What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-09 · 526 added, 385 removed, 553 unchanged (62% of the section changed)

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• the continued impact of COVID-19 on the U.S.

and global economies, including business disruptions, reductions in employment and an increase in business failures, specifically among our clients;

• the continued impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases of COVID-19 may arise in our primary markets;

and global economies, including business disruptions, reductions in employment, supply chain interruptions, inflation, Federal Reserve actions impacting the level of market interest rates and an increase in business failures, specifically among our clients;

• the continued impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases and new variants of COVID-19 may arise in our primary markets;

• continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets;

• the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral;

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• cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;

• results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank, the Consumer Financial Protection Bureau and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;

• results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank (FRB), the Consumer Financial Protection Bureau (CFPB) and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;

• our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;

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A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Critical Accounting Policies and Estimates

Valley’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations.

At March 31, 2022, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

At June 30, 2022, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

Management has reviewed the application of these policies and estimates with the Audit Committee of Valley’s Board of Directors.

Our critical accounting policies are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no material changes in such policies and estimates since the date of such report.

Our critical accounting policies and estimates are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no material changes in such policies and estimates since the date of such report.

New Authoritative Accounting Guidance

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Company Overview.

At March 31, 2022, Valley had consolidated total assets of approximately $43.6 billion, total net loans of $35.0 billion, total deposits of $35.6 billion and total shareholders’ equity of $5.1 billion.

Our commercial bank operations include branch office locations in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn, Queens, Long Island, Westchester County, New York, Florida and Alabama .

Of our current 232 branch network, 56 percent, 19 percent, 18 percent and 7 percent of the branches are in New Jersey,

New York, Florida and Alabama, respectively.

Despite targeted branch consolidation activity, w e have significantly grown both in asset size and locations over the past several years primarily both through organic efforts and bank acquisitions as discussed below.

L andmark Insurance of the Palm Beaches .

On February 1, 2022, the Bank's insurance agency subsidiary, Valley Insurance Services, acquired Landmark Insurance of the Palm Beaches, Inc.

for $8.6 million in cash and $1.0 million in contingent consideration.

This acquisition expanded Valley's presence in Florida and is expected to provide additional cross-selling opportunities across the Bank's service and product offerings.

At June 30, 2022, Valley had consolidated total assets of approximately $54.4 billion, total net loans of $43.1 billion, total deposits of $43.9 billion and total shareholders’ equity of $6.2 billion.

Valley operates many convenient branch office locations and commercial banking offices in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida, California, Alabama and Illinois.

Of our current 238 branch network, 55 percent, 19 percent, 18 percent of the branches are in New Jersey, New York and Florida, respectively, with the remaining 8 percent of the branches in Alabama, California, and Illinois combined.

Despite targeted branch consolidation activity, we have significantly grown both in asset size and locations over the past several years both through organic efforts and bank acquisitions.

Our most recent bank acquisition is discussed below.

Bank Leumi Le-Israel Corporation.

On April 1, 2022, Valley completed its acquisition of Bank Leumi Le-Israel Corporation, the U.S.

subsidiary of Bank Leumi Le-Israel B.M.

and parent company of Bank Leumi USA, and collectively referred to as "Bank Leumi USA".

Bank Leumi USA was headquartered in New York City with commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida.

As of the acquisition date, Bank Leumi USA had total assets of $8.3 billion, total deposits of $7.1 billion and gross loans of $6.1 billio n, unadjusted for purchase accounting.

The common shareholders of Bank Leumi USA received 3.8025 shares of Valley common stock and 5.08 in cash for each Bank Leumi USA common share that they owned.

As a result, Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the transaction.

See Note 2 to the consolidated financial statements for additional details regarding our acquisition activities.

subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, and collectively referred to as "Bank Leumi USA".

At the acquisition date, Bank Leumi USA had approximately $8.1

billion in assets, $5.9 billion of loans and $7.0 billion of deposits, after purchase accounting adjustments.

Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the transaction.

The consideration for the acquisition totaled approximately $1.2 billion, inclusive of the value of stock options.

The transaction resulted in $403.2 million of goodwill and $153.4 million of combined core deposit and other intangible assets subject to amortization.

See Note 2 to the consolidated financial statements for additional details regarding the acquisition of Bank Leumi USA and other recent acquisition activities.

Impact of COVID-19.

COVID-19 infection rates declined during the first quarter 2022 and consumer and business activities remained robust.

These factors combined with global supply chain disruptions, labor shortages and other factors contributed to higher inflation in the U.S.

W e continue to monitor the impact of COVID-19 including the emergence of any new variants closely, including its impact on our employees, customers, communities and results of operations and other government or Federal Reserve actions.

During the second quarter 2022, the impact of the COVID pandemic and new global outbreaks of the COVID variants were mostly overshadowed by inflationary concerns.

Inflation remains elevated, reflecting supply and demand imbalances related to the COVID pandemic, higher food and energy prices, and broader price pressures.

In June 2022, travel restrictions were further loosened by eliminating COVID-19 test requirement to enter the U.S.

W e continue to monitor the impact of COVID-19 including the emergence of any new more severe variants closely, including its impact on our employees, customers, communities and results of operations and other government or Federal Reserve actions.

See the "Operating Environment" section of MD&A for more details.

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Valley extended a total of $3.2 billion PPP loans under the program, of which $3.1 billion of these loans have received forgiveness from the SBA.

As of March 31, 2022 , we had $203.6 million of PPP loans still outstanding.

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

Vall ey had $23.0 million of outstanding loans remaining in their payment deferral period under short-term modifications at March 31, 2022 as compared to $27.9 million at December 31, 2021.

As of June 30, 2022 , we had $136.0 million (including $45.7 million acquired from Bank Leumi USA) of PPP loans still outstanding.

Quarterly Results.

Net income for the first quarter 2022 was $116.7 million, or $0.27 per diluted common share as compared to $115.7 million, or $0.28 per diluted common share, for the first quarter 2021.

The $1.0 million increase in quarterly net income as compared to the same quarter one year ago was largely due to following changes:

• a $25.0 million increase in net interest income mainly due to (i) higher average loan balances driven by strong organic growth and loans acquired from The Westchester Bank Holding Corporation (Westchester) on December 1, 2021, (ii) higher average investment securities, (iii) a continued customer shift to deposits without stated maturities and the run-off of higher cost time deposits, (iv) lower average other borrowings driven by repayment of maturing FHLB advances, partially offset by (v) an $18.9 million decrease in PPP loan related interest and fees;

• an $8.0 million increase in non-interest income mainly due to a $7.8 million increase in fee income related to derivative interest rate swaps executed with commercial lending customers, fees generated by Dudley Ventures, our tax credit advisory subsidiary acquired in the fourth quarter 2021, partially offset by a decrease in net gains on sales of residential mortgage loans;

• a $5.1 million decrease in our provision for credit losses mostly due to lower expected loss rates for the commercial real estate portfolio;

Net income for the second quarter 2022 was $96.4 million, or $0.18 per diluted common share as compared to $120.5 million, or $0.29 per diluted common share, for the second quarter 2021.

The $24.1 million decrease in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:

• a $127.8 million increase in non-interest expense largely due to $54.5 million of merger expenses incurred during the second quarter 2022 and our expanded banking operations resulting from the acquisition of Bank Leumi USA on April 1, 2022 and The Westchester Bank Holding Corporation (Westchester) on December 1, 2021;

• a $35.3 million increase in our provision for credit losses mainly due to $41.0 million of provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA;

partially offset by:

• a $37.1 million increase in non-interest expense mainly due to increases in salary and employee benefits, net occupancy and equipment, and professional and legal fees expense categories driven, in part, by our expansion of business operations due to acquisitions and targeted growth in our lending and technology teams, as well as merger related expenses totaling $4.6 million for the first quarter 2022.

See the “Net Interest Income”, “Non-Interest Income”, “Non-Interest Expense”, and “Income Taxes” sections below for more details on the items above impacting our first quarter 2022 results.

• a $117.3 million increase in net interest income mainly due to higher average loan balances driven by both acquired and organic loan volumes and increased yields on new and adjustable rate loans;

• a $15.4 million increase in non-interest income primarily driven by increases in wealth management and trust fees, service charges on deposit accounts and other income totaling $6.0 million, $5.0 million and $11.5 million, respectively, generated from the aforementioned bank acquisitions, partially offset by lower new gains on sales of loans;

• a $6.3 million decrease in income tax expense mostly caused by lower pre-tax income.

See the “Net Interest Income”, “Non-Interest Income”, “Non-Interest Expense”, and “Income Taxes” sections below for more details on the items above impacting our second quarter 2022 results.

Operating Environment.

During the first quarter 2022, real gross domestic product at an annual rate decre ased 1.4 percent compared to a 6.9 percent increase in the fourth quarter 2021 largely as a result of a slowdown in inventory restocking and trade.

Household demand and fixed investment from businesses and households improved modestly despite an acceleration in overall prices.

In March, the Federal Reserve raised the federal funds rate 0.25 percent to a target range of 0.25 percent to 0.50 percent.

Following its meeting in May, the Federal Reserve raised the federal fund rate by another 0.50 percent to a target range of 0.75 percent to 1.00 percent to tame building inflationary pressures.

Further interest rate hikes are expected during the remainder of 2022 largely due to the Federal Reserve's efforts to curtail the current high level of inflation, which has reached a 40-year high.

In addition, the Federal Reserve slowed its purchase of Treasury securities and agency residential and commercial mortgage-backed securities and the Federal Reserve indicated at its recent meeting that it expects to reduce its securities holdings starting in June as securities reach their maturities.

During the second quarter 2022, real gross domestic product (GDP) at an annual rate decreased 1.3 percent compared to a decline of 1.6 percent in the first quarter 2022.

The second consecutive quarter of decline in economic activity was driven in large part by a decline in inventory restocking and household fixed investment.

Otherwise, household demand for goods and services improved modestly despite a continued acceleration in overall prices.

In May, June and July 2022, the Federal Reserve raised the federal funds rate by 50 basis points, 75 basis points and 75 basis points, respectively, resulting in a current target range of 2.25 percent to 2.50 percent.

In addition, the Federal Reserve continued to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities.

The Federal Reserve indicated it will reduce its Treasury and agency securities portfolio by $47.5 billion per month and after three months will increase to $95 billion per month.

The changes in policy reflect the Federal Reserve’s strong commitment to returning inflation to its 2 percent objective.

The 10-year U.S.

Treasury note yield ended the first quarter 2022 at 2.32 percent, 80 basis points higher compared with December 31, 2021.

Treasury note yield ended the second quarter 2022 at 2.98 percent, 66 basis points higher compared with March 31, 2022.

The spread between the 2- and 10-year U.S.

Treasury note yields ended the first quarter 2022 at 0.04 percent, which is 75 basis points lower as compared to December 31, 2021.

The industry reported that demand for most commercial loan products continued to increase during the first quarter 2022.

The increase was broad-based across commercial real estate lending and loans to middle market firms.

Our loan originations increased sharply across most products in the first quarter 2022 primarily driven by increases in commercial real estate loans.

However, anticipated higher market interest rates, persistent inflation, the lingering impact of the pandemic on supply chains and business opportunities, labor market conditions, and fallout from the Russia-Ukraine war, among other factors, add a high level of uncertainty to the future path of the U.S.

Should economic conditions deteriorate causing business activity, spending and investment to slow, it would adversely impact the Bank’s financial results, as highlighted below in this MD&A.

Total loans increased $1.2 billion to $35.4 billion at March 31, 2022 from December 31, 2021 despite a $232.3 million decrease in commercial and industrial PPP loans.

Our non-PPP loan portfolio increased $1.4 billion, or 17.1 percent on an annualized basis, largely due to well-balanced commercial loan production across our primary markets and an uptick in new residential mortgage loans originated for investment rather than sale.

See further details on our loan activities under the “Loan Portfolio” section below.

Treasury note yields ended the quarter at 0.06 percent, 2 basis points higher compared to March 31, 2022.

For all commercial banks in the U.S., loans and leases increased approximately 3.9 percent from March 31, 2022 to June 30, 2022.

The banking industry reported softening in demand for most commercial loan products (particularly for commercial real estate loans secured by non-farm nonresidential structures) in recent months as compared to the beginning of the year.

During the second quarter 2022, Valley’s new loan originations experienced solid increases across most product types primarily driven by an increase in non-owner occupied commercial real estate, commercial and industrial, residential mortgage and automobile loans.

However, further declines in GDP, continued increases in market interest rates, persistently high inflation, the lingering impact of the pandemic on supply chains and business opportunities, labor market conditions, and fallout from the Russia-Ukraine war, among other factors, add a high level of uncertainty to the future path of the U.S.

economy and the risk of a recession.

Should economic conditions continue to deteriorate causing business activity, spending and investment to decline, it would adversely impact the Bank’s financial results, as highlighted below in this MD&A.

Total loans increased $8.2 billion to $43.6 billion at June 30, 2022 from March 31, 2022 largely due to a combination of $5.9 billion of acquired loans from Bank Leumi USA and strong organic loan growth.

Excluding acquired loans from Bank Leumi USA, our loan portfolio increased 26 percent on an annualized basis during the second quarter 2022 as a result of strong commercial loan volumes and a continued uptick in new residential mortgage loans originated for investment rather than sale.

We sold approximately $125 million of residential mortgage loans resulting in total pre-tax gains of $3.6 million in the second quarter 2022.

See further details on our loan activities under the “Loan Portfolio” section.

Asset Quality.

Total non-performing assets (NPAs), consisting of non-accrual loans, other real estate owned (OREO), and other repossessed assets decreased $12.7 million to $232.7 million at March 31, 2022 as compared to December 31, 2021.

Non-accrual loans decreased $9.8 million to $230.5 million at March 31, 2022 as compared to December 31, 2021 partly due to lower commercial real estate non-accruals reflecting one loan payoff partly offset by two loans which were moved to non-accrual status.

In addition, commercial and industrial along with residential mortgage non-accrual loans decreased partly due to loan payoffs during the first quarter 2022.

Non-accrual loans represented 0.65 percent of total loans at March 31, 2022 compared to 0.70 percent at December 31, 2021.

Total a ccruing past due loans (i.e., loans past due 30 days or more and still accruing interest) increased $36.9 million to $92.8 million, or 0.26 percent of total loans, at March 31, 2022 as compared to $55.9 million, or 0.16 percent of total loans at December 31, 2021.

