What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-07 compared with 2020-11-06 · 255 added, 690 removed, 998 unchanged (49% of the section changed)

3 unchanged sentences

(in thousands, except for share data)

September 30,

2021 December 31,

5 unchanged sentences

Available for sale debt securities 1,116,221 1,339,473

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

Held to maturity debt securities (net of allowance for credit losses of $ 1,070 at March 31, 2021 and $ 1,428 at December 31, 2020)

2,389,956 2,171,583

26 unchanged sentences

50,000,000 authorized shares:

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

Series A ( 4,600,000 shares issued at March 31, 2021 and December 31, 2020)

111,590 111,590

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

Series B ( 4,000,000 shares issued at March 31, 2021 and December 31, 2020)

98,101 98,101

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

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

issued 405,801,304 shares at March 31, 2021 and 403,881,488 shares at December 31, 2020)

142,435 141,746

2 unchanged sentences

Accumulated other comprehensive loss ( 17,005 ) ( 7,718 )

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

Treasury stock, at cost ( 3,766 common shares at March 31, 2021 and 22,490 common shares at December 31, 2020)

( 50 ) ( 225 )

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Interest Income

5 unchanged sentences

Interest on federal funds sold and other short-term investments 224 1,465

420 1,686 2,296 3,947

Total interest income 331,798 363,793

5 unchanged sentences

Interest on long-term borrowings and junior subordinated debentures 15,155 16,420

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

Total interest expense 39,131 98,454

8 unchanged sentences

Losses on securities transactions, net ( 118 ) ( 40 )

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

Fees from loan servicing 2,899 2,748

Gains on sales of loans, net 3,513 4,550

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

(Losses) gains on sales of assets, net ( 196 ) 121

Bank owned life insurance 2,331 3,142

7 unchanged sentences

Professional and legal fees 6,272 6,087

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

Amortization of tax credit investments 2,744 3,228

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Earnings Per Common Share:

10 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Net income $ 115,710 $ 87,268

Other comprehensive income, net of tax:

Other comprehensive (loss) income, net of tax:

Unrealized gains and losses on available for sale securities

8 unchanged sentences

Amortization of actuarial net loss 280 172

Total other comprehensive income 155 8,663 27,431 42,963

Total other comprehensive (loss) income ( 9,287 ) 25,648

Total comprehensive income $ 106,423 $ 112,916

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the Nine Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

Common Stock Accumulated

6 unchanged sentences

Balance - December 31, 2020 $ 209,691 403,859 $ 141,746 $ 3,637,468 $ 611,158 $ ( 7,718 ) $ ( 225 ) $ 4,592,120

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 — — — — 115,710 — — 115,710

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

— — — — — ( 9,287 ) — ( 9,287 )

9 unchanged sentences

Balance - March 31, 2021 $ 209,691 405,798 $ 142,435 $ 3,651,948 $ 672,651 $ ( 17,005 ) $ ( 50 ) $ 4,659,670

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

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

For the Three Months Ended March 31, 2020

Common Stock Accumulated

8 unchanged sentences

2016-13 — — — — ( 28,187 ) — — ( 28,187 )

Adjustment due to the adoption of ASU No.

— — — — ( 1,446 ) — — ( 1,446 )

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

1 unchanged sentence

Other comprehensive income, net of tax — — — — — 25,648 — 25,648

— — — — — 16,174 — 16,174

Cash dividends declared:

6 unchanged sentences

Effect of stock incentive plan, net — 466 190 1,828 ( 2,065 ) — 279 232

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

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

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)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

Net income $ 115,710 $ 87,268

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

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

Depreciation and amortization 13,848 14,734

6 unchanged sentences

Gains on sales of loans, net ( 3,513 ) ( 4,550 )

Net impairment losses on securities recognized in earnings — 2,928

Originations of loans held for sale ( 287,765 ) ( 147,981 )

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

Losses (gains) on sales of assets, net 196 ( 121 )

Net change in:

3 unchanged sentences

Accrued expenses and other liabilities ( 111,562 ) 122,426

Net cash (used in) provided by operating activities ( 19,520 ) 109,482

Net cash provided by (used in) operating activities 313,398 ( 115,977 )

Cash flows from investing activities:

2 unchanged sentences

Purchases ( 1,878 ) ( 5,214 )

Sales 27,867 —

Held to maturity debt securities:

3 unchanged sentences

Purchases — ( 238,488 )

Sales 41,134 —

Maturities, calls and principal repayments 164,235 88,688

7 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from financing activities:

31 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 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.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at March 31, 2021 and for all periods presented have been made.

The results of operations for the three months ended on March 31, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year or any subsequent interim period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

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These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2020.

Correction of an Immaterial Error.

Valley's previously reported consolidated statement of cash flows for the three months ended March 31, 2020 was revised to reflect an adjustment for an intercompany account that was not properly eliminated in consolidation.

The adjustment resulted in a decrease in the “Net change in deposits” line item from a decrease of $ 168.8 million, to a decrease of $ 200.0 million and a corresponding decrease in the “Net change in cash and cash equivalents” line item, from an increase of $ 570.3 million to an increase of $ 539.1 million.

The effect of these revisions was immaterial to the interim period.

Significant Estimates.

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

Impact of COVID-1 9.

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

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

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

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

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

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

Business Combinations

On December 1, 2019, Valley completed its acquisition of Oritani Financial Corp.

(Oritani) and its wholly-owned subsidiary, Oritani Bank.

Oritani had approximately $ 4.3 billion in assets, $ 3.4 billion in net loans and $ 2.9 billion in deposits, after purchase accounting adjustments, and a branch network of 26 locations.

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

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

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

Merger expenses totaled $ 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.

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

If additional information (that existed as of the acquisition date) becomes available, the fair value estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date.

Earnings Per Common Share

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

The following table shows the calculation of both basic and diluted earnings per common share for the three months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands, except for share data)

9 unchanged sentences

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

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

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.

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

Potential anti-dilutive weighted common shares were immaterial for the three months ended March 31, 2021 as compared to 1.9 million shares for the three months ended March 31, 2020.

