What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-11 · 392 added, 242 removed, 996 unchanged (39% of the section changed)

8 unchanged sentences

Available for sale debt securities

Held to maturity debt securities (net of allowance for credit losses of $1,552 at March 31, 2020)

Held to maturity debt securities (net of allowance for credit losses of $1,593 at June 30, 2020)

Total investment securities

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50,000,000 authorized shares:

Series A (4,600,000 shares issued at March 31, 2020 and December 31, 2019)

Series B (4,000,000 shares issued at March 31, 2020 and December 31, 2019)

Series A (4,600,000 shares issued at June 30, 2020 and December 31, 2019)

Series B (4,000,000 shares issued at June 30, 2020 and December 31, 2019)

Common stock (no par value, authorized 650,000,000 shares;

issued 403,765,978 shares at March 31, 2020 and 403,322,773 shares at December 31, 2019)

issued 403,823,728 shares at June 30, 2020 and 403,322,773 shares at December 31, 2019)

Retained earnings

Accumulated other comprehensive loss

Treasury stock, at cost (21,830 common shares at March 31, 2020 and 44,383 common shares at December 31, 2019)

Treasury stock, at cost (28,029 common shares at June 30, 2020 and 44,383 common shares at December 31, 2019)

Total Shareholders’ Equity

5 unchanged sentences

Three Months Ended

Six Months Ended

Interest Income

17 unchanged sentences

Service charges on deposit accounts

Losses on securities transactions, net

(Losses) gains on securities transactions, net

Other-than-temporary impairment losses on securities

Portion recognized in other comprehensive income (before taxes)

Net impairment losses on securities recognized in earnings

Fees from loan servicing

Gains on sales of loans, net

Gains on sales of assets, net

(Losses) gains on sales of assets, net

Bank owned life insurance

17 unchanged sentences

Three Months Ended

Six Months Ended

Earnings Per Common Share:

6 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income, net of tax:

1 unchanged sentence

Net gains arising during the period

Less reclassification adjustment for net losses included in net income

Less reclassification adjustment for net losses (gains) included in net income

Unrealized gains and losses on derivatives (cash flow hedges)

Net losses on derivatives arising during the period

Less reclassification adjustment for net losses included in net income

Less reclassification adjustment for net (gains) losses included in net income

Defined benefit pension plan

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30, 2020

Preferred Stock

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Balance - March 31, 2020

For the Three Months Ended March 31, 2019

Other comprehensive income, net of tax

Cash dividends declared:

Preferred stock, Series A, $0.39 per share

Preferred stock, Series B, $0.34 per share

Common stock, $0.11 per share

Effect of stock incentive plan, net

Balance - June 30, 2020

For the Six Months Ended June 30, 2019

Preferred Stock

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Balance - March 31, 2019

Other comprehensive income, net of tax

Cash dividends declared:

Preferred stock, Series A, $0.39 per share

Preferred stock, Series B, $0.34 per share

Common stock, $0.11 per share

Effect of stock incentive plan, net

Balance - June 30, 2019

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

6 unchanged sentences

Gains on sales of loans, net

Net impairment losses on securities, recognized in earnings

Originations of loans held for sale

Gains on sales of assets, net

Losses (gains) on sales of assets, net

Net change in:

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(in thousands)

Three Months Ended March 31,

Six Months Ended

Cash flows from financing activities:

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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, 2020 and for all periods presented have been made.

The results of operations for the three months ended on March 31, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year or any subsequent interim period.

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 June 30, 2020 and for all periods presented have been made.

The results of operations for the three and six months ended on June 30, 2020 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.

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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 esti mates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include:

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.

5 unchanged sentences

Impact of COVID-19.

During 2020, economies throughout the world have been severely disrupted by the effects of the quarantines, business closures, and the reluctance of individuals to leave their homes as a result of the outbreak of the novel coronavirus (COVID-19).

Our primary market areas of New York and New Jersey became part of several epicenters of the COVID-19 pandemic.

The full impact of COVID-19 is unknown and evolving.

The outbreak and any preventative or protective actions that Valley or its customers have taken or may take in respect of this virus may result in extended periods of disruption to Valley, its customers, service providers, and third parties.

Any resulting financial impact cannot be reasonably estimated at this time but may materially affect the business and Valley’s financial condition and results of operations.

During the first half of 2020, economies throughout the world were severely disrupted by the effects of quarantines, business closures, and the reluctance of individuals to leave their homes as a result of the outbreak of the novel coronavirus (COVID-19).

Our primary market areas within New Jersey, New York, Florida and Alabama have all experienced significant outbreaks and disruptions during the COVID-19 pandemic.

The full impact of COVID-19 is unknown and still evolving.

The outbreak and any preventative or protective actions that Valley or its customers have taken or may take in respect of this virus have resulted and may continue to result in extended periods of disruption to Valley, its customers, service providers, and third parties.

Any future financial impact cannot be reasonably estimated at this time but may materially affect the business and Valley’s financial condition and results of operations.

The extent to which COVID-19 impacts Valley’s results will depend on future developments, which are highly uncertain and cannot be predicted.

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The acquisition represents a significant addition to Valley's New Jersey franchise, and meaningfully enhanced its presence in the Bergen County market.

The common shareholders of Oritani received 1.60 shares of Valley common stock for each Oritani share that they owned prior to merger.

The common shareholders of Oritani received 1.60 shares of Valley common stock for each Oritani share that they owned prior to the merger.

The total consideration for the acquisition was approximately $ 835.3 million , consisting of 71.1 million shares of Valley common stock and the outstanding Oritani stock-based awards.

Merger expenses totaled $ 1.3 million for the three months ended March 31, 2020 , which primarily related to professional and legal expenses and other expenses included in non-interest expense on the consolidated statements of income.

During the first quarter 2020 , Valley revised the estimated fair values of the acquired assets as of the acquisition date as the result of additional information obtained that existed as of December 1, 2019.

Merger expenses totaled $ 366 thousand and $ 1.7 million for the three and six months ended June 30, 2020 , respectively, which primarily related to professional and legal expenses and other expenses included in non-interest expense on the consolidated statements of income.

During the first quarter 2020, Valley revised the estimated fair values of the acquired assets as of the Oritani acquisition date due to additional information obtained that existed as of December 1, 2019.

The adjustments mostly related to the fair value of certain loans and deferred tax assets as of the acquisition date and resulted in a $ 1.8 million increase in goodwill (see Note 9 for amount of goodwill as allocated to Valley's business segments).

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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, 2020 and 2019 :

The following table shows the calculation of both basic and diluted earnings per common share for the three and six months ended June 30, 2020 and 2019 :

Three Months Ended

Six Months Ended

(in thousands, except for share data)

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Earnings per common share:

Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units, common stock options to purchase Valley’s common shares.

Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units and common stock options to purchase Valley’s common shares.

Common stock options with exercise prices that exceed the average market price per share of Valley’s common stock during the periods presented have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation.

Anti-dilutive common stock options equaled approximately 1.9 million shares and 1.3 million shares for the three months ended March 31, 2020 and March 31, 2019, respectively.

Anti-dilutive common stock options equaled approximately 2.7 million shares and 2.3 million shares for the three and six months ended June 30, 2020 , respectively, and 482 thousand shares and 494 thousand shares for the three and six months ended June 30, 2019 , respectively.