Commercial real estate loans past due 30 to 59 days and 60 to 89 days increased $16.4 million and $6.3 million, respectively, to $30.8 million and $6.3 million, respectively at March 31,

2022 as compared to December 31, 2021 mainly due to two loans totaling $13.2 million and $6.0 million included in these respective delinquency categories at March 31, 2022.

Commercial and industrial loans past due 60 to 89 days and 90 days or more increased $6.6 million and $8.0 million, respectively, as compared to December 31, 2021 mainly due to a few additional loans that are considered well-secured and in the process of collection.

Total accruing past due loans decreased $19.3 million to $73.5 million, or 0.17 percent of total loans, at June 30, 2022 as compared to $92.8 million, or 0.26 percent of total loans, at March 31, 2022.

Non-accrual loans represented 0.72 percent and 0.65 percent of total loans at June 30, 2022 and March 31, 2022, respectively.

See further details in the "Non-performing Assets" section below.

Deposits and Other Borrowings .

Overall, average deposits increased by $1.0 billion to $35.8 billion for the first quarter 2022 as compared to the fourth quarter 2021 mostly due to increased quarterly average balances related to deposits assumed from Westchester on December 1, 2021.

Av erage non-interest bearing deposits;

Overall, average deposits increased by $7.1 billion to $42.9 billion for the second quarter 2022 as compared to the first quarter 2022 mostly due to deposits assumed from Bank Leumi USA on April 1, 2022, as well as continued growth in commercial and retail customer deposits without stated maturities.

Average non-interest bearing deposit s;

savings, NOW and money market deposits;

and time deposits represented approximately 33 percent, 57 percent and 10 percent of total deposits as of March 31, 2022, respectively.

Our mix of average deposits for the first quarter 2022 continued to shift away from higher cost time deposits to the non-maturity deposit categories as compared to the fourth quarter 2021.

The shift has been aided by normal CD maturities and our ability to increase commercial and retail non-maturity deposits.

Actual ending balances for deposits increased $14.9 million to approximately $35.6 billion at March 31, 2022 from December 31, 2021 largely due to increases of $271.3 million and $16.3 million in the non-maturity non-interest bearing deposit and interest bearing deposit categories, respectively, mostly offset by a $272.7 million decrease in time deposits.

The decrease in time deposits was driven by run-off of maturing retail CDs with some continued migration to the more liquid deposit product categories.

Total brokered deposits (consisting of money market deposit accounts) decreased approximately $203 million to $1.2 billion at March 31, 2022 as compared to $1.4 billion at December 31, 2021 as our funding mix continued to shift to commercial and retail deposit customers.

While we believe the current operating environment will likely continue to be favorable for Valley’s deposit gathering initiatives, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at March 31, 2022.

The following table presents average short-term and long-term borrowings for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021:

Three Months Ended

March 31, 2022 December 31, 2021 March 31, 2021

and time deposits represented approximately 38 percent, 54 percent and 8 percent of total deposits as of June 30, 2022, respectively.

While we experienced some growth in time deposits due to recent CD promotions and deposits assumed from Bank Leumi USA, our overall mix of average deposits for the second quarter 2022 continued to shift away from higher cost time deposits to the non-maturity deposit categories as compared to the first quarter 2022.

Actual ending balances for deposits increased $8.2 billion to approximately $43.9 billion at June 30, 2022 from March 31, 2022 mostly due to $7.0 billion of assumed deposits from Bank Leumi USA and continued commercial customer deposit organic growth, and our increased utilization of brokered deposits, consisting of money market and time deposit accounts, in our funding mix.

Total brokered deposits increased to $2.3 billion at June 30, 2022 as compared to $1.2 billion at March 31, 2022.

Non-interest bearing deposits and the savings, NOW and money market category increased $4.2 billion and $3.3 billion, respectively, at June 30, 2022 as compared to March 31, 2022.

The increase in non-interest bearing deposits during the second quarter 2022 was mainly attributable to $4.5 billion of deposits assumed from Bank Leumi USA.

While we believe the current operating environment will likely

continue to be favorable for Valley’s deposit gathering initiatives, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at June 30, 2022.

The following table presents average short-term and long-term borrowings for the periods indicated :

Three Months Ended Six Months Ended

June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

(in thousands)

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Total $ 1,462,638 $ 1,476,469 $ 2,200,836 $ 1,469,515 $ 2,261,719

Average short-term borrowings decreased $574.3 million during the first quarter 2022 as compared to the first quarter 2021 mostly due to our repayment of maturing FHLB advances funded with excess cash liquidity.

Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased $846.8 million from the first quarter 2021 largely due to the combination of prepayments of FHLB advances during the second quarter 2021, repayments at maturity of several FHLB advances and $300 million of long-term repurchase agreements which matured during

the third quarter 2021, partially offset by our issuance of $300 million subordinated notes in the second quarter 2021.

Actual ending balances for short-term borrowings decreased by $171.5 million to $484.2 million at March 31, 2022 as compared to December 31, 2021 largely due to normal repayments of maturing FHLB advances, partially offset by $125 million of federal funds purchased at March 31, 2022.

Long-term borrowings of $1.4 billion at March 31, 2022 remained relatively unchanged as compared to December 31, 2021.

Selected Performance Indicators.

The following table presents our annualized performance ratios for the periods indicated:

Average short-term borrowings increased $729.3 million during the second quarter 2022 as compared to the second quarter 2021 mostly due to an increase in the federal funds purchased balance as a part of our funding strategy.

Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased $738.2 million from the second quarter 2021 largely due to the repayment of several maturing FHLB advances and repurchase agreements subsequent to the second quarter 2021.

Actual ending balances for short-term borrowings increased by $1.0 billion to $1.5 billion at June 30, 2022 as compared to March 31, 2022 largely due to additional FHLB advances, including approximately $103.8 million assumed from Bank Leumi USA, partially offset by a $125 million decrease in federal funds purchased at June 30, 2022.

Long-term borrowings totaled $1.4 billion at June 30, 2022 and remained relatively unchanged from March 31, 2022.

Non-GAAP Financial Measures.

The table below presents selected performance indicators, their comparative non-GAAP measures and the (non-GAAP) efficiency ratio for the periods indicated.

The Company believes that the non-GAAP financial measures provide useful supplemental information to both management and investors in understanding Valley’s underlying operational performance, business, and performance trends, and may facilitate comparisons of our current and prior performance with the performance of others in the financial services industry.

Management utilizes these measures for internal planning, forecasting and analysis purposes.

Management believes that Valley’s presentation and discussion of this supplemental information, together with the accompanying reconciliations to the GAAP financial measures, also allows investors to view performance in a manner similar to management.

These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with U.S.

These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Selected Performance Indicators ($ in thousands, except for %)

GAAP measures:

Net income, as reported $ 96,413 $ 120,512 $ 213,141 $ 236,222

Return on average assets 0.72 % 1.17 % 0.88 % 1.15 %

Return on average assets, as adjusted 1.10 1.14

Return on average shareholders’ equity 6.18 10.24 7.51 10.10

Non-GAAP measures:

Net income, as adjusted $ 165,803 $ 126,617 $ 286,116 $ 242,412

Return on average assets, as adjusted 1.25 % 1.23 % 1.18 % 1.18 %

Return on average shareholders' equity, as adjusted 10.63 10.76 10.09 10.37

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ROATE, as adjusted 16.05 15.54 14.87 15.03

Adjusted return on average assets, adjusted return on average shareholders' equity, ROATE and adjusted ROATE included in the table above are non-GAAP measures.

Management believes these measures provide information useful to management and investors in understanding our underlying operational performance, business and performance trends, and the measures facilitate comparisons of our prior performance with the performance of others in the financial services industry.

These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with U.S.

These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.

The non-GAAP measure reconciliations are presented below.

Efficiency ratio 50.78 46.64 51.81 47.59

2022 December 31,

Common Equity Per Share Data:

Book value per common share (GAAP) $ 11.84 $ 11.57

Tangible book value per common share (non-GAAP) 7.71 7.94

Non-GAAP Reconciliations to GAAP Financial Measures

Adjusted net income is computed as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(in thousands)

Net income, as reported $ 116,728 $ 115,710

Net income, as reported (GAAP) $ 96,413 $ 120,512 $ 213,141 $ 236,222

Loss on extinguishment of debt (net of tax) — 6,024 — 6,024

Losses on available for sale and held to maturity securities transactions (net of tax) (a)

Merger related expenses (net of tax) (b)

Net income, as adjusted $ 120,313 $ 115,795

(56) 81 (50) 166

Non-PCD provision for credit losses (net of tax) (b)

29,282 — 29,282 —

Merger related expenses (net of tax) (c)

40,164 — 43,743 —

Net income, as adjusted (non-GAAP) $ 165,803 $ 126,617 $ 286,116 $ 242,412

(a) Included in (losses) gains on securities transactions, net.

In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans and swap fees recognized from commercial loan customer transactions.

These amounts can vary widely from period to period due to, among other factors, the amount of residential mortgage loans originated for sale, loan portfolio sales and commercial loan customer demand for certain products.

(b) Represents the provision for credit losses for non-PCD loans, unfunded credit commitments and held to maturity debt securities acquired from Bank Leumi USA on April 1, 2022.

(c) Merger related expenses are primarily within salary and employee benefits expense, professional and legal fees, and other expense.

In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans, wealth management fees, swap fees recognized from commercial loan customer transactions.

These amounts can vary widely from period to period due to, among other factors, the amount of residential mortgage loans originated for sale, loan portfolio sales, brokerage fees, and commercial loan customer demand for certain products.

See the “Non-Interest Income” section below for more details.

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Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

($ in thousands)

Net income, as adjusted $ 120,313 $ 115,795

Net income, as adjusted (non-GAAP) $ 165,803 $ 126,617 $ 286,116 $ 242,412

Average assets $ 53,211,422 $ 41,161,459 $ 48,417,469 $ 40,967,174

Annualized return on average assets, as adjusted 1.10 % 1.14 %

Annualized return on average assets, as adjusted (non-GAAP) 1.25 % 1.23 % 1.18 % 1.18 %

Adjusted annualized return on average shareholders' equity is computed by dividing adjusted net income by average shareholders' equity, as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

($ in thousands)

Net income, as adjusted $ 120,313 $ 115,795

Net income, as adjusted (non-GAAP) $ 165,803 $ 126,617 $ 286,116 $ 242,412

Average shareholders' equity $ 6,238,985 $ 4,708,797 $ 5,673,014 $ 4,677,273

Annualized return on average shareholders' equity, as adjusted 9.43 % 9.97 %

Annualized return on average shareholders' equity, as adjusted (non-GAAP) 10.63 % 10.76 % 10.09 % 10.37 %

ROATE and adjusted ROATE are computed by dividing net income and adjusted net income, respectively, by average shareholders’ equity less average goodwill and average other intangible assets, as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

($ in thousands)

Net income $ 116,728 $ 115,710

Net income, as adjusted 120,313 115,795

Net income, as reported (GAAP) $ 96,413 $ 120,512 $ 213,141 $ 236,222

Net income, as adjusted (non-GAAP) 165,803 126,617 $ 286,116 $ 242,412

Average shareholders’ equity $ 6,238,985 $ 4,708,797 $ 5,673,014 $ 4,677,273

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Average tangible shareholders’ equity $ 4,133,400 $ 3,259,409 $ 3,849,476 $ 3,226,711

Annualized ROATE 13.09 % 14.49 %

Annualized ROATE, as adjusted 13.49 % 14.50 %

Annualized ROATE (non-GAAP) 9.33 % 14.79 % 11.07 % 14.64 %

Annualized ROATE, as adjusted (non-GAAP) 16.05 % 15.54 % 14.87 % 15.03 %

The efficiency ratio is computed as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

($ in thousands)

Total non-interest expense, as reported (GAAP) $ 299,730 $ 171,893 $ 497,070 $ 332,106

Loss on extinguishment of debt (pre-tax) — 8,406 — 8,406

Amortization of tax credit investments (pre-tax) 3,193 2,972 6,089 5,716

Merger related expenses (pre-tax) (a)

54,496 — 59,124 —

Total non-interest expense, as adjusted (non-GAAP) $ 242,041 $ 160,515 $ 431,857 $ 317,984

Net interest income, as reported (GAAP) $ 418,160 $ 300,907 $ 735,829 $ 593,574

Total non-interest income, as reported (GAAP) 58,533 43,126 97,803 74,359

Losses on available for sale and held to maturity securities transactions, net (pre-tax) (b)

(78) 113 (69) 231

Total net interest income and non-interest income, as adjusted (non-GAAP) $ 476,615 $ 344,146 $ 833,563 $ 668,164

Efficiency ratio (non-GAAP) 50.78 % 46.64 % 51.81 % 47.59 %

(a) Included primarily within salary and employee benefits expense, professional and legal fees, and other expense.

(b) Included in gains on securities transactions, net.

Tangible book value per common share is computed by dividing shareholders’ equity less preferred stock, goodwill and other intangible assets by common shares outstanding, as follows:

2022 December 31,

($ in thousands, except for share data)

Common shares outstanding 506,328,526 421,437,068

Shareholders’ equity $ 6,204,913 $ 5,084,066

Preferred stock 209,691 209,691

Goodwill and other intangible assets 2,090,147 1,529,394

Tangible common shareholders’ equity $ 3,905,075 $ 3,344,981

Tangible book value per common share (non-GAAP) $ 7.71 $ 7.94

Book value per common share (GAAP) $ 11.84 $ 11.57

Net Interest Income

Net interest income consists of interest income and dividends earned on interest earning assets, less interest expense on interest bearing liabilities, and represents the main source of income for Valley.

Net interest income on a tax equivalent basis totaling $318.4 million for the first quarter 2022 increased $2.4 million as compared to the fourth quarter 2021 and increased $24.8 million from the first quarter 2021.

Interest income on a tax equivalent basis in the first quarter 2022 increased $475 thousand to $341.2 million as compared to the fourth quarter 2021.

The increase was mainly due to increases in average loans and taxable investments totaling $1.3 billion and $275.1 million , respectively, largely offset by a $10.1 million decrease in PPP loan related interest and fees during the first quarter 2022 caused by the significant wind-down of our remaining PPP loan portfolio over the last several quarters.

Interest expense of $22.8 million for the first quarter 2022 decreased $1.9 million as compared to the fourth quarter 2021 as we reduced our cost of funding from deposits and borrowings.

Average interest earning assets increased $2.9 billion to $40.3 billion for the first quarter 2022 as compared to the first quarter 2021 primarily due to strong organic loan growth over the 12-month period ended March 31, 2022, loans acquired from Westchester on December 1, 2021, purchases of taxable investment securities and higher interest bearing overnight funds due to fluctuations in the timing of loan and investment activity, as well as deposit growth.

