, respectively. There were no net charge-offs of held to maturity debt securities for the three and nine months ended September 30, 2022 and 2021.
Investment grades. The investment grades in the table below reflect the most current independent analysis performed by third parties of each security as of the date presented and not necessarily the investment grades at the
date of our purchase of the securities. For many securities, the rating agencies may not have performed an independent analysis of the tranches owned by us, but rather an analysis of the entire investment pool. For this and other reasons, we believe the assigned investment grades may not accurately reflect the actual credit quality of each security and should not be viewed in isolation as a measure of the quality of our investment portfolio.
The following table presents the available for sale and held to maturity and available for sale debt investment securities portfolios by investment grades at SeptemberJune 30, 2022:2023:
| | | September 30, 2022 | | June 30, 2023 |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | (in thousands) | | (in thousands) |
Available for sale investment grades: * | Available for sale investment grades: * | | Available for sale investment grades: * | |
AAA Rated | AAA Rated | $ | 1,116,870 | | | $ | 116 | | | $ | (137,597) | | | $ | 979,389 | | AAA Rated | $ | 1,052,295 | | | $ | 39 | | | $ | (124,114) | | | $ | 928,220 | |
AA Rated | AA Rated | 152,126 | | | — | | | (38,172) | | | 113,954 | | AA Rated | 149,623 | | | — | | | (27,011) | | | 122,612 | |
A Rated | A Rated | 10,066 | | | 15 | | | (984) | | | 9,097 | | A Rated | 17,213 | | | — | | | (3,000) | | | 14,213 | |
BBB Rated | BBB Rated | 84,667 | | | — | | | (8,132) | | | 76,535 | | BBB Rated | 69,905 | | | — | | | (8,598) | | | 61,307 | |
| Non-investment grade | | Non-investment grade | 5,000 | | | — | | | (1,222) | | | 3,778 | |
Not rated | Not rated | 101,092 | | | — | | | (8,213) | | | 92,879 | | Not rated | 120,644 | | | — | | | (13,828) | | | 106,816 | |
Total | Total | $ | 1,464,821 | | | $ | 131 | | | $ | (193,098) | | | $ | 1,271,854 | | Total | $ | 1,414,680 | | | $ | 39 | | | $ | (177,773) | | | $ | 1,236,946 | |
Held to maturity investment grades: * | Held to maturity investment grades: * | | | | | | | | Held to maturity investment grades: * | | | | | | | |
AAA Rated | AAA Rated | $ | 3,290,361 | | | $ | 258 | | | $ | (498,324) | | | $ | 2,792,295 | | AAA Rated | $ | 3,333,395 | | | $ | 918 | | | $ | (455,892) | | | $ | 2,878,421 | |
AA Rated | AA Rated | 252,632 | | | 7 | | | (25,167) | | | 227,472 | | AA Rated | 237,338 | | | 105 | | | (15,184) | | | 222,259 | |
A Rated | A Rated | 9,297 | | | 2 | | | (204) | | | 9,095 | | A Rated | 5,898 | | | 1 | | | (145) | | | 5,754 | |
BBB Rated | BBB Rated | 6,000 | | | — | | | (317) | | | 5,683 | | BBB Rated | 6,000 | | | — | | | (780) | | | 5,220 | |
Non-investment grade | Non-investment grade | 5,517 | | | — | | | (1,061) | | | 4,456 | | Non-investment grade | 5,416 | | | — | | | (872) | | | 4,544 | |
Not rated | Not rated | 158,213 | | | 17 | | | (10,579) | | | 147,651 | | Not rated | 178,791 | | | 1 | | | (16,042) | | | 162,750 | |
Total | Total | $ | 3,722,020 | | | $ | 284 | | | $ | (535,652) | | | $ | 3,186,652 | | Total | $ | 3,766,838 | | | $ | 1,025 | | | $ | (488,915) | | | $ | 3,278,948 | |
Allowance for credit losses | Allowance for credit losses | 1,696 | | | — | | | — | | | 1,696 | | Allowance for credit losses | 1,351 | | | — | | | — | | | 1,351 | |
Total, net of allowance for credit losses | Total, net of allowance for credit losses | $ | 3,720,324 | | | $ | 284 | | | $ | (535,652) | | | $ | 3,184,956 | | Total, net of allowance for credit losses | $ | 3,765,487 | | | $ | 1,025 | | | $ | (488,915) | | | $ | 3,277,597 | |
| | | | | |
* | Rated using external rating agencies. Ratings categories include the entire range. For example, “A rated” includes A+, A, and A-. Split rated securities with two ratings are categorized at the higher of the rating levels. |
The unrealized losses in the AAA and AA rated categories of both the available for sale and held to maturity and available for sale debt securities portfolios (in the above table) were mainlylargely related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and continued to be driven by the rising interest rate environment during the third quarter 2022.last 12 months. The investment securities available for sale and held to maturity portfolio included $158.2$120.6 million and $178.8 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $10.6$13.8 million and $16.0 million, respectively, at SeptemberJune 30, 20222023. The unrealized losses within non-rated available for sale debt securities mostly related to several large corporate bonds negatively impacted by rising interest rates, and not changes in underlying credit. The unrealized losses within non-rated held to maturity debt
securities mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0$36.1 million and several corporate and other debt securities.
See Note 7 to the consolidated financial statements for additional information regarding our investment securities portfolio.
Loan Portfolio
The following table reflects the composition of the loan portfolio as of the dates presented: | | | September 30, 2022 | | June 30, 2022 | | December 31, 2021 | | | June 30, 2023 | | March 31, 2023 | | December 31, 2022 | |
| | ($ in thousands) | | ($ in thousands) |
Loans | Loans | | | Loans | | |
Commercial and industrial: | | | |
| Commercial and industrial | Commercial and industrial | $ | 8,615,557 | | | $ | 8,378,454 | | | $ | 5,411,601 | | | Commercial and industrial | $ | 9,287,309 | | | $ | 9,043,946 | | | $ | 8,804,830 | | |
Commercial and industrial PPP loans | 85,820 | | | 136,004 | | | 435,950 | | | |
Total commercial and industrial * | 8,701,377 | | | 8,514,458 | | | 5,847,551 | | | |
Commercial real estate: | Commercial real estate: | | | Commercial real estate: | | |
Commercial real estate | Commercial real estate | 24,493,445 | | | 23,535,086 | | | 18,935,486 | | | Commercial real estate | 27,793,072 | | | 27,051,111 | | | 25,732,033 | | |
Construction | Construction | 3,571,818 | | | 3,374,373 | | | 1,854,580 | | | Construction | 3,815,761 | | | 3,725,967 | | | 3,700,835 | | |
Total commercial real estate | Total commercial real estate | 28,065,263 | | | 26,909,459 | | | 20,790,066 | | | Total commercial real estate | 31,608,833 | | | 30,777,078 | | | 29,432,868 | | |
Residential mortgage | Residential mortgage | 5,177,128 | | | 5,005,069 | | | 4,545,064 | | | Residential mortgage | 5,560,356 | | | 5,486,280 | | | 5,364,550 | | |
Consumer: | Consumer: | | | Consumer: | | |
Home equity | Home equity | 467,135 | | | 431,455 | | | 400,779 | | | Home equity | 535,493 | | | 516,592 | | | 503,884 | | |
Automobile | Automobile | 1,711,086 | | | 1,673,482 | | | 1,570,036 | | | Automobile | 1,632,875 | | | 1,717,141 | | | 1,746,225 | | |
Other consumer | Other consumer | 1,063,775 | | | 1,026,854 | | | 1,000,161 | | | Other consumer | 1,252,382 | | | 1,118,929 | | | 1,064,843 | | |
Total consumer loans | Total consumer loans | 3,241,996 | | | 3,131,791 | | | 2,970,976 | | | Total consumer loans | 3,420,750 | | | 3,352,662 | | | 3,314,952 | | |
Total loans* | Total loans* | $ | 45,185,764 | | | $ | 43,560,777 | | | $ | 34,153,657 | | | Total loans* | $ | 49,877,248 | | | $ | 48,659,966 | | | $ | 46,917,200 | | |
As a percent of total loans: | As a percent of total loans: | | | | | | | As a percent of total loans: | | | | | | |
Commercial and industrial | Commercial and industrial | 19.2 | % | | 19.5 | % | | 17.1 | % | | Commercial and industrial | 18.6 | % | | 18.6 | % | | 18.8 | % | |
Commercial real estate | Commercial real estate | 62.1 | | | 61.8 | | | 60.9 | | | Commercial real estate | 63.4 | | | 63.2 | | | 62.7 | | |
Residential mortgage | Residential mortgage | 11.5 | | | 11.5 | | | 13.3 | | | Residential mortgage | 11.1 | | | 11.3 | | | 11.4 | | |
Consumer loans | Consumer loans | 7.2 | | | 7.2 | | | 8.7 | | | Consumer loans | 6.9 | | | 6.9 | | | 7.1 | | |
Total | Total | 100.0 | % | | 100.0 | % | | 100.0 | % | | Total | 100.0 | % | | 100.0 | % | | 100.0 | % | |
* Includes net unearned discount and deferred loan fees of $136.5$119.1 million, $141.2$125.4 million and $78.5$120.5 million at September 30, 2022, June 30, 2022,2023, March 31, 2023 and December 31, 2021,2022, respectively. The increases from December 31, 2021 were largely due to a $98 million net purchase discount associated with the loans acquired from Bank Leumi USA on April 1, 2022.