Accumulated Other Comprehensive Loss

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three months ended March 31, 2020 :

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three and six months ended June 30, 2020 :

Components of Accumulated Other Comprehensive Loss

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(in thousands)

Balance at March 31, 2020

Other comprehensive income (loss) before reclassification

Amounts reclassified from other comprehensive income

Other comprehensive income (loss), net

Balance at June 30, 2020

Components of Accumulated Other Comprehensive Loss

Comprehensive

Unrealized Gains

and Losses on

Available for Sale

(AFS) Securities

Unrealized Gains

and Losses on

(in thousands)

Balance at December 31, 2019

2 unchanged sentences

Other comprehensive income (loss), net

Balance at March 31, 2020

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, 2020 and 2019 :

Balance at June 30, 2020

The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three and six months ended June 30, 2020 and 2019 :

Amounts Reclassified from

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Three Months Ended

Six Months Ended June 30,

Components of Accumulated Other Comprehensive Loss

1 unchanged sentence

(in thousands)

Unrealized losses on AFS securities before tax

Losses on securities transactions, net

Unrealized (losses) gains on AFS securities before tax

(Losses) gains on securities transactions, net

Total net of tax

Unrealized losses on derivatives (cash flow hedges) before tax

Unrealized gains (losses) on derivatives (cash flow hedges) before tax

Interest expense

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New Authoritative Accounting Guidance

New Accounting Guidance Adopted in the First Quarter 2020

New Accounting Guidance Adopted in 2020

Accounting Standards Update (ASU) No.

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The FASB issued an amendment to replace the incurred loss impairment methodology under prior accounting guidance with a new current expected credit loss (CECL) model.

Under the new guidance, Valley is required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses.

The guidance also requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

Valley utilizes a two-year reasonable and supportable forecast period

followed by a one-year period over which estimated losses revert to historical loss experience for the remaining life of the loan.

Valley utilizes a two-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience for the remaining life of the loan.

The measurement of expected credit loss under the CECL methodology is applicable to financial assets measured at amortized cost, including loans, held to maturity investments and purchased financial assets with credit deterioration (PCD) assets.

It also applies to certain off-balance sheet credit exposures.

In November 2019, the FASB issued ASU No.

2019-11, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses", which clarified that expected recoveries of amounts previously written off or expected to be written off should be included in the estimate of allowance for credit losses for purchased financial assets with credit deterioration, provides certain transition relief for TDR accounting when the discounted cash flow method is used to estimate credit losses, allows entities to elect to disclose separately the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements, and clarified that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing financial assets when electing a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of the financial asset and the fair value of collateral securing the financial asset as of the reporting date.

Valley adopted ASU No.

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Valley has established a governance structure to implement the CECL accounting guidance and has developed a methodology and set of models to be used.

At adoption, Valley recorded an $ 100.4 million increase to its allowance for credit losses, including reserves of $ 92.5 million , $ 7.1 million and $ 793 thousand related to loans, unfunded credit commitments and held to maturity debt securities, respectively.

At adoption, Valley recorded a $ 100.4 million increase to its allowance for credit losses, including reserves of $ 92.5 million , $ 7.1 million and $ 793 thousand related to loans, unfunded credit commitments and held to maturity debt securities, respectively.

Of the $ 92.5 million in loan reserves, $ 61.6 million represents PCD loan related reserves which were recognized through a gross-up that increases the amortized cost basis of loans with a corresponding increase to the allowance for credit losses, and therefore results in no impact to shareholders' equity.

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For regulatory capital purposes, in connection with the Federal Reserve Board’s final interim rule as of April 3, 2020, 100 percent of the CECL Day 1 impact to shareholders' equity equaling $ 28.2 million after-tax will be deferred over a two-year period ending January 1, 2022, at which time it will be phased in on a pro-rata basis over a three-year period ending January 1, 2025.

Additionally, 25 percent of the first quarter 2020 reserve build (i.e., provision for credit losses less net charge-offs) net of taxes will be phased in over the same time frame.

2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement.

The most significant provisions of the ASU relate to how companies will estimate expected credit losses under Topic 326 by incorporating (1) expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) clarifying that contractual extensions or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured.

Valley adopted ASU No.

2019-04 on January 1, 2020.

See more details regarding our adoption of Topic 326 and ASU No.

2016-13 above.

Additionally, 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) net of taxes will be phased in over the same time frame.

2017-04, "Intangibles - Goodwill and Other (Topic 350):

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However, an entity will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative

impairment test is necessary.

2017-04 was effective for Valley on January 1, 2020 and Valley will apply this new guidance in its annual and, if applicable, interim goodwill impairment tests.

New Accounting Guidance issued in the First Quarter 2020

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

2017-04 was effective for Valley on January 1, 2020 and Valley applied this new guidance in its annual goodwill impairment test performed during the second quarter 2020.

New Accounting Guidance issued in 2020

2020-04, "Reference Rate Reform (Topic 848)" provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued, subject to meeting certain criteria.

Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of a contract affected by reference rate reform as a continuation of the existing contract, if certain conditions are met.

Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of a contract affected by reference rate reform

as a continuation of the existing contract, if certain conditions are met.

In addition, the new guidance allows an entity to elect on a hedge-by-hedge basis to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain conditions are met.

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Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis

The following tables present the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at March 31, 2020 and December 31, 2019 .

The assets presented under “nonrecurring 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).

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Foreclosed assets

Excludes equity securities measured at net asset value (NAV).

Represents residential mortgage loans originated for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $ 56.4 million and $ 74.5 million at March 31, 2020 and December 31, 2019 , respectively.

Includes equity securities measured at net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy totaling $ 7.5 million at June 30, 2020 .

Represents residential mortgage loans originated for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $ 115.0 million and $ 74.5 million at June 30, 2020 and December 31, 2019 , respectively.

Derivative financial instruments are included in this category.

Excludes purchased credit-impaired loans.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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Equity securities.

The fair value of equity securities, primarily consist of one publicly traded mutual fund, are derived from quoted market prices in active markets.

The fair value of equity securities, primarily consists of one publicly traded mutual fund, is derived from quoted market prices in active markets.

Equity securities also include Community Reinvestment Act (CRA) investment funds carried at quoted market prices if publicly traded, and at NAV if privately held.

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In determining the internal price, Valley utilized recent financial information and developments provided by the issuer, as well as other unobservable inputs which reflect Valley’s own assumptions about the inputs that market participants would use in pricing of the defaulted security.

A quoted price received from an independent pricing service was weighted with the internal price estimate to determine the fair value of the instrument at March 31, 2020 and December 31, 2019 .

A quoted price received from an independent pricing service was weighted with the internal price estimate to determine the fair value of the instrument at June 30, 2020 and December 31, 2019 .

Loans held for sale.

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

Non-performance risk did not materially impact the fair value of mortgage loans held for sale at June 30, 2020 and December 31, 2019 based on the short duration these assets were held, and the high credit quality of these loans.

Derivatives are reported at fair value utilizing Level 2 inputs.

The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR and Overnight Index Swap rate curves.

