VALLEY NATIONAL BANCORP 10-Q

Item 1. Financial Statements VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except for share data) June 30, 2021 December 31, 2020 Assets (Unaudited) Cash and due from banks $ 329,006 $ 257,845 Interest bearing deposits with banks 1,515,757 1,071,360 Investment securities: Equity securities 33,870 29,378 Trading debt securities 21,216 — Available for sale debt securities 1,075,538 1,339,473 Held to maturity debt securities (net of allowance for credit losses of $ 1,040 at June 30, 2021 and $ 1,428 at December 31, 2020) 2,532,772 2,171,583 Total investment securities 3,663,396 3,540,434 Loans held for sale, at fair value 159,256 301,427 Loans 32,457,454 32,217,112 Less: Allowance for loan losses ( 339,324 ) ( 340,243 ) Net loans 32,118,130 31,876,869 Premises and equipment, net 327,517 319,797 Lease right of use assets 235,165 252,053 Bank owned life insurance 535,283 535,209 Accrued interest receivable 99,068 106,230 Goodwill 1,382,442 1,382,442 Other intangible assets, net 65,523 70,449 Other assets 843,685 971,961 Total Assets $ 41,274,228 $ 40,686,076 Liabilities Deposits: Non-interest bearing $ 10,528,946 $ 9,205,266 Interest bearing: Savings, NOW and money market 18,358,279 16,015,658 Time 4,307,549 6,714,678 Total deposits 33,194,774 31,935,602 Short-term borrowings 854,378 1,147,958 Long-term borrowings 1,885,690 2,295,665 Junior subordinated debentures issued to capital trusts 56,239 56,065 Lease liabilities 259,075 276,675 Accrued expenses and other liabilities 286,265 381,991 Total Liabilities 36,536,421 36,093,956 Shareholders’ Equity Preferred stock, no par value; 50,000,000 authorized shares: Series A ( 4,600,000 shares issued at June 30, 2021 and December 31, 2020) 111,590 111,590 Series B ( 4,000,000 shares issued at June 30, 2021 and December 31, 2020) 98,101 98,101 Common stock ( no par value, authorized 650,000,000 shares; issued 406,090,983 shares at June 30, 2021 and 403,881,488 shares at December 31, 2020) 142,550 141,746 Surplus 3,658,636 3,637,468 Retained earnings 744,768 611,158 Accumulated other comprehensive loss ( 17,735 ) ( 7,718 ) Treasury stock, at cost ( 7,193 common shares at June 30, 2021 and 22,490 common shares at December 31, 2020) ( 103 ) ( 225 ) Total Shareholders’ Equity 4,737,807 4,592,120 Total Liabilities and Shareholders’ Equity $ 41,274,228 $ 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Interest Income Interest and fees on loans $ 315,314 $ 321,883 $ 628,495 $ 654,951 Interest and dividends on investment securities: Taxable 12,716 19,447 25,882 41,380 Tax-exempt 3,216 3,692 6,572 7,618 Dividends 2,167 3,092 4,038 6,493 Interest on federal funds sold and other short-term investments 235 411 459 1,876 Total interest income 333,648 348,525 665,446 712,318 Interest Expense Interest on deposits: Savings, NOW and money market 11,166 16,627 22,291 51,140 Time 6,279 29,857 17,372 72,671 Interest on short-term borrowings 1,168 1,980 2,926 6,687 Interest on long-term borrowings and junior subordinated debentures 14,128 17,502 29,283 33,922 Total interest expense 32,741 65,966 71,872 164,420 Net Interest Income 300,907 282,559 593,574 547,898 (Credit) provision for credit losses for held to maturity securities ( 30 ) 41 ( 388 ) 800 Provision for credit losses for loans 8,777 41,115 17,791 75,039 Net Interest Income After Provision for Credit Losses 292,160 241,403 576,171 472,059 Non-Interest Income Trust and investment services 3,532 2,826 6,861 6,239 Insurance commissions 2,637 1,659 4,195 3,610 Service charges on deposit accounts 5,083 3,557 10,186 9,237 Gains (losses) on securities transactions, net 375 ( 41 ) 476 ( 81 ) Fees from loan servicing 3,187 2,227 6,086 4,975 Gains on sales of loans, net 10,061 8,337 13,574 12,887 Gains (losses) on sales of assets, net 232 ( 299 ) 36 ( 178 ) Bank owned life insurance 2,475 5,823 4,806 8,965 Other 15,544 20,741 28,139 40,573 Total non-interest income 43,126 44,830 74,359 86,227 Non-Interest Expense Salary and employee benefits expense 91,095 78,532 179,198 164,260 Net occupancy and equipment expense 32,451 33,217 64,710 65,658 FDIC insurance assessment 3,374 6,135 6,650 10,011 Amortization of other intangible assets 5,449 6,681 11,455 12,151 Professional and legal fees 7,486 7,797 13,758 13,884 Loss on extinguishment of debt 8,406 — 8,406 — Amortization of tax credit investments 2,972 3,416 5,716 6,644 Telecommunication expense 2,732 2,866 5,892 5,153 Other 17,928 18,522 36,321 35,061 Total non-interest expense 171,893 157,166 332,106 312,822 Income Before Income Taxes 163,393 129,067 318,424 245,464 Income tax expense 42,881 33,466 82,202 62,595 Net Income 120,512 95,601 236,222 182,869 Dividends on preferred stock 3,172 3,172 6,344 6,344 Net Income Available to Common Shareholders $ 117,340 $ 92,429 $ 229,878 $ 176,525 3 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (continued) (in thousands, except for share data) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Earnings Per Common Share: Basic $ 0.29 $ 0.23 $ 0.57 $ 0.44 Diluted 0.29 0.23 0.56 0.44 Cash Dividends Declared per Common Share 0.11 0.11 0.22 0.22 Weighted Average Number of Common Shares Outstanding: Basic 405,963,209 403,790,242 405,560,146 403,654,665 Diluted 408,660,778 404,631,845 408,152,458 405,043,183 See accompanying notes to consolidated financial statements. 4 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net income $ 120,512 $ 95,601 $ 236,222 $ 182,869 Other comprehensive income, net of tax: Unrealized gains and losses on available for sale securities Net (losses) gains arising during the period ( 1,471 ) 3,013 ( 11,907 ) 29,081 Less reclassification adjustment for net losses included in net income 76 31 120 58 Total ( 1,395 ) 3,044 ( 11,787 ) 29,139 Unrealized gains and losses on derivatives (cash flow hedges) Net (losses) gains on derivatives arising during the period ( 147 ) ( 1,280 ) 27 ( 2,337 ) Less reclassification adjustment for net losses (gains) included in net income 534 ( 308 ) 1,185 130 Total 387 ( 1,588 ) 1,212 ( 2,207 ) Defined benefit pension plan Amortization of actuarial net loss 278 172 558 344 Total other comprehensive (loss) income ( 730 ) 1,628 ( 10,017 ) 27,276 Total comprehensive income $ 119,782 $ 97,229 $ 226,205 $ 210,145 See accompanying notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) For the Six Months Ended June 30, 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 Net income — — — — 120,512 — — 120,512 Other comprehensive loss, net of tax — — — — — ( 730 ) — ( 730 ) 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 — — — — ( 45,093 ) — — ( 45,093 ) Effect of stock incentive plan, net — 286 115 6,688 ( 130 ) — ( 53 ) 6,620 Balance - June 30, 2021 $ 209,691 406,084 $ 142,550 $ 3,658,636 $ 744,768 $ ( 17,735 ) $ ( 103 ) $ 4,737,807 6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (continued) For the Six Months Ended June 30, 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 Net income — — — — 95,601 — — 95,601 Other comprehensive income, net of tax — — — — — 1,628 — 1,628 Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 44,750 ) — — ( 44,750 ) Effect of stock incentive plan, net — 52 54 4,756 ( 592 ) — ( 35 ) 4,183 Balance - June 30, 2020 $ 209,691 403,796 $ 141,667 $ 3,628,792 $ 499,511 $ ( 4,938 ) $ ( 235 ) $ 4,474,488 See accompanying notes to consolidated financial statements. 