VALLEY NATIONAL BANCORP 10-Q

Item 1. Financial Statements VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except for share data) March 31, 2021 December 31, 2020 Assets (Unaudited) Cash and due from banks $ 280,915 $ 257,845 Interest bearing deposits with banks 1,352,918 1,071,360 Investment securities: Equity securities 32,973 29,378 Available for sale debt securities 1,116,221 1,339,473 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 Total investment securities 3,539,150 3,540,434 Loans held for sale, at fair value 232,068 301,427 Loans 32,686,416 32,217,112 Less: Allowance for loan losses ( 342,880 ) ( 340,243 ) Net loans 32,343,536 31,876,869 Premises and equipment, net 323,841 319,797 Lease right of use assets 242,190 252,053 Bank owned life insurance 535,620 535,209 Accrued interest receivable 107,790 106,230 Goodwill 1,382,442 1,382,442 Other intangible assets, net 67,972 70,449 Other assets 769,569 971,961 Total Assets $ 41,178,011 $ 40,686,076 Liabilities Deposits: Non-interest bearing $ 10,053,026 $ 9,205,266 Interest bearing: Savings, NOW and money market 17,081,105 16,015,658 Time 5,451,078 6,714,678 Total deposits 32,585,209 31,935,602 Short-term borrowings 1,084,666 1,147,958 Long-term borrowings 2,242,931 2,295,665 Junior subordinated debentures issued to capital trusts 56,152 56,065 Lease liabilities 266,407 276,675 Accrued expenses and other liabilities 282,976 381,991 Total Liabilities 36,518,341 36,093,956 Shareholders’ Equity Preferred stock, no par value; 50,000,000 authorized shares: 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 March 31, 2021 and December 31, 2020) 98,101 98,101 Common stock ( no par value, authorized 650,000,000 shares; issued 405,801,304 shares at March 31, 2021 and 403,881,488 shares at December 31, 2020) 142,435 141,746 Surplus 3,651,948 3,637,468 Retained earnings 672,651 611,158 Accumulated other comprehensive loss ( 17,005 ) ( 7,718 ) Treasury stock, at cost ( 3,766 common shares at March 31, 2021 and 22,490 common shares at December 31, 2020) ( 50 ) ( 225 ) Total Shareholders’ Equity 4,659,670 4,592,120 Total Liabilities and Shareholders’ Equity $ 41,178,011 $ 40,686,076 See accompanying notes to consolidated financial statements. 2 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except for share data) Three Months Ended March 31, 2021 2020 Interest Income Interest and fees on loans $ 313,181 $ 333,068 Interest and dividends on investment securities: Taxable 13,166 21,933 Tax-exempt 3,356 3,926 Dividends 1,871 3,401 Interest on federal funds sold and other short-term investments 224 1,465 Total interest income 331,798 363,793 Interest Expense Interest on deposits: Savings, NOW and money market 11,125 34,513 Time 11,093 42,814 Interest on short-term borrowings 1,758 4,707 Interest on long-term borrowings and junior subordinated debentures 15,155 16,420 Total interest expense 39,131 98,454 Net Interest Income 292,667 265,339 (Credit) provision for credit losses for held to maturity securities ( 358 ) 759 Provision for credit losses for loans 9,014 33,924 Net Interest Income After Provision for Credit Losses 284,011 230,656 Non-Interest Income Trust and investment services 3,329 3,413 Insurance commissions 1,558 1,951 Service charges on deposit accounts 5,103 5,680 Losses on securities transactions, net ( 118 ) ( 40 ) Fees from loan servicing 2,899 2,748 Gains on sales of loans, net 3,513 4,550 (Losses) gains on sales of assets, net ( 196 ) 121 Bank owned life insurance 2,331 3,142 Other 12,814 19,832 Total non-interest income 31,233 41,397 Non-Interest Expense Salary and employee benefits expense 88,103 85,728 Net occupancy and equipment expense 32,259 32,441 FDIC insurance assessment 3,276 3,876 Amortization of other intangible assets 6,006 5,470 Professional and legal fees 6,272 6,087 Amortization of tax credit investments 2,744 3,228 Telecommunication expense 3,160 2,287 Other 18,393 16,539 Total non-interest expense 160,213 155,656 Income Before Income Taxes 155,031 116,397 Income tax expense 39,321 29,129 Net Income 115,710 87,268 Dividends on preferred stock 3,172 3,172 Net Income Available to Common Shareholders $ 112,538 $ 84,096 3 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (continued) (in thousands, except for share data) Three Months Ended March 31, 2021 2020 Earnings Per Common Share: Basic $ 0.28 $ 0.21 Diluted 0.28 0.21 Cash Dividends Declared per Common Share 0.11 0.11 Weighted Average Number of Common Shares Outstanding: Basic 405,152,605 403,519,088 Diluted 407,636,765 405,424,123 See accompanying notes to consolidated financial statements. 4 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands) Three Months Ended March 31, 2021 2020 Net income $ 115,710 $ 87,268 Other comprehensive (loss) income, net of tax: Unrealized gains and losses on available for sale securities Net (losses) gains arising during the period ( 10,436 ) 26,068 Less reclassification adjustment for net losses included in net income 44 27 Total ( 10,392 ) 26,095 Unrealized gains and losses on derivatives (cash flow hedges) Net gains (losses) on derivatives arising during the period 174 ( 1,057 ) Less reclassification adjustment for net losses included in net income 651 438 Total 825 ( 619 ) Defined benefit pension plan Amortization of actuarial net loss 280 172 Total other comprehensive (loss) income ( 9,287 ) 25,648 Total comprehensive income $ 106,423 $ 112,916 See accompanying notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) For the Three Months Ended March 31, 2021 Common Stock Accumulated Preferred Stock Shares Amount Surplus Retained Earnings Other Comprehensive Loss Treasury Stock Total Shareholders’ Equity (in thousands) Balance - December 31, 2020 $ 209,691 403,859 $ 141,746 $ 3,637,468 $ 611,158 $ ( 7,718 ) $ ( 225 ) $ 4,592,120 Net income — — — — 115,710 — — 115,710 Other comprehensive loss, net of tax — — — — — ( 9,287 ) — ( 9,287 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 45,281 ) — — ( 45,281 ) Effect of stock incentive plan, net — 1,939 689 14,480 ( 5,764 ) — 175 9,580 Balance - March 31, 2021 $ 209,691 405,798 $ 142,435 $ 3,651,948 $ 672,651 $ ( 17,005 ) $ ( 50 ) $ 4,659,670 For the Three Months Ended March 31, 2020 Common Stock Accumulated Preferred Stock Shares Amount Surplus Retained Earnings Other Comprehensive Loss Treasury Stock Total Shareholders’ Equity (in thousands) Balance - December 31, 2019 $ 209,691 403,278 $ 141,423 $ 3,622,208 $ 443,559 $ ( 32,214 ) $ ( 479 ) $ 4,384,188 Adjustment due to the adoption of ASU No. 2016-13 — — — — ( 28,187 ) — — ( 28,187 ) Balance - January 1, 2020 209,691 403,278 141,423 3,622,208 415,372 ( 32,214 ) ( 479 ) 4,356,001 Net income — — — — 87,268 — — 87,268 Other comprehensive income, net of tax — — — — — 25,648 — 25,648 Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 44,979 ) — — ( 44,979 ) Effect of stock incentive plan, net — 466 190 1,828 ( 2,065 ) — 279 232 Balance - March 31, 2020 $ 209,691 403,744 $ 141,613 $ 3,624,036 $ 452,424 $ ( 6,566 ) $ ( 200 ) $ 4,420,998 See accompanying notes to consolidated financial statements. 