Compared to the fourth quarter 2021, average interest earning assets increased by $1.1 billion during the first quarter 2022.

The increase was primarily driven by a $1.3 billion increase in average loan balances due to continued organic loan growth mainly in the commercial and residential mortgage loan categories and loans acquired from Westchester.

Average interest bearing liabilities increased $193.7 million to $26.1 billion for the first quarter 2022 as compared to the first quarter 2021 mainly due to the general solid growth in commercial and retail customer deposits without stated maturities and $727 million of interest bearing deposits assumed from Westchester, partially offset by repayments of other borrowings during the last 12-month period.

As compared to the fourth quarter 2021, average interest bearing liabilities increased by $565.0 million in the first quarter 2022 mainly due to continued growth in average non-maturity deposits balances, including supplemental growth from relatively new niche product efforts targeting cannabis companies and professional service firms, partially offset by continued run-off of higher cost time deposits and lower utilization of short-term FHLB advances as a funding source.

Total average deposits, including non-interest bearing deposits, increased $1.0 billion to $35.8 billion for the first quarter 2022 as compared to the fourth quarter 2021.

N et interest income on a tax equivalent basis totaling $419.6 million for the second quarter 2022 increased $101.2 million as compared to the first quarter 2022 and increased $117.8 million from the second quarter 2021.

Interest income on a tax equivalent basis in the second quarter 2022 increased $113.2 million to $454.4 million as compared to the first quarter 2022.

The increase was mostly due to higher average loan balances driven both by acquired and organic loans and increased yields on both new originations and adjustable rate loans in our portfolio.

Interest expense of $34.8 million for the second quarter 2022 increased $12.0 million as compared to the first quarter 2022 largely due to a moderate increase in interest rates on both non-maturity deposits and short-term borrowings, as well as interest expense related to deposits and borrowings assumed in the Bank Leumi USA acquisition.

Average interest earning assets increased $11.0 billion to $48.9 billion for the second quarter 2022 as compared to the second quarter 2021 primarily due to the acquisitions of Bank Leumi USA and Westchester on April 1, 2022

and December 1, 2021, respectively, as well as strong organic loan growth over the 12-month period ended June 30, 2022.

Compared to the first quarter 2022, average interest earning assets increased by $8.6 billion during the second quarter 2022.

The increase was primarily driven by a $7.9 billion increase in average loan balances due to $5.9 billion of loans acquired form Bank Leumi USA and continued organic loan growth mainly in the non-PPP commercial loan categories, as well as residential mortgage loans.

Average interest bearing liabilities increased $4.2 billion to $29.7 billion for the second quarter 2022 as compared to the second quarter 2021 mainly due to $2.5 billion of interest bearing deposits assumed from Bank Leumi USA, strong growth in commercial and retail customer deposit balances without stated maturities, and $727 million of interest bearing deposits assumed from Westchester.

As compared to the first quarter 2022, average interest bearing liabilities increased by $3.5 billion in the second quarter 2022 mainly due to the deposits from Bank Leumi USA and continued growth in average non-maturity deposits balances, including supplemental growth from commercial depositors, a relatively new niche product targeting professional service firms and an increased utilization of short-term borrowings as part of our funding and liquidity sources.

Total average deposits, including non-interest bearing deposits, increased $7.1 billion to $42.9 billion for the second quarter 2022 as compared to the first quarter 2022.

See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.

Our net interest margin on a tax equivalent basis of 3.16 percent for the first quarter 2022 decreased by 7 basis points and increased by 2 basis points from 3.23 percent and 3.14 percent for the fourth quarter 2021 and first quarter 2021, respectively.

The yield on average interest earning assets decreased by 9 basis points on a linked quarter basis mostly due to the lower yield on loans and two less days in the first quarter 2022 as compared to the fourth quarter 2021.

The yield on average loans decreased by 16 basis points to 3.67 percent for the first quarter 2022 as compared to the fourth quarter 2021 largely due to the decrease in PPP loan related interest and fees.

The overall cost of average interest bearing liabilities decreased 4 basis points to 0.35 percent for the first quarter 2022 as compared to the fourth quarter 2021.

The decrease was mainly due to a 22 basis point decrease in the cost of average long-term borrowings, the continued runoff of maturing higher cost time deposits, and the moderately lower cost of our average non-maturity interest bearing deposits.

Our cost of total average deposits was 0.14 percent for the first quarter 2022 as compared to 0.15 percent for the fourth quarter 2021.

In March 2022, the Federal Reserve increased the federal funds target rate by 0.25 percent to 0.50 percent and projected as many as six more similar interest rate hikes during the remainder of 2022.

Our net interest margin on a tax equivalent basis of 3.43 percent for the second quarter 2022 increased by 27 basis points and 25 basis points from 3.16 percent and 3.18 percent for the first quarter 2022 and second quarter 2021, respectively.

The yield on average interest earning assets increased by 33 basis points on a linked quarter basis mostly due to the aforementioned higher yields on new and adjustable rate loans in the second quarter 2022 as compared to the first quarter 2022.

The yield on average loans increased by 24 basis points to 3.91 percent for the second quarter 2022 as compared to the first quarter 2022 largely due to the higher level of market interest rates.

The yields on average taxable and non-taxable investments also increased 39 basis points and 67 basis points, respectively, from the first quarter 2022 largely due to interest income, including discount accretion, on investment securities acquired from Bank Leumi USA.

The overall cost of average interest bearing liabilities increased 12 basis points to 0.47 percent for the second quarter 2022 as compared to the first quarter 2022.

The increase was mainly due to moderately higher pricing of non-maturity deposits combined with greater utilization of brokered deposits and short-term borrowings in our loan funding mix during the second quarter 2022.

Our cost of total average deposits only increased to 0.19 percent for the second quarter 2022 from 0.14 percent for the first quarter 2022.

As noted in the "Operating Environment" section above, the Federal Reserve raised the federal funds rate by 50 basis points, 75 basis points and 75 basis points, in May, June, and July 2022, respectively, resulting in a current target range of 2.25 percent to 2.50 percent.

Higher levels of market interest rates would benefit certain interest earning assets on our balance sheet and likely provide us the opportunity to reinvest any excess cash, including normal repayments of loans and investments, at higher rates.

Under this scenario, we continue to anticipate a certain lag in higher funding costs given the current liquidity present in the U.S.

banking system.

Based upon our estimates at March 31, 2022, we anticipate net interest income for the full 12 months of 2022 to be approximately 8 to 12 percent higher than reported net interest income in 2021, excluding the impact of our recent acquisition of Bank Leumi USA on April 1, 2022.

On May 4, 2022, the Federal Reserve increased the federal funds target rate by 0.50 percent to a range of 0.75 percent to 1.00 percent.

This increase was generally anticipated in the interest rate backdrop used to forecast our net interest income as of March 31, 2022 and as such, our projected net interest income range given above for 2022 is unchanged.

The following table reflects the components of net interest income for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021:

Funding costs also increased during the second quarter 2022 and the early stages of the third quarter 2022, however at this time, we expect a continued benefit to our net interest income from a certain amount of lag in higher funding costs due to the current market and our ability to manage the balance sheet.

While our outlook for our net interest income for the remainder of 2022 is positive, we cannot provide any assurances that our net interest income or margin will remain at the levels reported for the second quarter 2022.

The following table reflects the components of net interest income for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021:

Quarterly Analysis of Average Assets, Liabilities and Shareholders’ Equity and

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Three Months Ended

March 31, 2022 December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022 June 30, 2021

Balance Interest Average

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3.43 % 3.16 % 3.18 %

The following table reflects the components of net interest income for the six months ended June 30, 2022 and 2021:

Six Months Ended

June 30, 2022 June 30, 2021

Average Balance Interest Average Rate Average Balance Interest Average Rate

($ in thousands)

Interest earning assets:

$ 38,592,151 $ 732,991 3.80 % $ 32,609,034 $ 628,545 3.86 %

Taxable investments (3)

4,377,990 50,725 2.32 % 3,135,614 29,920 1.91

Tax-exempt investments (1)(3)

543,646 9,757 3.59 % 506,349 8,319 3.29

Interest bearing deposits with banks 1,096,181 2,030 0.37 % 1,397,259 459 0.07

Total interest earning assets 44,609,968 795,503 3.57 % 37,648,256 667,243 3.54

Allowance for credit losses (398,258) (348,834)

Cash and due from banks 354,433 324,044

Other assets 3,864,997 3,305,222

Unrealized gains on securities available for sale, net (13,671) 38,486

Total assets $ 48,417,469 $ 40,967,174

Liabilities and shareholders’ equity

Interest bearing liabilities:

Savings, NOW and money market deposits $ 21,781,907 $ 26,749 0.25 % 17,204,598 22,291 0.26 %

Time deposits 3,577,933 6,100 0.34 5,223,740 17,372 0.67

Total interest bearing deposits 25,359,840 32,849 0.26 22,428,338 39,663 0.35

Short-term borrowings 1,101,535 4,889 0.89 1,020,458 2,926 0.57

Long-term borrowings (4)

1,469,515 19,838 2.70 2,261,719 29,283 2.59

Total interest bearing liabilities 27,930,890 57,576 0.41 25,710,515 71,872 0.56

Non-interest bearing deposits 13,989,897 9,853,345

Other liabilities 823,668 726,041

Shareholders’ equity 5,673,014 4,677,273

Total liabilities and shareholders’ equity $ 48,417,469 $ 40,967,174

Net interest income/interest rate spread (5)

$ 737,927 3.16 % $ 595,371 2.98 %

Tax equivalent adjustment (2,098) (1,797)

Net interest income, as reported $ 735,829 $ 593,574

Net interest margin (6)

3.30 % 3.15 %

Tax equivalent effect 0.01 0.01

Net interest margin on a fully tax equivalent basis (6)

3.31 % 3.16 %

_____________

(1) Interest income is presented on a tax equivalent basis using a 21 percent federal tax rate.

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Change in Net Interest Income on a Tax Equivalent Basis

Three Months Ended March 31, 2022

Compared to March 31, 2021

Three Months Ended June 30, 2022

Compared to June 30, 2021 Six Months Ended June 30, 2022 Compared to June 30, 2021

Volume Change

Change Change

Volume Change

(in thousands)

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Interest bearing deposits with banks (183) 1,517 1,334 (119) 1,690 1,571

Total increase (decrease) in interest income 21,987 (13,550) 8,437

Total increase in interest income 108,008 11,816 119,824 127,785 475 128,260

Interest Expense:

3 unchanged sentences

Long-term borrowings and junior subordinated debentures (5,099) 1,284 (3,815) (10,647) 1,202 (9,445)

Total decrease in interest expense (7,318) (9,024) (16,342)

Total (decrease) increase in interest expense (1,228) 3,274 2,046 (9,152) (5,144) (14,296)

Total increase (decrease) in net interest income $ 109,236 $ 8,542 $ 117,778 $ 136,937 $ 5,619 $ 142,556

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Non-Interest Income

Non-interest income increased $8.0 million for the three months ended March 31, 2022 as compared to the same period of 2021.

The following table presents the components of non-interest income for the three months ended March 31, 2022 and 2021:

Non-interest income increased $15.4 million and $23.4 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021.

The following table presents the components of non-interest income for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(in thousands)

Trust and investment services $ 5,131 $ 3,329

Wealth management and trust fees $ 9,577 $ 3,532 $ 14,708 $ 6,861

Insurance commissions 3,463 2,637 5,322 4,195

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Total non-interest income $ 58,533 $ 43,126 $ 97,803 $ 74,359

Trust and investment services income increased by $1.8 million for the three months ended March 31, 2022 as compared to the same period in 2021 mostly due to additional revenues generated by our new advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments, which we acquired in October 2021.

Net losses on securities transactions of $1.1 million for the three months ended March 31, 2022 were mostly due to net trading losses (including the fair value mark at March 31, 2022) related to our trading municipal bond portfolio.

Net gains on sales of loans for each period are comprised of both gains on sales of residential mortgages and the net change in the mark to market gains and losses on our loans originated for sale and carried at fair value at each period end.

Net gains on sales of loans decreased $2.5 million for the three months ended March 31, 2022 as compared to the same period of 2021 mostly due to lower loan sales volume and spreads (i.e., margin on individual loan sales).

During the first quarter 2022, we sold approximately $201 million of residential mortgage loans as compared to $348 million during the first quarter 2021.

In addition, the mark to market loss on loans held for sale carried at fair value resulted in net losses totaling $4.8 million and $9.5 million for the three months ended March 31, 2022 and 2021, respectively.

Our ability to generate net gains on sales of loans could continue to be challenged by a number of factors, including increases in market interest rates, lower customer demand and our potential decision to change the mix of loans originated for investment in our loan portfolio rather than sale.

Wealth management and trust fees income increased by $6.0 million and $7.8 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021 mostly due to $4.4 million of brokerage fees resulting from the acquisition of Bank Leumi USA and its wholly-owned broker dealer subsidiary now legally named Valley Financial Management, Inc.

The increases in both 2022 periods were also supplemented by an additional revenues generated by our advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments, which we acquired in October 2021.

Service charges on deposit accounts increased by $5.0 million and $6.1 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021 mostly driven by additional checking accounts related revenues resulting from deposit accounts acquired from Leumi USA.

Net losses on securities transactions of $1.4 million for the six months ended June 30, 2022 were mostly due to

net trading losses related to our trading municipal bond portfolio.

Net gains on sales of loans decreased $6.5 million and $9.0 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021.

The quarter over quarter decrease was mostly due to lower loan sale volumes and spreads (i.e., margin on individual loan sales).

During the second quarter 2022, we sold approximately $125.0 million of residential mortgage loans as compared to $326.2 million during the second quarter 2021.

The mark to market change on loans held for sale at fair value resulted in net gains totaling $1.5 million for the three months ended June 30, 2022 as compared to $460 thousand of net losses for the same period of 2021, and net losses totaling $3.3 million and $10.0 million for the six months ended June 30, 2022 and 2021, respectively.

Our ability to generate net gains on sales of loans could continue to be challenged by a number of factors, including increases in market interest rates, lower customer demand for conforming loan products and our potential decision to change the mix of loans originated for investment in our loan portfolio rather than sale.

See further discussion of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.

Other non-interest income increased $8.9 million for the three months ended March 31, 2022 as compared to the same period in 2021 primarily due to higher fee income from derivative interest rate swaps executed with commercial lending customers caused by a greater volume of transactions.