7 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net income $ 236,222 $ 182,869 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 27,681 29,608 Stock-based compensation 10,690 8,199 Provision for credit losses 17,403 75,839 Net amortization of premiums and accretion of discounts on securities and borrowings 14,112 15,305 Amortization of other intangible assets 11,455 12,151 (Gains) losses on securities transactions, net ( 476 ) 81 Proceeds from sales of loans held for sale 690,844 408,785 Gains on sales of loans, net ( 13,574 ) ( 12,887 ) Originations of loans held for sale ( 541,627 ) ( 443,684 ) (Gains) losses on sales of assets, net ( 36 ) 178 Loss on extinguishment of debt 8,406 — Net change in: Trading debt securities ( 21,216 ) — Cash surrender value of bank owned life insurance ( 4,806 ) ( 8,965 ) Accrued interest receivable 7,162 ( 17,170 ) Other assets 131,345 ( 426,776 ) Accrued expenses and other liabilities ( 119,331 ) 166,490 Net cash provided by (used in) operating activities 454,254 ( 9,977 ) Cash flows from investing activities: Net loan originations and purchases ( 264,512 ) ( 2,568,893 ) Equity securities: Purchases ( 2,482 ) ( 5,365 ) Sales 649 — Held to maturity debt securities: Purchases ( 744,868 ) ( 107,136 ) Maturities, calls and principal repayments 372,397 301,004 Available for sale debt securities: Purchases ( 87,366 ) ( 302,071 ) Sales 41,134 — Maturities, calls and principal repayments 287,901 213,348 Death benefit proceeds from bank owned life insurance 3,850 13,751 Proceeds from sales of real estate property and equipment 2,747 8,202 Proceeds from sales of loans held for investment 4,498 30,020 Purchases of real estate property and equipment ( 12,207 ) ( 14,469 ) Net cash used in investing activities ( 398,259 ) ( 2,431,609 ) 8 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) Six Months Ended June 30, 2021 2020 Cash flows from financing activities: Net change in deposits $ 1,259,172 $ 2,151,400 Net change in short-term borrowings ( 293,580 ) 989,600 Proceeds from issuance of long-term borrowings, net 295,934 838,388 Repayments of long-term borrowings ( 710,595 ) ( 53,418 ) Cash dividends paid to preferred shareholders ( 6,344 ) ( 6,344 ) Cash dividends paid to common shareholders ( 90,201 ) ( 89,122 ) Purchase of common shares to treasury ( 684 ) ( 4,924 ) Common stock issued, net 6,194 1,140 Other, net ( 333 ) ( 264 ) Net cash provided by financing activities 459,563 3,826,456 Net change in cash and cash equivalents 515,558 1,384,870 Cash and cash equivalents at beginning of year 1,329,205 434,687 Cash and cash equivalents at end of period $ 1,844,763 $ 1,819,557 Supplemental disclosures of cash flow information: Cash payments for: Interest on deposits and borrowings $ 82,596 $ 178,337 Federal and state income taxes 117,562 14,731 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 1,993 6,407 See accompanying notes to consolidated financial statements. 9 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 June 30, 2021 and for all periods presented have been made. The results of operations for the three and six months ended on June 30, 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 six months ended June 30, 2020 was revised to reflect an adjustment for an intercompany account that was not properly eliminated in consolidation. The adjustment resulted in a $ 90.8 million decrease in “Net change in deposits” line item to a net increase of $ 2.2 billion. The corresponding decrease in the “Net change in cash and cash equivalents” line item resulted in a change from a net increase of $ 1.5 billion to a net increase of $ 1.4 billion. 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. The Westchester Bank Holding Corporation. On June 29, 2021, Valley announced that it will acquire The Westchester Bank Holding Corporation (“Westchester”) and its principal subsidiary, The Westchester Bank which is headquartered in White Plains, New York. Westchester has approximately $ 1.3 billion in assets, $ 908 million in loans, $ 1.1 billion in deposits, and maintains a seven branch network in Westchester County, New York. The common shareholders of Westchester will receive 229.645 shares of Valley common stock for each Westchester share they own. Based on Valley’s closing stock price on June 28, 2021, Westchester’s stockholders will receive approximately $ 210 million in Valley common stock. Existing Westchester options will be cashed out for approximately $ 10 million in cash.The acquisition is expected to close in the fourth quarter 2021, subject to standard regulatory approvals, approval of Westchester stockholders, as well as other customary conditions. 10 Note 2. Earnings Per Common Share The following table shows the calculation of both basic and diluted earnings per common share for the three and six months ended June 30, 2021 and 2020: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands, except for share data) Net income available to common shareholders $ 117,340 $ 92,429 $ 229,878 $ 176,525 Basic weighted average number of common shares outstanding 405,963,209 403,790,242 405,560,146 403,654,665 Plus: Common stock equivalents 2,697,569 841,603 2,592,312 1,388,518 Diluted weighted average number of common shares outstanding 408,660,778 404,631,845 408,152,458 405,043,183 Earnings per common share: Basic $ 0.29 $ 0.23 $ 0.57 $ 0.44 Diluted 0.29 0.23 0.56 0.44 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 and six months ended June 30, 2021, respectively, as compared to 2.7 million and 2.3 million shares for the three and six months ended June 30, 2020, respectively. 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 and six months ended June 30, 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 March 31, 2021 $ 22,898 $ ( 3,081 ) $ ( 36,822 ) $ ( 17,005 ) Other comprehensive loss before reclassification ( 1,471 ) ( 147 ) — ( 1,618 ) Amounts reclassified from other comprehensive income 76 534 278 888 Other comprehensive (loss) income, net ( 1,395 ) 387 278 ( 730 ) Balance at June 30, 2021 $ 21,503 $ ( 2,694 ) $ ( 36,544 ) $ ( 17,735 ) 11 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 ( 11,907 ) 27 — ( 11,880 ) Amounts reclassified from other comprehensive income 120 1,185 558 1,863 Other comprehensive (loss) income, net ( 11,787 ) 1,212 558 ( 10,017 ) Balance at June 30, 2021 $ 21,503 $ ( 2,694 ) $ ( 36,544 ) $ ( 17,735 ) The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three and six months ended June 30, 2021 and 2020: Amounts Reclassified from Accumulated Other Comprehensive Loss Three Months Ended June 30, Six Months Ended June 30, Components of Accumulated Other Comprehensive Loss 2021 2020 2021 2020 Income Statement Line Item (in thousands) Unrealized losses on AFS securities before tax $ ( 103 ) $ ( 41 ) $ ( 162 ) $ ( 81 ) Gains (losses) on securities transactions, net Tax effect 27 10 42 23 Total net of tax ( 76 ) ( 31 ) ( 120 ) ( 58 ) Unrealized (losses) gains on derivatives (cash flow hedges) before tax ( 749 ) 438 ( 1,664 ) ( 177 ) Interest expense Tax effect 215 ( 130 ) 479 47 Total net of tax ( 534 ) 308 ( 1,185 ) ( 130 ) Defined benefit pension plan: Amortization of actuarial net loss ( 387 ) ( 229 ) ( 775 ) ( 465 ) * Tax effect 109 57 217 121 Total net of tax ( 278 ) ( 172 ) ( 558 ) ( 344 ) Total reclassifications, net of tax $ ( 888 ) $ 105 $ ( 1,863 ) $ ( 532 ) * 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. 