What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 642 added, 342 removed, 1046 unchanged (48% of the section changed)

3 unchanged sentences

(in thousands, except for share data)

September 30,

2020 December 31,

Assets (Unaudited)

Cash and due from banks $ 276,120 $ 256,264

3 unchanged sentences

Available for sale debt securities 1,526,564 1,566,801

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

Held to maturity debt securities (net of allowance for credit losses of $ 1,481 at September 30, 2020)

2,168,995 2,336,095

Total investment securities 3,724,585 3,944,306

Loans held for sale, at fair value 209,250 76,113

Loans 32,415,586 29,699,208

Allowance for loan losses ( 325,032 ) ( 161,759 )

Net loans 32,090,554 29,537,449

Premises and equipment, net 323,056 334,533

2 unchanged sentences

Accrued interest receivable 136,058 105,637

Goodwill 1,375,409 1,373,625

Other intangible assets, net 73,873 86,772

Other assets 1,084,629 717,600

Total Assets $ 40,747,492 $ 37,436,020

Non-interest bearing $ 8,756,924 $ 6,710,408

1 unchanged sentence

Savings, NOW and money market 14,893,477 12,757,484

Time 7,537,581 9,717,945

Total deposits 31,187,982 29,185,837

8 unchanged sentences

50,000,000 authorized shares:

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)

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

111,590 111,590

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

98,101 98,101

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

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

issued 403,880,132 shares at September 30, 2020 and 403,322,773 shares at December 31, 2019)

141,718 141,423

Surplus 3,633,321 3,622,208

Retained earnings 553,826 443,559

Accumulated other comprehensive loss ( 4,783 ) ( 32,214 )

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

Treasury stock, at cost ( 1,388 common shares at September 30, 2020 and 44,383 common shares at December 31, 2019)

( 10 ) ( 479 )

Total Shareholders’ Equity 4,533,763 4,384,188

5 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Interest Income

1 unchanged sentence

Interest and dividends on investment securities:

Taxable 14,845 21,801 56,225 67,166

Tax-exempt 3,606 4,219 11,224 13,379

Dividends 2,684 3,171 9,177 9,140

Interest on federal funds sold and other short-term investments

420 1,686 2,296 3,947

Total interest income 337,343 329,261 1,049,661 977,227

2 unchanged sentences

Savings, NOW and money market 13,323 35,944 64,463 110,247

Time 19,028 42,848 91,699 121,350

Interest on short-term borrowings 2,588 12,953 9,275 40,362

Interest on long-term borrowings and junior subordinated debentures

19,318 16,891 53,240 45,761

Total interest expense 54,257 108,636 218,677 317,720

Net Interest Income 283,086 220,625 830,984 659,507

Provision for credit losses for held to maturity securities

(Credit) provision for credit losses for held to maturity securities ( 112 ) — 688 —

Provision for credit losses for loans 31,020 8,700 106,059 18,800

4 unchanged sentences

Service charges on deposit accounts 3,952 5,904 13,189 17,634

(Losses) gains on securities transactions, net

Losses on securities transactions, net ( 46 ) ( 93 ) ( 127 ) ( 114 )

Other-than-temporary impairment losses on securities — — — ( 2,928 )

Portion recognized in other comprehensive income (before taxes)

Net impairment losses on securities recognized in earnings

Fees from loan servicing 2,551 2,463 7,526 7,260

Gains on sales of loans, net 13,366 5,194 26,253 13,700

(Losses) gains on sales of assets, net

Gains (losses) on sales of assets, net 894 ( 159 ) 716 76,997

Bank owned life insurance ( 1,304 ) 2,687 7,661 6,779

Other 24,975 19,110 65,548 39,880

Total non-interest income 49,272 41,150 135,499 176,426

5 unchanged sentences

Professional and legal fees 8,762 5,870 22,646 15,286

Loss on extinguishment of debt 2,353 — 2,353 —

Amortization of tax credit investments 2,759 4,385 9,403 16,421

Telecommunication expense 2,094 2,698 7,247 7,317

Other 18,251 16,658 53,312 43,712

Total non-interest expense 160,185 145,877 473,007 435,409

1 unchanged sentence

Income tax expense 38,891 25,307 101,486 110,035

Net Income 102,374 81,891 285,243 271,689

Dividends on preferred stock 3,172 3,172 9,516 9,516

4 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Earnings Per Common Share:

Basic $ 0.25 $ 0.24 $ 0.68 $ 0.79

Diluted 0.25 0.24 0.68 0.79

Cash Dividends Declared per Common Share 0.11 0.11 0.33 0.33

Weighted Average Number of Common Shares Outstanding:

Basic 403,833,469 331,797,982 403,714,701 331,716,652

Diluted 404,788,526 333,405,196 404,912,126 333,039,436

See accompanying notes to consolidated financial statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net income $ 102,374 $ 81,891 $ 285,243 $ 271,689

Other comprehensive income, net of tax:

Unrealized gains and losses on available for sale securities

Net gains arising during the period

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

Net (losses) gains arising during the period ( 1,262 ) 8,135 27,819 42,890

Less reclassification adjustment for net losses included in net income 36 72 94 90

Total ( 1,226 ) 8,207 27,913 42,980

Unrealized gains and losses on derivatives (cash flow hedges)

Net losses on derivatives arising during the period

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

Net gains (losses) on derivatives arising during the period 83 76 ( 2,254 ) ( 989 )

Less reclassification adjustment for net losses included in net income 1,127 324 1,257 806

Total 1,210 400 ( 997 ) ( 183 )

Defined benefit pension plan

4 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the Six Months Ended June 30, 2020

Preferred Stock

For the Nine Months Ended September 30, 2020

Common Stock Accumulated

Preferred Stock Shares Amount Surplus Retained

Earnings Other

Comprehensive

Loss Treasury

Shareholders’

2 unchanged sentences

Adjustment due to the adoption of ASU No.

— — — — ( 28,187 ) — — ( 28,187 )

Balance - January 1, 2020 209,691 403,278 141,423 3,622,208 415,372 ( 32,214 ) ( 479 ) 4,356,001

Net income — — — — 87,268 — — 87,268

Other comprehensive income, net of tax

— — — — — 25,648 — 25,648

Cash dividends declared:

Preferred stock, Series A, $ 0.39 per share

— — — — ( 1,797 ) — — ( 1,797 )

Preferred stock, Series B, $ 0.34 per share

— — — — ( 1,375 ) — — ( 1,375 )

Common stock, $ 0.11 per share

— — — — ( 44,979 ) — — ( 44,979 )

Effect of stock incentive plan, net

— 466 190 1,828 ( 2,065 ) — 279 232

Balance - March 31, 2020 209,691 403,744 141,613 3,624,036 452,424 ( 6,566 ) ( 200 ) 4,420,998

Net income — — — — 95,601 — — 95,601

Other comprehensive income, net of tax

— — — — — 1,628 — 1,628

Cash dividends declared:

Preferred stock, Series A, $ 0.39 per share

— — — — ( 1,797 ) — — ( 1,797 )

Preferred stock, Series B, $ 0.34 per share

— — — — ( 1,375 ) — — ( 1,375 )

Common stock, $ 0.11 per share

— — — — ( 44,750 ) — — ( 44,750 )

Effect of stock incentive plan, net

— 52 54 4,756 ( 592 ) — ( 35 ) 4,183

Balance - June 30, 2020 209,691 403,796 141,667 3,628,792 499,511 ( 4,938 ) ( 235 ) 4,474,488

For the Six Months Ended June 30, 2019

Preferred Stock

Net income — — — — 102,374 — — 102,374

Other comprehensive income, net of tax

— — — — — 155 — 155

Cash dividends declared:

Preferred stock, Series A, $ 0.39 per share

— — — — ( 1,797 ) — — ( 1,797 )

Preferred stock, Series B, $ 0.34 per share

— — — — ( 1,375 ) — — ( 1,375 )

Common stock, $ 0.11 per share

— — — — ( 44,770 ) — — ( 44,770 )

Effect of stock incentive plan, net

— 83 51 4,529 ( 117 ) — 225 4,688

Balance - September 30, 2020 $ 209,691 403,879 $ 141,718 $ 3,633,321 $ 553,826 $ ( 4,783 ) $ ( 10 ) $ 4,533,763

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

For the Nine Months Ended September 30, 2019

Common Stock Accumulated

Preferred Stock Shares Amount Surplus Retained

Earnings Other

Comprehensive

Loss Treasury

Shareholders’

2 unchanged sentences

Adjustment due to the adoption of ASU No.