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:

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three months ended March 31, 2021:

Components of Accumulated Other Comprehensive Loss Total

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(in thousands)

Balance at June 30, 2020 $ 34,961 $ ( 5,936 ) $ ( 33,963 ) $ ( 4,938 )

Balance at December 31, 2020 $ 33,290 $ ( 3,906 ) $ ( 37,102 ) $ ( 7,718 )

Other comprehensive (loss) income before reclassification ( 10,436 ) 174 — ( 10,262 )

2 unchanged sentences

Other comprehensive (loss) income, net

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

Components of Accumulated Other Comprehensive Loss Total

Comprehensive

Unrealized Gains

and Losses on

Available for Sale

(AFS) Securities Unrealized Gains

and Losses on

Derivatives Defined

(in thousands)

Balance at December 31, 2019 $ 5,822 $ ( 3,729 ) $ ( 34,307 ) $ ( 32,214 )

Other comprehensive income (loss) before reclassification

( 10,392 ) 825 280 ( 9,287 )

Amounts reclassified from other comprehensive income

94 1,257 515 1,866

Other comprehensive income (loss), net

27,913 ( 997 ) 515 27,431

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

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:

Balance at March 31, 2021 $ 22,898 $ ( 3,081 ) $ ( 36,822 ) $ ( 17,005 )

The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three months ended March 31, 2021 and 2020:

Amounts Reclassified from

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended September 30,

Components of Accumulated Other Comprehensive Loss 2021 2020 Income Statement Line Item

11 unchanged sentences

Total reclassifications, net of tax $ ( 975 ) $ ( 637 )

* Amortization of net loss is included in the computation of net periodic pension cost recognized within other non-interest expense.

* Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense.

New Authoritative Accounting Guidance

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Accounting Standards Update (ASU) No.

2016-13, "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" amends the accounting guidance on the impairment of financial instruments.

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

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

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

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

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

Valley adopted ASU No.

2016-13 on January 1, 2020 using the modified retrospective approach for all financial assets measured at amortized cost (except for PCD loans) and off-balance sheet credit exposures.

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

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

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

The remaining non-credit discount of $ 97.7 million related to PCD loans is accreted into interest income over the life of the loans at the effective interest rate effective January 1, 2020.

The non-PCD loan related increase to the allowance for credit losses of $ 38.8 million, including the reserves for unfunded loan commitments and held to maturity debt securities, was offset in shareholders' equity and deferred tax assets.

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

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

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

Simplifying the Test for Goodwill Impairment" eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test guidance) to measure a goodwill impairment charge.

Instead, an entity will be required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current guidance).

In addition, ASU No.

2017-04 eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

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

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

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

New Accounting Guidance issued in 2020

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

1 unchanged sentence

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.

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.

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

A one-time election to sell and/or transfer held-to-maturity debt securities that reference a rate affected by reference rate reform is also allowed.

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.

Valley adopted ASU No.

2020-08 on January 1, 2021 and the new guidance did not have a significant impact on Valley’s consolidated financial statements.

New Accounting Guidance issued in 2021

2021-01 "Reference Rate Reform (Topic 848)" extends some of Accounting Standards Codification Topic 848’s optional expedients to derivative contracts impacted by the discounting transition, including for derivatives that do not reference LIBOR or other reference rates that are expected to be discontinued.

2021-01 is effective for all entities immediately upon issuance and may be elected retrospectively to eligible modifications as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications made on or after any date within the interim period including January 7, 2021 and it can be applied through December 31, 2022, similar to the other reference rate reform relief provided under Topic 848.

2021-01 is not expected to have a significant impact on Valley’s consolidated financial statements.

Fair Value Measurement of Assets and Liabilities

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

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

The following tables present the assets and liabilities that are measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at March 31, 2021 and December 31, 2020.

The assets presented under “non-recurring fair value measurements” in the tables below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized).

2021 Fair Value Measurements at Reporting Date Using:

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Investment securities:

Equity securities at fair value $ 41,410 $ 41,410 $ — $ —

Equity securities (1)

$ 26,379 $ 18,600 $ — $ —

Available for sale:

3 unchanged sentences

Residential mortgage-backed securities 1,090,022 — 1,090,022 —

Trust preferred securities — — — —

Corporate and other debt securities 91,951 — 91,951 —

Total available for sale 1,339,473 51,393 1,287,265 815

Trading securities — — — —

Loans held for sale (2)

11 unchanged sentences

Total $ 58,218 $ — $ — $ 58,218

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

(1) Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $ 10.0 million and $ 7.8 million at March 31, 2021 and December 31, 2020, respectively.

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.

(2) Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $ 226.6 million and $ 286.4 million at March 31, 2021 and December 31, 2020, respectively.

(3) Derivative financial instruments are included in this categor y.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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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.

Available for sale debt securities.

Treasury securities are reported at fair value utilizing Level 1 inputs.

The majority of other investment securities are reported at fair value utilizing Level 2 inputs.

The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities.

The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley

has historically transacted both purchases and sales of investment securities.

Prices obtained from these sources include prices derived from market quotations and matrix pricing.

2 unchanged sentences

Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data.

In addition, Valley reviews the volume and level of activity for all available for securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.

In addition, Valley reviews the volume and level of activity for all available for sale securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.

In calculating the fair value of one impaired special revenue bond (within obligations of states and political subdivisions in the table above) under Level 3, Valley prepared its best estimate of the present value of the cash flows to determine an internal price estimate.

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

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

A quoted price received from an independent pricing service was weighted with the internal price estimate to determine the fair value of the instrument at March 31, 2021 and December 31, 2020.

Loans held for sale.

2 unchanged sentences

The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages.

Non-performance risk did not materially impact the fair value of mortgage loans held for sale at September 30, 2020 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 March 31, 2021 and December 31, 2020 based on the short duration these assets were held, and the 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 September 30, 2020 and December 31, 2019), is determined based on the current market prices for similar instruments.

The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR, Overnight Index Swap and Secured Overnight Financing Rate (SOFR) curves for all cleared derivatives.