Swap fee income totaled $14.0 million and $6.2 million for the three months ended March 31, 2022 and 2021, respectively.

While we believe our commercial loan swap based product will remain attractive to borrowers in the current interest rate environment, we can provide no assurance that our swap fees will remain at the level reported for the first quarter 2022.

Other non-interest income increased $11.5 million and $20.5 million for the three and six months ended June 30, 2022 as compared to the same periods in 2021, respectively, mostly due to higher fee income from derivative interest rate swaps executed with commercial lending customers caused by a greater volume of transactions and higher foreign exchange fees .

Swap fee inc ome totaled $11.1 million and $7.6 million for the three months ended June 30, 2022 and 2021, respectively, and $25.1 million and $13.8 million for the six months ended June 30, 2022 and 2021, respectively.

Foreign exchange fees totaled $2.1 million and $2.5 million three and six months ended June 30, 2022, respectively.

Foreign exchange fees for the respective reporting periods in 2021 were not material.

Non-Interest Expense

Non-interest expense increased $37.1 million to $197.3 million for the three months ended March 31, 2022 as compared to the same period in 2021.

The following table presents the components of non-interest expense for the three months ended March 31, 2022 and 2021:

Non-interest expense increased $127.8 million and $165.0 million for the three and six months ended June 30, 2022 as compared to the same periods in 2021, respectively.

The following table presents the components of non-interest expense for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(in thousands)

Salary and employee benefits expense $ 154,798 $ 91,095 $ 262,531 $ 179,198

Net occupancy and equipment expense 36,806 32,259

Net occupancy expense 22,429 18,550 44,420 39,230

Technology, furniture and equipment expense 49,866 23,220 75,880 43,950

FDIC insurance assessment 5,351 3,374 9,509 6,650

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Professional and legal fees 30,409 7,486 45,158 13,758

Loss on extinguishment of debt — 8,406 — 8,406

Amortization of tax credit investments 3,193 2,972 6,089 5,716

Telecommunications expense 3,271 3,160

Other 22,284 11,341 37,646 23,743

Total non-interest expense $ 299,730 $ 171,893 $ 497,070 $ 332,106

Salary and employee benefits expense increased $19.6 million for the three months ended March 31, 2022 as compared to the same period of 2021 primarily due to strategic increases in our headcount to enhance lending and operations (including additions to staff due to the Westchester acquisition), increases in our branch compensation to preserve staffing and service levels, and to keep pace with the increases in wage demand across the industry.

In addition, salary and employee benefits expense included approximately $2.8 million in merger expense, primarily consisting of severance, during the first quarter 2022.

Net occupancy and equipment expense increased $4.5 million for the three months ended March 31, 2022 as compared to the same period of 2021 mainly due to higher technology related expense and repair and maintenance costs.

Amortization of other intangible assets decreased $1.6 million f or the three months ended March 31, 2022 as compared to the s ame period of 2021 mostly due to lower amortization expense on mortgage servicing rights.

During the first quarter 2021, the higher level of amortization expense was partly caused by the acceleration of loan prepayments from customer refinance activity, partially offset by $791 thousand of net recoveries of impairment charges on certain loan servicing rights.

See Note 9 to the consolidated financial statements for additional information.

Professional and legal fees increased $8.5 million f or the three months ended March 31, 2022 as compared to the same period of 2021.

The increase was largely attributable to higher third party managed services expense, increased consulting expense mainly related to technology transformation and new product initiatives, and, to a lesser extent, merger related expenses of $770 thousand duri ng the three months ended March 31, 2022.

Other non-interest expense increased $4.9 million f or the three months ended March 31, 2022 as compared to the same period of 2021.

The increase was largely due to higher data processing costs, OREO expense, meals and entertainment, advertising and other incrementally higher operating expenses due to the expansion of our operations, including the acquisition of Westchester on December 1, 2021.

The first quarter 2022 also included $1.1 million of merger related expenses.

Efficiency Ratio

The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total non-interest income.

We believe this non-GAAP measure provides a meaningful comparison of our operational performance and facilitates investors’ assessments of business performance and trends in comparison to our peers in the banking industry.

Our overall efficiency ratio, and its comparability to some of our peers, is negatively impacted primarily by the amortization of tax credit investments, as well as infrequent charges within non-interest income and expense, including merger related expenses.

The following table presents our efficiency ratio and a reconciliation of the efficiency ratio adjusted for certain items during the three months ended March 31, 2022 and 2021:

Three Months Ended

($ in thousands)

Total non-interest expense $ 197,340 $ 160,213

Amortization of tax credit investments (pre-tax) 2,896 2,744

Merger related expenses (pre-tax) (a)

Total non-interest expense, adjusted $ 189,816 $ 157,469

Net interest income $ 317,669 $ 292,667

Total non-interest income 39,270 31,233

Losses on available for sale and held to maturity securities transactions, net (pre-tax) (b)

Total net interest income and non-interest income $ 356,948 $ 324,018

Efficiency ratio 55.29 % 49.46 %

Efficiency ratio, adjusted 53.18 % 48.60 %

(a) Included primarily within salary and employee benefits expense, professional and legal fees and other expense.

(b) Included in gains on securities transactions, net.

Income tax expense totaled $39.3 million for the first quarter 2022 as compared to $42.3 million and $39.3 million for the fourth quarter 2021 and first quarter 2021, respectively.

Our effective tax rate was 25.2 percent, 26.9 percent and 25.4 percent for the first quarter 2022, fourth quarter 2021 and first quarter 2021, respectively.

The decrease in the effective tax rate in the first quarter 2022 as compared to the fourth quarter 2021 was mainly due to an increase in excess stock compensation benefit recognized within income tax expense for the 2022 period.

Salary and employee benefits expense increased $63.7 million and $83.3 million for the three and six months ended June 30, 2022 as compared to the same periods of 2021, respectively.

The increases in both 2022 periods were primarily due to strategic increases in our headcount to enhance lending and operations (including additions to staff due to the Bank Leumi USA and Westchester acquisitions), increases in our branch compensation to preserve staffing and service levels, and to keep pace with the increases in wage demand across the industry.

In addition, salary and employee benefits expense included approximately $28.0 million in merger expense, primarily consisting of change in control and severance payments, related to Bank Leumi USA during the second quarter 2022.

Net occupancy expense increased $3.9 million and $5.2 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021 mainly due to higher depreciation expense and repair and maintenance costs.

Technology, furniture and equipment expense increased $26.6 million and $31.9 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021.

The increases were due, in part, to Bank Leumi USA merger related expenses (largely consisting of technology related costs) totaling $15.3 million in the second quarter 2022 and higher data processing costs.

FDIC insurance assessment expense increased $2.0 million and $2.9 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021 mainly due to the Bank Leumi USA acquisition and continued organic loan growth.

Amortization of other intangible assets increased $6.0 million and $4.4 million for the three and six months ended June 30, 2022 , respectively, as compared to the same period of 2021 mostly due to additional core deposit and other intangible assets resulting from the Bank Leumi USA acquisition.

See Notes 2 and 9 to the consolidated financial statements for additional information.

Professional and legal fees increased $22.9 million and $31.4 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021.

The increases were due, in part, to services expense, increased consulting expense mainly related to technology transformation and new product initiatives during the three and six months and merger related expenses.

Merger related expenses totaled $11.4 million (related to the Bank Leumi USA acquisition) and $12.2 million for the three and six months ended June 30, 2022, respectively.

Loss on extinguishment of debt totaled $8.4 million for the three and six months ended June 30, 2021 reflecting the

prepayment of approximately $248 million of long-term FHLB advances during the second quarter 2021.

Other non-interest expense increased $10.9 million and $13.9 million f or the three and six months ended June 30, 2022 as compared to the same periods of 2021.

These increases within this expense category related to advertising and other incrementally higher operating expenses due to the expansion of our operations, including acquisitions of Bank Leumi USA on April 1, 2022 and Westchester on December 1, 2021.

Income tax expense totaled $36.6 million for the second quarter 2022 as compared to $39.3 million and $42.9 million for the first quarter 2022 and second quarter 2021, respectively.

Our effective tax rate was 27.5 percent, 25.2 percent and 26.2 percent for the second quarter 2022, first quarter 2022 and second quarter 2021, respectively.

The increase in the effective tax rate in the second quarter 2022 as compared to the first quarter 2022 was mainly due to the tax effect of an increase in permanent difference disallowances, lower discrete tax items, as well as moderate state tax rate adjustments recognized during the second quarter 2022.

The decrease in income tax expense as compared to the second quarter 2021 was mainly due to lower pre-tax income.

GAAP requires that any change in judgment or change in measurement of a tax position taken in a prior annual period be recognized as a discrete event in the quarter in which it occurs, rather than being recognized as a change in effective tax rate for the current year.

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Factors that could impact management’s judgment include changes in income, tax laws and regulations, and tax planning strategies .

Based on the current information available, we anticipate that our effective tax rate will range from 26 percent to 28 percent for 2022.

Business Segments

We have four business segments that we monitor and report on to manage our business operations.

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

Our reportable segments have been determined based upon Valley’s 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 our operations, which may not necessarily be comparable to any other financial institution.

Based on the current information available, we anticipate that our effective tax rate will range from 26 percent to 28 percent for 2022, exclusive of pending

potential tax rate increases.

Operating Segments

Prior to the second quarter 2022, Valley operated as four reportable segments:

Consumer Lending, Commercial Lending, Investment Management, and Corporate and Other Adjustments.

Valley re-evaluated its segment reporting during the second quarter 2022 to consider the Bank Leumi USA acquisition on April 1, 2022 along with other factors, including changes in the internal structure of operations, discrete financial information reviewed by key decision-makers, balance sheet management strategies and personnel.

As a result, Valley determined it operated reportable segments consisting of Consumer Lending, Commercial Lending and Treasury and Corporate Other at June 30, 2022.

Treasury and Corporate Other was reorganized to consolidate Treasury and other corporate-wide functions, including the Treasury managed investment securities portfolios and overnight interest earning cash balances formerly reported under Investment Management.

The discrete financial information related to the activities previously reported in the Investment Management segment is no longer provided to Valley's CEO, who is the chief operating decision maker.

Each operating 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).

Valley regularly assesses its strategic plans, operations, and reporting structures to identify its reportable segments.

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

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

The following tables present the financial data for each business segment for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022

The prior-period balances reflect reclassifications to conform the presentation in those periods to the current operating segment structure.

Valley's consolidated results were not impacted by the changes discussed above and remain unchanged for all periods presented.

The following tables present the financial data for Valley's operating segments for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30, 2022

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

Lending Treasury and Corporate Other Total

($ in thousands)

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Annualized return on average interest earning assets (before tax)

1.20 % 2.03 % 0.39 % N/A 1.55 %

Three Months Ended March 31, 2021

0.69 % 1.47 % (0.48) % 1.09 %

Three Months Ended June 30, 2021

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

Lending Treasury and Corporate Other Total

($ in thousands)

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Annualized return on average interest earning assets (before tax)

1.78 % 2.02 % 0.23 % N/A 1.66 %

2.00 % 2.21 % (1.00) % 1.72 %

See Note 14 to the consolidated financial statements for additional details.

Consumer Lending

This consumer lending segment represented 21.6 percent of our loan portfolio at March 31, 2022, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans).

The duration of the residential mortgage loan portfolio (which represented 13.3 percent of our loan portfolio at March 31, 2022) is subject to movements in the market level of interest rates and forecasted prepayment speeds.

The weighted average life of the automobile loans (representing 4.4 percent of total loans at March 31, 2022) is relatively unaffected by movements in the market level of interest rates.

Consumer Lending represented 18.7 percent of our loan portfolio at June 30, 2022, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans).

The duration of the residential mortgage loan portfolio (which represented 11.5 percent of our loan portfolio at June 30, 2022) is subject to movements in the market level of interest rates and forecasted prepayment speeds.

The weighted average life of the automobile loans (representing 3.8 percent of total loans at June 30, 2022) is relatively unaffected by movements in the market level of interest rates.

However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles.

The consumer lending segment also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, insurance and tax credit advisory services.

Average interest earning assets in this segment increased $589.7 million to $7.6 billion for the three months ended March 31, 2022 as compared to the first quarter 2021.

Consumer Lending also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.

Average interest earning assets in Consumer Lending increased $817.2 million to $8.0 billion for the three months ended June 30, 2022 as compared to the second quarter 2021.

The increase was largely due to solid new and refinanced residential mortgage loan volumes over the last 12-month period, as well as growth in automobile loans and secured personal lines of credit.

Loans acquired from Westchester on December 1, 2021 did not materially impact this business segment.

Income before income taxes generated by the consumer lending segmen t decreased $8.4 million to $23.0 million for the first quarter 2022 as compared to the first quarter 2021 largely due to a $4.5 million increase in the provision for loan losses and a $9.1 million increase in the internal transfer expense.

The negative impact of these items was partially offset by a $3.3 million decrease in non-interest expense.

The increase in the provision for loan losses was mainly due to reserves related to residential loan growth and deterioration in our economic forecast in the first quarter 2022 from December 31, 2021, and a negative (credit) provision in the first quarter 2021 caused by improvement in the economic forecast component of the reserves at March 31, 2021.

The higher internal transfer expense was mostly driven by general increases related to organic growth in our business.

Non-interest expense was higher in the 2021 period partly due to the mark to market impact of mortgage banking derivatives.

See Note 11 to the consolidated financial statements for additional information on our mortgage bank derivative activities.

The net interest margin on the consumer lending portfolio decreased 15 basis points to 2.94 percent for the first quarter 2022 as compared to the first quarter 2021 mainly due to a 34 basis point decrease in the yield on average loans, partially offset by a 19 basis point decrease in the costs associated with our funding sources.

Loans acquired from Bank Leumi USA on April 1, 2022 and Westchester on December 1, 2021 did not materially impact this operating segment.

Income before income taxes generated by Consumer Lending decreased $22.1 million to $13.7 million for the second quarter 2022 as compared to the second quarter 2021 largely due to a $17.8 million increase in the internal transfer expense, $4.7 million increase in the provision for loan losses, and lower non-interest income.

The negative impact of these items was partially offset by a $4.2 million increase in net interest income.

The higher internal transfer expense was mostly driven by general increases related to organic growth in our retail business and the recent bank acquisitions.

The increase in the provision for loan losses was mainly due to higher quantitative reserves for residential mortgage loans, as well as loan growth in this category.

Non-interest income decreased $4.8 million or the second quarter 2022 as compared to the second quarter 2021 largely due to lower gains on sales of residential mortgage loans.

The negative impact of these items was partially offset by a $4.2 million increase in net interest income mainly driven by higher average loan balances.