— — — — 4,414 — — 4,414

Adjustment due to the adoption of ASU No.

— — — — ( 1,446 ) — — ( 1,446 )

Balance - January 1, 2019 209,691 331,431 116,240 2,796,499 302,610 ( 69,431 ) ( 2,187 ) 3,353,422

Net income — — — — 113,330 — — 113,330

Other comprehensive income, net of tax

— — — — — 16,174 — 16,174

Cash dividends declared:

Preferred stock, Series A, $ 0.39 per share

— — — — ( 1,797 ) — — ( 1,797 )

Preferred stock, Series B, $ 0.34 per share

— — — — ( 1,375 ) — — ( 1,375 )

Common stock, $ 0.11 per share

— — — — ( 36,686 ) — — ( 36,686 )

Effect of stock incentive plan, net

— 302 226 2,935 ( 99 ) — ( 1,251 ) 1,811

Balance - March 31, 2019 209,691 331,733 116,466 2,799,434 375,983 ( 53,257 ) ( 3,438 ) 3,444,879

Net income — — — — 76,468 — — 76,468

Other comprehensive income, net of tax

— — — — — 18,126 — 18,126

Cash dividends declared:

Preferred stock, Series A, $ 0.39 per share

— — — — ( 1,797 ) — — ( 1,797 )

Preferred stock, Series B, $ 0.34 per share

— — — — ( 1,375 ) — — ( 1,375 )

Common stock, $ 0.11 per share

— — — — ( 36,712 ) — — ( 36,712 )

Effect of stock incentive plan, net

— 55 105 4,625 ( 377 ) — 176 4,529

Balance - June 30, 2019 209,691 331,788 116,571 2,804,059 412,190 ( 35,131 ) ( 3,262 ) 3,504,118

Net income — — — — 81,891 — — 81,891

Other comprehensive income, net of tax

— — — — — 8,663 — 8,663

Cash dividends declared:

Preferred stock, Series A, $ 0.39 per share

— — — — ( 1,797 ) — — ( 1,797 )

Preferred stock, Series B, $ 0.34 per share

— — — — ( 1,375 ) — — ( 1,375 )

Common stock, $ 0.11 per share

— — — — ( 36,732 ) — — ( 36,732 )

Effect of stock incentive plan, net

— 18 79 3,207 ( 157 ) — 178 3,307

Balance - September 30, 2019 $ 209,691 331,806 $ 116,650 $ 2,807,266 $ 454,020 $ ( 26,468 ) $ ( 3,084 ) $ 3,558,075

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

Net income $ 285,243 $ 271,689

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

9 unchanged sentences

Originations of loans held for sale ( 829,252 ) ( 338,996 )

Losses (gains) on sales of assets, net

Gains on sales of assets, net ( 716 ) ( 76,997 )

Net change in:

1 unchanged sentence

Accrued interest receivable ( 30,421 ) ( 1,986 )

Other assets ( 420,572 ) ( 264,228 )

Accrued expenses and other liabilities 85,944 92,542

3 unchanged sentences

Equity securities:

Purchases ( 7,616 ) —

Sales 27,867 —

Held to maturity debt securities:

Purchases ( 381,606 ) ( 317,794 )

Maturities, calls and principal repayments 532,151 281,961

Available for sale debt securities:

Purchases ( 306,071 ) ( 19,892 )

Maturities, calls and principal repayments 374,321 188,619

5 unchanged sentences

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from financing activities:

7 unchanged sentences

Common stock issued, net 2,074 ( 351 )

Other, net ( 451 ) ( 365 )

Net cash provided by financing activities 2,923,132 1,272,877

21 unchanged sentences

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 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.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at September 30, 2020 and for all periods presented have been made.

The results of operations for the three and nine months ended on September 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.

9 unchanged sentences

The current economic environment has increased the degree of uncertainty inherent in these material estimates.

Actual amounts as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process.

Actual results may differ from those estimates.

Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date.

Impact of COVID-1 9.

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.

Banking and financial services have been designated essential businesses;

therefore, Valley’s operations are continuing, subject to certain modifications to business practices imposed to safeguard the health and wellness of Valley’s customers and employees, and to comply with applicable government directives.

Valley's primary market areas within New Jersey, New York, Florida and Alabama have all experienced significant outbreaks and resurgences of the disease caused by the novel coronavirus (COVID-19) and disruptions from the pandemic.

The COVID-19 pandemic and any preventative or protective actions that Valley or its customers have taken or may take in response resulted and may continue to result in extended periods of disruption to Valley, its customers, service providers, and third parties.

The full extent and duration of the adverse impacts of COVID-19 on Valley's business, financial position, results of operations, and prospects are currently unknown, but could be significant.

As of the date of this report, the banking and financial services industries have been deemed essential businesses in the jurisdictions in which Valley operates.

However, Valley remains subject to various protocols and practices imposed to safeguard the health and wellness of customers and employees and to comply with applicable government directives, and the implementation and extent of any further restrictions on operations could have a material effect on Valley’s business.

Valley cannot predict whether and to what extent governmental and nongovernmental authorities will continue to implement policy measures or further legislative relief to assist Valley and its customers and the failure to do so could have adverse effects on Valley's business.

Business Combinations

5 unchanged sentences

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 $ 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.

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

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

2 unchanged sentences

Earnings Per Common Share

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 :

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

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands, except for share data)

1 unchanged sentence

Basic weighted average number of common shares outstanding

403,833,469 331,797,982 403,714,701 331,716,652

Common stock equivalents 955,057 1,607,214 1,197,425 1,322,784

Diluted weighted average number of common shares outstanding

404,788,526 333,405,196 404,912,126 333,039,436

Earnings per common share:

Basic $ 0.25 $ 0.24 $ 0.68 $ 0.79

Diluted 0.25 0.24 0.68 0.79

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 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.

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

Potential anti-dilutive weighted common shares equaled approximately 4.9 million shares and 2.2 million shares for the three and nine months ended September 30, 2020, respectively, and 265 thousand shares and 475 thousand shares for the three and nine months ended September 30, 2019, respectively.

Accumulated Other Comprehensive Loss

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

Components of Accumulated Other Comprehensive Loss

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

Components of Accumulated Other Comprehensive Loss Total

Comprehensive

2 unchanged sentences

Available for Sale

(AFS) Securities

Unrealized Gains

(AFS) Securities Unrealized Gains

and Losses on

Derivatives Defined

(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 $ 34,961 $ ( 5,936 ) $ ( 33,963 ) $ ( 4,938 )

Components of Accumulated Other Comprehensive Loss

Other comprehensive (loss) income before reclassification ( 1,262 ) 83 — ( 1,179 )

Amounts reclassified from other comprehensive income

36 1,127 171 1,334

Other comprehensive (loss) income, net ( 1,226 ) 1,210 171 155

Balance at September 30, 2020 $ 33,735 $ ( 4,726 ) $ ( 33,792 ) $ ( 4,783 )

Components of Accumulated Other Comprehensive Loss Total

Comprehensive

2 unchanged sentences

Available for Sale

(AFS) Securities

Unrealized Gains

(AFS) Securities Unrealized Gains

and Losses on

Derivatives Defined

(in thousands)

1 unchanged sentence

Other comprehensive income (loss) before reclassification

27,819 ( 2,254 ) — 25,565

Amounts reclassified from other comprehensive income

94 1,257 515 1,866

Other comprehensive income (loss), net

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 :

27,913 ( 997 ) 515 27,431

Balance at September 30, 2020 $ 33,735 $ ( 4,726 ) $ ( 33,792 ) $ ( 4,783 )