6 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 2021 2020 Cash flows from operating activities: Net income $ 115,710 $ 87,268 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 13,848 14,734 Stock-based compensation 5,465 3,684 Provision for credit losses 8,656 34,683 Net amortization of premiums and accretion of discounts on securities and borrowings 8,293 6,685 Amortization of other intangible assets 6,006 5,470 Losses on securities transactions, net 118 40 Proceeds from sales of loans held for sale 357,108 168,392 Gains on sales of loans, net ( 3,513 ) ( 4,550 ) Originations of loans held for sale ( 287,765 ) ( 147,981 ) Losses (gains) on sales of assets, net 196 ( 121 ) Net change in: Cash surrender value of bank owned life insurance ( 2,331 ) ( 3,142 ) Accrued interest receivable ( 1,560 ) ( 1,716 ) Other assets 204,729 ( 401,849 ) Accrued expenses and other liabilities ( 111,562 ) 122,426 Net cash provided by (used in) operating activities 313,398 ( 115,977 ) Cash flows from investing activities: Net loan originations and purchases ( 475,142 ) ( 667,555 ) Equity securities: Purchases ( 1,878 ) ( 5,214 ) Sales 319 — Held to maturity debt securities: Purchases ( 407,793 ) ( 103,192 ) Maturities, calls and principal repayments 184,163 118,541 Available for sale debt securities: Purchases — ( 238,488 ) Sales 41,134 — Maturities, calls and principal repayments 164,235 88,688 Death benefit proceeds from bank owned life insurance 1,628 1,184 Proceeds from sales of real estate property and equipment 1,742 6,352 Proceeds from sales of loans held for investment — 30,020 Purchases of real estate property and equipment ( 8,042 ) ( 9,235 ) Net cash used in investing activities $ ( 499,634 ) $ ( 778,899 ) 7 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) Three Months Ended March 31, 2021 2020 Cash flows from financing activities: Net change in deposits $ 649,607 $ ( 200,035 ) Net change in short-term borrowings ( 63,292 ) 1,002,375 Proceeds from issuance of long-term borrowings, net — 725,242 Repayments of long-term borrowings ( 51,769 ) ( 42,128 ) Cash dividends paid to preferred shareholders ( 3,172 ) ( 3,172 ) Cash dividends paid to common shareholders ( 45,526 ) ( 44,682 ) Purchase of common shares to treasury ( 542 ) ( 2,094 ) Common stock issued, net 5,723 ( 1,358 ) Other, net ( 165 ) ( 130 ) Net cash provided by financing activities 490,864 1,434,018 Net change in cash and cash equivalents 304,628 539,142 Cash and cash equivalents at beginning of year 1,329,205 434,687 Cash and cash equivalents at end of period $ 1,633,833 $ 973,829 Supplemental disclosures of cash flow information: Cash payments for: Interest on deposits and borrowings $ 37,997 $ 104,797 Federal and state income taxes 5,855 4,215 Supplemental schedule of non-cash investing activities: Transfer of loans to other real estate owned $ 141 $ 2,750 Transfer of loans to loans held for sale — 30,020 Lease right of use assets obtained in exchange for operating lease liabilities 21 3,121 See accompanying notes to consolidated financial statements. 8 VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The unaudited consolidated financial statements of Valley National Bancorp, a New Jersey corporation (Valley), include the accounts of its commercial bank subsidiary, Valley National Bank (the Bank), and all of Valley’s direct or indirect wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated. The accounting and reporting policies of Valley conform to U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation. 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. GAAP and industry practice have been condensed or omitted pursuant to rules and regulations of the SEC. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report on Form 10-K for the year ended December 31, 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. In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include: the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment, and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results may differ from those estimates. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date. 9 Note 2. Earnings Per Common Share The following table shows the calculation of both basic and diluted earnings per common share for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 (in thousands, except for share data) Net income available to common shareholders $ 112,538 $ 84,096 Basic weighted average number of common shares outstanding 405,152,605 403,519,088 Plus: Common stock equivalents 2,484,160 1,905,035 Diluted weighted average number of common shares outstanding 407,636,765 405,424,123 Earnings per common share: Basic $ 0.28 $ 0.21 Diluted 0.28 0.21 Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units and common stock options to purchase Valley’s common shares. Common stock options with exercise prices that exceed the average market price per share of Valley’s common stock during the periods presented may have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation along with restricted stock units. Potential anti-dilutive weighted common shares 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. Note 3. Accumulated Other Comprehensive Loss The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three months ended March 31, 2021: Components of Accumulated Other Comprehensive Loss Total Accumulated Other Comprehensive Loss Unrealized Gains and Losses on Available for Sale (AFS) Securities Unrealized Gains and Losses on Derivatives Defined Benefit Pension Plan (in thousands) Balance at December 31, 2020 $ 33,290 $ ( 3,906 ) $ ( 37,102 ) $ ( 7,718 ) Other comprehensive (loss) income before reclassification ( 10,436 ) 174 — ( 10,262 ) Amounts reclassified from other comprehensive income 44 651 280 975 Other comprehensive (loss) income, net ( 10,392 ) 825 280 ( 9,287 ) Balance at March 31, 2021 $ 22,898 $ ( 3,081 ) $ ( 36,822 ) $ ( 17,005 ) 10 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 Accumulated Other Comprehensive Loss Three Months Ended March 31, Components of Accumulated Other Comprehensive Loss 2021 2020 Income Statement Line Item (in thousands) Unrealized losses on AFS securities before