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, 2020 and December 31, 2019 ), is determined based on the current market prices for similar instruments.

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 June 30, 2020 and December 31, 2019 ), is determined based on the current market prices for similar instruments.

The fair values of most of the derivatives incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance risk of Valley and its counterparties.

The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at March 31, 2020 and December 31, 2019 .

The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at June 30, 2020 and December 31, 2019 .

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

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Collateral Dependent Loans .

Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral and are commonly referred to as “collateral dependent loans.” Collateral values are estimated using Level 3 inputs, consisting of individual appraisals that may be adjusted based on certain discounting criteria.

At March 31, 2020 , certain appraisals were discounted based on specific market data by location and property type.

During the quarter ended March 31, 2020 , collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for credit loan losses and/or a specific valuation allowance allocation based on the fair value of the underlying collateral.

There were $ 1.1 million in collateral dependent loan charge-offs to the allowance for loan losses for the three months

ended March 31, 2020 .

There were no collateral dependent loan charge-offs to the allowance for loan losses for the three months ended March 31, 2019 .

At March 31, 2020 , collateral dependent loans with a total amortized cost of $ 101.7 million were reduced by specific valuation allowance allocations totaling $ 57.0 million to a reported total net carrying amount of $ 44.7 million .

Collateral dependent loans are loans when foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and substantially all of the repayment is expected from the collateral.

Collateral dependent loans are reported at the fair value of the underlying collateral.

Collateral values are estimated using Level 3 inputs, consisting of individual third-party appraisals that may be adjusted based on certain discounting criteria.

Certain real estate appraisals may be discounted based on specific market data by location and property type.

At June 30, 2020 , collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for credit loan losses and/or a specific valuation allowance allocation based on the fair value of the underlying collateral.

At June 30, 2020 , collateral dependent

loans, primarily consisting of taxi medallion loans, with a total amortized cost of $ 110.9 million were reduced by specific valuation allowance allocations totaling $ 68.1 million to a reported total net carrying amount of $ 42.8 million .

Loan servicing rights.

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The prepayment speed and the discount rate are considered two of the most significant inputs in the model.

At March 31, 2020 , the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 13.9 percent and a discount rate of 9.6 percent for the valuation of the loan servicing rights.

At June 30, 2020 , the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 17.0 percent and a discount rate of 9.6 percent for the valuation of the loan servicing rights.

A significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs.

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Impairment charges are recognized on loan servicing rights when the amortized cost of a risk-stratified group of loan servicing rights exceeds the estimated fair value.

At March 31, 2020 , certain loan servicing rights were re-measured at fair value totaling $ 1.5 million .

Valley recorded net impairment charges on its loan servicing rights totaling $ 109 thousand and $ 24 thousand for the three months ended March 31, 2020 and 2019 , respectively.

At June 30, 2020 , certain loan servicing rights were re-measured at fair value totaling $ 14.4 million .

See Note 9 for additional information.

Foreclosed assets .

Certain foreclosed assets (consisting of other real estate owned and other repossessed assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed assets.

The fair value of a foreclosed asset, upon initial recognition, is typically estimated using Level 3 inputs, consisting of an appraisal that is adjusted based on certain discounting criteria, similar to the criteria used for impaired loans described above.

There were no discount adjustments of the appraisals of foreclosed assets at March 31, 2020 .

At March 31, 2020 , foreclosed assets included $ 6.4 million of assets that were measured at fair value upon initial recognition or subsequently re-measured.

The foreclosed assets charge-offs to the allowance for the loan losses totaled $ 926 thousand and $ 788 thousand for the three months ended March 31, 2020 and 2019 , respectively.

The re-measurement of foreclosed assets at fair value subsequent to their initial recognition resulted in immaterial net losses within non-interest expense for the three months ended March 31, 2020 and 2019 .

Certain foreclosed assets (consisting of other real estate owned and other repossessed assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value using Level 3 inputs, consisting of a third-party appraisal adjusted to the lower of cost or estimated fair value, less estimated cost to sell.

When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses.

If further declines in the estimated fair value of the asset occur, an asset is re-measured and reported at fair value through a write-down recorded in non-interest expense.

There were no discount adjustments of the appraisals of foreclosed assets at June 30, 2020 .

Other Fair Value Disclosures

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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, 2020 and December 31, 2019 were as follows:

March 31, 2020

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 June 30, 2020 and December 31, 2019 were as follows:

June 30, 2020

December 31, 2019

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Interest bearing deposits with banks

Equity securities (1)

Investment securities held to maturity:

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Accrued interest payable (3)

Equity securities that are presented at NAV.

Valley uses NAV as a practical expedient to record its investment in certain non-publicly traded funds since the shares do not have a readily determinable fair value.

The carrying amount is presented gross without the allowance for credit losses.

Included in other assets.

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Equity Securities

Equity securities carried at fair value totaled $ 49.7 million and $ 41.4 million at March 31, 2020 and December 31, 2019 , respectively.

Valley's equity securities consist mainly of one publicly traded money market mutual fund totaling $ 41.7 million and $ 41.4 million at March 31, 2020 and December 31, 2019 , respectively.

The remainder of the balance at March 31, 2020 represents investments made for CRA purposes.

Equity securities carried at fair value totaled $ 54.4 million and $ 41.4 million at June 30, 2020 and December 31, 2019 , respectively.

Valley's equity securities consist mainly of one publicly traded money market mutual fund totaling $ 41.8 million and $ 41.4 million at June 30, 2020 and December 31, 2019 , respectively.

The remainder of the balance at June 30, 2020 represents investments made for CRA purposes.

Available for Sale Debt Securities

The amortized cost, gross unrealized gains and losses and fair value of debt securities available for sale at March 31, 2020 and December 31, 2019 were as follows:

The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities at June 30, 2020 and December 31, 2019 were as follows:

(in thousands)

March 31, 2020

June 30, 2020

Treasury securities

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Total investment securities available for sale

The age of unrealized losses and fair value of related securities available for sale at March 31, 2020 and December 31, 2019 were as follows:

The age of unrealized losses and fair value of related securities available for sale at June 30, 2020 and December 31, 2019 were as follows:

Twelve Months

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(in thousands)

March 31, 2020

June 30, 2020

government agency securities

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Corporate and other debt securities

The total number of security positions in the debt securities available for sale portfolio in an unrealized loss position at March 31, 2020 was 86 as compared to 182 at December 31, 2019 .

As of March 31, 2020 , the fair value of debt securities available for sale that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $ 970.0 million .

The contractual maturities of debt securities available for sale at March 31, 2020 are set forth in the following table.

Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 95 and 182 at June 30, 2020 and December 31, 2019 , respectively.

As of June 30, 2020 , the fair value of available for sale debt securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $ 1.1 billion .

The contractual maturities of available for sale debt securities at June 30, 2020 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, 2020

June 30, 2020

(in thousands)

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Total investment securities available for sale

Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.

The weighted average remaining expected life for residential mortgage-backed securities available for sale was 4.8 years at March 31, 2020 .

Actual maturities of available for sale debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.

The weighted average remaining expected life for residential mortgage-backed securities available for sale was 4.8 years at June 30, 2020 .