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

Amounts Reclassified from

1 unchanged sentence

Three Months Ended

Six Months Ended June 30,

Components of Accumulated Other Comprehensive Loss

Income Statement Line Item

September 30, Nine Months Ended September 30,

Components of Accumulated Other Comprehensive Loss 2020 2019 2020 2019 Income Statement Line Item

(in thousands)

Unrealized (losses) gains on AFS securities before tax

(Losses) gains on securities transactions, net

Unrealized losses on AFS securities before tax $ ( 46 ) $ ( 93 ) $ ( 127 ) $ ( 114 ) Losses on securities transactions, net

Tax effect 10 21 33 24

Total net of tax ( 36 ) ( 72 ) ( 94 ) ( 90 )

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

Interest expense

Unrealized losses on derivatives (cash flow hedges) before tax ( 1,586 ) ( 453 ) ( 1,763 ) ( 1,126 ) Interest expense

Tax effect 459 129 506 320

Total net of tax ( 1,127 ) ( 324 ) ( 1,257 ) ( 806 )

1 unchanged sentence

Amortization of actuarial net loss ( 234 ) ( 79 ) ( 699 ) ( 235 ) *

Tax effect 63 23 184 69

Total net of tax ( 171 ) ( 56 ) ( 515 ) ( 166 )

29 unchanged sentences

New Accounting Guidance issued in 2020

2020-08, "Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs" provides clarification and affects the guidance previously issued by ASU No.

2017-08 “Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20):

Premium Amortization on Purchased Callable Debt Securities.” ASU No.

2020-08 clarifies that an entity should reevaluate whether a debt security with multiple call

dates is within the scope of paragraph 310-20-35-33.

For each reporting period, to the extent that the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the premium should be amortized to the next call date, unless the guidance to consider estimated prepayments is applied.

2020-08 will be effective for Valley for the annual and interim periods beginning January 1, 2021 and early adoption is not permitted.

This new guidance is not expected to have a significant impact on Valley’s consolidated financial statements.

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.

1 unchanged sentence

2020-04 became effective for all entities as of March 12, 2020 and will apply to all LIBOR reference rate modifications through December 31, 2022.

Management is currently evaluating the impact of the ASU on Valley’s consolidated financial statements.

Fair Value Measurement of Assets and Liabilities

6 unchanged sentences

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 June 30, 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).

September 30,

2020 Fair Value Measurements at Reporting Date Using:

2 unchanged sentences

for Identical

Assets (Level 1)

Assets (Level 1) Significant

Observable Inputs

(Level 2) Significant

(in thousands)

2 unchanged sentences

Equity securities (1)

$ 26,527 $ 19,136 $ — $ —

Available for sale:

2 unchanged sentences

Obligations of states and political subdivisions

134,193 — 133,410 783

Residential mortgage-backed securities

1,233,436 — 1,233,436 —

Corporate and other debt securities 80,909 — 80,909 —

1 unchanged sentence

Loans held for sale (2)

209,250 — 209,250 —

Other assets (3)

455,565 — 455,565 —

Total assets $ 2,217,906 $ 70,714 $ 2,139,018 $ 783

Other liabilities (3)

$ 190,049 $ — $ 190,049 $ —

Total liabilities $ 190,049 $ — $ 190,049 $ —

3 unchanged sentences

Foreclosed assets 7,747 — — 7,747

Total $ 57,654 $ — $ — $ 57,654

Fair Value Measurements at Reporting Date Using:

2 unchanged sentences

for Identical

Assets (Level 1)

Assets (Level 1) Significant

Observable Inputs

(Level 2) Significant

(in thousands)

7 unchanged sentences

Residential mortgage-backed securities 1,254,786 — 1,254,786 —

Trust preferred securities — — — —

Corporate and other debt securities 61,778 — 61,778 —

Total available for sale 1,566,801 50,943 1,515,178 680

Trading securities — — — —

Loans held for sale (2)

76,113 — 76,113 —

Other assets (3)

158,532 — 158,532 —

Total assets $ 1,842,856 $ 92,353 $ 1,749,823 $ 680

Other liabilities (3)

$ 43,926 $ — $ 43,926 $ —

Total liabilities $ 43,926 $ — $ 43,926 $ —

3 unchanged sentences

Foreclosed assets 10,807 — — 10,807

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.

Total $ 51,473 $ — $ — $ 51,473

(1) Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $ 7.4 million at September 30, 2020.

These securities have not been classified in the fair value hierarchy.

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

(3) Derivative financial instruments are included in this category.

4 unchanged sentences

Equity securities.

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.

The fair value of equity securities largely consists of a publicly traded mutual fund, a Community Reinvestment Act (CRA) investment fund that is carried at quoted prices in active markets and privately held CRA funds measured at NAV.

Available for sale securities.

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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 June 30, 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 September 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 June 30, 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 September 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 June 30, 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 September 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 June 30, 2020 and December 31, 2019 .

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

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

The following valuation techniques were used for certain non-financial assets measured at fair value on a nonrecurring basis, including impaired loans reported at the fair value of the underlying collateral, loan servicing rights and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.

The following valuation techniques were used for certain non-financial assets measured at fair value on a nonrecurring basis, including collateral dependent loans reported at the fair value of the underlying collateral, loan servicing rights and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.

Collateral Dependent Loans .

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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 .

At September 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 September 30, 2020, collateral dependent loans, primarily consisting of taxi medallion loans, with a total amortized cost of $ 99.3 million were reduced by specific valuation allowance allocations totaling $ 63.4 million to a reported total net carrying amount of $ 35.9 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 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.

At September 30, 2020, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 18.4 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.

1 unchanged sentence

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

At September 30, 2020, certain loan servicing rights were re-measured at fair value totaling $ 14.0 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 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.

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

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

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

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

There were no discount adjustments of the appraisals of foreclosed assets at September 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 June 30, 2020 and December 31, 2019 were as follows:

June 30, 2020

December 31, 2019

The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at September 30, 2020 and December 31, 2019 were as follows:

Hierarchy September 30, 2020 December 31, 2019

Amount Fair Value Carrying

Amount Fair Value

(in thousands)

Financial assets

Cash and due from banks

Interest bearing deposits with banks

Cash and due from banks Level 1 $ 276,120 $ 276,120 $ 256,264 $ 256,264

Interest bearing deposits with banks Level 1 654,591 654,591 178,423 178,423

Equity securities (1)

Level 3 2,499 2,499 — —

Investment securities held to maturity:

Treasury securities

Treasury securities Level 1 138,224 146,429 138,352 144,113

government agency securities

Level 2 6,302 6,634 7,345 7,362

Obligations of states and political subdivisions

Level 2 464,051 479,824 500,705 513,607

Residential mortgage-backed securities

Trust preferred securities

Corporate and other debt securities

Level 2 1,491,808 1,528,703 1,620,119 1,629,572

Trust preferred securities Level 2 37,341 30,000 37,324 31,382

Corporate and other debt securities Level 2 32,750 33,381 32,250 32,684

Total investment securities held to maturity (2)

Accrued interest receivable

2,170,476 2,224,971 2,336,095 2,358,720

Net loans Level 3 32,090,554 31,883,095 29,537,449 28,964,396

Accrued interest receivable Level 1 136,058 136,058 105,637 105,637

Federal Reserve Bank and Federal Home Loan Bank stock (3)

Level 2 287,628 287,628 214,421 214,421

Financial liabilities

Deposits without stated maturities

Deposits with stated maturities

Short-term borrowings

Long-term borrowings

Deposits without stated maturities Level 1 23,650,401 23,650,401 19,467,892 19,467,892

Deposits with stated maturities Level 2 7,537,581 7,466,794 9,717,945 9,747,867

Short-term borrowings Level 2 1,430,726 1,544,596 1,093,280 1,081,879

Long-term borrowings Level 2 2,852,569 3,115,757 2,122,426 2,181,401

Junior subordinated debentures issued to capital trusts

Level 2 55,978 44,771 55,718 53,889

Accrued interest payable (4)

Level 1 21,756 21,756 33,066 33,066

(1) Represents equity securities without a readily determinable fair value measured at cost less impairment, if any.

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

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Equity Securities

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.