tax $ ( 59 ) $ ( 40 ) Losses on securities transactions, net Tax effect 15 13 Total net of tax ( 44 ) ( 27 ) Unrealized losses on derivatives (cash flow hedges) before tax ( 915 ) ( 615 ) Interest expense Tax effect 264 177 Total net of tax ( 651 ) ( 438 ) Defined benefit pension plan: Amortization of actuarial net loss ( 388 ) ( 236 ) * Tax effect 108 64 Total net of tax ( 280 ) ( 172 ) Total reclassifications, net of tax $ ( 975 ) $ ( 637 ) * Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense. Note 4. New Authoritative Accounting Guidance New Accounting Guidance Adopted in 2021 Accounting Standards Update (ASU) No. 2020-08, "Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs" provides clarification and affects the guidance previously issued by ASU No. 2017-08 “Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” ASU No. 2020-08 clarifies that an entity should reevaluate whether a debt security with multiple call dates is within the scope of paragraph 310-20-35-33. For each reporting period, to the extent that the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the premium should be amortized to the next call date, unless the guidance to consider estimated prepayments is applied. 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 ASU No. 2021-01 "Reference Rate Reform (Topic 848)" extends some of Accounting Standards Codification Topic 848’s optional expedients to derivative contracts impacted by the discounting transition, including for derivatives that do not reference LIBOR or other reference rates that are expected to be discontinued. ASU No. 2021-01 is effective for all entities immediately upon issuance and may be elected retrospectively to eligible modifications as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications made on or after any date within the interim period including January 7, 2021 and it can be applied through December 31, 2022, similar to the other reference rate reform relief provided under Topic 848. The ASU No. 2021-01 is not expected to have a significant impact on Valley’s consolidated financial statements. 11 Note 5. Fair Value Measurement of Assets and Liabilities ASC Topic 820, “Fair Value Measurements” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: • Level 1 - Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date. • Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets) for substantially the full term of the asset or liability. • Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis The following tables present the assets and liabilities that are measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at March 31, 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). 12 March 31, 2021 Fair Value Measurements at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Recurring fair value measurements: Assets Investment securities: Equity securities (1) $ 29,724 $ 19,742 $ — $ — Available for sale: U.S. Treasury securities 51,199 51,199 — — U.S. government agency securities 24,010 — 24,010 — Obligations of states and political subdivisions 72,722 — 72,593 129 Residential mortgage-backed securities 878,336 — 878,336 — Corporate and other debt securities 89,954 — 89,954 — Total available for sale debt securities 1,116,221 51,199 1,064,893 129 Loans held for sale (2) 232,068 — 232,068 — Other assets (3) 155,633 — 155,633 — Total assets $ 1,533,646 $ 70,941 $ 1,452,594 $ 129 Liabilities Other liabilities (3) $ 22,503 $ — $ 22,503 $ — Total liabilities $ 22,503 $ — $ 22,503 $ — Non-recurring fair value measurements: Collateral dependent loans $ 38,883 $ — $ — $ 38,883 Loan servicing rights 682 — — 682 Foreclosed assets 1,683 — — 1,683 Total $ 41,248 $ — $ — $ 41,248 13 Fair Value Measurements at Reporting Date Using: December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Recurring fair value measurements: Assets Investment securities: Equity securities (1) $ 26,379 $ 18,600 $ — $ — Available for sale: U.S. Treasury securities 51,393 51,393 — — U.S. government agency securities 26,157 — 26,157 — Obligations of states and political subdivisions 79,950 — 79,135 815 Residential mortgage-backed securities 1,090,022 — 1,090,022 — Corporate and other debt securities 91,951 — 91,951 — Total available for sale 1,339,473 51,393 1,287,265 815 Loans held for sale (2) 301,427 — 301,427 — Other assets (3) 387,452 — 387,452 — Total assets $ 2,054,731 $ 69,993 $ 1,976,144 $ 815 Liabilities Other liabilities (3) $ 156,281 $ — $ 156,281 $ — Total liabilities $ 156,281 $ — $ 156,281 $ — Non-recurring fair value measurements: Collateral dependent impaired loans $ 35,228 $ — $ — $ 35,228 Loan servicing rights 15,603 — — 15,603 Foreclosed assets 7,387 — — 7,387 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 $ 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 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 The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All the valuation techniques described below apply to the unpaid principal balance, excluding any accrued interest or dividends at the measurement date. Interest income and expense are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Equity securities. 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 debt securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley 14 has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for sale 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 March 31, 2021 and December 31, 2020. Loans held for sale. Residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at March 31, 2021 and December 31, 2020 based on the short duration these assets were held, and the credit quality of these loans. Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR, Overnight Index Swap and Secured Overnight Financing Rate (SOFR) curves for all cleared derivatives. 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 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 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 . Collateral dependent loans are loans when foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and substantially all of the repayment is expected from the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs, consisting of individual third-party appraisals that may be adjusted based on certain discounting criteria. Certain real estate appraisals may be discounted based on specific market data by location and property type. At 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. 