The net interest margin on the Consumer Lending portfolio decreased 9 basis points to 2.94 percent for the second quarter 2022 as compared to the second quarter 2021 mainly due to a 15 basis point decrease in the yield on average loans, partially offset by a 6 basis point decrease in the costs associated with our funding sou rces.

The 15 basis point decrease in loan yield was largely due to lower yielding new loan volumes and normal loan repayments over the last 12-month period.

The decrease in our funding costs was mainly due to continued runoff of higher cost time deposits, greater mix of non-interest bearing deposits and our ability to reprice most deposit products at lower interest rates.

The decrease in our funding costs was mainly due to continued runoff of higher cost time deposits, greater mix of non-interest bearing deposits.

See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest margin and funding sources.

Commercial Lending

The commercial lending segment is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans.

Commercial Lending is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans.

Due to the portfolio’s interest rate characteristics, Commercial Lending is Valley’s business segment that is most sensitive to movements in market interest rates.

Commercial and industrial loans totaled approximately $5.8 billion and represented 16.4 percent of the total loan portfolio at March 31, 2022.

Commercial real estate loans and construction loans totaled $21.9 billion and represented 62.0 percent of the total loan portfolio at March 31, 2022.

Average interest earning assets in this segment increased approximately $1.5 billion to $27.0 billion for the three months ended March 31, 2022 as compared to the first quarter 2021 mostly due to strong new organic loan originations primarily concentrated in the commercial real estate loan portfolio and acquired loans from Westchester, partially offset by run-off of commercial and industrial PPP loans due to SBA loan forgiveness.

For the three months ended March 31, 2022, income before income taxes for the commercial lending segment increased $7.8 million to $136.8 million as compared to the first quarter 2021 mainly driven by increases in both net interest income and non-interest income, as well as a lower provision for loan losses, partially offset by higher internal transfer expense.

Net interest income for this segment increased $17.5 million to $246.6 million for the first quarter 2022 as compared to the same period in 2021 primarily due to additional income generated on higher average loans and lower funding costs.

Non-interest income increased $9.2 million to $16.9 million for the three months ended March 31, 2022 as compared to the first quarter 2021 mainly due to a $7.8 million increase in swap fee income from derivative interest rate swaps executed with commercial loan customers.

The provision for loan losses decreased by $10.0 million mainly due to lower reserves in the commercial real estate loan category attributed primarily to lower loss rates as compared to March 31, 2021.

Internal transfer expense increased $29.4 million for the first quarter 2022 as compared to the first quarter 2021 due to general increases related to both organic and acquired growth in our business.

The net interest margin for this segment increased 4 basis points to 3.65 percent for the first quarter 2022 as compared to the first quarter 2021 due to a 17 basis point decrease in the cost of our funding sources, which was largely offset by a 13 basis point decrease in the yield on average loans.

I nvestment Management

The investment management segment generates a large portion of our income through investments in various types of securities and interest-bearing deposits with other banks.

These investments are mainly comprised of fixed rate securities and, depending on our liquid cash position, federal funds sold and interest-bearing deposits with banks (primarily the Federal Reserve Bank of New York) as part of our asset/liability management strategies.

The fixed rate investments are one of Valley’s least sensitive assets to changes in market interest rates.

However, a portion of the investment portfolio is invested in shorter-duration securities to maintain the overall asset sensitivity of our balance sheet.

See the “Asset/Liability Management” section below for further analysis.

Average interest earning assets in this segment increased $855.9 million during the first quarter 2022 as compared to the first quarter 2021 mainly due to increases in average investment securities and interest bearing deposits with banks totaling $615.3 million and $240.6 million, respectively.

The higher average investment securities balance was mainly driven by purchases of residential mortgage backed securities classified as held to maturity funded largely funded by deposit growth over the last 12-month period.

The increase in overnight investments and deposits with other banks was mostly due to fluctuations in the timing of loan and investment activity and excess cash liquidity resulting from the solid growth in commercial and retail customer deposits.

During the first quarter 2022, income before income taxes for the investment management segment increased $2.7 million to $5.5 million as compared to $2.8 million for the first quarter 2021.

The increase was mainly due to higher net interest income, largely offset by an increase in internal transfer expense.

The increase in net interest income totaled $6.3 million and was mostly driven by higher yields and average investment balances, as well as lower cost of funding.

Internal transfer expense increased $3.8 million for the first quarter 2022 as compared to the first quarter 2021.

The net interest margin for this segment increased 25 basis points to 1.51 percent for the first quarter 2022 as compared to the same quarter in 2021 largely due to a 19 basis point decrease in our cost of funding coupled with a 6 basis point increase in the yield on average investments.

The increase in the yield on average investments as compared to the first quarter 2021 was largely driven by the higher amortization expense in the prior year caused, in part, by acceleration of principal repayments in the low interest rate environment.

Corporate and other adjustments

The amounts disclosed as “corporate and other adjustments” represent income and expense items not directly attributable to a specific segment, including net gains and losses on available for sale and held to maturity securities transactions, not reported in the investment management segment above, interest expense related to subordinated notes, amortization and impairment of tax credit investments, as well as non-core items, including merger expenses.

The corporate and other adjustments segment recognized pre-tax losses of $9.3 million and $8.2 million for the three months ended March 31, 2022 and 2021, respectively.

The $1.1 million increase in the pre-tax loss during the 2022 period was mainly driven by an increase in non-interest expense and, to a much lesser extent, lower non-interest income, mostly offset by an increase in internal transfer income.

Non-interest expense increased $41.8 million to $154.9 million during the three months ended March 31, 2022 as compared to the same period a year ago largely due to increases in salaries and employee benefits expense and professional and legal fees for the three months ended March 31, 2022.

Commercial and industrial loans totaled approximately $8.5 billion and represented 19.5 percent of the total loan portfolio at June 30, 2022.

Commercial real estate loans and construction loans totaled $26.9 billion and represented 61.8 percent of the total loan portfolio at June 30, 2022.

Average interest earning assets in this segment increased approximately $9.1 billion to $34.5 billion for the three months ended June 30, 2022 as compared to the second quarter 2021 mostly due to acquired loans from Bank Leumi USA and Westchester and strong new organic loan originations primarily concentrated in the commercial real estate loan portfolio, partially offset by run-off of commercial and industrial PPP loans due to SBA loan forgiveness.

Income before income taxes for the three months ended June 30, 2022 for Commercial Lending decreased $13.7 million to $127.0 million as compared to the second quarter 2021.

The decrease was mainly driven by an increase in the internal transfer expense coupled with higher provision for loan losses, partially offset by increases in both net interest income and non-interest income.

Internal transfer expense increased $86.2 million for the second quarter 2022 as compared to the second quarter 2021 due to general increases related to both organic and acquired growth in our business.

The provision for loan losses increased by $30.2 million as compared to the second quarter 2021 mainly due to the provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA.

See further details in the "Allowance for Credit Losses for Loans" section of this MD&A.

Net interest income for this segment increased $95.3 million to $332.7 million for the second quarter 2022 as compared to the same period in 2021 primarily due to additional income generated on higher average loan balances.

Non-interest income increased $4.6 million to $14.4 million for the three months ended June 30, 2022 as compared to the second quarter 2021 mainly due to a $3.5 million increase in swap fee income from derivative interest rate swaps executed with commercial loan customers.

The net interest margin for this segment increased 12 basis points to 3.85 percent for the second quarter 2022 as compared to the second quarter 2021 due to a 6 basis point decrease in the cost of our funding sources and a 6 basis point increase in the yield on average loans.

Treasury and Corporate Other

Treasury and Corporate Other largely consists of the Treasury managed held to maturity debt securities and available for sale debt securities portfolios mainly utilized in the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment.

Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the Federal Reserve Bank of New York).

Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to the Consumer Lending and Commercial Lending segments.

Other items disclosed in this segment include net gains and losses on available for sale

and held to maturity securities transactions, not reported in the investment management segment above, interest expense related to subordinated notes, amortization and impairment of tax credit investments, as well as other non-core items, including merger expenses.

Average interest earning assets in this segment increased $1.1 billion during the three months ended June 30, 2022

mainly due to an increase of $1.8 billion in average investment securities, partially offset by lower a verage interest bearing deposits with banks.

The increase in the average investment securities balance was mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA.

The $836.8 million decrease in average interest bearing deposits with banks as compared to the same period in 2021 was mainly due to continued funding of loan growth and fluctuations in the timing of loan and investment activity.

Treasury and Corporate Other recognized pre-tax losses of $7.7 million and $13.1 million for the three months ended June 30, 2022 and 2021, respectively.

The $5.4 million decrease in the pre-tax loss during the 2022 period was due to increases in internal transfer income, net interest income and non-interest income that were more than offset by an increase in non-interest expense.

The internal transfer income increased by $103.9 million to $195.0 million for the three months ended June 30, 2022 as compared to the same period a year ago mostly due to general increases related to our growth and recent acquisitions.

Non-interest expense increased $131.6 million to $256.5 million during the three months ended June 30, 2022 as compared to the same period a year ago largely due to $54.5 million of merger expenses incurred during the second quarter 2022 and our expanded banking operations resulting from the Bank Leumi USA acquisition .

See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.

The internal transfer income increased by $42.3 million to $145.6 million for the three months ended March 31, 2022 as compared to the same period year ago mostly due to general increases related to our growth.

The net interest margin for this segment increased 102 basis points to 2.12 percent for the for the second quarter 2022 as compared to the second quarter 2021 due to a 96 basis point increase in the yield on average investments, and a 6 basis point decrease in cost of our funding sources.

The increase in the yield on average investments as

compared to the second quarter 2021 was largely due to higher interest in come, including discount accretion, on securities acquired from Bank Leumi USA.

The following tables present the financial data for Valley's operating segment for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30, 2022

Lending Commercial

Lending Treasury and Corporate Other Total

($ in thousands)

Average interest earning assets $ 7,848,764 $ 30,743,387 $ 6,017,817 $ 44,609,968

Income (loss) before income taxes 36,659 263,838 (11,490) 289,007

Annualized return on average interest earning assets (before tax)

0.93 % 1.72 % (0.38) % 1.30 %

Six Months Ended June 30, 2021

Lending Commercial

Lending Treasury and Corporate Other Total

($ in thousands)

Average interest earning assets $ 7,099,973 $ 25,509,061 $ 5,039,222 $ 37,648,256

Income (loss) before income taxes 67,176 269,785 (18,537) 318,424

Annualized return on average interest earning assets (before tax)

1.89 % 2.12 % (0.74) % 1.69 %

Consumer Lending

Consumer Lending's average interest earning assets increased $748.8 million to $7.8 billion for the six months ended June 30, 2022 as compared to the same period in 2021.

The increase was largely due to solid new and refinanced residential mortgage loan volumes over the last 12-month period, as well as growth in automobile loans and secured personal lines of credit.

Income before income taxes generated by Consumer Lending decreased $30.5 million to $36.7 million for the six months ended June 30, 2022 as compared to the same period in 2021 largely due to a $26.9 million increase in the internal transfer expense coupled with higher provision for loan losses and non-interest expense.

The provision for loan losses increased $9.2 million for the six months ended June 30, 2022 from $1.9 million credit (negative) provision for the same period of 2021.

The increase in provision was mainly due to higher reserves related to residential loan growth.

See further details in the "Allowance for Credit Losses" section of this MD&A.

Net interest income increased $6.0 million primarily due to the lower funding costs, as well as additional income generated on higher average loan balances.

The higher net interest income was largely offset by a $4.7 million decrease in non-interest income, which was mostly attributable to lower net gains on sales of residential mortgage loans for the six months ended June 30, 2022 as compared to the same period in 2021.

Net interest margin on the Consumer Lending portfolio decreased 14 basis points to 2.92 percent for the six months ended June 30, 2022 as compared to the same period one year ago mainly due to a 27 basis point decrease in the yield on average loans, partially offset by a 13 basis point decrease in the costs associated with our funding sources.

The 27 basis point decrease in loan yield was largely due to lower yielding new loan volumes prior to the second quarter 2022 and normal loan repayments.

The decrease in our funding costs was mainly due to a greater mix of non-interest bearing deposits, deposits continuing to reprice at lower interest rates prior to the second quarter 2022 and the repayment of maturing higher cost borrowings.

Commercial Lending

Average interest earning assets in Commercial Lending increased $5.2 billion to $30.7 billion for the six months ended June 30, 2022 as compared to the same period in 2021.

This increase was primarily due to strong organic loan growth over the 12-month period ended June 30, 2022, as well as loans acquired from Bank Leumi USA and Westchester.

For the six months ended June 30, 2022, income before income taxes for Commercial Lending decreased $5.9 million to $263.8 million as compared to the same period in 2021 mainly driven by increases in i nternal transfer expense and provision for loan losses, largely offset by higher net interest income and non-interest income.

Internal transfer expense increased $115.5 million to $257.3 million for the six months ended June 30, 2022 as compared to the same period in 2021 .

T he provision for credit losses increased $20.2 million to $39.9 million during the six months ended June 30, 2022 as compared to $19.7 million for the same period in 2021 mainly due to the provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA.

See the "Allowance for Credit Losses for Loans" section below for further details.

The negative impa ct of the aforementioned items w as largely offset by increases in net interest income and non-interest inc ome.

Net interest income increased $112.8 million to $579.3 million for the six months ended June 30, 2022 as compared to the same period in 2021 largely due to higher average commercial loan balances during the 2022 period.

Non-interest income increased $13.8 million for the six months ended June 30, 2022 as compared to the same period in 2021 primarily due to a $11.3 million increase in fee income related to derivative interest rate swaps executed with commercial loan customers.

The net interest margin for this segment increased 12 basis points to 3.77 percent for the six months ended June 30, 2022 as compared to the same period in 2021 due to a 13 basis point decrease in the cost of our funding sources, partially offset by a 1 basis point decrease in yield on average loans.

Treasury and Corporate Other

Treasury and Corporate Other's average interest earning assets increased $978.6 million during the six months ended June 30, 2022 as compared to the same period in 2021.

Within the category, a $1.2 billion increase in taxable investment securities was partially offset by a $301.1 million decrease in average interest bearing deposits with banks.

The increase in the average investment securities balance was mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA.

The lower levels of excess liquidity were mainly due to the strong organic loan growth over the last 12-month period.

The pre-tax net loss for this segment totaled $11.5 million for the six months ended June 30, 2022 as compared to $18.5 million for the same period in 2021.

The positive change of $7.0 million was mainly due to increases in internal transfer income and non-interest income, partially offset by higher non-interest expense.