12 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. ASU No. 2021-05 "Lessors – Certain Leases with Variable Lease Payments". The ASU No. 2021-05 updates guidance in Accounting Standards Codification (ASC) 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if: (i) the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria; and (ii) the lessor would have recognized a selling loss at lease commencement. ASU No. 2021-05 is effective for Valley for fiscal years and interim periods beginning after December 15, 2021, with early adoption permitted. The ASU No. 2021-05 is not expected to have a significant impact on Valley’s consolidated financial statements. 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). 13 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 June 30, 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). June 30, 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) $ 30,357 $ 19,604 $ — $ — Trading debt securities 21,216 — 21,216 — Available for sale debt securities: U.S. Treasury securities 51,010 51,010 — — U.S. government agency securities 23,907 — 23,907 — Obligations of states and political subdivisions 65,685 — 65,685 — Residential mortgage-backed securities 846,316 — 846,316 — Corporate and other debt securities 88,620 — 88,620 — Total available for sale debt securities 1,075,538 51,010 1,024,528 — Loans held for sale (2) 159,256 — 159,256 — Other assets (3) 248,843 — 248,843 — Total assets $ 1,535,210 $ 70,614 $ 1,453,843 $ — Liabilities Other liabilities (3) $ 81,676 $ — $ 81,676 $ — Total liabilities $ 81,676 $ — $ 81,676 $ — Non-recurring fair value measurements: Collateral dependent loans $ 39,655 $ — $ — $ 39,655 Loan servicing rights 158 — — 158 Foreclosed assets 2,202 — — 2,202 Total $ 42,015 $ — $ — $ 42,015 14 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 debt securities: 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 $ 10.8 million and $ 7.8 million at June 30, 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 $ 154.2 million and $ 286.4 million at June 30, 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. Trading debt securities. The fair value of trading debt securities, consisting of municipal bonds, is reported at fair value utilizing Level 2 inputs. The prices for these investments are derived from market quotations and matrix pricing obtained through an independent pricing service. 15 Available for sale debt securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for sale securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume. Loans held for sale. Residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2021, collateral dependent loans, mostly consisting of taxi medallion loans, with a total amortized cost of $ 104.3 million were reduced by specific allowance for loan losses allocations totaling $ 64.6 million to a reported total net carrying amount of $ 39.7 million. 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, 16 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 June 30, 2021, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 15.4 percent and a discount rate of 9.1 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 June 30, 2021, certain loan servicing rights were re-measured at fair value totaling $ 158 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 1.3 percent to 7.1 percent at June 30, 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. 17 The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at June 30, 2021 and December 31, 2020 were as follows: Fair Value Hierarchy June 30, 2021 December 31, 2020 Carrying Amount Fair Value Carrying Amount Fair Value (in thousands) Financial assets Cash and due from banks Level 1 $ 329,006 $ 329,006 $ 257,845 $ 257,845 Interest bearing deposits with banks Level 1 1,515,757 1,515,757 1,071,360 1,071,360 Equity securities (1) Level 3 3,513 3,513 2,999 2,999 Held to maturity debt securities: U.S. Treasury securities Level 1 67,874 73,575 68,126 75,484 U.S. government agency securities Level 2 5,548 5,813 6,222 6,513 Obligations of states and political subdivisions Level 2 444,380 454,718 470,259 484,506 Residential mortgage-backed securities Level 2 1,926,900 1,938,608 1,550,306 1,589,655 Trust preferred securities Level 2 37,360 31,425 37,348 30,033 Corporate and other debt securities Level 2 51,750 52,380 40,750 41,421 Total held to maturity debt securities (2) 2,533,812 2,556,519 2,173,011 2,227,612 Net loans Level 3 32,118,130 31,962,961 31,876,869 31,635,060 Accrued interest receivable Level 1 99,068 99,068 106,230 106,230 Federal Reserve Bank and Federal Home Loan Bank stock (3) Level 2 212,122 212,122 250,116 250,116 Financial liabilities Deposits without stated maturities Level 1 28,887,225 28,887,225 25,220,924 25,220,924 Deposits with stated maturities Level 2 4,307,549 4,256,745 6,714,678 6,639,022 Short-term borrowings Level 1 854,378 838,440 1,147,958 1,151,478 Long-term borrowings Level 2 1,885,690 1,882,750 2,295,665 2,405,345 Junior subordinated debentures issued to capital trusts Level 2 56,239 45,802 56,065 57,779 Accrued interest payable (4) Level 1 8,115 8,115 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 $ 33.9 million and $ 29.4 million at June 30, 2021 and December 31, 2020, respectively. At June 30, 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. Trading Debt Securities The fair value of trading securities, consisting of municipal bonds, totaled $ 21.2 million at June 30, 2021. Net trading gains are included in net gains and losses on securities transactions within non-interest income. Net trading gains totaled $ 489 thousand and $ 707 thousand for the three and six months ended June 30, 2021, respectively. 