15 Loan servicing rights. Fair values for each risk-stratified group of loan servicing rights are calculated using a fair value model from a third-party vendor that requires inputs that are both significant to the fair value measurement and unobservable (Level 3). The fair value model is based on various assumptions, including but not limited to, prepayment speeds, internal rate of return (discount rate), servicing cost, ancillary income, float rate, tax rate, and inflation. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. 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. The use of different assumptions could have a significant positive or negative effect on the fair value estimate. Impairment charges are recognized on loan servicing rights when the amortized cost of a risk-stratified group of loan servicing rights exceeds the estimated fair value. At March 31, 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 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. The adjustments to the appraisals of foreclosed assets ranged from 2.9 percent to 18 percent at March 31, 2021. Other Fair Value Disclosures ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. 16 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: Fair Value Hierarchy March 31, 2021 December 31, 2020 Carrying Amount Fair Value Carrying Amount Fair Value (in thousands) Financial assets Cash and due from banks Level 1 $ 280,915 $ 280,915 $ 257,845 $ 257,845 Interest bearing deposits with banks Level 1 1,352,918 1,352,918 1,071,360 1,071,360 Equity securities (1) Level 3 3,249 3,249 2,999 2,999 Held to maturity debt securities: U.S. Treasury securities Level 1 68,031 74,179 68,126 75,484 U.S. government agency securities Level 2 5,659 5,795 6,222 6,513 Obligations of states and political subdivisions Level 2 454,021 465,674 470,259 484,506 Residential mortgage-backed securities Level 2 1,787,211 1,797,741 1,550,306 1,589,655 Trust preferred securities Level 2 37,354 30,728 37,348 30,033 Corporate and other debt securities Level 2 38,750 39,244 40,750 41,421 Total held to maturity debt securities (2) 2,391,026 2,413,361 2,173,011 2,227,612 Net loans Level 3 32,343,536 32,113,414 31,876,869 31,635,060 Accrued interest receivable Level 1 107,790 107,790 106,230 106,230 Federal Reserve Bank and Federal Home Loan Bank stock (3) Level 2 247,158 247,158 250,116 250,116 Financial liabilities Deposits without stated maturities Level 1 27,134,131 27,134,131 25,220,924 25,220,924 Deposits with stated maturities Level 2 5,451,078 5,448,891 6,714,678 6,639,022 Short-term borrowings Level 1 1,084,666 1,060,430 1,147,958 1,151,478 Long-term borrowings Level 2 2,242,931 2,242,747 2,295,665 2,405,345 Junior subordinated debentures issued to capital trusts Level 2 56,152 45,863 56,065 57,779 Accrued interest payable (4) Level 1 19,972 19,972 18,839 18,839 (1) Represents equity securities without a readily determinable fair value measured at cost less impairment, if any. (2) The carrying amount is presented gross without the allowance for credit losses. (3) Included in other assets. (4) Included in accrued expenses and other liabilities. Note 6. Investment Securities Equity Securities 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 March 31, 2021 and December 31, 2020 were as follows: 17 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) March 31, 2021 U.S. Treasury securities $ 50,027 $ 1,172 $ — $ 51,199 U.S. government agency securities 22,899 1,123 ( 12 ) 24,010 Obligations of states and political subdivisions: Obligations of states and state agencies 36,075 793 — 36,868 Municipal bonds 35,223 637 ( 6 ) 35,854 Total obligations of states and political subdivisions 71,298 1,430 ( 6 ) 72,722 Residential mortgage-backed securities 852,398 27,254 ( 1,316 ) 878,336 Corporate and other debt securities 87,960 2,076 ( 82 ) 89,954 Total $ 1,084,582 $ 33,055 $ ( 1,416 ) $ 1,116,221 December 31, 2020 U.S. Treasury securities $ 50,031 $ 1,362 $ — $ 51,393 U.S. government agency securities 25,067 1,103 ( 13 ) 26,157 Obligations of states and political subdivisions: Obligations of states and state agencies 40,861 970 ( 32 ) 41,799 Municipal bonds 37,489 731 ( 69 ) 38,151 Total obligations of states and political subdivisions 78,350 1,701 ( 101 ) 79,950 Residential mortgage-backed securities 1,050,369 40,426 ( 773 ) 1,090,022 Corporate and other debt securities 89,689 2,294 ( 32 ) 91,951 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: Less than Twelve Months More than Twelve Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (in thousands) March 31, 2021 U.S. government agency securities $ — $ — $ 1,430 $ ( 12 ) $ 1,430 $ ( 12 ) Municipal bonds 6,847 ( 6 ) — — 6,847 ( 6 ) Residential mortgage-backed securities 67,489 ( 984 ) 23,251 ( 332 ) 90,740 ( 1,316 ) Corporate and other debt securities 22,120 ( 82 ) — — 22,120 ( 82 ) Total $ 96,456 $ ( 1,072 ) $ 24,681 $ ( 344 ) $ 121,137 $ ( 1,416 ) December 31, 2020 U.S. government agency securities $ — $ — $ 1,479 $ ( 13 ) $ 1,479 $ ( 13 ) Obligations of states and political subdivisions: Obligations of states and state agencies — — 1,010 ( 32 ) 1,010 ( 32 ) Municipal bonds 6,777 ( 69 ) — — 6,777 ( 69 ) Total obligations of states and political subdivisions 6,777 ( 69 ) 1,010 ( 32 ) 7,787 ( 101 ) Residential mortgage-backed securities 41,418 ( 500 ) 27,911 ( 273 ) 69,329 ( 773 ) Corporate and other debt securities 12,517 ( 32 ) — — 12,517 ( 32 ) Total $ 60,712 $ ( 601 ) $ 30,400 $ ( 318 ) $ 91,112 $ ( 919 ) 18 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. March 31, 2021 Amortized Cost Fair Value (in thousands) Due in one year $ 13,361 $ 13,421 Due after one year through five years 77,866 79,806 Due after five years through ten years 92,143 94,029 Due after ten years 48,814 50,629 Residential mortgage-backed securities 852,398 878,336 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 3.4 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 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. 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. 