Loans increased $1.6 billion to approximately $45.2 billion at September 30, 2022 from June 30, 2022 largely due to solid organic loan originations and slower paydown activity of existing loans. Commercial and industrial, total commercial real estate (including construction) and residential mortgageTotal loans increased 9$1.2 billion, or 10.0 percent 17 percent and 14 percent, respectively, on an annualized basis duringto $49.9 billion at June 30, 2023 from March 31, 2023 mainly due to continued organic loan growth in commercial loan categories and relatively low levels of loan prepayment activity during the thirdsecond quarter 20222023. Residential mortgage loans held for sale at fair value totaled $23.0 million and $17.2 million at June 30, 2023 and March 31, 2023, respectively. At June 30, 2023, loans held for sale also included one non-performing construction loan totaling $10.0 million, net of charge-offs, transferred from the loan portfolio during the second quarter 2023.
Commercial and industrial loans increased $186.9243.4 million to $8.7$9.3 billion at SeptemberJune 30, 20222023 as compared to June 30, 2022. Excluding PPP loans, the commercialMarch 31, 2023. The organic and industrial loan organicdiverse growth totaled $237.1 million during the third quarter 2022was mainly due to solid organica result of new loan volumes largely amongstfrom our pre-existing long-term customer base across most of our primary market areas. In addition, the new loan pipeline was driven by direct calling efforts of our commercial lending team. SBA Paycheck Protection Program (PPP) loans decreased $50.2 million to $85.8 million at September 30, 2022 compared to $136.0 million at June 30, 2022 mainly due to loan forgiveness (repayments).base.
Commercial real estate loans (excluding construction loans) increased $1.0 billion$742.0 million to $24.5$27.8 billion at September 30, 2022 from June 30, 2022 driven by2023 from March 31, 2023 reflecting solid organic growth mainly in thewithin non-owner occupied and multifamily loan portfolios. The new loan volumes were generatedmulti-family loans across most of our geographic footprints. market areas. At June 30, 2023, commercial real estate loans collateralized by office buildings were approximately $3.2 billion of the $27.8 billion portfolio. These loans are geographically disbursed largely across Florida, Alabama, New Jersey, New York, and Manhattan with a combined weighted average loan to value ratio of 52 percent and debt service coverage ratio of 1.78.
Construction loans increased only $197.489.8 million to $3.6$3.8 billion at September 30, 2022 from June 30, 2022 mainly2023 from March 31, 2023 and was largely due to a high volume of advances on new, and to a lesser extent, pre-existing construction loan projects during the third quarter 2022.in New Jersey, New York and Florida.
Residential mortgage loans increased $172.1$74.1 million, or 13.85.4 percent on an annualized basis, during the thirdsecond quarter 2022 primarily due to2023 as we largely originated new loan activity inloans for the purchased home market and an increase in such loans originatedheld for investment portfolio rather than for sale.New and refinanced residential mortgage loan originations totaled $188.0 million $342.9 millionfor the third quarter 2022 as compared to $540.7 million and $622.1 million for the second quarter 20222023 as compared to
$194.4 million and third$540.7 million for the first quarter 2021,2023 and second quarter 2022, respectively. Florida originations totaled $92.1$63.2 million and represented 2733.61 percent of total residential mortgage loan originations in the quarter. During the second quarter 2023, we retained approximately 73.2 percent of the total residential mortgage originations in our held for investment loan portfolio. Of the total originations in the thirdsecond quarter 2022, only $36.72023, $50.4 million of residential mortgage loans were originated for sale rather than held for investment as compared to $61.9 million during the second quarter 2022. During the third quarter 2022 we retained approximately 89 percent of the total residential mortgages originations in our held for investment loan portfolio. We sold approximately $48.4 million of residential mortgage loans held for sale during the third quarter 2022. We may continue to retain a higher percentage of new loan volumes during the fourth quarter 2022 due to several factors, including consumer demand and preferences for certain mortgage products and our management of the interest rate risk and the mix of the interest earning assets on our balance sheet.. Additionally, the volume of both new and refinanced loan applications have continued to declineapplications has remained relatively low in the early stages of the fourththird quarter 20222023 due to the increase in thehigh level of mortgage interest rates and tight housing inventories and may challenge our ability to grow this loan category.
Home equity loans increased by $35.7$18.9 million to $467.1$535.5 million at SeptemberJune 30, 20222023 compared to June 30, 2022. However,March 31, 2023 as a result of lower new home equity loan volumesoriginations and customer usage of existing home equity lines of credit continue to be modest and we anticipate growthline utilization in this loan category to be challenged by thean unfavorable risinghigh interest rate environment.
Automobile loans increaseddecreased by $37.6$84.3 million, or 9.019.6 percent on an annualized basis, to $1.7$1.6 billion at SeptemberJune 30, 20222023 as compared to June 30, 2022 as loan originations volumesMarch 31, 2023 largely due to continued to outpace loan repayments during the third quarter 2022. However, loan originations slowed significantly during the third quarter 2022 aslow consumer demand for new and used vehicle financing declined due tobecause of the higher interest rate environment. WeDuring the second quarter 2023, the interest rates on new car loans reached the highest level since 2008. We originated $196.6$16.2 million in auto loans through our Florida dealership network during the thirdsecond quarter 20222023 as compared to $278.2$31.5 million in the secondfirst quarter 2022.2023. Of the total originations, our Florida dealership network contributed $33.7 million in auto loan originations, representingrepresented approximately 1720 percent of new loans, during the thirdsecond quarter 2022.2023. Despite increasedadequate new automobile inventories available to consumers, we anticipate that the impact of inflation on average new vehicle prices coupled with rising interest rates could continue to have a negative impact on our ability to grow this loan category during the fourththird quarter 2022.2023.
Other consumer loans increased $36.9$133.5 million to $1.1$1.3 billion at September 30, 2022 from June 30, 2022.2023 as compared to March 31, 2023mainly due to moderate growth in our collateralized personal lines of credit portfolio.
A largesignificant part of our lending is in northern and central New Jersey, New York City, Long Island and Florida. To mitigate our geographic risks, we make efforts to maintain a diversified portfolio as to type of borrower and loan to guard against a potential downward turn in any one economic sector.
Despite the moderate decline in new loan originations for the third quarter 2022, we anticipate solid organic commercial and industrial non-PPP and commercial real estateAnnualized loan growth to continue in the fourth quarter 2022. Based upon current projections, we anticipate a range of 8slowed to 10 percent annualizedduring the second quarter 2023 from 16 percent in the first quarter 2023 as we worked through the majority of the strong loan growth forpipeline that was present at the fourth quarter 2022. However, there can be no assurance that those positive trends will continue, or balances will not decline from September 30, 2022 due to several factors, including, but not limited to persistently high inflation, the Federal Reserve's rapid monetary policy tightening, and the ongoing negative impactbeginning of Russia-Ukraine war on the global economy. In addition, we anticipate that residential mortgage and other consumer loan activity2023. We will continue to slow meaningfullybe selective on the lending side and generally supportive of compelling projects led by our high quality and tenured customer base. Moving forward, we anticipate moderate levels of overall loan growth in the fourth quarter 2022.
mid to high single digits on an annualized basis for the remainder of 2023.
Non-performing Assets
Non-performing assets (NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consistsconsist of automobiles and taxi medallions) at SeptemberJune 30, 2022.2023. Loans are generally placed on non-accrual status when they become past due in excess of 90 days as to payment of principal or interest. Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of collection. OREO is acquired through foreclosure on loans secured by land or real estate. OREO and other repossessed assets are reported at the lower of cost or fair value, less estimated cost to sell.
Our NPAs decreased $19.9increased $11.2 million to $294.8$256.1 million at SeptemberJune 30, 20222023 as compared to June 30, 2022 March 31, 2023 mostly due to declinesincreases in both non-accrual commercial and industrial and commercial real estate loans mainly causedand commercial and industrial loans, partially offset by a few large loan repayments,decreases in construction loans and to a lesser extent, loan charge-offs during the third quarter 2022. residential mortgage loans. NPAs as a percentage of total loans and NPAs totaled 0.650.51 percent and 0.720.50 percent at September 30, 2022 and June 30, 2022,2023 and March 31, 2023, respectively (as shown in the table below). We believe ourOur total NPAs has remained relatively low as a percentage of the total loan portfolio and the level of NPAs, which is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased from third parties. 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. During the ninesix months ended SeptemberJune 30, 2022,2023, our overall credit trends have remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the recent challenges ofacross the global supply chain issues, highbanking system, slower economic growth, elevated inflation and the overall uncertain economy and the ongoing impact of COVID-19.. However, management cannot provide assurance that the non-performing assets will not materially increase from the levels reported at SeptemberJune 30, 20222023 due to the aforementioned or other factors potentially impacting our lending customers.
The following table sets forth by loan category accruing past due and non-performing assets at the dates indicated in conjunction with our asset quality ratios:
| | | September 30, 2022 | | June 30, 2022 | | March 31, 2021 | | June 30, 2023 | | March 31, 2023 | | December 31, 2022 |
| | ($ in thousands) | | ($ in thousands) |
Accruing past due loans: | Accruing past due loans: | | | Accruing past due loans: | | |
30 to 59 days past due: | 30 to 59 days past due: | | 30 to 59 days past due: | |
Commercial and industrial | Commercial and industrial | $ | 19,526 | | | $ | 7,143 | | | $ | 6,723 | | Commercial and industrial | $ | 6,229 | | | $ | 20,716 | | | $ | 11,664 | |
Commercial real estate | Commercial real estate | 6,196 | | | 10,516 | | | 30,807 | | Commercial real estate | 3,612 | | | 13,580 | | | 6,638 | |
Construction | — | | | 9,108 | | | 1,708 | | |
| Residential mortgage | Residential mortgage | 13,045 | | | 12,326 | | | 9,266 | | Residential mortgage | 15,565 | | | 12,599 | | | 16,146 | |
Total consumer | Total consumer | 6,196 | | | 6,009 | | | 5,862 | | Total consumer | 8,431 | | | 7,845 | | | 9,087 | |
Total 30 to 59 days past due | Total 30 to 59 days past due | 44,963 | | | 45,102 | | | 54,366 | | Total 30 to 59 days past due | 33,837 | | | 54,740 | | | 43,535 | |
60 to 89 days past due: | 60 to 89 days past due: | | | | | | 60 to 89 days past due: | | | | | |
Commercial and industrial | Commercial and industrial | 2,188 | | | 3,870 | | | 14,461 | | Commercial and industrial | 7,468 | | | 24,118 | | | 12,705 | |
Commercial real estate | Commercial real estate | 383 | | | 630 | | | 6,314 | | Commercial real estate | — | | | — | | | 3,167 | |
Construction | 12,969 | | | 3,862 | | | 3,125 | | |
| Residential mortgage | Residential mortgage | 5,947 | | | 2,410 | | | 2,560 | | Residential mortgage | 1,348 | | | 2,133 | | | 3,315 | |
Total consumer | Total consumer | 1,174 | | | 702 | | | 554 | | Total consumer | 4,126 | | | 1,519 | | | 1,579 | |
Total 60 to 89 days past due | Total 60 to 89 days past due | 22,661 | | | 11,474 | | | 27,014 | | Total 60 to 89 days past due | 12,942 | | | 27,770 | | | 20,766 | |
90 or more days past due: | 90 or more days past due: | | | | | | 90 or more days past due: | | | | | |
Commercial and industrial | Commercial and industrial | 15,072 | | | 15,470 | | | 9,261 | | Commercial and industrial | 6,599 | | | 8,927 | | | 18,392 | |
Commercial real estate | Commercial real estate | 15,082 | | | — | | | — | | Commercial real estate | 2,242 | | | — | | | 2,292 | |
| Construction | | Construction | 3,990 | | | 6,450 | | | 3,990 | |
Residential mortgage | Residential mortgage | 550 | | | 1,188 | | | 1,746 | | Residential mortgage | 1,165 | | | 1,668 | | | 1,866 | |
Total consumer | Total consumer | 421 | | | 267 | | | 400 | | Total consumer | 1,006 | | | 747 | | | 47 | |
Total 90 or more days past due | Total 90 or more days past due | 31,125 | | | 16,925 | | | 11,407 | | Total 90 or more days past due | 15,002 | | | 17,792 | | | 26,587 | |
Total accruing past due loans | Total accruing past due loans | $ | 98,749 | | | $ | 73,501 | | | $ | 92,787 | | Total accruing past due loans | $ | 61,781 | | | $ | 100,302 | | | $ | 90,888 | |
Non-accrual loans: | Non-accrual loans: | | | | | | Non-accrual loans: | | | | | |
Commercial and industrial | Commercial and industrial | $ | 135,187 | | | $ | 148,404 | | | $ | 96,631 | | Commercial and industrial | $ | 84,449 | | | $ | 78,606 | | | $ | 98,881 | |
Commercial real estate | Commercial real estate | 67,319 | | | 85,807 | | | 79,180 | | Commercial real estate | 82,712 | | | 67,938 | | | 68,316 | |
Construction | Construction | 61,098 | | | 49,780 | | | 17,618 | | Construction | 63,043 | | | 68,649 | | | 74,230 | |
Residential mortgage | Residential mortgage | 26,564 | | | 25,847 | | | 33,275 | | Residential mortgage | 20,819 | | | 23,483 | | | 25,160 | |
Total consumer | Total consumer | 3,227 | | | 3,279 | | | 3,754 | | Total consumer | 3,068 | | | 3,318 | | | 3,174 | |
Total non-accrual loans | Total non-accrual loans | 293,395 | | | 313,117 | | | 230,458 | | Total non-accrual loans | 254,091 | | | 241,994 | | | 269,761 | |
| Other real estate owned (OREO) | Other real estate owned (OREO) | 286 | | | 422 | | | 1,024 | | Other real estate owned (OREO) | 824 | | | 1,189 | | | 286 | |
Other repossessed assets | Other repossessed assets | 1,122 | | | 1,200 | | | 1,176 | | Other repossessed assets | 1,230 | | | 1,752 | | | 1,937 | |
Total non-performing assets (NPAs) | Total non-performing assets (NPAs) | $ | 294,803 | | | $ | 314,739 | | | $ | 232,658 | | Total non-performing assets (NPAs) | $ | 256,145 | | | $ | 244,935 | | | $ | 271,984 | |
Performing troubled debt restructured loans | $ | 69,748 | | | $ | 67,274 | | | $ | 56,538 | | |
| Total non-accrual loans as a % of loans | Total non-accrual loans as a % of loans | 0.65 | % | | 0.72 | % | | 0.65 | % | Total non-accrual loans as a % of loans | 0.51 | % | | 0.50 | % | | 0.57 | % |
Total NPAs as a % of loans and NPAs | Total NPAs as a % of loans and NPAs | 0.65 | | | 0.72 | | | 0.65 | | Total NPAs as a % of loans and NPAs | 0.51 | | | 0.50 | | | 0.58 | |
Total accruing past due and non-accrual loans as a % of loans | Total accruing past due and non-accrual loans as a % of loans | 0.87 | | | 0.89 | | | 0.91 | | Total accruing past due and non-accrual loans as a % of loans | 0.63 | | | 0.70 | | | 0.77 | |
Allowance for loan losses as a % of non-accrual loans | Allowance for loan losses as a % of non-accrual loans | 162.15 | | | 149.73 | | | 157.30 | | Allowance for loan losses as a % of non-accrual loans | 171.76 | | | 180.54 | | | 170.02 | |
Loans past due 30 to 59 days decreased $139 thousand$20.9 million to $45.0$33.8 million at SeptemberJune 30, 20222023 as compared to June 30, 2022. ConstructionMarch 31, 2023 due, in part, to the commercial real estate loans withintotaling $10.2 million included in this delinquency category decreased $9.1 million dueat March 31, 2023 that reclassified to one loan acquired from Bank Leumi USA included in this categorynon-accrual loans at June 30, 2022 that is reported as 60 to 89 days past due at September 30, 2022. 2023. Commercial real estateand industrial loans past due 30 to 59 days past due decreased $4.3$14.5 million to $6.2 million at September 30, 2022 as compared to June 30, 2022 mainly due to one loan that became current as to all contractual payments at September 30, 2022. These decreases were largely offset by higher commercial and industrial loans
delinquencies mostly driven by matured loans inimproved performance during the process of renewal included in this category at September 30, 2022.second quarter 2023.
Loans past due 60 to 89 days increased $11.2decreased $14.8 million to $22.7$12.9 million at SeptemberJune 30, 20222023 as compared to June 30, 2022 mainlyMarch 31, 2023 largely due to the one aforementioned constructiona commercial and industrial loan that migrated to this delinquency category at September 30, 2022.
Loans past due 90 days or more and still accruing interest increased $14.2relationship totaling $21.2 million to $31.1 million at September 30, 2022 as compared to June 30, 2022. The increase was mainly driven by the two commercial real estate loan relationships totaling $9.7 million and $5.4 million, respectively, included in this delinquency category at SeptemberMarch 31, 2023 that became current to all its contractual payments at June 30, 2022.2023.
Loans 90 days or more past due and still accruing interest decreased $2.8 million to $15.0 million at June 30, 2023 as compared to March 31, 2023 mainly due to decreases in the commercial and industrial and construction loan categories, partially offset by one new matured commercial real estate loan of $2.2 million expected to be paid off in the near term. All loans 90 days or more past due and still accruing interest are considered well-secured and in the process of collection.
Non-accrual loans decreasedincreased $19.7$12.1 million to $293.4 million at September 30, 2022 as compared to $313.1$254.1 million at June 30, 2022 mainly due2023 as compared to decreases$242.0 million at March 31, 2023 mostly driven by an increase in non-performing cthe commercial real estate loan category. ommercial and industrial andNon-accrual commercial real estate loans partially offset byincreased $14.8 million to $82.7 million at June 30, 2023 due, in part, to the aforementioned migration of two loans totaling $10.2 million from the 30 to 59 days past due delinquency category at March 31, 2023 and one new $4.5 million non-performing loan at June 30, 2023. Non-accrual construction loans decreased $5.6 million to $63.0 million at June 30, 2023 from March 31, 2023 primarily due to the $4.2 million partial charge-off of one loan, relationship totaling $12.7 million put on non-accrual status which was transferred to loans held for sale at SeptemberJune 30, 2022.2023.
Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at June 30, 2023, are well secured and largely collectible based in part, on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable. Any estimated shortfall in each collateral valuation results in an allocation of specific reserves within our allowance for credit losses for loans.
Non-accrualNon-performing taxi medallion loans totaled $65.8 million of the $84.4 million non-accrual commercial and industrial loans totaled $135.2 million at SeptemberJune 30, 2022 and included non-performing 2023. At June 30, 2023, all taxi medallion loans totaling $76.3 million. Non-performing taxi medallionin the loan portfolio were on non-accrual status and had related reserves of $41.7 million, or 63.4 percent of such loans, decreased $4.1 million from $80.4 million at June 30, 2022 mostly due to partial loan charge-offs totaling $3.8 million related to one borrower duringwithin the third quarter 2022. The partial loan charge-offs were fully reserved for in our allowance for loan losses at June 30, 2022. At September 30, 2022, the taxi medallion loans (primarily collateralized by New York City medallions) had related reserves of $51.4 million, or 67.3 percent of such loans.
losses. Potential further declines in the market valuation of taxi medallions and the stressedcurrent operating environment mainly within New York City due to the COVID-19 pandemic or general deterioration in economic conditions couldmay negatively impact the future performance of this portfolio. For example, a 25 percent decline in our current estimated market value of the taxi medallions would require additional allocated reserves of $4.7 million within the allowance for loan losses based upon the taxi medallion loan balances at September 30, 2022. See the "Allowance for Credit Losses for Loans" section below for further details on our reserves.
OREO properties totaled $286$824 thousand at SeptemberJune 30, 20222023 and declined $136decreased $365 thousand as compared to June 30, 2022. During the third quarter 2022, OREO activity continues to trend downward as sales of owned properties outpaced new foreclosures. TheMarch 31, 2023. The sales of OREO properties resulted in net losses of $69 thousand and $692 thousand for the three and nine months ended September 30, 2022, respectively, and net losses of $67 thousandproperties and net gains on sales of $268 thousand for theOREO during the three and ninesix months ended SeptemberJune 30, 2021, respectively.2023 and 2022 were not material. The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $1.9 million$454 thousand and $2.5 million at September 30, 2022 and December 31, 2021, respectively.
TDRs represent loan modifications for customers experiencing financial difficulties where a concession has been granted. Performing TDRs (i.e., TDRs not reported as loans 90 days or more past due and still accruing interest or as non-accrual loans) totaled $69.7 million at September 30, 2022 as compared to $67.32.6 million at June 30, 2022. Performing TDRs consisted of 87 loans at September 30, 2022. On an aggregate basis, the $69.7 million in performing TDRs at September 30,2023 and December 31, 2022, had a modified weighted average interest rate of approximately 4.90 percent as compared to a pre-modification weighted average interest rate of 4.32 percent.respectively.
Allowance for Credit Losses for Loans
The allowance for credit losses (ACL) for loans includes the allowance for loan losses and the reserve for unfunded credit commitments. Under CECL, our methodology to establish the allowance for loan losses has two basic components: (i) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (ii) an individual reserve component for loans that do not share risk characteristics, consisting of collateral dependent 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 within the commercial and industrial loan categories from performing to loss by credit quality rating or delinquency categories using historical life-of-loan analysis periods for each loan portfolio pool and the severity of loss based on the aggregate net lifetime losses. The model's expected losses based on loss history are adjusted for qualitative factors. Among other things, these adjustments include and account for differences in: (i) the impact of the reasonable and supportable economic forecast, relative probability weightings and reversion period, (ii) other asset specific risks to the extent that they do not exist in the historical loss information, and (iii) net expected recoveries of charged-off loan balances. These adjustments are based on qualitative factors not reflected in the quantitative model but are likely to impact the measurement of estimated credit losses. The expected lifetime loss rate is the life of loan loss percentage from the transition matrix model plus the impact of the adjustments for qualitative factors. The expected credit losses are the product of multiplying the model’s expected lifetime loss rate by the exposure at default at period end on an undiscounted basis.
Valley utilizes a two-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience for the remaining life of the loan on a straight-line basis. The forecasts consist of 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.
ForAt June 30, 2023, Valley continued to maintain the third quarter 2022, we incorporated a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and S-4 scenarios. At September 30, 2022, Valley moderately increasedmajority of its probability weighting used in the economic forecast to the combined Moody'sMoody’s Baseline scenario with less emphasis on the S-3 downside and S-4 (most adverse) scenarios from the Moody's Baseline scenario as compared with such weighting in the June 30, 2022 ACL analysis. Our scenario weighting at September 30, 2022, as well asadverse scenarios. However, the standalone Moody's Baseline scenario reflectsreflected a less optimistic more pessimistic outlook than at June 30, 2022as compared to March 31, 2023 in terms of GDP growth, unemployment levels and potential near term negative economic impacts given the present uncertain economic conditions. conditions.
At SeptemberJune 30, 2022,2023, the Moody's Baseline forecast included the following specific assumptions:
•GDP expansion by about 1.6of approximately 0.6 percent in the fourththird quarter 2022;2023;
•Unemployment of 3.73.6 percent in the fourththird quarter 20222023 and 3.93.8 to 4.14.3 percent over the remainder of the forecast period ending in the thirdsecond quarter 2024;2025;
•Continued concerns about increased debt burden pushed by rising interest rates, high inflation, and elevated house prices;
•Consumer spending remained a source of growth and its contribution grew to the largest in nearly two years, as the cost-of-living adjusted boosted after-tax income adding another 2.5 percent to growth;
•The Federal Reserve opted to pause its rate hikes in June 2023, keeping the federal funds rate at 5 - 5.25 percent with possible additional reductions in 2023; and
•U.S. economic growthInflation remains elevated but continues to trend downward, while reporting at approximately 4 percent in 2022; however, it is expected to be challenged by a strained supply chain, rising interest rates and elevated inflation that will negatively affect consumer spending.May 2023.
See more details regarding our allowance for credit losses for loans in Note 8 to the consolidated financial statements.
The table below summarizes the relationship among loans, loans charged-off, loan recoveries, the provision for credit losses and the allowance for credit losses for loans for the periods indicated.indicated:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 | | June 30, 2023 | | March 31, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| | ($ in thousands) | | ($ in thousands) |
Average loans outstanding | $ | 44,341,894 | | $ | 42,517,287 | | $ | 32,698,382 | | $ | 40,529,794 | | $ | 32,641,362 | |
| Allowance for credit losses for loans | Allowance for credit losses for loans | | | | | | | | | | Allowance for credit losses for loans | |
Beginning balance | Beginning balance | $ | 490,963 | | $ | 379,252 | | $ | 353,724 | | $ | 375,702 | | $ | 351,354 | Beginning balance | $ | 460,969 | | $ | 483,255 | | $ | 379,252 | | $ | 483,255 | | $ | 375,702 |
Allowance for purchased credit deteriorated (PCD) loans (1) | — | | 70,319 | | — | | 70,319 | | — | |
Impact of the adoption of ASU No. 2022-02 (1) | | Impact of the adoption of ASU No. 2022-02 (1) | — | | (1,368) | | — | | (1,368) | | — |
Allowance for purchased credit deteriorated (PCD) loans, net (2) | | Allowance for purchased credit deteriorated (PCD) loans, net (2) | — | | — | | 70,319 | | — | | 70,319 |
Beginning balance, adjusted | | Beginning balance, adjusted | 460,969 | | 481,887 | | 449,571 | | 481,887 | | 446,021 |
Loans charged-off: | Loans charged-off: | | Loans charged-off: | | | | | | | | | |
Commercial and industrial | Commercial and industrial | (5,033) | | (4,540) | | (1,248) | | (11,144) | | (19,283) | Commercial and industrial | (3,865) | | (26,047) | | (4,540) | | (29,912) | | (6,111) |
Commercial real estate | Commercial real estate | (4,000) | | — | | — | | (4,173) | | (382) | Commercial real estate | (2,065) | | — | | — | | (2,065) | | (173) |
| Construction | | Construction | (4,208) | | (5,698) | | — | | (9,906) | | — |
Residential mortgage | Residential mortgage | — | | (1) | | — | | (27) | | (139) | Residential mortgage | (149) | | — | | (1) | | (149) | | (27) |
Total consumer | Total consumer | (962) | | (726) | | (771) | | (2,513) | | (3,389) | Total consumer | (1,040) | | (828) | | (726) | | (1,868) | | (1,551) |
Total charge-offs | Total charge-offs | (9,995) | | (5,267) | | (2,019) | | (17,857) | | (23,193) | Total charge-offs | (11,327) | | (32,573) | | (5,267) | | (43,900) | | (7,862) |
Charged-off loans recovered: | Charged-off loans recovered: | | | | | | | | | | Charged-off loans recovered: | | | | | | | | | |
Commercial and industrial | Commercial and industrial | 13,236 | | 1,952 | | 514 | | 16,012 | | 2,781 | Commercial and industrial | 2,173 | | 1,399 | | 1,952 | | 3,572 | | 2,776 |
Commercial real estate | Commercial real estate | 1,729 | | 224 | | 29 | | 2,060 | | 759 | Commercial real estate | 4 | | 24 | | 224 | | 28 | | 331 |
Construction | — | | — | | — | | — | | 4 | |
| Residential mortgage | Residential mortgage | 163 | | 74 | | 228 | | 694 | | 576 | Residential mortgage | 135 | | 21 | | 74 | | 156 | | 531 |
Total consumer | Total consumer | 477 | | 697 | | 955 | | 2,431 | | 3,359 | Total consumer | 390 | | 761 | | 697 | | 1,151 | | 1,954 |
Total recoveries | Total recoveries | 15,605 | | 2,947 | | 1,726 | | 21,197 | | 7,479 | Total recoveries | 2,702 | | 2,205 | | 2,947 | | 4,907 | | 5,592 |
Net loan recoveries (charge-offs) | 5,610 | | (2,320) | | (293) | | 3,340 | | (15,714) | |
Total net loan charge-offs | | Total net loan charge-offs | (8,625) | | (30,368) | | (2,320) | | (38,993) | | (2,270) |
Provision charged for credit losses | Provision charged for credit losses | 1,835 | | 43,712 | | 3,496 | | 49,047 | | 21,287 | Provision charged for credit losses | 6,332 | | 9,450 | | 43,712 | | 15,782 | | 47,212 |
Ending balance | Ending balance | $ | 498,408 | | $ | 490,963 | | $ | 356,927 | | $ | 498,408 | | $ | 356,927 | Ending balance | $ | 458,676 | | $ | 460,969 | | $ | 490,963 | | $ | 458,676 | | $ | 490,963 |
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 | $ | 475,744 | | $ | 468,819 | | $ | 342,527 | | $ | 475,744 | | $ | 342,527 | Allowance for loan losses | $ | 436,432 | | $ | 436,898 | | $ | 468,819 | | $ | 436,432 | | $ | 468,819 |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 22,664 | | 22,144 | | 14,400 | | 22,664 | | 14,400 | Allowance for unfunded credit commitments | 22,244 | | 24,071 | | 22,144 | | 22,244 | | 22,144 |
Allowance for credit losses for loans | Allowance for credit losses for loans | $ | 498,408 | | $ | 490,963 | | $ | 356,927 | | $ | 498,408 | | $ | 356,927 | Allowance for credit losses for loans | $ | 458,676 | | $ | 460,969 | | $ | 490,963 | | $ | 458,676 | | $ | 490,963 |
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 (2) | $ | 1,315 | | $ | 38,310 | | $ | 3,496 | | $ | 42,883 | | $ | 17,998 | |
Provision for unfunded credit commitments (2) | 520 | | 5,402 | | — | | 6,164 | | 3,289 | |
Provision for credit losses for loans | | Provision for credit losses for loans | $ | 8,159 | | $ | 9,979 | | $ | 38,310 | | $ | 18,138 | | $ | 41,568 |
Provision for unfunded credit commitments | | Provision for unfunded credit commitments | (1,827) | | (529) | | 5,402 | | (2,356) | | 5,644 |
Total provision for credit losses for loans | Total provision for credit losses for loans | $ | 1,835 | | $ | 43,712 | | $ | 3,496 | | $ | 49,047 | | $ | 21,287 | Total provision for credit losses for loans | $ | 6,332 | | $ | 9,450 | | $ | 43,712 | | $ | 15,782 | | $ | 47,212 |
| Annualized ratio of net (recoveries) charge-offs to average loans outstanding | (0.05) | % | | 0.02 | % | | 0.00 | % | | (0.01) | % | | 0.06 | % | |
| Allowance for credit losses for loans as a % of total loans | | Allowance for credit losses for loans as a % of total loans | 0.92 | % | | 0.95 | % | | 1.13 | % | | 0.92 | % | | 1.13 | % |
| | | | | | | | | | | | | | |
(1)Represents the opening adjustment for the adoption of ASU No. 2022-02 effective January 1, 2023. |
(2) Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $62.4 million in the second quarter 2022. (2) The three months ended June 30, 2022 and nine months ended September 30, 2022 both include $36.3 million and $4.7 million of provision related to non-PCD loans and unfunded credit commitments, respectively, acquired from Bank Leumi USA in the second quarter 2022.
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The following table presents the relationship among net loans charged-off and recoveries, and average loan balances outstanding for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2023 | | March 31, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 |
| ($ in thousands) |
Net loan (charge-offs) recoveries | | | | | | | | | |
Commercial and industrial | $ | (1,692) | | $ | (24,648) | | $ | (2,588) | | $ | (26,340) | | $ | (3,335) |
Commercial real estate | (2,061) | | 24 | | 224 | | (2,037) | | 158 |
Construction | (4,208) | | (5,698) | | — | | (9,906) | | — |
Residential mortgage | (14) | | 21 | | 73 | | 7 | | 504 |
Total consumer | (650) | | (67) | | (29) | | (717) | | 403 |
Total | $ | (8,625) | | $ | (30,368) | | $ | (2,320) | | $ | (38,993) | | $ | (2,270) |
Average loans outstanding | | | | | | | | | |
Commercial and industrial | $ | 9,043,832 | | $ | 8,754,853 | | $ | 8,304,822 | | $ | 8,304,822 | | $ | 7,017,820 |
Commercial real estate | 27,808,278 | | 26,555,421 | | 23,319,419 | | 26,735,384 | | 21,303,889 |
Construction | 3,787,183 | | 3,780,615 | | 2,925,741 | | 3,721,735 | | 2,421,678 |
Residential mortgage | 5,489,501 | | 5,363,421 | | 4,727,481 | | 5,337,320 | | 4,706,695 |
Total consumer | 3,329,143 | | 3,405,061 | | 3,239,824 | | 3,268,712 | | 3,142,069 |
Total | $ | 49,457,937 | | $ | 47,859,371 | | $ | 42,517,287 | | $ | 47,367,973 | | $ | 38,592,151 |
Annualized net loan charge-offs (recoveries) to average loans outstanding | | | | | | | | | |
Commercial and industrial | 0.07% | | 1.13% | | 0.12% | | 0.63% | | 0.10% |
Commercial real estate | 0.03 | | 0.00 | | 0.00 | | 0.02 | | 0.00 |
Construction | 0.44 | | 0.60 | | 0.00 | | 0.53 | | 0.00 |
Residential mortgage | 0.00 | | 0.00 | | (0.01) | | 0.00 | | (0.02) |
Total consumer | 0.08 | | 0.01 | | 0.00 | | 0.04 | | (0.03) |
Total loans | 0.07 | | 0.25 | | 0.02 | | 0.16 | | 0.01 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | September 30, 2022 | | September 30, 2021 |
| ($ in thousands) |
Net loan recoveries (charge-offs) | | | | | | | | | |
Commercial and industrial | $ | 8,203 | | $ | (2,588) | | $ | (734) | | $ | 4,868 | | $ | (16,502) |
Commercial real estate | (2,271) | | 224 | | 29 | | (2,113) | | 377 |
Construction | — | | — | | — | | — | | 4 |
Residential mortgage | 163 | | 73 | | 228 | | 667 | | 437 |
Total consumer | (485) | | (29) | | 184 | | (82) | | (30) |
Total | $ | 5,610 | | $ | (2,320) | | $ | (293) | | $ | 3,340 | | $ | (15,714) |
Average loans outstanding | | | | | | | | | |
Commercial and industrial | $ | 8,540,485 | | $ | 8,304,822 | | $ | 5,927,149 | | $ | 7,529,507 | | $ | 6,572,931 |
Commercial real estate | 24,306,684 | | 23,319,419 | | 17,733,591 | | 22,416,996 | | 17,139,756 |
Construction | 3,186,732 | | 2,925,741 | | 1,663,745 | | 2,604,559 | | 1,752,589 |
Residential mortgage | 5,134,769 | | 4,727,481 | | 4,458,345 | | 4,925,469 | | 4,358,519 |
Total consumer | 3,173,224 | | 3,239,824 | | 2,915,552 | | 3,053,263 | | 2,817,567 |
Total | $ | 44,341,894 | | $ | 42,517,287 | | $ | 32,698,382 | | $ | 40,529,794 | | $ | 32,641,362 |
Net loan (recoveries) charge-offs to average loans outstanding | | | | | | | | | |
Commercial and industrial | (0.10)% | | 0.03% | | 0.01% | | (0.06)% | | 0.25% |
Commercial real estate | 0.01 | | 0.00 | | 0.00 | | 0.01 | | 0.00 |
Construction | 0.00 | | 0.00 | | 0.00 | | 0.00 | | 0.00 |
Residential mortgage | 0.00 | | 0.00 | | (0.01) | | (0.01) | | (0.01) |
Total consumer | 0.02 | | 0.00 | | (0.01) | | 0.00 | | 0.00 |
Net recoveries of loan charge-offs totaled $5.6$8.6 million for the third quarter 2022 as compared to net loan charge-offs of $2.3 million (excluding $62.4 million of Day 1 PCD loan charge-offs related to the Bank Leumi USA acquisition) for the second quarter 2023 as compared to $30.4 million and $2.3 million for the first quarter 2023 and the second quarter 2022, andrespectively. The decrease from the first quarter 2023 was mainly due to the elevated net loan charge-offs of $293 thousand forcharges-offs during the thirdfirst quarter 2021. The net recoveries of loan charge-offs for the third quarter 2022 were2023 largely driven by tworelated to one commercial and industrial loan relationships totaling $11.2participation charged-off. Gross charge-offs totaled $11.3 million in gross recoveries for the period.
Partialsecond quarter 2023 and included the $4.2 million partial charge-off related to the valuation of a non-performing construction loan charge-offstransferred from the held for investment loan portfolio to loans held for sale at June 30, 2023. This construction loan had specific reserves of taxi medallion loans totaled $3.8$5.2 million within the commercialallowance for loan losses at March 31, 2023 and, industrial loan categoryas a result, the partial charge-off was fully reserved for the third quarter 2022 as comparedprior to $143 thousand and $1.9 million during the third quarter 2021 and second quarter 2022, respectively. 2023.
The overall levelamount of net loan charge-offs (as presented in the above table) and the low level of individual loan charge-offs for the second quarter 2023 continued to remain very low and trend well within management's expectations for the credit quality of the loan portfolio for the third quarter 2022.
at June 30, 2023.
The following table summarizes the allocation of the allowance for credit losses for loans to loan portfolio categories and the allocations as a percentage of each loan category:
| | | September 30, 2022 | | June 30, 2022 | | September 30, 2021 | | June 30, 2023 | | March 31, 2023 | | June 30, 2022 |
| | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category |
| | ($ in thousands) | | ($ in thousands) |
Loan Category: | Loan Category: | | Loan Category: | |
Commercial and industrial loans | Commercial and industrial loans | $ | 154,051 | | | 1.77 | % | | $ | 144,539 | | | 1.70 | % | | $ | 103,877 | | | 1.84 | % | Commercial and industrial loans | $ | 128,245 | | | 1.38 | % | | $ | 127,992 | | | 1.42 | % | | $ | 144,539 | | | 1.70 | % |
Commercial real estate loans: | Commercial real estate loans: | | Commercial real estate loans: | |
Commercial real estate | Commercial real estate | 217,124 | | | 0.89 | | | 227,457 | | | 0.97 | | | 178,206 | | | 0.99 | | Commercial real estate | 194,177 | | | 0.70 | | | 190,420 | | | 0.70 | | | 227,457 | | | 0.97 | |
Construction | Construction | 50,656 | | | 1.42 | | | 49,770 | | | 1.47 | | | 21,515 | | | 1.19 | | Construction | 45,518 | | | 1.19 | | | 52,912 | | | 1.42 | | | 49,770 | | | 1.47 | |
Total commercial real estate loans | Total commercial real estate loans | 267,780 | | | 0.95 | | | 277,227 | | | 1.03 | | | 199,721 | | | 1.01 | | Total commercial real estate loans | 239,695 | | | 0.76 | | | 243,332 | | | 0.79 | | | 277,227 | | | 1.03 | |
Residential mortgage loans | Residential mortgage loans | 36,157 | | | 0.70 | | | 29,889 | | | 0.60 | | | 24,732 | | | 0.57 | | Residential mortgage loans | 44,153 | | | 0.79 | | | 41,708 | | | 0.76 | | | 29,889 | | | 0.60 | |
Consumer loans: | Consumer loans: | | Consumer loans: | |
Home equity | Home equity | 4,083 | | | 0.87 | | | 3,907 | | | 0.91 | | | 4,110 | | | 1.02 | | Home equity | 4,020 | | | 0.75 | | | 4,417 | | | 0.86 | | | 3,907 | | | 0.91 | |
Auto and other consumer | Auto and other consumer | 13,673 | | | 0.49 | | | 13,257 | | | 0.49 | | | 10,087 | | | 0.40 | | Auto and other consumer | 20,319 | | | 0.70 | | | 19,449 | | | 0.69 | | | 13,257 | | | 0.49 | |
Total consumer loans | Total consumer loans | 17,756 | | | 0.55 | | | 17,164 | | | 0.55 | | | 14,197 | | | 0.49 | | Total consumer loans | 24,339 | | | 0.71 | | | 23,866 | | | 0.71 | | | 17,164 | | | 0.55 | |
Allowance for loan losses | Allowance for loan losses | 475,744 | | | 1.05 | | | 468,819 | | | 1.08 | | | 342,527 | | | 1.05 | | Allowance for loan losses | 436,432 | | | 0.88 | | | 436,898 | | | 0.90 | | | 468,819 | | | 1.08 | |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 22,664 | | | 22,144 | | | 14,400 | | | Allowance for unfunded credit commitments | 22,244 | | | 24,071 | | | 22,144 | | |
Total allowance for credit losses for loans | Total allowance for credit losses for loans | $ | 498,408 | | | $ | 490,963 | | | $ | 356,927 | | | Total allowance for credit losses for loans | $ | 458,676 | | | $ | 460,969 | | | $ | 490,963 | | |
Allowance for credit losses for loans as a % total loans | Allowance for credit losses for loans as a % total loans | | | 1.10 | % | | | | 1.13 | % | | | | 1.09 | % | Allowance for credit losses for loans as a % total loans | | | 0.92 | % | | | | 0.95 | % | | | | 1.13 | % |
The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 1.10 percent at September 30, 2022 as compared to 1.13 percent and 1.090.92 percent at June 30, 2023 as compared to 0.95 percent and 1.13 percent at March 31, 2023 and June 30, 2022, and September 30, 2021, respectively. respectively. During the thirdsecond quarter 2022,2023, the provision for credit losses for loans totaled $1.8totaled $6.3 million as compared to $9.5 million and $43.7 million for the first quarter 2023 and second quarter 2022, respectively. At June 30, 2023, our allowance for credit losses for loans as a percentage of total loans decreased as compared to $43.7 million and $3.5 million for the second quarter 2022 and third quarter 2021, respectively. The second quarter 2022 provision was largely elevated due to $41 million of provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA. Overall, an increasedMarch 31, 2023 as higher economic forecast reserve component of our CECL model (drivenreserves driven by a more pessimistic Moody's Baseline outlook incorporated into the updated Moody's scenarios) was largelymore than offset by lower expectednon-economic qualitative reserves for commercial loans. The net impact of other changes in quantitative loss experiencereserves for each loan category was not significant to the total allowance for loan losses at SeptemberJune 30, 20222023.
As part of our CECL model analysis at September 30, 2022, we closely assessed the expected credit losses in our Florida loan portfolio in the wake of Hurricane Ian. As a result, our management adjustment and allocated reserves related to the hurricane were immaterial at September 30, 2022. We will continue to support our impacted customers as they recover from the storm and diligently monitor our loss assessment for material changes.
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At SeptemberJune 30, 20222023 and December 31, 2021,2022, shareholders’ equity totaled approximately $6.3$6.6 billion and $5.1$6.4 billion, which represented 11.210.7 percent and 11.711.1 percent of total assets, respectively.
During the ninesix months ended SeptemberJune 30, 2022,2023, total shareholders’ equity increased by approximately $1.2 billion$174.4 million primarily due to:
•additional capital of $1.1 billion issued into the Bank Leumi USA acquisition,following:
•net income of $391.3$285.6 million,
•a $10.67.7 million iinncreasecrease attributable to the effect of our stock incentive plan,
•additional capital issued totaling $3.8 million,
•a $990 thousand net cumulative effect adjustment to retained earnings for the adoption of ASU 2022-02, partially offset by
•cash dividends declared on common and preferred stock totaling a combined $168.8120.9 million,
•
an other comprehensive loss of $147.6 million, and
•repurchases of $13.5$2.1 million of our common stock with these shares held asin treasury stock.stock and
•other comprehensive loss of$745 thousand.
Valley and Valley National Bank are subject to the regulatory capital requirements administered by the Federal Reserve Bank and the OCC. Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations.
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 a 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 SeptemberJune 30, 20222023 and December 31, 2021,2022, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).
For regulatory capital purposes, in accordance with the Federal Reserve Board’s final interim rule as of April 3, 2020, we deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) for a two-year period ending January 1, 2022. On January 1, 2022, the deferral amount totaling $47.3 million after-tax started to be phased-in by 25 percent and will increase 25 percent per year until fully phased-in on January 1, 2025. As of SeptemberJune 30, 2022,2023, approximately $11.8$23.6 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk-based capital ratios by approximately 36 basis points.
The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at SeptemberJune 30, 20222023 and December 31, 2021:2022:
| | | Actual | | Minimum Capital Requirements | | To Be Well Capitalized Under Prompt Corrective Action Provision | | Actual | | Minimum Capital Requirements | | To Be Well Capitalized Under Prompt Corrective Action Provision |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| | ($ in thousands) | | ($ in thousands) |
As of September 30, 2022 | | |
As of June 30, 2023 | | As of June 30, 2023 | |
Total Risk-based Capital | Total Risk-based Capital | | Total Risk-based Capital | |
Valley | Valley | $ | 5,439,636 | | | 11.84 | % | | $ | 4,825,155 | | | 10.50 | % | | N/A | | N/A | Valley | $ | 5,735,239 | | | 11.52 | % | | $ | 5,227,963 | | | 10.50 | % | | N/A | | N/A |
Valley National Bank | Valley National Bank | 5,503,746 | | | 11.99 | | | 4,820,817 | | | 10.50 | | | $ | 4,591,254 | | | 10.00 | % | Valley National Bank | 5,824,996 | | | 11.70 | | | 5,225,830 | | | 10.50 | | | $ | 4,976,981 | | | 10.00 | % |
Common Equity Tier 1 Capital | Common Equity Tier 1 Capital | | Common Equity Tier 1 Capital | |
Valley | Valley | 4,178,402 | | | 9.09 | | | 3,216,770 | | | 7.00 | | | N/A | | N/A | Valley | 4,497,984 | | | 9.03 | | | 3,485,309 | | | 7.00 | | | N/A | | N/A |
Valley National Bank | Valley National Bank | 5,121,353 | | | 11.15 | | | 3,213,878 | | | 7.00 | | | 2,984,315 | | | 6.50 | | Valley National Bank | 5,446,582 | | | 10.94 | | | 3,483,887 | | | 7.00 | | | 3,235,038 | | | 6.50 | |
Tier 1 Risk-based Capital | Tier 1 Risk-based Capital | | | Tier 1 Risk-based Capital | | | | |
Valley | Valley | 4,393,243 | | | 9.56 | | | 3,906,078 | | | 8.50 | | | N/A | | N/A | Valley | 4,712,825 | | | 9.47 | | | 4,232,161 | | | 8.50 | | | N/A | | N/A |
Valley National Bank | Valley National Bank | 5,121,353 | | | 11.15 | | | 3,902,566 | | | 8.50 | | | 3,673,004 | | | 8.00 | | Valley National Bank | 5,446,582 | | | 10.94 | | | 4,230,434 | | | 8.50 | | | 3,981,585 | | | 8.00 | |
Tier 1 Leverage Capital | Tier 1 Leverage Capital | | Tier 1 Leverage Capital | |
Valley | Valley | 4,393,243 | | | 8.31 | | | 2,114,427 | | | 4.00 | | | N/A | | N/A | Valley | 4,712,825 | | | 7.86 | | | 2,399,186 | | | 4.00 | | | N/A | | N/A |
Valley National Bank | Valley National Bank | 5,121,353 | | | 9.69 | | | 2,114,252 | | | 4.00 | | | 2,642,815 | | | 5.00 | | Valley National Bank | 5,446,582 | | | 9.08 | | | 2,399,094 | | | 4.00 | | | 2,998,868 | | | 5.00 | |
As of December 31, 2021 | | |
As of December 31, 2022 | | As of December 31, 2022 | |
Total Risk-based Capital | Total Risk-based Capital | | Total Risk-based Capital | |
Valley | Valley | $ | 4,454,485 | | | 13.10 | % | | $ | 3,569,144 | | | 10.50 | % | | N/A | | N/A | Valley | $ | 5,569,639 | | | 11.63 | % | | $ | 5,026,621 | | | 10.50 | % | | N/A | | N/A |
Valley National Bank | Valley National Bank | 4,571,448 | | | 13.45 | | | 3,567,618 | | | 10.50 | | | $ | 3,397,732 | | | 10.00 | % | Valley National Bank | 5,659,511 | | | 11.84 | | | 5,018,129 | | | 10.50 | | | $ | 4,779,170 | | | 10.00 | % |
Common Equity Tier 1 Capital | Common Equity Tier 1 Capital | | Common Equity Tier 1 Capital | |
Valley | Valley | 3,417,930 | | | 10.06 | | | 2,379,429 | | | 7.00 | | | N/A | | N/A | Valley | 4,315,659 | | | 9.01 | | | 3,351,080 | | | 7.00 | | | N/A | | N/A |
Valley National Bank | Valley National Bank | 4,308,734 | | | 12.68 | | | 2,378,412 | | | 7.00 | | | 2,208,526 | | | 6.50 | | Valley National Bank | 5,284,372 | | | 11.06 | | | 3,345,419 | | | 7.00 | | | 3,106,461 | | | 6.50 | |
Tier 1 Risk-based Capital | Tier 1 Risk-based Capital | | Tier 1 Risk-based Capital | |
Valley | Valley | 3,632,771 | | | 10.69 | | | 2,889,307 | | | 8.50 | | | N/A | | N/A | Valley | 4,530,500 | | | 9.46 | | | 4,069,169 | | | 8.50 | | | N/A | | N/A |
Valley National Bank | Valley National Bank | 4,308,734 | | | 12.68 | | | 2,888,072 | | | 8.50 | | | 2,718,185 | | | 8.00 | | Valley National Bank | 5,284,372 | | | 11.06 | | | 4,062,295 | | | 8.50 | | | 3,823,336 | | | 8.00 | |
Tier 1 Leverage Capital | Tier 1 Leverage Capital | | Tier 1 Leverage Capital | |
Valley | Valley | 3,632,771 | | | 8.88 | | | 1,635,508 | | | 4.00 | | | N/A | | N/A | Valley | 4,530,500 | | | 8.23 | | | 2,200,822 | | | 4.00 | | | N/A | | N/A |
Valley National Bank | Valley National Bank | 4,307,734 | | | 10.53 | | | 1,636,097 | | | 4.00 | | | 2,045,121 | | | 5.00 | | Valley National Bank | 5,284,372 | | | 9.60 | | | 2,200,891 | | | 4.00 | | | 2,751,114 | | | 5.00 | |
Typically, our primary source of capital growth is through retention of earnings. Our rate of earnings retention is derived by dividing undistributed earnings per common share by earnings (or net income available to common shareholders) per common share. Our retention ratio was approximately 58.260.0 percent for the ninesix months ended SeptemberJune 30, 20222023 as compared to 60.761.4 percent for the year ended December 31, 2021.2022.
Cash dividends declared amounted to $0.33$0.22 per common share for each of the ninesix months ended SeptemberJune 30, 20222023 and 2021.2022. The Board is committed to examining and weighing relevant facts and considerations, including its commitment to shareholder value, each time it makes a cash dividend decision.
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, 20212022 in the MD&A section - “Liquidity and Cash Requirements” and Notes 1213 and 1314 to the consolidated financial statements included in this report.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, and commodity prices. Valley’s market risk is composed primarily of interest rate risk. See page 7269 for a discussion of interest rate sensitivity.risk.
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Item 4. | Controls and Procedures |
(a) Disclosure controlscontrol 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 controlscontrol over financial reporting. Valley’s CEO and CFO have also concluded that there have not been any changes in Valley’s internal control over financial reporting in the quarter ended SeptemberJune 30, 20222023 that have materially affected, or are reasonably likely to materially affect, Valley’s internal control over financial reporting.
Valley’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and all fraud. A system of internal control, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the system of internal control are met. The design of a system of internal control reflects resource constraints and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Valley have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of a simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
In the normal course of business, we are a party to various outstanding legal proceedings and claims. There have been no material changes in the legal proceedings, if any, previously disclosed under Part I, Item 3 of Valley’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
There have been no material changes in the risk factors previously disclosed in the section titled "Risk Factors" in Part I, Item 1A of Valley’s Annual Report on Form 10-K for the year ended December 31, 2021.2022, except as described below, and previously disclosed in Valley’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023:
Our financial results and condition may be adversely impacted by recent events in the banking industry or any future similar events.
Recent events impacting the banking industry, including the bank failures in March and April 2023, have resulted in significant disruption and volatility in the capital markets, reduced current valuations of bank securities, and decreased confidence in banks among depositors and other counterparties as well as investors. These events occurred in the context of rapidly rising interest rates which, among other things, have resulted in unrealized losses in longer duration debt securities and loans held by banks, increased competition for deposits and potentially increased the risk of recession. These events have had, and may continue to have, an adverse impact on the market price of our common stock.
While the Department of the Treasury, the Federal Reserve, and the FDIC took steps to ensure that depositors of recently failed banks would have access to their insured and uninsured deposits, and to facilitate sales of certain failed banks, there is no assurance that these or similar actions will restore customer confidence in the banking system, and we may be further impacted by concerns regarding the soundness of other financial institutions, or other future bank failures or disruptions. Any loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. The cost of resolving the recent bank failures may also prompt the FDIC to increase its premiums above current levels or to issue additional special assessments.
These recent events and any future similar events may also result in changes to laws or regulations governing bank holding companies and banks, including higher capital requirements, or the imposition of restrictions through supervisory or enforcement activities, which could materially impact our business.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the quarter, we did not sell any equity securities not registered under the Securities Act of 1933, as amended. Purchases of equity securities by the issuer and affiliated purchasers during the three months ended SeptemberJune 30, 20222023 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) (3) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (3) |
July 1, 2022 to July 31, 2022 | | 1,916 | | | $ | 10.49 | | | — | | | 25,000,000 | |
August 1, 2022 to August 31, 2022 | | 7,971 | | | 11.69 | | | — | | | 25,000,000 | |
September 1, 2022 to September 30, 2022 | | 1,220 | | | 11.62 | | | — | | | 25,000,000 | |
Total | | 11,107 | | | $ | 11.47 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (2) |
April 1, 2023 to April 30, 2023 | | 27,407 | | | $ | 9.24 | | | — | | | 25,000,000 | |
May 1, 2023 to May 31, 2023 | | 300,493 | | | 6.98 | | | 300,000 | | | 24,700,000 | |
June 1, 2023 to June 30, 2023 | | 25,042 | | | 7.38 | | | — | | | 24,700,000 | |
Total | | 352,942 | | | $ | 7.18 | | | 300,000 | | | |
(1)Includes repurchases made in connection with the vesting of employee restricted stock awards.
(2)On January 17, 2007, Valley publicly announced its intention to repurchase up to 4.7 million outstanding common shares in the open market or in privately negotiated transactions. On April 26, 2022, Valley terminated its 2007 stock repurchase plan.
(3)On April 26, 2022, Valley publicly announced a stock repurchase program for up to 25 million shares of Valley common stock. The authorization to repurchase will expire on April 25, 2024.
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Item 5. | Other ItemsInformation |
a.None.
b.None.
90c.None.
| | | | | | | | | | | |
(3) | Articles of Incorporation and By-laws: | |
| (3.1) | | |
| (3.2) | | |
(10) | Material Contracts: |
| (10.1) | | |
| (10.2) | | |
(31.1) | | |
(31.2) | | |
(32) | | |
(101) | Interactive Data File (XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) ** | |
(104) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
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* | Filed herewith. |
** | Furnished herewithherewith. |
+ | Management contract and compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | |
| | | | | VALLEY NATIONAL BANCORP |
| | | | | (Registrant) |
| | | |
Date: | | | | | /s/ Ira Robbins |
November 8, 2022August 7, 2023 | | | | | Ira Robbins |
| | | | | Chairman of the Board and |
| | | | | Chief Executive Officer |
| | | | | (Principal Executive Officer) |
| | | |
Date: | | | | | /s/ Michael D. Hagedorn |
November 8, 2022August 7, 2023 | | | | | Michael D. Hagedorn |
| | | | | Senior Executive Vice President and |
| | | | | Chief Financial Officer |
| | | | | (Principal Financial Officer) |