18 Available for Sale Debt Securities The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities at June 30, 2021 and December 31, 2020 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) June 30, 2021 U.S. Treasury securities $ 50,023 $ 987 $ — $ 51,010 U.S. government agency securities 22,695 1,218 ( 6 ) 23,907 Obligations of states and political subdivisions: Obligations of states and state agencies 32,098 614 — 32,712 Municipal bonds 32,440 541 ( 8 ) 32,973 Total obligations of states and political subdivisions 64,538 1,155 ( 8 ) 65,685 Residential mortgage-backed securities 823,040 24,490 ( 1,214 ) 846,316 Corporate and other debt securities 85,441 3,198 ( 19 ) 88,620 Total $ 1,045,737 $ 31,048 $ ( 1,247 ) $ 1,075,538 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 19 The age of unrealized losses and fair value of the related available for sale debt securities at June 30, 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) June 30, 2021 U.S. government agency securities $ — $ — $ 1,396 $ ( 6 ) $ 1,396 $ ( 6 ) Municipal bonds 4,705 ( 8 ) — — 4,705 ( 8 ) Residential mortgage-backed securities 116,758 ( 914 ) 12,726 ( 300 ) 129,484 ( 1,214 ) Corporate and other debt securities 1,981 ( 19 ) — — 1,981 ( 19 ) Total $ 123,444 $ ( 941 ) $ 14,122 $ ( 306 ) $ 137,566 $ ( 1,247 ) 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 ) Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 67 and 58 at June 30, 2021 and December 31, 2020, respectively. As of June 30, 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 $ 736.2 million. The contractual maturities of available for sale debt securities at June 30, 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. June 30, 2021 Amortized Cost Fair Value (in thousands) Due in one year $ 6,769 $ 6,824 Due after one year through five years 84,534 86,491 Due after five years through ten years 79,866 82,581 Due after ten years 51,528 53,326 Residential mortgage-backed securities 823,040 846,316 Total $ 1,045,737 $ 1,075,538 Actual maturities of available for sale debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. The weighted average remaining expected life for residential mortgage-backed securities available for sale was 4.4 years at June 30, 2021. 20 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 June 30, 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 and six months ended June 30, 2021 and 2020. There was no allowance for credit losses for available for sale debt securities at June 30, 2021 and December 31, 2020. Held to Maturity Debt Securities The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at June 30, 2021 and December 31, 2020 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) June 30, 2021 U.S. Treasury securities $ 67,874 $ 5,701 $ — $ 73,575 U.S. government agency securities 5,548 265 — 5,813 Obligations of states and political subdivisions: Obligations of states and state agencies 243,374 5,505 ( 43 ) 248,836 Municipal bonds 201,006 4,894 ( 18 ) 205,882 Total obligations of states and political subdivisions 444,380 10,399 ( 61 ) 454,718 Residential mortgage-backed securities 1,926,900 23,376 ( 11,668 ) 1,938,608 Trust preferred securities 37,360 51 ( 5,986 ) 31,425 Corporate and other debt securities 51,750 640 ( 10 ) 52,380 Total $ 2,533,812 $ 40,432 $ ( 17,725 ) $ 2,556,519 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 21 The age of unrealized losses and fair value of related debt securities held to maturity at June 30, 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) June 30, 2021 Obligations of states and political subdivisions: Obligations of states and state agencies $ — $ — $ 5,570 $ ( 43 ) $ 5,570 $ ( 43 ) Municipal bonds 1,328 ( 18 ) — — 1,328 ( 18 ) Total obligations of states and political subdivisions 1,328 ( 18 ) 5,570 ( 43 ) 6,898 ( 61 ) Residential mortgage-backed securities 983,406 ( 11,606 ) 4,608 ( 62 ) 988,014 ( 11,668 ) Trust preferred securities — — 30,021 ( 5,986 ) 30,021 ( 5,986 ) Corporate and other debt securities 7,990 ( 10 ) — — 7,990 ( 10 ) Total $ 992,724 $ ( 11,634 ) $ 40,199 $ ( 6,091 ) $ 1,032,923 $ ( 17,725 ) 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 44 and 13 at June 30, 2021 and December 31, 2020, respectively. As of June 30, 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 $ 1.6 billion. The contractual maturities of investments in debt securities held to maturity at June 30, 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. June 30, 2021 Amortized Cost Fair Value (in thousands) Due in one year $ 27,218 $ 27,365 Due after one year through five years 247,844 257,620 Due after five years through ten years 129,112 130,979 Due after ten years 202,738 201,947 Residential mortgage-backed securities 1,926,900 1,938,608 Total $ 2,533,812 $ 2,556,519 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 6.0 years at June 30, 2021. 22 Credit Quality Indicators Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at June 30, 2021 and December 31, 2020. AAA/AA/A Rated BBB rated Non-investment grade rated Non-rated Total (in thousands) June 30, 2021 U.S. Treasury securities $ 67,874 $ — $ — $ — $ 67,874 U.S. government agency securities 5,548 — — — 5,548 Obligations of states and political subdivisions: Obligations of states and state agencies 210,548 — 5,613 27,213 243,374 Municipal bonds 158,111 — — 42,895 201,006 Total obligations of states and political subdivisions 368,659 — 5,613 70,108 444,380 Residential mortgage-backed securities 1,926,900 — — — 1,926,900 Trust preferred securities — — — 37,360 37,360 Corporate and other debt securities — 8,000 — 43,750 51,750 Total $ 2,368,981 $ 8,000 $ 5,613 $ 151,218 $ 2,533,812 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 June 30, 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. 23 At June 30, 2021, held to maturity debt securities were carried net of allowance for credit losses totaling $ 1.0 million and $ 1.4 million at June 30, 2021 and December 31, 2020, respectively. There were no net charge-offs of held to maturity debt securities for the three and six months ended June 30, 2021 and 2020. Note 7. Loans and Allowance for Credit Losses for Loans The detail of the loan portfolio as of June 30, 2021 and December 31, 2020 was as follows: June 30, 2021 December 31, 2020 (in thousands) Loans: Commercial and industrial: Commercial and industrial $ 4,733,771 $ 4,709,569 Commercial and industrial PPP loans * 1,350,684 2,152,139 Total commercial and industrial loans 6,084,455 6,861,708 Commercial real estate: Commercial real estate 17,512,142 16,724,998 Construction 1,752,838 1,745,825 Total commercial real estate loans 19,264,980 18,470,823 Residential mortgage 4,226,975 4,183,743 Consumer: Home equity 410,856 431,553 Automobile 1,531,262 1,355,955 Other consumer 938,926 913,330 Total consumer loans 2,881,044 2,700,838 Total loans $ 32,457,454 $ 32,217,112 * Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $ 40.9 million and $ 43.2 million at June 30, 2021 and December 31, 2020, respectively. Total loans includes net unearned discounts and deferred loan fees of $ 86.1 million and $ 95.8 million at June 30, 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 June 30, 2021 and December 31, 2020. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 84.1 million and $ 90.2 million at June 30, 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 six months ended June 30, 2020 . Excluding the loan transfers, there were no other material sales of loans from the held for investment portfolio during the three and six months ended June 30, 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, 24 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 June 30, 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) June 30, 2021 Commercial and industrial $ 3,867 $ 1,361 $ 2,351 $ 102,594 $ 110,173 $ 5,974,282 $ 6,084,455 $ 9,550 Commercial real estate: Commercial real estate 40,524 11,451 1,948 58,893 112,816 17,399,326 17,512,142 37,116 Construction — — — 17,660 17,660 1,735,178 1,752,838 — Total commercial real estate loans 40,524 11,451 1,948 76,553 130,476 19,134,504 19,264,980 37,116 Residential mortgage 8,479 1,608 956 35,941 46,984 4,179,991 4,226,975 16,807 Consumer loans: Home equity 592 325 — 4,431 5,348 405,508 410,856 48 Automobile 5,521 636 441 389 6,987 1,524,275 1,531,262 — Other consumer 129 24 22 104 279 938,647 938,926 — Total consumer loans 6,242 985 463 4,924 12,614 2,868,430 2,881,044 48 Total $ 59,112 $ 15,405 $ 5,718 $ 220,012 $ 300,247 $ 32,157,207 $ 32,457,454 $ 63,521 25 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. 26 The following table presents the internal loan classification risk by loan portfolio class by origination year based on the most recent analysis performed at June 30, 2021 and December 31, 2020: Term Loans Amortized Cost Basis by Origination Year June 30, 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 $ 1,539,921 $ 1,227,478 $ 508,228 $ 438,246 $ 162,119 $ 409,413 $ 1,571,927 $ 225 $ 5,857,557 Special Mention 1,282 1,550 1,476 11,182 2,159 17,041 59,376 64 94,130 Substandard 3,325 8,658 4,366 8,803 859 1,374 17,141 321 44,847 Doubtful 129 — 2,739 — 16,370 68,683 — — 87,921 Total commercial and industrial $ 1,544,657 $ 1,237,686 $ 516,809 $ 458,231 $ 181,507 $ 496,511 $ 1,648,444 $ 610 $ 6,084,455 Commercial real estate Risk Rating: Pass $ 2,100,741 $ 3,055,880 $ 2,875,727 $ 2,005,122 $ 1,552,673 $ 4,978,293 $ 174,277 $ 12,849 $ 16,755,562 Special Mention 2,000 51,271 58,418 44,118 43,019 184,694 38,615 — 422,135 Substandard 849 22,209 32,935 39,756 73,103 162,866 2,531 — 334,249 Doubtful — — — — — 196 — — 196 Total commercial real estate $ 2,103,590 $ 3,129,360 $ 2,967,080 $ 2,088,996 $ 1,668,795 $ 5,326,049 $ 215,423 $ 12,849 $ 17,512,142 Construction Risk Rating: Pass $ 112,491 $ 147,431 $ 87,130 $ 78,332 $ 6,656 $ 29,216 $ 1,251,972 $ — $ 1,713,228 Special Mention — — 1,026 — — 1,714 8,871 — 11,611 Substandard — 28 16 331 — 17,842 9,782 — 27,999 Total construction $ 112,491 $ 147,459 $ 88,172 $ 78,663 $ 6,656 $ 48,772 $ 1,270,625 $ — $ 1,752,838 27 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 28 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 June 30, 2021 and December 31, 2020. Term Loans Amortized Cost Basis by Origination Year June 30, 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 $ 687,724 $ 701,963 $ 671,803 $ 519,568 $ 446,367 $ 1,108,317 $ 68,012 $ — $ 4,203,754 90 days or more past due — 1,719 1,852 2,021 3,907 13,722 — — 23,221 Total residential mortgage $ 687,724 $ 703,682 $ 673,655 $ 521,589 $ 450,274 $ 1,122,039 $ 68,012 $ — $ 4,226,975 Consumer loans Home equity Performing $ 7,120 $ 7,314 $ 8,925 $ 9,332 $ 6,946 $ 15,485 $ 307,985 $ 46,238 $ 409,345 90 days or more past due — — — — — 81 876 554 1,511 Total home equity 7,120 7,314 8,925 9,332 6,946 15,566 308,861 46,792 410,856 Automobile Performing 447,260 376,473 354,978 210,941 108,085 32,683 — — 1,530,420 90 days or more past due 25 89 175 230 198 125 — — 842 Total automobile 447,285 376,562 355,153 211,171 108,283 32,808 — — 1,531,262 Other Consumer Performing 5,953 7,101 6,626 6,850 1,037 7,905 903,454 — 938,926 90 days or more past due — — — — — — — — — Total other consumer 5,953 7,101 6,626 6,850 1,037 7,905 903,454 — 938,926 Total consumer $ 460,358 $ 390,977 $ 370,704 $ 227,353 $ 116,266 $ 56,279 $ 1,212,315 $ 46,792 $ 2,881,044 29 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 $ 64.1 million and $ 57.4 million as of June 30, 2021 and December 31, 2020, respectively. Non-performing TDRs totaled $ 89.8 million and $ 92.8 million as of June 30, 2021 and December 31, 2020, respectively. 30 The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs during the three and six months ended June 30, 2021 and 2020. Post-modification amounts are presented as of June 30, 2021 and 2020. Three Months Ended June 30, 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 9 $ 8,592 $ 8,529 4 $ 9,052 $ 7,047 Commercial real estate: Commercial real estate 6 12,237 12,223 1 885 900 Construction — — — 2 435 218 Total commercial real estate 6 12,237 12,223 3 1,320 1,118 Residential mortgage 2 1,089 1,079 — — — Total 17 $ 21,918 $ 21,831 7 $ 10,372 $ 8,165 Six Months Ended June 30, 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 13 $ 20,855 $ 19,648 20 $ 22,196 $ 19,674 Commercial real estate: Commercial real estate 6 12,237 12,223 2 4,748 4,762 Construction — — — 2 435 218 Total commercial real estate 6 12,237 12,223 4 5,183 4,980 Residential mortgage 8 2,618 2,586 — — — Consumer 1 169 166 — — — Total 28 $ 35,879 $ 34,623 24 $ 27,379 $ 24,654 The total TDRs presented in the above table had allocated allowance for loan losses of $ 4.5 million and $ 8.4 million at June 30, 2021 and 2020, respectively. There were $ 697 thousand and $ 5.8 million of charge-offs related to TDRs for the three and six months ended June 30, 2021, respectively. There were $ 2.9 million and $ 3.7 million of charge-offs were related to TDRs for the three and six months ended June 30, 2020, respectively. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three and six months ended June 30, 2021 and 2020. 31 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 and six months ended June 30, 2021 and 2020 were as follows: Three Months Ended June 30, 2021 2020 Troubled Debt Restructurings Subsequently Defaulted Number of Contracts Recorded Investment Number of Contracts Recorded Investment ($ in thousands) Commercial and industrial — $ — 20 $ 14,986 Residential mortgage 1 445 1 220 Consumer — — 2 204 Total 1 $ 445 23 $ 15,410 Six Months Ended June 30, 2021 2020 Troubled Debt Restructurings Subsequently Defaulted Number of Contracts Recorded Investment Number of Contracts Recorded Investment ($ in thousands) Commercial and industrial 15 $ 12,384 20 $ 14,986 Residential mortgage 2 692 1 220 Consumer — — 2 204 Total 17 $ 13,076 23 $ 15,410 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, when requested by customers, all of which were insignificant. As of June 30, 2021, Valley had approximately $ 142 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 June 30, 2021 and December 31, 2020. Loans in Process of Foreclosure. Other real estate owned (OREO) totaled $ 4.5 million and $ 5.1 million at June 30, 2021 and December 31, 2020, respectively. OREO included foreclosed residential real estate properties which were immaterial at June 30, 2021 and totaled $ 1.0 million at December 31, 2020. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $ 2.0 million and $ 1.9 million at June 30, 2021 and December 31, 2020, respectively. Collateral dependent loans. Loans are collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process. 