The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at March 31, 2021 and December 31, 2020), is determined based on the current market prices for similar instruments.

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

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

The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at March 31, 2021 and December 31, 2020.

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

The following valuation techniques were used for certain non-financial assets measured at fair value on a nonrecurring 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.

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

Collateral Dependent Loans .

3 unchanged sentences

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

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.

At March 31, 2021, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses based on the fair value of the underlying collateral.

At March 31, 2021, collateral dependent loans, primarily consisting of taxi medallion loans, with a total amortized cost of $ 111.5 million were reduced by specific allowance for loan losses allocations totaling $ 72.6 million to a reported total net carrying amount of $ 38.9 million.

Loan servicing rights.

2 unchanged sentences

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

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.

At March 31, 2021, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 16.9 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 September 30, 2020, certain loan servicing rights were re-measured at fair value totaling $ 14.0 million.

At March 31, 2021, certain loan servicing rights were re-measured at fair value totaling $ 682 thousand.

See Note 8 for additional information.

Foreclosed assets .

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

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

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

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

The adjustments to the appraisals of foreclosed assets ranged from 2.9 percent to 18 percent at March 31, 2021.

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

Hierarchy September 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 March 31, 2021 and December 31, 2020 were as follows:

Hierarchy March 31, 2021 December 31, 2020

Amount Fair Value Carrying

6 unchanged sentences

Level 3 3,249 3,249 2,999 2,999

Investment securities held to maturity:

Held to maturity debt securities:

Treasury securities Level 1 68,031 74,179 68,126 75,484

7 unchanged sentences

Corporate and other debt securities Level 2 38,750 39,244 40,750 41,421

Total investment securities held to maturity (2)

Total held to maturity debt securities (2)

2,391,026 2,413,361 2,173,011 2,227,612

18 unchanged sentences

Equity Securities

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.

Equity securities carried at fair value totaled $ 33.0 million and $ 29.4 million at March 31, 2021 and December 31, 2020, respectively.

At March 31, 2021, Valley's equity securities consisted of one publicly traded money market mutual fund, CRA investments both publicly traded and privately held and, to a lesser extent, equity securities 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 September 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 March 31, 2021 and December 31, 2020 were as follows:

Losses Fair Value

(in thousands)

September 30, 2020

March 31, 2021

Treasury securities $ 50,027 $ 1,172 $ — $ 51,199

6 unchanged sentences

Corporate and other debt securities 87,960 2,076 ( 82 ) 89,954

Total investment securities available for sale $ 1,479,966 $ 47,999 $ ( 1,401 ) $ 1,526,564

Total $ 1,084,582 $ 33,055 $ ( 1,416 ) $ 1,116,221

December 31, 2020

7 unchanged sentences

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

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

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

The age of unrealized losses and fair value of the related available for sale debt securities at March 31, 2021 and December 31, 2020 were as follows:

Twelve Months More than

4 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

government agency securities $ — $ — $ 1,430 $ ( 12 ) $ 1,430 $ ( 12 )

Obligations of states and political subdivisions:

Obligations of states and state agencies

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

Municipal bonds 6,847 ( 6 ) — — 6,847 ( 6 )

Total obligations of states and political subdivisions

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

Residential mortgage-backed securities 67,489 ( 984 ) 23,251 ( 332 ) 90,740 ( 1,316 )

2 unchanged sentences

December 31, 2020

Treasury securities $ 25,019 $ ( 21 ) $ — $ — $ 25,019 $ ( 21 )

government agency securities $ — $ — $ 1,479 $ ( 13 ) $ 1,479 $ ( 13 )

8 unchanged sentences

Total $ 60,712 $ ( 601 ) $ 30,400 $ ( 318 ) $ 91,112 $ ( 919 )

Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 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.

Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 61 and 58 at March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the fair value of available for sale debt securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $ 691.4 million.

The contractual maturities of available for sale debt securities at March 31, 2021 are set forth in the following table.

Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties.

Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.

September 30, 2020

March 31, 2021

(in thousands)

4 unchanged sentences

Residential mortgage-backed securities 852,398 878,336

Total investment securities available for sale $ 1,479,966 $ 1,526,564

Total $ 1,084,582 $ 1,116,221

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

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

The weighted average remaining expected life for residential mortgage-backed securities available for sale was 3.4 years at March 31, 2021.

Impairment Analysis of Available For Sale Debt Securities

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

These type 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.

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

These types of securities may pose a higher risk of future impairment charges by Valley as a result of the 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 the COVID-19 pandemic.

Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis.

In performing an assessment of whether any decline in fair value is due to a credit loss, Valley considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level such as credit deterioration of the issuer or collateral underlying the security.

In assessing the impairment, Valley compares the present value of cash flows expected to be collected with the amortized cost basis of the security.

If it is determined that the decline in fair value was due to credit losses, an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis.

The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax.

Valley also assesses the intent to sell the securities (as well as the likelihood of a near-term recovery).

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

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

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

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

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

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

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

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

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

Valley 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:

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

Val ley has evaluated available for sale debt securities that are in an unrealized loss position as of March 31, 2021 included in the table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors.

Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the three months ended March 31, 2021 and, as a result, there was no allowance for credit losses for available for sale debt securities at March 31, 2021.