Internal transfer income increased $142.4 million to $323.6 million for the six months ended June 30, 2022 as compared to the same period in 2021.

The increase in net interest income totaled $23.5 million and was mostly driven by higher yields and average investment balances.

Non-interest expense increased $172.5 million to $412.2 million for the six months ended June 30, 2022 as compared to the same period in 2021 partially due to $54.5 million of merger expenses incurred during the second quarter 2022 and other increases in expenses related to our expanded banking operations and organic business growth, partially offset by the l oss on extinguishment of debt recorded during the comparative 2021 period.

See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.

Treasury and Corporate Other's net interest margin increased 67 basis points to 1.81 percent for the six months ended June 30, 2022 as compared to the same period in 2021 due to a 54 basis point increase in the yield on average investments, and a 13 basis point decrease in cost of our funding sources.

The increase in the yield on average investments as compared to the same period in 2021 was largely driven by the higher amortization expense in the prior year caused, in part, by acceleration of principal repayments in the low interest rate environment mostly during the second half of 2021.

ASSET/LIABILITY MANAGEMENT

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The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets and liabilities.

The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates and the prepayment assumptions of certain assets and liabilities as of March 31, 2022.

The model assumes immediate changes in interest rates without any proactive change in the composition or size of the balance sheet, or other future actions that management might undertake to mitigate this risk.

In the model, the forecasted shape of the yield curve remains static as of March 31, 2022.

In the model, the

forecasted shape of the yield curve remains static as of June 30, 2022.

The impact of interest rate derivatives, such as interest rate swaps, is also included in the model.

Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of March 31, 2022.

Although the size of Valley’s balance sheet is forecasted to remain static as of March 31, 2022 in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the first quarter 2022.

The model also utilizes an immediate parallel shift in market interest rates at March 31, 2022.

Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of June 30, 2022.

Although the size of Valley’s balance sheet is forecasted to remain static as of June 30, 2022 in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the second quarter 2022.

The model also utilizes an immediate parallel shift in market interest rates at June 30, 2022.

The assumptions used in the net interest income simulation are inherently uncertain.

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As noted in the table above, a 100 basis point immediate increase in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to increase net interest income over the next 12 month period by 4.64 percent.

Management believes the interest rate sensitivity remains within an acceptable tolerance range at March 31, 2022.

Management believes the interest rate sensitivity remains within an acceptable tolerance range at June 30, 2022.

However, the level of net interest income sensitivity may increase or decrease in the future as a result of several factors, including potential changes in our balance sheet strategies, the slope of the yield curve and projected cash flows.

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Liquidity management is carefully performed and routinely reported by our Treasury Department to two board committees.

Among other actions, Treasury reviews historical funding

requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments.

Among other actions, Treasury reviews historical funding requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments.

Our goal is to maintain sufficient liquidity to cover current and potential funding requirements.

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The current policy maintains that we may not have a ratio of loans to deposits in ex cess of 110 percent or reliance on wholesale funding greater than 25 percent of total funding.

The Bank was in compliance with the foregoing policies at March 31, 2022.

The Bank was in compliance with the foregoing policies at June 30, 2022.

Valley's short and long-term cash requirements include contractual obligations under borrowings, deposits, payment related to leases, capital expenditures and other purchase commitments.

2 unchanged sentences

On the asset side of the balance sheet, the Bank has numerous sources of liquid funds in the form of cash and due from banks, interest bearing deposits with banks (including the Federal Reserve Bank of New York), investment securities held to maturity that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid), investment securities classified as trading and available for sale, loans held for sale, and from time to time, federal funds sold and receivables related to unsettled securities transactions.

Total liquid assets were approximate ly $2.0 billion , representing 5.0 percent of earning assets at March 31, 2022 and $3.5 billion, representing 8.7 percent of earning assets at December 31, 2021.

Of the $2.0 billion of liquid assets at March 31, 2022, approximately $488.5 million of various investment securities were pledged to counterparties to support our earning asset funding strategies.

We anticipate the receipt of approx imately $644.5 million in principal payments from securities in the total investment portfolio at March 31, 2022 over the next 12 month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.

Total liquid assets were approximate ly $3.0 billion , representing 6.0 percent of earning assets at June 30, 2022 and $3.5 billion, representing 8.7 percent of earning assets at December 31, 2021.

Of the $3.0 billion of liquid assets at June 30, 2022, approximately $446.4 million of various investment securities were pledged to counterparties to support our earning asset funding strategies.

We anticipate the receipt of approx imately $1.6 billion in principal payments from securities in the total investment portfolio at June 30, 2022 over the next 12 month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.

Additional liquidity is derived from scheduled loan payments of principal and interest, as well as prepayments received.

Loan principal payments from total loans and loans held for sale at March 31, 2022 are projected in accordance with their scheduled contractual terms to be approximately $10.1 billion over the next 12 month period.

Loan principal payments from total loans and loans held for sale at June 30, 2022 are projected in accordance with their scheduled contractual terms to be approximately $12.4 billion over the next 12 month period.

As a contingency plan for any liquidity constraints, liquidity could also be derived from the sale of conforming residential mortgages from our loan portfolio or alleviated from the temporary curtail ment of lending activities.

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Our core deposit base, which generally excludes fully insured brokered deposits and both retail and brokered certificates of deposit over $250 thousand, represents the largest of these sources.

Average core deposits totaled approximately $33.8 billion and $29.4 billion for the three months ended March 31, 2022 and for the year ended December 31, 2021, respectively, representing 84.1 percent and 78.3 percent of average earning assets for the respective periods.

Average core deposits totaled approximately $36.8 billion and $29.4 billion for the six months ended June 30, 2022 and for the year ended December 31, 2021, respectively, representing 82.5 percent and 78.3 percent of average earning assets for the respective periods.

The level of interest bearing deposits is affected by interest rates offered, which is often influenced by our need for funds and the need to match the maturities of assets and liabilities.

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Additionally, Valley's collateral pledged to the FHLB may be used to obtain Municipal Letters of Credit (MULOC) to collateralize certain municipal deposits held by Valley.

At March 31, 2022, Valley had $1.5 billion of MULOCs outstanding for this purpose.

Furthermore, we can obtain overnight borrowings from the Federal Reserve Bank of New York via the

discount window as a contingency for additional liquidity.

At March 31, 2022, our borrowing capacity under the Federal Reserve Bank's discount window was $2.0 billion.

At June 30, 2022, Valley had $1.6 billion of MULOCs outstanding for this purpose.

Furthermore, we can obtain overnight borrowings from the Federal Reserve Bank of New York via the discount window as a contingency for additional liquidity.

At June 30, 2022, our borrowing capacity under the Federal Reserve Bank's discount window was $2.0 billion.

We also have access to other short-term and long-term borrowing sources to support our asset base, such as repos (i.e., securities sold under agreements to repurchase).

Short-term borrowings (consisting of FHLB advances, repos, and from time to time, federal funds purchased) decreased approximately $171.5 million to $484.2 million at March 31, 2022 as compared to December 31, 2021 largely due to normal repayments of FHLB advances, partially offset by $125 million of federal funds purchased at March 31, 2022.

Short-term borrowings (consisting of FHLB advances, repos, and from time to time, federal funds purchased) decreased approximately $867.1 million to $1.5 billion at June 30, 2022 as compared to December 31, 2021 largely due to normal repayments of FHLB advances, partially offset by $125 million of federal funds purchased at June 30, 2022.

Corporation Liquidity

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Investment Securities Portfolio

As of March 31, 2022, we had $36.0 million, $11.7 million, $1.0 billion and $3.1 billion in equity, trading debt, available for sale and held to maturity debt securities, respectively.

The equity securities consisted of one publicly traded mutual fund, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in a partnership that invests in such companies.

As of June 30, 2022, we had $41.7 million, $1.4 billion, and $3.7 billion in equity, available for sale and held to maturity debt securities, respectively.

There were no trading debt securities at June 30, 2022.

The equity securities consisted of two publicly traded mutual funds, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in a partnership that invests in such companies.

Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities.

Our trading debt securities portfolio wholly consists of investment grade municipal bonds.

The available for sale and held to maturity debt securities portfolios, which comprise the majority of the securities we own, include U.S.

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Among other securities, our available for sale debt securities include securities such as bank issued and other corporate bonds, as well as municipal special revenue bonds, that may pose a higher risk of future impairment charges to us as a result of the uncertain economic environment and its potential negative effect on the future performance of the security issuers.

We acquired $6.2 million, $505.9 million, and $806.6 million of equity securities, available for sale debt and held to maturity debt securities, respectively, from Bank Leumi USA on April 1, 2022.

Allowance for Credit Losses and Impairment Analysis

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Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes.

We have evaluated all available for sale debt securities that are in an unrealized loss position as of March 31, 2022 and December 31, 2021 and determined that the declines in fair value were mainly attributable to changes in market volatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other

Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment charges during the three months ended March 31, 2022 and the year ended December 31, 2021, as a result, there was no allowance for credit losses for available for sale debt securities at March 31, 2022 and December 31, 2021.

We have evaluated all available for sale debt securities that are in an unrealized loss position as of June 30, 2022 and December 31, 2021 and determined that the declines in fair value were mainly attributable to changes in market volatility, due to factors such as interest rates and spread factors, but not attributable to 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 charges during the three and six months ended June 30, 2022 and the year ended December 31, 2021, as a result, there was no allowance for credit losses for available for sale debt securities at June 30, 2022 and December 31, 2021.

Held to maturity debt securities.

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

Held to maturity debt securities were carried net of an allowance for credit losses totaling approximately $1.2 million at both March 31, 2022 and December 31, 2021.

There were no net charge-offs of held to maturity debt securities for the three months ended March 31, 2022 and 2021.

Held to maturity debt securities were carried net of an allowance for credit losses totaling approximately $1.5 million and $1.2 million at June 30, 2022 and December 31, 2021, respectively.

There were no net charge-offs of held to maturity debt securities for the three and six months ended June 30, 2022 and 2021.

Investment grades.

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For this and other reasons, we believe the assigned investment grades may not accurately reflect the actual credit quality of each security and should not be viewed in isolation as a measure of the quality of our investment portfolio.

The following table presents the held to maturity and available for sale debt securities portfolios by investment grades at March 31, 2022:

March 31, 2022

The following table presents the held to maturity and available for sale debt securities portfolios by investment grades at June 30, 2022:

June 30, 2022

Losses Fair Value

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BBB Rated 84,590 108 (4,006) 80,692

Non-investment grade 4,997 — (17) 4,980

Not rated 95,162 183 (4,733) 90,612

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Split rated securities with two ratings are categorized at the higher of the rating levels.

The unrealized losses in the AAA rated category of the held to maturity debt securities (in the above table) are mainly related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac.

The investment securities held to maturity portfolio included $146.2 million of investments not rated by the rating agencies with aggregate unrealized losses of $6.5 million at March 31, 2022 mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million.

The unrealized losses in the AAA and AA rated categories of both the held to maturity and available for sale debt securities portfolios (in the above table) were mainly related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and were driven by the rising interest rate environment during the second quarter 2022.

The investment securities held to maturity portfolio included $181.0 million of investments not rated by the rating agencies with aggregate unrealized losses of $9.6 million at June 30, 2022 mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million.

See Note 7 to the consolidated financial statements for additional information regarding our investment securities portfolio.

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The following table reflects the composition of the loan portfolio as of the dates presented:

2022 March 31,

2022 December 31,

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Total 100.0 % 100.0 % 100.0 %

* Includes net unearned discount and deferred loan fees of $62.0 million and $78.5 million at March 31, 2022 and December 31, 2021, respectively.

Net unearned discounts and deferred loan fees included include the non-credit discount on purchased credit deteriorated (PCD) loans, and $5.9 million and $12.1 million of net unearned fees related to PPP loans at March 31, 2022 and December 31, 2021, respectively.

Commercial and industrial loans decreased $56.2 million, or 3.8 percent on an annualized basis, to $5.8 billion at March 31, 2022 as compared to December 31, 2021 mostly due to $232.3 million of PPP loans that were forgiven (i.e., repaid) during the first quarter 2022.

PPP loan forgiveness will likely continue to negatively impact our ability to grow total commercial and industrial loans during the second quarter 2022.

Non-PPP commercial and industrial loans increased by $176.2 million at March 31, 2022, or 13.0 percent on an annualized basis, as compared to December 31, 2021 mainly resulting from the solid new loan pipeline in most of our markets driven by several factors, including direct calling efforts of our growing commercial lending team.

Commercial real estate loans (excluding construction loans) increased $827.7 million, or 17.5 percent on an annualized basis, to $19.8 billion at March 31, 2022 from December 31, 2021 reflecting solid organic growth across most of our geographic footprints.

Construction loans increased $320.0 million, or 69.0 percent on an annualized basis, to $2.2 billion at March 31, 2022 from December 31, 2021 largely due to a higher volume of advances on pre-existing loan projects during the first quarter 2022.

Residential mortgage loans increased $146.9 million, or 12.9 percent on an annualized basis, during the first quarter 2022 mainly due to new loan activity in the purchased home market, and, to a lesser extent, refinance loan volumes.

New and refinanced residential mortgage loans totaled $552.6 million for the first quarter 2022 as compared to $632.8 million and $550.6 million for the fourth quarter 2021 and first quarter 2021, respectively.

Florida originations totaled approximately $183.1 million and represented 33 percent of total originations.

Of the total originations in the first quarter 2022, $144.5 million of residential mortgage loans were originated for sale rather than held for investment as compared to $287.8 million during the first quarter 2021.

During the first quarter 2022, we retained over 74 percent of the total residential mortgages originations in our held for investment loan portfolio.

We sold approximately $201.2 million of residential mortgage loans held for sale during the first quarter 2022.

While we retained a higher percentage of new loan volumes during the first quarter 2022, we may continue to sell a large portion of our loan originations during the second quarter 2022 based upon normal management of the interest rate risk and mix of the interest earning assets on our balance sheet.

Additionally, refinanced loan applications have decreased significantly in the early stages of the second quarter 2022 due to the recent increase in mortgage interest rates and may challenge our ability to grow this loan category.

Home equity loans decreased by $7.2 million to $393.5 million at March 31, 2022 compared to December 31, 2021.

New home equity loan volumes and customer usage of existing home equity lines of credit continue to be modest, and may be further challenged by a less favorable rising interest rate environment.

Automobile loans decreased by $17.1 million, or 4.4 percent on an annualized basis, to $1.6 billion at March 31, 2022 as compared to December 31, 2021 as loan repayments outpaced origination volumes in the first quarter 2022 .