19 Held to Maturity Debt Securities The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at March 31, 2021 and December 31, 2020 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) March 31, 2021 U.S. Treasury securities $ 68,031 $ 6,148 $ — $ 74,179 U.S. government agency securities 5,659 136 — 5,795 Obligations of states and political subdivisions: Obligations of states and state agencies 254,991 6,390 ( 141 ) 261,240 Municipal bonds 199,030 5,406 ( 2 ) 204,434 Total obligations of states and political subdivisions 454,021 11,796 ( 143 ) 465,674 Residential mortgage-backed securities 1,787,211 29,249 ( 18,719 ) 1,797,741 Trust preferred securities 37,354 52 ( 6,678 ) 30,728 Corporate and other debt securities 38,750 566 ( 72 ) 39,244 Total $ 2,391,026 $ 47,947 $ ( 25,612 ) $ 2,413,361 December 31, 2020 U.S. Treasury securities $ 68,126 $ 7,358 $ — $ 75,484 U.S. government agency securities 6,222 291 — 6,513 Obligations of states and political subdivisions: Obligations of states and state agencies 262,762 8,060 ( 105 ) 270,717 Municipal bonds 207,497 6,292 — 213,789 Total obligations of states and political subdivisions 470,259 14,352 ( 105 ) 484,506 Residential mortgage-backed securities 1,550,306 39,603 ( 254 ) 1,589,655 Trust preferred securities 37,348 50 ( 7,365 ) 30,033 Corporate and other debt securities 40,750 672 ( 1 ) 41,421 Total $ 2,173,011 $ 62,326 $ ( 7,725 ) $ 2,227,612 20 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: Less than Twelve Months More than Twelve Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (in thousands) March 31, 2021 Obligations of states and political subdivisions: Obligations of states and state agencies $ 809 $ ( 30 ) $ 5,521 $ ( 111 ) $ 6,330 $ ( 141 ) Municipal bonds 1,328 ( 2 ) — — 1,328 ( 2 ) Total obligations of states and political subdivisions 2,137 ( 32 ) 5,521 ( 111 ) 7,658 ( 143 ) Residential mortgage-backed securities 903,746 ( 18,713 ) 1,838 ( 6 ) 905,584 ( 18,719 ) Trust preferred securities — — 29,322 ( 6,678 ) 29,322 ( 6,678 ) Corporate and other debt securities 2,928 ( 72 ) — — 2,928 ( 72 ) Total $ 908,811 $ ( 18,817 ) $ 36,681 $ ( 6,795 ) $ 945,492 $ ( 25,612 ) December 31, 2020 Obligations of states and state agencies $ 5,546 $ ( 105 ) $ — $ — $ 5,546 $ ( 105 ) Residential mortgage-backed securities 21,599 ( 245 ) 2,470 ( 9 ) 24,069 ( 254 ) Trust preferred securities — — 28,630 ( 7,365 ) 28,630 ( 7,365 ) Corporate and other debt securities 10,749 ( 1 ) — — 10,749 ( 1 ) 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 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. March 31, 2021 Amortized Cost Fair Value (in thousands) Due in one year $ 26,173 $ 26,306 Due after one year through five years 228,929 239,320 Due after five years through ten years 149,406 152,366 Due after ten years 199,307 197,628 Residential mortgage-backed securities 1,787,211 1,797,741 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. 21 Credit Quality Indicators Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at March 31, 2021 and December 31, 2020. AAA/AA/A Rated BBB rated Non-investment grade rated Non-rated Total (in thousands) March 31, 2021 U.S. Treasury securities $ 68,031 $ — $ — $ — $ 68,031 U.S. government agency securities 5,659 — — — 5,659 Obligations of states and political subdivisions: Obligations of states and state agencies 222,683 — 5,632 26,676 254,991 Municipal bonds 157,212 — — 41,818 199,030 Total obligations of states and political subdivisions 379,895 — 5,632 68,494 454,021 Residential mortgage-backed securities 1,787,211 — — — 1,787,211 Trust preferred securities — — — 37,354 37,354 Corporate and other debt securities — 8,000 — 30,750 38,750 Total $ 2,240,796 $ 8,000 $ 5,632 $ 136,598 $ 2,391,026 December 31, 2020 U.S. Treasury securities $ 68,126 $ — $ — $ — $ 68,126 U.S. government agency securities 6,222 — — — 6,222 Obligations of states and political subdivisions: Obligations of states and state agencies 228,286 — 5,650 28,826 262,762 Municipal bonds 166,408 — — 41,089 207,497 Total obligations of states and political subdivisions 394,694 — 5,650 69,915 470,259 Residential mortgage-backed securities 1,550,306 — — — 1,550,306 Trust preferred securities — — — 37,348 37,348 Corporate and other debt securities — 5,000 — 35,750 40,750 Total investment securities held to maturity $ 2,019,348 $ 5,000 $ 5,650 $ 143,013 $ 2,173,011 Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. 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. Corporate bonds consist of debt primarily issued by banks. Allowance for Credit Losses for Held to Maturity Debt Securities Valley has a zero loss expectation for certain securities within the held to maturity portfolio, and therefore it is not required to estimate an allowance for credit losses related to these securities under the CECL standard. After an evaluation of qualitative factors, Valley identified the following securities types which it believes qualify for this exclusion: U.S. Treasury securities, U.S. government agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and 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 22 (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. Note 7. Loans and Allowance for Credit Losses for Loans 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) Loans: 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: Commercial real estate 16,923,627 16,724,998 Construction 1,786,331 1,745,825 Total commercial real estate loans 18,709,958 18,470,823 Residential mortgage 4,060,492 4,183,743 Consumer: Home equity 409,576 431,553 Automobile 1,444,883 1,355,955 Other consumer 912,863 913,330 Total consumer loans 2,767,322 2,700,838 Total loans $ 32,686,416 $ 32,217,112 * 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 For all of its loan types, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk appetite. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of Directors annually. Credit authority relating to a significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification, 23 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. See Valley’s Annual Report on Form 10-K for the year ended December 31, 2020 for further details. Credit Quality 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 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Loans Non-Accrual Loans Total Past Due Loans Current Loans Total Loans Non-Accrual Loans Without Allowance for Credit Losses (in thousands) March 31, 2021 Commercial and industrial $ 3,763 $ 1,768 $ 2,515 $ 108,988 $ 117,034 $ 7,031,610 $ 7,148,644 $ 10,618 Commercial real estate: Commercial real estate 11,655 5,455 — 54,004 71,114 16,852,513 16,923,627 41,706 Construction — — — 71 71 1,786,260 1,786,331 — Total commercial real estate loans 11,655 5,455 — 54,075 71,185 18,638,773 18,709,958 41,706 Residential mortgage 16,004 2,233 2,472 33,655 54,364 4,006,128 4,060,492 17,218 Consumer loans: Home equity 737 147 — 6,411 7,295 402,281 409,576 48 Automobile 4,421 770 390 368 5,949 1,438,934 1,444,883 — Other consumer 322 104 27 513 966 911,897 912,863 — Total consumer loans 5,480 1,021 417 7,292 14,210 2,753,112 2,767,322 48 Total $ 36,902 $ 10,477 $ 5,404 $ 204,010 $ 256,793 $ 32,429,623 $ 32,686,416 $ 69,590 24 Past Due and Non-Accrual Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Loans Non-Accrual Loans Total Past Due Loans Current Loans Total Loans Non-Accrual Loans Without