32 The following table presents collateral dependent loans by class as of June 30, 2021 and December 31, 2020: June 30, 2021 December 31, 2020 (in thousands) Commercial and industrial * $ 95,000 $ 106,239 Commercial real estate 66,054 41,562 Residential mortgage 31,714 28,176 Home equity 48 50 Total $ 192,816 $ 176,027 * Commercial and industrial loans are primarily collateralized by taxi medallions. Allowance for Credit Losses for Loans The following table summarizes the allowance for credit losses for loans at June 30, 2021 and December 31, 2020: June 30, 2021 December 31, 2020 (in thousands) Components of allowance for credit losses for loans: Allowance for loan losses $ 339,324 $ 340,243 Allowance for unfunded credit commitments 14,400 11,111 Total allowance for credit losses for loans $ 353,724 $ 351,354 The following table summarizes the provision for credit losses for loans for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) Components of provision for credit losses for loans: Provision for loan losses $ 5,810 $ 41,025 $ 14,502 $ 74,876 Provision for unfunded credit commitments 2,967 90 3,289 163 Total provision for credit losses for loans $ 8,777 $ 41,115 $ 17,791 $ 75,039 33 The following table details the activity in the allowance for loan losses by loan portfolio segment for the three and six months ended June 30, 2021 and 2020: Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) Three Months Ended June 30, 2021 Allowance for loan losses: Beginning balance $ 126,408 $ 174,236 $ 27,172 $ 15,064 $ 342,880 Loans charged-off ( 10,893 ) — ( 1 ) ( 1,480 ) ( 12,374 ) Charged-off loans recovered 678 665 191 1,474 3,008 Net (charge-offs) recoveries ( 10,215 ) 665 190 ( 6 ) ( 9,366 ) (Credit) provision for loan losses ( 6,504 ) 14,238 ( 2,059 ) 135 5,810 Ending balance $ 109,689 $ 189,139 $ 25,303 $ 15,193 $ 339,324 Three Months Ended June 30, 2020 Allowance for losses: Beginning balance $ 127,437 $ 111,585 $ 29,456 $ 14,864 $ 283,342 Loans charged-off ( 14,024 ) ( 27 ) ( 5 ) ( 2,601 ) ( 16,657 ) Charged-off loans recovered 799 51 545 509 1,904 Net (charge-offs) recoveries ( 13,225 ) 24 540 ( 2,092 ) ( 14,753 ) Provision (credit) for loan losses 17,827 20,093 ( 366 ) 3,471 41,025 Ending balance $ 132,039 $ 131,702 $ 29,630 $ 16,243 $ 309,614 Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) Six Months Ended June 30, 2021 Allowance for loan losses: Beginning balance $ 131,070 $ 164,113 $ 28,873 $ 16,187 $ 340,243 Loans charged-off ( 18,035 ) ( 382 ) ( 139 ) ( 2,618 ) ( 21,174 ) Charged-off loans recovered 2,267 734 348 2,404 5,753 Net (charge-offs) recoveries ( 15,768 ) 352 209 ( 214 ) ( 15,421 ) (Credit) provision for loan losses ( 5,613 ) 24,674 ( 3,779 ) ( 780 ) 14,502 Ending balance $ 109,689 $ 189,139 $ 25,303 $ 15,193 $ 339,324 Six Months Ended June 30, 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 ( 17,384 ) ( 71 ) ( 341 ) ( 5,166 ) ( 22,962 ) Charged-off loans recovered 1,368 144 595 1,303 3,410 Net (charge-offs) recoveries ( 16,016 ) 73 254 ( 3,863 ) ( 19,552 ) Provision for loan losses 28,827 36,159 3,741 6,149 74,876 Ending balance $ 132,039 $ 131,702 $ 29,630 $ 16,243 $ 309,614 * 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. 34 The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at June 30, 2021 and December 31, 2020. Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) June 30, 2021 Allowance for loan losses: Individually evaluated for credit losses $ 64,275 $ 4,788 $ 618 $ 885 $ 70,566 Collectively evaluated for credit losses 45,414 184,351 24,685 14,308 268,758 Total $ 109,689 $ 189,139 $ 25,303 $ 15,193 $ 339,324 Loans: Individually evaluated for credit losses $ 120,559 $ 89,464 $ 38,660 $ 4,488 $ 253,171 Collectively evaluated for credit losses 5,963,896 19,175,516 4,188,315 2,876,556 32,204,283 Total $ 6,084,455 $ 19,264,980 $ 4,226,975 $ 2,881,044 $ 32,457,454 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 June 30, 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 second quarter 2021, Valley performed the annual goodwill impairment test at its normal assessment date. As a result, there was no i mpairment of goodwill recognized during the three and six months ended June 30, 2021 and 2020. 35 The following table summarizes other intangible assets as of June 30, 2021 and December 31, 2020: Gross Intangible Assets Accumulated Amortization Valuation Allowance Net Intangible Assets (in thousands) June 30, 2021 Loan servicing rights $ 109,678 $ ( 86,681 ) $ ( 32 ) $ 22,965 Core deposits 101,160 ( 59,590 ) — 41,570 Other 3,945 ( 2,957 ) — 988 Total other intangible assets $ 214,783 $ ( 149,228 ) $ ( 32 ) $ 65,523 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 $ 42 thousand and $ 833 thousand for the three and six months ended June 30, 2021, respectively. Valley recorded net impairment charges totaling $ 669 thousand and $ 778 thousand for the three and six months ended June 30, 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 and six months ended June 30, 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 $ 2,331 $ 5,764 $ 103 2022 3,901 9,876 191 2023 3,099 8,146 131 2024 2,492 6,537 117 2025 2,030 4,929 103 Valley recognized amortization expense on other intangible assets, including net (recoveries of) impairment charges on loan servicing rights, totaling approximately $ 5.4 million and $ 6.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 11.5 million and $ 12.2 million for the six months ended June 30, 2021 and 2020, respectively. 36 Note 9. Borrowed Funds Short-Term Borrowings Short-term borrowings at June 30, 2021 and December 31, 2020 consisted of the following: June 30, 2021 December 31, 2020 (in thousands) FHLB advances $ 700,000 $ 1,000,000 Securities sold under agreements to repurchase 154,378 147,958 Total short-term borrowings $ 854,378 $ 1,147,958 The weighted average interest rate for short-term borrowings was 0.35 percent and 0.38 percent at June 30, 2021 and December 31, 2020, respectively. The interest payments on the FHLB advances totaling $ 700 million were hedged with interest rate swaps at June 30, 2021. See Note 11 for additional details. Long-Term Borrowings Long-term borrowings at June 30, 2021 and December 31, 2020 consisted of the following: June 30, 2021 December 31, 2020 (in thousands) FHLB advances, net (1) $ 947,206 $ 1,592,252 Subordinated debt, net (2) 638,484 403,413 Securities sold under agreements to repurchase 300,000 300,000 Total long-term borrowings $ 1,885,690 $ 2,295,665 (1) FHLB advances are presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling $ 2.6 million at December 31, 2020. (2) Subordinated debt is presented net of unamortized debt issuance costs totaling $ 6.4 billion and $ 2.7 million at June 30, 2021 and December 31, 2020, respectively. FHLB Advances. Long-term FHLB advances had a weighted average interest rate of 1.91 percent and 2.02 percent at June 30, 2021 and December 31, 2020, respectively. FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans. In June 2021, Valley prepaid approximately $ 248 million of long-term FHLB advances with maturities scheduled through 2025 and a weighted average effective interest rate of 1.82 percent. The