Impairment Analysis of Available For Sale Debt Securities

Valley's debt securities available for sale include corporate bonds and special revenue bonds, among other securities, which may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S.

Valley's available for sale debt securities portfolio includes corporate bonds and special revenue bonds, among other securities, which may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S.

economy and its potential negative effect on the future performance of the security issuers, including due to the economic effects of COVID-19.

6 unchanged sentences

If Valley intends to sell an available for sale debt security or it is more likely than not that Valley will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged to the debt security’s fair value at the reporting date with any incremental impairment reported in earnings.

The obligations of states and political subdivisions classified as available for sale include special revenue bonds which had an aggregate amortized cost and fair value of $ 91.8 million and $ 92.4 million , respectively, at March 31, 2020 .

There were $ 234 thousand in gross unrealized losses associated with the special revenue bonds as of March 31, 2020 .

The obligations of states and political subdivisions classified as available for sale include special revenue bonds which had an aggregate amortized cost and fair value of $ 80.2 million and $ 81.8 million , respectively, at June 30, 2020 .

There were $ 56 thousand in gross unrealized losses associated with the special revenue bonds as of June 30, 2020 .

Approximately 54 percent of the special revenue bonds were issued by the states of (or municipalities within) Utah, Illinois, North Carolina and Florida.

4 unchanged sentences

Valley continues to monitor the special revenue bond portfolio as part of its quarterly impairment analysis.

Valley has evaluated available for sale debt securities that are in an unrealized loss position as of March 31, 2020 included in table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors.

Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the first quarter 2020 and, as a result, no allowance for credit losses for available for sale debt securities at March 31, 2020 .

Valley has evaluated available for sale debt securities that are in an unrealized loss position as of June 30, 2020 included in the table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors.

Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the three and six months ended June 30, 2020 and, as a result, there is no allowance for credit losses for available for sale debt securities at June 30, 2020 .

During the three months ended June 30, 2019, Valley recognized a $ 2.9 million other-than-temporary credit impairment charge on one special revenue bond classified as available for sale (within the obligations of states and state agencies in the tables above).

The credit impairment was due to severe credit deterioration disclosed by the issuer in the second quarter of 2019, as well as the issuer's default on its contractual payment.

At June 30, 2020 , the impaired security had an adjusted amortized cost and fair value of $ 680 thousand and $ 1.4 million , respectively.

Valley discontinues the recognition of interest on debt securities if the securities meet both of the following criteria:

(i) regularly scheduled interest payments have not been paid or have been deferred by the issuer, and (ii) full collection of all contractual principal and interest payments is not deemed to be the most likely outcome, resulting in the recognition of other-than-temporary impairment of the security.

Held to Maturity Debt Securities

The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at March 31, 2020 and December 31, 2019 were as follows:

The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at June 30, 2020 and December 31, 2019 were as follows:

(in thousands)

March 31, 2020

June 30, 2020

Treasury securities

19 unchanged sentences

Total investment securities held to maturity

The age of unrealized losses and fair value of related debt securities held to maturity at March 31, 2020 and December 31, 2019 were as follows:

The age of unrealized losses and fair value of related debt securities held to maturity at June 30, 2020 and December 31, 2019 were as follows:

Twelve Months

1 unchanged sentence

(in thousands)

March 31, 2020

June 30, 2020

Obligations of states and political subdivisions:

Obligations of states and state agencies

Municipal bonds

Total obligations of states and political subdivisions

11 unchanged sentences

Corporate and other debt securities

Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 24 at March 31, 2020 and 82 at December 31, 2019 .

As of March 31, 2020 , the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $ 1.5 billion .

The contractual maturities of investments in debt securities held to maturity at March 31, 2020 are set forth in the table below.

Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 26 and 82 at June 30, 2020 and December 31, 2019 , respectively.

As of June 30, 2020 , the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $ 1.3 billion .

The contractual maturities of investments in debt securities held to maturity at June 30, 2020 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, 2020

June 30, 2020

(in thousands)

6 unchanged sentences

The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 6.5 years at March 31, 2020 .

The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 3.9 years at June 30, 2020 .

Credit Quality Indicators

Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies.

The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at March 31, 2020 and December 31, 2019 .

There were no securities with non-investment grade ratings for the periods presented.

The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at June 30, 2020 and December 31, 2019 .

AAA/AA/A Rated

Non-investment grade rated

(in thousands)

March 31, 2020

June 30, 2020

Treasury securities

20 unchanged sentences

Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations.

At March 31, 2020 , most of the obligations of states and political subdivisions were rated investment grade and the "non-rated" category included mostly state housing finance agency revenue bonds secured by Ginnie Mae securities that are commonly referred to as Tax Exempt Mortgage Securities (TEMS).

At June 30, 2020 , most of the obligations of states and political subdivisions were rated investment grade and the "non-rated" category included mostly TEMS securities secured by Ginnie Mae securities.

Trust preferred securities consist of non-rated single-issuer securities, issued by bank holding companies.

2 unchanged sentences

Valley has a zero loss expectation for certain securities within the held to maturity portfolio, and therefore it is not required to estimate an allowance for credit losses related to these securities under the CECL standard.

After evaluation of qualitative factors, Valley identified the following securities types which it believes qualify for this exclusion:

After an evaluation of qualitative factors, Valley identified the following securities types which it believes qualify for this exclusion:

Treasury securities, U.S.

agency securities, residential mortgage-backed issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds called TEMS.

agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds called TEMS.

To measure the expected credit losses on held to maturity debt securities that have loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by a third-party.

Assumptions used in the model for pools of securities with common risk characteristics include the historical lifetime probability of default and

severity of loss in the event of default, with the model incorporating several economic cycles of loss history data to calculate expected credit losses given default at the individual security level.

The model is adjusted for a probability weighted multi-scenario economic forecast to estimate future credit losses.

Assumptions used in the model for pools of securities with common risk characteristics include the historical lifetime probability of default and severity of loss in the event of default, with the model incorporating several economic cycles of loss history data to calculate expected credit losses given default at the individual security level.

The model is adjusted for a probability

weighted multi-scenario economic forecast to estimate future credit losses.

Valley uses a two-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience for the remaining life of the investment security.

The economic forecast methodology and governance for debt securities is aligned with Valley's economic forecast for the loan portfolio discussed in more detail in Note 8.

The following table presents the activity in the allowance for credit losses for held to maturity debit securities for the three months ended March 31, 2020 :

(in thousands)

Three Months Ended

March 31, 2020

Allowance for credit losses:

Beginning balance

Impact of ASU 2016-13 adoption

Provision for credit losses

Ending balance

The economic forecast methodology and governance for debt securities is aligned with Valley's economic forecast used for the loan portfolio discussed in more detail in Note 8.

Accrued interest receivable is excluded from the estimate of credit losses.

At June 30, 2020 , held to maturity debt securities were carried net of allowance for credit losses totaling $ 1.6 million .

The provision was not material during three and six months ended June 30, 2020 , respectively, and there were no net charge-offs of debt securities in the respective periods.

Loans and Allowance for Credit Losses for Loans

The detail of the loan portfolio as of March 31, 2020 and December 31, 2019 was as follows:

March 31, 2020

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

June 30, 2020

December 31, 2019

7 unchanged sentences

Total consumer loans

Total loans include net unearned discounts and deferred loan fees of $ 76.4 million at March 31, 2020 and net unearned premiums and deferred loan costs of $ 12.6 million at December 31, 2019 .

Net unearned discounts and deferred loan fees at March 31, 2020 include the non-credit discount on PCD loans.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 87.3 million and $ 86.3 million at March 31, 2020 and December 31, 2019 , respectively, and is presented separately in the consolidated statements of financial condition .

Valley transferred and sold approximately $ 30.0 million and $ 100.0 million of residential mortgage loans from the loan portfolio to loans held for sale during the three months ended March 31, 2020 and 2019 , respectively.

Excluding the loan transfers, there were no sales of loans from the held for investment portfolio during the three months ended March 31, 2020 and 2019 .

Includes $ 2.2 billion of loans originated under the SBA Paycheck Protection Program (PPP), net of unearned fees totaling $ 62.1 million at June 30, 2020.

Total loans includes net unearned discounts and deferred loan fees of $ 131.3 million at June 30, 2020 and net unearned premiums and deferred loan costs of $ 12.6 million at December 31, 2019 .

Net unearned discounts and deferred loan fees at June 30, 2020 include the non-credit discount on PCD loans and net unearned fees related to SBA PPP loans.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 104.2 million and $ 86.3 million at June 30, 2020 and December 31, 2019 , respectively, and is presented separately in the consolidated statements of financial condition .

Valley transferred and sold approximately $ 30.0 million and $ 216.3 million of residential mortgage loans from the loan portfolio to loans held for sale during the six months ended June 30, 2020 and 2019 , respectively.

Excluding the loan transfers, there were no sales of loans from the held for investment portfolio during the six months ended June 30, 2020 and 2019 .

Credit Risk Management

1 unchanged sentence

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.

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.

7 unchanged sentences

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

The following table presents past due, current and non-accrual loans without an allowance of for credit losses by loan portfolio class (including PCD loans) at March 31, 2020 .

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

Past Due and Non-Accrual Loans

30-59 Days or More

Past Due Loans

60-89 Days or More

Past Due Loans

6 unchanged sentences

(in thousands)

March 31, 2020

June 30, 2020

Commercial and industrial

8 unchanged sentences

At December 31, 2019 , purchased credit-impaired (PCI) loans were excluded from past due and non-accrual loans reported because they continued to earn interest income from the accretable yield at the pool level.

The PCI loan pools are accounted for as PCD loans (on a loan level basis with a related allowance for credit losses) under the CECL standard adopted at January 1, 2020 and reported in the past due loans and non-accrual loans in the tables above at March 31, 2020.

Past Due and Non-Accrual Loans

24 unchanged sentences

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 (including PCD loans) based on the most recent analysis performed at March 31, 2020 :

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

Amortized Cost Basis by Origination Year

March 31, 2020

June 30, 2020

Prior to 2016

11 unchanged sentences

For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The following table presents the amortized cost in those loan classes (including PCD loans) based on payment activity by origination year as of March 31, 2020 .

The following table presents the amortized cost in those loan classes (including PCD loans) based on payment activity by origination year as of June 30, 2020 .

Amortized Cost Basis by Origination Year

March 31, 2020

June 30, 2020

Prior to 2016

34 unchanged sentences

Credit exposure—

Non-Performing

by payment activity

Non-Performing

Total Non-PCI

(in thousands)

12 unchanged sentences

Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

Performing TDRs (not reported as non-accrual loans) totaled $ 48.0 million and $ 73.0 million as of March 31, 2020 and December 31, 2019 , respectively.

Non-performing TDRs totaled $ 89.1 million and $ 65.1 million as of March 31, 2020 and December 31, 2019 , respectively.

The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs (excluding PCI loans prior to the adoption of ASU 2016-13) during the three months ended March 31, 2020 and 2019 .

Post-modification amounts are presented as of March 31, 2020 and 2019 .

Three Months Ended March 31,

Performing TDRs (not reported as non-accrual loans) totaled $ 53.9 million and $ 73.0 million as of June 30, 2020 and December 31, 2019 , respectively.

Non-performing TDRs totaled $ 85.6 million and $ 65.1 million as of June 30, 2020 and December 31, 2019 , respectively.

Post-modification amounts are presented as of June 30, 2020 and 2019 .

Three Months Ended June 30,

Troubled Debt Restructurings

12 unchanged sentences

Total commercial real estate

The total TDRs presented in the above table had allocated reserves for loan losses of $ 7.9 million and $ 7.9 million at March 31, 2020 and 2019 , respectively.

There were $ 791 thousand and $ 913 thousand of partial charge-offs related to TDRs for the three months ended March 31, 2020 and 2019 , respectively.

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, 2020 and 2019 .

Loans modified as TDRs (excluding PCI loan modifications prior to the adoption of ASU 2016-13) within the previous 12 months and for which there was a payment default ( 90 or more days past due) for the three months ended March 31, 2020 and 2019 were as follows:

Three Months Ended March 31,

Residential mortgage

Six Months Ended June 30,

Troubled Debt Restructurings

Pre-Modification

Amortized Carrying Amount

Post-Modification

Amortized Carrying Amount

Pre-Modification

Amortized Carrying Amount

Post-Modification

Amortized Carrying Amount

($ in thousands)

Commercial and industrial

Commercial real estate:

Commercial real estate

Total commercial real estate

Residential mortgage

The total TDRs presented in the above table had allocated reserves for loan losses of $ 8.4 million and $ 11.7 million at June 30, 2020 and 2019 , respectively.

There were $ 2.9 million and $ 3.7 million of partial charge-offs related to TDRs for the three and six months ended June 30, 2020 , respectively.

There were $ 1.1 million and $ 2.0 million of partial charge-offs related to TDRs for the three and six months ended June 30, 2019 , respectively.

Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three and six months ended June 30, 2020 and 2019 .

Loans modified as TDRs (excluding PCI loan modifications prior to the adoption of ASU 2016-13) within the previous 12 months and for which there was a payment default ( 90 or more days past due) for the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended June 30,

Troubled Debt Restructurings Subsequently Defaulted

2 unchanged sentences

Commercial and industrial

Commercial real estate

Residential mortgage

In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant, when requested by customers.

Six Months Ended June 30,

Troubled Debt Restructurings Subsequently Defaulted

Amortized Cost

($ in thousands)

Commercial and industrial

Commercial real estate

Residential mortgage

These modifications complied with the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019.

Generally, the modification terms allow for a deferral of payments for 90 days, which Valley may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis.

As of March 31, 2020, Valley granted temporary modifications on approximately 2,100 loans, resulting in an immaterial amount of deferred interest payments for the first quarter 2020.

Under the applicable guidance, none of these loans were considered TDRs as of March 31, 2020.

Generally, the modification terms allow for a deferral of payments for up to 90 days, which Valley may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis.

As of June 30, 2020 , Valley had approximately 7,000 loans totaling approximately $ 3.1 billion in their contractual deferred payment period in accordance with short-term modification terms.

Under the applicable guidance, none of these loans were considered TDRs as of June 30, 2020 .

Loans in Process of Foreclosure.