Car manufacturers have continued to struggle with low inventories of new vehicles caused by supply chain disruptions which have slowed auto production.

We originat ed $148.1 million in auto loans through our dealership network during the first quarter 2022 as compared to $177.1 million in the fourth quarter 2021.

Of the total originations, our Florida dealership network contributed $24.5 million in auto loan originations, representing approximately 17 percent of new loans, during the first quarter 2022.

The current low levels of new and used automobile inventories may continue to negatively impact our auto loan growth during the second quarter 2022.

Other consumer loans decreased $3.3 million to $996.9 million at March 31, 2022 as compared to $1.0 billion at December 31, 2021.

Most of our lendin g is in northern and central New Jersey, New York City, Long Island, Florida and Alabama, except for smaller auto and residential mortgage loan portfolios derived from other neighboring states of New Jersey.

* Includes net unearned discount and deferred loan fees of $141.2 million, $62.0 million, and $78.5 million at June 30, 2022, March 31, 2022, and December 31, 2021, respectively.

The linked quarter increase was largely due to a $98 million net purchase discount associated with the loans acquired from Bank Leumi USA on April 1, 2022.

Total loans increased $8.2 billion to approxima tely $43.6 billion at June 30, 2022 from March 31, 2022 largely due to a combination of acquired loans from Bank Leumi USA totaling $5.9 billion and strong organic loan growth.

Excluding the Bank Leumi USA acquired loans, non-PPP commercial and industrial, total commercial real estate (including construction) and residential mortgage loans increased 37 percent, 26 percent, and 25 percent, respectively, on an annualized basis during the second quarter 2022.

Commercial and industrial loans increased $2.7 billion to $8.5 billion at June 30, 2022 as compared to March 31, 2022.

Excluding $2.4 billion of loan acquired from Bank Leumi USA and PPP loans, the non-commercial and industrial loan organic growth totaled $514.4 million during the second quarter 2022 mainly due to the solid new loan pipeline in most of our markets driven by direct calling efforts of our growing commercial lending team.

The PPP loans decreased $67.6 million to $136.0 million at June 30, 2022 compared to $203.6 million at March 31, 2022 mainly due to loan forgiveness (repayments), partially offset by $45.7 million of PPP loans acquired from Bank Leumi USA.

Commercial real estate loans (excluding construction loans) increased $3.8 billion to $23.5 billion at June 30, 2022 from March 31, 2022.

Excluding $3.1 billion of loans acquired from Bank Leumi USA, the approximate $700 million increase was driven by solid organic growth across most of our geographic footprints.

Construction loans increased $1.2 billion to $3.4 billion at June 30, 2022 from March 31, 2022 due, in part, to approximately $834 million of loans acquired from Bank Leumi USA and higher volume of advances on new, and to a lesser extent, pre-existing loan projects during the second quarter 2022.

Residential mortgage loans increased $313.1 million, or 26.7 percent on an annualized basis, during the second quarter 2022 primarily due to new loan activity in the purchased home market and an increase in such loans originated for investment rather than sale.

Residential mortgage loans acquired from Bank Leumi USA were not material.

New and refinanced residential mortgage loans totaled $540.7 million for the second quarter 2022 as compared to $552.6 million and $753.2 million for the first quarter 2022 and second quarter 2021, respectively.

Florida originations totaled approximately $154.9 million and represented 28.7 percent of total residential mortgage loan originations in the quarter.

Of the total originations in the second quarter 2022, only $61.9 million of residential mortgage loans were originated for sale rather than held for investment as compared to $144.5 million during the first quarter 2022.

During the second quarter 2022, we retained approximately 89 percent of the total residential mortgages originations in our held for investment loan portfolio.

We sold approximately $125.0 million of residential mortgage loans held for sale during the second quarter 2022.

We may continue to retain a higher percentage of new loan volumes during the third quarter 2022 due to several factors, including consumer demand and preferences for certain mortgage products and our management of the interest rate risk and the mix of the interest earning assets on our balance sheet.

Additionally, refinanced loan applications continue to be a low percentage of our volume in the early stages of the third quarter 2022 due to the increase in the level of mortgage interest rates and may challenge our ability to grow this loan category.

Home equity loans increased by $37.9 million to $431.5 million at June 30, 2022 compared to March 31, 2022.

New home equity loan volumes and customer usage of existing home equity lines of credit continue to be modest and challenged by a less favorable rising interest rate environment.

Automobile loans increased by $120.6 million, or 31.1 percent on an annualized basis, to $1.7 billion at June 30, 2022 as compared to March 31, 2022 as loan originations volumes outpaced loan repayments during the second quarter 2022 .

Loan originations were mainly driven by high consumer demand for vehicle purchases and our competitive rates offered for new and used car financing.

W e originated $278.2 million in auto loans through our dealership network during the second quarter 2022 as compared to $148.1 million in the fourth quarter 2021.

Of the total originations, our Florida dealership network contributed $40.6 million in auto loan originations, representing approximately 15 percent of new loans, during the second quarter 2022.

The current low levels of new and used automobile inventories and rising interest rates could negatively impact our auto loan growth during the third quarter 2022.

Other consumer loans increased $30.0 million to $1.0 billion at June 30, 2022 from March 31, 2022.

A large part of our lendin g is in northern and central New Jersey, New York City, Long Island, and Florida.

To mitigate our geographic risks, we make efforts to maintain a diversified portfolio as to type of borrower and loan to guard against a potential downward turn in any one economic sector.

For the remainder of 2022, we anticipate strong organic commercial and industrial non-PPP and commercial real estate loan growth.

In the early stages of the second quarter 2022, we are encouraged that our commercial loan origination pipelines remain robust and overall loan growth should remain well-diversified across our markets in our commercial loan categories.

Due to the exceptional growth generated in the first quarter, and an improved outlook for the rest of the year, we currently project that our organic loan growth will range from 10 to 12 percent for the full year of 2022, excluding the impact of our recent acquisition of Bank Leumi USA on April 1, 2022.

However, there can be no assurance that those positive trends will continue, or balances will not decline from March 31, 2022 given the uncertainty in the U.S.

economy due to several factors, including the Russia-Ukraine war, persistently high inflation, and the impact of the Federal Reserve's monetary policy actions.

In the early stages of the third quarter 2022, we are encouraged that our commercial loan origination pipelines remain robust and overall loan growth should remain well-diversified across our markets in our commercial loan categories.

Based upon current projections, we anticipate 8 to 10 percent annualized loan growth for the second half of 2022.

However, there can be no assurance that those positive trends will continue, or balances will not decline from June 30, 2022 given the forecasted slowdown of the U.S.

economy growth due to several factors, including the Russia-Ukraine war, persistently high inflation, and the impact of the Federal Reserve's rapid monetary policy tightening.

In addition, w e anticipate that consumer loan activity will slow meaningfully for the remainder of the year.

Non-performing Assets

Non-performing assets (NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consists of automobiles and taxi medallions) at March 31, 2022.

Non-performing assets (NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consists of automobiles and taxi medallions) at June 30, 2022.

Loans are generally placed on non-accrual status when they become past due in excess of 90 days as to payment of principal or interest.

Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of collection.

Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of

OREO is acquired through foreclosure on loans secured by land or real estate.

OREO and other repossessed assets are reported at the lower of cost or fair value, less estimated cost to sell.

Our NPAs decreased $12.7 million to $232.7 million at March 31, 2022 as compared to December 31, 2021 largely due to loan payoffs net of new non-accrual loans in several categories during the first quarter.

NPAs as a percentage of total loans and NPAs totaled 0.65 percent and 0.71 percent at March 31, 2022 and December 31, 2021, respectively (as shown in the table below).

Our NPAs increased $82.1 million to $314.7 million at June 30, 2022 as compared to March 31, 2022 mostly due to $70.5 million of acquired non-accrual loans from Bank Leumi USA.

NPAs as a percentage of total loans and NPAs totaled 0.72 percent and 0.65 percent at June 30, 2022 and March 31, 2022, respectively (as shown in the table below).

We believe our total NPAs has remained relatively low as a percentage of the total loan portfolio and the level of NPAs is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased from third parties.

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optimistic regarding the overall future performance of our loan portfolio.

During 2021 and the first quarter 2022, our overall credit trends remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the continuing challenges of the COVID-19 pandemic.

However, management cannot provide assurance that the non-performing assets will not increase substantially from the levels reported at March 31, 2022 due to the continuing economic uncertainty and potential for credit deterioration.

In addition, a few borrowers are still performing under forbearance agreements at March 31, 2022 as discussed under the "Loan Forbearance" section below.

During 2021 and the first half of 2022, our overall credit trends remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the continuing challenges of the COVID-19 pandemic and the uncertain economy.

However, management cannot provide assurance that the non-performing assets will not increase substantially from the levels reported at June 30, 2022 due to high inflation, aggressive tightening of the U.S.

monetary policy and the resulting potential for credit deterioration.

The following table sets forth by loan category accruing past due and non-performing assets at the dates indicated in conjunction with our asset quality ratios:

2022 March 31,

2022 December 31,

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Total accruing past due and non-accrual loans as a % of loans

0.89 0.91 0.87

Allowance for loan losses as a % of non-accrual loans

149.73 157.30 149.53

Loans past due 30 to 59 days increased $13.5 million to $54.4 million at March 31, 2022 as compared to December 31, 2021.

Commercial real estate loans past due 30 to 59 days increased $16.4 million to $30.8 million at March 31, 2022 as compared to December 31, 2021 mainly due to a $13.2 million loan included in this delinquency category at March 31, 2022.

Loans past due 60 to 89 days increased $14.8 million to $27.0 million at March 31, 2022 as compared to December 31, 2021.

Commercial and industrial and commercial real estate loans within this delinquency category

increased $6.6 million and $6.3 million, respectively, at March 31, 2022 mainly due to a few additional loans that are considered well-secured and in the process of collection reported at March 31, 2022.

Loans past due 90 days or more and still accruing interest increased $8.6 million to $11.4 million at March 31, 2022 as compared to December 31, 2021.

The increase was mainly driven by a $8.0 million increase in commercial and industrial loans category, as well as a moderate increase in residential mortgage delinquencies.

All of the loans past due 90 days or more and still accruing interest reported at March 31, 2022 are considered to be well-secured and in the process of collection.

Non-accrual loans decreased $9.8 million to $230.5 million at March 31, 2022 as compared to $240.2 million at December 31, 2021 mostly due to decreases of $4.4 million and $3.3 million in commercial real estate and commercial and industrial loans, respectively.

The decrease in commercial real estate loans delinquencies was due, in part, to the full repayment of a $12.0 million loan during the first quarter 2022, partly offset by two new non-accrual loans at March 31, 2022.

The decrease in non-accrual commercial and industrial loans was also partly due to loan payoffs during the first quarter 2022.

Non-accrual commercial and industrial loans totaled $96.6 million at March 31, 2022 and largely consist of non-performing New York City and Chicago taxi medallion loans totaling $84.7 million and $574 thousand, respectively.

At March 31, 2022, the taxi medallion loans had related reserves of $58.2 million, or 68.2 percent of such loans.

The tax medallion loans and related reserves remained relatively unchanged from December 31, 2021.

Loans past due 30 to 59 days decreased $9.3 million to $45.1 million at June 30, 2022 as compared to March 31, 2022.

Commercial real estate loans past due 30 to 59 days decreased $20.3 million to $10.5 million at June 30, 2022 as compared to March 31, 2022 due, in part, to a $13.2 million loan included in this delinquency category at March 31, 2022 that moved to non-accrual loans as of June 30, 2022.

The decrease in commercial real estate loans was partially offset by higher construction loan delinquencies mostly due to one loan acquired from Bank Leumi USA included in this category at June 30, 2022.

Loans past due 60 to 89 days decreased $15.5 million to $11.5 million at June 30, 2022 as compared to March 31, 2022.

Commercial and industrial within this delinquency category decreased $10.6 million largely due to the migration of loans totaling $8.8 million to the 90 days or more past due category at June 30, 2022.

Commercial real estate loans delinquencies decreased $5.7 million at June 30, 2022 mainly due to a $6.0 million loan included in this delinquency category at March 31, 2022 that became current as to all contractual payments at June 30, 2022.

Loans past due 90 days or more and still accruing interest increased $5.5 million to $16.9 million at June 30, 2022 as compared to March 31, 2022.

The increase was mainly driven by the aforementioned migration of commercial and industrial loans totaling $8.8 million from the 60 to 89 days past due category at June 30, 2022.

All of the loans past due 90 days or more and still accruing interest reported at June 30, 2022 are considered to be well-secured and in the process of collection.

Non-accrual loans increased $82.7 million to $313.1 million at June 30, 2022 as compared to $230.5 million at March 31, 2022.

Commercial and industrial loans increased $51.8 million mainly due to a $43 million borrower relationship with related reserves of $22.0 million within the allowance for loan losses at June 30, 2022 .

Construction loan delinquencies increased $32.2 million mainly due to two loan relationships acquired from Bank Leumi USA.

The $6.6 million increase in non-accrual commercial real estate loans was mainly due to the aforementioned $13.2 million non-performing loan at June 30, 2022 that was previously reported in the 30 to 59 days past due delinquency category at March 31, 2022.

Non-accrual commercial and industrial loans totaled $148.4 million at June 30, 2022 and included non-performing taxi medallion loans totaling $80.4 million.

At June 30, 2022, the taxi medallion loans (mostly collateralized by New York City medallions) had related reserve s of $55.3 million, or 68.8 percent of such l oans.

The tax medallion loans and related reserves remained relatively unchanged from March 31, 2022.

Potential declines in the market valuation of taxi medallions and the stressed operating environment mainly within New York City due to the COVID-19 pandemic could negatively impact the future performance of this portfolio.

For example, a 25 percent decline in our current estimated market value of the taxi medallions would require additional allocated reserves of $5.6 million within the allow ance for loan losses based upon the taxi medallion loan balances at March 31, 2022.

For example, a 25 percent decline in our current estimated market value of the taxi medallions would require additional allocated reserves of $5.5 million within the allow ance for loan losses based upon the taxi medallion loan balances at June 30, 2022.

See the "Allowance for Credit Losses" section below for further details on our reserves.

OREO properties totaled $1.0 million at March 31, 2022 and declined $1.2 million as compared to December 31, 2021.

Net gains and losses from sales of OREO were immaterial for the three months ended March 31, 2022 and 2021.

The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totale d $2.8 million and $2.5 million at March 31, 2022 and December 31, 2021, respectively.