Allowance for Credit Losses (in thousands) December 31, 2020 Commercial and industrial $ 6,393 $ 2,252 $ 9,107 $ 106,693 $ 124,445 $ 6,737,263 $ 6,861,708 $ 4,075 Commercial real estate: Commercial real estate 35,030 1,326 993 46,879 84,228 16,640,770 16,724,998 32,416 Construction 315 — — 84 399 1,745,426 1,745,825 — Total commercial real estate loans 35,345 1,326 993 46,963 84,627 18,386,196 18,470,823 32,416 Residential mortgage 17,717 10,351 3,170 25,817 57,055 4,126,688 4,183,743 11,610 Consumer loans: Home equity 953 492 — 4,936 6,381 425,172 431,553 50 Automobile 8,056 1,107 245 338 9,746 1,346,209 1,355,955 — Other consumer 1,248 224 26 535 2,033 911,297 913,330 — Total consumer loans 10,257 1,823 271 5,809 18,160 2,682,678 2,700,838 50 Total $ 69,712 $ 15,752 $ 13,541 $ 185,282 $ 284,287 $ 31,932,825 $ 32,217,112 $ 48,151 Credit quality indicators. Valley utilizes an internal loan classification system as a means of reporting problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes. Under Valley’s internal risk rating system, loan relationships could be classified as "Pass," "Special Mention," "Substandard," "Doubtful," and "Loss." Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses, and, therefore, not presented in the table below. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories but pose weaknesses that deserve management’s close attention are deemed Special Mention. Loans rated as Pass do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants. 25 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: Term Loans Amortized Cost Basis by Origination Year 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) Commercial and industrial Risk Rating: Pass $ 1,091,421 $ 2,438,605 $ 560,364 $ 515,645 $ 191,930 $ 454,483 $ 1,637,014 $ 296 $ 6,889,758 Special Mention 1,027 1,599 8,714 6,874 3,365 17,601 66,443 37 105,660 Substandard 975 15,664 4,870 9,704 1,226 4,217 25,264 361 62,281 Doubtful — — 2,742 — 16,844 71,359 — — 90,945 Total commercial and industrial $ 1,093,423 $ 2,455,868 $ 576,690 $ 532,223 $ 213,365 $ 547,660 $ 1,728,721 $ 694 $ 7,148,644 Commercial real estate Risk Rating: Pass $ 703,940 $ 3,102,368 $ 3,001,631 $ 2,148,025 $ 1,691,885 $ 5,314,508 $ 195,069 $ 14,597 $ 16,172,023 Special Mention — 55,142 74,513 44,406 45,899 193,439 1,235 — 414,634 Substandard 576 22,623 17,031 38,564 74,244 181,107 2,531 92 336,768 Doubtful — — — — — 202 — — 202 Total commercial real estate $ 704,516 $ 3,180,133 $ 3,093,175 $ 2,230,995 $ 1,812,028 $ 5,689,256 $ 198,835 $ 14,689 $ 16,923,627 Construction Risk Rating: Pass $ 55,347 $ 154,819 $ 99,815 $ 106,566 $ 15,422 $ 42,957 $ 1,229,949 $ — $ 1,704,875 Special Mention — — 1,035 — — 6,265 48,111 — 55,411 Substandard — 32 21 246 — 17,842 7,904 — 26,045 Total construction $ 55,347 $ 154,851 $ 100,871 $ 106,812 $ 15,422 $ 67,064 $ 1,285,964 $ — $ 1,786,331 26 Term Loans 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 Risk Rating: 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 Risk Rating: 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 Construction Risk Rating: 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 27 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 based on payment activity by origination year as of March 31, 2021 and December 31, 2020. Term Loans Amortized Cost Basis by Origination Year 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) Residential mortgage Performing $ 219,558 $ 732,027 $ 725,885 $ 594,844 $ 508,177 $ 1,212,780 $ 44,041 $ — $ 4,037,312 90 days or more past due — 2,478 2,814 2,489 3,645 11,754 — — 23,180 Total residential mortgage $ 219,558 $ 734,505 $ 728,699 $ 597,333 $ 511,822 $ 1,224,534 $ 44,041 $ — $ 4,060,492 Consumer loans Home equity Performing $ 1,890 $ 8,179 $ 9,917 $ 10,612 $ 7,550 $ 17,181 $ 304,404 $ 48,364 $ 408,097 90 days or more past due — — — — — 96 573 810 1,479 Total home equity 1,890 8,179 9,917 10,612 7,550 17,277 304,977 49,174 409,576 Automobile Performing 214,566 411,821 397,409 240,852 128,960 50,506 — — 1,444,114 90 days or more past due — 42 141 247 208 131 — — 769 Total automobile 214,566 411,863 397,550 241,099 129,168 50,637 — — 1,444,883 Other Consumer Performing 7,230 7,056 5,375 6,552 1,076 5,613 879,552 — 912,454 90 days or more past due — — — — — — 1 408 409 Total other consumer 7,230 7,056 5,375 6,552 1,076 5,613 879,553 408 912,863 Total Consumer $ 223,686 $ 427,098 $ 412,842 $ 258,263 $ 137,794 $ 73,527 $ 1,184,530 $ 49,582 $ 2,767,322 28 Term Loans 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) Residential mortgage 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 Home equity 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 Automobile 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 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 . From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. 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). 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. If the borrower has demonstrated performance under the previous terms of the loan and Valley’s underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. Performing TDRs (not reported as non-accrual loans) totaled $ 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. 29 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, 2021 2020 Troubled Debt Restructurings Number of Contracts Pre-Modification Amortized Carrying Amount Post-Modification Amortized Carrying Amount Number of Contracts Pre-Modification Amortized Carrying Amount Post-Modification Amortized Carrying Amount ($ in thousands) Commercial and industrial 5 $ 13,744 $ 13,307 16 $ 13,144 $ 12,630 Commercial real estate 2 4,197 4,185 1 3,863 3,855 Residential mortgage 6 1,528 1,518 — — — Consumer 1 170 168 — — — Total 14 $ 19,639 $ 19,178 17 $ 17,007 $ 16,485 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, 2021 2020 Troubled Debt Restructurings Subsequently Defaulted Number of Contracts Amortized Cost Number of Contracts Recorded Investment ($ in thousands) Commercial and industrial 16 $ 12,384 — $ — Residential mortgage 3 655 1 154 Total 19 $ 13,039 1 $ 154 Forbearance. 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 30 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: March 31, 2021 December 31, 2020 (in thousands) Commercial and industrial $ 110,169 $ 106,239 Commercial real estate 60,647 41,562 Residential mortgage 32,144 28,176 Home equity 49 50 Total $ 203,009 $ 176,027 Commercial and industrial loans are primarily collateralized by taxi medallions in the table above. Allowance for Credit Losses for Loans The following table summarizes the allowance for credit losses for loans at March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 (in thousands) Components of allowance for credit losses for loans: Allowance for loan losses $ 342,880 $ 340,243 Allowance for unfunded credit commitments 11,433 11,111 Total allowance for credit losses for loans $ 354,313 $ 351,354 The following table summarizes the provision for credit losses for loans for the periods indicated: Three Months Ended March 31, 2021 2020 (in thousands) Components of provision for credit losses for loans: Provision for loan losses $ 8,692 $ 33,851 Provision for unfunded credit commitments 322 73 Total provision for credit losses for loans $ 9,014 $ 33,924 31 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: Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) Three Months Ended March 31, 2021 Allowance for loan losses: Beginning balance $ 131,070 $ 164,113 $ 28,873 $ 16,187 $ 340,243 Loans charged-off ( 7,142 ) ( 382 ) ( 138 ) ( 1,138 ) ( 8,800 ) Charged-off loans recovered 1,589 69 157 930 2,745 Net (charge-offs) recoveries ( 5,553 ) ( 313 ) 19 ( 208 ) ( 6,055 ) Provision for loan losses 891 10,436 ( 1,720 ) ( 915 ) 8,692 Ending balance $ 126,408 $ 174,236 $ 27,172 $ 15,064 $ 342,880 Three Months Ended March 31, 2020 Allowance for 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 ) Charged-off loans recovered 569 93 50 794 1,506 Net (charge-offs) recoveries ( 2,791 ) 49 ( 286 ) ( 1,771 ) ( 4,799 ) Provision for loan losses 11,000 16,066 4,107 2,678 33,851 Ending balance $ 127,437 $ 111,585 $ 29,456 $ 14,864 $ 283,342 * 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. 32 The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at March 31, 2021 and December 31, 2020. Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) March 31, 2021 Allowance for loan losses: Individually evaluated for credit losses $ 73,574 $ 4,663 $ 773 $ 516 $ 79,526 Collectively evaluated for credit losses 52,834 169,573 26,399 14,548 263,354 Total $ 126,408 $ 174,236 $ 27,172 $ 15,064 $ 342,880 Loans: Individually evaluated for credit losses $ 144,101 $ 80,234 $ 39,488 $ 2,936 $ 266,759 Collectively evaluated for credit losses 7,004,543 18,629,724 4,021,004 2,764,386 32,419,657 Total $ 7,148,644 $ 18,709,958 $ 4,060,492 $ 2,767,322 $ 32,686,416 December 31, 2020 Allowance for loan losses: Individually evaluated for credit losses $ 73,063 $ 1,338 $ 1,206 $ 264 $ 75,871 Collectively evaluated for credit losses 58,007 162,775 27,667 15,923 264,372 Total $ 131,070 $ 164,113 $ 28,873 $ 16,187 $ 340,243 Loans: Individually evaluated for credit losses $ 131,057 $ 61,754 $ 35,151 $ 1,631 $ 229,593 Collectively evaluated for credit losses 6,730,651 18,409,069 4,148,592 2,699,207 31,987,519 Total $ 6,861,708 $ 18,470,823 $ 4,183,743 $ 2,700,838 $ 32,217,112 Note 8. Goodwill and Other Intangible Assets 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. 33 The following table summarizes other intangible assets as of March 31, 2021 and December 31, 2020: Gross Intangible Assets Accumulated Amortization Valuation Allowance Net Intangible Assets (in thousands) March 31, 2021 Loan servicing rights $ 106,679 $ ( 84,163 ) $ ( 74 ) $ 22,442 Core deposits 101,160 ( 56,669 ) — 44,491 Other 3,945 ( 2,906 ) — 1,039 Total other intangible assets $ 211,784 $ ( 143,738 ) $ ( 74 ) $ 67,972 December 31, 2020 Loan servicing rights $ 103,150 $ ( 80,340 ) $ ( 865 ) $ 21,945 Core deposits 101,160 ( 53,747 ) — 47,413 Other 3,945 ( 2,854 ) — 1,091 Total other intangible assets $ 208,255 $ ( 136,941 ) $ ( 865 ) $ 70,449 Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets over the period of the economic life of the assets arising from estimated net servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Impairment charges on loan servicing rights are recognized in earnings when the book value of a stratified group of loan servicing rights exceeds its estimated fair value. 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. Core deposits are amortized using an accelerated method and have a weighted average amortization period of 8.9 years. The line item labeled “Other” included in the table above primarily consists of customer lists and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 7.6 years. Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. No impairment was recognized during the three months ended March 31, 2021 and 2020. The following table presents the estimated future amortization expense of other intangible assets for the remainder of 2021 through 2025: Loan Servicing Rights Core Deposits Other (in thousands) 2021 $ 3,675 $ 8,685 $ 154 2022 4,097 9,876 191 2023 3,187 8,146 131 2024 2,495 6,537 117 2025 1,975 4,929 103 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. Note 9. Stock–Based Compensation 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 34 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. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair value of Valley's common stock on the last sale price reported for Valley's common stock on such date or the last sale price reported preceding such date, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third-party specialist using a Monte Carlo valuation model. 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. The RSUs “cliff” vest after three years based on the cumulative performance of Valley during that time period. The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common stock) over the applicable performance period. Dividend equivalents are accumulated and paid to the grantee at the vesting date or forfeited if the performance conditions are not met. The grant date fair value of the RSUs granted during the three months ended March 31, 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 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. Note 10. Derivative Instruments and Hedging Activities Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Cash Flow Hedges of Interest Rate Risk . Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively. Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes. 35 Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that Valley minimizes its net risk exposure resulting from such transactions. As these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the participation type. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At March 31, 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. Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rate on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale. Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows: March 31, 2021 December 31, 2020 Fair Value Fair Value Other Assets Other Liabilities Notional Amount Other Assets Other Liabilities Notional Amount (in thousands) Derivatives designated as hedging instruments: Cash flow hedge interest rate swaps $ — $ 88 $ 1,100,000 $ — $ 179 $ 1,100,000 Total derivatives designated as hedging instruments $ — $ 88 $ 1,100,000 $ — $ 179 $ 1,100,000 Derivatives not designated as hedging instruments: Interest rate swaps and other derivatives * $ 153,859 $ 17,956 $ 9,375,183 $ 387,008 $ 154,025 $ 8,889,557 Mortgage banking derivatives 1,774 4,459 446,943 444 2,077 321,486 Total derivatives not designated as hedging instruments $ 155,633 $ 22,415 $ 9,822,126 $ 387,452 $ 156,102 $ 9,211,043 * 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 . 36 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 March 31, 2021 2020 (in thousands) Amount of loss reclassified from accumulated other comprehensive loss to interest expense $ ( 915 ) $ ( 615 ) 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 $ 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. 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 March 31, 2021 2020 (in thousands) Non-designated hedge interest rate swaps and credit derivatives 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 $ 6.2 million and $ 14.2 million for the three months ended March 31, 2021 and 2020, respectively. Credit Risk Related Contingent Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board of Directors. Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. 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. 37 Note 11. Balance Sheet Offsetting 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; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts. In such cases, the collateral would be used to settle the fair value of the repurchase agreement should Valley be in default. The total amount of collateral held or pledged cannot exceed the net derivative fair values with the counterparty. The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of March 31, 2021 and December 31, 2020. Gross Amounts Not Offset Gross Amounts Recognized Gross Amounts Offset Net Amounts Presented Financial Instruments Cash Collateral (1) Net Amount (in thousands) March 31, 2021 Assets: Interest rate swaps $ 151,185 $ — $ 151,185 $ — $ — $ 151,185 Liabilities: Interest rate swaps $ 17,956 $ — $ 17,956 $ — $ ( 11,602 ) $ 6,354 Repurchase agreements 300,000 — 300,000 ( 300,000 ) (2) — — Total $ 317,956 $ — $ 317,956 $ ( 300,000 ) $ ( 11,602 ) $ 6,354 December 31, 2020 Assets: Interest rate swaps $ 150,487 $ — $ 150,487 $ — $ — $ 150,487 Liabilities: Interest rate swaps $ 150,487 $ — $ 150,487 $ — $ ( 150,487 ) $ — Repurchase agreements 300,000 — 300,000 ( 300,000 ) (2) — — 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. Note 12. Tax Credit Investments Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the Community Reinvestment Act (CRA). Valley’s investments in these entities generate a return primarily through the realization of federal income tax 38 credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense. Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable. The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 (in thousands) Other Assets: Affordable housing tax credit investments, net $ 19,190 $ 20,074 Other tax credit investments, net 45,275 47,301 Total tax credit investments, net $ 64,465 $ 67,375 Other Liabilities: Unfunded affordable housing tax credit commitments $ 1,379 $ 1,379 Unfunded other tax credit commitments — — 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 months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 (in thousands) Components of Income Tax Expense: Affordable housing tax credits and other tax benefits $ 897 $ 1,234 Other tax credit investment credits and tax benefits 2,685 1,300 Total reduction in income tax expense $ 3,582 $ 2,534 Amortization of Tax Credit Investments: Affordable housing tax credit investment losses $ 543 $ 554 Affordable housing tax credit investment impairment losses 341 418 Other tax credit investment losses 173 544 Other tax credit investment impairment losses 1,687 1,712 Total amortization of tax credit investments recorded in non-interest expense $ 2,744 $ 3,228 Note 13. Business Segments Valley has four business segments that it monitors and reports on to manage Valley’s business operations. These segments are consumer lending, commercial lending, investment management, and corporate and other adjustments. Valley’s reportable segments have been determined based upon its internal structure of operations and lines of business. Each business segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible 39 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. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/or liabilities outstanding for the period. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution. The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. 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 months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 Consumer Lending Commercial Lending Investment Management Corporate and Other Adjustments Total ($ in thousands) Average interest earning assets $ 7,049,252 $ 25,533,227 $ 4,803,740 $ — $ 37,386,219 Interest income $ 60,845 $ 252,336 $ 19,509 $ ( 892 ) $ 331,798 Interest expense 6,415 23,235 4,371 5,110 39,131 Net interest income (loss) 54,430 229,101 15,138 ( 6,002 ) 292,667 (Credit) provision for credit losses ( 2,635 ) 11,676 ( 385 ) — 8,656 Net interest income (loss) after provision for credit losses 57,065 217,425 15,523 ( 6,002 ) 284,011 Non-interest income 13,685 7,713 2,331 7,504 31,233 Non-interest expense 19,849 25,531 1,777 113,056 160,213 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 Return on average interest earning assets (pre-tax) 1.78 % 2.02 % 0.23 % N/A 1.66 % Three Months Ended March 31, 2020 Consumer Lending Commercial Lending Investment Management Corporate and Other Adjustments Total ($ in thousands) Average interest earning assets $ 7,217,144 $ 22,782,284 $ 4,674,647 $ — $ 34,674,075 Interest income $ 68,255 $ 264,875 $ 31,769 $ ( 1,106 ) $ 363,793 Interest expense 19,700 62,186 12,760 3,808 98,454 Net interest income (loss) 48,555 202,689 19,009 ( 4,914 ) 265,339 Provision for credit losses 6,785 27,139 759 — 34,683 Net interest income (loss) after provision for credit losses 41,770 175,550 18,250 ( 4,914 ) 230,656 Non-interest income 14,677 15,599 3,142 7,979 41,397 Non-interest expense 19,871 24,158 387 111,240 155,656 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 Return on average interest earning assets (pre-tax) 0.90 % 1.80 % 0.67 % N/A 1.34 % 40