Held to Maturity Debt Securities

The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at September 30, 2020 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 March 31, 2021 and December 31, 2020 were as follows:

Losses Fair Value

(in thousands)

September 30, 2020

March 31, 2021

Treasury securities $ 68,031 $ 6,148 $ — $ 74,179

7 unchanged sentences

Corporate and other debt securities 38,750 566 ( 72 ) 39,244

Total investment securities held to maturity $ 2,170,476 $ 62,994 $ ( 8,499 ) $ 2,224,971

Total $ 2,391,026 $ 47,947 $ ( 25,612 ) $ 2,413,361

December 31, 2020

8 unchanged sentences

Corporate and other debt securities 40,750 672 ( 1 ) 41,421

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

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:

Total $ 2,173,011 $ 62,326 $ ( 7,725 ) $ 2,227,612

The age of unrealized losses and fair value of related debt securities held to maturity at March 31, 2021 and December 31, 2020 were as follows:

Twelve Months More than

4 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

Obligations of states and political subdivisions:

1 unchanged sentence

$ 809 $ ( 30 ) $ 5,521 $ ( 111 ) $ 6,330 $ ( 141 )

Municipal bonds 1,328 ( 2 ) — — 1,328 ( 2 )

Total obligations of states and political subdivisions

6 unchanged sentences

December 31, 2020

government agency securities $ 5,183 $ ( 41 ) $ — $ — $ 5,183 $ ( 41 )

Obligations of states and political subdivisions:

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

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

4 unchanged sentences

Total $ 37,894 $ ( 351 ) $ 31,100 $ ( 7,374 ) $ 68,994 $ ( 7,725 )

Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 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.

Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 39 and 13 at March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $ 1.5 billion.

The contractual maturities of investments in debt securities held to maturity at March 31, 2021 are set forth in the table below.

Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties.

Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.

September 30, 2020

March 31, 2021

(in thousands)

4 unchanged sentences

Residential mortgage-backed securities 1,787,211 1,797,741

Total investment securities held to maturity $ 2,170,476 $ 2,224,971

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 2.5 years at September 30, 2020.

Total $ 2,391,026 $ 2,413,361

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

The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 5.8 years at March 31, 2021.

Credit Quality Indicators

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

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

The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at March 31, 2021 and December 31, 2020.

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

(in thousands)

September 30, 2020

March 31, 2021

Treasury securities $ 68,031 $ — $ — $ — $ 68,031

8 unchanged sentences

Corporate and other debt securities — 8,000 — 30,750 38,750

Total investment securities held to maturity $ 2,041,681 $ 5,000 $ 5,669 $ 118,126 $ 2,170,476

Total $ 2,240,796 $ 8,000 $ 5,632 $ 136,598 $ 2,391,026

December 31, 2020

11 unchanged sentences

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

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.

At March 31, 2021, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the "non-rated" category included TEMS securities secured by Ginnie Mae securities.

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

4 unchanged sentences

Treasury securities, U.S.

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

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

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

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

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

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

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

At September 30, 2020, 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.

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

At March 31, 2021, held to maturity debt securities were carried net of allowance for credit losses totaling $ 1.1 million and $ 1.4 million at March 31, 2021 and December 31, 2020, respectively.

Valley recorded a credit

(negative) provision for credit losses of $ 358 thousand for the three months ended March 31, 2021 and a provision for credit losses of $ 759 thousand for the three months ended March 31, 2020.

There wer e no n et 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 September 30, 2020 and December 31, 2019 was as follows:

September 30, 2020 December 31, 2019

The detail of the loan portfolio as of March 31, 2021 and December 31, 2020 was as follows:

March 31, 2021 December 31, 2020

(in thousands)

Commercial and industrial:

Commercial and industrial $ 4,784,017 $ 4,709,569

Commercial and industrial PPP loans * 2,364,627 2,152,139

Total commercial and industrial loans 7,148,644 6,861,708

Commercial real estate:

8 unchanged sentences

Total loans $ 32,686,416 $ 32,217,112

* 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.

* Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $ 57.2 million and $ 43.2 million at March 31, 2021 and December 31, 2020, respectively.

Total loans includes net unearned discounts and deferred loan fees of $ 108.6 million and $ 95.8 million at March 31, 2021 and December 31, 2020, respectively.

Net unearned discounts and deferred loan fees include the non-credit discount on purchased credit deterioration (PCD) loans and net unearned fees related to PPP loans at March 31, 2021 and December 31, 2020.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 92.4 million and $ 90.2 million at March 31, 2021 and December 31, 2020, respectively, and is presented separately in the consolidated statements of financial condition .

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

Excluding the loan transfers, there were no other sales of loans from the held for investment portfolio during the three months ended March 31, 2021 and 2020.

Credit Risk Management

2 unchanged sentences

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.

A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification,

concentrations of credit, loan delinquencies, non-performing, and potential problem loans.

Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through cyclical economic circumstances.

1 unchanged sentence

Credit Quality

Loans are deemed to be past due when the contractually required principal and interest payments have not been received as they become due.

Loans are placed on non-accrual status generally, when they become 90 days past due and the full and timely collection of principal and interest becomes uncertain.

When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income.

Cash collections from non-accrual loans are generally applied against principal, and no interest income is recognized on these loans until the principal balance has been determined to be fully collectible.

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

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

The following table presents past due, current and non-accrual loans without an allowance for credit losses by loan portfolio class at March 31, 2021 and December 31, 2020:

Past Due and Non-Accrual Loans

6 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

Commercial and industrial

5 unchanged sentences

Total commercial real estate loans 11,655 5,455 — 54,075 71,185 18,638,773 18,709,958 41,706

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

Residential mortgage 16,004 2,233 2,472 33,655 54,364 4,006,128 4,060,492 17,218

6 unchanged sentences

Total $ 36,902 $ 10,477 $ 5,404 $ 204,010 $ 256,793 $ 32,429,623 $ 32,686,416 $ 69,590

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

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

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

Past Due and Non-Accrual Loans

3 unchanged sentences

Total Past Due Loans

Current Non-PCI Loans PCI Loans

Current Loans Total Loans Non-Accrual Loans Without Allowance for Credit Losses

(in thousands)

5 unchanged sentences

Total commercial real estate loans 35,345 1,326 993 46,963 84,627 18,386,196 18,470,823 32,416

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

Residential mortgage 17,717 10,351 3,170 25,817 57,055 4,126,688 4,183,743 11,610

13 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 September 30, 2020:

The following table presents the internal loan classification risk by loan portfolio class by origination year based on the most recent analysis performed at March 31, 2021 and December 31, 2020:

Amortized Cost Basis by Origination Year

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

March 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total

(in thousands)

15 unchanged sentences

Total construction $ 55,347 $ 154,851 $ 100,871 $ 106,812 $ 15,422 $ 67,064 $ 1,285,964 $ — $ 1,786,331