Equity securities carried at fair value totaled $ 29.0 million and $ 41.4 million at September 30, 2020 and December 31, 2019, respectively.

At September 30, 2020, Valley's equity securities consisted of one publicly traded money market mutual fund, CRA investments both publicly traded and privately held and, to a lesser extent, equity securities without readily determinable fair values.

Available for Sale Debt Securities

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:

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

Losses Fair Value

(in thousands)

June 30, 2020

September 30, 2020

Treasury securities $ 50,035 $ 1,543 $ — $ 51,578

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Total investment securities available for sale $ 1,558,787 $ 13,596 $ ( 5,582 ) $ 1,566,801

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

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

Twelve Months More than

Twelve Months Total

Value Unrealized

(in thousands)

June 30, 2020

September 30, 2020

government agency securities $ — $ — $ 1,585 $ ( 18 ) $ 1,585 $ ( 18 )

1 unchanged sentence

Obligations of states and state agencies

1,319 ( 6 ) 1,023 ( 24 ) 2,342 ( 30 )

Municipal bonds 6,767 ( 74 ) — — 6,767 ( 74 )

Total obligations of states and political subdivisions

8,086 ( 80 ) 1,023 ( 24 ) 9,109 ( 104 )

Residential mortgage-backed securities 111,973 ( 526 ) 33,346 ( 416 ) 145,319 ( 942 )

Corporate and other debt securities 14,656 ( 337 ) — — 14,656 ( 337 )

Total $ 134,715 $ ( 943 ) $ 35,954 $ ( 458 ) $ 170,669 $ ( 1,401 )

December 31, 2019

3 unchanged sentences

Obligations of states and state agencies

18,540 ( 21 ) 8,755 ( 62 ) 27,295 ( 83 )

Municipal bonds — — 13,177 ( 86 ) 13,177 ( 86 )

Total obligations of states and political subdivisions

18,540 ( 21 ) 21,932 ( 148 ) 40,472 ( 169 )

Residential mortgage-backed securities 240,412 ( 1,194 ) 282,798 ( 4,068 ) 523,210 ( 5,262 )

Corporate and other debt securities 5,139 ( 111 ) — — 5,139 ( 111 )

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.

Total $ 289,110 $ ( 1,347 ) $ 306,513 $ ( 4,235 ) $ 595,623 $ ( 5,582 )

Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 64 and 182 at September 30, 2020 and December 31, 2019, respectively.

As of September 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 $ 868.9 million.

The contractual maturities of available for sale debt securities at September 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.

June 30, 2020

September 30, 2020

(in thousands)

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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 .

The weighted average remaining expected life for residential mortgage-backed securities available for sale was 3.9 years at September 30, 2020.

Impairment Analysis of Available For Sale Debt Securities

Valley's available for sale debt securities portfolio includes corporate bonds and special revenue bonds, among other securities, 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.

These type of securities may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S.

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

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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 $ 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.

As part of Valley’s pre-purchase analysis and on-going quarterly assessment of impairment of the obligations of states and political subdivisions, our Credit Risk Management Department conducts a financial analysis and risk rating assessment of each security issuer based on the issuer’s most recently issued financial statements and other publicly available information.

The obligations of states and political subdivisions classified as available for sale include special revenue bonds which had an aggregate amortized cost and fair value of $ 70.6 million and $ 71.9 million, respectively, at September 30, 2020.

The gross unrealized losses associated with the special revenue bonds as of September 30, 2020 were not material.

Approximately 41 percent of the special revenue bonds were issued by the states of (or municipalities within) Utah and Illinois.

As part of Valley’s pre-purchase analysis and on-going quarterly assessment of impairment of the obligations of states and political subdivisions, the Credit Risk Management Department conducts a financial analysis and risk rating assessment of each security issuer based on the issuer’s most recently issued financial statements and other publicly available information.

These investments are a mix of municipal bonds with investment grade ratings or non-rated revenue bonds paying in accordance with their contractual terms.

The vast majority of the bonds not rated by the rating agencies are state housing finance agency revenue bonds secured by Ginnie Mae securities

that are commonly referred to as Tax Exempt Mortgage Securities (TEMS).

The vast majority of the bonds not rated by the rating agencies are state housing finance agency

revenue bonds secured by Ginnie Mae securities that are commonly referred to as Tax Exempt Mortgage Securities (TEMS).

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

Valley 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 has evaluated available for sale debt securities that are in an unrealized loss position as of September 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 nine months ended September 30, 2020 and, as a result, there was no allowance for credit losses for available for sale debt securities at September 30, 2020.

During the nine months ended September 30, 2019, Valley recognized a $ 2.9 million other-than-temporary credit impairment charge on one special revenue bond classified as available for sale (within the obligations of 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 2019, as well as the issuer's default on its contractual payment.

At September 30, 2020, the non-accruing impaired security had an adjusted amortized cost and fair valu e of $ 680 thousand and $ 783 thousand, respectively.

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

1 unchanged sentence

Held to Maturity Debt Securities

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:

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

Losses Fair Value

(in thousands)

June 30, 2020

September 30, 2020

Treasury securities $ 138,224 $ 8,205 $ — $ 146,429

19 unchanged sentences

Total investment securities held to maturity $ 2,336,095 $ 34,556 $ ( 11,931 ) $ 2,358,720

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

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

Twelve Months More than

Twelve Months Total

Fair Value Unrealized

Losses Fair Value Unrealized

(in thousands)

June 30, 2020

September 30, 2020

Obligations of states and political subdivisions:

Obligations of states and state agencies

$ 5,493 $ ( 176 ) $ — $ — $ 5,493 $ ( 176 )

Total obligations of states and political subdivisions

5,493 ( 176 ) — — 5,493 ( 176 )

Residential mortgage-backed securities

237,070 ( 919 ) 2,677 ( 5 ) 239,747 ( 924 )

Trust preferred securities — — 28,595 ( 7,393 ) 28,595 ( 7,393 )

Corporate and other debt securities 7,494 ( 6 ) — — 7,494 ( 6 )

Total $ 250,057 $ ( 1,101 ) $ 31,272 $ ( 7,398 ) $ 281,329 $ ( 8,499 )

December 31, 2019

2 unchanged sentences

Obligations of states and state agencies

11,178 ( 55 ) 32,397 ( 474 ) 43,575 ( 529 )

Municipal bonds — — 798 ( 10 ) 798 ( 10 )

Total obligations of states and political subdivisions

11,178 ( 55 ) 33,195 ( 484 ) 44,373 ( 539 )

Residential mortgage-backed securities

307,885 ( 1,387 ) 254,915 ( 3,963 ) 562,800 ( 5,350 )

Trust preferred securities — — 29,990 ( 5,981 ) 29,990 ( 5,981 )

Corporate and other debt securities

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.

— — 4,980 ( 20 ) 4,980 ( 20 )

Total $ 324,246 $ ( 1,483 ) $ 323,080 $ ( 10,448 ) $ 647,326 $ ( 11,931 )

Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 20 and 82 at September 30, 2020 and December 31, 2019, respectively.

As of September 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 $ 1.0 billion.

The contractual maturities of investments in debt securities held to maturity at September 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.

June 30, 2020

September 30, 2020

(in thousands)

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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 held to maturity was 3.9 years at June 30, 2020 .

The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 2.5 years at September 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 June 30, 2020 and December 31, 2019 .

AAA/AA/A Rated

Non-investment grade rated

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

AAA/AA/A Rated BBB rated Non-investment grade rated Non-rated Total

(in thousands)

June 30, 2020

September 30, 2020

Treasury securities $ 138,224 $ — $ — $ — $ 138,224

4 unchanged sentences

Total obligations of states and political subdivisions

405,347 — 5,669 53,035 464,051

Residential mortgage-backed securities 1,491,808 — — — 1,491,808

9 unchanged sentences

Total obligations of states and political subdivisions

451,175 5,722 — 43,808 500,705

Residential mortgage-backed securities 1,620,119 — — — 1,620,119

3 unchanged sentences

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

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.

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

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

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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.

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.

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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.

At September 30, 2020, held to maturity debt securities were carried net of allowance for credit losses totaling $ 1.5 million .

Valley recorded a negative (credit) provision for credit losses of $ 112 thousand during the three months ended September 30, 2020 and a net provision for credit losses of $ 688 thousand for the nine months ended September 30, 2020.

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

June 30, 2020

December 31, 2019

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

September 30, 2020 December 31, 2019

(in thousands)

2 unchanged sentences

Commercial real estate 16,815,587 15,996,741

Construction 1,720,775 1,647,018

Total commercial real estate loans 18,536,362 17,643,759

Residential mortgage 4,284,595 4,377,111

Home equity 457,083 487,272

Automobile 1,341,659 1,451,623

Other consumer 892,542 913,446

Total consumer loans 2,691,284 2,852,341

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 .

Total loans $ 32,415,586 $ 29,699,208

* Includes $ 2.3 billion of loans originated under the Paycheck Protection Program (PPP), net of unearned fees totaling $ 54.4 million at September 30, 2020.

Total loans includes net unearned discounts and deferred loan fees of $ 116.2 million at September 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 September 30, 2020 include the non-credit discount on PCD loans and net unearned fees related to PPP loans.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 117.9 million and $ 86.3 million at September 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 $ 303.0 million of residential mortgage loans from the loan portfolio to loans held for sale during the nine months ended September 30, 2020 and 2019, respectively.

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

Credit Risk Management

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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.

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

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

Past Due and Non-Accrual Loans

Past Due Loans

90 Days or More

Past Due Loans

Non-Accrual Loans

Past Due Loans 60-89 Days

Past Due Loans 90 Days or More

Past Due Loans Non-Accrual Loans

Total Past Due Loans

Current Loans

Non-Accrual Loans Without Allowance for Credit Losses

Total Loans Non-Accrual Loans Without Allowance for Credit Losses

(in thousands)

June 30, 2020

September 30, 2020

Commercial and industrial

$ 6,587 $ 3,954 $ 6,759 $ 115,667 $ 132,967 $ 6,770,378 $ 6,903,345 $ 16,812

Commercial real estate:

Commercial real estate

26,038 610 1,538 41,627 69,813 16,745,774 16,815,587 35,798

Construction 142 — — 2,497 2,639 1,718,136 1,720,775 2,405

Total commercial real estate loans

26,180 610 1,538 44,124 72,452 18,463,910 18,536,362 38,203

Residential mortgage 22,528 3,760 891 23,877 51,056 4,233,539 4,284,595 12,356

Consumer loans:

Home equity 1,281 299 — 6,969 8,549 448,534 457,083 70

Automobile 4,797 808 538 472 6,615 1,335,044 1,341,659 —

Other consumer 2,901 245 215 — 3,361 889,181 892,542 —

Total consumer loans

8,979 1,352 753 7,441 18,525 2,672,759 2,691,284 70

Total $ 64,274 $ 9,676 $ 9,941 $ 191,109 $ 275,000 $ 32,140,586 $ 32,415,586 $ 67,441

The following table presents past due, non-accrual and current loans by loan portfolio class at December 31, 2019.

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

The PCI loan pools are accounted for as PCD loans (on a loan level basis with a related allowance for credit losses) under the CECL standard adopted at January 1, 2020 and reported in the past due loans and non-accrual loans in the tables above at June 30, 2020 .

Past Due and Non-Accrual Loans

Past Due Loans 60-89

Past Due Loans

90 Days or More

Past Due Loans

Non-Accrual Loans

Past Due Loans 90 Days or More

Past Due Loans Non-Accrual Loans

Total Past Due Loans

Current Non-PCI Loans

Current Non-PCI Loans PCI Loans

(in thousands)

3 unchanged sentences

Commercial real estate 2,560 4,026 579 9,004 16,169 10,886,724 5,093,848

Construction 1,486 1,343 — 356 3,185 1,492,532 151,301

Total commercial real estate loans

4,046 5,369 579 9,360 19,354 12,379,256 5,245,149

Residential mortgage 17,143 4,192 2,042 12,858 36,235 3,760,707 580,169

Consumer loans:

Home equity 1,051 80 — 1,646 2,777 373,243 111,252

Automobile 11,482 1,581 681 334 14,078 1,437,274 271

Other consumer 1,171 866 30 224 2,291 900,411 10,744

Total consumer loans 13,704 2,527 711 2,204 19,146 2,710,928 122,267

Total $ 46,593 $ 14,315 $ 7,318 $ 93,058 $ 161,284 $ 22,908,325 $ 6,629,599

Credit quality indicators.

6 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 June 30, 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 September 30, 2020:

Amortized Cost Basis by Origination Year

June 30, 2020

Prior to 2016

Revolving Loans Amortized Cost Basis

Revolving Loans Converted to Term Loans

September 30, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total

(in thousands)

Commercial and industrial

Pass $ 2,656,655 $ 609,142 $ 523,833 $ 246,684 $ 185,298 $ 804,896 $ 1,613,011 $ 417 $ 6,639,936

Special Mention 724 10,634 11,786 10,236 11,310 14,895 44,412 68 104,065

Substandard 5,411 3,181 2,780 1,789 4,095 26,720 18,092 24 62,092

Doubtful — 5,207 7 17,162 2,632 72,244 — — 97,252

Total commercial and industrial $ 2,662,790 $ 628,164 $ 538,406 $ 275,871 $ 203,335 $ 918,755 $ 1,675,515 $ 509 $ 6,903,345

Commercial real estate

Pass $ 2,456,797 $ 3,236,056 $ 2,360,488 $ 1,993,600 $ 1,929,677 $ 4,281,267 $ 189,008 $ 15,626 $ 16,462,519

Special Mention 23,864 — 26,028 7,197 42,882 86,098 3,481 — 189,550

Substandard 17,539 9,450 24,168 22,014 10,329 78,322 — — 161,822

Doubtful — — — 787 — 909 — — 1,696

Total commercial real estate $ 2,498,200 $ 3,245,506 $ 2,410,684 $ 2,023,598 $ 1,982,888 $ 4,446,596 $ 192,489 $ 15,626 $ 16,815,587

Pass $ 105,422 $ 157,407 $ 123,416 $ 16,196 $ 47,202 $ 60,663 $ 1,162,297 $ — $ 1,672,603

Special Mention — — — — 10,058 — 32,407 — 42,465

Substandard — 31 246 2,628 2,422 380 — — 5,707

Total construction $ 105,422 $ 157,438 $ 123,662 $ 18,824 $ 59,682 $ 61,043 $ 1,194,704 $ — $ 1,720,775

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 June 30, 2020 .

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

Amortized Cost Basis by Origination Year

June 30, 2020

Prior to 2016

Revolving Loans Amortized Cost Basis

Revolving Loans Converted to Term Loans

September 30, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total

(in thousands)

Residential mortgage

Performing $ 560,875 $ 807,219 $ 778,367 $ 645,289 $ 407,412 $ 1,019,903 $ 52,783 $ — $ 4,271,848

90 days or more past due — 1,459 2,947 2,849 3,895 1,597 — — 12,747

1 unchanged sentence

Consumer loans

Performing $ 6,436 $ 12,015 $ 13,310 $ 10,178 $ 6,505 $ 17,626 $ 336,434 $ 52,986 $ 455,490

90 days or more past due — — — — 25 111 617 840 1,593

Total home equity 6,436 12,015 13,310 10,178 6,530 17,737 337,051 53,826 457,083

Performing 292,584 479,860 303,799 175,359 62,193 26,843 — — 1,340,638

90 days or more past due 40 304 270 246 16 145 — — 1,021

1 unchanged sentence

Other Consumer

Performing 5,061 5,751 11,529 1,254 1,093 6,387 860,895 — 891,970

90 days or more past due — — 8 — — 20 136 408 572

3 unchanged sentences

Credit exposure—

by internally assigned risk rating

Total Non-PCI

by internally assigned risk rating Special Total Non-PCI

Pass Mention Substandard Doubtful Loans

(in thousands)

2 unchanged sentences

Commercial real estate 10,781,587 77,884 42,560 862 10,902,893

Construction 1,487,877 7,486 354 — 1,495,717

Total $ 16,251,917 $ 119,088 $ 109,425 $ 62,163 $ 16,542,593

For residential mortgages, automobile, home equity and other consumer loan portfolio classes (excluding PCI loans), Valley also evaluates credit quality based on the aging status of the loan, which is presented above, and by payment activity.

1 unchanged sentence

Credit exposure—

by payment activity

Non-Performing

Total Non-PCI

by payment activity Performing

Loans Non-Performing

Loans Total Non-PCI

(in thousands)

1 unchanged sentence

Residential mortgage $ 3,784,084 $ 12,858 $ 3,796,942

Home equity 374,374 1,646 376,020

Automobile 1,451,018 334 1,451,352

Other consumer 902,478 224 902,702

Total $ 6,511,954 $ 15,062 $ 6,527,016

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

Credit exposure—

by payment activity

Non-Performing

Total Non-PCI

by payment activity Performing

Loans Non-Performing

Loans Total Non-PCI

(in thousands)

2 unchanged sentences

Commercial real estate 5,065,388 28,460 5,093,848

Construction 148,692 2,609 151,301

Residential mortgage 571,006 9,163 580,169

Consumer 120,356 1,911 122,267

Total $ 6,559,439 $ 70,160 $ 6,629,599

Troubled debt restructured loans .

7 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 $ 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.

The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs (excluding PCI loans prior to the adoption of ASU 2016-13) during the three and six months ended June 30, 2020 and 2019 .

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

Three Months Ended June 30,

Troubled Debt Restructurings

Pre-Modification

Amortized Carrying Amount

Post-Modification

Amortized Carrying Amount

Pre-Modification

Amortized Carrying Amount

Post-Modification

Performing TDRs (not reported as non-accrual loans) totaled $ 58.1 million and $ 73.0 million as of September 30, 2020 and December 31, 2019, respectively.

Non-performing TDRs totaled $ 96.8 million and $ 65.1 million as of September 30, 2020 and December 31, 2019, respectively.

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

Three Months Ended September 30,

Troubled Debt Restructurings Number

Contracts Pre-Modification

Amortized Carrying Amount Post-Modification

Amortized Carrying Amount Number

Contracts Pre-Modification

Amortized Carrying Amount Post-Modification

Amortized Carrying Amount

2 unchanged sentences

Commercial real estate 2 4,249 4,240 1 75 75

Commercial real estate

Total commercial real estate

Residential mortgage 1 247 247 — — —

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

Consumer 1 72 72 1 19 19

Total 32 $ 35,805 $ 35,497 55 $ 42,996 $ 41,866

Nine Months Ended September 30,

Troubled Debt Restructurings Number

Contracts Pre-Modification

Amortized Carrying Amount Post-Modification

Amortized Carrying Amount Number

Contracts Pre-Modification

Amortized Carrying Amount Post-Modification

Amortized Carrying Amount

2 unchanged sentences

Commercial real estate 4 8,996 9,000 3 4,740 4,699

Commercial real estate

Total commercial real estate

Residential mortgage 1 247 247 1 155 154

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

Amortized Cost

Consumer 1 72 72 1 19 19

Total 39 $ 49,852 $ 47,523 109 $ 83,515 $ 77,055

The total TDRs presented in the above table had allocated reserves for loan losses of $ 18.7 million and $ 29.6 million at September 30, 2020 and 2019, respectively.

There were $ 1.9 million and $ 5.6 million of partial charge-offs related to TDRs for the three and nine months ended September 30, 2020, respectively.

There were no partial charge-offs related to TDR loan modifications during three months ended September 30, 2020 and $ 2.0 million of partial charge-offs related to TDRs for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2020 and 2019 were as follows:

Three Months Ended September 30,

Troubled Debt Restructurings Subsequently Defaulted Number of

Contracts Amortized Cost Number of

Contracts Recorded

($ in thousands)

Commercial and industrial 30 $ 17,496 1 $ 604

Commercial real estate

Residential mortgage — — 1 154

Six Months Ended June 30,

Troubled Debt Restructurings Subsequently Defaulted

Amortized Cost

Total 30 $ 17,496 2 $ 758

Nine Months Ended September 30,

Troubled Debt Restructurings Subsequently Defaulted Number of

Contracts Amortized Cost Number of

Contracts Recorded

($ in thousands)

2 unchanged sentences

Residential mortgage — — 3 369

Consumer 1 18 1 18

Total 36 $ 20,117 24 $ 12,905

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

1 unchanged sentence

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 .

As of September 30, 2020, Valley had approximately 1,400 of these loans with total outstanding balances of $ 1.1 billion remaining in their payment deferral period under short-term modifications.

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

Loans in Process of Foreclosure.

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.

Other real estate owned (OREO) totaled $ 7.7 million and $ 9.4 million at September 30, 2020 and December 31, 2019, respectively.

OREO included foreclosed residential real estate properties totaling $ 799 thousand and $ 2.1 million at September 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 $ 2.0 million and $ 2.8 million at September 30, 2020 and December 31, 2019, respectively.

Allowance for Credit Losses for Loans

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.

The allowance for credit losses for loans under the new CECL standard adopted on January 1, 2020, consisted of the allowance for loan losses and the allowance for unfunded credit commitments.

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

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

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

September 30,

2020 December 31,

(in thousands)

5 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

17 unchanged sentences

The model projects economic variables under each scenario based on detailed statistical analyses.

Valley has identified and selected key variables that most closely correlated to our historical credit performance, which include:

Valley has identified and selected key variables that most closely correlated to its historical credit performance, which include:

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

4 unchanged sentences

The effective interest rate used to discount expected cash flows is adjusted to incorporate expected prepayments, if applicable .

When Valley determines that foreclosure is probable, collateral dependent loan balances are written down to the estimated current fair value (less estimated selling costs) of each loan’s underlying collateral resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process.

the Bank’s collection process.

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

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

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

September 30,

(in thousands)

2 unchanged sentences

Commercial real estate 44,638

Construction 2,405

Total commercial real estate loans

Residential mortgage 28,856

Home equity 88

Total $ 191,864

Commercial and industrial loans are primarily collateralized by taxi medallions in the table above.

4 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 $ 10.1 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

The allowance for unfunded credit commitments totaling $ 10.3 million at September 30, 2020 is included in accrued expenses and other liabilities on the consolidated statements of financial condition.

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

and Industrial Commercial

Real Estate Residential

Mortgage Consumer Total

(in thousands)

Three Months Ended

June 30, 2020

September 30, 2020

Allowance for loan losses:

6 unchanged sentences

Three Months Ended

June 30, 2019

September 30, 2019

Allowance for losses:

2 unchanged sentences

Charged-off loans recovered 330 28 3 617 978

Net (charge-offs) recoveries

Net charge-offs ( 197 ) ( 130 ) ( 108 ) ( 1,574 ) ( 2,009 )

Provision for loan losses 6,815 ( 77 ) 191 1,828 8,757

Ending balance $ 101,002 $ 48,771 $ 5,302 $ 6,778 $ 161,853

and Industrial

and Industrial Commercial

Real Estate Residential

Mortgage Consumer Total

(in thousands)

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

Allowance for loan losses:

6 unchanged sentences

Ending balance $ 130,409 $ 144,650 $ 28,614 $ 21,359 $ 325,032

Six Months Ended

June 30, 2019

Nine Months Ended

September 30, 2019

Allowance for losses:

2 unchanged sentences

Charged-off loans recovered 2,008 71 13 1,720 3,812

Net (charge-offs) recoveries

Net charge-offs ( 5,874 ) ( 87 ) ( 113 ) ( 4,251 ) ( 10,325 )

Provision for loan losses 15,920 ( 792 ) 374 4,817 20,319

Ending balance $ 101,002 $ 48,771 $ 5,302 $ 6,778 $ 161,853

Includes a $ 61.6 million 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 June 30, 2020 and December 31, 2019 .

and Industrial

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

and Industrial Commercial

Real Estate Residential

Mortgage Consumer Total

(in thousands)

June 30, 2020

September 30, 2020

Allowance for loan losses:

Individually evaluated for credit losses

$ 66,444 $ 2,058 $ 830 $ 1,232 $ 70,564

Collectively evaluated for credit losses

63,965 142,592 27,784 20,127 254,468

Total $ 130,409 $ 144,650 $ 28,614 $ 21,359 $ 325,032

Individually evaluated for credit losses

$ 136,696 $ 70,145 $ 35,551 $ 4,019 $ 246,411

Collectively evaluated for credit losses

6,766,649 18,466,217 4,249,044 2,687,265 32,169,175

Total $ 6,903,345 $ 18,536,362 $ 4,284,595 $ 2,691,284 $ 32,415,586

December 31, 2019

1 unchanged sentence

Individually evaluated for credit losses

$ 36,662 $ 1,338 $ 518 $ 58 $ 38,576

Collectively evaluated for credit losses

67,397 44,335 4,542 6,909 123,183

Total $ 104,059 $ 45,673 $ 5,060 $ 6,967 $ 161,759

Individually evaluated for credit losses

$ 100,860 $ 51,242 $ 10,689 $ 853 $ 163,644

Collectively evaluated for credit losses

4,043,123 12,347,368 3,786,253 2,729,221 22,905,965

Loans acquired with discounts related to credit quality

682,014 5,245,149 580,169 122,267 6,629,599

Total $ 4,825,997 $ 17,643,759 $ 4,377,111 $ 2,852,341 $ 29,699,208

Impaired loans .

2 unchanged sentences

Impaired loans, consisting of non-accrual commercial and industrial loans, commercial real estate loans over $ 250 thousand and all loans which were modified in troubled debt restructurings, were individually evaluated for impairment.

PCI loans were not classified as impaired loans because they are accounted for on a pool basis.

PCI loans were not classified as impaired loans because they are accounted for on a pool basis and were paying as expected.

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

Allowance Recorded

Allowance Total

Investment Unpaid

Balance Related

(in thousands)

3 unchanged sentences

Commercial real estate 26,046 24,842 50,888 51,258 1,338

Construction 354 — 354 354 —

Total commercial real estate loans 26,400 24,842 51,242 51,612 1,338

1 unchanged sentence

Consumer loans:

Home equity 366 487 853 956 58

Total consumer loans 366 487 853 956 58

Total $ 47,219 $ 116,425 $ 163,644 $ 179,243 $ 38,576

Purchased Credit-Impaired Loans

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

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

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

Three Months Ended

June 30, 2019

Six Months Ended

June 30, 2019

September 30, 2019 Nine Months Ended

September 30, 2019

(in thousands)

Balance, beginning of period $ 853,887 $ 875,958

Net increase in expected cash flows

Accretion ( 47,475 ) ( 155,981 )

Net (decrease) increase in expected cash flows ( 58,268 ) 28,167

Balance, end of period $ 748,144 $ 748,144

Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill as allocated to our business segments, or reporting units thereof, for goodwill impairment analysis were:

The changes in the carrying amount of goodwill as allocated to Valley's business segments, or reporting units thereof, for goodwill impairment analysis were:

Business Segment / Reporting Unit*

Management Consumer

Lending Commercial

Lending Investment

Management Total

(in thousands)

1 unchanged sentence

Goodwill from business combinations — 121 1,654 9 1,784

Balance at June 30, 2020

Balance at September 30, 2020 $ 21,218 $ 306,693 $ 827,421 $ 220,077 $ 1,375,409

* 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.

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.

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

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

See Note 2 for details.

See Note 2 for further details.

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 :

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

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

Assets Accumulated

Amortization Valuation

Allowance Net

(in thousands)

June 30, 2020

September 30, 2020

Loan servicing rights $ 100,456 $ ( 77,404 ) $ ( 1,013 ) $ 22,039

Core deposits 101,160 ( 50,472 ) — 50,688

Other 3,945 ( 2,799 ) — 1,146

Total other intangible assets $ 205,561 $ ( 130,675 ) $ ( 1,013 ) $ 73,873

2 unchanged sentences

Core deposits 101,160 ( 40,384 ) — 60,776

Other 3,945 ( 2,634 ) — 1,311

Total other intangible assets $ 199,932 $ ( 113,113 ) $ ( 47 ) $ 86,772

3 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.

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.

Valley recorded net impairment charges on its loan servicing rights totaling $ 188 thousand and $ 966 thousand for the three and nine months ended September 30, 2020, respectively.

Valley recorded net impairment charges on its loan servicing rights totaling $ 64 thousand and net recoveries of impairment charges on its loan servicing rights totaling $ 20 thousand for the three and nine months ended September 30, 2019, respectively.

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

2 unchanged sentences

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

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

No impairment was recognized during the three and nine months ended September 30, 2020 and 2019.

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

Loan Servicing

Deposits Other

(in thousands)

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.

2020 $ 1,477 $ 3,275 $ 55

2021 4,980 11,607 206

2022 3,789 9,876 191

2023 2,869 8,146 131

2024 2,205 6,537 117

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

Borrowed Funds

Short-Term Borrowings

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

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

September 30,

2020 December 31,

(in thousands)

FHLB advances $ 1,275,000 $ 940,000

Federal funds purchased

Securities sold under agreements to repurchase 155,726 153,280

Total short-term borrowings $ 1,430,726 $ 1,093,280

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 .

The contractual weighted average interest rate for short-term borrowings was 0.44 percent and 1.68 percent at September 30, 2020 and December 31, 2019, respectively.

Short-term FHLB advances totaling $ 1.1 billion were hedged with cash flow interest rate swaps during the nine months ended September 30, 2020.

See Note 12 for additional details.

Long-Term Borrowings

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

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

September 30,

2020 December 31,

(in thousands)

FHLB advances, net (1)

$ 2,148,633 $ 1,480,012

Subordinated debt, net (2)

403,936 292,414

Securities sold under agreements to repurchase 300,000 350,000

Total long-term borrowings $ 2,852,569 $ 2,122,426

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.

(1) FHLB advances are presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling $ 503 thousand and $ 2.8 million at September 30, 2020 and December 31, 2019, respectively.

(2) Subordinated debt is presented net of unamortized debt issuance costs totaling $ 2.8 million and $ 1.2 million at September 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.

Long-term FHLB advances had a weighted average interest rate of 2.11 percent and 2.23 percent at September 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 June 30, 2020 are scheduled for contractual balance repayments as follows:

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

(in thousands)

2020 $ 25,000

Thereafter 279,785

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

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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

Long-term repos had a weighted average interest rate of 3.33 percent and 1.94 percent at September 30, 2020 and December 31, 2019, respectively.

Long-term repos outstanding as of September 30, 2020 have maturities in 2021.

In September 2020, Valley prepaid $ 50 million of long-term institutional repo borrowings with an interest rate of 3.70 percent and an original contractual maturity date in January 2022.

The debt prepayment was funded by excess cash liquidity.

The transaction was accounted for as an early debt extinguishment resulting in a loss, reported within non-interest expense, of $ 2.4 million for the third quarter 2020.

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.

On June 5, 2020, Valley issued $ 115.0 million of 5.25 percent Fixed-to-Floating Rate subordinated notes due June 15, 2030 and callable in whole or in part on or after June 15, 2025 or upon the occurrence of certain events.

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.

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

• $ 100 million aggregate principal amount of 4.55 percent subordinated notes due June 30, 2025 with no call dates or prepayments allowed except upon the occurrence of certain events;

• $ 125 million aggregate principal amount of 5.125 percent subordinated notes due September 27, 2023 with no call dates or prepayments allowed except upon the occurrence of certain events;

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

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

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

As of September 30, 2020, 3.1 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 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.

Valley granted 26 thousand and 42 thousand of time-based RSUs during the three months ended September 30, 2020 and 2019, respectively, and 1.2 million and 868 thousand during the nine months ended September 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 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.

The average grant date fair value of the RSUs granted during the nine months ended September 30, 2020 and 2019 was $ 10.41 per share and $ 10.43 per share, respectively.

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

The RSUs “cliff” vest after three years based on the cumulative performance of Valley during that time period.

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

Valley recorded total stock-based compensation expense of $ 4.1 million and $ 3.2 million for the three months ended September 30, 2020 and 2019, respectively, and $ 12.3 million and $ 11.5 million for the nine months ended September 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 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 .

As of September 30, 2020, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $ 21.3 million and will be recognized over an average remaining vesting period of 1.84 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 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 .

During the nine months ended September 30, 2020, Valley entered into new interest rate swap agreements designated as cash flow hedges with a total notional amount of $ 1.1 billion.

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

Valley is required to pay fixed-rates of interest ranging from 0.05 percent to 0.67 percent and receives variable rates of interest that reset quarterly based on three-month LIBOR.

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

Expiration dates for the swaps range from April 2021 to August 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

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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Derivatives not designated as hedges are not entered into for speculative purposes.

Under a program, Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies.

Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies.

These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that Valley minimizes its net risk exposure resulting from such transactions.

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

As these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans.

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

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.

At September 30, 2020, Valley h ad 23 cred it swaps with an aggregate notional amount of $ 181.5 million related to risk participation agreements.

At September 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.

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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:

June 30, 2020

December 31, 2019

Other Liabilities

Notional Amount

Other Liabilities

Notional Amount

September 30, 2020 December 31, 2019

Fair Value Fair Value

Other Assets Other Liabilities Notional Amount Other Assets Other Liabilities Notional Amount

(in thousands)

1 unchanged sentence

Cash flow hedge interest rate swaps

$ — $ 4,233 $ 1,175,000 $ — $ 1,484 $ 180,000

Fair value hedge interest rate swaps — 59 7,079 — 229 7,281

Total derivatives designated as hedging instruments

$ — $ 4,292 $ 1,182,079 $ — $ 1,713 $ 187,281

Derivatives not designated as hedging instruments:

Interest rate swaps and embedded derivatives

$ 455,404 $ 182,741 $ 8,306,557 $ 158,382 $ 42,020 $ 4,113,106

Mortgage banking derivatives 161 3,016 521,418 150 193 142,760

Total derivatives not designated as hedging instruments

$ 455,565 $ 185,757 $ 8,827,975 $ 158,532 $ 42,213 $ 4,255,866

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 June 30, 2020 and December 31, 2019 .

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:

Gains and (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:

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

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 $ 5.9 million and $ 3.7 million at June 30, 2020 and December 31, 2019 , respectively.

Amount of loss reclassified from accumulated other comprehensive loss to interest expense $ ( 1,586 ) $ ( 453 ) $ ( 1,763 ) $ ( 1,126 )

Amount of gain (loss) recognized in other comprehensive income 95 108 3,158 ( 1,404 )

The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 4.7 million and $ 3.7 million at September 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.

2 unchanged sentences

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

3 unchanged sentences

Interest income $ ( 88 ) $ ( 48 ) $ ( 170 ) $ ( 121 )

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 June 30, 2020 and December 31, 2019 .

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

Carrying Amount of the Hedged Asset

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

June 30, 2020

December 31, 2019

June 30, 2020

December 31, 2019

Line Item in the Statement of Financial Condition in Which the Hedged Item is Included Carrying Amount of the Hedged Asset Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset

September 30, 2020 December 31, 2019 September 30, 2020 December 31, 2019

(in thousands)

Loans $ 7,138 $ 7,510 $ 59 $ 229

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

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

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Other non-interest expense $ 600 $ ( 468 ) $ 2,105 $ ( 1,225 )

Other non-interest income included fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaling $ 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.

Other non-interest income included fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaling $ 19.2 million and $ 13.9 million for the three months ended September 30, 2020 and 2019, respectively, and $ 48.1 million and $ 23.4 million for the nine months ended September 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.

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 .

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

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

As of September 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, w as $ 184.1 million.

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

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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 June 30, 2020 and December 31, 2019 .

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

Gross Amounts Not Offset

Gross Amounts

Recognized Gross Amounts

Offset Net Amounts

Presented Financial

Instruments Cash

Collateral Net

(in thousands)

June 30, 2020

September 30, 2020

Interest rate swaps $ 455,404 $ — $ 455,404 $ — $ — $ 455,404

1 unchanged sentence

Repurchase agreements 300,000 — 300,000 ( 300,000 ) * — —

Total $ 487,033 $ — $ 487,033 $ ( 300,000 ) $ ( 184,050 ) $ 2,983

December 31, 2019

2 unchanged sentences

Repurchase agreements 350,000 — 350,000 ( 350,000 ) * — —

Total $ 393,733 $ — $ 393,733 $ ( 350,118 ) $ ( 16,881 ) $ 26,734

* Represents the fair value of non-cash pledged investment securities.

2 unchanged sentences

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.

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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 June 30, 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 September 30, 2020 and December 31, 2019:

September 30,

2020 December 31,

(in thousands)

3 unchanged sentences

Total tax credit investments, net

$ 71,554 $ 84,130

Other Liabilities:

2 unchanged sentences

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

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 :

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

Three Months Ended

Six Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

3 unchanged sentences

Total reduction in income tax expense

$ 3,079 $ 3,568 $ 9,546 $ 11,950

Amortization of Tax Credit Investments:

1 unchanged sentence

Affordable housing tax credit investment impairment losses

585 857 1,668 2,381

Other tax credit investment losses 12 1,093 1,235 4,589

1 unchanged sentence

Total amortization of tax credit investments recorded in non-interest expense

$ 2,759 $ 4,385 $ 9,403 $ 16,421

Business Segments

3 unchanged sentences

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.

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

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

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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

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

Three Months Ended September 30, 2020

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

($ in thousands)

Average interest earning assets

$ 7,126,157 $ 25,389,107 $ 5,252,446 $ — $ 37,767,710

Interest income $ 63,956 $ 251,920 $ 22,513 $ ( 1,046 ) $ 337,343

3 unchanged sentences

Net interest income (loss) after provision for credit losses

49,525 192,953 15,897 ( 6,197 ) 252,178

Non-interest income 23,531 20,421 ( 1,304 ) 6,624 49,272

3 unchanged sentences

Return on average interest earning assets (pre-tax)

Three Months Ended June 30, 2019

1.94 % 1.91 % 0.08 % N/A 1.50 %

Three Months Ended September 30, 2019

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

($ in thousands)

Average interest earning assets

$ 6,858,216 $ 19,278,529 $ 4,357,824 $ — $ 30,494,569

Interest income $ 68,253 $ 230,183 $ 31,999 $ ( 1,174 ) $ 329,261

3 unchanged sentences

Net interest income (loss) after provision for credit losses

42,698 157,277 17,034 ( 5,084 ) 211,925

Non-interest income 15,108 15,057 2,687 8,298 41,150

3 unchanged sentences

Return on average interest earning assets (pre-tax)

Six Months Ended June 30, 2020

1.07 % 1.90 % 0.62 % N/A 1.41 %

Nine Months Ended September 30, 2020

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

($ in thousands)

Average interest earning assets

$ 7,187,839 $ 24,334,429 $ 5,221,538 $ — $ 36,743,806

Interest income $ 199,018 $ 771,947 $ 81,905 $ ( 3,209 ) $ 1,049,661

3 unchanged sentences

Net interest income (loss) after provision for credit losses

143,527 545,006 52,001 ( 16,297 ) 724,237

Non-interest income 55,383 52,192 7,661 20,263 135,499

3 unchanged sentences

Return on average interest earning assets (pre-tax)

Six Months Ended June 30, 2019

1.49 % 1.79 % 0.42 % N/A 1.40 %

Nine Months Ended September 30, 2019

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

($ in thousands)

Average interest earning assets

$ 6,812,001 $ 18,839,194 $ 4,330,504 $ — $ 29,981,699

Interest income $ 203,897 $ 679,833 $ 97,189 $ ( 3,692 ) $ 977,227

3 unchanged sentences

Net interest income (loss) after provision for credit losses

129,407 473,798 53,004 ( 15,502 ) 640,707

Non-interest income 41,927 29,527 7,365 97,607 176,426

3 unchanged sentences

Return on average interest earning assets (pre-tax)

1.10 % 1.87 % 0.69 % N/A 1.70 %

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