transaction was funded with excess cash liquidity and accounted for as an early debt extinguishment resulting in a loss of $ 8.4 million reported within non-interest expense for the three and six months ended June 30, 2021. The long-term FHLB advances at June 30, 2021 are scheduled for contractual balance repayments as follows: Year Amount (in thousands) 2021 $ 157,870 2023 350,000 2024 165,000 2025 273,000 Total long-term FHLB advances $ 945,870 37 There are no FHLB advances with scheduled repayments in years 2021 and thereafter, reported in the table above, which are callable for early redemption by the FHLB during the next 12 months. Subordinated debt. On April 1, 2021, Valley redeemed, at par value, $ 60 million of its callable 6.25 percent subordinated notes originally due April 1, 2026. No gain or loss was incurred on this transaction. On May 25, 2021, Valley issued $ 300 million of 3.00 percent Fixed-to-Floating Rate subordinated notes due June 15, 2031. The subordinated notes are callable in whole or in part on or after June 15, 2026 or upon the occurrence of certain events. Interest on the subordinated notes during the initial five year term through June 15, 2026 is payable semi-annually on June 15 and December 15. Thereafter, interest is expected to be set based on three-month Secured Overnight Financing Rate (SOFR) plus 236 basis points and paid quarterly through maturity of the notes. At June 30, 2021, the subordinated notes had a carrying value of $ 296.0 million, net of debt issuance costs. During June 2021, Valley entered into an interest rate swap transaction used to hedge the change in the fair value of the $ 300 million in subordinated notes. See Note 11 for additional details. Valley also had the following subordinated debt outstanding at June 30, 2021: • $ 125 million aggregate principal amount of 5.125 percent subordinated notes due September 27, 2023 with no call dates or prepayments allowed except upon the occurrence of certain events; • $ 100 million aggregate principal amount of 4.55 percent subordinated notes due June 30, 2025 with no call dates or prepayments allowed except upon the occurrence of certain events; • $ 115 million aggregate principal amount of 5.25 percent subordinated notes due June 15, 2030 and callable in whole or in part on or after June 15, 2025 or upon the occurrence of certain events. Long-term securities sold under agreements to repurchase (repos). The long-term repos had a weighted average interest rate of 3.41 percent and 3.37 percent at June 30, 2021 and December 31, 2020, respectively. All long-term repos outstanding as of June 30, 2021 have maturities in the second half of 2021. Note 10. 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 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. As of June 30, 2021, 7.4 million shares of common stock were available for issuance under the 2021 Plan. 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- 38 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 109 thousand and 142 thousand of time-based RSUs during the three months ended June 30, 2021 and 2020, respectively, and 1.2 million for both the six months ended June 30, 2021 and 2020. Generally, time-based RSUs vest ratably over a three-year period. The average grant date fair value of the RSUs granted during the six months ended June 30, 2021 and 2020 was $ 11.63 per share and $ 10.48 per share, respectively. Valley granted 604 thousand and 589 thousand of performance-based RSUs to certain executive officers for the six months ended June 30, 2021 and 2020, respectively. There were no grants of performance-based RSUs during the three months ended June 30, 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 performance-based RSUs granted during the six months ended June 30, 2021 and 2020 was $ 11.75 per share and $ 10.82 per share, respectively. Valley recorded total stock-based compensation expense of $ 5.2 million and $ 4.2 million for the three months ended June 30, 2021 and 2020, respectively, and $ 10.7 million and $ 8.2 million for the six months ended June 30, 2021 and 2020, respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period. As of June 30, 2021, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $ 28.9 million and will be recognized over an average remaining vesting period of approximately two years . Note 11. 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. Fair Value Hedges of Fixed Rate Assets and Liabilities . Valley is exposed to changes in the fair value of fixed-rate subordinated debt due to changes in interest rates. From time to time, Valley uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate . Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. In June 2021, Valley entered into a $ 300 million forward-starting interest rate swap agreement with a notional amount of $ 300 million, maturing in June 2026, to hedge the change in the fair value of the 3.00 percent subordinated debt issued on May 28, 2021. Under the swap agreement, beginning in January 2022, Valley will receive fixed rate payments and pay variable rate amounts based on SOFR plus 2.187 percent. 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. 39 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 June 30, 2021, Valley had 26 credit swaps with an aggregate notional amount of $ 215.8 million related to risk participation agreements. At June 30, 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: June 30, 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 $ — $ 349 $ 900,000 $ — $ 179 $ 1,100,000 Fair value hedge interest rate swaps 80 — 300,000 — — — Total derivatives designated as hedging instruments $ 80 $ 349 $ 1,200,000 $ — $ 179 $ 1,100,000 Derivatives not designated as hedging instruments: Interest rate swaps and other derivatives * $ 248,440 $ 80,215 $ 9,962,230 $ 387,008 $ 154,025 $ 8,889,557 Mortgage banking derivatives 323 1,112 330,528 444 2,077 321,486 Total derivatives not designated as hedging instruments $ 248,763 $ 81,327 $ 10,292,758 $ 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 June 30, 2021 and December 31, 2020 in the table above . 40 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) Amount of (loss) gain reclassified from accumulated other comprehensive loss to interest expense $ ( 749 ) $ 438 $ ( 1,664 ) $ ( 177 ) Amount of (loss) gain recognized in other comprehensive income (loss) ( 158 ) ( 1,773 ) 19 ( 3,253 ) The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 2.7 million and $ 4.0 million at June 30, 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 $ 2.3 million will be reclassified as an increase to interest expense over the next 12 months. Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) Derivative - interest rate swap: Interest income $ — $ 71 $ — $ 82 Interest expense 80 — 80 — Hedged item - subordinated debt and loans: Interest income $ — $ ( 71 ) $ — $ ( 82 ) Interest expense ( 83 ) — ( 83 ) — The following table presents the hedged items related to interest rate derivatives designated as hedges of fair value and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at June 30, 2021. Line Item in the Statement of Financial Position in Which the Hedged Item is Included Carrying Amount of the Hedged Liability Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability (in thousands) Long-term borrowings $ ( 300,083 ) $ ( 83 ) 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) Non-designated hedge interest rate swaps and credit derivatives Other non-interest expense $ ( 2,210 ) $ 1,416 $ ( 425 ) $ 1,505 41 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 $ 7.6 million and $ 14.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 13.8 million and $ 28.9 million for the six months ended June 30, 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 June 30, 2021, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of June 30, 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 $ 79.6 million. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties. Note 12. 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 swap or 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. 42 The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of June 30, 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) June 30, 2021 Assets: Interest rate swaps $ 248,520 $ — $ 248,520 $ — $ — $ 248,520 Liabilities: Interest rate swaps $ 80,564 $ — $ 80,564 $ — $ ( 72,732 ) $ 7,832 Repurchase agreements 300,000 — 300,000 ( 300,000 ) (2) — — Total $ 380,564 $ — $ 380,564 $ ( 300,000 ) $ ( 72,732 ) $ 7,832 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 13. Tax Credit Investments Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the Community Reinvestment Act (CRA). Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense. Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable. 43 The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at June 30, 2021 and December 31, 2020: June 30, 2021 December 31, 2020 (in thousands) Other Assets: Affordable housing tax credit investments, net $ 18,298 $ 20,074 Other tax credit investments, net 43,066 47,301 Total tax credit investments, net $ 61,364 $ 67,375 Other Liabilities: Unfunded affordable housing tax credit commitments $ 1,379 $ 1,379 Total unfunded tax credit commitments $ 1,379 $ 1,379 The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and six months ended June 30, 2021 and 2020: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) Components of Income Tax Expense: Affordable housing tax credits and other tax benefits $ 899 $ 1,393 $ 1,796 $ 2,627 Other tax credit investment credits and tax benefits 2,743 2,540 5,428 3,840 Total reduction in income tax expense $ 3,642 $ 3,933 $ 7,224 $ 6,467 Amortization of Tax Credit Investments: Affordable housing tax credit investment losses $ 460 $ 537 $ 1,003 $ 1,091 Affordable housing tax credit investment impairment losses 431 665 772 1,083 Other tax credit investment losses 351 679 524 1,223 Other tax credit investment impairment losses 1,730 1,535 3,417 3,247 Total amortization of tax credit investments recorded in non-interest expense $ 2,972 $ 3,416 $ 5,716 $ 6,644 Note 14. 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 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. 44 The following tables represent the financial data for Valley’s four business segments for the three and six months ended June 30, 2021 and 2020: Three Months Ended June 30, 2021 Consumer Lending Commercial Lending Investment Management Corporate and Other Adjustments Total ($ in thousands) Average interest earning assets $ 7,150,137 $ 25,485,161 $ 5,272,116 $ — $ 37,907,414 Interest income $ 59,419 $ 255,895 $ 19,239 $ ( 905 ) $ 333,648 Interest expense 5,192 18,467 3,867 5,215 32,741 Net interest income (loss) 54,227 237,428 15,372 ( 6,120 ) 300,907 Provision (credit) for credit losses 711 8,066 ( 30 ) — 8,747 Net interest income (loss) after provision for credit losses 53,516 229,362 15,402 ( 6,120 ) 292,160 Non-interest income 21,915 9,819 2,475 8,917 43,126 Non-interest expense 19,792 27,241 ( 258 ) 125,118 171,893 Internal transfer expense (income) 19,862 71,207 14,632 ( 105,701 ) — Income (loss) before income taxes $ 35,777 $ 140,733 $ 3,503 $ ( 16,620 ) $ 163,393 Return on average interest earning assets (pre-tax) 2.00 % 2.21 % 0.27 % N/A 1.72 % Three Months Ended June 30, 2020 Consumer Lending Commercial Lending Investment Management Corporate and Other Adjustments Total ($ in thousands) Average interest earning assets $ 7,214,368 $ 24,826,832 $ 5,737,187 $ — $ 37,778,387 Interest income $ 66,807 $ 255,152 $ 27,623 $ ( 1,057 ) $ 348,525 Interest expense 11,469 40,640 9,728 4,129 65,966 Net interest income (loss) 55,338 214,512 17,895 ( 5,186 ) 282,559 Provision for credit losses 3,106 38,009 41 — 41,156 Net interest income (loss) after provision for credit losses 52,232 176,503 17,854 ( 5,186 ) 241,403 Non-interest income 17,175 16,172 5,823 5,660 44,830 Non-interest expense 20,440 23,250 642 112,834 157,166 Internal transfer expense (income) 19,406 66,858 15,505 ( 101,769 ) — Income (loss) before income taxes $ 29,561 $ 102,567 $ 7,530 $ ( 10,591 ) $ 129,067 Return on average interest earning assets (pre-tax) 1.64 % 1.65 % 0.52 % N/A 1.37 % 45 Six Months Ended June 30, 2021 Consumer Lending Commercial Lending Investment Management Corporate and Other Adjustments Total ($ in thousands) Average interest earning assets $ 7,099,973 $ 25,509,061 $ 5,039,222 $ — $ 37,648,256 Interest income $ 120,264 $ 508,231 $ 38,748 $ ( 1,797 ) $ 665,446 Interest expense 11,607 41,702 8,238 10,325 71,872 Net interest income (loss) 108,657 466,529 30,510 ( 12,122 ) 593,574 (Credit) provision for credit losses ( 1,924 ) 19,715 ( 388 ) — 17,403 Net interest income (loss) after provision for credit losses 110,581 446,814 30,898 ( 12,122 ) 576,171 Non-interest income 35,600 17,533 4,806 16,420 74,359 Non-interest expense 39,641 52,772 1,520 238,173 332,106 Internal transfer expense (income) 39,364 141,790 27,881 ( 209,035 ) — Income (loss) before income taxes $ 67,176 $ 269,785 $ 6,303 $ ( 24,840 ) $ 318,424 Return on average interest earning assets (pre-tax) 1.89 % 2.12 % 0.25 % N/A 1.69 % Six Months Ended June 30, 2020 Consumer Lending Commercial Lending Investment Management Corporate and Other Adjustments Total ($ in thousands) Average interest earning assets $ 7,215,756 $ 23,804,558 $ 5,205,918 $ — $ 36,226,232 Interest income $ 135,062 $ 520,027 $ 59,392 $ ( 2,163 ) $ 712,318 Interest expense 31,169 102,826 22,488 7,937 164,420 Net interest income (loss) 103,893 417,201 36,904 ( 10,100 ) 547,898 Provision for credit losses 9,891 65,148 800 — 75,839 Net interest income (loss) after provision for credit losses 94,002 352,053 36,104 ( 10,100 ) 472,059 Non-interest income 31,852 31,771 8,965 13,639 86,227 Non-interest expense 40,311 47,408 1,029 224,074 312,822 Internal transfer expense (income) 39,741 131,054 28,680 ( 199,475 ) — Income (loss) before income taxes $ 45,802 $ 205,362 $ 15,360 $ ( 21,060 ) $ 245,464 Return on average interest earning assets (pre-tax) 1.27 % 1.73 % 0.59 % N/A 1.36 %