OREO properties totaled $422 thousand at June 30, 2022 and declined $602 thousand as compared to March 31, 2022.

Net gains from sales of OREO totaled $309 thousand and $623 thousand for the three and six months ended June 30, 2022 respectively.

Net gains and losses from sales of OREO totaled $300 thousand and $335 thousand, respectively, for the three and six months ended June 30, 2021 .

The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totale d $2.0 million and $2.5 million at June 30, 2022 and December 31, 2021, respectively.

TDRs represent loan modifications for customers experiencing financial difficulties where a concession has been granted.

Performing TDRs (i.e., TDRs not reported as loans 90 days or more past due and still accruing interest or as non-accrual loans) totaled $56.5 million at March 31, 2022 as compared to $71.3 million at December 31, 2021.

Performing TDRs consisted of 89 loans at March 31, 2022.

On an aggregate basis, the $56.5 million in performing TDRs at March 31, 2022 had a modified weighted average interest rate of approximately 4.12 percent as compared to a pre-modification weighted average interest rate of 4.27 percent.

Loan Forbearance .

In response to the C OVID-19 pandemic and its economic impact on 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 .

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

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

Und er the applicable accounting and regulatory guidance, none of these loans were classified as TDRs at March 31, 2022 and December 31, 2021.

Vall ey had $23.0 million of outstanding loans remaining in their payment deferral periods under short-term modifications at March 31, 2022 as compared to $27.9 million at December 31, 2021.

Performing TDRs (i.e., TDRs not reported as loans 90 days or more past due and still accruing interest or as non-accrual loans) totaled $67.3 million at June 30, 2022 as compared to $56.5 million at March 31, 2022.

Performing TDRs consisted of 93 loans at June 30, 2022.

On an aggregate basis, the $67.3 million in performing TDRs at June 30, 2022 had a modified weighted average interest rate of approximately 4.58 percent as compared to a pre-modification weighted average interest rate of 4.21 percent.

Allowance for Credit Losses for Loans

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Under CECL, our methodology to establish the allowance for loan losses has two basic components:

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

consisting of collateral dependent, TDR, and expected TDR loans.

(i) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (ii) an individual reserve component for loans that do not share risk characteristics, consisting of collateral dependent, TDR, and expected TDR loans.

Valley also maintains a separate allowance for unfunded credit commitments mainly consisting of undisbursed non-cancellable lines of credit, new loan commitments and commercial standby letters of credit.

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

For the first quarter 2022, we incorporated a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and S-4 scenarios.

At March 31, 2022, Valley maintained the majority of its probability weighting to the Moody’s Baseline scenario with less emphasis on the S-3 downside and S-4 (most adverse) scenarios.

The Baseline weighting reflects a positive economic outlook including higher GDP growth and lower unemployment levels that are expected to improve labor market conditions and promote stronger economic growth during 2022.

During the first quarter 2022, we removed our modest weighting to the Moody's S-1 upside scenario used at December 31, 2021 and added weighting to the S-4 adverse scenario due to the greater uncertainty caused by recent developments, including, but not limited to persistently high inflation, the Federal Reserve's monetary policy actions, the Russia-Ukraine war and the unknown impact of economic sanctions on Russia that may further negatively impact the supply chain in the US and abroad.

At March 31, 2022, the Moody's Baseline forecast included the following specific assumptions:

• GDP expansion by over 4.8 percent in the second quarter 2022;

• Unemployment of 3.7 percent in the second quarter 2022 and improving to 3.4 percent over the remainder of the forecast period ending in the first quarter 2024;

• Strong U.S.

economic growth driven by continued consumer spending.

For the second quarter 2022, we incorporated a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and S-4 scenarios.

At June 30, 2022, Valley maintained the majority of its probability weighting to the Moody’s Baseline scenario with less emphasis on the S-3 downside and S-4 (most adverse) scenarios relatively consistent with its weighting in the March 31, 2022 ACL analysis .

However, the Baseline forecast and weighting at June 30, 2022 reflects a less optimistic outlook than at March 31, 2022 in terms of GDP growth and unemployment levels and potential near term negative economic impacts, given present uncertain economic conditions .

At June 30, 2022, the Moody's Baseline forecast included the following specific assumptions:

• GDP expansion by about 3.6 percent in the third quarter 2022;

• Unemployment of 3.4 percent in the third quarter 2022 and 3.4 to 3.6 percent over the remainder of the forecast period ending in the first quarter 2024;

economic growth continues in 2022 as the impact of COVID-19 wanes and consumer spending increases on entertainment and travel.

See more details regarding our allowance for credit losses for loans in Note 8 to the consolidated financial statements.

The table below summarizes the relationship among loans, loans charged-off, loan recoveries, the provision for credit losses and the allowance for credit losses for loans for the periods indicated.

Three Months Ended

2022 December 31,

Three Months Ended Six Months Ended

2022 March 31,

2022 June 30,

2021 June 30,

2022 June 30,

($ in thousands)

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Allowance for purchased credit deteriorated (PCD) loans (1)

70,319 — — 70,319 —

Loans charged-off:

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Total recoveries 2,947 2,645 3,008 5,592 5,753

Net loan recoveries (charge-offs) 50 624 (6,055)

Net loan (charge-offs) recoveries (2,320) 50 (9,366) (2,270) (15,421)

Provision charged for credit losses 43,712 3,500 8,777 47,212 17,791

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Allowance for unfunded credit commitments 22,144 16,742 14,400 22,144 14,400

16,742 16,500 11,433

Allowance for credit losses for loans $ 490,963 $ 379,252 $ 353,724 $ 490,963 $ 353,724

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Provision for credit losses for loans (2)

$ 38,310 $ 3,258 $ 5,810 $ 41,568 $ 14,502

Provision for unfunded credit commitments (2)

5,402 242 2,967 5,644 3,289

Total provision for credit losses for loans $ 43,712 $ 3,500 $ 8,777 $ 47,212 $ 17,791

Annualized ratio of net (recoveries) charge-offs to average loans outstanding 0.00 % (0.01) % 0.07 %

Annualized ratio of net charge-offs (recoveries) to average loans outstanding 0.02 % 0.00 % 0.11 % 0.01 % 0.09 %

(1) Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $62.4 million in the second quarter 2022.

(2) Includes $36.3 million and $4.7 million of provision related to non-PCD loans and unfunded credit commitments, respectively, acquired from Bank Leumi USA in the second quarter 2022.

The following table presents the relationship among net loans charged-off and recoveries, and average loan balances outstanding for the indicated:

Three Months Ended

March 31, 2022 December 31, 2021 March 31, 2021

Three Months Ended Six Months Ended

June 30, 2022 March 31, 2022 June 30, 2021 June 30, 2022 June 30, 2021

($ in thousands)

Net loan recoveries (charge-offs)

Net loan (charge-offs) recoveries

Commercial and industrial $ (2,588) $ (747) $ (10,215) $ (3,335) $ (15,768)

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Total consumer 0.00 (0.01) 0.00 (0.01) 0.01

Net loan loss recoveries totaled $50 thousand and $624 thousand for the first quarter 2022 and fourth quarter 2021, respectively, as compared to $6.1 million in net loan charge-offs for the first quarter 2021.

There were partial charge-offs of taxi medallion loans of $206 thousand within the commercial and industrial loan category during the first quarter 2022 as compared to $3.3 million for the first quarter 2021.

There were no charge-offs of taxi medallion loans in the fourth quarter 2021.

The overall level of loan charge-offs (as presented in the above table) continued to remain very low and trend well within management's expectations for the credit quality of the loan portfolio for the first quarter 2022.

Net loan charge-offs totaled $2.3 million (excluding $62.4 million of Day 1 PCD loan charge-offs related to the Bank Leumi USA acquisition) for the second quarter 2022 as compared to net recoveries of $50 thousand for the first quarter 2022 and net loan charge-offs of $9.4 million for the second quarter 2021.

Gross partial loan charge-offs of taxi medallion loans totaled $2.7 million within the commercial and industrial loan category for the second quarter 2022 as compared to $1.4 million and $206 thousand during the second quarter 2021 and first quarter 2022, respectively.

The following table summarizes the allocation of the allowance for credit losses for loans to loan portfolio categories and the allocations as a percentage of each loan category:

March 31, 2022 December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022 June 30, 2021

Allocation Allocation

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Allowance for credit losses for loans as a % total loans 1.13 % 1.07 % 1.09 %

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments (including letters of credit), as a percentage of total loans was 1.07 percent, 1.10 percent and 1.08 percent at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

During the first quarter 2022, we recorded a $3.5 million provision for credit losses as compared to $11.6 million and $9.0 million for the fourth quarter 2021 and the first quarter 2021, respectively.

The first quarter 2022 provision and increase in our allowance at March 31, 2022 largely reflects additional reserves required due to loan growth during the first quarter 2022.

The allocated reserves as a percentage of commercial real estate loans decreased 6 basis points to 0.96 percent at March 31, 2022 from December 31, 2021 mainly due to lower quantitative reserves for non-owner occupied loans caused by the improvement in the expected loss rates at March 31, 2022 .

The a llowance for credit losses as a percentage of total non-PPP loans was 1.08 percent , 1.11 percent and 1.17 percent for the first quarter 2022, fourth quarter 2021 and first quarter 2021, respectively.

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 1.13 percent at June 30, 2022 as compared to 1.07 percent and 1.09 percent at March 31, 2022 and June 30, 2021, respectively.

The allowance for credit losses at June 30, 2022 was impacted by (i) the total provision for credit losses for loans during the second quarter 2022, (ii) a net $70.3 million allowance for credit losses for PCD loans acquired from Bank Leumi USA recorded at the acquisition date, and (iii) the net loan charge-offs during the second quarter 2022.

During the second quarter 2022, the provision for credit losses for loans totaled $43.7 million as compared to $3.5 million and $8.8 million for the first quarter 2022 and second quarter 2021, respectively.

The increase in the second quarter 2022 provision as compared to the first quarter 2022 was primarily due to $36.3 million and $4.7 million of provision related to non-PCD loans and unfunded credit commitments, respectively, acquired from Bank Leumi USA.

Overall, an increased economic forecast reserve component of our CECL model was largely offset by lower expected quantitative loss experience at June 30, 2022 as compared to March 31, 2022.

Capital Adequacy

A significant measure of the strength of a financial institution is its shareholders’ equity.

At March 31, 2022 and December 31, 2021, shareholders’ equity totaled approximately $5.1 billion, which represented 11.7 percent of total assets.

During the three months ended March 31, 2022, total shareholders’ equity increased by $12.3 million primarily due to net income of $116.7 million, partially offset by cash dividends declared on common and preferred stock totaling a combined $50.0 million, an increase in other comprehensive loss of $38.2 million, repurchases of $13.5 million of our common stock with these shares held as treasury stock and a $2.7 million decrease attributable to the effect of our stock incentive plan.

At June 30, 2022 and December 31, 2021, shareholders’ equity totaled approximately $6.2 billion and $5.1 billion, which represented 11.4 percent and 11.7 percent of total assets, respectively.

During the six months ended June 30, 2022, total shareholders’ equity increased by $1.1 billion primarily due to:

• additional capital of $1.1 billion issued in the Bank Leumi USA acquisition,

• net income of $213.1 million,

• a $3.2 million increase attributable to the effect of our stock incentive plan, partially offset by

• cash dividends declared on common and preferred stock totaling a combined $109.4 million,

• an other comprehensive loss of $90.4 million, and

• repurchases of $13.5 million of our common stock with these shares held as treasury stock.

Valley and Valley National Bank are subject to the regulatory capital requirements administered by the Federal Reserve Bank and the OCC.

Quantitative measures established by regulation to ensure capital adequacy require

Valley and Valley National Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations.

Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations.

We are required to maintain common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, Tier 1 capital to risk-weighted assets ratio of 6.0 percent, ratio of total capital to risk-weighted assets of 8.0 percent, and minimum leverage ratio of 4.0 percent, plus a 2.5 percent capital conservation buffer added to the minimum requirements for capital adequacy purposes.

As of March 31, 2022 and December 31, 2021, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

As of June 30, 2022 and December 31, 2021, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

For regulatory capital purposes, in accordance with the Federal Reserve Board’s final interim rule as of April 3, 2020, we deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e.

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Starting January 1, 2022, the deferral amount totaling $47.3 million after-tax will be phased-in 25 percent per year until fully phased-in on January 1, 2025.

As of March 31, 2022, approximately $11.8 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk based capital ratios by approximately 4 basis points.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at March 31, 2022 and December 31, 2021:

As of June 30, 2022, approximately $11.8 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk based capital ratios by approximately 3 basis points.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at June 30, 2022 and December 31, 2021:

Actual Minimum Capital

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($ in thousands)

As of March 31, 2022

As of June 30, 2022

Total Risk-based Capital

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Valley National Bank 4,307,734 10.53 1,636,097 4.00 2,045,121 5.00

Tangible book value per common share is computed by dividing shareholders’ equity less preferred stock, goodwill and other intangible assets by common shares outstanding as follows:

2022 December 31,

($ in thousands, except for share data)

Common shares outstanding 421,394,277 421,437,068

Shareholders’ equity $ 5,096,384 $ 5,084,066

Preferred stock 209,691 209,691

Goodwill and other intangible assets 1,543,238 1,529,394

Tangible common shareholders’ equity $ 3,343,455 $ 3,344,981

Tangible book value per common share $ 7.93 $ 7.94

Book value per common share $ 11.60 $ 11.57

Management believes the tangible book value per common share ratio, a non-GAAP financial measure, provides information useful to management and investors in understanding our underlying operational performance, our business and performance trends and facilitates comparisons with the performance of others in the financial services industry.

This non-GAAP financial measure should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with U.S.

This non-GAAP financial measure may also be calculated differently from similar measures disclosed by other companies.

Typically, our primary source of capital growth is through retention of earnings.

Our rate of earnings retention is derived by dividing undistributed earnings per common share by earnings (or net income available to common shareholders) per common share.

Our retention ratio was approximately 59.3 percent for the three months ended March 31, 2022 as compared to 60.7 percent for the year ended December 31, 2021.

Cash dividends declared amounted to $0.11 per common share for each of the three months ended March 31, 2022 and 2021.

Our retention ratio was approximately 50.0 percent for the six months ended June 30, 2022 as compared to 60.7 percent for the year ended December 31, 2021.

Cash dividends declared amounted to $0.22 per common share for each of the six months ended June 30, 2022 and 2021.

The Board is committed to examining and weighing relevant facts and considerations, including its commitment to shareholder value, each time it makes a cash dividend decision.

6 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis