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)15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended March 31, 20232024
OR
| | | | | |
☐ | Transition Report Pursuant to Section 13 or 15 (d)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“large accelerated filer," "accelerated” “accelerated filer," "smaller”“smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act:
| | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | | | |
Non-accelerated filer | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock (no par value), of which 507,875,088509,182,782 shares were outstanding as of May 3, 2023.7, 2024.
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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Glossary of Defined Terms
The following terms may be used throughout this Report, including the consolidated financial statements and related notes.
| | | | | | | | |
Term | | Definition |
ACL | | Allowance for credit losses |
AFS | | Available for sale |
ASC | | Accounting Standards Codification |
ASU | | Accounting Standards Update |
Bank | | Valley National Bank (Valley’s principal subsidiary) |
Basel III | | Capital rules under a global regulatory framework developed by the Basel Committee on Banking Supervision |
Board | | Board of Directors of Valley National Bancorp |
CD | | Certificate of deposit |
CDI | | Core deposit intangible |
CECL | | Current expected credit loss model |
CFPB | | Consumer Financial Protection Bureau |
CPI | | Consumer Price Index |
CRA | | Community Reinvestment Act |
Exchange Act | | Securities Exchange Act of 1934, as amended |
Fannie Mae | | Federal National Mortgage Association |
FASB | | Financial Accounting Standards Board |
FDIC | | Federal Deposit Insurance Corporation |
Federal Reserve | | Board of Governors of the Federal Reserve System |
FRB | | Federal Reserve Bank |
FHLB | | Federal Home Loan Bank |
Freddie Mac | | Federal Home Loan Mortgage Corporation |
GAAP | | U. S. Generally Accepted Accounting Principles |
GDP | | Gross domestic product |
Ginnie Mae | | Government National Mortgage Association |
HTM | | Held to Maturity |
Moody’s | | Moody’s Investor Services |
NAV | | Net asset value |
OCC | | Office of the Comptroller of the Currency |
OREO | | Other real estate owned |
OTC | | Over-the-counter |
PCAOB | | Public Company Accounting Oversight Board |
ROATE | | Return on average tangible shareholders’ equity |
RSU | | Restricted stock unit |
S&P | | Standard & Poor's |
SEC | | U.S. Securities and Exchange Commission |
SOFR | | Secured Overnight Financing Rate |
U.S. Treasury | | United States Department of the Treasury |
Valley | | May refer to Valley National Bancorp individually, Valley National Bancorp and its consolidated subsidiaries, or certain of Valley National Bancorp’s subsidiaries, as the context requires (interchangeable with the “Company,”“we,”“our” and “us”). |
Valley's Annual Report | | Valley's Annual Report on Form 10-K for the year ended December 31, 2023 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data) | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Assets | (Unaudited) | | |
Cash and due from banks | $ | 444,690 | | | $ | 444,325 | |
Interest bearing deposits with banks | 5,260,998 | | | 503,622 | |
Investment securities: | | | |
Equity securities | 50,152 | | | 48,731 | |
Trading debt securities | 6,855 | | | 13,438 | |
Available for sale debt securities | 1,259,236 | | | 1,261,397 | |
Held to maturity debt securities (net of allowance for credit losses of $1,633 at March 31, 2023 and $1,646 at December 31, 2022) | 3,845,579 | | | 3,827,338 | |
Total investment securities | 5,161,822 | | | 5,150,904 | |
Loans held for sale, at fair value | 17,218 | | | 18,118 | |
Loans | 48,659,966 | | | 46,917,200 | |
Less: Allowance for loan losses | (436,898) | | | (458,655) | |
Net loans | 48,223,068 | | | 46,458,545 | |
Premises and equipment, net | 365,313 | | | 358,556 | |
Lease right of use assets | 302,740 | | | 306,352 | |
Bank owned life insurance | 717,339 | | | 717,177 | |
Accrued interest receivable | 223,608 | | | 196,606 | |
Goodwill | 1,868,936 | | | 1,868,936 | |
Other intangible assets, net | 187,171 | | | 197,456 | |
Other assets | 1,536,670 | | | 1,242,152 | |
Total Assets | $ | 64,309,573 | | | $ | 57,462,749 | |
Liabilities | | | |
Deposits: | | | |
Non-interest bearing | $ | 13,576,116 | | | $ | 14,463,645 | |
Interest bearing: | | | |
Savings, NOW and money market | 22,903,424 | | | 23,616,812 | |
Time | 11,111,376 | | | 9,556,457 | |
Total deposits | 47,590,916 | | | 47,636,914 | |
Short-term borrowings | 6,413,056 | | | 138,729 | |
Long-term borrowings | 2,197,656 | | | 1,543,058 | |
Junior subordinated debentures issued to capital trusts | 56,847 | | | 56,760 | |
Lease liabilities | 355,020 | | | 358,884 | |
Accrued expenses and other liabilities | 1,184,497 | | | 1,327,602 | |
Total Liabilities | 57,797,992 | | | 51,061,947 | |
Shareholders’ Equity | | | |
Preferred stock, no par value; 50,000,000 authorized shares: | | | |
Series A (4,600,000 shares issued at March 31, 2023 and December 31, 2022) | 111,590 | | | 111,590 | |
Series B (4,000,000 shares issued at March 31, 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 March 31, 2023 and December 31, 2022) | 178,186 | | | 178,185 | |
Surplus | 4,967,662 | | | 4,980,231 | |
Retained earnings | 1,300,980 | | | 1,218,445 | |
Accumulated other comprehensive loss | (143,647) | | | (164,002) | |
Treasury stock, at cost (134,552 common shares at March 31, 2023 and 1,522,432 common shares at December 31, 2022) | (1,291) | | | (21,748) | |
Total Shareholders’ Equity | 6,511,581 | | | 6,400,802 | |
Total Liabilities and Shareholders’ Equity | $ | 64,309,573 | | | $ | 57,462,749 | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Assets | (Unaudited) | | |
Cash and due from banks | $ | 398,827 | | | $ | 284,090 | |
Interest bearing deposits with banks | 542,006 | | | 607,135 | |
Investment securities: | | | |
Equity securities | 66,951 | | | 64,464 | |
Trading debt securities | 3,989 | | | 3,973 | |
Available for sale debt securities | 1,449,334 | | | 1,296,576 | |
Held to maturity debt securities (net of allowance for credit losses of $1,131 at March 31, 2024 and $1,205 at December 31, 2023) | 3,710,687 | | | 3,739,208 | |
Total investment securities | 5,230,961 | | | 5,104,221 | |
Loans held for sale (includes fair value of $17,639 at March 31, 2024 and $20,640 at December 31, 2023 for loans originated for sale) | 61,782 | | | 30,640 | |
Loans | 49,922,042 | | | 50,210,295 | |
Less: Allowance for loan losses | (469,248) | | | (446,080) | |
Net loans | 49,452,794 | | | 49,764,215 | |
Premises and equipment, net | 371,034 | | | 381,081 | |
Lease right of use assets | 336,330 | | | 343,461 | |
Bank owned life insurance | 723,398 | | | 723,799 | |
Accrued interest receivable | 253,893 | | | 245,498 | |
Goodwill | 1,868,936 | | | 1,868,936 | |
Other intangible assets, net | 151,469 | | | 160,331 | |
Other assets | 1,608,758 | | | 1,421,567 | |
Total Assets | $ | 61,000,188 | | | $ | 60,934,974 | |
Liabilities | | | |
Deposits: | | | |
Non-interest bearing | $ | 11,273,331 | | | $ | 11,539,483 | |
Interest bearing: | | | |
Savings, NOW and money market | 25,060,881 | | | 24,526,622 | |
Time | 12,743,734 | | | 13,176,724 | |
Total deposits | 49,077,946 | | | 49,242,829 | |
Short-term borrowings | 75,224 | | | 917,834 | |
Long-term borrowings | 3,262,341 | | | 2,328,375 | |
Junior subordinated debentures issued to capital trusts | 57,195 | | | 57,108 | |
Lease liabilities | 396,904 | | | 403,781 | |
Accrued expenses and other liabilities | 1,403,439 | | | 1,283,656 | |
Total Liabilities | 54,273,049 | | | 54,233,583 | |
Shareholders’ Equity | | | |
Preferred stock, no par value; 50,000,000 authorized shares: | | | |
Series A (4,600,000 shares issued at March 31, 2024 and December 31, 2023) | 111,590 | | | 111,590 | |
Series B (4,000,000 shares issued at March 31, 2024 and December 31, 2023) | 98,101 | | | 98,101 | |
Common stock (no par value, authorized 650,000,000 shares; issued 508,893,059 shares at March 31, 2024 and 507,896,910 shares at December 31, 2023) | 178,535 | | | 178,187 | |
Surplus | 4,989,023 | | | 4,989,989 | |
Retained earnings | 1,506,738 | | | 1,471,371 | |
Accumulated other comprehensive loss | (156,848) | | | (146,456) | |
Treasury stock, at cost (186,983 common shares at December 31, 2023) | — | | | (1,391) | |
Total Shareholders’ Equity | 6,727,139 | | | 6,701,391 | |
Total Liabilities and Shareholders’ Equity | $ | 61,000,188 | | | $ | 60,934,974 | |
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 March 31, | |
| | 2023 | | 2022 | |
Interest Income | Interest Income | | | | |
Interest Income | |
Interest Income | |
Interest and fees on loans | |
Interest and fees on loans | |
Interest and fees on loans | Interest and fees on loans | $ | 655,226 | | | $ | 317,365 | | |
Interest and dividends on investment securities: | Interest and dividends on investment securities: | | |
Interest and dividends on investment securities: | |
Interest and dividends on investment securities: | |
Taxable | |
Taxable | |
Taxable | Taxable | 32,289 | | | 18,439 | | |
Tax-exempt | Tax-exempt | 5,325 | | | 2,517 | | |
Tax-exempt | |
Tax-exempt | |
Dividends | |
Dividends | |
Dividends | Dividends | 5,185 | | | 1,676 | | |
Interest on federal funds sold and other short-term investments | Interest on federal funds sold and other short-term investments | 22,205 | | | 461 | | |
Interest on federal funds sold and other short-term investments | |
Interest on federal funds sold and other short-term investments | |
| Total interest income | |
| Total interest income | |
| Total interest income | Total interest income | 720,230 | | | 340,458 | | |
Interest Expense | Interest Expense | | | | |
Interest Expense | |
Interest Expense | |
Interest on deposits: | |
Interest on deposits: | |
Interest on deposits: | Interest on deposits: | | |
Savings, NOW and money market | Savings, NOW and money market | 150,766 | | | 9,627 | | |
Savings, NOW and money market | |
Savings, NOW and money market | |
Time | |
Time | |
Time | Time | 80,298 | | | 2,831 | | |
Interest on short-term borrowings | Interest on short-term borrowings | 33,948 | | | 806 | | |
Interest on short-term borrowings | |
Interest on short-term borrowings | |
Interest on long-term borrowings and junior subordinated debentures | |
Interest on long-term borrowings and junior subordinated debentures | |
Interest on long-term borrowings and junior subordinated debentures | Interest on long-term borrowings and junior subordinated debentures | 19,198 | | | 9,525 | | |
Total interest expense | Total interest expense | 284,210 | | | 22,789 | | |
Total interest expense | |
Total interest expense | |
Net Interest Income | |
Net Interest Income | |
Net Interest Income | Net Interest Income | 436,020 | | | 317,669 | | |
| Provision for credit losses for available for sale and held to maturity securities | 4,987 | | | 57 | | |
(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 | |
| (Credit) provision for credit losses for available for sale and held to maturity securities | |
Provision for credit losses for loans | |
Provision for credit losses for loans | |
Provision for credit losses for loans | Provision for credit losses for loans | 9,450 | | | 3,500 | | |
Net Interest Income After Provision for Credit Losses | Net Interest Income After Provision for Credit Losses | 421,583 | | | 314,112 | | |
Net Interest Income After Provision for Credit Losses | |
Net Interest Income After Provision for Credit Losses | |
Non-Interest Income | |
Non-Interest Income | |
Non-Interest Income | Non-Interest Income | | | | |
Wealth management and trust fees | Wealth management and trust fees | 9,587 | | | 5,131 | | |
Wealth management and trust fees | |
Wealth management and trust fees | |
Insurance commissions | |
Insurance commissions | |
Insurance commissions | Insurance commissions | 2,420 | | | 1,859 | | |
Capital markets | Capital markets | 10,892 | | | 14,360 | | |
Capital markets | |
Capital markets | |
Service charges on deposit accounts | Service charges on deposit accounts | 10,476 | | | 6,212 | | |
Gains (losses) on securities transactions, net | 378 | | | (1,072) | | |
Service charges on deposit accounts | |
Service charges on deposit accounts | |
Gains on securities transactions, net | |
Gains on securities transactions, net | |
Gains on securities transactions, net | |
| Fees from loan servicing | |
| Fees from loan servicing | |
| Fees from loan servicing | Fees from loan servicing | 2,671 | | | 2,781 | | |
Gains on sales of loans, net | Gains on sales of loans, net | 489 | | | 986 | | |
| Gains on sales of loans, net | |
Gains on sales of loans, net | |
Gains on sales of assets, net | |
Gains on sales of assets, net | |
Gains on sales of assets, net | |
Bank owned life insurance | |
Bank owned life insurance | |
Bank owned life insurance | Bank owned life insurance | 2,584 | | | 2,046 | | |
Other | Other | 14,802 | | | 6,967 | | |
Other | |
Other | |
Total non-interest income | |
Total non-interest income | |
Total non-interest income | Total non-interest income | 54,299 | | | 39,270 | | |
Non-Interest Expense | Non-Interest Expense | | | | |
Non-Interest Expense | |
Non-Interest Expense | |
Salary and employee benefits expense | |
Salary and employee benefits expense | |
Salary and employee benefits expense | Salary and employee benefits expense | 144,986 | | | 107,733 | | |
Net occupancy expense | Net occupancy expense | 23,256 | | | 21,991 | | |
Net occupancy expense | |
Net occupancy expense | |
Technology, furniture and equipment expense | |
Technology, furniture and equipment expense | |
Technology, furniture and equipment expense | Technology, furniture and equipment expense | 36,508 | | | 26,015 | | |
FDIC insurance assessment | FDIC insurance assessment | 9,155 | | | 4,158 | | |
FDIC insurance assessment | |
FDIC insurance assessment | |
Amortization of other intangible assets | Amortization of other intangible assets | 10,519 | | | 4,437 | | |
Amortization of other intangible assets | |
Amortization of other intangible assets | |
Professional and legal fees | |
Professional and legal fees | |
Professional and legal fees | Professional and legal fees | 16,814 | | | 14,749 | | |
| Amortization of tax credit investments | Amortization of tax credit investments | 4,253 | | | 2,896 | | |
| Amortization of tax credit investments | |
| Amortization of tax credit investments | |
Other | |
Other | |
Other | Other | 26,675 | | | 15,361 | | |
Total non-interest expense | Total non-interest expense | 272,166 | | | 197,340 | | |
Total non-interest expense | |
Total non-interest expense | |
Income Before Income Taxes | |
Income Before Income Taxes | |
Income Before Income Taxes | Income Before Income Taxes | 203,716 | | | 156,042 | | |
Income tax expense | Income tax expense | 57,165 | | | 39,314 | | |
Income tax expense | |
Income tax expense | |
Net Income | |
Net Income | |
Net Income | Net Income | 146,551 | | | 116,728 | | |
Dividends on preferred stock | Dividends on preferred stock | 3,874 | | | 3,172 | | |
Dividends on preferred stock | |
Dividends on preferred stock | |
Net Income Available to Common Shareholders | |
Net Income Available to Common Shareholders | |
Net Income Available to Common Shareholders | Net Income Available to Common Shareholders | $ | 142,677 | | | $ | 113,556 | | |
| | | Earnings Per Common Share: | Earnings Per Common Share: | | |
| Earnings Per Common Share: | |
| Earnings Per Common Share: | |
Basic | Basic | $ | 0.28 | | | $ | 0.27 | | |
Basic | |
Basic | |
Diluted | |
Diluted | |
Diluted | Diluted | 0.28 | | | 0.27 | | |
|
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
| | |
| |
| |
| | | Three Months Ended March 31, | |
| | 2023 | | 2022 | |
Net income | Net income | $ | 146,551 | | | $ | 116,728 | | |
Other comprehensive income (loss), net of tax: | | |
Unrealized gains and losses on available for sale securities | | |
Net gains (losses) arising during the period | 17,170 | | | (38,892) | | |
Less reclassification adjustment for net gains included in net income | — | | | (10) | | |
Net income | |
Net income | |
Other comprehensive (loss) income, net of tax: | |
Other comprehensive (loss) income, net of tax: | |
Other comprehensive (loss) income, net of tax: | |
Unrealized losses and gains on available for sale securities | |
Unrealized losses and gains on available for sale securities | |
Unrealized losses and gains on available for sale securities | |
Net (losses) gains arising during the period | |
Net (losses) gains arising during the period | |
Net (losses) gains arising during the period | |
| Total | |
| Total | |
| Total | Total | 17,170 | | | (38,902) | | |
| 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) | |
| Unrealized gains and losses on derivatives (cash flow hedges) | |
Net gains on derivatives arising during the period | Net gains on derivatives arising during the period | 2,798 | | | 218 | | |
Less reclassification adjustment for net losses included in net income | 379 | | | 386 | | |
Net gains on derivatives arising during the period | |
Net gains on derivatives arising during the period | |
Less reclassification adjustment for net (gains) losses included in net income | |
Less reclassification adjustment for net (gains) losses included in net income | |
Less reclassification adjustment for net (gains) losses included in net income | |
Total | Total | 3,177 | | | 604 | | |
Total | |
Total | |
Defined benefit pension and postretirement benefit plans | |
Defined benefit pension and postretirement benefit plans | |
Defined benefit pension and postretirement benefit plans | Defined benefit pension and postretirement benefit plans | | | | |
| Amortization of actuarial net loss | Amortization of actuarial net loss | 8 | | | 132 | | |
| Total other comprehensive income (loss) | 20,355 | | | (38,166) | | |
Amortization of actuarial net loss | |
| Amortization of actuarial net loss | |
| Total other comprehensive (loss) income | |
| Total other comprehensive (loss) income | |
| Total other comprehensive (loss) income | |
Total comprehensive income | Total comprehensive income | $ | 166,906 | | | $ | 78,562 | | |
Total comprehensive income | |
Total comprehensive income | |
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended March 31, 20232024
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | | | Accumulated | | | | |
| Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| (in thousands) |
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 | — | | | — | | | — | | | — | | | 990 | | | — | | | — | | | 990 | |
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 | — | | | — | | | — | | | — | | | 146,551 | | | — | | | — | | | 146,551 | |
Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 20,355 | | | — | | | 20,355 | |
Cash dividends declared: | | | | | | | | | | | | | | | |
Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.52 per share | — | | | — | | | — | | | — | | | (2,077) | | | — | | | — | | | (2,077) | |
Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,488) | | | — | | | — | | | (56,488) | |
Effect of stock incentive plan, net | — | | | 1,061 | | | 1 | | | (12,569) | | | (3,994) | | | — | | | 16,057 | | | (505) | |
Common stock issued | — | | | 327 | | | — | | | — | | | (650) | | | — | | | 4,400 | | | 3,750 | |
| | | | | | | | | | | | | | | |
Balance - March 31, 2023 | $ | 209,691 | | | 507,762 | | | $ | 178,186 | | | $ | 4,967,662 | | | $ | 1,300,980 | | | $ | (143,647) | | | $ | (1,291) | | | $ | 6,511,581 | |
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | | | Accumulated | | | | |
| Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| ($ in thousands) |
Balance - December 31, 2023 | $ | 209,691 | | | 507,710 | | | $ | 178,187 | | | $ | 4,989,989 | | | $ | 1,471,371 | | | $ | (146,456) | | | $ | (1,391) | | | $ | 6,701,391 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | 96,280 | | | — | | | — | | | 96,280 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (10,392) | | | — | | | (10,392) | |
Cash dividends declared: | | | | | | | | | | | | | | | |
Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.58 per share | — | | | — | | | — | | | — | | | (2,322) | | | — | | | — | | | (2,322) | |
Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (56,794) | | | — | | | — | | | (56,794) | |
Effect of stock incentive plan, net | — | | | 1,183 | | | 348 | | | (966) | | | — | | | — | | | 1,391 | | | 773 | |
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Balance - March 31, 2024 | $ | 209,691 | | | 508,893 | | | $ | 178,535 | | | $ | 4,989,023 | | | $ | 1,506,738 | | | $ | (156,848) | | | $ | — | | | $ | 6,727,139 | |
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For the Three Months Ended March 31, 20222023
| | | | Common Stock | |
| Preferred Stock | |
| Preferred Stock | |
| Preferred Stock | | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| | Common Stock | | Accumulated | | | ($ in thousands) |
| Preferred Stock | | Shares | | Amount | | Surplus | | Retained Earnings | | Other Comprehensive Loss | | Treasury Stock | | Total Shareholders’ Equity |
| (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 | |
Adjustment due to the adoption of ASU 2022-02 | |
Balance - January 1, 2023 | |
Net income | Net income | — | | | — | | | — | | | — | | | 116,728 | | | — | | | — | | | 116,728 | |
Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (38,166) | | | — | | | (38,166) | |
Other comprehensive income, net of tax | |
Cash dividends declared: | Cash dividends declared: | |
Preferred stock, Series A, $0.39 per share | Preferred stock, Series A, $0.39 per share | — | | | — | | | — | | | — | | | (1,797) | | | — | | | — | | | (1,797) | |
Preferred stock, Series B, $0.34 per share | — | | | — | | | — | | | — | | | (1,375) | | | — | | | — | | | (1,375) | |
Preferred stock, Series A, $0.39 per share | |
Preferred stock, Series A, $0.39 per share | |
Preferred stock, Series B, $0.52 per share | |
Common stock, $0.11 per share | Common stock, $0.11 per share | — | | | — | | | — | | | — | | | (46,803) | | | — | | | — | | | (46,803) | |
Effect of stock incentive plan, net | Effect of stock incentive plan, net | — | | | 972 | | | — | | | (10,799) | | | (5,173) | | | — | | | 13,220 | | | (2,752) | |
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 | |
Common stock issued | |
Common stock issued | |
Common stock issued | |
Balance - March 31, 2023 | |
|
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2023 | | 2022 | | 2024 | | 2023 |
Cash flows from operating activities: | Cash flows from operating activities: | | | |
Net income | Net income | $ | 146,551 | | | $ | 116,728 | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |
Net income | |
Net income | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 11,515 | | | 7,486 | |
Stock-based compensation | Stock-based compensation | 8,093 | | | 7,263 | |
Provision for credit losses | Provision for credit losses | 14,437 | | | 3,557 | |
Net amortization of premiums and accretion of discounts on securities and borrowings | (397) | | | 7,487 | |
Net accretion of discounts and amortization of premium on securities and borrowings | |
Amortization of other intangible assets | Amortization of other intangible assets | 10,519 | | | 4,437 | |
Losses on available for sale and held to maturity debt securities, net | Losses on available for sale and held to maturity debt securities, net | 24 | | | 9 | |
Proceeds from sales of loans held for sale | 27,743 | | | 204,628 | |
Proceeds from sales of loans held for sale at fair value | |
Gains on sales of loans, net | Gains on sales of loans, net | (489) | | | (986) | |
Originations of loans held for sale | Originations of loans held for sale | (26,588) | | | (144,485) | |
(Gains) losses on sales of assets, net | (125) | | | 64 | |
Gains on sales of assets, net | |
| | Net change in: | Net change in: | |
Fair value of borrowings hedged by derivative transactions | 4,219 | | | (14,696) | |
| Net change in: | |
| Net change in: | |
Fair value of financial instruments hedged by derivative transactions | |
Fair value of financial instruments hedged by derivative transactions | |
Fair value of financial instruments hedged by derivative transactions | |
Trading debt securities | Trading debt securities | 6,583 | | | 26,391 | |
Lease right of use assets | Lease right of use assets | 3,600 | | | 766 | |
Cash surrender value of bank owned life insurance | Cash surrender value of bank owned life insurance | (2,584) | | | (2,046) | |
Accrued interest receivable | Accrued interest receivable | (27,002) | | | (5,785) | |
Other assets | Other assets | (298,076) | | | 20,156 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | (147,705) | | | 265,029 | |
Net cash (used in) provided by operating activities | (269,682) | | | 496,003 | |
Net cash provided by (used in) operating activities | |
Cash flows from investing activities: | Cash flows from investing activities: | | | |
Net loan originations and purchases | Net loan originations and purchases | (1,774,024) | | | (1,210,754) | |
Net loan originations and purchases | |
Net loan originations and purchases | |
Equity securities: | Equity securities: | |
Purchases | |
Purchases | |
Purchases | Purchases | (1,594) | | | (662) | |
Sales | Sales | 409 | | | 848 | |
Held to maturity debt securities: | Held to maturity debt securities: | |
Purchases | Purchases | (79,961) | | | (545,462) | |
Purchases | |
Purchases | |
| Maturities, calls and principal repayments | |
Maturities, calls and principal repayments | |
Maturities, calls and principal repayments | Maturities, calls and principal repayments | 61,213 | | | 136,024 | |
Available for sale debt securities: | Available for sale debt securities: | |
Purchases | Purchases | — | | | (15,000) | |
Purchases | |
Purchases | |
| Maturities, calls and principal repayments | |
Maturities, calls and principal repayments | |
Maturities, calls and principal repayments | Maturities, calls and principal repayments | 22,264 | | | 73,008 | |
Death benefit proceeds from bank owned life insurance | Death benefit proceeds from bank owned life insurance | 2,773 | | | 2,369 | |
Proceeds from sales of real estate property and equipment | Proceeds from sales of real estate property and equipment | 125 | | | 5,692 | |
| Proceeds from sales of loans not originated for sale | |
Proceeds from sale of commercial premium finance lending division | |
Purchases of real estate property and equipment | Purchases of real estate property and equipment | (18,263) | | | (22,749) | |
Cash distribution from tax credit investments | Cash distribution from tax credit investments | 2,500 | | | — | |
Cash and cash equivalent acquired in acquisitions, net | — | | | (8,607) | |
Net cash used in investing activities | (1,784,558) | | | (1,585,293) | |
| Net cash provided by (used in) investing activities | |
Net cash provided by (used in) investing activities | |
Net cash provided by (used in) investing activities | |
|
| | 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) |
| Three Months Ended March 31, |
| | 2023 | | 2022 |
| |
| | |
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| | |
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| | |
| | | Three Months Ended March 31, |
| | | 2024 | | 2023 |
Cash flows from financing activities: | Cash flows from financing activities: | | | |
Net change in deposits | |
Net change in deposits | |
Net change in deposits | Net change in deposits | $ | (45,998) | | | $ | 14,924 | |
Net change in short-term borrowings | Net change in short-term borrowings | 6,274,327 | | | (171,545) | |
Proceeds from issuance of long-term borrowings, net | Proceeds from issuance of long-term borrowings, net | 1,000,000 | | | — | |
Repayments of long-term borrowings | Repayments of long-term borrowings | (350,000) | | | — | |
Cash dividends paid to preferred shareholders | Cash dividends paid to preferred shareholders | (3,874) | | | (3,172) | |
Cash dividends paid to common shareholders | Cash dividends paid to common shareholders | (57,612) | | | (46,205) | |
Purchase of common shares to treasury | Purchase of common shares to treasury | (8,599) | | | (23,627) | |
Common stock issued, net | Common stock issued, net | 3,750 | | | 95 | |
Other, net | Other, net | (13) | | | (180) | |
Net cash provided by (used in) financing activities | 6,811,981 | | | (229,710) | |
Net cash (used in) provided by financing activities | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | 4,757,741 | | | (1,319,000) | |
Cash and cash equivalents at beginning of year | 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 | $ | 5,705,688 | | | $ | 730,920 | |
| Supplemental disclosures of cash flow information: | 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: | |
Cash payments for: | |
Interest on deposits and borrowings | |
Interest on deposits and borrowings | |
Interest on deposits and borrowings | Interest on deposits and borrowings | $ | 244,246 | | | $ | 19,682 | |
Federal and state income taxes | Federal and state income taxes | 8,782 | | | 6,842 | |
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 | $ | 903 | | | $ | — | |
| Transfer of loans to other real estate owned | |
Transfer of loans to other real estate owned | |
Transfer of loans to loans held for sale | |
Lease right of use assets obtained in exchange for operating lease liabilities | Lease right of use assets obtained in exchange for operating lease liabilities | 7,461 | | | 6,836 | |
| Non-cash net assets acquired | — | | | 8,607 | |
| |
See accompanying notes to consolidated financial statements.
VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The unaudited consolidated financial statements of Valley National Bancorp, a New Jersey Corporation (Valley) include the accounts of Valley Nationalthe 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)GAAP and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at March 31, 20232024 and for all periods presented have been made. The results of operations for the three months ended March 31, 20232024 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, 2022.Report.
Significant Estimates. In preparing the unaudited consolidated financial statements in conformityconformity 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.
Merger expenses, primarily consisting of salary and employee benefit expense, totaled $4.1 million and $4.4 million for the three months ended March 31, 2023 and 2022, respectively.
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 | 400,582 | |
Other intangible assets | 153,380 | |
Other assets | 160,921 | |
Total assets acquired | $ | 8,562,013 | |
Liabilities assumed: | |
Deposits: | |
Non-interest bearing | $ | 4,511,537 | |
Interest bearing: | |
Savings, NOW and money market | 2,224,834 | |
Time | 293,626 | |
Total deposits | 7,029,997 | |
Short-term borrowings | 103,794 | |
Lease liabilities | 79,683 | |
Accrued expense and other liabilities | 117,269 | |
Total liabilities assumed | $ | 7,330,743 | |
Common stock issued in acquisition | 1,117,829 | |
Cash paid in acquisition | 113,441 | |
There were nochanges to the fair value estimates during the three months ended March 31, 2023.
Dudley Ventures. On October 8, 2021, Valley acquired certain subsidiaries of Dudley Ventures, an advisory firm specializing in the investment and management of tax credits. The transaction price included $11.3 million of cash at the closing date and fixed future stock consideration totaling $3.75 million, which resulted in the issuance of 327,083 shares of Valley common stock to the former principals of Dudley Ventures in February 2023.
Note 3.2. Earnings Per Common Share
The following table shows the calculation of both basic and diluted earnings per common share for the three months ended March 31, 20232024 and 2022:2023:
| | |
| |
| |
| |
| |
| | | Three Months Ended March 31, | |
| | 2023 | | 2022 | |
| | (in thousands, except for share and per share data) | (in thousands, except for share and per share data) |
Net income available to common shareholders | Net income available to common shareholders | $ | 142,677 | | | $ | 113,556 | | |
Basic weighted average number of common shares outstanding | Basic weighted average number of common shares outstanding | 507,111,295 | | | 421,573,843 | | |
Basic weighted average number of common shares outstanding | |
Basic weighted average number of common shares outstanding | |
Plus: Common stock equivalents | |
Plus: Common stock equivalents | |
Plus: Common stock equivalents | Plus: Common stock equivalents | 2,545,135 | | | 1,932,707 | | |
Diluted weighted average number of common shares outstanding | Diluted weighted average number of common shares outstanding | 509,656,430 | | | 423,506,550 | | |
Diluted weighted average number of common shares outstanding | |
Diluted weighted average number of common shares outstanding | |
Earnings per common share: | |
Earnings per common share: | |
Earnings per common share: | Earnings per common share: | | | | |
Basic | Basic | $ | 0.28 | | | $ | 0.27 | | |
Basic | |
Basic | |
Diluted | Diluted | 0.28 | | | 0.27 | | |
Diluted | |
Diluted | |
Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable,applicable, of restricted stock unitsRSUs 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. PotentialRSUs. Potential anti-dilutive weighted common shares totaled approximately 1.61.3 million and 113 thousand1.6 million for the three months ended March 31, 20232024 and 2022,2023, respectively.
Note 4.3. 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 thethe three months ended March 31, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Components of Accumulated Other Comprehensive Loss | | Total Accumulated Other Comprehensive Loss |
| Unrealized Gains and Losses on Available for Sale (AFS) Securities | | Unrealized Gains and Losses on Derivatives | | Defined Benefit Pension and Postretirement Benefit Plans | |
| (in thousands) |
Balance at December 31, 2022 | $ | (127,818) | | | $ | 2,233 | | | $ | (38,417) | | | $ | (164,002) | |
Other comprehensive gain before reclassification | 17,170 | | | 2,798 | | | — | | | 19,968 | |
Amounts reclassified from other comprehensive income | — | | | 379 | | | 8 | | | 387 | |
Other comprehensive income, net | 17,170 | | | 3,177 | | | 8 | | | 20,355 | |
Balance at March 31, 2023 | $ | (110,648) | | | $ | 5,410 | | | $ | (38,409) | | | $ | (143,647) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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) |
December 31, 2022 | $ | (127,818) | | | $ | 2,233 | | | $ | (38,417) | | | $ | (164,002) | |
Other comprehensive loss before reclassification | 17,170 | | | 2,798 | | | — | | | 19,968 | |
Amounts reclassified from other comprehensive income | — | | | 379 | | | 8 | | | 387 | |
Other comprehensive income, net | 17,170 | | | 3,177 | | | 8 | | | 20,355 | |
March 31, 2023 | $ | (110,648) | | | $ | 5,410 | | | $ | (38,409) | | | $ | (143,647) | |
| | | | | | | |
December 31, 2023 | $ | (115,502) | | | $ | 2,114 | | | $ | (33,068) | | | $ | (146,456) | |
Other comprehensive loss before reclassification | (10,205) | | | — | | | — | | | (10,205) | |
Amounts reclassified from other comprehensive (loss) income | — | | | (222) | | | 35 | | | (187) | |
Other comprehensive (loss) income, net | (10,205) | | | (222) | | | 35 | | | (10,392) | |
March 31, 2024 | $ | (125,707) | | | $ | 1,892 | | | $ | (33,033) | | | $ | (156,848) | |
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 months ended March 31, 20232024 and 2022:2023:
| | Amounts Reclassified from Accumulated Other Comprehensive Loss | | |
| Three Months Ended March 31, | | | |
| | Amounts Reclassified from Accumulated Other Comprehensive Loss | |
| | Amounts Reclassified from Accumulated Other Comprehensive Loss | |
| | Amounts Reclassified from Accumulated Other Comprehensive Loss | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
Components of Accumulated Other Comprehensive Loss | Components of Accumulated Other Comprehensive Loss | | 2023 | | 2022 | | | Income Statement Line Item |
| | (in thousands) | | |
Unrealized gains on AFS securities before tax | | $ | — | | | $ | 14 | | | | Gains (losses) on securities transactions, net |
Tax effect | | — | | | (4) | | | | |
Total net of tax | | — | | | 10 | | | | |
Components of Accumulated Other Comprehensive Loss | |
Components of Accumulated Other Comprehensive Loss | | | 2024 | | 2023 | | | | | | Income Statement Line Item |
| | | | (in thousands) | | |
| Unrealized losses on derivatives (cash flow hedges) before tax | | (531) | | | (542) | | | | Interest expense |
| Unrealized gains (losses) on derivatives (cash flow hedges) before tax | |
| Unrealized gains (losses) on derivatives (cash flow hedges) before tax | |
| Unrealized gains (losses) on derivatives (cash flow hedges) before tax | | | $ | 298 | | | $ | (531) | | | | | | | Interest income |
Tax effect | Tax effect | | 152 | | | 156 | | | | |
Total net of tax | Total net of tax | | (379) | | | (386) | | | | |
Total net of tax | |
Total net of tax | |
Defined benefit pension and postretirement benefit plans: | Defined benefit pension and postretirement benefit plans: | | | | | | | |
Defined benefit pension and postretirement benefit plans: | |
Defined benefit pension and postretirement benefit plans: | |
Amortization of actuarial net loss | |
Amortization of actuarial net loss | |
Amortization of actuarial net loss | Amortization of actuarial net loss | | (11) | | | (183) | | | | * | | (49) | | | (11) | | (11) | | | | | | | * | | | | | | * |
| Tax effect | Tax effect | | 3 | | | 51 | | | | |
Tax effect | |
Tax effect | |
Total net of tax | |
Total net of tax | |
Total net of tax | Total net of tax | | (8) | | | (132) | | | | |
Total reclassifications, net of tax | Total reclassifications, net of tax | | $ | (387) | | | $ | (508) | | | | |
Total reclassifications, net of tax | |
Total reclassifications, net of tax | |
| | | | | |
* | Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense. |
Note 5.4. New Authoritative Accounting Guidance
New Accounting Guidance Adopted in 2023
Accounting Standards Update (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 on January 1, 2023 and the guidance did not have a significant impact on Valley's consolidated financial statements.First Quarter 2024
ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” eliminates the troubled debt restructuring (TDR) accounting model for creditors, such as Valley, that have adopted Topic 326, “Financial Instruments – Credit Losses.” ASU No. 2022-02 requires all loan modifications to be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities are subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public business entities within the scope of the Topic 326 vintage disclosure requirements are also required to prospectively disclose current-period gross write-off information by vintage. Entities can elect to adopt the guidance on TDRs using either a prospective or modified retrospective transition method. Valley adopted ASU No. 2022-02 on January 1, 2023 and elected to apply the modified retrospective transition method. The adoption of ASU No. 2022-02 resulted in a $1.4 million decrease in the allowance for loan losses, and a $990 thousand increase to retained earnings, net of taxes. See Note 8 for required disclosures. New Accounting Guidance Issued in 2023
ASU No. 2023-02, Investments –“Equity“Investments –Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” is intended to improve the accounting and
disclosures for investments in certain tax credit structures. ASU No. 2023-02 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 bebecame effective on January 1, 2024 and
it can be early adopted in any interim period. Thedid not have a significant impact on Valley's consolidated financial statements. Under the new guidance,
can also be applied either onValley did not elect to apply the proportional amortization method as an accounting policy for its eligible tax credit investments and, as a
modified retrospective or a retrospective basis, with anyresult, there were no adjustments
resulting from adoption recognized in earnings on the date of adoption.
ValleySee additional disclosures regarding Valley's tax credit investments at Note 14.ASU No. 2022-03, “Fair Value Measurement of Equity Securities subject to Contractual Sale Restrictions,” updates guidance in ASC Topic 820, Fair Value Measurement and clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities including (i) the nature and remaining duration of the restriction; (ii) the circumstances that could cause a lapse in restrictions; and (iii) the fair value of the securities with contractual sale restrictions. ASU No. 2022-03 became effective on January 1, 2024 and Valley's adoption did not have a significant impact on its consolidated financial statements.
New Accounting Guidance Effective at December 31, 2024
ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” requires public entities to disclose detailed information about a reportable segment’s expenses on both an annual and interim basis. The ASU No. 2023-07 is currently evaluatingeffective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in ASU No. 2023-07 should be applied retrospectively to all periods presented in the impactfinancial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The adoption of ASU No. 2023-02, but it2023-07 is not expected to have a significant impact on Valley's consolidated financial statements.statements, other than enhanced disclosures.
Note 6.5. 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 March 31, 20232024 and December 31, 2022.2023. 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).
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | 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 | $ | 23,159 | | | $ | 23,159 | | | $ | — | | | $ | — | |
Equity securities at net asset value (NAV) | 12,267 | | | — | | | — | | | — | |
Trading debt securities | 3,989 | | | 3,989 | | | — | | | — | |
Available for sale debt securities: | | | | | | | |
U.S. Treasury securities | 285,546 | | | 285,546 | | | — | | | — | |
U.S. government agency securities | 22,754 | | | — | | | 22,754 | | | — | |
Obligations of states and political subdivisions | 187,729 | | | — | | | 187,729 | | | — | |
Residential mortgage-backed securities | 783,143 | | | — | | | 783,143 | | | — | |
Corporate and other debt securities | 170,162 | | | — | | | 170,162 | | | — | |
Total available for sale debt securities | 1,449,334 | | | 285,546 | | | 1,163,788 | | | — | |
Loans held for sale (1) | 17,639 | | | — | | | 17,639 | | | — | |
Other assets (2) | 522,275 | | | — | | | 522,275 | | | — | |
Total assets | $ | 2,028,663 | | | $ | 312,694 | | | $ | 1,703,702 | | | $ | — | |
Liabilities | | | | | | | |
Other liabilities (2) | $ | 546,416 | | | $ | — | | | $ | 546,416 | | | $ | — | |
Total liabilities | $ | 546,416 | | | $ | — | | | $ | 546,416 | | | $ | — | |
Non-recurring fair value measurements: | | | | | | | |
Non-performing loan held for sale (3) | $ | 10,000 | | | $ | — | | | $ | 10,000 | | | $ | — | |
Collateral dependent loans | 77,673 | | | — | | | — | | | 77,673 | |
| | | | | | | |
Foreclosed assets | 1,393 | | | — | | | — | | | 1,393 | |
Total | $ | 89,066 | | | $ | — | | | $ | 10,000 | | | $ | 79,066 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | Fair Value Measurements at Reporting Date Using: |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (in thousands) |
Recurring fair value measurements: | |
Assets | | | | | | | |
Investment securities: | | | | | | | |
Equity securities | $ | 23,635 | | | $ | 23,635 | | | $ | — | | | $ | — | |
Equity securities at net asset value (NAV) | 10,175 | | | — | | | — | | | — | |
Trading debt securities | 6,855 | | | 3,477 | | | 3,378 | | | — | |
Available for sale debt securities: | | | | | | | |
U.S. Treasury securities | 286,745 | | | 286,745 | | | — | | | — | |
U.S. government agency securities | 26,352 | | | — | | | 26,352 | | | — | |
Obligations of states and political subdivisions | 152,775 | | | — | | | 152,775 | | | — | |
Residential mortgage-backed securities | 619,776 | | | — | | | 619,776 | | | — | |
Corporate and other debt securities | 173,588 | | | — | | | 173,588 | | | — | |
Total available for sale debt securities | 1,259,236 | | | 286,745 | | | 972,491 | | | — | |
Loans held for sale (1) | 17,218 | | | — | | | 17,218 | | | — | |
Other assets (2) | 446,749 | | | — | | | 446,749 | | | — | |
Total assets | $ | 1,763,868 | | | $ | 313,857 | | | $ | 1,439,836 | | | $ | — | |
Liabilities | | | | | | | |
Other liabilities (2) | $ | 494,552 | | | $ | — | | | $ | 494,552 | | | $ | — | |
Total liabilities | $ | 494,552 | | | $ | — | | | $ | 494,552 | | | $ | — | |
Non-recurring fair value measurements: | | | | | | | |
| | | | | | | |
Collateral dependent loans | $ | 81,267 | | | $ | — | | | $ | — | | | $ | 81,267 | |
| | | | | | | |
Foreclosed assets | 1,752 | | | — | | | — | | | 1,752 | |
Total | $ | 83,019 | | | $ | — | | | $ | — | | | $ | 83,019 | |
| | | | | Fair Value Measurements at Reporting Date Using: | | | | 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) | | December 31, 2023 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | (in thousands) | | (in thousands) |
Recurring fair value measurements: | Recurring fair value measurements: | |
Assets | Assets | |
Assets | |
Assets | |
Investment securities: | Investment securities: | |
Investment securities: | |
Investment securities: | |
Equity securities | |
Equity securities | |
Equity securities | Equity securities | $ | 23,494 | | | $ | 23,494 | | | $ | — | | | $ | — | |
Equity securities at net asset value (NAV) | Equity securities at net asset value (NAV) | 10,099 | | | — | | | — | | | — | |
Trading debt securities | Trading debt securities | 13,438 | | | 3,282 | | | 10,156 | | | — | |
Available for sale debt securities: | Available for sale debt securities: | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | 279,498 | | | 279,498 | | | — | | | — | |
U.S. government agency securities | U.S. government agency securities | 26,964 | | | — | | | 26,964 | | | — | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | 146,811 | | | — | | | 146,811 | | | — | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 629,818 | | | — | | | 629,818 | | | — | |
| Corporate and other debt securities | Corporate and other debt securities | 178,306 | | | — | | | 178,306 | | | — | |
Corporate and other debt securities | |
Corporate and other debt securities | |
Total available for sale debt securities | Total available for sale debt securities | 1,261,397 | | | 279,498 | | | 981,899 | | | — | |
| Loans held for sale (1) | |
Loans held for sale (1) | |
Loans held for sale (1) | Loans held for sale (1) | 18,118 | | | — | | | 18,118 | | | — | |
Other assets (2) | Other assets (2) | 467,127 | | | — | | | 467,127 | | | — | |
Total assets | Total assets | $ | 1,793,673 | | | $ | 306,274 | | | $ | 1,477,300 | | | $ | — | |
Liabilities | Liabilities | | | | | | | |
Other liabilities (2) | Other liabilities (2) | $ | 607,237 | | | $ | — | | | $ | 607,237 | | | $ | — | |
Other liabilities (2) | |
Other liabilities (2) | |
Total liabilities | Total liabilities | $ | 607,237 | | | $ | — | | | $ | 607,237 | | | $ | — | |
Non-recurring fair value measurements: | Non-recurring fair value measurements: | | | | | | | |
Non-performing loan held for sale (3) | |
Non-performing loan held for sale (3) | |
Non-performing loan held for sale (3) | |
Collateral dependent loans | Collateral dependent loans | $ | 92,923 | | | $ | — | | | $ | — | | | $ | 92,923 | |
Foreclosed assets | Foreclosed assets | 1,937 | | | — | | | — | | | 1,937 | |
Total | Total | $ | 94,860 | | | $ | — | | | $ | — | | | $ | 94,860 | |
(1)Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $17.1$17.5 million and $17.9$20.1 million at March 31, 20232024 and December 31, 2022,2023, respectively.
(2)Derivative financial instruments are included in this category.
(3)Reported at lower of cost or market value.
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 securitiesecuritiess.. The fair value of equity securities consists consisted of a two publicly traded mutual fund, a Community Reinvestment Act (CRA) investment fund funds, CRA investments and an investment related to the development ofseveral other equity investments we have made in companies that develop new financial technologies and in partnerships that invest in such companies. These investments are carriedreported at quoted prices in active markets.fair value utilizing Level 1 inputs.
Equity securities at NAV. Valley also has privately held CRA funds at fair value measured at NAV using the most recently available financial information from the investee. InvestmentsCertain equity investments without readily determinable
fair values are measured at NAV per share (or its equivalent) as a practical expedient, which are excluded from fair value hierarchy levels in the tables above.
Trading debt securities. The fair value of trading debt securities, consisting of U.S. Treasury securities, and municipal bonds are reported at fair value utilizing Level 1 inputs at March 31, 2024 and Level 2 inputs, respectively. The prices for municipal bonds investments are derived from market quotations and matrix pricing obtained through an independent pricing service. ManagementDecember 31, 2023. 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 saleall AFS debt securitiessecurities 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 March 31, 20232024 and December 31, 20222023 based on the short duration these assets were held and thetheir credit quality of these loans.quality.
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.SOFR curve at March 31, 2024. 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 March 31, 20232024 and December 31, 2022)2023), is determined based on the current market prices for similar instruments. The fair valuesvalue 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 March 31, 20232024 and December 31, 2022.2023.
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 loan held for sale. During the year ended December 31, 2023, Valley transferred a non-performing construction loan totaling $10.0 million, net of charge-offs, to loans held for sale. The transfer at the loan's fair value resulted in a $4.2 million charge-off to the allowance of loan losses. 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. At March 31, 2024, the loan was reported at the lower of cost or market value in loans held for sale.
Collateral dependent loans. Collateral dependent loans are loans whenwhere 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 March 31, 2023,2024, 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 March 31, 2023,2024, collateral dependent loans with a total amortized cost of $140.1$144.3 million, including our taxi medallion loan portfolio, were reduced by specific allowance for loan losses allocations totaling $58.8$66.6 million to a reported total net carrying amount of $81.3$77.7 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 thean asset occur, an assetthe 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 March 31, 2023 2024 and December 31, 2022.2023.
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 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 March 31, 20232024 and December 31, 20222023 were as follows:
| | | Fair Value Hierarchy | | March 31, 2023 | | December 31, 2022 | | Fair Value Hierarchy | | March 31, 2024 | | December 31, 2023 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | (in thousands) | | | | (in thousands) |
Financial assets | Financial assets | |
Cash and due from banks | Cash and due from banks | Level 1 | | $ | 444,690 | | | $ | 444,690 | | | $ | 444,325 | | | $ | 444,325 | |
Cash and due from banks | |
Cash and due from banks | |
Interest bearing deposits with banks | Interest bearing deposits with banks | Level 1 | | 5,260,998 | | | 5,260,998 | | | 503,622 | | | 503,622 | |
Equity securities (1) | Equity securities (1) | Level 3 | | 16,342 | | | 16,342 | | | 15,138 | | | 15,138 | |
Held to maturity debt securities: | Held to maturity debt securities: | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | Level 1 | | 66,747 | | | 66,182 | | | 66,911 | | | 65,889 | |
U.S. government agency securities | U.S. government agency securities | Level 2 | | 300,614 | | | 255,640 | | | 260,392 | | | 212,712 | |
Obligations of states and political subdivisions | Obligations of states and political subdivisions | Level 2 | | 473,597 | | | 452,919 | | | 480,298 | | | 453,195 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | Level 2 | | 2,893,505 | | | 2,525,568 | | | 2,909,106 | | | 2,495,797 | |
Trust preferred securities | Trust preferred securities | Level 2 | | 37,048 | | | 29,992 | | | 37,043 | | | 31,106 | |
Corporate and other debt securities | Corporate and other debt securities | Level 2 | | 75,701 | | | 70,183 | | | 75,234 | | | 70,771 | |
Total held to maturity debt securities (2) | Total held to maturity debt securities (2) | | 3,847,212 | | | 3,400,484 | | | 3,828,984 | | | 3,329,470 | |
Net loans | Level 3 | | 48,223,068 | | | 47,389,743 | | | 46,458,545 | | | 44,910,049 | |
Net loans (3) | |
Accrued interest receivable | Accrued interest receivable | Level 1 | | 223,608 | | | 223,608 | | | 196,606 | | | 196,606 | |
Federal Reserve Bank and Federal Home Loan Bank stock (3) | Level 2 | | 547,686 | | | 547,686 | | | 238,056 | | | 238,056 | |
FRB and FHLB stock (4) | |
Financial liabilities | Financial liabilities | |
Deposits without stated maturities | |
Deposits without stated maturities | |
Deposits without stated maturities | Deposits without stated maturities | Level 1 | | 36,479,540 | | | 36,479,540 | | | 38,080,457 | | | 38,080,457 | |
Deposits with stated maturities | Deposits with stated maturities | Level 2 | | 11,111,376 | | | 11,040,582 | | | 9,556,457 | | | 9,443,253 | |
Short-term borrowings | Short-term borrowings | Level 1 | | 6,413,056 | | | 6,392,459 | | | 138,729 | | | 138,729 | |
Long-term borrowings | Long-term borrowings | Level 2 | | 2,197,656 | | | 2,110,305 | | | 1,543,058 | | | 1,395,991 | |
Junior subordinated debentures issued to capital trusts | Junior subordinated debentures issued to capital trusts | Level 2 | | 56,847 | | | 55,042 | | | 56,760 | | | 50,923 | |
Accrued interest payable (4) | Level 1 | | 85,581 | | | 85,581 | | | 45,617 | | | 45,617 | |
Accrued interest payable (5) | |
(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)Includes the carrying amount of $34.1 million of construction loans transferred at cost to loans held for sale at March 31, 2024.
(4)Included in other assets.
(4)(5)Included in accrued expenses and other liabilities.
Note 7.6. Investment Securities
Equity Securities
Equity securities totaled $50.2$67.0 million and $48.7$64.5 million at March 31, 20232024 and December 31, 2022,2023, respectively. See Note 65 for further details on equity securities. Trading Debt Securities
The fair value of trading debt securities totaled $6.9 million and $13.4$4.0 million at both March 31, 20232024 and December 31, 2022, respectively.2023. Net trading gains and losses wereare included in net gains and losses on securities transactions within non-interest income. We recorded net trading gains of $402$56 thousand and net trading losses of $1.1 million$402 thousand for the three months ended March 31, 20232024 and 2022,2023, respectively.
Available for Sale Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities at March 31, 20232024 and December 31, 20222023 were as follows:
| | Amortized Cost | | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | (in thousands) |
| (in thousands) |
March 31, 2023 | |
March 31, 2024 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 309,524 | | | $ | — | | | $ | (22,779) | | | $ | 286,745 | |
U.S. government agency securities | U.S. government agency securities | 28,394 | | | 46 | | | (2,088) | | | 26,352 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 10,649 | | | — | | | (652) | | | 9,997 | |
Municipal bonds | Municipal bonds | 171,219 | | | — | | | (28,441) | | | 142,778 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 181,868 | | | — | | | (29,093) | | | 152,775 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 699,214 | | | 60 | | | (79,498) | | | 619,776 | |
| Corporate and other debt securities | Corporate and other debt securities | 193,007 | | | — | | | (19,419) | | | 173,588 | |
Corporate and other debt securities | |
Corporate and other debt securities | |
Total | Total | $ | 1,412,007 | | | $ | 106 | | | $ | (152,877) | | | $ | 1,259,236 | |
December 31, 2022 | | | | | | | |
December 31, 2023 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 308,137 | | | $ | — | | | $ | (28,639) | | | $ | 279,498 | |
U.S. government agency securities | 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 state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 10,899 | | | — | | | (493) | | | 10,406 | |
Municipal bonds | Municipal bonds | 171,586 | | | — | | | (35,181) | | | 136,405 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 182,485 | | | — | | | (35,674) | | | 146,811 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 719,868 | | | 64 | | | (90,114) | | | 629,818 | |
| Corporate and other debt securities | Corporate and other debt securities | 197,927 | | | — | | | (19,621) | | | 178,306 | |
Corporate and other debt securities | |
Corporate and other debt securities | |
| Total | Total | $ | 1,437,911 | | | $ | 111 | | | $ | (176,625) | | | $ | 1,261,397 | |
Total | |
Total | |
Accrued interest on investments, which is excluded from the amortized cost of AFS debt securities, totaled $6.2 million and $5.9 million at March 31, 2024 and December 31, 2023, 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 March 31, 20232024 and December 31, 20222023 were as follows:
| | | Less than 12 Months | | More than 12 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) |
March 31, 2023 | |
March 31, 2024 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 286,745 | | | $ | (22,779) | | | $ | — | | | $ | — | | | $ | 286,745 | | | $ | (22,779) | |
U.S. government agency securities | U.S. government agency securities | 12,003 | | | (1,238) | | | 11,371 | | | (850) | | | 23,374 | | | (2,088) | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 2,231 | | | (17) | | | 7,766 | | | (635) | | | 9,997 | | | (652) | |
Municipal bonds | Municipal bonds | 114,299 | | | (20,463) | | | 28,229 | | | (7,978) | | | 142,528 | | | (28,441) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 116,530 | | | (20,480) | | | 35,995 | | | (8,613) | | | 152,525 | | | (29,093) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 34,170 | | | (1,506) | | | 582,739 | | | (77,992) | | | 616,909 | | | (79,498) | |
| Corporate and other debt securities | Corporate and other debt securities | 108,625 | | | (9,446) | | | 64,964 | | | (9,973) | | | 173,589 | | | (19,419) | |
Corporate and other debt securities | |
Corporate and other debt securities | |
Total | Total | $ | 558,073 | | | $ | (55,449) | | | $ | 695,069 | | | $ | (97,428) | | | $ | 1,253,142 | | | $ | (152,877) | |
December 31, 2022 | | | | | | | | | | | |
December 31, 2023 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
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 | 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 state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 2,943 | | | (54) | | | 7,462 | | | (439) | | | 10,405 | | | (493) | |
Municipal bonds | 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 | 114,972 | | | (26,098) | | | 31,589 | | | (9,576) | | | 146,561 | | | (35,674) | |
Residential mortgage-backed securities | 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 | 144,924 | | | (12,581) | | | 33,382 | | | (7,040) | | | 178,306 | | | (19,621) | |
Corporate and other debt securities | |
Corporate and other debt securities | |
| Total | Total | $ | 874,061 | | | $ | (97,008) | | | $ | 380,921 | | | $ | (79,617) | | | $ | 1,254,982 | | | $ | (176,625) | |
Total | |
Total | |
Within the available for saleAFS debt securities portfolio, the total number of security positions in an unrealized loss position was 715694 and 730687 at March 31, 20232024 and December 31, 2022,2023, respectively.
As of March 31, 2023,2024, the fair value of available for sale debtAFS securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $870.4 million.$1.1 billion.
The contractual maturities of available for saleAFS debt securities at March 31, 20232024 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.
| | | March 31, 2023 | | March 31, 2024 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | (in thousands) | | (in thousands) |
Due in one year | Due in one year | $ | 3,852 | | | $ | 3,834 | |
Due after one year through five years | Due after one year through five years | 282,224 | | | 270,503 | |
Due after five years through ten years | Due after five years through ten years | 173,459 | | | 154,742 | |
Due after ten years | Due after ten years | 253,258 | | | 210,381 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 699,214 | | | 619,776 | |
Total | Total | $ | 1,412,007 | | | $ | 1,259,236 | |
Actual maturities of available for saleAFS 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 saleAFS was 8.917.88 years at March 31, 2023.2024.
Impairment Analysis of Available For Sale Debt Securities
Valley's available for saleAFS 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 theirits potential negative effect on the future performance of the security issuers.
Available for saleAFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. Based on a comparison of the present value of expected cash flows to the amortized cost, Valley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in a provision for credit losses and full charge-off of the bond totaling $5.0 million during the three months ended March 31, 2023. Valley also evaluated available for saleAFS debt securities that arewere in an unrealized loss position as of March 31, 20232024 included in the tabletables 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. ThereBased on a comparison of the present value of expected cash flows to the amortized cost, there was no impairment recognized during the three months endedMarch 31, 2022.
Accrued interest on investments, which is excluded from the amortized cost of available for sale debt securities, totaled $5.1 million and $5.6 million at March 31, 2023 and December 31, 2022, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.
The following table details the activity in the allowance for credit losses for2024. During the three months ended March 31, 2023, Valley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in both a provision for credit losses and full charge-off of the security totaling $5.0 million based on a comparison of the present value of expected cash flows to the amortized cost. The bond was subsequently sold and the sale resulted in a $869 thousand gain during the fourth quarter 2023.
| | | | | | | |
| Three Months Ended March 31, 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 saleAFS debt securities in an unrealized loss position prior to recovery of their 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 their amortized cost basis. None of the available for saleAFS debt securities were past due as of March 31, 2024. As a result, there was no allowance for credit losses for AFS debt securities at March 31, 2024, December 31, 2023 and March 31, 2023.
as of March 31, 2023 and there was no allowance for credit losses for available for sale debt securities at March 31, 2023, December 31, 2022 and March 31, 2022.
Held to Maturity Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at March 31, 20232024 and December 31, 20222023 were as follows:
| | Amortized Cost | | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses | | Net Carrying Value |
| | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Allowance for Credit Losses | | Net Carrying Value | | (in thousands) |
| (in thousands) |
March 31, 2023 | |
March 31, 2024 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 66,747 | | | $ | — | | | $ | (565) | | | $ | 66,182 | | | $ | — | | | $ | 66,747 | |
U.S. government agency securities | U.S. government agency securities | 300,614 | | | 25 | | | (44,999) | | | 255,640 | | | — | | | 300,614 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 96,693 | | | 341 | | | (4,149) | | | 92,885 | | | 257 | | | 96,436 | |
Municipal bonds | Municipal bonds | 376,904 | | | 112 | | | (16,982) | | | 360,034 | | | 86 | | | 376,818 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 473,597 | | | 453 | | | (21,131) | | | 452,919 | | | 343 | | | 473,254 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,893,505 | | | 2,752 | | | (370,689) | | | 2,525,568 | | | — | | | 2,893,505 | |
Trust preferred securities | Trust preferred securities | 37,048 | | | 1 | | | (7,057) | | | 29,992 | | | 775 | | | 36,273 | |
Corporate and other debt securities | Corporate and other debt securities | 75,701 | | | — | | | (5,518) | | | 70,183 | | | 515 | | | 75,186 | |
Total | Total | $ | 3,847,212 | | | $ | 3,231 | | | $ | (449,959) | | | $ | 3,400,484 | | | $ | 1,633 | | | $ | 3,845,579 | |
December 31, 2022 | | | | | | | | | | | |
December 31, 2023 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 66,911 | | | $ | — | | | $ | (1,022) | | | $ | 65,889 | | | $ | — | | | $ | 66,911 | |
U.S. government agency securities | 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 state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 99,238 | | | 305 | | | (3,869) | | | 95,674 | | | 252 | | | 98,986 | |
Municipal bonds | 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 | 480,298 | | | 381 | | | (27,484) | | | 453,195 | | | 293 | | | 480,005 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,909,106 | | | 1,723 | | | (415,032) | | | 2,495,797 | | | — | | | 2,909,106 | |
Trust preferred securities | Trust preferred securities | 37,043 | | | 1 | | | (5,938) | | | 31,106 | | | 888 | | | 36,155 | |
Corporate and other debt securities | Corporate and other debt securities | 75,234 | | | — | | | (4,463) | | | 70,771 | | | 465 | | | 74,769 | |
Total | 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 HTM debt securities, totaled $12.5 million and $13.9 million at March 31, 2024 and December 31, 2023, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition. HTM 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 March 31, 20232024 and December 31, 20222023 were as follows:
| | | Less than 12 Months | | More than 12 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) |
March 31, 2023 | |
March 31, 2024 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 66,182 | | | $ | (565) | | | $ | — | | | $ | — | | | $ | 66,182 | | | $ | (565) | |
U.S. government agency securities | U.S. government agency securities | 211,526 | | | (44,773) | | | 2,925 | | | (226) | | | 214,451 | | | (44,999) | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 20,457 | | | (789) | | | 39,627 | | | (3,360) | | | 60,084 | | | (4,149) | |
Municipal bonds | Municipal bonds | 226,278 | | | (13,671) | | | 26,411 | | | (3,311) | | | 252,689 | | | (16,982) | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 246,735 | | | (14,460) | | | 66,038 | | | (6,671) | | | 312,773 | | | (21,131) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 381,802 | | | (33,941) | | | 1,944,360 | | | (336,748) | | | 2,326,162 | | | (370,689) | |
Trust preferred securities | Trust preferred securities | — | | | — | | | 28,990 | | | (7,057) | | | 28,990 | | | (7,057) | |
Corporate and other debt securities | Corporate and other debt securities | 37,579 | | | (2,122) | | | 24,604 | | | (3,396) | | | 62,183 | | | (5,518) | |
Total | Total | $ | 943,824 | | | $ | (95,861) | | | $ | 2,066,917 | | | $ | (354,098) | | | $ | 3,010,741 | | | $ | (449,959) | |
December 31, 2022 | | | | | | | | | | | |
December 31, 2023 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
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 state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 62,443 | | | (2,020) | | | 18,231 | | | (1,849) | | | 80,674 | | | (3,869) | |
Municipal bonds | 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 | 314,413 | | | (22,477) | | | 33,765 | | | (5,007) | | | 348,178 | | | (27,484) | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 962,690 | | | (109,532) | | | 1,413,590 | | | (305,500) | | | 2,376,280 | | | (415,032) | |
Trust preferred securities | Trust preferred securities | — | | | — | | | 30,105 | | | (5,938) | | | 30,105 | | | (5,938) | |
Corporate and other debt securities | Corporate and other debt securities | 57,245 | | | (2,989) | | | 13,525 | | | (1,474) | | | 70,770 | | | (4,463) | |
Total | Total | $ | 1,610,100 | | | $ | (183,528) | | | $ | 1,492,658 | | | $ | (318,091) | | | $ | 3,102,758 | | | $ | (501,619) | |
Within the held to maturityHTM securities portfolio, the total number of security positions in an unrealized loss position was 766784 and 802762 at March 31, 20232024 and December 31, 2022,2023, respectively.
As of March 31, 2023,2024, the fair value of debt securities held to maturityHTM that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $2.5$2.7 billion.
The contractual maturities of investments in HTM debt securities held to maturity at March 31, 20232024 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.
| | | March 31, 2023 | | March 31, 2024 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | (in thousands) | | (in thousands) |
Due in one year | Due in one year | $ | 63,872 | | | $ | 63,355 | |
Due after one year through five years | Due after one year through five years | 169,205 | | | 165,906 | |
Due after five years through ten years | Due after five years through ten years | 96,385 | | | 92,034 | |
Due after ten years | Due after ten years | 624,245 | | | 553,621 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,893,505 | | | 2,525,568 | |
Total | Total | $ | 3,847,212 | | | $ | 3,400,484 | |
Actual maturities of held to maturityHTM 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 securities HTM was 11.6710.82 years at March 31, 2023.2024.
Credit Quality Indicators
Valley monitors the credit quality of the held to maturityHTM debt securities through the use of utilizing the most currentcurrent credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at March 31, 20232024 and December 31, 2022.2023.
| | AAA/AA/A Rated | | | AAA/AA/A Rated | | BBB rated | | Non-investment grade rated | | Non-rated | | Total |
| | AAA/AA/A Rated | | BBB rated | | Non-investment grade rated | | Non-rated | | Total | | (in thousands) |
| (in thousands) |
March 31, 2023 | |
March 31, 2024 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 66,747 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66,747 | |
U.S. government agency securities | U.S. government agency securities | 300,614 | | | — | | | — | | | — | | | 300,614 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 73,278 | | | — | | | 5,437 | | | 17,978 | | | 96,693 | |
Municipal bonds | Municipal bonds | 328,202 | | | — | | | — | | | 48,702 | | | 376,904 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 401,480 | | | — | | | 5,437 | | | 66,680 | | | 473,597 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,893,505 | | | — | | | — | | | — | | | 2,893,505 | |
Trust preferred securities | Trust preferred securities | — | | | — | | | — | | | 37,048 | | | 37,048 | |
Corporate and other debt securities | Corporate and other debt securities | — | | | 6,000 | | | — | | | 69,701 | | | 75,701 | |
Total | Total | $ | 3,662,346 | | | $ | 6,000 | | | $ | 5,437 | | | $ | 173,429 | | | $ | 3,847,212 | |
December 31, 2022 | | | | | | | | | |
December 31, 2023 | |
U.S. Treasury securities | |
U.S. Treasury securities | |
U.S. Treasury securities | U.S. Treasury securities | $ | 66,911 | | | $ | — | | | $ | — | | | $ | — | | | $ | 66,911 | |
U.S. government agency securities | U.S. government agency securities | 260,392 | | | — | | | — | | | — | | | 260,392 | |
Obligations of states and political subdivisions: | Obligations of states and political subdivisions: | |
Obligations of states and state agencies | |
Obligations of states and state agencies | |
Obligations of states and state agencies | Obligations of states and state agencies | 74,943 | | | — | | | 5,497 | | | 18,798 | | | 99,238 | |
Municipal bonds | Municipal bonds | 333,488 | | | — | | | — | | | 47,572 | | | 381,060 | |
Total obligations of states and political subdivisions | Total obligations of states and political subdivisions | 408,431 | | | — | | | 5,497 | | | 66,370 | | | 480,298 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 2,909,106 | | | — | | | — | | | — | | | 2,909,106 | |
Trust preferred securities | Trust preferred securities | — | | | — | | | — | | | 37,043 | | | 37,043 | |
Corporate and other debt securities | Corporate and other debt securities | 2,000 | | | 6,000 | | | — | | | 67,234 | | | 75,234 | |
Total | 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 March 31, 2023,2024, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the "non-rated"“non-rated” category included tax exempt mortgage securities (TEMS)municipal bonds secured by Ginnie Mae securities. Trust preferred securities consist of non-rated single-issuer securities issued by bank holding companies. Corporate and other debt securities in the non-rated category mostlybonds consist of high quality foreigndebt primarily issued bonds.by banks.