Amortized Cost Basis by Origination Year

December 31, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total

(in thousands)

Commercial and industrial

Pass $ 3,058,596 $ 605,112 $ 556,284 $ 212,215 $ 162,483 $ 337,484 $ 1,677,559 $ 350 $ 6,610,083

Special Mention 819 10,236 2,135 9,502 10,228 14,165 49,883 51 97,019

Substandard 5,215 3,876 12,481 1,798 4,215 12,965 18,913 462 59,925

Doubtful — 5,203 1 17,010 2,596 69,871 — — 94,681

Total commercial and industrial $ 3,064,630 $ 624,427 $ 570,901 $ 240,525 $ 179,522 $ 434,485 $ 1,746,355 $ 863 $ 6,861,708

Commercial real estate

Pass $ 3,096,549 $ 3,052,076 $ 2,230,047 $ 1,767,528 $ 1,798,137 $ 3,916,990 $ 199,145 $ 15,532 $ 16,076,004

Special Mention 50,193 68,203 44,336 48,813 66,845 109,295 1,705 — 389,390

Substandard 18,936 17,049 30,997 59,618 11,541 118,725 2,531 — 259,397

Doubtful — — — — — 207 — — 207

Total commercial real estate $ 3,165,678 $ 3,137,328 $ 2,305,380 $ 1,875,959 $ 1,876,523 $ 4,145,217 $ 203,381 $ 15,532 $ 16,724,998

Pass $ 145,246 $ 120,800 $ 111,174 $ 15,497 $ 47,971 $ 20,029 $ 1,199,034 $ — $ 1,659,751

Special Mention — 1,043 — — 9,996 17,414 47,311 — 75,764

Substandard — 26 246 2,628 17 380 7,013 — 10,310

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

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

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

The following table presents the amortized cost in those loan classes based on payment activity by origination year as of March 31, 2021 and December 31, 2020.

Amortized Cost Basis by Origination Year

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

March 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total

(in thousands)

15 unchanged sentences

Total Consumer $ 223,686 $ 427,098 $ 412,842 $ 258,263 $ 137,794 $ 73,527 $ 1,184,530 $ 49,582 $ 2,767,322

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

Credit exposure—

by internally assigned risk rating Special Total Non-PCI

Pass Mention Substandard Doubtful Loans

(in thousands)

December 31, 2019

Commercial and industrial $ 3,982,453 $ 33,718 $ 66,511 $ 61,301 $ 4,143,983

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

Construction 1,487,877 7,486 354 — 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.

The following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2019:

Credit exposure—

by payment activity Performing

Loans Non-Performing

Loans Total Non-PCI

Amortized Cost Basis by Origination Year

December 31, 2020 2020 2019 2018 2017 2016 Prior to 2016 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total

(in thousands)

December 31, 2019

Residential mortgage

Home equity 374,374 1,646 376,020

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

Performing $ 730,764 $ 778,161 $ 684,761 $ 582,650 $ 380,723 $ 943,616 $ 64,798 $ — $ 4,165,473

90 days or more past due — 3,085 4,212 3,464 4,144 3,365 — — 18,270

Total residential mortgage $ 730,764 $ 781,246 $ 688,973 $ 586,114 $ 384,867 $ 946,981 $ 64,798 $ — $ 4,183,743

Consumer loans

Performing $ 8,580 $ 10,634 $ 11,756 $ 8,886 $ 5,340 $ 15,393 $ 318,869 $ 50,879 $ 430,337

90 days or more past due — — — — 25 83 378 730 1,216

Total home equity 8,580 10,634 11,756 8,886 5,365 15,476 319,247 51,609 431,553

Performing 426,121 438,181 272,075 151,523 50,853 16,550 — — 1,355,303

90 days or more past due 19 108 173 223 35 94 — — 652

Total automobile 426,140 438,289 272,248 151,746 50,888 16,644 — — 1,355,955

Other Consumer

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

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

Credit exposure—

by payment activity Performing

Loans Non-Performing

Loans Total Non-PCI

(in thousands)

December 31, 2019

Commercial and industrial $ 653,997 $ 28,017 $ 682,014

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

Construction 148,692 2,609 151,301

Residential mortgage 571,006 9,163 580,169

Consumer 120,356 1,911 122,267

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

Performing 12,271 5,558 6,815 1,112 1,077 5,314 880,748 — 912,895

90 days or more past due — — — — — 22 5 408 435

Total other consumer 12,271 5,558 6,815 1,112 1,077 5,336 880,753 408 913,330

Total Consumer $ 446,991 $ 454,481 $ 290,819 $ 161,744 $ 57,330 $ 37,456 $ 1,200,000 $ 52,017 $ 2,700,838

Troubled debt restructured loans .

1 unchanged sentence

If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (TDR).

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

The majority of the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods.

The concessions rarely result in the forgiveness of principal or accrued interest.

Generally the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods.

The concessions may also involve payment deferrals but rarely result in the forgiveness of principal or accrued interest.

In addition, Valley frequently obtains additional collateral or guarantor support when modifying such loans.

1 unchanged sentence

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

Performing TDRs (not reported as non-accrual loans) totaled $ 58.1 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.

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

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

($ in thousands)

Commercial and industrial 28 $ 31,237 $ 30,938 53 $ 42,902 $ 41,772

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

Residential mortgage 1 247 247 — — —

Consumer 1 72 72 1 19 19

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

Nine Months Ended September 30,

Performing TDRs (not reported as non-accrual loans) totaled $ 67.1 million and $ 57.4 million as of March 31, 2021 and December 31, 2020, respectively.

Non-performing TDRs totaled $ 91.5 million and $ 92.8 million as of March 31, 2021 and December 31, 2020, respectively.

The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs during the three months ended March 31, 2021 and 2020.

Post-modification amounts are presented as of March 31, 2021 and 2020.

Three Months Ended March 31,

Troubled Debt Restructurings Number

11 unchanged sentences

Total 14 $ 19,639 $ 19,178 17 $ 17,007 $ 16,485

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,

The total TDRs presented in the above table had allocated allowance for loan losses of $ 3.4 million and $ 7.9 million at March 31, 2021 and 2020, respectively.

There were $ 5.1 million and $ 791 thousand of charge-offs mainly related to TDRs for the three months ended March 31, 2021 and 2020, respectively.

Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three months ended March 31, 2021 and 2020.

Loans modified as TDRs within the previous 12 months and for which there was a payment default ( 90 or more days past due) for the three months ended March 31, 2021 and 2020 were as follows:

Three Months Ended March 31,

Troubled Debt Restructurings Subsequently Defaulted Number of

5 unchanged sentences

Total 19 $ 13,039 1 $ 154

Nine Months Ended September 30,

Troubled Debt Restructurings Subsequently Defaulted Number of

Contracts Amortized Cost Number of

Contracts Recorded

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

Generally, the modification terms allow for a deferral of payments for up to 90 days, which Valley may extend for an additional 90 days.

Any extensions beyond this period were done in accordance with applicable regulatory guidance.

As of March 31, 2021, Valley had approximately $ 284 million of outstanding loans remaining in their payment deferral period under short-term modifications as compared to $ 361 million of loans in deferral at December 31, 2020.

Under the applicable guidance, none of these loans were classified as TDRs at March 31, 2021 and December 31, 2020.

Loans in Process of Foreclosure.

Other real estate owned (OREO) totaled $ 4.5 million and $ 5.1 million at March 31, 2021 and December 31, 2020, respectively.

OREO included foreclosed residential real estate properties totaling $ 413 thousand and $ 1.0 million at March 31, 2021 and December 31, 2020, 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 $ 1.9 million at March 31, 2021 and December 31, 2020, respectively.

Collateral dependent loans.

Loans are collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral.

When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated

current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process.

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

2021 December 31,

(in thousands)

2 unchanged sentences

Residential mortgage 32,144 28,176

Consumer 1 18 1 18

Home equity 49 50

Total $ 203,009 $ 176,027

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

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

As of September 30, 2020, Valley 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 $ 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.

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

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 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 September 30, 2020 and December 31, 2019:

September 30,

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

2021 December 31,

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

3 unchanged sentences

Total provision for credit losses for loans $ 9,014 $ 33,924

Allowance for Loan Losses

The allowance for loan losses is a valuation account that is deducted from loans' amortized cost basis to present the net amount expected to be collected on loans.

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

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

Reserves for loans that share common risk characteristics.

In estimating the component of the allowance on a collective basis, Valley uses a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by generating probability of default and loss given default metrics.

The metrics are based on the migration of loans from performing to loss by credit quality rating or delinquency categories using historical life-of-loan analysis periods for each loan portfolio pool, and the severity of loss, based on the aggregate net lifetime losses incurred.

The model's expected losses based on loss history are adjusted for qualitative factors.

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

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

The forecasts consist of a multi-scenario economic forecast model to estimate future credit losses that is governed by a cross-functional committee.

The committee meets each quarter to determine which economic scenarios developed by Moody's will be incorporated into the model, as well as the relative probability weightings of the selected scenarios, based upon all readily available information.

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

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

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

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

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

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

If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as the allowance for credit losses.

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

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.

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

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

September 30,

(in thousands)

Commercial and industrial $ 115,877

Commercial real estate:

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.

Commercial real estate loans are collateralized by real estate and construction loans are generally secured by the real estate to be developed and may also be secured by additional real estate to mitigate the risk.

Residential and home equity loans are collateralized by residential real estate.

Allowance for Unfunded Credit Commitments

The allowance for unfunded credit commitments generally consists of undisbursed non-cancellable lines of credit, new loan commitments and commercial letters of credit valued using a similar methodology as used for loans.

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

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

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:

The following table details the activity in the allowance for loan losses by loan portfolio segment for the three months ended March 31, 2021 and 2020:

and Industrial Commercial

3 unchanged sentences

Three Months Ended

September 30, 2020

March 31, 2021

Allowance for loan losses:

6 unchanged sentences

Three Months Ended

September 30, 2019

March 31, 2020

Allowance for losses:

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

Loans charged-off ( 527 ) ( 158 ) ( 111 ) ( 2,191 ) ( 2,987 )

Charged-off loans recovered 330 28 3 617 978

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 Commercial

Real Estate Residential

Mortgage Consumer Total

(in thousands)

Nine Months Ended

September 30, 2020

Allowance for loan losses:

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

Impact of ASU 2016-13 adoption* 15,169 49,797 20,575 6,990 92,531

Beginning balance, adjusted 119,228 95,470 25,635 13,957 254,290

Loans charged-off ( 3,360 ) ( 44 ) ( 336 ) ( 2,565 ) ( 6,305 )

3 unchanged sentences

Ending balance $ 127,437 $ 111,585 $ 29,456 $ 14,864 $ 283,342

Nine Months Ended

September 30, 2019

Allowance for losses:

Beginning balance $ 90,956 $ 49,650 $ 5,041 $ 6,212 $ 151,859

Loans charged-off ( 7,882 ) ( 158 ) ( 126 ) ( 5,971 ) ( 14,137 )

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

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

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

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

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

The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at September 30, 2020 and December 31, 2019.

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

and Industrial Commercial

2 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

Allowance for loan losses:

20 unchanged sentences

6,730,651 18,409,069 4,148,592 2,699,207 31,987,519

Loans acquired with discounts related to credit quality

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

Total $ 6,861,708 $ 18,470,823 $ 4,183,743 $ 2,700,838 $ 32,217,112

Impaired loans .

Impaired loans disclosures presented below as of December 31, 2019 represent requirements prior to the adoption of ASU No.

2016-13 on January 1, 2020.

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

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

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

Allowance Recorded

Allowance Total

Investment Unpaid

Balance Related

(in thousands)

December 31, 2019

Commercial and industrial $ 14,617 $ 86,243 $ 100,860 $ 114,875 $ 36,662

Commercial real estate:

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

Construction 354 — 354 354 —

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

Residential mortgage 5,836 4,853 10,689 11,800 518

Consumer loans:

Home equity 366 487 853 956 58

Total consumer loans 366 487 853 956 58

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

Purchased Credit-Impaired Loans

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

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

Three Months Ended

September 30, 2019 Nine Months Ended

September 30, 2019

(in thousands)

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

Accretion ( 47,475 ) ( 155,981 )

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

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

Goodwill and Other Intangible Assets

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)

Balance at December 31, 2019 $ 21,218 $ 306,572 $ 825,767 $ 220,068 $ 1,373,625

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

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

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

See Note 2 for further details.

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

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:

Goodwill totaled $ 1.4 billion at both March 31, 2021 and December 31, 2020.

There were no changes to the carrying amounts of goodwill allocated to Valley’s business segments, or reporting units thereof, for goodwill impairment analysis (as reported in Valley’s Annual Report on Form 10-K for the year ended December 31, 2020).

During the three months ended March 31, 2021, there were no triggering events that would more likely than not reduce the fair value of any reporting unit below its carrying amount.

There was no i mpairment of goodwill recognized during the three months ended March 31, 2021 and 2020.

The following table summarizes other intangible assets as of March 31, 2021 and December 31, 2020:

Assets Accumulated

2 unchanged sentences

(in thousands)

September 30, 2020

March 31, 2021

Loan servicing rights $ 106,679 $ ( 84,163 ) $ ( 74 ) $ 22,442

11 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 $ 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.

Valley recorded net recoveries of impairment charges on its loan servicing rights totaling $ 791 thousand and net impairment charges totaling $ 109 thousand for the three months ended March 31, 2021 and 2020, respectively.

See the “Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis” section of Note 5 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 nine months ended September 30, 2020 and 2019.

No impairment was recognized during the three months ended March 31, 2021 and 2020.

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

7 unchanged sentences

2025 1,975 4,929 103

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 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

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 0.44 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 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

(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 2.11 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 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

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

Securities sold under agreements to repurchase (repos).

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 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.

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.

Valley recognized amortization expense on other intangible assets, including net (recoveries of) impairment charges on loan servicing rights, totaling approximately $ 6.0 million and $ 5.5 million for the three months ended March 31, 2021 and 2020, respectively.

Stock–Based Compensation

Valley currently has one active employee stock plan, the 2016 Long-Term Stock Incentive Plan (the 2016 Stock Plan), adopted by Valley’s Board of Directors on January 29, 2016 and approved by its shareholders on April 28, 2016.

The 2016 Stock Plan is administered by the Compensation and Human Resources Committee (the Committee) appointed by Valley's Board of Directors.

The Committee can grant awards to officers and key employees of Valley.

The primary purpose of the 2016 Stock Plan is to provide additional incentive to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain competent and dedicated officers and other key employees whose efforts will result in the continued and long-term growth of Valley’s business.

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 September 30, 2020, 3.1 million shares of common stock were available for issuance under the 2016 Stock Plan.

On April 19, 2021, Valley's shareholders approved the Valley National Bancorp 2021 Incentive Compensation Plan (the 2021 Plan) administered by the Compensation and Human Resources Committee (the Committee) as appointed

by Valley's Board of Directors.

The purposes of the 2021 Plan are to provide additional incentives to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain officers, other employees and non-employee directors whose efforts will result in the continued and long-term growth of Valley's business.

Upon shareholder approval of the 2021 Plan, Valley ceased granting new awards under the Valley National Bancorp 2016 Long-Term Stock Incentive Plan (the 2016 Plan).

Under the 2021 Plan, Valley may issue awards to its officers, employees and non-employee directors in amounts up to 9 million shares of common stock (less one share for every share granted after December 31, 2020 under the 2016 Plan) in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs).

If after December 31, 2020 any award granted under the 2016 Plan is forfeited, expires, settled for cash, withheld for tax obligations, or otherwise does not result in the issuance of all or a portion of the shares subject to such award, the shares will be added to the 2021 Plan's share reserve.

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

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The grant date fair values of performance-based awards that vest based on a market condition are determined by a third-party specialist using a Monte Carlo valuation model.

Restricted Stock Units (RSUs).

Valley granted 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 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.

Valley granted 1.1 million and 1.0 million of time-based RSUs during the three months ended March 31, 2021 and 2020, respectively.

Generally, time-based RSUs vest ratably over a three-year period.

The average grant date fair value of the RSUs granted during the three months ended March 31, 2021 and 2020 was $ 11.75 per share and $ 10.79 per share, respectively.

Valley granted 604 thousand and 589 thousand of performance-based RSUs to certain executive officers for the three months ended March 31, 2021 and 2020, respectively.

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

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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 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 grant date fair value of the RSUs granted during the three months ended March 31, 2021 and 2020 was $ 11.75 per share and $ 10.82 per share, respectively.

Valley recorded total stock-based compensation expense of $ 5.5 million and $ 4.0 million for the three months ended March 31, 2021 and 2020, respectively.

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

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.

As of March 31, 2021, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $ 32.9 million and will be recognized over an average remaining vesting period of 2.16 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 nine months ended September 30, 2020, Valley entered into new interest rate swap agreements designated as cash flow hedges with a total notional amount of $ 1.1 billion.

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

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

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

Fair Value Hedges of Fixed Rate Assets and Liabilities .

Valley is exposed to changes in the fair value of certain of its fixed rate assets or liabilities due to changes in benchmark interest rates based on one-month LIBOR.

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

Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for

Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount.

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

Valley includes the gain or loss on the hedged items in the same income statement line item as the loss or gain on the related derivatives.

Non-designated Hedges.

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

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.

At March 31, 2021, Valley h ad 25 cred it swaps with an aggregate notional amount of $ 215.5 million related to risk participation agreements.

At March 31, 2021, 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:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Fair Value Fair Value

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$ — $ 88 $ 1,100,000 $ — $ 179 $ 1,100,000

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

Total derivatives designated as hedging instruments

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Derivatives not designated as hedging instruments:

Interest rate swaps and embedded derivatives

Interest rate swaps and other derivatives *

$ 153,859 $ 17,956 $ 9,375,183 $ 387,008 $ 154,025 $ 8,889,557

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$ 155,633 $ 22,415 $ 9,822,126 $ 387,452 $ 156,102 $ 9,211,043

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 September 30, 2020 and December 31, 2019 .

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:

* Other derivatives include risk participation agreements.

The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account with the cash flow hedges and over-the-counter (OTC) non-designated derivative instruments.

As a result, the fair value of the applicable derivative assets and liabilities are reported net of variation margin at March 31, 2021 and December 31, 2020 in the table above .

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

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Amount of gain (loss) recognized in other comprehensive income 177 ( 1,480 )

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.

The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 3.1 million and $ 4.0 million at March 31, 2021 and December 31, 2020, respectively.

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

Valley estimates that $ 2.7 million will be reclassified as an increase to interest expense over the next 12 months.

Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

Derivative - interest rate swaps:

Interest income $ 88 $ 48 $ 170 $ 121

Hedged item - loans:

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 September 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

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:

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

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Other non-interest expense $ ( 1,785 ) $ 89

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.

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 $ 6.2 million and $ 14.2 million for the three months ended March 31, 2021 and 2020, respectively.

Credit Risk Related Contingent Features.

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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.

As of March 31, 2021, Valley was in compliance with all of the provisions of its derivative counterparty agreements.

As of March 31, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, w as $ 11.6 million.

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

Balance Sheet Offsetting

Certain financial instruments, including interest rate swap derivatives and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements.

Certain financial instruments, including certain OTC derivatives (mostly interest rate swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated statements of financial condition and/or subject to master netting arrangements or similar agreements.

OTC derivatives include interest rate swaps executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house (presented in the table below).

The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements.

Valley is party to master netting arrangements with its financial institution counterparties;

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

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

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

Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts.

In such cases, the collateral would be used to settle the fair value of the repurchase agreement should Valley be in default.

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.

The total amount of collateral held or pledged cannot exceed the net derivative fair values with the counterparty.

The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of March 31, 2021 and December 31, 2020.

Gross Amounts Not Offset

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Instruments Cash

Collateral Net

Collateral (1)

(in thousands)

September 30, 2020

March 31, 2021

Interest rate swaps $ 151,185 $ — $ 151,185 $ — $ — $ 151,185

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Total $ 450,487 $ — $ 450,487 $ ( 300,000 ) $ ( 150,487 ) $ —

(1) Cash collateral pledged to our counterparties in relation to market value exposures of OTC derivative contacts in a liability position.

(2) Represents the fair value of non-cash pledged investment securities.

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Some of these tax-advantaged investments support Valley’s regulatory compliance with the Community Reinvestment Act (CRA).

Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods.

Valley’s investments in these entities generate a return primarily through the realization of federal income tax

credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods.

These tax credits and deductions are recognized as a reduction of income tax expense.

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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 September 30, 2020 and December 31, 2019:

September 30,

The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at March 31, 2021 and December 31, 2020:

2021 December 31,

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Total unfunded tax credit commitments $ 1,379 $ 1,379

The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and nine months ended September 30, 2020 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 months ended March 31, 2021 and 2020:

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(in thousands)

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Affordable housing tax credit investment impairment losses

585 857 1,668 2,381

Other tax credit investment losses 173 544

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Total amortization of tax credit investments recorded in non-interest expense $ 2,744 $ 3,228

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

Business Segments

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

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

inability to realize the carrying amount).

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

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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 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

Interest expense 9,048 33,330 6,728 5,151 54,257

Net interest income (loss) 54,908 218,590 15,785 ( 6,197 ) 283,086

Provision for credit losses 5,383 25,637 ( 112 ) — 30,908

Net interest income (loss) after provision for credit losses

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

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

Non-interest expense 19,877 25,633 ( 186 ) 114,861 160,185

Internal expense transfer 18,614 66,390 13,713 ( 98,717 ) —

Income (loss) before income taxes $ 34,565 $ 121,351 $ 1,066 $ ( 15,717 ) $ 141,265

Return on average interest earning assets (pre-tax)

1.94 % 1.91 % 0.08 % N/A 1.50 %

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

Interest expense 23,552 66,209 14,965 3,910 108,636

Net interest income (loss) 44,701 163,974 17,034 ( 5,084 ) 220,625

Provision for credit losses 2,003 6,697 — — 8,700

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

Non-interest expense 19,748 25,161 381 100,587 145,877

Internal expense transfer 19,758 55,544 12,559 ( 87,861 ) —

Income (loss) before income taxes $ 18,300 $ 91,629 $ 6,781 $ ( 9,512 ) $ 107,198

Return on average interest earning assets (pre-tax)

1.07 % 1.90 % 0.62 % N/A 1.41 %

Nine Months Ended September 30, 2020

The following tables represent the financial data for Valley’s four business segments for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

Lending Commercial

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Net interest income (loss) 54,430 229,101 15,138 ( 6,002 ) 292,667

Provision for credit losses 15,274 90,785 688 — 106,747

(Credit) provision for credit losses ( 2,635 ) 11,676 ( 385 ) — 8,656

Net interest income (loss) after provision for credit losses

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Non-interest expense 19,849 25,531 1,777 113,056 160,213

Internal expense transfer 58,355 197,444 42,393 ( 298,192 ) —

Internal transfer expense (income) 19,502 70,555 13,277 ( 103,334 ) —

Income (loss) before income taxes $ 31,399 $ 129,052 $ 2,800 $ ( 8,220 ) $ 155,031

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1.78 % 2.02 % 0.23 % N/A 1.66 %

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Lending Commercial

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Non-interest expense 19,871 24,158 387 111,240 155,656

Internal expense transfer 58,476 161,803 37,245 ( 257,524 ) —

Internal transfer expense (income) 20,335 64,196 13,175 ( 97,706 ) —

Income (loss) before income taxes $ 16,241 $ 102,795 $ 7,830 $ ( 10,469 ) $ 116,397

2 unchanged sentences

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