Other real estate owned (OREO) totaled $ 10.2 million and $ 9.4 million at March 31, 2020 and December 31, 2019 , respectively.

OREO included foreclosed residential real estate properties totaling $ 2.6 million and $ 2.1 million at March 31, 2020 and December 31, 2019 , respectively.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $ 1.8 million and $ 2.8 million at March 31, 2020 and December 31, 2019 , respectively.

Other real estate owned (OREO) totaled $ 8.3 million and $ 9.4 million at June 30, 2020 and December 31, 2019 , respectively.

OREO included foreclosed residential real estate properties totaling $ 2.5 million and $ 2.1 million at June 30, 2020 and December 31, 2019 , respectively.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $ 1.8 million and $ 2.8 million at June 30, 2020 and December 31, 2019 , respectively.

Allowance for Credit Losses for Loans

At March 31, 2020, the allowance for credit losses for loans consisted of (1) the allowance for loan losses and (2) the allowance for unfunded credit commitments under the new CECL standard adopted on January 1, 2020.

The allowance for credit losses for loans under the new CECL standard adopted on January 1, 2020, consisted of:

(1) the allowance for loan losses and (2) the allowance for unfunded credit commitments.

Prior periods reflect the allowance for credit losses for loans under the incurred loss model.

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

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

(in thousands)

5 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

6 unchanged sentences

Valley's methodology to establish the allowance for loan losses has two basic components:

(1) a collective (pooled) reserve component for estimated lifetime expected credit losses for pools of loans that share similar risk characteristics and (2) an individual reserve component for loans that do not share risk characteristics.

Reserves for loans that share common risk characteristics.

3 unchanged sentences

Among other things, these adjustments include and account for differences in:

(i) lending policies and procedures, (ii) current business conditions and economic developments that affect the loan collectability, (iii) concentration risks by size, type, and geography, new markets, (iv) the volume and migration of loans to non-performing status, and (v) the effect of external factors such as legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

(i) lending policies and procedures, (ii) current business conditions and economic developments that affect the loan collectability, (iii) concentration risks by size, type, and geography, (iv) the potential volume and migration of loan forbearances to non-performing status, and (v) the effect of external factors such as legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

4 unchanged sentences

GDP, unemployment and the Case-Shiller Home Price Index.

Reserves for loans that that do not share risk characteristics.

Valley measures specific reserves for individual loan that do not share common risk characteristics with other loans, consisting of collateral dependent, TDR, and expected TDR loans, based on the amount of lifetime expected credit losses calculated on those loans and charge-offs of those amounts determined to be uncollectible.

Reserves for loans that that do not share common risk characteristics.

Valley measures specific reserves for individual loans that do not share common risk characteristics with other loans, consisting of collateral dependent, TDR, and expected TDR loans, based on the amount of lifetime expected credit losses calculated on those loans and charge-offs of those amounts determined to be uncollectible.

Factors considered by Valley in measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due.

3 unchanged sentences

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

The following table presents collateral dependent loans by class as of March 31, 2020 :

The following table presents collateral dependent loans by class as of June 30, 2020 :

(in thousands)

10 unchanged sentences

Management's estimate of expected losses inherent in these off-balance sheet credit exposures also incorporates estimated usage factors over the commitment's contractual period or an expected pull-through rate for new loan commitments.

The allowance for unfunded credit commitments totaling $ 10.0 million at March 31, 2020 is included in accrued expenses and other liabilities on the consolidated statements of financial condition.

The following table details the activity in the allowance for loan losses by loan portfolio segment for three months ended March 31, 2020 and 2019 :

The allowance for unfunded credit commitments totaling $ 10.1 million at June 30, 2020 is included in accrued expenses and other liabilities on the consolidated statements of financial condition.

The following table details the activity in the allowance for loan losses by loan portfolio segment for three and six months ended June 30, 2020 and 2019 :

and Industrial

1 unchanged sentence

Three Months Ended

March 31, 2020

June 30, 2020

Allowance for loan losses:

Beginning balance

Impact of ASU 2016-13 adoption*

Loans charged-off

4 unchanged sentences

Three Months Ended

March 31, 2019

June 30, 2019

Allowance for losses:

5 unchanged sentences

Ending balance

and Industrial

(in thousands)

Six Months Ended

June 30, 2020

Allowance for loan losses:

Beginning balance

Impact of ASU 2016-13 adoption*

Loans charged-off

Charged-off loans recovered

Net (charge-offs) recoveries

Provision for loan losses

Ending balance

Six Months Ended

June 30, 2019

Allowance for losses:

Beginning balance

Loans charged-off

Charged-off loans recovered

Net (charge-offs) recoveries

Provision for loan losses

Ending balance

Includes a $ 61.6 million reclassification adjustment representing the estimated expected credit losses for PCD loans.

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, 2020 and December 31, 2019 .

and Industrial

(in thousands)

March 31, 2020

June 30, 2020

Allowance for loan losses:

27 unchanged sentences

The table below includes disclosure requirements prior to the adoption of ASU No.

2016-13 on January 1, 2020, and presents the changes in the accretable yield for PCI loans during the three months ended March 31, 2019 :

Three Months Ended March 31, 2019

2016-13 on January 1, 2020, and presents the changes in the accretable yield for PCI loans during the three and six months ended June 30, 2019:

Three Months Ended

June 30, 2019

Six Months Ended

June 30, 2019

(in thousands)

8 unchanged sentences

Goodwill from business combinations

Balance at March 31, 2020

Balance at June 30, 2020

Valley’s Wealth Management Division is comprised of trust, asset management and insurance services.

This reporting unit is included in the Consumer Lending segment for financial reporting purposes.

At December 31, 2019 goodwill set forth in the table above relates to the Oritani acquisition during the fourth quarter of 2019.

During the three months ended March 31, 2020 , Valley recorded additional goodwill related to Oritani, reflecting the effect of the combined adjustments to the fair value of certain loans and deferred tax assets as of the acquisition date.

During the six months ended June 30, 2020 , Valley recorded additional goodwill as set forth in the table above related to the Oritani acquisition, reflecting the effect of the combined adjustments to the fair value of certain loans and deferred tax assets as of the acquisition date.

Certain estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date.

See Note 2 for details.

During the three months ended March 31, 2020 , there were no triggering events that would more likely than not reduce the fair value of any reporting unit below its carrying amount.

There was no impairment of goodwill during the three months ended March 31, 2020 and 2019 .

The following table summarizes other intangible assets as of March 31, 2020 and December 31, 2019 :

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

As a result, there was no charge for impairment of goodwill during the three and six months ended June 30, 2020 and 2019 .

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

(in thousands)

March 31, 2020

June 30, 2020

Loan servicing rights

9 unchanged sentences

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.

See the “Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis” section of Note 6 for additional information regarding the fair valuation and impairment of loan servicing rights.

Valley recorded net impairment charges on its loan servicing rights totaling $ 669 thousand and $ 778 thousand for the three and six months ended June 30, 2020 , respectively.

Valley recorded net recoveries of impairment charges on its loan servicing rights totaling $ 107 thousand and $ 83 thousand for the three and six months ended June 30, 2019 , respectively.

See the “Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis” section of Note 6 for additional information regarding the fair valuation.

Core deposits are amortized using an accelerated method and have a weighted average amortization period of 8.9 years .

1 unchanged sentence

Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists.

No impairment was recognized during the three months ended March 31, 2020 and 2019 .

No impairment was recognized during the three and six months ended June 30, 2020 and 2019 .

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

1 unchanged sentence

(in thousands)

Valley recognized amortization expense on other intangible assets, including net impairment (or recovery of impairment) charges on loan servicing rights, totaling approximately $ 5.5 million and $ 4.3 million for the three months ended March 31, 2020 and 2019 , respectively.

months ended June 30, 2020 and 2019 , respectively, and $ 12.2 million and $ 8.5 million for the six months ended June 30, 2020 and 2019 , respectively.

Borrowed Funds

Short-Term Borrowings

Short-term borrowings at March 31, 2020 and December 31, 2019 consisted of the following:

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

(in thousands)

3 unchanged sentences

Total short-term borrowings

The contractual weighted average interest rate for short-term borrowings was 0.53 percent and 1.68 percent at March 31, 2020 and December 31, 2019 , respectively.

At March 31, 2020, short-term FHLB advances totaling $ 600 million were hedged with cash flow interest rate swaps during the first quarter 2020.

The contractual weighted average interest rate for short-term borrowings was 0.37 percent and 1.68 percent at June 30, 2020 and December 31, 2019 , respectively.

Short-term FHLB advances totaling $ 500 million were hedged with cash flow interest rate swaps during the six months ended June 30, 2020 .

See Note 12 for additional details.

Long-Term Borrowings

Long-term borrowings at March 31, 2020 and December 31, 2019 consisted of the following:

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

(in thousands)

FHLB advances, net (1)

Securities sold under agreements to repurchase

Subordinated debt, net (2)

Securities sold under agreements to repurchase

Total long-term borrowings

FHLB advances are presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling $2.0 million and $2.8 million at March 31, 2020 and December 31, 2019, respectively.

Subordinated debt is presented net of unamortized debt issuance costs totaling $1.1 million and $1.2 million at March 31, 2020 and December 31, 2019, respectively.

During the three months ended March 31, 2020 , Valley obtained $ 723 million of new long-term FHLB advances with maturities between three and five years at a combined weighted average rate of approximately 1.89 percent .

The long-term FHLB advances had a weighted average interest rate of 2.13 percent and 2.23 percent at March 31, 2020 and December 31, 2019 , respectively.

FHLB advances are presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling $1.2 million and $2.8 million at June 30, 2020 and December 31, 2019, respectively.

Subordinated debt is presented net of unamortized debt issuance costs totaling $2.9 million and $1.2 million at June 30, 2020 and December 31, 2019, respectively.

FHLB advances.

Long-term FHLB advances had a weighted average interest rate of 2.13 percent and 2.23 percent at June 30, 2020 and December 31, 2019 , 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, 2020 are scheduled for contractual balance repayments as follows:

The long-term FHLB advances at June 30, 2020 are scheduled for contractual balance repayments as follows:

(in thousands)

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

Securities sold under agreements to repurchase (repos).

The long-term repos had a weighted average interest rate of 2.88 percent and 1.94 percent at June 30, 2020 and December 31, 2019 , respectively.

The long-term repos at June 30, 2020 are scheduled for contractual balance repayments as follows:

(in thousands)

Total long-term securities sold under agreements to repurchase

Subordinated debt.

On June 5, 2020, Valley issued $ 115.0 million of 5.25 percent Fixed-to-Floating Rate subordinated notes due June 15, 2030.

Interest on the subordinated notes during the initial five year term through June 15, 2025 is payable semi-annually on June 15 and December 15.

Thereafter, interest is expected to be set based on Three-Month Term SOFR plus 514 basis points and paid quarterly through maturity of the notes.

The subordinated notes had a carrying value of $ 113.1 million at June 30, 2020 , net of debt issuance costs.

Valley also had the following subordinated debt outstanding at June 30, 2020 :

$ 100 million of 4.55 percent subordinated notes due July 30, 2025 with no call dates or prepayments allowed unless certain conditions exist;

$ 125 million of 5.125 percent subordinated notes due September 27, 2023 with no call dates or prepayments allowed, unless certain conditions exist;

$ 60 million of 6.25 percent subordinated notes due April 1, 2026 and callable beginning April 1, 2021.

See Note 11 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2019 for further details.

Stock–Based Compensation

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Under the 2016 Stock Plan, Valley may award shares of common stock in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs) to its employees and non-employee directors (for acting in their roles as board members).

As of March 31, 2020 , 2.5 million shares of common stock were available for issuance under the 2016 Stock Plan.

As of June 30, 2020 , 2.5 million shares of common stock were available for issuance under the 2016 Stock Plan.

The essential features of each award are described in the award agreement relating to that award.

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Restricted Stock Units (RSUs).

Valley granted 1.0 million and 734 thousand of time-based RSUs during the three months ended March 31, 2020 and 2019 , respectively.

Valley granted 142 thousand and 92 thousand of time-based RSUs during the three months ended June 30, 2020 and 2019 , respectively, and 1.2 million and 826 thousand during the six months ended June 30, 2020 and 2019 , respectively.

Generally, time-based RSUs vest ratably one-third each year over a three-year vesting period.

The average grant date fair value of the RSUs granted during the three months ended March 31, 2020 and 2019 was $ 10.79 per share and $ 10.42 per share, respectively.

Valley granted 589 thousand and 532 thousand of performance-based RSUs to certain executive officers for the three months ended March 31, 2020 and 2019 , respectively.

The average grant date fair value of the RSUs granted during the six months ended June 30, 2020 and 2019 was $ 10.48 per share and $ 10.40 per share, respectively.

Valley granted 589 thousand and 532 thousand of performance-based RSUs to certain executive officers for the six months ended June 30, 2020 and 2019 , respectively.

The performance-based RSU awards include RSUs with vesting conditions based upon certain levels of growth in Valley's tangible book value per share plus dividends and RSUs with vesting conditions based upon Valley's total shareholder return as compared to our peer group.

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Dividend equivalents are accumulated and paid to the grantee at the vesting date or forfeited if the performance conditions are not met.

The grant date fair value of the RSUs granted during the three months ended March 31, 2020 and 2019 was $ 10.82 per share and $ 10.43 per share, respectively.

Valley recorded total stock-based compensation expense of $ 4.0 million and $ 4.1 million for the three months ended March 31, 2020 and 2019 , respectively.

The grant date fair value of the RSUs granted during the six months ended June 30, 2020 and 2019 was $ 10.82 per share and $ 10.43 per share, respectively.

Valley recorded total stock-based compensation expense of $ 4.2 million for both the three months ended June 30, 2020 and 2019 , and $ 8.2 million and $ 8.3 million for the six months ended June 30, 2020 and 2019 , respectively.

The fair values of stock awards are expensed over the shorter of the vesting or required service period.

As of March 31, 2020 , the unrecognized amortization expense for all stock-based

employee compensation totaled approximately $ 29.1 million and will be recognized over an average remaining vesting period of 2.19 years .