Allowance for Credit Losses for Held to Maturity Debt Securities
Valley has a zero-losszero loss expectation for certain securities within the held to maturityHTM 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 securitiessecurity 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.
Accrued interest To measure the expected credit losses on investments, which is excluded from the amortized cost of held to maturityHTM debt securities totaled $12.7 million and $13.5 million at March 31, 2023 and December 31, 2022, respectively, and is presentedthat have loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by a third-party.
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 following table details the activity in the allowance for credit losses for the three months ended March 31, 20232024 and 2022:2023:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| (in thousands) |
Beginning balance | $ | 1,646 | | | $ | 1,165 | |
(Credit) provision for credit losses | (13) | | | 57 | |
Ending balance | $ | 1,633 | | | $ | 1,222 | |
There were no sales of available for sale and held to maturity debt securities debt securities during the three months ended March 31, 2023 and 2022, respectively. | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2024 | | 2023 | | | | |
| (in thousands) |
Beginning balance | $ | 1,205 | | | $ | 1,646 | | | | | |
Credit for credit losses | (74) | | | (13) | | | | | |
Ending balance | $ | 1,131 | | | $ | 1,633 | | | | | |
Note 8.7. Loans and Allowance for Credit Losses for Loans
The detail of the loan portfolio as of March 31, 20232024 and December 31, 20222023 was as follows:
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
| | (in thousands) | | (in thousands) |
Loans: | Loans: | |
| Commercial and industrial | Commercial and industrial | $ | 9,043,946 | | | $ | 8,804,830 | |
| Commercial and industrial | |
| Commercial and industrial | |
Commercial real estate: | Commercial real estate: | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | 27,051,111 | | | 25,732,033 | |
Construction | Construction | 3,725,967 | | | 3,700,835 | |
Total commercial real estate loans | Total commercial real estate loans | 30,777,078 | | | 29,432,868 | |
Residential mortgage | Residential mortgage | 5,486,280 | | | 5,364,550 | |
Consumer: | Consumer: | |
Home equity | |
Home equity | |
Home equity | Home equity | 516,592 | | | 503,884 | |
Automobile | Automobile | 1,717,141 | | | 1,746,225 | |
Other consumer | Other consumer | 1,118,929 | | | 1,064,843 | |
Total consumer loans | Total consumer loans | 3,352,662 | | | 3,314,952 | |
Total loans | Total loans | $ | 48,659,966 | | | $ | 46,917,200 | |
|
Total loans include net unearned discounts and deferred loan fees of $125.4$71.8 million and $120.5$85.4 million at March 31, 20232024 and December 31, 2022,2023, respectively.
Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $192.6$227.9 million and $175.9$222.2 million at March 31, 20232024 and December 31, 2022,2023, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.
Loans Portfolio Sales and Transfers to Loans Held for Sale
Valley sells residential mortgage loans originated for sale (at fair value) primarily to Fannie Mae and Freddie Mac in the normal course of business. Under certain circumstances, Valley may decide to sell loans that were not originated with the intent to sell. During the first quarter 2024, Valley sold $151.0 million and $45.6 million of commercial real estate and construction loans, respectively, at par value through loan participation agreements with a related party, Bank Leumi Le-Israel B.M. (BLITA). During the first quarter 2024, Valley also transferred $34.1 million of construction loans from loans held for investment to loans held for sale as of March 31, 2024. These loans were subsequently sold at par value through loan participation agreements with BLITA in April 2024.
In February 2024, Valley completed the sale of its commercial premium finance lending business for $96.8 million. This asset sale included $95.5 million of assets, mainly consisting of $93.6 million of loans, and $2.8 million of related liabilities. The transaction generated a $3.6 million net gain for the first quarter 2024. Valley continues to
hold certain commercial premium finance loans totaling $145.7 million at March 31, 2024 which are mostly expected to run-off at their scheduled maturity dates over the next 12 months.
There were no other sales or transfers of loans from the held for investment portfolio during the three months ended March 31, 20232024 and 2022.
March 31, 2023.
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, 2022 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 March 31, 20232024 and December 31, 2022:2023:
| | 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) |
March 31, 2023 | |
March 31, 2024 | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | Commercial and industrial | $ | 20,716 | | | $ | 24,118 | | | $ | 8,927 | | | $ | 78,606 | | | $ | 132,367 | | | $ | 8,911,579 | | | $ | 9,043,946 | | | $ | 6,675 | |
Commercial real estate: | Commercial real estate: | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | 13,580 | | | — | | | — | | | 67,938 | | | 81,518 | | | 26,969,593 | | | 27,051,111 | | | 66,587 | |
Construction | Construction | — | | | — | | | 6,450 | | | 68,649 | | | 75,099 | | | 3,650,868 | | | 3,725,967 | | | 15,791 | |
Total commercial real estate loans | Total commercial real estate loans | 13,580 | | | — | | | 6,450 | | | 136,587 | | | 156,617 | | | 30,620,461 | | | 30,777,078 | | | 82,378 | |
Residential mortgage | Residential mortgage | 12,599 | | | 2,133 | | | 1,668 | | | 23,483 | | | 39,883 | | | 5,446,397 | | | 5,486,280 | | | 18,694 | |
Consumer loans: | Consumer loans: | |
Home equity | Home equity | 412 | | | 287 | | | 48 | | | 2,965 | | | 3,712 | | | 512,880 | | | 516,592 | | | — | |
Home equity | |
Home equity | |
Automobile | Automobile | 4,598 | | | 502 | | | 282 | | | 262 | | | 5,644 | | | 1,711,497 | | | 1,717,141 | | | — | |
Other consumer | Other consumer | 2,835 | | | 730 | | | 417 | | | 91 | | | 4,073 | | | 1,114,856 | | | 1,118,929 | | | — | |
Total consumer loans | Total consumer loans | 7,845 | | | 1,519 | | | 747 | | | 3,318 | | | 13,429 | | | 3,339,233 | | | 3,352,662 | | | — | |
Total | Total | $ | 54,740 | | | $ | 27,770 | | | $ | 17,792 | | | $ | 241,994 | | | $ | 342,296 | | | $ | 48,317,670 | | | $ | 48,659,966 | | | $ | 107,747 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Past Due and Non-Accrual Loans | | | | | | |
| 30-59 Days Past Due Loans | | 60-89 Days Past Due Loans | | 90 Days or More Past Due Loans | | Non-Accrual Loans | | Total Past Due Loans | | Current Loans | | Total Loans | | Non-Accrual Loans Without Allowance for Loan Losses |
| (in thousands) | | |
December 31, 2022 | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 11,664 | | | $ | 12,705 | | | $ | 18,392 | | | $ | 98,881 | | | $ | 141,642 | | | $ | 8,663,188 | | | $ | 8,804,830 | | | $ | 5,659 | |
Commercial real estate: | | | | | | | | | | | | | | | |
Commercial real estate | 6,638 | | | 3,167 | | | 2,292 | | | 68,316 | | | 80,413 | | | 25,651,620 | | | 25,732,033 | | | 66,066 | |
Construction | — | | | — | | | 3,990 | | | 74,230 | | | 78,220 | | | 3,622,615 | | | 3,700,835 | | | 16,120 | |
Total commercial real estate loans | 6,638 | | | 3,167 | | | 6,282 | | | 142,546 | | | 158,633 | | | 29,274,235 | | | 29,432,868 | | | 82,186 | |
Residential mortgage | 16,146 | | | 3,315 | | | 1,866 | | | 25,160 | | | 46,487 | | | 5,318,063 | | | 5,364,550 | | | 14,224 | |
Consumer loans: | | | | | | | | | | | | | | | |
Home equity | 955 | | | 254 | | | — | | | 2,810 | | | 4,019 | | | 499,865 | | | 503,884 | | | 117 | |
Automobile | 5,974 | | | 630 | | | 1 | | | 271 | | | 6,876 | | | 1,739,349 | | | 1,746,225 | | | — | |
Other consumer | 2,158 | | | 695 | | | 46 | | | 93 | | | 2,992 | | | 1,061,851 | | | 1,064,843 | | | — | |
Total consumer loans | 9,087 | | | 1,579 | | | 47 | | | 3,174 | | | 13,887 | | | 3,301,065 | | | 3,314,952 | | | 117 | |
Total | $ | 43,535 | | | $ | 20,766 | | | $ | 26,587 | | | $ | 269,761 | | | $ | 360,649 | | | $ | 46,556,551 | | | $ | 46,917,200 | | | $ | 102,186 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Past Due and Non-Accrual Loans | | | | | | |
| 30-59 Days Past Due Loans | | 60-89 Days Past Due Loans | | 90 Days or More Past Due Loans | | Non-Accrual Loans | | Total Past Due Loans | | Current Loans | | Total Loans | | Non-Accrual Loans Without Allowance for Loan Losses |
| (in thousands) | | |
December 31, 2023 | | | | | | | | | | | | | | | |
Commercial and industrial | $ | 9,307 | | | $ | 5,095 | | | $ | 5,579 | | | $ | 99,912 | | | $ | 119,893 | | | $ | 9,110,650 | | | $ | 9,230,543 | | | $ | 6,594 | |
Commercial real estate: | | | | | | | | | | | | | | | |
Commercial real estate | 3,008 | | | 1,257 | | | — | | | 99,739 | | | 104,004 | | | 28,139,235 | | | 28,243,239 | | | 81,282 | |
Construction | — | | | — | | | 3,990 | | | 60,851 | | | 64,841 | | | 3,661,967 | | | 3,726,808 | | | 12,007 | |
Total commercial real estate loans | 3,008 | | | 1,257 | | | 3,990 | | | 160,590 | | | 168,845 | | | 31,801,202 | | | 31,970,047 | | | 93,289 | |
Residential mortgage | 26,345 | | | 8,200 | | | 2,488 | | | 26,986 | | | 64,019 | | | 5,504,991 | | | 5,569,010 | | | 14,654 | |
Consumer loans: | | | | | | | | | | | | | | | |
Home equity | 1,687 | | | 613 | | | — | | | 3,539 | | | 5,839 | | | 553,313 | | | 559,152 | | | — | |
Automobile | 11,850 | | | 1,855 | | | 576 | | | 212 | | | 14,493 | | | 1,605,896 | | | 1,620,389 | | | — | |
Other consumer | 7,017 | | | 2,247 | | | 512 | | | 632 | | | 10,408 | | | 1,250,746 | | | 1,261,154 | | | 589 | |
Total consumer loans | 20,554 | | | 4,715 | | | 1,088 | | | 4,383 | | | 30,740 | | | 3,409,955 | | | 3,440,695 | | | 589 | |
Total | $ | 59,214 | | | $ | 19,267 | | | $ | 13,145 | | | $ | 291,871 | | | $ | 383,497 | | | $ | 49,826,798 | | | $ | 50,210,295 | | | $ | 115,126 | |
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“Pass,” “Special Mention," "Substandard," "Doubtful,"” “Substandard,” “Doubtful,” and "Loss."“Loss.” Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses and, therefore, not presented in the table below. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories but pose weaknesses that deserve management’s close attention are deemed Special Mention. 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 March 31, 20232024 and December 31, 2022,2023, as well as the gross loan charge-offs by year of origination for the three months ended March 31, 2024 and for the year ended December 31, 2023:
| | | | Term Loans | | | | | | | Term Loans | | | | | | |
| Amortized Cost Basis by Origination Year | |
March 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | Amortized Cost Basis by Origination Year | |
March 31, 2024 | |
March 31, 2024 | |
March 31, 2024 | | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior to 2020 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Commercial and industrial | Commercial and industrial | |
Risk Rating: | Risk Rating: | |
Risk Rating: | |
Risk Rating: | |
Pass | Pass | | $ | 435,733 | | | $ | 1,418,804 | | | $ | 1,021,874 | | | $ | 549,408 | | | $ | 304,137 | | | $ | 628,117 | | | $ | 4,450,850 | | | $ | 130 | | | $ | 8,809,053 | |
Pass | |
Pass | |
| Special Mention | |
Special Mention | |
Special Mention | Special Mention | | 1,573 | | | 27,386 | | | 2,591 | | | 19,260 | | | 3,658 | | | 7,443 | | | 61,455 | | | 7 | | | 123,373 | |
Substandard | Substandard | | 10 | | | 517 | | | 2,832 | | | 2,617 | | | 1,203 | | | 6,904 | | | 25,847 | | | — | | | 39,930 | |
Doubtful | Doubtful | | — | | | 777 | | | 1,552 | | | — | | | 2,683 | | | 63,707 | | | 2,871 | | | — | | | 71,590 | |
| Total commercial and industrial | Total commercial and industrial | | $ | 437,316 | | | $ | 1,447,484 | | | $ | 1,028,849 | | | $ | 571,285 | | | $ | 311,681 | | | $ | 706,171 | | | $ | 4,541,023 | | | $ | 137 | | | $ | 9,043,946 | |
Commercial real estate | Commercial real estate | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | |
Risk Rating: | |
Risk Rating: | |
Pass | Pass | | $ | 1,607,961 | | | $ | 6,740,087 | | | $ | 5,201,027 | | | $ | 3,287,689 | | | $ | 2,520,271 | | | $ | 6,316,475 | | | $ | 490,136 | | | $ | 3,407 | | | $ | 26,167,053 | |
Pass | |
Pass | |
| Special Mention | |
Special Mention | |
Special Mention | Special Mention | | 26,512 | | | 55,889 | | | 46,317 | | | 63,647 | | | 71,474 | | | 251,353 | | | 6,720 | | | — | | | 521,912 | |
Substandard | Substandard | | — | | | 33,613 | | | 35,924 | | | 30,090 | | | 34,765 | | | 219,838 | | | 7,916 | | | — | | | 362,146 | |
| Total commercial real estate | |
Total commercial real estate | |
Total commercial real estate | Total commercial real estate | | $ | 1,634,473 | | | $ | 6,829,589 | | | $ | 5,283,268 | | | $ | 3,381,426 | | | $ | 2,626,510 | | | $ | 6,787,666 | | | $ | 504,772 | | | $ | 3,407 | | | $ | 27,051,111 | |
Construction | Construction | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | |
Risk Rating: | |
Risk Rating: | |
Pass | |
Pass | |
Pass | Pass | | $ | 120,282 | | | $ | 928,489 | | | $ | 415,212 | | | $ | 70,371 | | | $ | 15,502 | | | $ | 36,863 | | | $ | 2,079,911 | | | $ | — | | | $ | 3,666,630 | |
| Special Mention | |
Special Mention | |
Special Mention | |
Substandard | Substandard | | — | | | 13 | | | 12,290 | | | — | | | 964 | | | 17,600 | | | 7,351 | | | — | | | 38,218 | |
Doubtful | Doubtful | | 447 | | | 8,341 | | | 670 | | | 11,661 | | | — | | | — | | | — | | | — | | | 21,119 | |
Total construction | Total construction | | $ | 120,729 | | | $ | 936,843 | | | $ | 428,172 | | | $ | 82,032 | | | $ | 16,466 | | | $ | 54,463 | | | $ | 2,087,262 | | | $ | — | | | $ | 3,725,967 | |
Gross loan charge-offs | Gross loan charge-offs | | $ | — | | | $ | 6,035 | | | $ | 20,286 | | | $ | 123 | | | $ | 72 | | | $ | 1,636 | | | $ | 3,593 | | | $ | — | | | $ | 31,745 | |
| | | | Term Loans | | | | | | | Term Loans | | | | | | |
| Amortized Cost Basis by Origination Year | |
December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | Amortized Cost Basis by Origination Year | |
December 31, 2023 | |
December 31, 2023 | |
December 31, 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 | |
Risk Rating: | Risk Rating: | |
Risk Rating: | |
Risk Rating: | |
Pass | |
Pass | |
Pass | Pass | | $ | 1,600,747 | | | $ | 1,089,386 | | | $ | 590,406 | | | $ | 322,564 | | | $ | 250,031 | | | $ | 386,085 | | | $ | 4,307,163 | | | $ | 144 | | | $ | 8,546,526 | |
Special Mention | Special Mention | | 31,557 | | | 3,367 | | | 19,492 | | | 4,732 | | | 4,369 | | | 3,558 | | | 51,021 | | | 7 | | | 118,103 | |
Substandard | Substandard | | 288 | | | 1,734 | | | 4,121 | | | 1,412 | | | 4,256 | | | 4,879 | | | 31,698 | | | — | | | 48,388 | |
Doubtful | Doubtful | | 886 | | | 20,844 | | | — | | | 2,692 | | | — | | | 64,158 | | | 3,233 | | | — | | | 91,813 | |
| Total commercial and industrial | Total commercial and industrial | | $ | 1,633,478 | | | $ | 1,115,331 | | | $ | 614,019 | | | $ | 331,400 | | | $ | 258,656 | | | $ | 458,680 | | | $ | 4,393,115 | | | $ | 151 | | | $ | 8,804,830 | |
Total commercial and industrial | |
Total commercial and industrial | |
Commercial real estate | Commercial real estate | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | |
Risk Rating: | |
Risk Rating: | |
Pass | |
Pass | |
Pass | Pass | | $ | 6,815,115 | | | $ | 5,168,127 | | | $ | 3,246,885 | | | $ | 2,672,223 | | | $ | 1,536,327 | | | $ | 5,027,128 | | | $ | 452,461 | | | $ | 3,504 | | | $ | 24,921,770 | |
Special Mention | Special Mention | | 93,286 | | | 48,007 | | | 60,169 | | | 45,447 | | | 62,111 | | | 125,414 | | | 8,188 | | | — | | | 442,622 | |
Substandard | Substandard | | 15,088 | | | 34,475 | | | 32,630 | | | 34,622 | | | 59,337 | | | 183,341 | | | 7,986 | | | — | | | 367,479 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | 162 | | | — | | | — | | | 162 | |
| Total commercial real estate | |
| Total commercial real estate | |
| Total commercial real estate | Total commercial real estate | | $ | 6,923,489 | | | $ | 5,250,609 | | | $ | 3,339,684 | | | $ | 2,752,292 | | | $ | 1,657,775 | | | $ | 5,336,045 | | | $ | 468,635 | | | $ | 3,504 | | | $ | 25,732,033 | |
Construction | Construction | | | | | | | | | | | | | | | | | | |
Risk Rating: | Risk Rating: | |
Risk Rating: | |
Risk Rating: | |
Pass | Pass | | $ | 942,380 | | | $ | 512,046 | | | $ | 61,131 | | | $ | 22,845 | | | $ | 8,676 | | | $ | 20,599 | | | $ | 2,040,866 | | | $ | — | | | $ | 3,608,543 | |
Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | 14,268 | | | — | | | 14,268 | |
Pass | |
Pass | |
| Substandard | |
Substandard | |
Substandard | Substandard | | 12,969 | | | 12,601 | | | — | | | 974 | | | — | | | 17,599 | | | 20,138 | | | — | | | 64,281 | |
Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | 13,743 | | | — | | | — | | | 13,743 | |
Total construction | Total construction | | $ | 955,349 | | | $ | 524,647 | | | $ | 61,131 | | | $ | 23,819 | | | $ | 8,676 | | | $ | 51,941 | | | $ | 2,075,272 | | | $ | — | | | $ | 3,700,835 | |
Gross loan charge-offs | |
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 March 31, 20232024 and December 31, 2022,2023, as well as the gross loan charge-offs by year of origination for the three months ended March 31, 2024 and for the year ended December 31, 2023:
| | | | Term Loans | | | | | | | Term Loans | | | | | | |
| Amortized Cost Basis by Origination Year | |
March 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | Amortized Cost Basis by Origination Year | |
March 31, 2024 | |
March 31, 2024 | |
March 31, 2024 | | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior to 2020 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | | (in thousands) | | | (in thousands) |
Residential mortgage | Residential mortgage | |
Performing | |
Performing | |
Performing | Performing | | $ | 222,494 | | | $ | 1,317,372 | | | $ | 1,521,543 | | | $ | 572,064 | | | $ | 478,014 | | | $ | 1,300,107 | | | $ | 66,947 | | | $ | — | | | $ | 5,478,541 | |
90 days or more past due | 90 days or more past due | | — | | | 1,473 | | | 1,754 | | | — | | | 499 | | | 4,013 | | | — | | | — | | | 7,739 | |
Total residential mortgage | Total residential mortgage | | $ | 222,494 | | | $ | 1,318,845 | | | $ | 1,523,297 | | | $ | 572,064 | | | $ | 478,513 | | | $ | 1,304,120 | | | $ | 66,947 | | | $ | — | | | $ | 5,486,280 | |
Consumer loans | Consumer loans | | | | | | | | | | | | | | | | | | |
Home equity | Home equity | |
Home equity | |
Home equity | |
Performing | |
Performing | |
Performing | Performing | | $ | 7,251 | | | $ | 46,566 | | | $ | 12,085 | | | $ | 4,448 | | | $ | 4,891 | | | $ | 18,499 | | | $ | 383,948 | | | $ | 37,984 | | | $ | 515,672 | |
90 days or more past due | 90 days or more past due | | — | | | — | | | — | | | — | | | — | | | — | | | 285 | | | 635 | | | 920 | |
Total home equity | Total home equity | | 7,251 | | | 46,566 | | | 12,085 | | | 4,448 | | | 4,891 | | | 18,499 | | | 384,233 | | | 38,619 | | | 516,592 | |
Automobile | Automobile | | | | | | | | | | | | | | | | | | |
Performing | Performing | | 141,743 | | | 687,328 | | | 480,634 | | | 181,994 | | | 144,130 | | | 80,995 | | | — | | | — | | | 1,716,824 | |
Performing | |
Performing | |
90 days or more past due | 90 days or more past due | | — | | | 1 | | | 51 | | | 19 | | | 105 | | | 141 | | | — | | | — | | | 317 | |
Total automobile | Total automobile | | 141,743 | | | 687,329 | | | 480,685 | | | 182,013 | | | 144,235 | | | 81,136 | | | — | | | — | | | 1,717,141 | |
Other consumer | Other consumer | | | | | | | | | | | | | | | | | | |
Performing | |
Performing | |
Performing | Performing | | 4,898 | | | 23,313 | | | 9,056 | | | 8,020 | | | 7,374 | | | 2,615 | | | 1,063,356 | | | — | | | 1,118,632 | |
90 days or more past due | 90 days or more past due | | — | | | 28 | | | — | | | 2 | | | — | | | 38 | | | 229 | | | — | | | 297 | |
Total other consumer | Total other consumer | | 4,898 | | | 23,341 | | | 9,056 | | | 8,022 | | | 7,374 | | | 2,653 | | | 1,063,585 | | | — | | | 1,118,929 | |
Total consumer | Total consumer | | $ | 153,892 | | | $ | 757,236 | | | $ | 501,826 | | | $ | 194,483 | | | $ | 156,500 | | | $ | 102,288 | | | $ | 1,447,818 | | | $ | 38,619 | | | $ | 3,352,662 | |
Gross loan charge-offs | Gross loan charge-offs | | $ | — | | | $ | 146 | | | $ | 109 | | | $ | 4 | | | $ | 170 | | | $ | 388 | | | $ | 11 | | | $ | — | | | $ | 828 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans | | | | | | |
| | Amortized Cost Basis by Origination Year | | | | | | |
December 31, 2022 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior to 2018 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | (in thousands) |
Residential mortgage | | | | | | | | | | | | | | | | | | |
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 | | — | | | 197 | | | 217 | | | 1,835 | | | 2,876 | | | 4,174 | | | — | | | — | | | 9,299 | |
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 | | | | | | | | | | | | | | | | | | |
Home equity | | | | | | | | | | | | | | | | | | |
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 | | — | | | — | | | — | | | — | | | — | | | — | | | 276 | | | 710 | | | 986 | |
Total home equity | | 47,084 | | | 12,432 | | | 4,592 | | | 5,024 | | | 5,581 | | | 13,007 | | | 376,884 | | | 39,280 | | | 503,884 | |
Automobile | | | | | | | | | | | | | | | | | | |
Performing | | 724,557 | | | 525,017 | | | 204,578 | | | 166,103 | | | 80,012 | | | 45,415 | | | — | | | — | | | 1,745,682 | |
90 days or more past due | | 38 | | | 116 | | | 36 | | | 180 | | | 101 | | | 72 | | | — | | | — | | | 543 | |
Total automobile | | 724,595 | | | 525,133 | | | 204,614 | | | 166,283 | | | 80,113 | | | 45,487 | | | — | | | — | | | 1,746,225 | |
Other consumer | | | | | | | | | | | | | | | | | | |
Performing | | 24,140 | | | 10,144 | | | 8,206 | | | 7,435 | | | 7,406 | | | 15,736 | | | 991,737 | | | — | | | 1,064,804 | |
90 days or more past due | | — | | | — | | | — | | | — | | | — | | | 38 | | | 1 | | | — | | | 39 | |
Total other consumer | | 24,140 | | | 10,144 | | | 8,206 | | | 7,435 | | | 7,406 | | | 15,774 | | | 991,738 | | | — | | | 1,064,843 | |
Total consumer | | $ | 795,819 | | | $ | 547,709 | | | $ | 217,412 | | | $ | 178,742 | | | $ | 93,100 | | | $ | 74,268 | | | $ | 1,368,622 | | | $ | 39,280 | | | $ | 3,314,952 | |
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| | Term Loans | | | | | | |
| | Amortized Cost Basis by Origination Year | | | | | | |
December 31, 2023 | | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior to 2019 | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans | | Total |
| | (in thousands) |
Residential mortgage | | | | | | | | | | | | | | | | | | |
Performing | | $ | 467,178 | | | $ | 1,304,026 | | | $ | 1,505,133 | | | $ | 538,853 | | | $ | 435,669 | | | $ | 1,244,986 | | | $ | 57,052 | | | $ | 1,771 | | | $ | 5,554,668 | |
90 days or more past due | | — | | | 1,968 | | | 1,681 | | | 1,357 | | | 3,391 | | | 5,945 | | | — | | | — | | | 14,342 | |
Total residential mortgage | | $ | 467,178 | | | $ | 1,305,994 | | | $ | 1,506,814 | | | $ | 540,210 | | | $ | 439,060 | | | $ | 1,250,931 | | | $ | 57,052 | | | $ | 1,771 | | | $ | 5,569,010 | |
Consumer loans | | | | | | | | | | | | | | | | | | |
Home equity | | | | | | | | | | | | | | | | | | |
Performing | | $ | 40,599 | | | $ | 44,893 | | | $ | 14,948 | | | $ | 4,096 | | | $ | 4,850 | | | $ | 46,274 | | | $ | 396,960 | | | $ | 4,608 | | | $ | 557,228 | |
90 days or more past due | | — | | | 51 | | | 13 | | | — | | | — | | | 1,132 | | | — | | | 728 | | | 1,924 | |
Total home equity | | 40,599 | | | 44,944 | | | 14,961 | | | 4,096 | | | 4,850 | | | 47,406 | | | 396,960 | | | 5,336 | | | 559,152 | |
Automobile | | | | | | | | | | | | | | | | | | |
Performing | | $ | 468,152 | | | $ | 531,728 | | | $ | 356,144 | | | $ | 121,658 | | | $ | 86,147 | | | $ | 34,504 | | | $ | 20,227 | | | $ | 763 | | | $ | 1,619,323 | |
90 days or more past due | | 90 | | | 284 | | | 54 | | | 92 | | | 237 | | | 309 | | | — | | | — | | | 1,066 | |
Total automobile | | 468,242 | | | 532,012 | | | 356,198 | | | 121,750 | | | 86,384 | | | 34,813 | | | 20,227 | | | 763 | | | 1,620,389 | |
Other consumer | | | | | | | | | | | | | | | | | | |
Performing | | $ | 32,662 | | | $ | 20,376 | | | $ | 2,986 | | | $ | 1,722 | | | $ | 10,381 | | | $ | 52,659 | | | $ | 1,120,863 | | | $ | 18,655 | | | $ | 1,260,304 | |
90 days or more past due | | 10 | | | 79 | | | — | | | — | | | — | | | 628 | | | — | | | 133 | | | 850 | |
Total other consumer | | 32,672 | | | 20,455 | | | 2,986 | | | 1,722 | | | 10,381 | | | 53,287 | | | 1,120,863 | | | 18,788 | | | 1,261,154 | |
Total consumer | | $ | 541,513 | | | $ | 597,411 | | | $ | 374,145 | | | $ | 127,568 | | | $ | 101,615 | | | $ | 135,506 | | | $ | 1,538,050 | | | $ | 24,887 | | | $ | 3,440,695 | |
Gross loan charge-offs | | $ | 296 | | | $ | 903 | | | $ | 357 | | | $ | 232 | | | $ | 752 | | | $ | 1,921 | | | $ | 31 | | | $ | — | | | $ | 4,492 | |
Loan modifications to borrowers experiencing financial difficulty. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. Prior to 2023, a loan was classified as a troubled debt restructuring (TDR) if the borrower was experiencing financial difficulties and a concession has been made at the time of such modification.
Effective January 1, 2023, Valley adopted ASU No. 2022-02 which eliminated the accounting guidance for TDR loans while enhancing disclosure requirements for certain loan modifications by creditors when a borrower is experiencing financial difficulty. Valley adopted ASU No. 2022-02 using the modified retrospective transition method. At the date of adoption, Valley was no longer required to utilize a loan-level discounted cash flow approach for determining the allowance for certain modified loans previously classified as TDR loans. As a result, Valley elected to utilize its collective reserve methodology for pools of loans that share common risk characteristic for determining the reserves for the modified loans formerly classified as TDR loans. This change resulted in the recognition of a cumulative-effect adjustment which decreased the allowance for loan losses with an offsetting entry to retained earnings, net of deferred taxes, at January 1, 2023.
The following tabletables shows the amortized cost basis of loans to borrowers experiencing financial difficulty at March 31, 20232024 that were modified during the three months ended March 31, 2024 and 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 March 31, |
| | Term extension | | | | | | | | Term extension and interest rate reduction | | Total | | | | | | |
| | ($ in thousands) |
Commercial and industrial | | $ | 1,281 | | | | | | | | | $ | 523 | | | $ | 1,804 | | | | | | | |
Commercial real estate | | 46,328 | | | | | | | | | — | | | 46,328 | | | | | | | |
Residential mortgage | | 213 | | | | | | | | | — | | | 213 | | | | | | | |
Consumer | | 60 | | | | | | | | | — | | | 60 | | | | | | | |
Total | | $ | 47,882 | | | | | | | | | $ | 523 | | | $ | 48,405 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Term extension | | | | | | | | Term extension and interest rate reduction | | Total | | % of Total Loan Class |
| | | ($ in thousands) |
Three Months Ended March 31, 2024 | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | $ | 34,271 | | | | | | | | | $ | 143 | | | $ | 34,414 | | | 0.38 | % |
Commercial real estate | | | | 62 | | | | | | | | | 16,222 | | | 16,284 | | | 0.06 | |
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| | | | | | | | | | | | | | | | |
Home equity | | | | 91 | | | | | | | | | — | | | 91 | | | 0.02 | |
| | | | | | | | | | | | | | | | |
Total | | | | $ | 34,424 | | | | | | | | | $ | 16,365 | | | $ | 50,789 | | | 0.10 | % |
Three Months Ended March 31, 2023 | | | | | | | | | | | | | | | | |
Commercial and industrial | | | | $ | 1,281 | | | | | | | | | $ | 523 | | | $ | 1,804 | | | 0.02 | % |
Commercial real estate | | | | 46,328 | | | | | | | | | — | | | 46,328 | | | 0.17 | |
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Residential mortgage | | | | 213 | | | | | | | | | — | | | 213 | | | — | |
| | | | | | | | | | | | | | | | |
Other consumer | | | | 60 | | | | | | | | | — | | | 60 | | | — | |
Total | | | | $ | 47,882 | | | | | | | | | $ | 523 | | | $ | 48,405 | | | 0.10 | % |
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The following tabletables describes the types of modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2023:difficulty.
| | | | | | | | | | | | |
| | |
| | Types of Modifications | | | | |
| | | | | | |
Three Months Ended March 31, 2024 | | | | | | |
Commercial and industrial | | 3 to 12 month term extensions | | | | |
| | 24 month term extensions combined with a reduction in interest rate from 2.10 percent to 1.00 percent | | | | |
Commercial real estate | | 6 to 36 month term extensions | | | | |
| | 12 to 18 month term extensions combined with a reduction in interest rate from 8.06 percent to 7.00 percent | | | | |
| | | | | | |
| | | | | | |
Home equity | | 120 month term extension | | | | |
| | | | | | |
Three Months Ended March 31, 2023 | | | | | | |
Commercial and industrial | | 12 month term extensions; and extensions | | | | |
| | 12 month term extensions combined with a reduction in interest rate reductions from 2.11 percent to 11.00 percent | | | | |
Commercial real estate | | 6 - 36 month term extensions | | | | |
| | | | | | |
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 its modification efforts. AllThe following table presents the aging analysis of loans to borrowers experiencing financial difficulty that have been modified duringwithin the three months endedprevious 12 months.
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| | At March 31, 2024 |
| | Current | | 30-89 Days Past Due | | 90 Days Or More Past Due * | | Total |
| | ($ in thousands) |
Commercial and industrial | | $ | 73,859 | | | $ | 5,916 | | | $ | 4,943 | | | $ | 84,718 | |
Commercial real estate | | 96,217 | | | — | | | 2,153 | | | 98,370 | |
| | | | | | | | |
Residential mortgage | | — | | | 360 | | | — | | | 360 | |
Home equity | | 122 | | | — | | | — | | | 122 | |
| | | | | | | | |
Total | | $ | 170,198 | | | $ | 6,276 | | | $ | 7,096 | | | $ | 183,570 | |
* All loan balances in this delinquency category were non-accrual loans at March 31, 2023 were current to their contractual payments as of March 31, 2023.2024.
Valley did not extend any commitments to lend additional funds to borrowers experiencing financial difficulty whose loans had been modified during the three months ended March 31, 2023.
Troubled debt restructured loans. The following tables present the pre-2024 and post-modification amortized cost of TDR loans by loan class during the three months ended March 31, 2022. Post-modification amounts are presented as of March 31, 2022 using the allowance methodology for TDRs prior to the adoption of ASU 2022-02.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Three Months Ended March 31, 2022 |
Troubled Debt Restructurings | | | | | | | | Number of Contracts | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | | | | | | | ($ in thousands) |
Commercial and industrial | | | | | | | | 11 | | | $ | 9,684 | | | $ | 9,662 | |
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Commercial real estate | | | | | | | | 2 | | | 5,260 | | | 5,251 | |
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Residential mortgage | | | | | | | | 1 | | | 121 | | | 117 | |
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Total | | | | | | | | 14 | | | $ | 15,065 | | | $ | 15,030 | |
The total TDRs presented in the above tables had allocated allowance for loan losses of $7.8 million at March 31, 2022. There were no charge-offs related to TDRs for the three months ended March 31, 2022. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three months ended March 31, 2022.
Performing TDRs (not reported as non-accrual loans) and non-performing TDRs totaled $56.5 million and $104.7 million as of March 31, 2022.
Loans modified as TDRs within the previous 12 months and for which there was a payment default (90 or more days past due) for the three months ended March 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, 2022 |
Troubled Debt Restructurings Subsequently Defaulted | | | | | | Number of Contracts | | Recorded Investment |
| | | | | | ($ in thousands) |
Commercial and industrial | | | | | | 2 | | | $ | 1,850 | |
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| | | | | | | | |
Construction | | | | | | 2 | | | 17,599 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | | | | | | 4 | | | $ | 19,449 | |
Loans in process of foreclosure. Other real estate owned (OREO) totaled $1.2 million and $286 thousandwas not material at March 31, 20232024 and December 31, 2022, respectively.2023. There were no foreclosedforeclosed residential real estate properties included in OREO at March 31, 20232024 and December 31, 2022.2023. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $1.5$2.3 million and $2.6$1.6 million at March 31, 20232024 and December 31, 2022,2023, respectively.
Collateral dependent loans. Loans are collateral-dependentcollateral 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 March 31, 20232024 and December 31, 2022:2023:
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
| | (in thousands) | | (in thousands) |
Collateral dependent loans: | Collateral dependent loans: | |
Commercial and industrial * | Commercial and industrial * | $ | 74,481 | | | $ | 94,433 | |
Commercial and industrial * | |
Commercial and industrial * | |
| Commercial real estate | Commercial real estate | 144,892 | | | 130,199 | |
| Commercial real estate | |
Commercial real estate | |
Construction | |
Total commercial real estate loans | |
Residential mortgage | Residential mortgage | 18,694 | | | 33,865 | |
Home equity | Home equity | — | | | 195 | |
Consumer | |
Total | Total | $ | 238,067 | | | $ | 258,692 | |
* Commercial and industrialIncludes non-accrual loans presented in the table above are primarily collateralized by taxi medallions.medallions totaling $53.0 million and $62.3 million at March 31, 2024 and December 31, 2023, respectively.
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 decreased $22.3 million at March 31, 2023 as compared to December 31, 2022.
The following table summarizes the ACL for loans at March 31, 20232024 and December 31, 2022:2023:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| | (in thousands) | | (in thousands) |
Components of allowance for credit losses for loans: | Components of allowance for credit losses for loans: | |
Allowance for loan losses | Allowance for loan losses | $ | 436,898 | | | $ | 458,655 | |
Allowance for loan losses | |
Allowance for loan losses | |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 24,071 | | | 24,600 | |
Total allowance for credit losses for loans | Total allowance for credit losses for loans | $ | 460,969 | | | $ | 483,255 | |
The following table summarizes the provision for credit losses for loans for the periods indicated:
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| |
| |
| |
| |
| | | Three Months Ended March 31, | |
| | 2023 | | 2022 | |
| | (in thousands) | (in thousands) |
Components of provision for credit losses for loans: | Components of provision for credit losses for loans: | | |
Provision for loan losses | Provision for loan losses | $ | 9,979 | | | $ | 3,258 | | |
(Credit) provision for unfunded credit commitments | (529) | | | 242 | | |
Provision for loan losses | |
Provision for loan losses | |
Credit for unfunded credit commitments | |
Credit for unfunded credit commitments | |
Credit for unfunded credit commitments | |
Total provision for credit losses for loans | Total provision for credit losses for loans | $ | 9,450 | | | $ | 3,500 | | |
Total provision for credit losses for loans | |
Total provision for credit losses for loans | |
The following table details the activity in the allowance for loan losses by loan portfolio segment for the three months ended March 31, 20232024 and 2022:2023:
| | Commercial and Industrial | | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| | | (in thousands) |
Three Months Ended March 31, 2024 | |
Allowance for loan losses: | |
Allowance for loan losses: | |
Allowance for loan losses: | |
Beginning balance | |
Beginning balance | |
Beginning balance | |
| | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
Loans charged-off | |
| | (in thousands) |
Loans charged-off | |
| Loans charged-off | |
Charged-off loans recovered | |
Net (charge-offs) recoveries | |
Provision for loan losses | |
Ending balance | |
Three Months Ended March 31, 2023 | Three Months Ended March 31, 2023 | |
Allowance for loan losses: | Allowance for loan losses: | |
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 * | (739) | | | (589) | | | (12) | | | (28) | | | (1,368) | |
Beginning balance | |
Beginning balance | |
Impact of the adoption of ASU No. 2022-02 | |
Beginning balance, adjusted | Beginning balance, adjusted | $ | 139,202 | | | $ | 258,819 | | | $ | 39,008 | | | $ | 20,258 | | | $ | 457,287 | |
Loans charged-off | Loans charged-off | (26,047) | | | (5,698) | | | — | | | (828) | | | (32,573) | |
Charged-off loans recovered | Charged-off loans recovered | 1,399 | | | 24 | | | 21 | | | 761 | | | 2,205 | |
Net (charge-offs) recoveries | Net (charge-offs) recoveries | (24,648) | | | (5,674) | | | 21 | | | (67) | | | (30,368) | |
Provision (credit) for loan losses | Provision (credit) for loan losses | 13,438 | | | (9,813) | | | 2,679 | | | 3,675 | | | 9,979 | |
Ending balance | Ending balance | $ | 127,992 | | | $ | 243,332 | | | $ | 41,708 | | | $ | 23,866 | | | $ | 436,898 | |
Three Months Ended March 31, 2022 | | | | | | | | | |
Allowance for loan losses: | |
Beginning balance | $ | 103,090 | | | $ | 217,490 | | | $ | 25,120 | | | $ | 13,502 | | | $ | 359,202 | |
| Loans charged-off | (1,571) | | | (173) | | | (26) | | | (825) | | | (2,595) | |
Charged-off loans recovered | 824 | | | 107 | | | 457 | | | 1,257 | | | 2,645 | |
Net (charge-offs) recoveries | (747) | | | (66) | | | 431 | | | 432 | | | 50 | |
(Credit) provision for loan losses | (1,140) | | | 2,525 | | | 2,638 | | | (765) | | | 3,258 | |
Ending balance | $ | 101,203 | | | $ | 219,949 | | | $ | 28,189 | | | $ | 13,169 | | | $ | 362,510 | |
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 March 31, 20232024 and December 31, 2022.2023.
| | Commercial and Industrial | | | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total |
| | Commercial and Industrial | | Commercial Real Estate | | Residential Mortgage | | Consumer | | Total | | (in thousands) |
| (in thousands) |
March 31, 2023 | |
March 31, 2024 | |
Allowance for loan losses: | Allowance for loan losses: | |
Allowance for loan losses: | |
Allowance for loan losses: | |
Individually evaluated for credit losses | |
Individually evaluated for credit losses | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 46,151 | | | $ | 13,445 | | | $ | 34 | | | $ | — | | | $ | 59,630 | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 81,841 | | | 229,887 | | | 41,674 | | | 23,866 | | | 377,268 | |
Total | Total | $ | 127,992 | | | $ | 243,332 | | | $ | 41,708 | | | $ | 23,866 | | | $ | 436,898 | |
Loans: | Loans: | | | | | | | | | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 74,625 | | | $ | 144,892 | | | $ | 12,028 | | | $ | 6,929 | | | $ | 238,474 | |
Individually evaluated for credit losses | |
Individually evaluated for credit losses | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 8,969,321 | | | 30,632,186 | | | 5,474,252 | | | 3,345,733 | | | 48,421,492 | |
Total | Total | $ | 9,043,946 | | | $ | 30,777,078 | | | $ | 5,486,280 | | | $ | 3,352,662 | | | $ | 48,659,966 | |
December 31, 2022 | | | | | | | | | |
December 31, 2023 | |
Allowance for loan losses: | Allowance for loan losses: | |
Allowance for loan losses: | |
Allowance for loan losses: | |
Individually evaluated for credit losses | |
Individually evaluated for credit losses | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 68,745 | | | $ | 13,174 | | | $ | 337 | | | $ | 4,338 | | | $ | 86,594 | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 71,196 | | | 246,234 | | | 38,683 | | | 15,948 | | | 372,061 | |
Total | Total | $ | 139,941 | | | $ | 259,408 | | | $ | 39,020 | | | $ | 20,286 | | | $ | 458,655 | |
Loans: | Loans: | | | | | | | | | |
Individually evaluated for credit losses | Individually evaluated for credit losses | $ | 117,644 | | | $ | 213,522 | | | $ | 28,869 | | | $ | 14,058 | | | $ | 374,093 | |
Individually evaluated for credit losses | |
Individually evaluated for credit losses | |
Collectively evaluated for credit losses | Collectively evaluated for credit losses | 8,687,186 | | | 29,219,346 | | | 5,335,681 | | | 3,300,894 | | | 46,543,107 | |
Total | Total | $ | 8,804,830 | | | $ | 29,432,868 | | | $ | 5,364,550 | | | $ | 3,314,952 | | | $ | 46,917,200 | |
Note 9.8. Goodwill and Other Intangible Assets
The carrying amounts of goodwill allocated to Valley's business segments, or reporting units thereof, for goodwill impairment analysis at both March 31, 20232024 and December 31, 20222023, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Business Segment / Reporting Unit * |
| Wealth Management | | Consumer Banking | | Commercial Banking | | | | Total |
| (in thousands) |
| | | | | | | | | |
| | | | | | | | | |
| $ | 49,767 | | | $ | 284,873 | | | $ | 1,534,296 | | | | | $ | 1,868,936 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Reporting Unit * |
| Wealth Management | | Consumer Banking | | Commercial Banking | | | | Total |
| (in thousands) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| $ | 78,142 | | | $ | 349,646 | | | $ | 1,441,148 | | | | | $ | 1,868,936 | |
* Valley’sThe Wealth Management and Insurance Division is comprised of trust, asset management, brokerage, insurance and tax credit advisory services. This reporting unit is included in the Consumer Banking reporting units are both components of the overall Consumer Banking operating segment, for financial reporting purposes.which is further described in Note 15.
During the three months ended March 31, 2023,2024, there were no triggering events that would more likely than not
reduce the fair value of any reporting unit below its carrying amount. There waswas no impairmentimpairment of goodwill recognized during the three months ended March 31, 20232024 and 2022.2023.
The following table summarizes other intangible assets as of March 31, 20232024 and December 31, 2022:2023:
| | Gross Intangible Assets | |
| Gross Intangible Assets | |
| Gross Intangible Assets | | | Accumulated Amortization | | | | Net Intangible Assets |
| | Gross Intangible Assets | | Accumulated Amortization | | | Net Intangible Assets | | (in thousands) |
| (in thousands) |
March 31, 2023 | | | |
March 31, 2024 | |
Loan servicing rights | |
Loan servicing rights | |
Loan servicing rights | Loan servicing rights | $ | 120,177 | | | $ | (97,332) | | | | $ | 22,845 | |
Core deposits | Core deposits | 215,620 | | | (92,048) | | | | 123,572 | |
Other | Other | 50,393 | | | (9,639) | | | | 40,754 | |
Total other intangible assets | Total other intangible assets | $ | 386,190 | | | $ | (199,019) | | | | $ | 187,171 | |
December 31, 2022 | | | | | | |
December 31, 2023 | |
Loan servicing rights | |
Loan servicing rights | |
Loan servicing rights | Loan servicing rights | $ | 119,943 | | | $ | (96,136) | | | | $ | 23,807 | |
Core deposits | Core deposits | 223,670 | | | (92,486) | | | | 131,184 | |
Other | Other | 51,299 | | | (8,834) | | | | 42,465 | |
Total other intangible assets | 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 of loan servicing rights recognized during the three months ended March 31, 20232024 and 2022.2023.
Core deposits are amortized using an accelerated method over a period of 10.0 years. The line item labeled “Other” included in the table above primarily consists of customer lists, certain financial asset servicing contracts and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 13.4 years.
Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. NoThere was no impairment of core deposits and other intangibles was recognized during the three months ended March 31, 20232024 and 2022.2023.
The following table presents the estimated future amortization expense of other intangible assets for the remainder of 20232024 through 2027:2028:
| | | | | | | | | | | | | | | | | |
Year | Loan Servicing Rights | | Core Deposits | | Other |
| (in thousands) |
2023 | $ | 2,365 | | | $ | 21,135 | | | $ | 4,810 | |
2024 | 2,813 | | | 24,897 | | | 5,951 | |
2025 | 2,461 | | | 21,048 | | | 5,380 | |
2026 | 2,143 | | | 17,223 | | | 4,805 | |
2027 | 1,861 | | | 13,544 | | | 4,205 | |
| | | | | | | | | | | | | | | | | | | | |
Year | | Loan Servicing Rights | | Core Deposits | | Other |
| | (in thousands) |
2024 | | $ | 2,066 | | | $ | 18,248 | | | $ | 4,382 | |
2025 | | 2,504 | | | 21,048 | | | 5,380 | |
2026 | | 2,206 | | | 17,223 | | | 4,805 | |
2027 | | 1,928 | | | 13,544 | | | 4,205 | |
2028 | | 1,685 | | | 10,117 | | | 3,633 | |
Valley recognized amortization expense on other intangible assets totaling approximately $10.5$9.4 million and $4.4$10.5 million for the three months ended March 31, 20232024 and 2022,2023, respectively.
Note 10.9. Deposits
Included in time deposits are certificates of deposit over $250 thousand totaling $1.7$2.1 billion and $1.8$2.6 billion at March 31, 20232024 and December 31, 2022,2023, respectively. Interest expense on time deposits of over $250 thousand or more totaled $29.7 million and $2.8 million and $107 thousand for the three months ended March 31, 20232024 and 2022,2023, respectively.
The scheduled maturities of time deposits as of March 31, 20232024 were as follows:
| Year | Year | | Amount | Year | | Amount |
| | | (in thousands) | | | (in thousands) |
2023 | | 6,859,391 | |
2024 | 2024 | | 2,578,459 | |
2025 | 2025 | | 61,015 | |
2026 | 2026 | | 120,032 | |
2027 | 2027 | | 45,077 | |
2028 | |
Thereafter | Thereafter | | 1,447,402 | |
Total time deposits | Total time deposits | | $ | 11,111,376 | |
Note 11.10. Borrowed Funds
Short-Term Borrowings
Short-term borrowings at March 31, 20232024 and December 31, 20222023 consisted of the following:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| | (in thousands) | | (in thousands) |
FHLB advances | FHLB advances | $ | 6,300,000 | | | $ | 24,035 | |
| Securities sold under agreements to repurchase | Securities sold under agreements to repurchase | 113,056 | | | 114,694 | |
Securities sold under agreements to repurchase | |
Securities sold under agreements to repurchase | |
Total short-term borrowings | Total short-term borrowings | $ | 6,413,056 | | | $ | 138,729 | |
The weighted average interest rate for short-term FHLB advances was 5.18 percent and 1.65.62 percent at March 31, 2023 and December 31, 2022, respectively.2023.
Long-Term Borrowings
Long-term borrowings at March 31, 20232024 and December 31, 20222023 consisted of the following:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| | (in thousands) | | (in thousands) |
FHLB advances, net (1) | FHLB advances, net (1) | $ | 1,438,361 | | | $ | 788,419 | |
Subordinated debt, net (2) | Subordinated debt, net (2) | 759,295 | | | 754,639 | |
| Total long-term borrowings | Total long-term borrowings | $ | 2,197,656 | | | $ | 1,543,058 | |
Total long-term borrowings | |
Total long-term borrowings | |
| | | | | |
(1) | FHLB advances are presented net of unamortized premiums totaling $361$158 thousand and $419$209 thousand at March 31, 20232024 and December 31, 2022,2023, respectively. |
(2) | Subordinated debt is presented net of unamortized debt issuance costs totaling $6.5$4.8 million and $6.9$5.2 million at March 31, 20232024 and December 31, 2022,2023, respectively. |
FHLB Advances.advances. Long-term FHLB advances had a weighted average interest rate of 3.664.10 percent and 1.883.75 percent at March 31, 20232024 and December 31, 2022,2023, 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 March 31, 20232024 are scheduled for contractual balance repayments as follows:
| Year | Year | | Amount | Year | | Amount |
| | (in thousands) |
| | | | (in thousands) |
2024 | 2024 | | $ | 165,000 | |
2025 | 2025 | | 273,000 | |
2026 | 2026 | | 350,000 | |
2027 | 2027 | | 425,000 | |
2028 | |
Thereafter | Thereafter | | 225,000 | |
Total long-term FHLB advances | Total long-term FHLB advances | | $ | 1,438,000 | |
There are noNone of the FHLB advances reported in the table above which are callable for early redemption by the FHLB during the next 12 months.
Subordinated debt.There were no new issuances of the subordinated debt during the three months ended March 31, 2023.2024. See Note 10 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2022 for detailsadditional information on the outstanding subordinated debt.debt at March 31, 2024.
Note 12.11. Stock–Based Compensation
On April 25, 2023, Valley's shareholders approved the Valley National Bancorp 2023 Incentive Compensation Plan (the 2023 Plan). The purpose of the 2023 Plan ismaintains an incentive compensation plan 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).
Under the 2023 Plan,plan, Valley may issue awards to its officers, employees and non-employee directors in amounts up to 14.5 million, subject to certain adjustments. As of March 31, 2024, 9.1 million shares of common stock less one sharewere available for every share granted after December 31, 2022issuance under the 2021 Plan. These awards may be in the form of stock appreciation rights, incentive and non-qualified stock options, restricted stock, and restricted stock units (RSUs). If after December 31, 2022, share awards granted under the 2021 Planplan.
RSUs are forfeited, expire, settled for cash, withheld for tax obligations, or otherwise not issued, the shares will be added to the 2023 Plan's share reserve. 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. Performance-based awards may also be based on 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.
Valley granted 1.5 million and 1.2 million time-based RSUs during the three months ended March 31, 2023 and 2022, respectively. Generally, time-based RSUs vest ratably over a three-year period. The average grant date fair value of the RSUs granted during the three months ended March 31, 2023 and 2022 was $11.91 per share and $14.05 per share, respectively.
Valley granted 723 thousand and 567 thousandawarded as performance-based RSUs to certain officers for the three months ended March 31, 2023 and 2022, respectively.time-based RSUs. The performance-based RSU awards are granted to certain officers and include RSUs withsubject to vesting conditions based upon certain levels of growth in Valley's tangible book value per share, plus dividends; and RSUs withsubject to 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 accumulateThe table below summarizes RSU awards granted and are 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 three months ended March 31, 2023 and 2022 was $12.80 per share and $14.82 per share, respectively.
Valley recorded total stock-based compensation expense of $8.1 million and $7.3 millionvalues for the three months ended March 31,
20232024 and
2022, respectively. 2023: | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
| (in thousands, except per share data) |
Award shares granted: | | | | | | | |
Performance-based RSUs | 958 | | | 723 | | | | | |
Time-based RSUs | 2,794 | | | 1,528 | | | | | |
Average grant date fair value per share: | | | | | | | |
Performance-based RSUs | $ | 7.88 | | | $ | 12.80 | | | | | |
Time-based RSUs | $ | 8.51 | | | $ | 11.91 | | | | | |
Stock award fair values are expensed over the shorter of the vesting or required service period. Valley recorded total stock-based compensation expense of approximately $8.1 million for both the three months ended March 31, 2024 and 2023. As of March 31, 2023,2024, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $56.6$56.7 million. This expense will be recognized over an average remaining vesting period of approximately 2.2 years. See Note 12 in Valley’s Annual Report for additional information on the stock-based compensation awards.
Note 13.12. Derivative Instruments and Hedging Activities
Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest and currency rates.
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.
At March 31, 2023, Valley had six interest rate swaps with a total notional amount of $600 million, to hedge the changes in cash flows associated with certain variable rate loans. Valley is required to pay variable rate amounts based on one-month CME Term SOFR and receives fixed rate payments based on the tenor of each swap. Expiration dates for the swaps range from November 2024 to November 2026.
Fair Value Hedges of Fixed Rate Assets and Liabilities.Valley is exposed to changes in the fair value of certain fixed-rate subordinated debtassets and liabilities due to changes in interest rates. Valley usesrates and 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. 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.value. 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.
Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide a service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes. 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 March 31, 2023,2024, Valley had 3344 credit swaps with an aggregate notional amount of $409.2$605.5 million related to risk participation agreements.
At March 31, 2023,2024, 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)Constant Maturity Swap 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 LIBORTerm SOFR rate and, therefore, provide an effective economic hedge.
Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest raterates 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:
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2024 | | December 31, 2023 |
| | Fair Value | | | Fair Value | |
| Other Assets | | Other Liabilities | | Notional Amount | | Other Assets | | Other Liabilities | | Notional Amount |
| Other Assets | |
| Other Assets | |
| 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: | |
Cash flow hedge interest rate swaps | $ | 7,866 | | | $ | — | | | $ | 600,000 | | | $ | 3,971 | | | $ | 4 | | | $ | 600,000 | |
| Fair value hedge interest rate swaps | |
| Fair value hedge interest rate swaps | |
| Fair value hedge interest rate swaps | Fair value hedge interest rate swaps | — | | | 27,858 | | | 300,000 | | | — | | | 29,794 | | | 300,000 | |
Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | $ | 7,866 | | | $ | 27,858 | | | $ | 900,000 | | | $ | 3,971 | | | $ | 29,798 | | | $ | 900,000 | |
Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | | | | | | | |
Interest rate swaps and other contracts* | Interest rate swaps and other contracts* | $ | 429,195 | | | $ | 457,508 | | | $ | 15,298,441 | | | $ | 449,280 | | | $ | 564,678 | | | $ | 14,753,330 | |
Interest rate swaps and other contracts* | |
Interest rate swaps and other contracts* | |
Foreign currency derivatives | Foreign currency derivatives | 9,540 | | | 8,944 | | | 1,848,883 | | | 13,709 | | | 12,604 | | | 1,273,735 | |
Mortgage banking derivatives | Mortgage banking derivatives | 148 | | | 242 | | | 51,106 | | | 167 | | | 157 | | | 31,299 | |
Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | $ | 438,883 | | | $ | 466,694 | | | $ | 17,198,430 | | | $ | 463,156 | | | $ | 577,439 | | | $ | 16,058,364 | |
* Other derivative contracts include risk participation agreements.
The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account as settlements of the cash flow hedges and other non-designated derivative instruments. As a result, the fair value of the applicable derivative assets and liabilities are reported net of variation margin at March 31, 2023 and December 31, 2022 in the table above.
Gains (losses) included in the consolidated statements of income and other comprehensive loss, on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| (in thousands) |
Amount of loss reclassified from accumulated other comprehensive loss to interest expense | $ | (531) | | | $ | (542) | | | | | |
Amount of gain recognized in other comprehensive loss | 3,898 | | | 320 | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
| (in thousands) |
Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest income | $ | 298 | | | $ | (531) | | | | | |
Amount of gain recognized in other comprehensive income | — | | | 3,898 | | | | | |
The accumulated after-tax gains related to effective cash flow hedges included in accumulated other comprehensive loss were $5.4$1.9 million and $2.2$2.1 million at March 31, 20232024 and December 31, 2022,2023, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest expense as interest payments are made onincome. The reclassification amount for the hedged variablethree months ended March 31, 2024 represents amortization of a gain recognized from the termination of six interest rate liabilities. swaps during the second quarter 2023. Valley estimates that $2.1$1.2 million before tax (before tax) will be reclassified as an increase to interest expenseincome over the next 12 months.
Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
| | Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| | Three Months Ended March 31, | |
| | 2023 | | 2022 | |
| | (in thousands) | (in thousands) |
Derivative - interest rate swap: | Derivative - interest rate swap: | | |
| Interest income | |
Interest income | |
Interest income | |
Interest expense | Interest expense | $ | 4,692 | | | $ | 530 | | |
Hedged item - subordinated debt | | |
| Interest expense | Interest expense | $ | (4,772) | | | $ | (530) | | |
Interest expense | |
Hedged item - loans and subordinated debt: | |
Hedged item - loans and subordinated debt: | |
Hedged item - loans and subordinated debt: | |
Interest income | |
Interest income | |
Interest income | |
Interest expense | |
Interest expense | |
Interest expense | |
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 March 31, 20232024 and December 31, 2022,2023, respectively.
| | | | | | | | | | | |
Line Item in the Statement of Financial Position in Which the Hedged Item is Included | Net Carrying Amount of the Hedged Liability * | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability |
| (in thousands) |
March 31, 2023 | | | |
Long-term borrowings | $ | 272,051 | | | $ | (25,360) | |
December 31, 2022 | | | |
Long-term borrowings | $ | 267,076 | | | $ | (30,132) | |
| | | | | | | | | | | |
Line Item in the Statement of Financial Condition in Which the Hedged Item is Included | Net Carrying Amount of the Hedged Asset/ Liability | | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset/Liability |
| (in thousands) |
March 31, 2024 | | | |
Loans | $ | 498,953 | | | $ | (1,047) | |
Long-term borrowings * | 275,390 | | | (22,828) | |
December 31, 2023 | | | |
Loans | $ | 503,877 | | | $ | 3,877 | |
Long-term borrowings * | 276,572 | | | (21,445) | |
* Net carrying amount includes unamortized debt issuance costs of $2.6$1.8 million and $2.8$2.0 million at March 31, 20232024 and December 31, 2022,2023, 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 March 31, | |
| | 2023 | | 2022 | |
| | (in thousands) | (in thousands) |
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 | $ | 208 | | | $ | (2,797) | | |
Other non-interest expense | |
Other non-interest expense | |
Capital 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 and foreign exchange fees with a combined total of $9.9$4.5 million and $14.4$9.9 million for the three months ended March 31, 2024 and 2023, and 2022, respectively.
Collateral Requirements and Credit Risk Related Contingent Features. By using derivatives,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.Board.
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 counterparties could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of March 31, 2023,2024, Valley was in compliance with all of the provisions of its derivative counterparty agreements. The aggregate fair value of all derivative financial instruments with credit risk-related contingent features was in a net liabilityasset position at March 31, 2023 was not material.2024. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.
Note 14.13. Balance Sheet Offsetting
Certain financial instruments, including certain over-the-counter (OTC)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 or received from the counterparty with net liability or asset positions, respectively, 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 totalTotal 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 March 31, 20232024 and December 31, 2022.2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Gross Amounts Not Offset | | |
| Gross Amounts Recognized | | Gross Amounts Offset | | Net Amounts Presented | | Financial Instruments | | Cash Collateral * | | Net Amount |
| (in thousands) |
March 31, 2023 | | | | | | | | | | | |
Assets | | | | | | | | | | | |
Interest rate swaps | $ | 437,061 | | | $ | — | | | $ | 437,061 | | | $ | 30,473 | | | $ | (301,740) | | | $ | 165,794 | |
Liabilities | | | | | | | | | | | |
Interest rate swaps | $ | 485,366 | | | $ | — | | | $ | 485,366 | | | $ | (30,473) | | | $ | (681) | | | $ | 454,212 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | | |
Assets | | | | | | | | | | | |
Interest rate swaps | $ | 453,251 | | | $ | — | | | $ | 453,251 | | | $ | 12,766 | | | $ | (342,480) | | | $ | 123,537 | |
Liabilities | | | | | | | | | | | |
Interest rate swaps | $ | 594,476 | | | $ | — | | | $ | 594,476 | | | $ | (12,766) | | | $ | (432) | | | $ | 581,278 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Gross Amounts Not Offset | | |
| Gross Amounts Recognized | | Gross Amounts Offset | | Net Amounts Presented | | Financial Instruments | | Cash Collateral * | | Net Amount |
| (in thousands) |
March 31, 2024 | | | | | | | | | | | |
Assets | | | | | | | | | | | |
Interest rate swaps and other contracts | $ | 511,993 | | | $ | — | | | $ | 511,993 | | | $ | 13,043 | | | $ | (430,600) | | | $ | 94,436 | |
Liabilities | | | | | | | | | | | |
Interest rate swaps and other contracts | $ | 536,550 | | | $ | — | | | $ | 536,550 | | | $ | (13,043) | | | $ | — | | | $ | 523,507 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
December 31, 2023 | | | | | | | | | | | |
Assets | | | | | | | | | | | |
Interest rate swaps and other contracts | $ | 458,129 | | | $ | — | | | $ | 458,129 | | | $ | 53,780 | | | $ | (302,180) | | | $ | 209,729 | |
Liabilities | | | | | | | | | | | |
Interest rate swaps and other contracts | $ | 479,345 | | | $ | — | | | $ | 479,345 | | | $ | (53,780) | | | $ | — | | | $ | 425,565 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
* Cash collateral received from or pledged to our counterparties in relation to market value exposures of OTC derivative contactscontracts in an asset/liability position.
Note 15.14. Tax Credit Investments
Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the Community Reinvestment Act.CRA. Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense.
Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable.
The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at March 31, 20232024 and December 31, 2022:2023:
| | March 31, 2023 | | December 31, 2022 |
| (in thousands) |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| (in thousands) | | | (in thousands) |
Other Assets: | Other Assets: | |
Affordable housing tax credit investments, net | |
Affordable housing tax credit investments, net | |
Affordable housing tax credit investments, net | Affordable housing tax credit investments, net | $ | 22,813 | | | $ | 24,198 | |
Other tax credit investments, net | Other tax credit investments, net | 53,812 | | | 56,551 | |
Total tax credit investments, net | Total tax credit investments, net | $ | 76,625 | | | $ | 80,749 | |
Other Liabilities: | Other Liabilities: | | | |
Unfunded affordable housing tax credit commitments | Unfunded affordable housing tax credit commitments | $ | 1,338 | | | $ | 1,338 | |
Unfunded affordable housing tax credit commitments | |
Unfunded affordable housing tax credit commitments | |
| Total unfunded tax credit commitments | Total unfunded tax credit commitments | $ | 1,338 | | | $ | 1,338 | |
Total unfunded tax credit commitments | |
Total unfunded tax credit commitments | |
The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three months ended March 31, 20232024 and 2022:2023:
| | Three Months Ended March 31, | |
| 2023 | | 2022 | |
| (in thousands) |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
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 | $ | 1,459 | | | $ | 744 | | |
Affordable housing tax credits and other tax benefits | |
Affordable housing tax credits and other tax benefits | |
Other tax credit investment credits and tax benefits | |
Other tax credit investment credits and tax benefits | |
Other tax credit investment credits and tax benefits | Other tax credit investment credits and tax benefits | 3,221 | | | 2,551 | | |
Total reduction in income tax expense | Total reduction in income tax expense | $ | 4,680 | | | $ | 3,295 | | |
Total reduction in income tax expense | |
Total reduction in income tax expense | |
Amortization of Tax Credit Investments: | |
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 | $ | 937 | | | $ | 415 | | |
Affordable housing tax credit investment losses | |
Affordable housing tax credit investment losses | |
Affordable housing tax credit investment impairment losses | |
Affordable housing tax credit investment impairment losses | |
Affordable housing tax credit investment impairment losses | Affordable housing tax credit investment impairment losses | 448 | | | 262 | | |
Other tax credit investment losses | Other tax credit investment losses | 6 | | | 309 | | |
Other tax credit investment losses | |
Other tax credit investment losses | |
Other tax credit investment impairment losses | |
Other tax credit investment impairment losses | |
Other tax credit investment impairment losses | Other tax credit investment impairment losses | 2,862 | | | 1,910 | | |
Total amortization of tax credit investments recorded in non-interest expense | Total amortization of tax credit investments recorded in non-interest expense | $ | 4,253 | | | $ | 2,896 | | |
Total amortization of tax credit investments recorded in non-interest expense | |
Total amortization of tax credit investments recorded in non-interest expense | |
Note 16.15. Operating Segments
At March 31, 2023 and December 31, 2022, Valley managedmanages its business operations under reportableoperating segments consisting of Consumer Banking and Commercial Banking andBanking. Activities not assigned to the operating segments are included in Treasury and Corporate Other. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations and reporting structures to identify its reportableoperating segments and no changes to the reportableValley's operating segments were determined necessary duringduring the first quarter 2023.three months ended March 31, 2024.
The Consumer Banking segment 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 Banking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.
The Commercial Banking segment is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, Commercial 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 maturityHTM debt securities and available for saleAFS 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 BankFRB 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 and Commercial Banking segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average interest earning assets and or liabilities outstanding for the period.
The accounting for each operating segment and Treasury and Corporate Other 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 balances presented for the three months ended March 31, 2022 in the tables below reflect reclassifications to conform with the presentation of the current operating segment structure, which was implemented in the second quarter 2022. These reclassifications did not impact Valley's consolidated results. See Valley's Form 10-K for the year ended December 31, 2022 for additional information.
The following tables represent the financial data for Valley’s operating segments and Treasury and Corporate Other for the three months ended March 31, 20232024 and 2022:2023:
| | | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2024 |
| | Consumer Banking | | Commercial Banking | | 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 | $ | 8,768,482 | | | $ | 39,090,889 | | | $ | 7,503,419 | | $ | 55,362,790 | |
| Interest income | Interest income | $ | 85,316 | | | $ | 569,910 | | | $ | 65,004 | | $ | 720,230 | |
Interest income | |
Interest income | |
Interest expense | Interest expense | 43,006 | | | 191,723 | | | 49,481 | | 284,210 | |
Net interest income | Net interest income | 42,310 | | | 378,187 | | | 15,523 | | 436,020 | |
Provision for credit losses | 6,444 | | | 3,006 | | | 4,987 | | 14,437 | |
Provision (credit) for credit losses | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 35,866 | | | 375,181 | | | 10,536 | | 421,583 | |
Non-interest income | Non-interest income | 14,290 | | | 15,747 | | | 24,262 | | 54,299 | |
Non-interest expense | Non-interest expense | 18,249 | | | 35,723 | | | 218,194 | | 272,166 | |
Internal transfer expense (income) | Internal transfer expense (income) | 30,883 | | | 131,595 | | | (162,478) | | — | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 1,024 | | | $ | 223,610 | | | $ | (20,918) | | $ | 203,716 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 0.05 | % | | 2.29 | % | | (1.12) | % | | 1.47 | % | Return on average interest earning assets (pre-tax) | 0.50 | % | | 1.57 | % | | (2.59) | % | | 0.91 | % |
| | | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2023 |
| | Consumer Banking | | Commercial Banking | | 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 | $ | 7,638,942 | | | $ | 26,984,460 | | | $ | 5,659,646 | | $ | 40,283,048 | |
| Interest income | |
Interest income | |
Interest income | Interest income | $ | 59,459 | | | $ | 257,906 | | | $ | 23,093 | | $ | 340,458 | |
Interest expense | Interest expense | 3,207 | | | 11,327 | | | 8,255 | | 22,789 | |
Net interest income | Net interest income | 56,252 | | | 246,579 | | | 14,838 | | 317,669 | |
Provision for credit losses | Provision for credit losses | 1,873 | | | 1,627 | | | 57 | | 3,557 | |
Net interest income after provision for credit losses | Net interest income after provision for credit losses | 54,379 | | | 244,952 | | | 14,781 | | 314,112 | |
Non-interest income | Non-interest income | 13,817 | | | 16,880 | | | 8,573 | | 39,270 | |
Non-interest expense | Non-interest expense | 16,568 | | | 25,085 | | | 155,687 | | 197,340 | |
Internal transfer expense (income) | Internal transfer expense (income) | 28,647 | | | 99,916 | | | (128,563) | | — | |
Income (loss) before income taxes | Income (loss) before income taxes | $ | 22,981 | | | $ | 136,831 | | | $ | (3,770) | | $ | 156,042 | |
Return on average interest earning assets (pre-tax) | Return on average interest earning assets (pre-tax) | 1.20 | % | | 2.03 | % | | (0.27) | % | | 1.55 | % | Return on average interest earning assets (pre-tax) | 0.52 | % | | 2.40 | % | | (2.09) | % | | 1.47 | % |
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)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,The foregoing 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,”“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 impactingmonetary and fiscal policies of the level of market interest ratesfederal government and increasesits agencies, including in business failures, specifically amongresponse to higher inflation, which could have a material adverse effect on our clients, as well as on our business, our employees, and our ability to provide services to our customers;
•the potential impact of recent and possible future bank failuresa potential U.S. Government shutdown, default by the U.S. government on its debt obligations, or related credit-rating downgrades, on economic activity in the business environmentmarkets in which we operate including potential customer deposit withdrawals from Valley National Bank or business disruptions or liquidity issues that may affect our customers;and, in general, on levels of end market demand in the economy;
•the impact of unfavorable macroeconomic conditions or downturns, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, increased business disruptions or failures, reductions in employment, and other potential negative effects on our business, employees or clients caused by and factors outside of our control, such as geopolitical instabilities or events;events (including the Israel-Hamas war); natural and other disasters (including severe weather events) and; health emergencies,emergencies; acts of terrorism or other external events;
•risks associated withthe impact of potential instability within the U.S. financial sector related to bank failures, including the possibility of deposit withdrawals by a coordinated deposit base, and the impact of any concerns about the creditworthiness of other financial institutions, including any resulting disruption within the financial markets, increased expenses, including FDIC insurance premiums, or adverse impact on our acquisitionstock price, deposits or our ability to borrow or raise capital;
•the impact of Bank Leumi Le-Israel Corporation (Bank Leumi USA), including (i) the inability to realize expected cost savingsnegative public opinion regarding Valley or banks in general that damages our reputation and synergies from the acquisition in the amounts or timeframe anticipatedadversely impacts business and (ii) revenues;
•greater than expected costs or difficulties relatingrelated to integration matters;Valley's new core banking system implemented in the fourth quarter 2023 and continued enhancements to processes and systems under Valley's current technology roadmap;
•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 attract new customer deposits to keep pace with loan 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;
•greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
•the risks related to the replacement of the London Interbank Offered Rate with Secured Overnight Financing Rate and other reference rates, including increased expenses, risk of litigation and the effectiveness of hedging strategies;
•cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
•damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent, trademark or trademarkother intellectual property infringement, misappropriation or other violation, employment related claims, and other matters;
•changes to laws and regulations, including changes affecting oversight of the financial services industry; changesa prolonged downturn in the enforcement and interpretationeconomy, as well as an unexpected decline in commercial real estate values collateralizing a significant portion of such laws and regulations; and changes in accounting and reporting standards;our loan portfolio;
•higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
•the inability to grow customer deposits to keep pace with loan growth;
•a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;
•the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
•greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
•cyberattacks, ransomware attacks, computer viruses, malware or other cybersecurity incidents that may breach the security of our websites or other systems or networks to obtain unauthorized access to personal, confidential, proprietary or sensitive information, destroy data, disable or degrade service, or sabotage our systems or networks;
•results of examinations by the Office ofOCC, the Comptroller ofFRB, the Currency (OCC), the Federal Reserve Bank (FRB), the Consumer Financial Protection Bureau (CFPB)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;
•a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California,unanticipated loan delinquencies, loss of collateral, decreased service revenues, and Illinois, as well as an unexpected decline in commercial real estate values withinother potential negative effects on our market areas;business caused by severe weather, pandemics or other public health crises, acts of terrorism or other external events; and
•unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors.
A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section in Part I, Item 1A1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022, and in Part II, Item 1A of this Form 10-Q.2023.
We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations.expectations, except as required by law. 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 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 March 31, 2023,2024, 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.Board. 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, 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 54 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. AtAt March 31, 2023,2024, Valley had consolidated total assets of approximately $64.3$61.0 billion, total net loans of $48.2$49.5 billion, total deposits of $47.6$49.1 billion and total shareholders’ equity of $6.5$6.7 billion. Valley operates many convenient branch office locations and commercial banking offices in northern and central New Jersey, the New York City Boroughsboroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New
York, Florida, California, Alabama and Illinois. Of our current 230 branch network, 5655 percent, 18 percent, and 18 percent of the branches are located in New Jersey, New York and Florida, respectively, with the remaining 89 percent of the branches in Alabama, California, and Illinois combined. We have grown significantly both in asset size and locations over
In February 2024, we completed the past several years both through organic efforts and bank acquisitions,sale of our commercial premium finance lending business, including $93.6 million of our acquisitionpremium finance loan portfolio. The transaction generated a pre-tax $3.6 million net gain on sale of Bank Leumi USA on April 1, 2022.
Recent Industry Developments. Recent events, including the bank failures in March and April 2023, the rising level of interest rates and recessionary pressures have heightened concerns in the bank sector. We have consistently operated the Bank with a focus on diversification to maintain stability through various cycles. Duringassets for the first quarter 2024. Valley continues to hold certain commercial premium finance loans totaling $145.7 million at March 31, 2024 which are expected to mostly run-off at their scheduled maturity dates over the next 12 months.
Financial Condition. The combination of 2023, wean inverted yield curve, a high level of competition and economic uncertainty, among other factors, continued to positionweigh on the banking industry during the first quarter 2024. In the face of these challenges, we have positioned our balance sheet to best mitigate potential risks from the market turmoil affecting the banking industry in general and Valley, its clients and communities in particular.these negative factors, while focused on longer term earnings performance. The following items are key highlights at March 31, 2024.
•Total assets increased towas $64.361.0 billion at March 31, 2023, an increase of 11.9 percent2024 and remained relatively unchanged from December 31, 2022. Liquidity remained strong with total2023. Our liquid assets of approximatetotaledly $7.22.7 billion at March 31, 2023,2024, representing 12.14.8 percent of interest earning assets.assets as compared with $2.4 billion, or 4.3 percent of interest earning assets at December 31, 2023. We continue to maintain the abilitysignificant access to access readily available, diverse funding sources to fulfill both short-term and long-term capitalfunding needs. See "Bank Liquidity"the “Bank Liquidity” section for additional information.
•Total deposits were $47.6decreased $164.9 million to $49.1 billion at March 31, 2023 and remained relatively unchanged2024 as compared to $49.2 billion at December 31, 2022. Our deposit base is highly diversified2023 due to contractual run-off of higher cost government banking time deposits combined with 625 thousand commercial and retail deposit customers, an average account size of $58 thousand and an average customer relationship with Valley exceeding 10 years as of March 31, 2023. Approximately $32.0 billion of our $47.6 billiona $266.2 million decrease in non-interest bearing deposits at March 31, 2023 are generated from our branch network. which was largely offset by solid growth in direct interest bearing deposits across several delivery channels. See the "Deposits“Deposits and Other Borrowings"Borrowings” section for more details.
•Capital remained strong with ratios of both Valley and the Bank exceeding all capital adequacy requirements at March 31, 2023.2024. Total shareholders' equity increased $110.8$25.7 million to $6.5$6.7 billion at March 31, 20232024 as compared to December 31, 2022. 2023. See the "Capital Adequacy"“Capital Adequacy” section for additional details.
•Total loans increased $1.7 billion,decreased $288.3 million, or 14.92.3 percent on an annualized basis to $48.7$49.9 billion at March 31, 20232024 from December 31, 20222023 largely due to strong organicthe sale of $196.5 million of commercial real estate and construction loans through loan participation agreements at par value in March 2024, and the sale of $93.6 million of commercial and industrial loans associated with the sale of our premium finance lending division in February 2024. During the first quarter 2024, we also transferred $34.1 million of construction loans to loans held for sale at March 31, 2024. Organic loan volumes in most categories remained at modest levels during the first quarter 2024 due to the ongoing impact of elevated market interest rates and slow prepayments. other factors. See "Loan Portfolio"further details on our loan activities under the “Loan Portfolio” section for more information.below.
•Asset quality continued to reflect our disciplined underwriting and lending practices during the first quarter 2023.2024. Non-performing assets (NPAs) as a percentage of total loans and NPAs totaled 0.50 percent and 0.58 percent at both March 31, 20232024 and December 31, 2022, respectively.2023. Total net loan charge-offs to average loans was 0.19 percent for the first quarter 2024 as compared with 0.14 percent for the fourth quarter 2023. See the "Non-Performing Assets"“Non-Performing Assets” section for additional information.
•Total investment securities were $5.2 billion, or 8.08.6 percent of total assets, at March 31, 20232024 and remained relatively unchanged as compared tofrom December 31, 2022.2023. See the "Investment“Investment Securities Portfolio"Portfolio” section for more details.
Quarterly Results. Net income for the first quarter 20232024 was $96.3 million, or $0.18 per diluted common share, as compared to $146.6 million, or $0.28 per diluted common share, as compared to $116.7 million, or $0.27 per diluted common share, for the first quarter 2022.2023. The $29.8$50.3 million increasedecrease in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:
•a $118.4$42.5 million increasedecrease in net interest income mainly due toas higher average loan balances driven by both acquired and organic loan volumes and increased yields on both new loan originations and adjustable-rate loans partiallywere more than offset by higheran increase in the cost of deposits;
•a $30.8 million increase in our provision for credit losses largely due to additional quantitative reserves allocated to our commercial loan portfolio; and
•a $15.0an $8.1 million increase in non-interest income primarilyexpense partly due to bank acquisition-driven growth in wealth management and trust fees, service charges on deposit accounts and other income, partially offset by a decline in swap fee income within capital markets fees;estimated expenses related to the FDIC special assessment of $7.4 million.
These itemsWhich were partially offset by:
•a $10.9$7.1 million increase in our provision forin non-interest income that was primarily driven by higher brokerage and tax credit losses due, in part, to a $5 million provision for credit lossesinvestment advisory fees within wealth management and trust fees, net gains on available for sale investment securities;
•sales of assets and a $74.8 million increase in non-interest expense largely due to our expanded banking operations and higher FDIC insurance assessment expense;service charges on deposit accounts, partially offset by lower capital markets income; and
•a $17.9$24.0 million increasedecrease in income tax expense mostly due to higherlower pre-tax income and additional tax credits in the first quarter 20232024.
See the "Net“Net Interest Income", "Non-Interest Income", "Non-Interest Expense"Income,” “Non-Interest Income,” “Non-Interest Expense” and "Income Taxes"“Income Taxes” sections below for more details on the impact of the items above on and other infrequent non-core items impacting our first quarter 20232024 results.
U.S. Economic Conditions. During thethe first quarter 2023,2024, real gross domestic product (GDP) increased at an annual rate of 1.11.6 percent as compared to an increase of 2.63.4 percent during the fourth quarter 2022.2023. The 1.1 percent increasedecrease in real GDP reflected higher consumer spending,growth was primarily due to a decline in net exports, federal government spending, state and localslower government spending and a decline in nonresidential fixed investment that were partly offset by decreasesinvestments. Inflation slightly picked up to 3.5 percent in private inventory investment and residential fixed investment.
During the first quarter 2024 as compared to 3.4 percent for the fourth quarter 2023 and was largely attributed to price increases at the beginning of the year.
The federal funds upper target rate of 5.50 percent remained unchanged since fourth quarter 2023. On May 1, 2024, Federal Reserve raisedofficials noted that readings of inflation have come in above expectations, but it’s unlikely that the target rangenext policy rate move will be a rate hike. Currently, many market participants believe that a potential Federal Reserve rate cut is not likely until their December 2024 meeting, if at all, during 2024 due to the weak growth in GDP reported for the federal funds rate by 75 basis points, bringing the target range to 4.75 to 5 percent at March 31, 2023,first quarter 2024 and by an additional 25 basis points in May 2023 to a current range of 5 to 5.25 percent. Consistent with its previously announced plan, these actions reflect the Federal Reserve’s strong commitment to returning inflation to its 2 percent objective. The Federal Open Market Committee has indicated it will continue to increase the federal funds rate, but at a slower pace, to stabilize pricing while remaining highly attentive toward the recent banking developments, and the delay in which the cumulative tightening of its monetary policy affects the economy.persistently high inflation.
The 10-year U.S. Treasury note yield ended the first quarter of 20232024 at 3.484.20 percent, or 4032 basis points lowerhigher as compared to the fourth quarter 2022,2023, and the 2-year U.S. Treasury note yield ended the first quarter 20232024 at 4.064.59 percent, or 3536 basis points lowerhigher as compared to the fourth quarter 2022.2023.
For allU.S. commercial banks in the U.S., commercial and industrial loans decreased approximately by 1.8 percent atmoderately declined from December 30, 2023 to March 31, 20232024. Overall, commercial real estate lending continued to be closely monitored throughout the industry, particularly among regional and midsize banks with sizeable exposures to office space as comparedloan collateral. Some bright spots included an appetite for selective deals and lending in the first quarter and interest in grocery stores, data centers and renewable energy plants properties. Regional banks continue to December 31, 2022 largely duefocus on the all-in return on their banking relationships, often requiring significant deposit accounts or ancillary business in order for them to decreased customer need for financing inventory
and accounts receivables, investmentjoin or remain in property or equipment and mergers or acquisitions. Many banks increaseda lending relationship. Additionally, the costcombination of credit lines through widening the spreads of loan rates over the costs of funds to firms of all sizes and increasing premiums for riskier loans, while a significant portion of banks also tightened loan covenants and collateralization requirements for firms of all sizes. A majority of banks that reported tightening standards or terms on commercial and industrial loans cited a less favorable or more uncertain economic outlook and reduced risk tolerance.
Further increases in markethigh interest rates persistently highand tight inventories have kept residential real estate sales and both refinanced and purchased residential mortgage loan activity low during the first quarter 2024.
Although Federal Reserve efforts to combat inflation heightened recessionary concernsare showing signs of success, several factors, including, but not limited to elevated inflation, new and the potential for additional fallout from the recent banking crisis, includingproposed bank regulatory actions, among other factors,the inverted yield curve, elevated interest rates and geopolitical conflicts have added a higher level of uncertainty to the future path of the U.S. economy and an elevated risk ofcreated a recession. challenging bank operating environment. Should economicthese conditions persist or further deteriorate, causing business activity, spending and investment to decline, itthey may adversely impact our financial results, as highlighted in this MD&A.
Deposits and Other Borrowings
Overall,Total average deposits increaseddecreased by $918.1$884.6 million to $47.2$48.6 billion for the first quarter 20232024 as compared to the fourth quarter 2022,2023 mostly due to higherdecreases of $1.3 billion and $351.7 million in average time and non-interest bearing, deposits, driven by an increased utilization of fully insured brokered deposits,respectively, partially offset by a $802.4 million increase in average savings, NOW and money market deposits. The decrease in average time deposits was primarily due to our intentional run-off of both higher cost indirect customers (i.e., brokered) and government banking time deposits which contractually matured over the last six months. Average non-interest bearing deposits. balances modestly declined as compared to the fourth quarter 2023, as some customers continue to closely manage balances and shift funds into other higher-yielding alternatives. The increase in savings, NOW and money market deposits was mostly broad-based, reflecting strong customer inflows from both our physical branch and online delivery channels, as well as our specialized deposit businesses over the last six months. Average non-interest-bearing deposits; savings, NOW and money marketmarket deposits; and time deposits represented approximately 3023 percent, 5051 percent and 2126 percent of total deposits for the first quarter 2024, respectively as compared to 23 percent, 49 percent and 28 percent of March 31,total deposits for the fourth quarter 2023, respectively.
Actual ending balances for deposits decreased $46.0$164.9 million to approximately $47.6$49.1 billion at March 31, 20232024 from December 31, 2022. Within the deposit categories,2023 due to decreases of $433.0 million and $266.2 million in time deposits and non-interest bearing deposits, respectively, largely offset by an increase of $534.3 million in savings, NOW and money market deposits. The decrease in time deposits was primarily due to intentional run-off of higher cost government banking time deposits which had matured. Non-interest bearing balances declined during the first quarter 2024, though remained unchanged as a percentage of total deposits, as some customers continue to closely manage balances and shift funds into other higher-yielding alternatives. The solid growth in savings, NOW and money market deposits decreased $887.5 millionwas mostly attributable to inflows from our specialty niche deposits, traditional branch and $713.4 million, respectively, and were mostly offset by an increase in time deposits. Time deposits increased $1.6 billion to $11.1 billion within our overall deposit mix at March 31, 2023 from December 31, 2022 largely due to higher fully FDIC-insured brokered CD balances at March 31, 2023. Total fully insured brokered deposits, consisting of time deposits and money market accounts, increased $1.2 billion to $7.1 billion at March 31, 2023 as compared to $5.9 billion at December 31, 2022. online delivery channels. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 29approximately 23 percent, 4851 percent and 2326 percent of total deposits as ofat March 31, 2023,2024, respectively, as compared to 3023 percent, 50 percent and 2027 percent of total deposits as ofat December 31, 2022,2023, respectively.
The following table lists, by maturity, uninsured certificates of depositCDs at March 31, 2023:2024:
| | | | | | | | |
| | |
| | March 31, 2024 |
| | (in thousands) |
Less than three months | | $ | 349,067699,105 | |
Three to six months | | 97,841535,918 | |
Six to twelve months | | 77,179685,637 | |
More than twelve months | | 1,208,902154,027 | |
Total | | $ | 1,732,9892,074,687 | |
Total estimated uninsured deposits, wereexcluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $14.9$11.5 billion, or 3124 percent of total deposits, at March 31, 2024 as compared to $12.2 billion, or 25 percent of total deposits, at December 31, 2023.
While ourwe maintained a diversified commercial and consumer deposit base has remained stable during the early stages of the second quarter 2023, we believeat March 31, 2024, deposit gathering initiatives mayand our current deposit base could remain challengingchallenged due to market competition, attractive investment alternatives, such as U.S. Treasury securities, changes in customer behavior and other factors. As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at March 31, 2023.2024. Management continuously monitors liquidity and all available funding sources including non-deposit borrowings discussed below. See the “Liquidity and Cash Requirements” section of this MD&A for additional information.
The following table presents average short-term and long-term borrowings for the periods indicated:
| | Three Months Ended | |
| March 31, 2023 | | December 31, 2022 | | March 31, 2022 | |
| (in thousands) |
| Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
Average short-term borrowings: | Average short-term borrowings: | | |
FHLB advances | FHLB advances | $ | 2,513,983 | | | $ | 429,529 | | | $ | 434,444 | | |
FHLB advances | |
FHLB advances | |
Securities sold under repurchase agreements | |
Securities sold under repurchase agreements | |
Securities sold under repurchase agreements | Securities sold under repurchase agreements | 99,546 | | | 118,263 | | | 148,575 | | |
Federal funds purchased | Federal funds purchased | 190,214 | | | 332,823 | | | 11,278 | | |
Federal funds purchased | |
Federal funds purchased | |
Total | |
Total | |
Total | Total | $ | 2,803,743 | | | $ | 880,615 | | | $ | 594,297 | | |
| Average long-term borrowings: | Average long-term borrowings: | | |
| Average long-term borrowings: | |
| Average long-term borrowings: | |
FHLB advances | FHLB advances | $ | 875,053 | | | $ | 788,496 | | | $ | 788,956 | | |
FHLB advances | |
FHLB advances | |
Subordinated debt | |
Subordinated debt | |
Subordinated debt | Subordinated debt | 754,972 | | | 753,165 | | | 631,056 | | |
| Junior subordinated debentures issued to capital trusts | Junior subordinated debentures issued to capital trusts | 56,805 | | | 56,718 | | | 56,457 | | |
| Junior subordinated debentures issued to capital trusts | |
| Junior subordinated debentures issued to capital trusts | |
| Total | Total | $ | 1,686,830 | | | $ | 1,598,379 | | | $ | 1,476,469 | | |
| Total | |
| Total | |
Average short-term borrowings increased $2.2$1.1 billion during the first quarter 20232024 as compared to the firstfourth quarter 20222023 mostly due to the higher utilization ofa partial shift from indirect customer CDs and more heavily weighted in short-term FHLB advances in Marchour average mix of funding sources starting in the fourth quarter 2023 to prudently increase our excess liquidity position. Average. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) moderately increased $210.4$248.2 million as compared to the fourth quarter 2023first quarter 2022 mainly due to the issuance$1.0 billion of $150 million of subordinated notes during the third quarter 2022 and new FHLB advances issued during the first quarter 2023.early March 2024. The $1.0 billion of new borrowings have a weighted average rate of 4.52 percent and a weighted average remaining contractual term of 3.6 years at March 31, 2024.
Actual ending balances for short-term borrowings increased $6.3 billiondecreased $842.6 million to $6.4 billion$75.2 million at March 31, 20232024 as compared to December 31, 2022. In March 2023 we significantly increased our short-term borrowings, mostly consistingmainly due to maturities and repayment of FHLB advances, to bolster our liquidity position out of an abundance of caution in the wake of the two recent bank failures. Since March 31, 2023, many of our short-term FHLB advances have matured and been repaid, resulting in a more normal liquidity position. We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity.advances. Long-term borrowings increased $934.0 million to approximately $2.2$3.3 billion at March 31, 20232024 as compared to $1.5$2.3 billion at December 31, 2022 mainly2023 due to the new FHLB advances also issued during the first quarter 2023 as part of our overall funding and liquidity strategies.
See the "Bank Liquidity" section for more details on our available funding sources.in March 2024.
Non-GAAP Financial Measures
The table below presents selected performance indicators, their comparative non-GAAP measures and the (non-GAAP) efficiency ratio for the periods indicated. Valley believes that the non-GAAP financial measures provide useful supplemental information to both management and investors in understanding itsValley's underlying operational performance, business, and performance trends, and may facilitate comparisons of our current and prior performance with the performance of others in the financial services industry. Management utilizes these measures for internal planning, forecasting and analysis purposes. Management believes that Valley’s presentation and discussion of this supplemental information, together with the accompanying reconciliations to the GAAP financial measures, also allows investors to view performance in a manner similar to management. These non-GAAP financial measures should not be considered in isolation, as a substitute for or superior to financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
The following table presents our annualizeannualized performance ratios:
| | |
| |
| |
| | | Three Months Ended March 31, | |
| | 2023 | | 2022 | |
Selected Performance Indicators | Selected Performance Indicators | ($ in thousands) |
Selected Performance Indicators | |
Selected Performance Indicators | | ($ in thousands) |
GAAP measures: | GAAP measures: | | |
Net income, as reported | Net income, as reported | $ | 146,551 | | | $ | 116,728 | | |
Net income, as reported | |
Net income, as reported | |
Return on average assets | |
Return on average assets | |
Return on average assets | Return on average assets | 0.98 | % | | 1.07 | % | |
Return on average shareholders’ equity | Return on average shareholders’ equity | 9.10 | | | 9.15 | | |
Return on average shareholders’ equity | |
Return on average shareholders’ equity | |
Non-GAAP measures: | |
Non-GAAP measures: | |
Non-GAAP measures: | Non-GAAP measures: | | |
Net income, as adjusted | Net income, as adjusted | $ | 154,530 | | | $ | 120,313 | | |
Net income, as adjusted | |
Net income, as adjusted | |
Return on average assets, as adjusted | |
Return on average assets, as adjusted | |
Return on average assets, as adjusted | Return on average assets, as adjusted | 1.03 | % | | 1.10 | % | |
Return on average shareholders' equity, as adjusted | Return on average shareholders' equity, as adjusted | 9.60 | | | 9.43 | | |
Return on average shareholders' equity, as adjusted | |
Return on average shareholders' equity, as adjusted | |
Return on average tangible shareholders' equity (ROATE) | |
Return on average tangible shareholders' equity (ROATE) | |
Return on average tangible shareholders' equity (ROATE) | Return on average tangible shareholders' equity (ROATE) | 13.39 | | | 13.09 | | |
ROATE, as adjusted | ROATE, as adjusted | 14.12 | | | 13.49 | | |
ROATE, as adjusted | |
ROATE, as adjusted | |
Efficiency ratio | Efficiency ratio | 53.79 | | | 53.18 | | |
Efficiency ratio | |
Efficiency ratio | |
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
Common Equity Per Share Data: | Common Equity Per Share Data: | |
| Book value per common share (GAAP) | Book value per common share (GAAP) | $ | 12.41 | | | $ | 12.23 | |
| Book value per common share (GAAP) | |
| Book value per common share (GAAP) | |
| Book value per common share (GAAP) | |
| Book value per common share (GAAP) | |
| Book value per common share (GAAP) | |
| Book value per common share (GAAP) | |
| Book value per common share (GAAP) | |
| Book value per common share (GAAP) | |
Tangible book value per common share (non-GAAP) | Tangible book value per common share (non-GAAP) | 8.36 | | | 8.15 | |
Non-GAAP Reconciliations to GAAP Financial Measures
Adjusted net income is computed as follows:
| | Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
Net income, as reported (GAAP) | |
Non-GAAP adjustments: | |
Non-GAAP adjustments: | |
Non-GAAP adjustments: | |
Add: FDIC special assessment (1) | |
Add: FDIC special assessment (1) | |
Add: FDIC special assessment (1) | |
Add: Losses on available for sale and held to maturity debt securities, net (2) | |
Add: Losses on available for sale and held to maturity debt securities, net (2) | |
Add: Losses on available for sale and held to maturity debt securities, net (2) | |
Add: Restructuring charge (3) | |
Add: Restructuring charge (3) | |
Add: Restructuring charge (3) | |
Add: Provision for credit losses for available for sale securities (b)(4) | |
Add: Provision for credit losses for available for sale securities (b)(4) | |
Add: Provision for credit losses for available for sale securities (b)(4) | |
Add: Merger related expenses (5) | |
Add: Merger related expenses (5) | |
Add: Merger related expenses (5) | |
Less: Gain on sale of commercial premium finance lending division (6) | |
Less: Gain on sale of commercial premium finance lending division (6) | |
Less: Gain on sale of commercial premium finance lending division (6) | |
| | Three Months Ended March 31, | |
Total non-GAAP adjustments to net income | |
| | 2023 | | 2022 | |
Total non-GAAP adjustments to net income | |
| | (in thousands) |
Net income, as reported (GAAP) | $ | 146,551 | | | $ | 116,728 | | |
| Add: Losses on available for sale and held to maturity debt securities, net (net of tax) (a) | 17 | | | 6 | | |
| Add: Provision for credit losses for available for sale securities (b)(4) | 5,000 | | | — | | |
Add: Merger related expenses (net of tax) (c) | 2,962 | | | 3,579 | | |
| Total non-GAAP adjustments to net income | |
Income tax adjustments related to non-GAAP adjustments (7) | |
Income tax adjustments related to non-GAAP adjustments (7) | |
Income tax adjustments related to non-GAAP adjustments (7) | |
Net income, as adjusted (non-GAAP) | Net income, as adjusted (non-GAAP) | $ | 154,530 | | | $ | 120,313 | | |
Net income, as adjusted (non-GAAP) | |
Net income, as adjusted (non-GAAP) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | | Included in the FDIC insurance expense. |
(2) | Included in gains on securities transactions, net. |
(3) | Represents severance expense related to workforce reductions within salary and employee benefits expense. |
| |
(4) | Included in provision for credit losses for available for sale and held to maturity securities (tax disallowed). |
(5) | Included primarily within salary and employee benefits expense. |
(6) | Included in net gains on sale of assets. |
(7) | Calculated using the appropriate blended statutory tax rate for the applicable period. |
| |
| |
(a) Included in gains (losses) on securities transactions, net.
(b) Provision relates to one security fully charged off with no resulting tax benefit during the three months ended March 31, 2023.
(c) Merger related expenses are primarily within salary and employee benefits expense for the three months ended March 31, 2023 and 2022.
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 and trust fees, and swap fees recognized from commercial loan customer transactions.capital markets fees. These amounts can vary widely from period to period due to, among other factors, the amount and timing of residential mortgage loans originated for sale, loan portfolio sales, brokerage fees,and tax credit investment advisory activities and commercial loan customer demand for certain interest rate swap 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 March 31, | |
| 2023 | | 2022 | |
| ($ in thousands) |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| ($ in thousands) | |
| ($ in thousands) | |
| ($ in thousands) | |
Net income, as adjusted (non-GAAP) | Net income, as adjusted (non-GAAP) | $ | 154,530 | | $ | 120,313 | |
Average assets | Average assets | $ | 59,867,002 | | $ | 43,570,251 | |
Average assets | |
Average assets | |
Annualized return on average assets, as adjusted (non-GAAP) | Annualized return on average assets, as adjusted (non-GAAP) | 1.03 | % | | 1.10 | % | |
Annualized return on average assets, as adjusted (non-GAAP) | |
Annualized return on average assets, as adjusted (non-GAAP) | |
Adjusted annualized return on average shareholders' equity is computed by dividing adjusted net income by average shareholders' equity, as follows: | | Three Months Ended March 31, | |
| 2023 | | 2022 | |
| ($ in thousands) |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| ($ in thousands) | |
| ($ in thousands) | |
| ($ in thousands) | |
Net income, as adjusted (non-GAAP) | Net income, as adjusted (non-GAAP) | $ | 154,530 | | $ | 120,313 | |
Average shareholders' equity | Average shareholders' equity | $ | 6,440,215 | | $ | 5,104,709 | |
Average shareholders' equity | |
Average shareholders' equity | |
Annualized return on average shareholders' equity, as adjusted (non-GAAP) | Annualized return on average shareholders' equity, as adjusted (non-GAAP) | 9.60 | % | | 9.43 | % | |
Annualized return on average shareholders' equity, as adjusted (non-GAAP) | |
Annualized return on average shareholders' equity, as adjusted (non-GAAP) | |
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 March 31, | | |
| 2023 | | 2022 | | | | |
| ($ in thousands) |
Net income, as reported (GAAP) | $ | 146,551 | | $ | 116,728 | | | | |
Net income, as adjusted (non-GAAP) | 154,530 | | 120,313 | | | | |
Average shareholders’ equity | $ | 6,440,215 | | $ | 5,104,709 | | | | |
Less: Average goodwill and other intangible assets | 2,061,361 | | 1,538,356 | | | | |
Average tangible shareholders’ equity | $ | 4,378,854 | | $ | 3,566,353 | | | | |
Annualized ROATE (non-GAAP) | 13.39 | % | | 13.09 | % | | | | |
Annualized ROATE, as adjusted (non-GAAP) | 14.12 | % | | 13.49 | % | | | | |
The efficiency ratio is computed as follows: | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| ($ in thousands) |
Total non-interest expense, as reported (GAAP) | $ | 272,166 | | | $ | 197,340 | | | | | |
| | | | | | | |
| | | | | | | |
Less: Amortization of tax credit investments (pre-tax) | 4,253 | | | 2,896 | | | | | |
Less: Merger related expenses (pre-tax) (a) | 4,133 | | | 4,628 | | | | | |
Total non-interest expense, as adjusted (non-GAAP) | $ | 263,780 | | | $ | 189,816 | | | | | |
Net interest income, as reported (GAAP) | $ | 436,020 | | | $ | 317,669 | | | | | |
Total non-interest income, as reported (GAAP) | 54,299 | | | 39,270 | | | | | |
Add: Losses on available for sale and held to maturity debt securities, net (pre-tax) (b) | 24 | | | 9 | | | | | |
Total net interest income and non-interest income, as adjusted (non-GAAP) | $ | 490,343 | | | $ | 356,948 | | | | | |
| | | | | | | |
Efficiency ratio (non-GAAP) | 53.79 | % | | 53.18 | % | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
| ($ in thousands) |
Net income, as reported (GAAP) | $ | 96,280 | | $ | 146,551 | | | | |
Net income, as adjusted (non-GAAP) | 99,448 | | 154,530 | | | | |
Average shareholders’ equity (GAAP) | $ | 6,725,695 | | $ | 6,440,215 | | | | |
Less: Average goodwill and other intangible assets | 2,024,999 | | 2,061,361 | | | | |
Average tangible shareholders’ equity (non-GAAP) | $ | 4,700,696 | | $ | 4,378,854 | | | | |
Annualized ROATE (non-GAAP) | 8.19 | % | | 13.39 | % | | | | |
Annualized ROATE, as adjusted (non-GAAP) | 8.46 | % | | 14.12 | % | | | | |
The efficiency ratio is computed as follows: | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
| ($ in thousands) |
Total non-interest expense, as reported (GAAP) | $ | 280,310 | | | $ | 272,166 | | | | | |
| | | | | | | |
Less: FDIC Special assessment (1) | 7,394 | | | — | | | | | |
Less: Restructuring charge (2) | 620 | | | — | | | | | |
Less: Amortization of tax credit investments | 5,562 | | | 4,253 | | | | | |
Less: Merger related expenses (3) | — | | | 4,133 | | | | | |
Total non-interest expense, as adjusted (non-GAAP) | $ | 266,734 | | | $ | 263,780 | | | | | |
Net interest income, as reported (GAAP) | 393,548 | | | 436,020 | | | | | |
Total non-interest income, as reported (GAAP) | 61,415 | | | 54,299 | | | | | |
Add: Losses on available for sale and held to maturity debt securities, net (4) | 7 | | | 24 | | | | | |
Less: Gain on sale of commercial premium finance lending division (5) | (3,629) | | | — | | | | | |
| | | | | | | |
Gross operating income, as adjusted (non-GAAP) | $ | 451,341 | | | $ | 490,343 | | | | | |
| | | | | | | |
Efficiency ratio (non-GAAP) | 59.10 | % | | 53.79 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | | Included in the FDIC insurance expense. |
(2) | Represents severance expense related to workforce reductions within salary and employee benefits expense. |
(a) Merger related expenses are primarily within salary and employee benefits expense for the three months ended March 31, 2023 and 2022.
(b) (3) | Included primarily within salary and employee benefits expense. |
| |
(4) | Included in gains (losses) on securities transactions, net. |
(5) | Included in gains on sales of assets, 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:
| | March 31, 2023 | | December 31, 2022 |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| | ($ in thousands, except for share data) | | ($ in thousands, except for share data) |
Common shares outstanding | Common shares outstanding | 507,762,358 | | | 506,374,478 | |
Shareholders’ equity | $ | 6,511,581 | | | $ | 6,400,802 | |
Shareholders’ equity (GAAP) | |
Less: Preferred stock | Less: Preferred stock | 209,691 | | | 209,691 | |
Less: Goodwill and other intangible assets | Less: Goodwill and other intangible assets | 2,056,107 | | | 2,066,392 | |
Tangible common shareholders’ equity | $ | 4,245,783 | | | $ | 4,124,719 | |
Tangible common shareholders’ equity (non-GAAP) | |
Book value per common share (GAAP) | Book value per common share (GAAP) | $ | 12.41 | | | $ | 12.23 | |
Tangible book value per common share (non-GAAP) | Tangible book value per common share (non-GAAP) | $ | 8.36 | | | $ | 8.15 | |
Net Interest Income
NetNet interest income on a tax equivalent basis totaling $437.5$394.8 million for the first quarter 20232024 decreased $29.8$3.7 million and $42.6 million as compared to the fourth quarter 20222023 and increased $119.1 million as compared to the first quarter 2022.2023, respectively. The slight decrease as compared to the fourth quarter 20222023 was mainly due to (i) the negative impact of the significantan increase in our excess cash liquidityaverage short-term borrowings and other borrowings resulting from prudent and cautionary measures taken by us during the market turmoilhigher level of March 2023, (ii) higher interest rates on our averageacross most interest bearing depositsdeposit products, partially offset by higher loan yields, a decline in average time deposit balances and other borrowings, as well as (iii) fewer days inone less day during the first quarter 2023. Interest2024. As a result of the higher cost of short-term borrowings and deposits, total interest expense increased $103.5$14.2 million to $284.2$435.1 million for the first quarter 20232024 as compared to the fourth quarter 2022 largely due to a $4.0 billion increase in average interest bearing liabilities, including increases of $2.1 billion and $1.9 billion in average time deposits and short-term borrowings, respectively. 2023. Interest income on a tax equivalent basis increased $73.7$10.5 million to $721.7$830.0 millionin for the first quarter 2023 2024 as compared to the fourth quarter 2022.2023. The increase waswas mostly due to higher average loan balances driven by our organic new loan volumes, slowing loan prepayments, and increased yields on both new originations and adjustable rate loans in our portfolio.
Average interest earning assets increased $15.1 billion to $55.4 billion for the first quarter 2023loan portfolio, as compared to the first quarter 2022 mainly due to a $13.2 billion increase in average loan balances and higher average investment balances partly caused by the acquisition of Bank Leumi USA on April 1, 2022. Compared to the fourth quarter 2022, average interest earning assets increased by $3.0 billion during the first quarter 2023. The increase was primarily driven by a $1.8 billion increase in average loan balances due to organic loan growth mainly in the commercial loan categories and $1.1 billion increase in average interest bearing cash held mainly overnight with the Federal Reserve Bank of New Yorkwell as part of our liquidity management.
Average interest bearing liabilities increased $11.5 billion to $37.6 billion for the first quarter 2023 as compared to the first quarter 2022 mainly due to increases of $9.1 billion and $2.2 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 liquidity management efforts during March 2023, and our increased usage of fully FDIC-insured brokered CD and successful retail CD initiatives as part of our funding sources for loan growth over the last 12 months. As compared to the fourth quarter 2022, average interest bearing liabilities increased by $4.0 billion in the first quarter 2023 largely due to a $2.1 billion increase in average time deposits mainly driven by the higher fully insured brokered CD balances and additional FHLB advances within short-term borrowings. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.
Net interest margin on a tax equivalent basis of 3.16 percent for the first quarter 2023 decreased by 41 basis points from 3.57 percent for the fourth quarter 2022 and remained unchanged from the first quarter 2022. The decrease as
higher yields on investments, partially offset by a decline in average interest bearing deposits with banks as we reduced overnight excess cash liquidity in the first quarter 2024.
Average interest earning assets increased $1.3 billion to $56.6 billion for the first quarter 2024 as compared to the first quarter 2023 mainly due to a $2.4 billion increase in average loan balances driven by organic loan growth in the commercial loan categories during most of 2023, partially offset by a $1.1 billion decline in average interest bearing cash held overnight as our excess liquidity returned to more normalized levels in 2024 after being elevated in response to the bank failures in 2023. Compared to the fourth quarter 2023, average interest earning assets increased by $149.3 million during the first quarter 2024. The increase was mainly driven by increases of $207.2 million and $144.2 million in average loans and taxable investments, respectively, partially offset by a $188.3 million decline in average overnight interest bearing cash balances as compared to the prior linked quarter.
Average interest bearing liabilities increased $3.9 billion to $41.6 billion for the first quarter 2024 as compared to the first quarter 2023 mainly due to increases of $4.3 billion and $939.0 million in average time deposits and long-term borrowings, respectively, partially offset by a decrease of $1.3 billion in average short-term borrowings. The increase in average time deposits was largely due to increased usage of fully FDIC-insured indirect customer CDs and successful direct retail CD initiatives during the second half of 2023, while average long-term borrowings increased due to the issuance of new FHLB advances. As compared to the fourth quarter 2023, average interest bearing liabilities increased by $803.3 million for the first quarter 2024 mainly due to a $1.1 billion increase in average short-term borrowings. The increase in short-term borrowings was mostly due to a partial shift from indirect customer CDs to FHLB advances in our average mix of funding sources during most of the first quarter 2024. See additional information under “Deposits and Other Borrowings” in the Executive Summary section above.
Net interest margin on a tax equivalent basis of 2.79 percent for the first quarter 2024 decreased by 3 basis points and 37 basis points from 2.82 percent and 3.16 percent, respectively, for the fourth quarter 2023 and first quarter 2023. The decrease as compared to the fourth quarter 2023 was largely driven by (i) the net impacthigher cost of the excess liquidity measures taken in March 2023interest bearing deposits and (ii) two fewer days during the first quarter 2023, short-term borrowings, partially offset by higher yieldsan increase in the yield on average interest earning assets. Our cost of total average deposits was 3.16 percent for the first quarter 2024 as compared to 3.13 percent and 1.96 percent for the fourth quarter 2023 and the first quarter 2023, respectively. The overall cost of average interest bearing liabilities increased 6 basis points to 4.19 percent for the first quarter 2024 as compared to the fourth quarter 2023 primarily driven by the higher level of market interest rates on deposits and short-term borrowings. The yield on average interest earning assets also increased by 266 basis points to 5.86 percent on a linked quarter basis mostlylargely due to the aforementioned higher yields on new and adjustable rate loans inincreased yield of the first quarter 2023 as compared to the fourth quarter 2022.loan portfolio. The yield on average loans increased by 284 basis points to 5.486.14 percent for the first quarter 20232024 as compared to the fourth quarter 2022 largely2023 mostly due to the higher level of market interest rates. The yieldsrates on average taxablenew originations and non-taxable investments also increased 12 basis points and 9 basis points, respectively, from the fourth quarter 2022, largely due to investment maturities and repayments 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 first quarter 2023. Our cost of total average deposits increased to 1.96 percent for the first quarter 2023 from 1.36 percent for the fourth quarter 2022. The overall cost of average interest bearing liabilities also increased 87 basis points to 3.02 percent for the first quarter 2023 as compared to the fourth quarter 2022 largely due to a 148 basis point increase in cost of average short-term borrowings.adjustable rate loans.
Based upon our revisedlatest model estimates, at March 31, 2023, we anticipate net interest income growth in the range of approximately 10zero to 12two percent for the full year of 2023, down from 16 to 18 percent previously estimated in the MD&A of Valley's Form 10-K for the year ended December 31, 2022.2024 as compared to 2023. While our revised outlook forwe remain optimistic that our net interest income is still positive,should continue to stabilize and grow during the remainder of 2024 as compared to the first quarter 2024, our forecasts include several uncertain assumptions, including changes in the level of market interest rates. As such, we cannot provide any assurances with respect to the future trajectory of market interest rates or that our net interest marginincome or incomemargin will remain at the levels reported for the first quarter 2023.2024. For a detailed discussion on the risks related to interest rates please refer to Part I, Item 1A. “Risk Factors” in our Annual Report.
The following table reflects the components of net interest income for the three months ended March 31, 2023,2024, December 31, 20222023 and March 31, 2022:2023:
Quarterly Analysis of Average Assets, Liabilities and Shareholders’ Equity and
Net Interest Income on a Tax Equivalent Basis
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2023 | | December 31, 2022 | | March 31, 2022 | | March 31, 2024 | | December 31, 2023 | | March 31, 2023 |
| | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate | | Average Balance | | Interest | | Average Rate |
| | ($ in thousands) | | ($ in thousands) |
Assets | Assets | |
Interest earning assets: | Interest earning assets: | |
Interest earning assets: | |
Interest earning assets: | |
Loans (1)(2) | |
Loans (1)(2) | |
Loans (1)(2) | Loans (1)(2) | $ | 47,859,371 | | | $ | 655,250 | | | 5.48 | % | | $ | 46,086,363 | | | $ | 599,040 | | | 5.20 | % | | $ | 34,623,402 | | | $ | 317,390 | | | 3.67 | % | $ | 50,246,591 | | | $ | | $ | 771,577 | | | 6.14 | | 6.14 | % | | $ | 50,039,429 | | | $ | | $ | 762,918 | | | 6.10 | | 6.10 | % | | $ | 47,859,371 | | | $ | | $ | 655,250 | | | 5.48 | | 5.48 | % |
Taxable investments (3) | Taxable investments (3) | 5,033,134 | | | 37,474 | | | 2.98 | | | 4,934,084 | | | 35,278 | | | 2.86 | | | 3,838,468 | | | 20,115 | | | 2.10 | |
Tax-exempt investments (1)(3) | Tax-exempt investments (1)(3) | 623,145 | | | 6,739 | | | 4.33 | | | 623,322 | | | 6,608 | | | 4.24 | | | 401,742 | | | 3,186 | | | 3.17 | |
Interest bearing deposits with banks | Interest bearing deposits with banks | 1,847,140 | | | 22,205 | | | 4.81 | | | 761,832 | | | 7,038 | | | 3.70 | | | 1,419,436 | | | 461 | | | 0.13 | |
Total interest earning assets | Total interest earning assets | 55,362,790 | | | 721,668 | | | 5.21 | | | 52,405,601 | | | 647,964 | | | 4.95 | | | 40,283,048 | | | 341,152 | | | 3.39 | |
Allowance for credit losses | Allowance for credit losses | (466,837) | | | | | (483,580) | | | | | (367,989) | | | | |
Cash and due from banks | Cash and due from banks | 445,005 | | | 408,891 | | | 281,883 | | |
Cash and due from banks | |
Cash and due from banks | |
Other assets | |
Other assets | |
Other assets | Other assets | 4,702,376 | | | 4,775,113 | | | 3,361,185 | | |
Unrealized gains on securities available for sale, net | Unrealized gains on securities available for sale, net | (176,332) | | | (192,810) | | | 12,124 | | |
Unrealized gains on securities available for sale, net | |
Unrealized gains on securities available for sale, net | |
Total assets | Total assets | $ | 59,867,002 | | | $ | 56,913,215 | | | $ | 43,570,251 | | |
Liabilities and shareholders’ equity | | | | | | |
Total assets | |
Total assets | |
Liabilities and Shareholders’ Equity | |
Liabilities and Shareholders’ Equity | |
Liabilities and Shareholders’ Equity | |
Interest bearing liabilities: | Interest bearing liabilities: | |
Interest bearing liabilities: | |
Interest bearing liabilities: | |
Savings, NOW and money market deposits | |
Savings, NOW and money market deposits | |
Savings, NOW and money market deposits | Savings, NOW and money market deposits | $ | 23,389,569 | | | $ | 150,766 | | | 2.58 | % | | $ | 23,476,111 | | | $ | 109,286 | | | 1.86 | % | | $ | 20,522,629 | | | $ | 9,627 | | | 0.19 | % | $ | 24,793,452 | | | $ | | $ | 232,506 | | | 3.75 | | 3.75 | % | | $ | 23,991,093 | | | $ | | $ | 221,500 | | | 3.69 | | 3.69 | % | | $ | 23,389,569 | | | $ | | $ | 150,766 | | | 2.58 | | 2.58 | % |
Time deposits | Time deposits | 9,738,608 | | | 80,298 | | | 3.30 | | | 7,641,769 | | | 48,417 | | | 2.53 | | | 3,554,520 | | | 2,831 | | | 0.32 | |
Total interest bearing deposits | Total interest bearing deposits | 33,128,177 | | | 231,064 | | | 2.79 | | | 31,117,880 | | | 157,703 | | | 2.03 | | | 24,077,149 | | | 12,458 | | | 0.21 | |
Short-term borrowings | Short-term borrowings | 2,803,743 | | | 33,948 | | | 4.84 | | | 880,615 | | | 7,404 | | | 3.36 | | | 594,297 | | | 806 | | | 0.54 | |
Long-term borrowings (4) | Long-term borrowings (4) | 1,686,830 | | | 19,198 | | | 4.55 | | | 1,598,379 | | | 15,624 | | | 3.91 | | | 1,476,469 | | | 9,525 | | | 2.58 | |
Total interest bearing liabilities | Total interest bearing liabilities | 37,618,750 | | | 284,210 | | | 3.02 | | | 33,596,874 | | | 180,731 | | | 2.15 | | | 26,147,915 | | | 22,789 | | | 0.35 | |
Non-interest bearing deposits | Non-interest bearing deposits | 14,024,742 | | | | | 15,116,977 | | | | | 11,686,534 | | | | |
Other liabilities | Other liabilities | 1,783,295 | | | 1,871,394 | | | 631,093 | | |
Other liabilities | |
Other liabilities | |
Shareholders’ equity | |
Shareholders’ equity | |
Shareholders’ equity | Shareholders’ equity | 6,440,215 | | | 6,327,970 | | | 5,104,709 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 59,867,002 | | | $ | 56,913,215 | | | $ | 43,570,251 | | |
Total liabilities and shareholders’ equity | |
Total liabilities and shareholders’ equity | |
Net interest income/interest rate spread (5) | |
Net interest income/interest rate spread (5) | |
Net interest income/interest rate spread (5) | Net interest income/interest rate spread (5) | | | $ | 437,458 | | | 2.19 | % | | | | $ | 467,233 | | | 2.80 | % | | | | $ | 318,363 | | | 3.04 | % | | | $ | 394,847 | | | 1.67 | | 1.67 | % | | | | $ | 398,581 | | | 1.67 | | 1.67 | % | | | | $ | 437,458 | | | 2.19 | | 2.19 | % |
Tax equivalent adjustment | Tax equivalent adjustment | | (1,438) | | | | | (1,414) | | | | | (694) | | | |
Net interest income, as reported | Net interest income, as reported | | $ | 436,020 | | | $ | 465,819 | | | $ | 317,669 | | |
Net interest income, as reported | |
Net interest income, as reported | |
Net interest margin (6) | |
Net interest margin (6) | |
Net interest margin (6) | Net interest margin (6) | | | | 3.15 | % | | | | 3.56 | % | | | | 3.15 | % | | | | | 2.78 | % | | | | | | 2.81 | % | | | | | | 3.15 | % |
Tax equivalent effect | Tax equivalent effect | | 0.01 | | | 0.01 | | | 0.01 | |
Net interest margin on a fully tax equivalent basis (6) | Net interest margin on a fully tax equivalent basis (6) | | 3.16 | % | | 3.57 | % | | 3.16 | % | Net interest margin on a fully tax equivalent basis (6) | | | | | 2.79 | % | | | | | | 2.82 | % | | | | | | 3.16 | % |
_____________
(1)Interest income is presented on a tax equivalent basis using a 21 percent federal tax rate.
(2)Loans are stated net of unearned income and include non-accrual loans.
(3)The yield for securities that are classified as available for saleAFS 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 March 31, 2023 Compared to March 31, 2022 | |
| | Change Due to Volume | | Change Due to Rate | | Total Change | |
| | (in thousands) | (in thousands) |
Interest Income: | Interest Income: | | |
Loans* | Loans* | $ | 147,471 | | | $ | 190,389 | | | $ | 337,860 | | |
Loans* | |
Loans* | |
Taxable investments | |
Taxable investments | |
Taxable investments | Taxable investments | 7,381 | | | 9,978 | | | 17,359 | | |
Tax-exempt investments* | Tax-exempt investments* | 2,141 | | | 1,412 | | | 3,553 | | |
Tax-exempt investments* | |
Tax-exempt investments* | |
Interest bearing deposits with banks | |
Interest bearing deposits with banks | |
Interest bearing deposits with banks | Interest bearing deposits with banks | 180 | | | 21,564 | | | 21,744 | | |
Total increase in interest income | Total increase in interest income | 157,173 | | | 223,343 | | | 380,516 | | |
Total increase in interest income | |
Total increase in interest income | |
Interest Expense: | |
Interest Expense: | |
Interest Expense: | Interest Expense: | | | | | | |
Savings, NOW and money market deposits | Savings, NOW and money market deposits | 1,531 | | | 139,608 | | | 141,139 | | |
Savings, NOW and money market deposits | |
Savings, NOW and money market deposits | |
Time deposits | |
Time deposits | |
Time deposits | Time deposits | 12,150 | | | 65,317 | | | 77,467 | | |
Short-term borrowings | Short-term borrowings | 10,580 | | | 22,562 | | | 33,142 | | |
Short-term borrowings | |
Short-term borrowings | |
Long-term borrowings and junior subordinated debentures | |
Long-term borrowings and junior subordinated debentures | |
Long-term borrowings and junior subordinated debentures | Long-term borrowings and junior subordinated debentures | 1,520 | | | 8,153 | | | 9,673 | | |
Total increase in interest expense | Total increase in interest expense | 25,781 | | | 235,640 | | | 261,421 | | |
Total increase (decrease) in net interest income | $ | 131,392 | | | $ | (12,297) | | | $ | 119,095 | | |
Total increase in interest expense | |
Total increase in interest expense | |
Total decrease in net interest income | |
Total decrease in net interest income | |
Total decrease in net interest income | |
*Interest income is presented on a tax equivalent basis using 21 percent as the federal tax rate.
Non-Interest Income
Non-interest income represented 6.9 percent and 7.0 percent of total interest income plus non-interest income for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024, non-interest income increased $7.1 million as compared to the same period in 2023 primarily driven by higher wealth management and trust fees and net gains on sales of assets
.
Non-Interest Income
Non-interest income increased $15.0 million for the three months ended March 31, 2023 as compared to the same period of 2022. The following table presents the components of non-interest income for the three months ended March 31, 20232024 and 2022:2023:
| | |
| |
| |
| |
| |
| | | Three Months Ended March 31, | |
| | 2023 | | 2022 | |
| | (in thousands) | (in thousands) |
Wealth management and trust fees | Wealth management and trust fees | $ | 9,587 | | | $ | 5,131 | | |
Insurance commissions | Insurance commissions | 2,420 | | | 1,859 | | |
Insurance commissions | |
Insurance commissions | |
Capital markets | |
Capital markets | |
Capital markets | Capital markets | 10,892 | | | 14,360 | | |
Service charges on deposit accounts | Service charges on deposit accounts | 10,476 | | | 6,212 | | |
Gains (losses) on securities transactions, net | 378 | | | (1,072) | | |
Service charges on deposit accounts | |
Service charges on deposit accounts | |
Gains on securities transactions, net | |
Gains on securities transactions, net | |
Gains on securities transactions, net | |
| Fees from loan servicing | |
| Fees from loan servicing | |
| Fees from loan servicing | Fees from loan servicing | 2,671 | | | 2,781 | | |
Gains on sales of loans, net | Gains on sales of loans, net | 489 | | | 986 | | |
| Gains on sales of loans, net | |
Gains on sales of loans, net | |
Gains on sales of assets, net | |
Gains on sales of assets, net | |
Gains on sales of assets, net | |
Bank owned life insurance | |
Bank owned life insurance | |
Bank owned life insurance | Bank owned life insurance | 2,584 | | | 2,046 | | |
Other | Other | 14,802 | | | 6,967 | | |
Other | |
Other | |
Total non-interest income | Total non-interest income | $ | 54,299 | | | $ | 39,270 | | |
Total non-interest income | |
Total non-interest income | |
Wealth management and trust fees income increased $4.5$8.3 million for the three months ended March 31, 20232024 as compared to the same period in 2022 primarily2023 mainly due to a higher brokeragevolume of success fees resulting fromand other related periodic fees generated by our tax credit advisory subsidiary. Brokerage fees also increased $1.4 million to $6.2 million for the three months ended March 31, 2024 as compared to the acquisition of Bank Leumi USA and its wholly ownedsame period in 2023 due to an uptick in customer trading volume at our broker dealer subsidiary on April 1, 2022. Brokerage fees totaled $4.8subsidiary.
Capital markets income decreased $5.2 million for the three months ended March 31, 2023.2024 as compared to the same period in 2023 mainly due to a decline in the volume of interest rate swap transactions, and resulting fees, related to commercial loan customers.
Capital markets income decreased $3.5Net gains on sales of assets increased $3.6 million for the three months ended March 31, 20232024 as compared to the same period in 2023 largely due to the net gain on the sale of our commercial premium finance lending business in the first quarter in 2022. This decrease was largely driven by lower fee2024.
Other non-interest income from transactions executed for commercial customer related interest rate swaps, partially offset by an increase in foreign exchange fees. Swap fees income totaled $7.8 million and $14.0decreased $2.1 million for the three months ended March 31, 2024 as compared to the same period in 2023 and 2022, respectively. Foreign exchange fees totaled $2.0mostly due to a $2.7 million and $369 thousand for litigation recovery in the three months ended March 31, 2023 and 2022, respectively.period.
Non-Interest Expense
Service charges on deposit accountsNon-interest expense increased $4.3$8.1 million for the three months ended March 31, 20232024 as compared to the same period in 2023 due, in part, to 2022 largely related to higher checking account revenues resulting from additional deposit accounts acquired from a $9.1 million increase in the FDIC insurance assessment expense.Bank Leumi USA.
Net gains and losses on securities transactions for the three months ended March 31, 2023 and 2022 were almost entirely due to net trading gains and losses related to our municipal bond trading portfolio.
Other non-interest income increased $7.8 million for the three months ended March 31, 2023 as compared to the same quarter in 2022 mostly due to incremental increases in several operating non-interest income categories caused by the acquisition of Bank Leumi USA and organic growth of our business operations over the last 12 months.
Non-Interest Expense
Non-interest expense increased $74.8 million for the three months ended March 31, 2023 as compared to the same period in 2022. The following table presents the components of non-interest expense for the three months ended March 31, 20232024 and 2022:2023:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| (in thousands) |
Salary and employee benefits expense | $ | 144,986 | | | $ | 107,733 | | | | | |
Net occupancy expense | 23,256 | | | 21,991 | | | | | |
Technology, furniture and equipment expense | 36,508 | | | 26,015 | | | | | |
FDIC insurance assessment | 9,155 | | | 4,158 | | | | | |
Amortization of other intangible assets | 10,519 | | | 4,437 | | | | | |
Professional and legal fees | 16,814 | | | 14,749 | | | | | |
| | | | | | | |
Amortization of tax credit investments | 4,253 | | | 2,896 | | | | | |
Other | 26,675 | | | 15,361 | | | | | |
Total non-interest expense | $ | 272,166 | | | $ | 197,340 | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
| (in thousands) |
Salary and employee benefits expense | $ | 141,831 | | | $ | 144,986 | | | | | |
Net occupancy expense | 24,323 | | | 23,256 | | | | | |
Technology, furniture and equipment expense | 35,462 | | | 36,508 | | | | | |
FDIC insurance assessment | 18,236 | | | 9,155 | | | | | |
Amortization of other intangible assets | 9,412 | | | 10,519 | | | | | |
Professional and legal fees | 16,465 | | | 16,814 | | | | | |
| | | | | | | |
Amortization of tax credit investments | 5,562 | | | 4,253 | | | | | |
Other | 29,019 | | | 26,675 | | | | | |
Total non-interest expense | $ | 280,310 | | | $ | 272,166 | | | | | |
Salary and employee benefits expense increased $37.3decreased $3.2 million for the three months ended March 31, 20232024 as compared to the same period of 2022. The increasein 2023. The decrease was primarily duelargely attributable to increases in our headcount to support our expansion of operations resulting frommerger related costs totaling $4.1 million for the Bank Leumi USA acquisition, significant organic growth in our operations,three months endedMarch 31, 2023, partially offset by higher group medical insurance expense, as well as inflationary pressures in the labor market. Salary and employee benefitsseverance expense also included $4.1 million of merger related expenses primarily consisting of severance and retention compensation forto our back office restructuring efforts during the three months ended March 31, 2023.2024.
Net occupancyFDIC insurance assessment expense increased $1.3$9.1 million for the three months ended March 31, 20232024 as compared to the same period of 2022 mainly2023 mostly due to higher rentadditional estimated expenses of $7.4 million related to the FDIC special assessment. The FDIC plans to provide an updated estimate of each institution's quarterly and depreciationtotal special assessment expense partially offset by lower repair and maintenance costs in thewith its first quarter 2023.2024 special assessment invoice, to be released in June 2024. Valley will continue to evaluate its current accrual for the special assessment as new information becomes available.
Technology, furniture and equipmentOther non-interest expense increased $10.5$2.3 million for the three months ended March 31, 2023 as compared to the same periods of 2022. The increase was largely driven by additional investments in technology and equipment and higher depreciation expense in the first quarter 2023.
FDIC insurance assessment expense increased $5.0 million for the three months ended March 31, 2023 as compared to the same period of 2022 mainly due to growth in our balance sheet, as well as a two basis point increase in the initial base rate effective for the first quarter 2023.
Amortization of other intangible assets increased $6.1 million for the three months ended March 31, 20232024 as compared to the same period of 2022 mainly due to higher amortization expense of core deposits and other intangible assets in 2023resulting from Bank Leumi USA acquisition. See Note 9 to the consolidated financial statements for additional information.Professional and legal fees increased $2.1 million for the three months ended March 31, 2023 as compared to the same period of 2022. The increase was primarily due to higher consultingmoderate increases in several smaller expense mainly related to technology transformation and new product initiatives, partially offset by lower managed services expense in the first quarter 2023.categories, including capital taxes, charitable contributions, postage, operating losses, etc.
Other non-interest expense increased $11.3 million for the three months ended March 31, 2023 as compared to the same period of 2022 largely due to general increases related to the Bank Leumi acquisition, advertising and charges related to collateral liabilities in connection with derivative transactions.
Income Taxes
Income tax expense totaled $57.2 million and $39.3$33.2 million for the three months ended March 31,first quarter 2024 as compared to $17.4 million and $57.2 million for the fourth quarter 2023 and 2022,first quarter 2023, respectively. Our effective tax rate was 28.125.6 percent, 19.6 percent and 25.228.1 percent for the three months ended March 31,first quarter 2024, fourth quarter 2023 and 2022,first quarter 2023, respectively. The increase in the effective tax rate infrom the firstfourth quarter 2023 as compared to the same period of 2022 was mainly dueattributable to a smaller benefit in excess stock compensation and a newly established valuation allowance against a loss provision on available for sale debt securities.larger amount of tax credits recognized during the fourth quarter 2023.
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 be 25 to 26 percent for the full year ended December 31, 2024.
Operating Segments
At March 31, 2023 and December 31, 2022, Valley managedmanages its business operations under reportableoperating segments consisting of Consumer Banking and Commercial Banking andBanking. Activities not assigned to the operating segments are included in Treasury and Corporate Other. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes, and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations, and reporting structures to identify its reportableoperating segments and no changes to the reportableoperating segments were determined necessary during the first quarter 2023.three months ended March 31, 2024.
The accounting for each operating segment and Treasury and Corporate Other 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 balances presented for three months ended March 31, 2022 in the tables below reflect reclassifications to conform with the presentation of the current operating segment structure implemented in the second quarter 2022. These reclassifications did not impact Valley's consolidated results. See Valley's Form 10-K for the year ended December 31, 2022 for additional information.
The following tables present the financial data for Valley's operating segments, and Treasury and Corporate Other for the three months ended March 31, 20232024 and 2022:2023:
| | | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2024 |
| | Consumer Banking | | Commercial Banking | | 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 | $ | 8,768,482 | | $ | 39,090,889 | | $ | 7,503,419 | | $ | 55,362,790 | Average interest earning assets | $ | 9,795,462 | | $ | 40,451,129 | | $ | 6,372,206 | | $ | 56,618,797 |
Income (loss) before income taxes | Income (loss) before income taxes | 1,024 | | 223,610 | | (20,918) | | 203,716 | Income (loss) before income taxes | 12,170 | | 158,621 | | (41,338) | | 129,453 |
Annualized return on average interest earning assets (before tax) | 0.05 | % | | 2.29 | % | | (1.12) | % | | 1.47 | % |
Return on average interest earning assets (before tax) | | Return on average interest earning assets (before tax) | 0.50 | % | | 1.57 | % | | (2.59) | % | | 0.91 | % |
| | | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2023 |
| | Consumer Banking | | Commercial Banking | | 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 | $ | 7,638,942 | | $ | 26,984,460 | | $ | 5,659,646 | | $ | 40,283,048 | Average interest earning assets | $ | 9,476,112 | | $ | 38,383,259 | | $ | 7,503,419 | | $ | 55,362,790 |
Income (loss) before income taxes | Income (loss) before income taxes | 22,981 | | 136,831 | | (3,770) | | 156,042 | Income (loss) before income taxes | 12,324 | | 230,567 | | (39,175) | | 203,716 |
Annualized return on average interest earning assets (before tax) | 1.20 | % | | 2.03 | % | | (0.27) | % | | 1.55 | % |
Return on average interest earning assets (before tax) | | Return on average interest earning assets (before tax) | 0.52 | % | | 2.40 | % | | (2.09) | % | | 1.47 | % |
See Note 1615 to the consolidated financial statements for additional details.
Consumer Banking
Consumer Banking Segment
The Consumer Banking segment represented 18.218.3 percent of our loan portfolio at March 31, 2023,2024, 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 11.3 percent of our loan portfolio at March 31, 2023)2024) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans portfolio (which represented 3.53.4 percent of total loans at March 31, 2023)2024) 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 Banking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.
AverageConsumer Banking’s average interest earning assets within Consumer Banking increased $319.4 million$1.1 billion to $8.8$9.8 billion for the three months ended March 31, 20232024 as compared to the same period of 20222023. The increase was largely due to new residential mortgage loan volumes originated for investment rather than sale over the last 12-month period and, to a lesser extent, growthan increase in automobile,average home equity and secured personal lines of credit.loans.
Income before income taxes forgenerated by the Consumer Banking segment decreased $22.0 million$154 thousand to $1.0$12.2 million for the first quarter 20232024 as compared to the first quarter 20222023 and was mainly driven by lowera combination of a decrease in net interest income and to a lesser extent, increaseshigher internal transfer expense, largely offset by an increase in thenon-interest income and lower provision for loan losses and internal transfer expense.losses. Net interest income for this segment decreased $13.9$9.0 million in the first quarter 2023 as compared to the same period of 2022mainly due to additionalhigher funding costs driven by higher interest expense generated fromrates. The non-interest income increased $8.7 million mainly due to a higher average depositvolume of success fees and other borrowing balances,related periodic fees generated by our tax credit advisory subsidiary, as well as an increase brokerage fees generated from certain private banking clients. See further details in interest ratethe “Non-Interest
Income” section of this MD&A. The provision for loan losses increased $4.6decreased $3.4 million for the three months ended March 31, 2023 2024 mainly due to additional reserves related to residentiallower loan growth as well as deterioration in ourand an improved economic forecast component within our CECL modeloutlook as compared to one year ago. See further details in the “Allowance“Allowance for Credit Losses” section of this MD&A.Internal transfer expense increased $2.2 million for the first quarter 2023 as compared to the first quarter 2022.
Net interest margin on the Consumer Banking portfolio decreased 10144 basis points to 1.931.65 percent for the first quarter 20232024 as compared to the first quarter 20222023 mainly due to a 179103 basis point increase in the costs associated with our funding sources, partially offset by a 7859 basis point increase in the yield on average loansloa.ns. The increase in our funding costs was mainly driven by higher interest rates on most of our interest bearing commercial and retail deposit products, increased utilizationas well as the mix of fully FDIC-insured brokered depositsour adjustable rate and higher cost of other borrowings held during the first quarter 2023.2024. The 7859 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio. See the "Executive Summary"“Executive Summary” and the "Net“Net Interest Income"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 bankingConsumer Banking segment was 0.050.50 percent for the first quarter 20232024 compared to 1.200.52 percent for the first quarter 2022.2023.
Commercial Banking Segment
The Commercial Banking segment is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, Commercial Banking is Valley’s businessoperating segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately $9.0$9.1 billion and represented 18.618.2 percent of the total loan portfolio at March 31, 2023.2024. Commercial real estate loans and construction loans totaled $30.8$31.7 billion and represented 63.263.5 percent of the total loan portfolio at March 31, 2023.2024.
Average interest earning assets in Commercial Banking segment increased $12.1$2.1 billion to $39.1$40.5 billion for the three months ended March 31, 20232024 as compared to the first quarter 2022. This increase was2023 primarily due to strong organic loan growth concentrated inover the last 12 month period largely within the commercial real estate loan portfolio as well as commercial loans acquired from Bank Leumi USA.
Income before income taxes for Commercial Banking increased $86.8decreased $71.9 million to $223.6$158.6 million for the three months ended March 31, 20232024 as compared to the same period of 20222023 mainly due to an increase in net interest income, partially offset bya combination of a higher provision for credit losses and internal transfer expense and non-interest expense.a decrease in net interest income. The declines were modestly offset by a $3.6 million gain due to the sale of our commercial premium finance lending business in February 2024. The provision for credit losses increased $39.2 million to $42.2 million as compared to the same period in 2023 due, in part, to higher quantitative reserves mainly within the non-owner occupied commercial real estate loan category and increased specific reserves for collateral dependent non-performing commercial loans. See details in the “Allowance for Credit Losses for Loans” section of this MD&A. Net interest income for this segment increased $131.6decreased $15.3 million to $378.2$355.7 million for the first quarter 20232024 as compared to the same period in 20222023 primarily due to the higher average commercial loan balancescost of funding and higher interest rates on new and adjustable loans.the inverted yield curve. Internal transfer expense also increased $31.7$19.2 million to $131.6$136.6 million for the three months ended March 31, 20232024 as compared to the first quarter 2022 largely due to general increases related to both organic and acquired growth in our business operations over the last 12-month period. Non-interest expense also2023. Other income for commercial banking increased $10.6$2.2 million to $35.7$18.0 million for the three months ended March 31, 2023 as compared to the first quarter 2022. The provision for credit losses increased $1.4 million to $3.0 million as compared to the same period in 2022 mainlyprimarily due to a moderate increase in certain qualitative reserves. See details in$3.6 million gain recognized on the "Allowance for Credit Losses for Loans" sectionsale of this MD&A.the premium finance lending division.
The net interest margin for this segment increased 22decreased 35 basis points to 3.873.52 percent for the first quarter 20232024 as compared to the first quarter 20222023 due to a 201 basis point increase in the yield on average loans, partially offset by a 179103 basis point increase in the cost of our funding sources.sources, partially offset by a 68 basis point increase in the yield on average loans.
The return on average interest earning assets before income taxes for the consumercommercial banking segment was 2.291.57 percent for the three months ended March 31, 20232024 compared to 2.032.40 percent tofor the same period in 2022.2023.
Treasury and Corporate Other
Treasury and Corporate Other largely consists of the Treasury managed held to maturityAFS and available for saleHTM 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 BankFRB of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to the Consumer Banking and Commercial Banking segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each businessoperating segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average interest earning assets and/or liabilities outstanding for the period. Other items disclosed in this segmentTreasury and Corporate Other include net gains and losses on available for saleAFS and held to maturityHTM 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.restructuring expenses and FDIC special assessment charges.
AverageTreasury and Corporate Other's average interest earning assets within Treasury and Corporate Other increased $1.8decreased $1.1 billion to $7.5$6.4 billion for the three months ended March 31, 2023 mainly2024 primarily due to investment securities acquired from Bank Leumi USA, as well as other select investment securities purchases largely classified as held to maturity over the last 12-month perioda $1.1 billion . Averagedecline in average interest bearing deposits with banks increased $427.7 millioncash held overnight as comparedour excess liquidity returned to more normalized levels in 2024 after being elevated in response to the same periodbank failures in 2022 due to additional cash held as a cautionary liquidity management measure in March most of 2023.
For the three months ended March 31, 2023,2024, loss before income taxes in this segment totaled $20.9$41.3 million compared to $3.8$39.2 million for the same period in 2022.2023. The $17.1$2.2 million increase in the pre-tax loss during the first quarter 2023 period2024 was mainly due todriven by a decrease in net interest income on interest bearing deposits with banks combined with higher non-interest expense, partially offset by increases in internal transfer income and non-interest income.expense. Non-interest expense increased $62.5$8.6 million to $218.2$225.4 million during the three months ended March 31, 20232024 as compared to the same period in 20222023 largely due to expenses related to our expanded banking operations and organic business growth including higher salary and employee benefits expense, net occupancy, technology, furniture and equipment, professional and legal fees and other. See further detailsa $9.1 million increase in the "Non-Interest Income"FDIC insurance assessment expense in the first quarter 2024. The negative impact of these items was partially offset by lower provision for credit losses and "Non-Interest Expense" sectionshigher internal transfer income. Provision for credit losses decreased $5.1 million mostly due to credit related impairment of this MD&A. one corporate bond issued by Signature Bank during the first quarter 2023. The internal transfer income increased $33.9$23.3 million to $162.5$169.7 million for the three months ended March 31, 2023 as compared to the same period a year ago due to the higher allocation of non-interest expense over the same period. Non-interest income increased $15.7 million during the three months ended March 31, 20232024 as compared to the same period in 2022 mostly2023 due to incremental increases in several operating non-interest income categories caused byhigher allocations of the acquisition of Bank Leumi
USAoverhead expense to the Consumer Banking and organic growth of our business operationsCommercial Banking segments over the last 12-monthsame period. Provision for credit losses increased $4.9 million mainly due to a corporate bond issued by Signature Bank within our AFS debt securities portfolio that was fully charged-off duringSee further details in the first quarter 2023.“Non-Interest Income” and “Non-Interest Expense” sections of this MD&A.
TheTreasury and Corporate Other's net interest margin for this segment increased 5decreased 92 basis points to 1.510.59 percent for the first quarter 20232024 as compared to the first quarter 20222023 due to a 184103 basis point increase in cost of our funding sources, partly offset by an 11 basis point increase in the yield on average investments, partially offset by a 179 basis point increase in cost of our funding sources.investments. The increase in the yield on average investments as compared to the same period a year ago was largely driven by new higher yielding investments and a reduction in premium amortization expense mostly caused by slower principal repayments in the risingelevated market interest rate environment.
ASSET/LIABILITY MANAGEMENT
Interest Rate Risk
Our success is largely dependent upon our ability to manage interest rate risk. Interest rate risk can be defined as the exposure of our interest rate sensitive assets and liabilities to the movement in interest rates. Our Asset/Liability Management Committee is responsible for managing such risks and establishing policies that monitor and coordinate our sources and uses of funds. Asset/Liability management is a continuous process due to the constant change in interest rate risk factors. In assessing the appropriate interest rate risk levels for us, management weighs the potential benefit of each risk management activity within the desired parameters of liquidity, capital levels and management’s tolerance for exposure to income fluctuations. Many of the actions undertaken by management utilize fair value analysis and 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 March 31, 2023.2024. 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 March 31, 2023.2024. 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 March 31, 2023.2024. Although the size of Valley’s balance sheet is forecasted to remain static as of March 31, 20232024, 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 first quarter 2023.2024. The model also utilizes an immediate parallel shift in market interest rates at March 31, 2023.2024.
The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the table below, due to the frequency and timing of changes in interest rates and changes in spreads between maturity and re-pricing categories. Overall, our net interest income is affected by changes in interest rates and cash flows from our loan and investment portfolios. We actively manage these cash flows in conjunction with our liability mix, duration and interest rates to optimize the net interest income, while structuring the balance sheet in response to actual or potential changes in interest rates. Additionally, our net interest income is impacted by the level of competition within our marketplace. Competition can negatively impact the level of interest rates attainable on loans and increase the cost of deposits, which may result in downward pressure on our
net interest margin in future periods. Other factors, including, but not limited to, the slope of the yield curve and projected cash flows will impact our net interest income results and may increase or decrease the level of asset sensitivity of our balance sheet.
Convexity is a measure of how the duration of a financial instrument changes as market interest rates change. Potential movements in the convexity of bonds held in our investment portfolio, as well as the duration of the loan portfolio may have a positive or negative impact on our net interest income in varying interest rate environments. As a result, the increase or decrease in forecasted net interest income may not have a linear relationship to the results reflected in the table below. Management cannot provide any assurance about the actual effect of changes in interest rates on our net interest income.
The following table reflects management’s expectations of the change in our net interest income over the next 12- month period considering the aforementioned assumptions. While an instantaneous and severe shift in interest rates was used in this simulation model, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact than shown in the table below.
| | | | | | | | | | | |
| Estimated Change in Future Net Interest Income |
Changes in Interest Rates | Dollar Change | | Percentage Change |
(in basis points) | ($ in thousands) |
+300 | $ | 148,153 | | | 8.19 | % |
+200 | 98,911 | | | 5.47 | |
+100 | 49,316 | | | 2.73 | |
–100 | (33,830) | | | (1.87) | |
–200 | (75,645) | | | (4.18) | |
–300 | (131,350) | | | (7.26) | |
| | | | | | | | | | | |
| Estimated Change in Future Net Interest Income |
Changes in Interest Rates | Dollar Change | | Percentage Change |
(in basis points) | ($ in thousands) |
+300 | $ | 134,722 | | | 7.98 | % |
+200 | 90,019 | | | 5.33 | |
+100 | 45,450 | | | 2.69 | |
–100 | (45,794) | | | (2.71) | |
–200 | (93,473) | | | (5.54) | |
–300 | (139,054) | | | (8.24) | |
As noted in the table above, a 100 basis point immediate increasedecrease in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to increasedecrease net interest income over the next 12-month period by 2.732.71 percent. Management believes the interest rate sensitivity of our balance sheet remains within an acceptable tolerancean expected tolerance range at March 31, 2023.2024. 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, the Treasury reviews historical funding requirements, ourDepartment actively monitors Valley's current liquidity position,profile, sources and stability of funding, marketabilityavailability of assets options for attractingpledging or sale, opportunities to gather additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient liquidity to cover current and potential funding requirements.
The Bank adheres to certain internal liquidity guidelinesmeasures including ratios of loans to deposits below 110 percent and wholesale funding to total funding below 25 percent.percent, as summarized in the table below. Management maintains flexibility to temporarily exceed these limitsthresholds in certain operating environments. Our
The following table presents Valley's loan to deposits and wholesale funding to total funding ratios were approximately 102.2 percent and 26.9 percent at March 31, 2023, respectively. The level of wholesale funding and resulting excess cash on our balance sheet at March 31, 2023 was mostly 2024 and December 31, 2023:due to the cautionary liquidity actions taken in March 2023.
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | | | |
Loans to deposits | | 101.7 | % | | 102.0 | % |
Wholesale funding to total funding | | 19.8 | | | 19.5 | |
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 BankFRB of New York), investment and other sources.
The following table summarizes Valley's sources of liquid assets: | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | (in thousands) |
Cash and due from banks | | $ | 398,827 | | | $ | 284,090 | |
Interest bearing deposits with banks | | 542,006 | | | 607,135 | |
Trading debt securities | | 3,989 | | | 3,973 | |
Held to maturity debt securities (1) | | 197,136 | | | 194,094 | |
Available for sale debt securities (2) | | 1,449,334 | | | 1,296,576 | |
Loans held for sale | | 61,782 | | | 30,640 | |
Total liquid assets | | $ | 2,653,074 | | | $ | 2,416,508 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(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 $1.1 billion 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 $7.2 billion, representing 12.1 percent of earning assets at March 31, 2023 and $2.4 billion, representing 4.6 percent of earning assets at December 31, 2022. Of the $7.2 billion of liquid assets at March 31, 2023, approximately $870$840.3 million of various investment securities that were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of approximately $521.1 million in principal payments from securities in the total investment portfoliostrategies at March 31, 2024 and December 31, 2023, over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.respectively.
Additional liquidity isTotal liquid assets represented 4.8 percent and 4.3 percentof interest earning assets at March 31, 2024 and December 31, 2023, respectively.
Other sources of funds on the asset side are derived from scheduled loan payments of principal and interest, as well as prepayments received. Loan principal paymentsAt March 31, 2024, estimated cash inflows from total loans and loans held for sale at March 31, 2023 are projected to be approximately $16.8$13.5 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 $371.0 million in principal payments from securities in the total investment portfolio at March 31, 2024 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, fully FDIC-insured brokered andindirect 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, as well as retail certificates of deposit over $250 thousand, represents the largest of these sources.sources. Average core deposits totaled approximately $44.9$40.6 billion and $38.1$37.6 billion for the three months ended March 31, 20232024 and for the year ended December 31, 2022,2023, respectively, representing 81.271.7 percent and 79.266.6 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.
In addition to direct customer deposits, the Bank has ample access to readily available diverse fundingborrowing sources to fulfillsupplement its current and projected capitalfunding needs. The Bank is a member offollowing table presents short-term borrowings outstanding at March 31, 2024 and December 31, 2023:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (in thousands) |
FHLB advances | $ | — | | | $ | 850,000 | |
| | | |
Securities sold under agreements to repurchase | 75,224 | | | 67,834 | |
Total short-term borrowings | $ | 75,224 | | | $ | 917,834 | |
The following table summarizes the Federal Home Loan Bank of New York (FHLB)Bank's estimated unused available non-deposit borrowing capacities at March 31, 2024 and has the ability to borrow from them in the form of December 31, 2023:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (in thousands) |
FHLB borrowing capacity* | $ | 12,741,356 | | | $ | 13,604,000 | |
Unused FRB discount window* | 8,788,000 | | | 8,530,000 | |
Unused federal funds lines available from commercial banks | 2,140,000 | | | 2,140,000 | |
Unencumbered investment securities | 812,825 | | | 1,129,000 | |
Total | $ | 24,482,181 | | | $ | 25,403,000 | |
* Used and unused 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. At March 31, 2023, available borrowing potential, above and beyond amounts already utilized, at these institutions totaled $11.8 billion, including borrowing capacity under the Federal Reserve Bank's discount window totaling $4.3 billion. 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. The Bank has access to approximately $1.5 billion of uncommitted lines for the purchase of federal funds from these banks on a collective basis. 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 March 31, 2023, Valley had $1.0 billion of MULOCs outstanding for this purpose.
We also have access to other short-term and long-term borrowing sources to support our asset base, such as repos (i.e., securities sold under agreements to repurchase). Short-term borrowings increased $6.3 billion to $6.4 billion at March 31, 2023 as compared to December 31, 2022. In March 2023, we increased our short-term borrowings out of an abundance of caution to prudently bolster our liquidity position in the wake of the two recent bank failures. Since March 31, 2023, short-term FHLB advances have been allowed to mature resulting in a more normal liquidity
position. We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity as highlighted above.
Additionally, the Federal Reserve established the Bank Term Funding Program on March 12, 2023 as funding source for eligible depository institutions. The Program can provide short-term liquidity (up to one year) against the par value of certain high-quality collateral, such as U.S. Treasury securities, and eliminate the potential need for an institution to sell those securities in times of stress. Advances under the Program can be requested until March 11, 2024. As of March 31, 2023, Valley did not participate in this Program, but currently has this option as an available short-term liquidity source.
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. 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 March 31, 2023,2024, we had $50.2$67.0 million, $1.3$1.4 billion, and $3.8$3.7 billion in equity, available for saleAFS debt securities and held to maturityHTM debt securities, respectively. We also had $4.0 million of trading securities consisting of U.S. Treasury securities at March 31, 2024. The available for saleAFS and held to maturityHTM debt securities portfolios, which comprise the majority of the securities we own, include: U.S. Treasury securities, U.S. government agency securities, tax-exempt and taxable issuances of states and political subdivisions, residential mortgage-backed securities, single-issuer trust preferred securities principally issued by bank holding companies and high quality corporate bonds. Among other securities, our available for saleAFS 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 consistedconsist 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 $6.9 million
The primary purpose of tradingthe HTM and AFS debt securities at March 31, 2023 consistingportfolios is to provide a source of investment grade municipal bondsearnings and U.S. Treasury securities.liquidity, as well as serve as a tool for managing interest rate risk. The decision to purchase or sell securities is based upon the current assessment of long and short-term economic and financial conditions, including the interest rate environment and other components of statement of financial condition. See additional information under “Interest Rate Sensitivity,” “Liquidity and Cash Requirements” and “Capital Adequacy” sections elsewhere in this MD&A.
We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which we
are exposed to.exposed. 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 saleAFS and held to maturityHTM debt securities portfolios.
Allowance for Credit Losses and Impairment Analysis
Available for sale debt securities. Available for saleAFS 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 saleAFS debt securities that are in an unrealized loss position as of March 31, 20232024 and December 31, 20222023 and determined that the declines in fair value were mainly attributable to changes in market volatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors. Based on a comparison ofDuring the present value of expected cash flows to the amortized cost,first quarter 2023, Valley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in both a provision for credit losses and full charge-off of the security totaling $5.0 million based on a comparison of the present value of expected cash flows to the amortized cost. The bond was subsequently sold and the sale resulted in a $869 thousand gain during the three months ended March 31,fourth quarter 2023. There was no other impairment recognized within the available for saleAFS debt securities portfolio during the three months ended March 31, 2024 and March 31, 2023.
Valley does not intend to sell any of its available for saleAFS 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 saleAFS debt securities were past due as of March 31, 20232024 and therethere was no allowance for credit losses for available for saleAFS debt securities at March 31, 20232024 and December 31, 2022.2023.
Held to maturity debt securities. Valley estimates the expected credit losses on held to maturityHTM 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 maturityHTM 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 maturityHTM 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 maturityHTM debt securities were carried net of an allowance for credit losses totaling approximately $1.6$1.1 million and $1.2 million at both March 31, 20232024 and December 31, 2022.2023, respectively.
Investment grades. The investment grades in the table below reflect the most current independent analysis performed by third parties of each security as of the date presented and not necessarily the investment grades at the date of our purchase of the securities. For many securities, the rating agencies may not have performed an independent analysis of the tranches owned by us, but rather an analysis of the entire investment pool. For this and other reasons, we believe the assigned investment grades may not accurately reflect the actual credit quality of each security and should not be viewed in isolation as a measure of the quality of our investment portfolio.
The following table presents the available for sale and held to maturity debt investment securities portfolios by investment grades at March 31, 2023:2024:
| | | March 31, 2023 | | March 31, 2024 |
| | 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: | |
AAA/AA/A Rated | |
AAA/AA/A Rated | |
AAA/AA/A Rated | |
| | (in thousands) |
Available for sale investment grades: * | |
AAA Rated | $ | 1,072,166 | | | $ | 106 | | | $ | (109,683) | | | $ | 962,589 | |
AA Rated | 150,571 | | | — | | | (24,559) | | | 126,012 | |
A Rated | 10,111 | | | — | | | (1,196) | | | 8,915 | |
| BBB Rated | |
| BBB Rated | |
| BBB Rated | BBB Rated | 69,826 | | | — | | | (6,072) | | | 63,754 | |
| Not rated | Not rated | 104,333 | | | — | | | (10,765) | | | 93,568 | |
Not rated | |
Not rated | |
Total | Total | $ | 1,412,007 | | | $ | 106 | | | $ | (152,877) | | | $ | 1,259,236 | |
Held to maturity investment grades: * | | | | | | | |
AAA Rated | $ | 3,406,081 | | | $ | 2,844 | | | $ | (422,459) | | | $ | 2,986,466 | |
AA Rated | 249,672 | | | 384 | | | (12,288) | | | 237,768 | |
A Rated | 6,593 | | | 2 | | | (134) | | | 6,461 | |
Held to maturity investment grades: | |
AAA/AA/A Rated | |
AAA/AA/A Rated | |
AAA/AA/A Rated | |
| BBB Rated | |
| BBB Rated | |
| BBB Rated | BBB Rated | 6,000 | | | — | | | (647) | | | 5,353 | |
Non-investment grade | Non-investment grade | 5,437 | | | — | | | (833) | | | 4,604 | |
Not rated | Not rated | 173,429 | | | 1 | | | (13,598) | | | 159,832 | |
Total | Total | $ | 3,847,212 | | | $ | 3,231 | | | $ | (449,959) | | | $ | 3,400,484 | |
Allowance for credit losses | Allowance for credit losses | 1,633 | | | — | | | — | | | 1,633 | |
Total, net of allowance for credit losses | Total, net of allowance for credit losses | $ | 3,845,579 | | | $ | 3,231 | | | $ | (449,959) | | | $ | 3,398,851 | |
| | | | | |
*
| 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 AAAAA/AA/A rated categories of both the available for saleAFS and held to maturityHTM debt securities portfolios (in the above table) were largely related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and continued to be driven by the rising interest rate environment during the last 12 months.12-months. The investment securities available for saleAFS and held to maturityHTM portfolio included $104.3$111.9 million and $173.4$167.6 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $10.8$13.6 million and $13.6$13.0 million, respectively, at March 31, 2023.2024. The unrealized losses within non-rated available for saleAFS debt securities was 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 maturityHTM debt securities mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0$36.1 million with $6.5 million gross unrealized losses and several corporate debt securities that were negatively impacted by rising interest rates, and other debt securities.not changes in their underlying credit.
See Note 76 to the consolidated financial statements for additional information regarding our investment securities portfolio.
Loan Portfolio
The following table reflects the composition of the loan portfolio as of the dates presented: | | March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| | | March 31, 2023 | | December 31, 2022 | |
| | ($ in thousands) | ($ in thousands) |
Loans | Loans | | |
| Commercial and industrial | Commercial and industrial | $ | 9,043,946 | | | $ | 8,804,830 | | |
| Commercial and industrial | |
| Commercial and industrial | |
Commercial real estate: | Commercial real estate: | | |
Commercial real estate | 27,051,111 | | | 25,732,033 | | |
Commercial real estate: | |
Commercial real estate: | |
Non-owner occupied | |
Non-owner occupied | |
Non-owner occupied | |
Multifamily (1) | |
Multifamily (1) | |
Multifamily (1) | |
Owner occupied | |
Owner occupied | |
Owner occupied | |
Total | |
Total | |
Total | |
Construction | |
Construction | |
Construction | Construction | 3,725,967 | | | 3,700,835 | | |
Total commercial real estate | Total commercial real estate | 30,777,078 | | | 29,432,868 | | |
Total commercial real estate | |
Total commercial real estate | |
Residential mortgage | |
Residential mortgage | |
Residential mortgage | Residential mortgage | 5,486,280 | | | 5,364,550 | | |
Consumer: | Consumer: | | |
Consumer: | |
Consumer: | |
Home equity | |
Home equity | |
Home equity | Home equity | 516,592 | | | 503,884 | | |
Automobile | Automobile | 1,717,141 | | | 1,746,225 | | |
Automobile | |
Automobile | |
Other consumer | |
Other consumer | |
Other consumer | Other consumer | 1,118,929 | | | 1,064,843 | | |
Total consumer loans | Total consumer loans | 3,352,662 | | | 3,314,952 | | |
Total loans* | $ | 48,659,966 | | | $ | 46,917,200 | | |
Total consumer loans | |
Total consumer loans | |
Total loans (2) | |
Total loans (2) | |
Total loans (2) | |
As a percent of total loans: | |
As a percent of total loans: | |
As a percent of total loans: | As a percent of total loans: | | | | |
Commercial and industrial | Commercial and industrial | 18.6 | % | | 18.8 | % | |
Commercial real estate | 63.2 | | | 62.7 | | |
Commercial and industrial | |
Commercial and industrial | |
Non-owner occupied | |
Non-owner occupied | |
Non-owner occupied | |
Multifamily | |
Multifamily | |
Multifamily | |
Owner occupied | |
Owner occupied | |
Owner occupied | |
Construction | |
Construction | |
Construction | |
Total Commercial real estate | |
Total Commercial real estate | |
Total Commercial real estate | |
Residential mortgage | |
Residential mortgage | |
Residential mortgage | Residential mortgage | 11.3 | | | 11.4 | | |
Consumer loans | Consumer loans | 6.9 | | | 7.1 | | |
Consumer loans | |
Consumer loans | |
Total | Total | 100.0 | % | | 100.0 | % | |
Total | |
Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | | Includes loans collateralized by properties that are greater than 50 percent rent regulated totaling approximately $531 million and $545 million at March 31, 2024 and December 31, 2023, respectively. |
(2) | Includes net unearned discount and deferred loan fees of $71.8 million and $85.4 million at March 31, 2024 and December 31, 2023, respectively. |
| |
| |
* Includes net unearned discount and deferred loan fees of $125.4 million and $120.5 million at March 31, 2023 and December 31, 2022, respectively.
Total loans increased $1.7 billion,decreased $288.3 million, or 14.92.3 percent on an annualized basis, to $48.7$49.9 billion at March 31, 20232024 from December 31, 20222023 largely as a result of the sale mainly due to continued strong organic loan growth in commercial loan categories and a slower loan prepayment activity within the loan portfolio during theof $196.5 million of first quarter 2023. Total commercial real estate (including construction) and construction loans at par value to Bank Leumi Le-Israel B.M. (BLITA) and the sale of $93.6 million of commercial and industrial loans increased 18.3 percent and 10.9 percent, respectively, on an annualized basisassociated with the sale of our premium finance lending division during the first quarter 2023. Residential mortgage2024. During the three months ended March 31, 2024, we also transferred $34.1 million of construction loans to loans held for sale at fair March 31, 2024 and subsequently sold the loans at par value to BLITA in April 2024. Loans held for sale are presented separately from total loans on the consolidated statements of financial condition totaled $17.2$61.8 million and $18.1$30.6 million at March 31, 20232024 and December 31, 2022,2023, respectively.
Commercial and industrial loans increased $239.1decreased $126.4 million to $9.0$9.1 billion at March 31, 2023 as compared to2024 from December 31, 2022. The organic growth was mainly a result2023 mostly due to the sale of the solid new loan volumes from our pre-existing long-term customer base across most$93.6 million of loans associated with the sale of our geographic footprints, as well aspremium finance lending division in February 2024 and the continued effortscontractual run-off of ourpremium finance loans that were retained and not sold. Our
retained commercial banking relationship teams.premium finance portfolio totaled $145.7 million at March 31, 2024 and is expected to mostly run-off at their scheduled maturity dates over the next 12 months.
Commercial real estate loans (excluding construction loans) increased $1.3 billiondecreased $94.3 million to $27.1$28.1 billion at March 31, 20232024 from December 31, 2022 reflecting solid organic growth mainly2023 largely due to demand for non-owner occupied loans across our geographic footprint. Our organic approachthe sale of $151.0 million through loan production is primarily the expansion of lendingparticipation agreements with our existing clients while also establishing new relationships in our primary and new market areas.BLITA during March 2024. We continue to growbe selective in the organic loan originations mainly to existing and other well-established clients within our commercial lending activities from outmarkets of market expansion efforts in states such as Pennsylvania, Georgia and Tennessee, as well as our relatively new markets in California and Illinois. In addition, our commercial real estate production remained strong in loans secured by multi-family dwellings, warehouses and healthcare facilities. At March 31, 2023, commercial real estate loans collateralized by office buildings were approximately $3.1 billion of the $27.1 billion portfolio. These loans are geographically disbursed largely across Florida, Alabama, New Jersey, New York and Manhattan withManhattan. The commercial real estate loan portfolio had a combined weighted average loan to value ratio of 5458 percent and debt service coverage ratio of 1.90.
Construction loans increased only $25.1 million to $3.71.63 at March 31, 2024. Commercial real estate collateralized by office buildings totaled approximately $3.3 billion at March 31, 20232024 and remained relatively unchanged as compared to December 31, 2023. Our loans collateralized by office buildings had a combined weighted average loan to value rate of 53 percent and debt service coverage ratio of 1.68 at March 31, 2024.
Construction loans decreased $170.3 million to $3.6 billion at March 31, 2024 from December 31, 2022 mainly driven by advances on pre-exiting construction2023 partly due to the sale of $45.6 million of loan projectsparticipations with BLITA in New Jersey, New YorkMarch 2024, and Florida.the transfer of $34.1 million of loans to loans held for sale as of March 31, 2024. The remaining net decrease largely relates to The growth in new construction loans was partially offset by the run-off of completed existing projects, and, to a lesser extent, migration of such completed projects to both internal and external permanent financing.financing and a low level of new advances on existing projects.
Residential mortgage loans totaled $5.6 billion at March 31, 2024 and increased $121.7$49.3 million or 9.1 percent on an annualized basis, from December 31, 2023 primarily due to the continued retention of a high percentage of new loan volumes for investment rather than for sale, combined with lower prepayment activity during the first quarter 2023 as we largely originated new loans for the held for investment portfolio rather than for sale.2024. New and refinanced residential mortgage loan originations totaled $194.4$115.0 million for the first quarter 20232024 as compared to $309.1$117.3 million and $552.6$194.4 million for the fourth quarter 20222023 and first quarter 2022,2023, respectively. Florida originations totaled $53.6 million and represented 27.6 percent of total residential mortgage loan originations in the quarter. During the first quarter 2023,2024, we retained approximately 86.367.3 percent of the total residential mortgage originations in our held for investment loan portfolio. Of the total originations in the first quarter 2023, only $26.6 million of residential mortgage loans were originated for sale rather than held for investment as compared to $144.5 million during the first quarter 2022. We may continue to retain a higher percentage of new loan volumes during the second quarter 2023 mainly due to our management of the interest rate risk and the mix of the interest earning assets on our balance sheet. Additionally, theThe volume of bothprimarily new and refinancedhome loan applications has remained relatively low in the early stages of the second quarter 20232024 largely due to the highhigher level of mortgage interest rates and tight housing inventories andthis may continue to challenge our ability to grow this loan category.
Home equity loans increased by $12.7only $4.9 million to $516.6$564.1 million at March 31, 20232024 compared to December 31, 20222023 as a result of modest growth in new home equity loan originations that continuesremained challenged due to be challenged by the unfavorable high interest rate environment.environment.
Automobile loans decreasedincreased by $29.1$80.1 million, or 6.719.8 percent on an annualized basis, to $1.7 billion at March 31, 20232024 as compared to December 31, 2022 largely2023 mainly due to lower consumer demand fora newslight uptick in application volume and used vehicle financing because of the higher interest rate environment. During the first quarter 2023, the interest rates on new car loans reached the highest level since 2008. We originated $31.5 million in auto loans through our dealership network during the first quarter 2023slower repayments as compared to $73.1 million in the fourth quarter 2022. Of the total originations, our Florida dealership network represented approximately 18 percent of new loans, during the first quarter 2023. Despite increased new automobile inventories available to consumers, we anticipate that the impact of inflation on average new vehicle prices coupled with rising interest rates could continue to have a negative impact on our ability to grow this loan category during the second quarter 2023.2023.
Other consumer loans increased $54.1decreased $31.7 million to $1.1$1.2 billion at March 31, 20232024 as compared to December 31, 2022mainly due to moderate growth in our2023 as demand and utilization of collateralized personal lines of credit portfolio.slowed during the first quarter 2024.
A significant 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.
While confident inLooking forward to second quarter 2024 and beyond, we expect to remain highly selective on new loan originations and generally supportive of compelling projects led by our commercial loan pipelineshigh quality and diverse residential and consumer loan offerings,tenured customer base. there can be no assurance that the growth trends experienced in most loan categories during the first quarter 2023We will continue orto focus our new origination efforts on traditional commercial and industrial, owner-occupied real estate and healthcare. For the full year ended December 31, 2024, we currently expect total loan balances will not decline from March 31, 2023. We expect a more challenging overall loan origination environment moving forward, especiallygrowth in the residential mortgage and consumer loan portfolios, duerange of zero to the impactfour percent as compared to total loans of higher market interest rates on customer demand and selective tightening of certain underwriting standards by Valley.
$50.2 billion at December 31, 2023.
Non-performing Assets
Non-performing assets (NPA)NPAs include non-accrual loans, other real estate owned (OREO),OREO, and other repossessed assets (which primarily consist of automobiles and taxi medallions) at March 31, 2023.2024. 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 lower of cost or fair value, less estimated cost to sell.
Our NPAs decreased $27.0$4.6 million to $244.9$288.8 million at March 31, 20232024 as compared to December 31, 20222023 mainly due to two large charge-offs withinlower non-accrual commercial and industrial and construction loans during the first quarter 2023.loan balances. NPAs as a percentage of total loans and NPAs totaled 0.50 percent and 0.58 percent at both March 31, 20232024 and December 31, 2022, respectively2023 (as shown in the table below). OurWe believe our 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“Credit quality indicators"indicators” section in Note 87 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 three months ended March 31, 2023,2024, most of our overall credit trends have remained relatively stable, and the majority of our business and borrowers continued to demonstrate resilience and growth despite the unexpected challenges across the banking system, slower economic growth, persistentlyimpact of higher borrowing costs, elevated inflation, labor costs and other factors. We continue to proactively monitor our commercial loans for potential negative trends/borrower weakness due to the overall uncertain economy.current operating environment and internally risk rate them accordingly. However, management cannot provide assurance that the non-performing assets will not materially increase from the levels reported at March 31, 20232024 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:
| | March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| | | March 31, 2023 | | December 31, 2022 | |
| | ($ in thousands) | ($ in thousands) |
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: | |
30 to 59 days past due: | |
30 to 59 days past due: | |
30 to 59 days past due: | |
30 to 59 days past due: | |
30 to 59 days past due: | |
30 to 59 days past due: | |
30 to 59 days past due: | |
Commercial and industrial | Commercial and industrial | $ | 20,716 | | | $ | 11,664 | | |
Commercial and industrial | |
Commercial and industrial | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | 13,580 | | | 6,638 | | |
| Residential mortgage | Residential mortgage | 12,599 | | | 16,146 | | |
| Residential mortgage | |
| Residential mortgage | |
Total consumer | |
Total consumer | |
Total consumer | Total consumer | 7,845 | | | 9,087 | | |
Total 30 to 59 days past due | Total 30 to 59 days past due | 54,740 | | | 43,535 | | |
Total 30 to 59 days past due | |
Total 30 to 59 days past due | |
60 to 89 days past due: | |
60 to 89 days past due: | |
60 to 89 days past due: | 60 to 89 days past due: | | | | |
Commercial and industrial | Commercial and industrial | 24,118 | | | 12,705 | | |
Commercial and industrial | |
Commercial and industrial | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | — | | | 3,167 | | |
| Residential mortgage | Residential mortgage | 2,133 | | | 3,315 | | |
| Residential mortgage | |
| Residential mortgage | |
Total consumer | |
Total consumer | |
Total consumer | Total consumer | 1,519 | | | 1,579 | | |
Total 60 to 89 days past due | Total 60 to 89 days past due | 27,770 | | | 20,766 | | |
Total 60 to 89 days past due | |
Total 60 to 89 days past due | |
90 or more days past due: | |
90 or more days past due: | |
90 or more days past due: | 90 or more days past due: | | | | |
Commercial and industrial | Commercial and industrial | 8,927 | | | 18,392 | | |
Commercial and industrial | |
Commercial and industrial | |
| Construction | |
| Construction | |
| Construction | |
Residential mortgage | |
Residential mortgage | |
Residential mortgage | |
Total consumer | |
Total consumer | |
Total consumer | |
Total 90 or more days past due | |
Total 90 or more days past due | |
Total 90 or more days past due | |
Total accruing past due loans | |
Total accruing past due loans | |
Total accruing past due loans | |
Non-accrual loans: | |
Non-accrual loans: | |
Non-accrual loans: | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | — | | | 2,292 | | |
Construction | Construction | 6,450 | | | 3,990 | | |
Construction | |
Construction | |
Residential mortgage | |
Residential mortgage | |
Residential mortgage | Residential mortgage | 1,668 | | | 1,866 | | |
Total consumer | Total consumer | 747 | | | 47 | | |
Total 90 or more days past due | 17,792 | | | 26,587 | | |
Total accruing past due loans | $ | 100,302 | | | $ | 90,888 | | |
Non-accrual loans: | | | | |
Commercial and industrial | $ | 78,606 | | | $ | 98,881 | | |
Commercial real estate | 67,938 | | | 68,316 | | |
Construction | 68,649 | | | 74,230 | | |
Residential mortgage | 23,483 | | | 25,160 | | |
Total consumer | Total consumer | 3,318 | | | 3,174 | | |
Total consumer | |
Total non-accrual loans | |
Total non-accrual loans | |
Total non-accrual loans | Total non-accrual loans | 241,994 | | | 269,761 | | |
| Other real estate owned (OREO) | Other real estate owned (OREO) | 1,189 | | | 286 | | |
| Other real estate owned (OREO) | |
| Other real estate owned (OREO) | |
Other repossessed assets | Other repossessed assets | 1,752 | | | 1,937 | | |
Other repossessed assets | |
Other repossessed assets | |
Total non-performing assets (NPAs) | |
Total non-performing assets (NPAs) | |
Total non-performing assets (NPAs) | Total non-performing assets (NPAs) | $ | 244,935 | | | $ | 271,984 | | |
| Total non-accrual loans as a % of loans | Total non-accrual loans as a % of loans | 0.50 | % | | 0.57 | % | |
| Total non-accrual loans as a % of loans | |
| Total non-accrual loans as a % of loans | |
Total NPAs as a % of loans and NPAs | |
Total NPAs as a % of loans and NPAs | |
Total NPAs as a % of loans and NPAs | Total NPAs as a % of loans and NPAs | 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 | 0.70 | | | 0.77 | | |
Total accruing past due and non-accrual loans as a % of loans | |
Total accruing past due and non-accrual loans as a % of loans | |
Allowance for loan losses as a % of non-accrual loans | Allowance for loan losses as a % of non-accrual loans | 180.54 | | | 170.02 | | |
Allowance for loan losses as a % of non-accrual loans | |
Allowance for loan losses as a % of non-accrual loans | |
Loans past due 30 to 59 days increased $11.2decreased $12.4 million to $54.7$46.8 million at March 31, 20232024 as compared to December 31, 2022 mostly2023 due to several large commercial and industrial loans and one matureddeclines in all loan categories, except for commercial real estate loan in the processwhich was largely comprised of renewal includedtwo loans in this early stage delinquency category at March 31, 2023. These increases were partially offset by improved performance within the residential mortgage and consumer loan categories.category.
Loans past due 60 to 89 days increased $7.0decreased $5.1 million to $27.8$14.2 million at March 31, 20232024 as compared to December 31, 2022 primarily2023 largely due to higher commercial and industrial loans largely driven by a few large loans included in this delinquency category at March 31, 2023.lower delinquencies across the non-commercial real estate loan categories.
Loans 90 days or more past due and still accruing interest decreased $8.8 millionincreased $210 thousand to $17.8$13.4 million at March 31, 20232024 as compared to December 31, 2022 mainly2023. All the loans past due to the renewals in the normal course of two matured loans during the first quarter 2023 that were previously included in this delinquency category at December 31, 2022. All loans 90 days or more past due and still accruing interest are well-secured and in the process of collection.
Non-accrual loans decreased $27.8 $4.6 million to $242.0$287.3 million at March 31, 20232024 as compared to $269.8$291.9 million at December 31, 20222023 mainly driven by decreases in commercial and industrialdue to lower non-accrual construction loan balances. Non-accrual construction loans and construction loans.decreased $9.0 million to $51.8 million at March 31, 2024 as compared to December 31, 2023 largely due to the partial loan charge-offs related to two loan relationships during the first quarter 2024. Non-accrual commercial and industrial loans decreased $20.3increased $2.5 million primarilyto $102.4 million at March 31, 2024 as compared to December 31, 2023 mainly due to one new non-performing loan relationship totaling $13.3 million, which was largely offset by $9.5 million of partial loan charge-offs related to one taxi medallion loan relationship during the charge-offfirst quarter 2024.
Non-performing taxi medallion loans included in non-accrual commercial and industrial loans totaled $53.0 million at March 31, 2024 and had related reserves of one loan participation that was fully reserved for in our$28.2 million, or 53.3 percent of such loans, within the allowance for loan losses as compared to $62.3 million of loans with related reserves of $37.7 millionat December 31, 2022. The decrease of $5.6 million in construction loans is mostly related to the partial charge-off of one loan relationship during thefirst quarter 2023 that had related allowance reserves totaling $4.3 million at December 31, 2022. Potential further declines in the market valuation of taxi medallions and the current operating environment mainly within New York City may negatively impact the performance of this portfolio.
Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at March 31, 2023,2024, are well secured and largely collectible, based in part on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable. Any estimated shortfall in each collateral valuation results in an allocation of specific reserves within our allowance for credit losses for loans.
Non-performing taxi medallion loans totaled $66.0 million of the $78.6 million non-accrual commercial and industrial loans at March 31, 2023. At March 31, 2023, all taxi medallion loans in the loan portfolio were on non-accrual status and had related reserves of $41.9 million, or 64.0 percent of such loans, within the allowance for loan losses. Potential further declines in the market valuation of taxi medallions and the current operating environment mainly within New York City may negatively impact the performance of this portfolio.
OREO properties totaled $1.2 million at March 31, 2023 and increased $903 thousand as compared to December 31, 2022. There were no sales of OREO properties in the first quarter 2023 and net gains on sales of OREO in the first quarter 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 $1.5 million and $2.6 million at March 31, 2023 and December 31, 2022, respectively.
Allowance for Credit Losses for Loans
The allowance for credit losses (ACL)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 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 estimatedestimates 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 isare 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.
At March 31, 2023,2024, Valley maintained the majority of its probability weightings weighting used in ourthe economic forecast inclusive of to the Moody'sMoody’s Baseline scenario with less emphasis on the S-3 downside and S-4 adverse scenarios, remainedS-1 upside scenarios. The probability weightings were unchanged from December 31, 2022. The2023. At March 31, 2024, the standalone Moody's Baseline scenario, reflectsreflected a slightly more optimistic outlook as compared to at December 31, 20222023 in terms of GDP growth and unemployment levels, but the overall outlook remained relatively weak. The updated Moody's forecasts were not materially impacted by the recent bank failures, as they noted the failures did not appear to be symptomatic of serious broad-based issues in the financial system.most metrics highlighted below.
At March 31, 2023,2024, the Moody's Baseline forecast included the following specific assumptions:
•GDP expansion of approximately 11.5 percent in the second quarter 2023;2024;
•Unemployment of 3.54.0 percent in the second quarter 2023 and 3.72024 approximately 4.0 to 4.04.1 percent over the remainder of the forecast period ending in the first quarter 2025;2026;
•Continued concerns about increased federal debt burden pushed by rising interest rates, high inflation, elevated house pricesInflation rate at 3.2 percent in February 2024; and lower consumer spending;
•The Federal Reserve continues its tightening monetary policy, including an increase of 25 basis pointscontinuing to pause with the federal funds rate at its May 2023 meeting but intends to keep rates steady through 2023 with no reductions until 2024;5.25 - 5.50 percent and possible cuts totaling 0.75 percent in 2024.
•Inflation remains elevated but continues to trend downward, while reporting at approximately 5 percent in March 2023.
See more details regarding our allowance for credit losses for loans in Note 87 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:
| | |
| |
| |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| | Three Months Ended | |
| | March 31, 2023 | | December 31, 2022 | | March 31, 2022 | |
| | ($ in thousands) | ($ in thousands) |
| Allowance for credit losses for loans | Allowance for credit losses for loans | | | | |
Allowance for credit losses for loans | |
Allowance for credit losses for loans | |
Beginning balance | |
Beginning balance | |
Beginning balance | Beginning balance | $ | 483,255 | | $ | 498,408 | | $ | 375,702 | |
Impact of the adoption of ASU No. 2022-02 (1) | Impact of the adoption of ASU No. 2022-02 (1) | (1,368) | | — | | — | |
Impact of the adoption of ASU No. 2022-02 (1) | |
Impact of the adoption of ASU No. 2022-02 (1) | |
| Beginning balance, adjusted | |
| Beginning balance, adjusted | |
| Beginning balance, adjusted | Beginning balance, adjusted | 481,887 | | 498,408 | | 375,702 | |
Loans charged-off: | Loans charged-off: | | | | | | |
Loans charged-off: | |
Loans charged-off: | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | Commercial and industrial | (26,047) | | (22,106) | | (1,571) | |
Commercial real estate | Commercial real estate | — | | (388) | | (173) | |
Commercial real estate | |
Commercial real estate | |
Construction | |
Construction | |
Construction | Construction | (5,698) | | — | | — | |
Residential mortgage | Residential mortgage | — | | (1) | | (26) | |
Residential mortgage | |
Residential mortgage | |
Total consumer | Total consumer | (828) | | (1,544) | | (825) | |
Total charge-offs | (32,573) | | (24,039) | | (2,595) | |
Total consumer | |
Total consumer | |
Total loans charged-off | |
Total loans charged-off | |
Total loans charged-off | |
Charged-off loans recovered: | |
Charged-off loans recovered: | |
Charged-off loans recovered: | Charged-off loans recovered: | | | | | | |
Commercial and industrial | Commercial and industrial | 1,399 | | 1,069 | | 824 | |
Commercial and industrial | |
Commercial and industrial | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | 24 | | 13 | | 107 | |
| Residential mortgage | Residential mortgage | 21 | | 17 | | 457 | |
| Residential mortgage | |
| Residential mortgage | |
Total consumer | Total consumer | 761 | | 498 | | 1,257 | |
Total recoveries | 2,205 | | 1,597 | | 2,645 | |
Total net loan (charge-offs) recoveries | (30,368) | | (22,442) | | 50 | |
Total consumer | |
Total consumer | |
Total loans recovered | |
Total loans recovered | |
Total loans recovered | |
Total net loan charge-offs | |
Total net loan charge-offs | |
Total net loan charge-offs | |
Provision charged for credit losses | |
Provision charged for credit losses | |
Provision charged for credit losses | Provision charged for credit losses | 9,450 | | 7,289 | | 3,500 | |
Ending balance | Ending balance | $ | 460,969 | | $ | 483,255 | | $ | 379,252 | |
Ending balance | |
Ending balance | |
Components of allowance for credit losses for loans: | |
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 | $ | 436,898 | | $ | 458,655 | | $ | 362,510 | |
Allowance for loan losses | |
Allowance for loan losses | |
Allowance for unfunded credit commitments | |
Allowance for unfunded credit commitments | |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 24,071 | | 24,600 | | 16,742 | |
Allowance for credit losses for loans | Allowance for credit losses for loans | $ | 460,969 | | $ | 483,255 | | $ | 379,252 | |
Allowance for credit losses for loans | |
Allowance for credit losses for loans | |
Components of provision for credit losses for loans: | |
Components of provision for credit losses for loans: | |
Components of provision for credit losses for loans: | Components of provision for credit losses for loans: | | | | | | |
Provision for credit losses for loans | Provision for credit losses for loans | $ | 9,979 | | $ | 5,353 | | $ | 3,258 | |
Provision for unfunded credit commitments | (529) | | 1,936 | | 242 | |
Provision for credit losses for loans | |
Provision for credit losses for loans | |
Credit for unfunded credit commitments | |
Credit for unfunded credit commitments | |
Credit for unfunded credit commitments | |
Total provision for credit losses for loans | |
Total provision for credit losses for loans | |
Total provision for credit losses for loans | Total provision for credit losses for loans | $ | 9,450 | | $ | 7,289 | | $ | 3,500 | |
| | Allowance for credit losses for loans as a % of total loans | Allowance for credit losses for loans as a % of total loans | 0.95 | % | | 1.03 | % | | 1.07 | % | |
| Allowance for credit losses for loans as a % of total loans | |
| Allowance for credit losses for loans as a % of total loans | |
| | | | | | | | | | | | | | |
(1) Represents the opening adjustment for the adoption of ASU No. 2022-02 effective January 1, 2023. |
|
|
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 | |
| | March 31, 2023 | | December 31, 2022 | | March 31, 2022 | |
| | ($ in thousands) | ($ in thousands) |
Net loan (charge-offs) recoveries | Net loan (charge-offs) recoveries | | |
Commercial and industrial | Commercial and industrial | $ | (24,648) | | $ | (21,037) | | $ | (747) | |
Commercial and industrial | |
Commercial and industrial | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | 24 | | (375) | | (66) | |
Construction | Construction | (5,698) | | — | | — | |
Construction | |
Construction | |
Residential mortgage | |
Residential mortgage | |
Residential mortgage | Residential mortgage | 21 | | 16 | | 431 | |
Total consumer | Total consumer | (67) | | (1,046) | | 432 | |
Total consumer | |
Total consumer | |
Total | |
Total | |
Total | Total | $ | (30,368) | | $ | (22,442) | | $ | 50 | |
Average loans outstanding | Average loans outstanding | | | | | | |
Average loans outstanding | |
Average loans outstanding | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | Commercial and industrial | $ | 8,754,853 | | $ | 8,688,005 | | $ | 5,727,350 | |
Commercial real estate | Commercial real estate | 26,555,421 | | 25,233,650 | | 19,342,697 | |
Commercial real estate | |
Commercial real estate | |
Construction | |
Construction | |
Construction | Construction | 3,780,615 | | 3,753,155 | | 1,914,413 | |
Residential mortgage | Residential mortgage | 5,363,421 | | 5,158,615 | | 4,681,417 | |
Residential mortgage | |
Residential mortgage | |
Total consumer | |
Total consumer | |
Total consumer | Total consumer | 3,405,061 | | 3,252,938 | | 2,957,525 | |
Total | Total | $ | 47,859,371 | | $ | 46,086,363 | | $ | 34,623,402 | |
Annualized net loan charge-offs (recoveries) to average loans outstanding | | | | | | |
Total | |
Total | |
Annualized net loan charge-offs to average loans outstanding | |
Annualized net loan charge-offs to average loans outstanding | |
Annualized net loan charge-offs to average loans outstanding | |
Commercial and industrial | |
Commercial and industrial | |
Commercial and industrial | Commercial and industrial | 1.13% | | 0.97% | | 0.05% | |
Commercial real estate | Commercial real estate | 0.00 | | 0.01 | | 0.00 | |
Commercial real estate | |
Commercial real estate | |
Construction | |
Construction | |
Construction | Construction | 0.60 | | 0.00 | | 0.00 | |
Residential mortgage | Residential mortgage | 0.00 | | 0.00 | | (0.04) | |
Residential mortgage | |
Residential mortgage | |
Total consumer | Total consumer | 0.01 | | 0.13 | | (0.06) | |
Total loans | 0.25 | | 0.19 | | 0.00 | |
Total consumer | |
Total consumer | |
Total annualized net loan charge-offs to total average loans outstanding | |
Total annualized net loan charge-offs to total average loans outstanding | |
Total annualized net loan charge-offs to total average loans outstanding | |
Net loan charge-offs totaled $30.4$23.6 million for the first quarter 20232024 as compared to $22.4$17.5 million and $30.4 million for the fourth quarter 2022 2023 and net recoveries offirst quarter 2023, respectively. Gross commercial and industrial loan charge-offs $50 thousandtotaled $14.3 million for the first quarter 2022. The first quarter 2023 net loan2024 and included (i) partial charge-offs largelytotaling $9.5 million related to one commercial and industrialnon-performing taxi medallion loan participation charged-off. This loanrelationship that was fully reserved for in our allowance for loan losses as ofat December 31, 20222023 and its remaining balance, net(ii) a $3.5 million of partial loan charge-offs was immaterialrelated to one non-performing loan relationship (with allowance reserves totaling $3.3 million at MarchDecember 31, 2023. 2023). Gross construction loan charge-offs totaled $7.6 million for the first quarter 2024 and related to partial charge-offs of two construction loan relationships. The two construction loan relationships had total allowance reserves of $3.2 million at December 31, 2023 prior to the first quarter 2024 partial charge-offs.
The amount of net loan charge-offs (as presented in the above table) and the low level of individual loan charge-offs for the first quarter 20232024 continued to trend within management's expectations for the credit quality of the loan portfolio at March 31, 2023.
2024.
The following table summarizes the allocation of the allowance for credit losses for loans to loan portfolio categories and the allocations as a percentage of each loan category:
| | | March 31, 2023 | | December 31, 2022 | | March 31, 2022 | | March 31, 2024 | | December 31, 2023 | | March 31, 2023 |
| | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category | | Allowance Allocation | | Allocation as a % of Loan Category |
| | ($ in thousands) | | ($ in thousands) |
Loan Category: | Loan Category: | |
Commercial and industrial loans | Commercial and industrial loans | $ | 127,992 | | | 1.42 | % | | $ | 140,008 | | | 1.59 | % | | $ | 101,203 | | | 1.75 | % |
Commercial and industrial loans | |
Commercial and industrial loans | | $ | 138,593 | | | 1.52 | % | | $ | 133,359 | | | 1.44 | % | | $ | 127,992 | | | 1.42 | % |
Commercial real estate loans: | Commercial real estate loans: | |
Commercial real estate | |
Commercial real estate | |
Commercial real estate | Commercial real estate | 190,420 | | | 0.70 | | | 200,248 | | | 0.78 | | | 189,927 | | | 0.96 | |
Construction | Construction | 52,912 | | | 1.42 | | | 58,987 | | | 1.59 | | | 30,022 | | | 1.38 | |
Total commercial real estate loans | Total commercial real estate loans | 243,332 | | | 0.79 | | | 259,235 | | | 0.88 | | | 219,949 | | | 1.00 | |
Residential mortgage loans | Residential mortgage loans | 41,708 | | | 0.76 | | | 39,020 | | | 0.73 | | | 28,189 | | | 0.60 | |
Consumer loans: | Consumer loans: | |
Home equity | Home equity | 4,417 | | | 0.86 | | | 4,332 | | | 0.86 | | | 3,656 | | | 0.93 | |
Home equity | |
Home equity | |
Auto and other consumer | Auto and other consumer | 19,449 | | | 0.69 | | | 16,060 | | | 0.57 | | | 9,513 | | | 0.37 | |
Total consumer loans | Total consumer loans | 23,866 | | | 0.71 | | | 20,392 | | | 0.62 | | | 13,169 | | | 0.45 | |
Allowance for loan losses | Allowance for loan losses | 436,898 | | | 0.90 | | | 458,655 | | | 0.98 | | | 362,510 | | | 1.03 | |
Allowance for unfunded credit commitments | Allowance for unfunded credit commitments | 24,071 | | | 24,600 | | | 16,742 | | |
Total allowance for credit losses for loans | Total allowance for credit losses for loans | $ | 460,969 | | | $ | 483,255 | | | $ | 379,252 | | |
Total allowance for credit losses for loans | |
Total allowance for credit losses for loans | |
Allowance for credit losses for loans as a % total loans | Allowance for credit losses for loans as a % total loans | | | 0.95 | % | | | | 1.03 | % | | | | 1.07 | % |
Allowance for credit losses for loans as a % total loans | |
Allowance for credit losses for loans as a % total loans | | | | 0.98 | % | | | | 0.93 | % | | | | 0.95 | % |
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 0.95 0.98 percent at March 31, 20232024 as compared to 1.030.93 percent and 1.070.95 percent at December 31, 20222023 and March 31, 2022,2023, respectively. During the first quarter 2023, the2024, the provision for credit losses for loans totaled $9.5$45.3 million as compared to $7.3$20.7 million and $3.5$9.5 million for the fourth quarter 20222023 and first quarter 2022,2023, respectively. At March 31, 2023, our allowanceThe increased provision for credit losses for loans as a percentage of total loans decreased as compared to December 31, 2022 largely due to the impact of the first quarter 20232024 was mainly driven by higher quantitative reserves related to criticized and classified loans within the commercial real estate, commercial and industrial, and construction loan charge-offs with prior allocated reserves. The reduction in allocated reserves for specific loansportfolios. This increase was partially offset by a moderate uptick in non-economiclower economic forecast and other qualitative reserves for commercial and industrial loans within our CECL model at March 31, 2023. The2024 and a credit (i.e., negative provision) for unfunded credit commitments.
Our provision for credit losses could remain elevated during the remainder of 2024 due to several factors, including, but not limited to the impact of future changes in (1) our economic componentoutlook (2) the overall performance of our current CECL model was relatively stable as compared to December 31, 2022.loan portfolio and (3) the composition of our loan portfolio.
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At both March 31, 20232024 and December 31, 2022, shareholders’2023, shareholders' equity totaled approximately $6.5$6.7 billion, and $6.4 billion, which represented 10.1 percent and 11.1or 11.0 percent of total assets, respectively.assets.
During the three months ended March 31, 2023,2024, total shareholders’ equity increased by approximately $110.8$25.7 million primarily due to:to the following:
•net income of $146.6$96.3 million,
•other comprehensive income of $20.4 million,
•additional capital issued totaling $3.8 million, and
•a $990$773 thousand net cumulativeincrease attributable to the effect adjustment to retained earnings for the adoption of ASU 2022-02,our stock incentive plan, partially offset by
•cash dividends declared on common and preferred stock totaling a combined $60.4$60.9 million, and
•a $505 thousand decrease attributable to the effectother comprehensive loss of our stock incentive plan.$10.4 million.
Valley and Valley Nationalthe Bank are subject to the regulatory capital requirements administered by the Federal Reserve BankFRB and the OCC. Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley Nationalthe 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 areValley is required to maintain a 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 March 31, 20232024 and December 31, 2022,2023, 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,August 26, 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 March 31, 2023,2024, approximately $23.6$35.5 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk-based capital ratios by approximately 69 basis points.
The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at March 31, 20232024 and December 31, 2022:2023:
| | | Actual | | Minimum Capital Requirements | | To Be Well Capitalized Under Prompt Corrective Action Provision | | Actual | | Minimum Capital Requirements | | To Be Well Capitalized Under Prompt Corrective Action Provision |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| | ($ in thousands) | | ($ in thousands) |
As of March 31, 2023 | |
As of March 31, 2024 | |
Total Risk-based Capital | Total Risk-based Capital | |
Total Risk-based Capital | |
Total Risk-based Capital | |
Valley | |
Valley | |
Valley | Valley | $ | 5,656,193 | | | 11.58 | % | | $ | 5,126,496 | | | 10.50 | % | | N/A | | N/A | $ | 5,913,519 | | | 11.88 | | 11.88 | % | | $ | 5,228,135 | | | 10.50 | | 10.50 | % | | N/A |
Valley National Bank | Valley National Bank | 5,736,909 | | | 11.75 | | | 5,125,168 | | | 10.50 | | | $ | 4,881,112 | | | 10.00 | % | Valley National Bank | 5,844,047 | | | 11.74 | | 11.74 | | | 5,226,143 | | 5,226,143 | | | 10.50 | | 10.50 | | | $ | | $ | 4,977,279 | | | 10.00 | | 10.00 | % |
Common Equity Tier 1 Capital | Common Equity Tier 1 Capital | |
Valley | Valley | 4,402,540 | | | 9.02 | | | 3,417,664 | | | 7.00 | | | N/A | | N/A |
Valley | |
Valley | | 4,652,816 | | | 9.34 | | | 3,485,424 | | | 7.00 | | | N/A |
Valley National Bank | Valley National Bank | 5,362,097 | | | 10.99 | | | 3,416,778 | | | 7.00 | | | 3,172,723 | | | 6.50 | |
Tier 1 Risk-based Capital | Tier 1 Risk-based Capital | | | | |
Valley | |
Valley | |
Valley | Valley | 4,617,381 | | | 9.46 | | | 4,150,021 | | | 8.50 | | | N/A | | N/A | 4,867,657 | | | 9.78 | | 9.78 | | | 4,232,300 | | 4,232,300 | | | 8.50 | | 8.50 | | | N/A | | N/A |
Valley National Bank | Valley National Bank | 5,362,097 | | | 10.99 | | | 4,148,945 | | | 8.50 | | | 3,904,890 | | | 8.00 | |
Tier 1 Leverage Capital | Tier 1 Leverage Capital | |
Valley | Valley | 4,617,381 | | | 7.96 | | | 2,319,296 | | | 4.00 | | | N/A | | N/A |
Valley | |
Valley | | 4,867,657 | | | 8.20 | | | 2,375,838 | | | 4.00 | | | N/A |
Valley National Bank | Valley National Bank | 5,362,097 | | | 9.25 | | | 2,319,185 | | | 4.00 | | | 2,898,982 | | | 5.00 | |
As of December 31, 2022 | |
As of December 31, 2023 | |
Total Risk-based Capital | Total Risk-based Capital | |
Total Risk-based Capital | |
Total Risk-based Capital | |
Valley | |
Valley | |
Valley | Valley | $ | 5,569,639 | | | 11.63 | % | | $ | 5,026,621 | | | 10.50 | % | | N/A | | N/A | $ | 5,855,633 | | | 11.76 | | 11.76 | % | | $ | 5,228,447 | | | 10.50 | | 10.50 | % | | N/A |
Valley National Bank | Valley National Bank | 5,659,511 | | | 11.84 | | | 5,018,129 | | | 10.50 | | | $ | 4,779,170 | | | 10.00 | % | Valley National Bank | 5,794,213 | | | 11.64 | | 11.64 | | | 5,228,403 | | 5,228,403 | | | 10.50 | | 10.50 | | | $ | | $ | 4,979,431 | | | 10.00 | | 10.00 | % |
Common Equity Tier 1 Capital | Common Equity Tier 1 Capital | |
Valley | Valley | 4,315,659 | | | 9.01 | | | 3,351,080 | | | 7.00 | | | N/A | | N/A |
Valley | |
Valley | | 4,623,473 | | | 9.29 | | | 3,485,631 | | | 7.00 | | | N/A |
Valley National Bank | 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 | |
Valley | |
Valley | |
Valley | Valley | 4,530,500 | | | 9.46 | | | 4,069,169 | | | 8.50 | | | N/A | | N/A | 4,838,314 | | | 9.72 | | 9.72 | | | 4,232,552 | | 4,232,552 | | | 8.50 | | 8.50 | | | N/A | | N/A |
Valley National Bank | 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 | |
Valley | Valley | 4,530,500 | | | 8.23 | | | 2,200,822 | | | 4.00 | | | N/A | | N/A |
Valley | |
Valley | | 4,838,314 | | | 8.16 | | | 2,372,129 | | | 4.00 | | | N/A |
Valley National Bank | 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 60.738.9 percent for the three months ended March 31, 20232024 as compared to 61.453.7 percent for the year ended December 31, 2022.2023.
Cash dividends declared amounted to $0.11 per common share for each of the three months ended March 31, 20232024 and 2022.2023. 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, 2022 in the MD&A section - “Liquidity and Cash Requirements” and Notes 1312 and 1413 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 6564 for a discussion of interest rate 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 March 31, 20232024 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 controlscontrol 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, weWe are a party to various outstandingclaims and legal proceedings and claims. There have been no material changesactions in the ordinary course of our business. In the opinion of management, the ultimate resolution of such claims and legal proceedings, if any, previously disclosed under Part I, Item 3actions, either individually or in the aggregate, will not have a material adverse effect on Valley’s financial condition, results of Valley’s Annual Report on Form 10-K for the year ended December 31, 2022.operations, or liquidity.
There have been no material changes in the risk factors previously disclosed in the section titled "Risk Factors"“Risk Factors” in Part I, Item 1A of Valley’s Annual Report on Form 10-K for the year ended December 31, 2022, except as described below:
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.Report.
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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 March 31, 20232024 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 | | Maximum Number of Shares that May Yet Be Purchased Under the Plans (2) |
January 1, 2023 to January 31, 2023 | | 4,739 | | | $ | 11.32 | | | — | | | 25,000,000 | |
February 1, 2023 to February 28, 2023 | | 711,344 | | | 11.91 | | | — | | | 25,000,000 | |
March 1, 2023 to March 31, 2023 | | 6,362 | | | 11.55 | | | — | | | 25,000,000 | |
Total | | 722,445 | | | $ | 11.90 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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) |
January 1, 2024 to January 31, 2024 | | 5,162 | | | $ | 10.96 | | | — | | | 24,700,000 | |
February 1, 2024 to February 28, 2024 | | 809,361 | | | 9.01 | | | — | | | 24,700,000 | |
March 1, 2024 to March 31, 2024 | | 3,724 | | | 8.05 | | | — | | | 24,700,000 | |
Total | | 818,247 | | | $ | 9.02 | | | — | | | |
(1)Includes repurchases made in connection with the vesting of employee restricted stock awards.
(2)On April 26, 2022, Valley publicly announced a stock repurchase program for up to 25 million shares of Valley common stock. The authorization to repurchase will expireexpired on April 25, 2024.
On February 21, 2024, Valley publicly announced a new stock repurchase program for up to 25 million shares of Valley common stock. The authorization to repurchase under the new repurchase program became effective on April 26, 2024, and replaced the prior stock repurchase program, and is set to expire on April 26, 2026.
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Item 5. | Other ItemsInformation |
a.None.
b.None.
c.None.
| | | | | | | | | | | |
(3) | Articles of Incorporation and By-laws: | |
| (3.1) | | |
| (3.2) | | |
(10) | Material Contracts: |
| (10.1) | | |
| | | |
| | | |
(31.1) | | |
(31.2) | | |
(32) | | |
(101) | Interactive Data File (XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) ** | |
(104) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| | | | | |
* | Filed herewith. |
** | Furnished 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 |
May 5, 20238, 2024 | | | | | Ira Robbins |
| | | | | Chairman of the Board and |
| | | | | Chief Executive Officer |
| | | | | (Principal Executive Officer) |
| | | |
Date: | | | | | /s/ Michael D. Hagedorn |
May 5, 20238, 2024 | | | | | Michael D. Hagedorn |
| | | | | Senior Executive Vice President and |
| | | | | Chief Financial Officer |
| | | | | (Principal Financial Officer) |