As of June 30, 2020 , the unrecognized amortization expense for all stock-based employee compensation totaled approximately $ 25.4 million and will be recognized over an average remaining vesting period of 2.0 years .

Derivative Instruments and Hedging Activities

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Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively.

During the three months ended March 31, 2020 , Valley entered into new interest rate swap agreements designated as cash flow hedges with a total notional amount of $ 600 million .

The swaps are intended to hedge the changes in cash flows associated with certain FHLB advances.

During the six months ended June 30, 2020 , Valley entered into new interest rate swap agreements designated as cash flow hedges with a total notional amount of $ 900 million .

The swaps are intended to hedge the changes in cash flows associated with certain FHLB advances and brokered deposits.

Valley is required to pay fixed-rates of interest ranging from 0.46 percent to 0.67 percent and receives variable rates of interest that reset quarterly based on three-month LIBOR.

Expiration dates for the swaps range from September 2021 to March 2022.

Expiration dates for the swaps range from April 2021 to March 2022.

Fair Value Hedges of Fixed Rate Assets and Liabilities .

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From time to time, Valley has used interest rate swaps to manage its exposure to changes in fair value.

Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount.

For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings.

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Changes in the fair value in credit derivatives are recognized directly in earnings.

At March 31, 2020 , Valley had 24 credit swaps with an aggregate notional amount of $ 151.4 million related to risk participation agreements.

At March 31, 2020 , Valley had two “steepener” swaps, each with a current notional amount of $ 10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve.

Although these types of instruments do not meet the hedge accounting

requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month LIBOR rate and therefore provide an effective economic hedge.

At June 30, 2020 , Valley had 22 credit swaps with an aggregate notional amount of $ 166.4 million related to risk participation agreements.

At June 30, 2020 , Valley had two “steepener” swaps, each with a current notional amount of $ 10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve.

Although these types of instruments do not meet the hedge accounting requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month LIBOR rate and therefore provide an effective economic hedge.

Valley regularly enters into mortgage banking derivatives which are non-designated hedges.

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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, 2020

June 30, 2020

December 31, 2019

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The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account with the fair value of certain cash flow and non-designated derivative instruments.

As a result, the fair value of the designated cash flow interest rate swaps assets and designated and non-designated interest rate swaps liabilities were offset by variation margins posted by (with) the applicable counterparties and reported in the table above on a net basis at March 31, 2020 and December 31, 2019 .

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

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

Three Months Ended

Six Months Ended

(in thousands)

Amount of loss reclassified from accumulated other comprehensive loss to interest expense

Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense

Amount of loss recognized in other comprehensive income

The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 4.3 million and $ 3.7 million at March 31, 2020 and December 31, 2019 , respectively.

The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 5.9 million and $ 3.7 million at June 30, 2020 and December 31, 2019 , respectively.

Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest expense as interest payments are made on the hedged variable interest rate liabilities.

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Three Months Ended

Six Months Ended

(in thousands)

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Interest income

The following table presents the hedged items related to interest rate derivatives designated as hedges of fair value and the cumulative basis fair value adjustment included in the net carrying amount of the hedged items at March 31, 2020 and December 31, 2019 .

Line Item in the Statement of Financial Condition in Which the Hedged Item is Included

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Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset

March 31, 2020

June 30, 2020

December 31, 2019

March 31, 2020

June 30, 2020

December 31, 2019

(in thousands)

The net losses included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows:

The net losses (gains) included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows:

Three Months Ended

Six Months Ended

(in thousands)

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Other non-interest expense

Fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaled $ 14.2 million and $ 4.1 million for the three months ended March 31, 2020 and 2019 , respectively, and was included in other non-interest income.

Other non-interest income included fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaling $ 14.7 million and $ 5.4 million for the three months ended June 30, 2020 and 2019 , respectively, and $ 28.9 million and $ 9.5 million for the six months ended June 30, 2020 and 2019 , respectively.

Credit Risk Related Contingent Features.

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Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating.

If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements.

As of March 31, 2020 , Valley was in compliance with all of the provisions of its derivative counterparty agreements.

As of March 31, 2020 , the fair value of derivatives in a net liability position, which includes accrued

interest but excludes any adjustment for nonperformance risk related to these agreements, was $ 43.1 million .

credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements.

As of June 30, 2020 , Valley was in compliance with all of the provisions of its derivative counterparty agreements.

As of June 30, 2020 , the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $ 176.7 million .

Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.

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The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract.

Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds.

Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds (i.e., the threshold for posting collateral is reduced to zero, subject to certain minimum transfer amounts).

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 repurchase agreement should Valley be in default.

The table below presents information about Valley’s financial instruments that are eligible for offset in the consolidated statements of financial condition as of March 31, 2020 and December 31, 2019 .

The table below presents information about Valley’s financial instruments that are eligible for offset in the consolidated statements of financial condition as of June 30, 2020 and December 31, 2019 .

Gross Amounts Not Offset

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(in thousands)

March 31, 2020

June 30, 2020

Interest rate swaps

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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.

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’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, 2020 and December 31, 2019 :

The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at June 30, 2020 and December 31, 2019 :

(in thousands)

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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, 2020 and 2019 :

The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and six months ended June 30, 2020 and 2019 :

Three Months Ended

Six Months Ended

(in thousands)

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Business Segments

The information under the caption “Business Segments” in Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

Valley has four business segments that it monitors and reports on to manage Valley’s business operations.

These segments are consumer lending, commercial lending, investment management, and corporate and other adjustments.

Valley’s reportable segments have been determined based upon its internal structure of operations and lines of business.

Each business segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount).

Expenses related to the branch network, all other components of retail banking, along with the back office departments of our subsidiary bank are allocated from the corporate and other adjustments segment to each of the other three business segments.

Interest expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/or liabilities outstanding for the period.

The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution.

The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S.

Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data.

The following tables represent the financial data for Valley’s four business segments for the three and six months ended June 30, 2020 and 2019 :

Three Months Ended June 30, 2020

($ in thousands)

Average interest earning assets

Interest income

Interest expense

Net interest income (loss)

Provision for credit losses

Net interest income (loss) after provision for credit losses

Non-interest income

Non-interest expense

Internal expense transfer

Income (loss) before income taxes

Return on average interest earning assets (pre-tax)

Three Months Ended June 30, 2019

($ in thousands)

Average interest earning assets

Interest income

Interest expense

Net interest income (loss)

Provision for credit losses

Net interest income (loss) after provision for credit losses

Non-interest income

Non-interest expense

Internal expense transfer

Income (loss) before income taxes

Return on average interest earning assets (pre-tax)

Six Months Ended June 30, 2020

($ in thousands)

Average interest earning assets

Interest income

Interest expense

Net interest income (loss)

Provision for credit losses

Net interest income (loss) after provision for credit losses

Non-interest income

Non-interest expense

Internal expense transfer

Income (loss) before income taxes

Return on average interest earning assets (pre-tax)

Six Months Ended June 30, 2019

($ in thousands)

Average interest earning assets

Interest income

Interest expense

Net interest income (loss)

Provision for credit losses

Net interest income (loss) after provision for credit losses

Non-interest income

Non-interest expense

Internal expense transfer

Income (loss) before income taxes

Return on average interest earning assets (pre-tax)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements