VALLEY NATIONAL BANCORP 10-Q

Item 1. Financial Statements /VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except for share data) September 30, 2022 December 31, 2021 Assets (Unaudited) Cash and due from banks $ 431,471 $ 205,156 Interest bearing deposits with banks 686,877 1,844,764 Investment securities: Equity securities 43,318 36,473 Trading debt securities 4,100 38,130 Available for sale debt securities 1,271,854 1,128,809 Held to maturity debt securities (net of allowance for credit losses of $ 1,696 at September 30, 2022 and $ 1,165 at December 31, 2021) 3,720,324 2,667,532 Total investment securities 5,039,596 3,870,944 Loans held for sale, at fair value 6,073 139,516 Loans 45,185,764 34,153,657 Less: Allowance for loan losses ( 475,744 ) ( 359,202 ) Net loans 44,710,020 33,794,455 Premises and equipment, net 362,203 326,306 Lease right of use assets 314,511 259,117 Bank owned life insurance 714,649 566,770 Accrued interest receivable 159,406 96,882 Goodwill 1,871,505 1,459,008 Other intangible assets, net 208,226 70,386 Other assets 1,422,964 813,139 Total Assets $ 55,927,501 $ 43,446,443 Liabilities Deposits: Non-interest bearing $ 15,420,625 $ 11,675,748 Interest bearing: Savings, NOW and money market 23,559,662 20,269,620 Time 6,328,556 3,687,044 Total deposits 45,308,843 35,632,412 Short-term borrowings 919,283 655,726 Long-term borrowings 1,541,097 1,423,676 Junior subordinated debentures issued to capital trusts 56,673 56,413 Lease liabilities 367,428 283,106 Accrued expenses and other liabilities 1,460,348 311,044 Total Liabilities 49,653,672 38,362,377 Shareholders’ Equity Preferred stock, no par value; 50,000,000 authorized shares: Series A ( 4,600,000 shares issued at September 30, 2022 and December 31, 2021) 111,590 111,590 Series B ( 4,000,000 shares issued at September 30, 2022 and December 31, 2021) 98,101 98,101 Common stock ( no par value, authorized 650,000,000 shares; issued 507,896,910 and 423,034,027 shares at September 30, 2022 and December 31, 2021) 178,185 148,482 Surplus 4,972,732 3,883,035 Retained earnings 1,100,838 883,645 Accumulated other comprehensive loss ( 165,557 ) ( 17,932 ) Treasury stock, at cost ( 1,545,408 common shares at September 30, 2022 and 1,596,959 common shares at December 31, 2021) ( 22,060 ) ( 22,855 ) Total Shareholders’ Equity 6,273,829 5,084,066 Total Liabilities and Shareholders’ Equity $ 55,927,501 $ 43,446,443 See accompanying notes to consolidated financial statements. 2 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except for share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Interest Income Interest and fees on loans $ 496,520 $ 309,753 $ 1,229,462 $ 938,248 Interest and dividends on investment securities: Taxable 28,264 14,292 74,416 40,174 Tax-exempt 5,210 2,609 12,739 9,181 Dividends 2,738 1,505 7,490 5,543 Interest on federal funds sold and other short-term investments 3,996 642 6,026 1,101 Total interest income 536,728 328,801 1,330,133 994,247 Interest Expense Interest on deposits: Savings, NOW and money market 50,674 10,605 77,423 32,896 Time 15,174 4,394 21,274 21,766 Interest on short-term borrowings 5,160 1,464 10,049 4,390 Interest on long-term borrowings and junior subordinated debentures 11,728 11,312 31,566 40,595 Total interest expense 82,736 27,775 140,312 99,647 Net Interest Income 453,992 301,026 1,189,821 894,600 Provision (credit) for credit losses for held to maturity securities 188 35 531 ( 353 ) Provision for credit losses for loans 1,835 3,496 49,047 21,287 Net Interest Income After Provision for Credit Losses 451,969 297,495 1,140,243 873,666 Non-Interest Income Wealth management and trust fees 9,281 3,550 23,989 10,411 Insurance commissions 3,750 1,610 9,072 5,805 Service charges on deposit accounts 10,338 5,428 26,617 15,614 Gains (losses) on securities transactions, net 323 787 ( 1,058 ) 1,263 Fees from loan servicing 3,138 2,894 8,636 8,980 Gains on sales of loans, net 922 6,442 5,510 20,016 Bank owned life insurance 1,681 2,018 5,840 6,824 Other 26,761 19,702 75,391 47,877 Total non-interest income 56,194 42,431 153,997 116,790 Non-Interest Expense Salary and employee benefits expense 134,572 93,992 397,103 273,190 Net occupancy expense 26,486 19,941 70,906 59,171 Technology, furniture and equipment expense 39,365 21,007 115,245 64,956 FDIC insurance assessment 6,500 3,644 16,009 10,294 Amortization of other intangible assets 11,088 5,298 26,925 16,753 Professional and legal fees 17,840 13,492 62,998 27,250 Loss on extinguishment of debt — — — 8,406 Amortization of tax credit investments 3,105 3,079 9,194 8,795 Other 22,683 14,469 60,329 38,213 Total non-interest expense 261,639 174,922 758,709 507,028 Income Before Income Taxes 246,524 165,004 535,531 483,428 Income tax expense 68,405 42,424 144,271 124,626 Net Income 178,119 122,580 391,260 358,802 Dividends on preferred stock 3,172 3,172 9,516 9,516 Net Income Available to Common Shareholders $ 174,947 $ 119,408 $ 381,744 $ 349,286 3 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (continued) (in thousands, except for share data) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Earnings Per Common Share: Basic $ 0.35 $ 0.29 $ 0.80 $ 0.86 Diluted 0.34 0.29 0.79 0.86 Cash Dividends Declared per Common Share 0.11 0.11 0.33 0.33 Weighted Average Number of Common Shares Outstanding: Basic 506,342,200 406,824,160 478,383,342 405,986,114 Diluted 508,690,997 409,238,001 480,625,357 408,509,767 See accompanying notes to consolidated financial statements. 4 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income $ 178,119 $ 122,580 $ 391,260 $ 358,802 Other comprehensive loss, net of tax: Unrealized gains and losses on available for sale securities Net losses arising during the period ( 57,242 ) ( 3,953 ) ( 148,403 ) ( 15,860 ) Less reclassification adjustment for net gains included in net income ( 12 ) ( 613 ) ( 22 ) ( 493 ) Total ( 57,254 ) ( 4,566 ) ( 148,425 ) ( 16,353 ) Unrealized gains and losses on derivatives (cash flow hedges) Net (losses) gains on derivatives arising during the period ( 85 ) ( 96 ) 110 ( 69 ) Less reclassification adjustment for net (gains) losses included in net income ( 13 ) 743 293 1,928 Total ( 98 ) 647 403 1,859 Defined benefit pension plan Amortization of actuarial net loss 132 279 397 837 Total other comprehensive loss ( 57,220 ) ( 3,640 ) ( 147,625 ) ( 13,657 ) Total comprehensive income $ 120,899 $ 118,940 $ 243,635 $ 345,145 See accompanying notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) For the Nine Months Ended September 30, 2022 Common Stock Accumulated Preferred Stock Shares Amount Surplus Retained Earnings Other Comprehensive Loss Treasury Stock Total Shareholders’ Equity (in thousands) Balance - December 31, 2021 $ 209,691 421,437 $ 148,482 $ 3,883,035 $ 883,645 $ ( 17,932 ) $ ( 22,855 ) $ 5,084,066 Net income — — — — 116,728 — — 116,728 Other comprehensive loss, net of tax — — — — — ( 38,166 ) — ( 38,166 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 46,803 ) — — ( 46,803 ) Effect of stock incentive plan, net — 972 — ( 10,799 ) ( 5,173 ) — 13,220 ( 2,752 ) Purchase of treasury stock — ( 1,015 ) — — — — ( 13,517 ) ( 13,517 ) Balance - March 31, 2022 209,691 421,394 148,482 3,872,236 945,225 ( 56,098 ) ( 23,152 ) 5,096,384 Net income — — — — 96,413 — — 96,413 Other comprehensive loss, net of tax — — — — — ( 52,239 ) — ( 52,239 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 56,211 ) — — ( 56,211 ) Effect of stock incentive plan, net — 72 1 5,125 ( 109 ) — 892 5,909 Common stock issued in acquisition — 84,863 29,702 1,088,127 — — — 1,117,829 Balance - June 30, 2022 209,691 506,329 178,185 4,965,488 982,146 ( 108,337 ) ( 22,260 ) 6,204,913 Net income — — — — 178,119 — — 178,119 Other comprehensive loss, net of tax — — — — — ( 57,220 ) — ( 57,220 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 56,242 ) — — ( 56,242 ) Effect of stock incentive plan, net — 23 — 7,244 ( 13 ) — 200 7,431 Balance - September 30, 2022 $ 209,691 506,352 $ 178,185 $ 4,972,732 $ 1,100,838 $ ( 165,557 ) $ ( 22,060 ) $ 6,273,829 6 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (continued) For the Nine Months Ended September 30, 2021 Common Stock Accumulated Preferred Stock Shares Amount Surplus Retained Earnings Other Comprehensive Loss Treasury Stock Total Shareholders’ Equity (in thousands) Balance - December 31, 2020 $ 209,691 403,859 $ 141,746 $ 3,637,468 $ 611,158 $ ( 7,718 ) $ ( 225 ) $ 4,592,120 Net income — — — — 115,710 — — 115,710 Other comprehensive loss, net of tax — — — — — ( 9,287 ) — ( 9,287 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 45,281 ) — — ( 45,281 ) Effect of stock incentive plan, net — 1,939 689 14,480 ( 5,764 ) — 175 9,580 Balance - March 31, 2021 209,691 405,798 142,435 3,651,948 672,651 ( 17,005 ) ( 50 ) 4,659,670 Net income — — — — 120,512 — — 120,512 Other comprehensive loss, net of tax — — — — — ( 730 ) — ( 730 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 45,093 ) — — ( 45,093 ) Effect of stock incentive plan, net — 286 115 6,688 ( 130 ) — ( 53 ) 6,620 Balance - June 30, 2021 209,691 406,084 142,550 3,658,636 744,768 ( 17,735 ) ( 103 ) 4,737,807 Net income — — — — 122,580 — — 122,580 Other comprehensive income, net of tax — — — — — ( 3,640 ) — ( 3,640 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.34 per share — — — — ( 1,375 ) — — ( 1,375 ) Common stock, $ 0.11 per share — — — — ( 45,228 ) — — ( 45,228 ) Effect of stock incentive plan, net — 1,230 426 13,831 ( 168 ) — 62 14,151 Balance - September 30, 2021 $ 209,691 407,314 $ 142,976 $ 3,672,467 $ 818,780 $ ( 21,375 ) $ ( 41 ) $ 4,822,498 See accompanying notes to consolidated financial statements. 7 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income $ 391,260 $ 358,802 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 52,545 40,799 Stock-based compensation 20,978 15,852 Provision for credit losses 49,578 20,934 Net amortization of premiums and accretion of discounts on securities and borrowings 10,603 22,145 Amortization of other intangible assets 26,925 16,753 Losses (gains) on securities transactions, net 1,058 ( 1,263 ) Proceeds from sales of loans held for sale 378,216 932,274 Gains on sales of loans, net ( 5,510 ) ( 20,016 ) Originations of loans held for sale ( 244,441 ) ( 774,443 ) Losses (gains) on sales of assets, net 372 ( 380 ) Loss on extinguishment of debt — 8,406 Net change in: Fair value of borrowings hedged by derivative transactions ( 30,585 ) — Trading debt securities 34,030 ( 4,797 ) Cash surrender value of bank owned life insurance ( 5,840 ) ( 6,824 ) Accrued interest receivable ( 36,807 ) 8,157 Other assets ( 402,391 ) 97,341 Accrued expenses and other liabilities 990,607 ( 130,698 ) Net cash provided by operating activities 1,230,598 583,042 Cash flows from investing activities: Net loan originations and purchases ( 5,114,908 ) ( 405,204 ) Equity securities: Purchases ( 4,148 ) ( 3,163 ) Sales 1,725 1,227 Held to maturity debt securities: Purchases ( 666,188 ) ( 1,062,202 ) Maturities, calls and principal repayments 410,760 633,272 Available for sale debt securities: Purchases ( 49,618 ) ( 367,866 ) Sales 12,846 91,978 Maturities, calls and principal repayments 192,868 376,875 Death benefit proceeds from bank owned life insurance 4,680 3,850 Proceeds from sales of real estate property and equipment 7,400 4,982 Proceeds from sales of loans held for investment — 4,498 Purchases of real estate property and equipment ( 50,511 ) ( 19,805 ) Cash and cash equivalent acquired in acquisitions, net 321,540 — Net cash used in investing activities ( 4,933,554 ) ( 741,558 ) 8 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) Nine Months Ended September 30, 2022 2021 Cash flows from financing activities: Net change in deposits $ 2,646,434 $ 1,697,003 Net change in short-term borrowings 159,763 ( 364,612 ) Proceeds from issuance of long-term borrowings, net 147,508 295,922 Repayments of long-term borrowings — ( 1,168,465 ) Cash dividends paid to preferred shareholders ( 9,516 ) ( 9,516 ) Cash dividends paid to common shareholders ( 148,345 ) ( 134,860 ) Purchase of common shares to treasury ( 24,013 ) ( 699 ) Common stock issued, net 106 15,199 Other, net ( 553 ) ( 505 ) Net cash provided by financing activities 2,771,384 329,467 Net change in cash and cash equivalents ( 931,572 ) 170,951 Cash and cash equivalents at beginning of year 2,049,920 1,329,205 Cash and cash equivalents at end of period $ 1,118,348 $ 1,500,156 Supplemental disclosures of cash flow information: Cash payments for: Interest on deposits and borrowings $ 129,504 $ 109,661 Federal and state income taxes 122,170 148,674 Supplemental schedule of non-cash investing activities: Transfer of loans to other real estate owned $ — $ 141 Lease right of use assets obtained in exchange for operating lease liabilities 32,604 40,296 Acquisitions: Non-cash assets acquired: Equity securities 6,239 — Investment securities available for sale 505,928 — Investment securities held to maturity 806,627 — Loans, net 5,844,070 — Premises and equipment, net 38,827 — Lease right of use assets 49,434 — Bank owned life insurance 126,861 — Accrued interest receivable 25,717 — Goodwill 407,522 — Other intangible assets, net 159,587 — Other assets 158,352 — Total non-cash assets acquired $ 8,129,164 $ — Liabilities assumed: Deposits 7,029,997 — Short-term borrowings 103,794 — Lease liabilities 79,844 — Accrued expenses and other liabilities 119,240 — Total liabilities assumed $ 7,332,875 $ — Non-cash net assets acquired $ 796,289 $ — Net cash and cash equivalents acquired in acquisition $ 321,540 $ — Common stock issued in acquisition $ 1,117,829 $ — See accompanying notes to consolidated financial statements. 9 VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The unaudited consolidated financial statements of Valley National Bancorp, a New Jersey corporation (Valley), include the accounts of its commercial bank subsidiary, Valley National Bank (the Bank), and all other entities in which Valley has a controlling financial interest. All inter-company transactions and balances have been eliminated. The accounting and reporting policies of Valley conform to U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation, including changes to our segment reporting structure, as further discussed in Note 9 and Note 15. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at September 30, 2022 and for all periods presented have been made. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year or any subsequent interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP and industry practice have been condensed or omitted pursuant to rules and regulations of the SEC. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021. Significant Estimates. In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include: the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment, and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results may differ from those estimates. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date . Note 2. Business Combinations 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, collectively referred to as "Bank Leumi USA". Bank Leumi USA maintained its headquarters in New York City with commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida. 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. Based on Valley’s closing stock price on March 31, 2022, the transaction was valued at $ 1.2 billion, inclusive of the value of options. As a result of the acquisition, Bank Leumi Le-Israel B.M. owned approximately 14 percent of Valley's common stock as of April 1, 2022. The transaction was accounted for under the acquisition method of accounting and accordingly the results of Bank Leumi USA's operations have been included in Valley's consolidated financial statements for the three and nine months ended September 30, 2022 from the date of the acquisition . 10 The following table sets forth assets acquired and liabilities assumed in the Bank Leumi USA acquisition, at their estimated fair values as of the closing date of the transaction: April 1, 2022 (in thousands) Assets acquired: Cash and cash equivalents $ 443,588 Equity securities 6,239 Available for sale debt securities 505,928 Held to maturity debt securities 806,627 Loans 5,914,389 Allowance for loan losses ( 70,319 ) Loans, net 5,844,070 Premises and equipment 38,827 Lease right of use assets 49,273 Bank owned life insurance 126,861 Accrued interest receivable 25,717 Goodwill 403,151 Other intangible assets 153,380 Other assets 158,352 Total assets acquired $ 8,562,013 Liabilities assumed: Deposits: Non-interest bearing $ 4,511,537 Interest bearing: Savings, NOW and money market 2,224,834 Time 293,626 Total deposits 7,029,997 Short-term borrowings 103,794 Lease liabilities 79,683 Accrued expense and other liabilities 117,269 Total liabilities assumed $ 7,330,743 Common stock issued in acquisition 1,117,829 Cash paid in acquisition 113,441 The determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available . Fair Value Measurement of Assets Acquired and Liabilities Assumed Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Bank Leumi USA acquisition. 11 Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities. Investment securities . The estimated fair value of equity securities, which represents a privately held Community Reinvestment Act (CRA) fund, was measured at net asset value (NAV). Other investment securities acquired from Bank Leumi USA were classified as available for sale and held to maturity debt securities based on Valley's intent at the acquisition date. Their estimated fair values were calculated utilizing Level 2 inputs similar to the valuation techniques used for Valley's investment portfolios detailed in Note 6. Loans. The acquired loan portfolio was recorded at its estimated fair value based on a discounted cash flow methodology. The acquired loan portfolio was segregated into categories for valuation purposes primarily based on loan type and loan risk rating. The estimated fair value incorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and other market factors such as liquidity from a market participant perspective. Management estimated the cash flows expected to be collected at the acquisition date by using valuation models that incorporated loan contractual characteristics (such as payment type, amortization type, and term to maturity) as well as estimates of key valuation assumptions (such as prepayment speeds, default rates, and loss severity rates). The expected cash flows from the acquired loan portfolios were discounted to present value based on estimated market rates. The market rates were estimated using a buildup approach based on the following components: funding cost, servicing cost, and consideration of liquidity premium. In addition, coupon rates for recently originated loans and available market data regarding origination rates were also considered in the analysis. The methods used to estimate the Level 3 fair values of loans are sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. The acquired loans were also evaluated upon acquisition to determine whether they represented purchased credit-deteriorated (PCD) loans, defined as loans which have experienced a more-than-insignificant deterioration in credit quality since origination. Valley considered a variety of factors in assessing loans the PCD classification, including but not limited to risk grades, delinquency, non-performing status, current or previous troubled debt restructurings, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination. For PCD loans, an initial allowance was determined based on Valley’s CECL methodology and was added to the acquisition date fair value of each PCD loan to establish its initial amortized cost basis. The difference between the unpaid principal balance of loans and the calculated amortized cost basis resulted in a net non-credit discount totaling $ 18.8 million. This net discount will be accreted into interest income over the loan's remaining life using the effective interest method . The following table provides a reconciliation of the unpaid principal balance and fair value of loans identified as PCD acquired from Bank Leumi USA: April 1, 2022 ($ in thousands) Unpaid Principal Balance of PCD loans $ 1,922,272 Allowance for credit losses at acquisition * ( 70,319 ) Non-credit discount at acquisition ( 18,814 ) Fair value of acquired PCD loans $ 1,833,139 * Represents the initial reserve for PCD loans, reported net of an additional $ 62.4 million charge-offs recognized at the date of acquisition in accordance with Valley's charge-off policy. Other intangible assets. Other intangible assets recorded consist of core deposit intangibles (CDI) and other acquired client relationships. CDI assets are measures of the value of non-maturity checking, savings, NOW and 12 money market customer deposits that are acquired in a business combination. The fair value for CDI was estimated based on a discounted cash flow methodology considering expected customer attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the interest costs associated with the customer deposits. The CDI is amortized using an accelerated amortization method over an estimated useful life of 10 years. For other acquired client relationships, fair value is measured using the multi-period excess earnings methodology under the income approach. This method measures the future economic income that can be attributed to the existing client relationships acquired, after considering revenue and expense assumptions, expected client attrition rates, and subtracting returns for other complementary assets that contribute to the income over their expected remaining useful lives. The resulting net cash flows are discounted to present value using an estimated intangible asset discount rate. The other acquired client relationships are amortized using an accelerated amortization method over an estimated remaining useful life of 14 years . Deposits. The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing accounts and savings, NOW and money market accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities. Supplemental Pro Forma Financial Information (Unaudited). The following table summarizes supplemental pro forma financial information giving effect to the merger as if it had been completed on January 1, 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Net interest income $ 453,992 $ 371,178 $ 1,261,442 $ 1,099,597 Non-interest income 56,194 58,931 175,488 164,458 Net income 178,119 139,666 478,891 351,489 The supplemental pro forma financial information does not necessarily reflect the results of operations that would have occurred had Valley merged with Bank Leumi USA on January 1, 2021. Costs savings and other business synergies related to the merger are not included in the supplemental pro forma financial information. Other Recent Acquisitions 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. (Landmark) agency. The purchase price included $ 8.6 million in cash and $ 1.0 million in contingent consideration. Goodwill and other intangible assets totaled $ 4.4 million and $ 6.2 million, respectively. The transaction was accounted for under the acquisition method of accounting and accordingly the results of Landmark's operations have been included in Valley's consolidated financial statements for the three and nine months ended September 30, 2022 from the date of acquisition. The Westchester Bank Holding Corporation. On December 1, 2021, Valley completed its acquisition of The Westchester Bank Holding Corporation (Westchester) and its principal subsidiary, The Westchester Bank, which was headquartered in White Plains, New York. As of December 1, 2021, Westchester had approximately $ 1.4 billion in assets, $ 915.0 million in loans, and $ 1.2 billion in deposits, after purchase accounting adjustments, and a branch network of seven locations in Westchester County, New York. The common shareholders of Westchester received 229.645 shares of Valley common stock for each Westchester share they owned prior to the merger. The total consideration for the merger was $ 211.1 million, consisting of approximately 15.7 million shares of Valley common stock. During the nine months ended September 30, 2022, Valley revised the estimated fair values of the acquired assets as of the acquisition date of Westchester based upon additional information obtained that existed as of December 1, 2021. The adjustments related to the fair value of deferred tax assets and resulted in a $ 5.0 million increase in goodwill (see Note 9 for more information). If additional information (that existed as of the acquisition date) 13 becomes available, the fair value estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date. Merger expenses mainly related to the Bank Leumi USA acquisition ab ove totaled $ 4.7 million and $ 63.8 million for the three and nine months ended September 30, 2022, respectively. The merger expenses largely consisted of salaries and benefits expense; technology, furniture and equipment expense; and professional and legal fees within non-interest expense on the consolidated statements of income. Valley incurred merger related expenses of $ 1.3 million during the three and nine months ended September 30, 2021. Incremental merger expenses related to this acquisition are expected to be incurred in future periods, including professional fees, technology and other expenses related to back office consolidation of the Bank operations. Note 3. Earnings Per Common Share The following table shows the calculation of both basic and diluted earnings per common share for the three and nine months ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands, except for share data) Net income available to common shareholders $ 174,947 $ 119,408 $ 381,744 $ 349,286 Basic weighted average number of common shares outstanding 506,342,200 406,824,160 478,383,342 405,986,114 Plus: Common stock equivalents 2,348,797 2,413,841 2,242,015 2,523,653 Diluted weighted average number of common shares outstanding 508,690,997 409,238,001 480,625,357 408,509,767 Earnings per common share: Basic $ 0.35 $ 0.29 $ 0.80 $ 0.86 Diluted 0.34 0.29 0.79 0.86 Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units and common stock options to purchase Valley’s common shares. Common stock options with exercise prices that exceed the average market price per share of Valley’s common stock during the periods presented may have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation along with restricted stock units. Potential anti-dilutive weighted common shares w ere immaterial for the three and nine months ended September 30, 2022 and 2021. Note 4. Accumulated Other Comprehensive Loss The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2022: Components of Accumulated Other Comprehensive Loss Total Accumulated Other Comprehensive Loss Unrealized Gains and Losses on Available for Sale (AFS) Securities Unrealized Gains and Losses on Derivatives Defined Benefit Pension Plan (in thousands) Balance at June 30, 2022 $ ( 81,985 ) $ ( 831 ) $ ( 25,521 ) $ ( 108,337 ) Other comprehensive loss before reclassification ( 57,242 ) ( 85 ) — ( 57,327 ) Amounts reclassified from other comprehensive (loss) income ( 12 ) ( 13 ) 132 107 Other comprehensive (loss) income, net ( 57,254 ) ( 98 ) 132 ( 57,220 ) Balance at September 30, 2022 $ ( 139,239 ) $ ( 929 ) $ ( 25,389 ) $ ( 165,557 ) 14 Components of Accumulated Other Comprehensive Loss Total Accumulated Other Comprehensive Loss Unrealized Gains and Losses on Available for Sale (AFS) Securities Unrealized Gains and Losses on Derivatives Defined Benefit Pension Plan (in thousands) Balance at December 31, 2021 $ 9,186 $ ( 1,332 ) $ ( 25,786 ) $ ( 17,932 ) Other comprehensive (loss) gain before reclassification ( 148,403 ) 110 — ( 148,293 ) Amounts reclassified from other comprehensive (loss) income ( 22 ) 293 397 668 Other comprehensive (loss) income, net ( 148,425 ) 403 397 ( 147,625 ) Balance at September 30, 2022 $ ( 139,239 ) $ ( 929 ) $ ( 25,389 ) $ ( 165,557 ) The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three and nine months ended September 30, 2022 and 2021: Amounts Reclassified from Accumulated Other Comprehensive Loss Three Months Ended September 30, Nine Months Ended September 30, Components of Accumulated Other Comprehensive Loss 2022 2021 2022 2021 Income Statement Line Item (in thousands) Unrealized gains on AFS securities before tax $ 16 $ 825 $ 30 $ 663 Gains (losses) on securities transactions, net Tax effect ( 4 ) ( 212 ) ( 8 ) ( 170 ) Total net of tax 12 613 22 493 Unrealized gains (losses) on derivatives (cash flow hedges) before tax 21 ( 1,044 ) ( 405 ) ( 2,708 ) Interest expense Tax effect ( 8 ) 301 112 780 Total net of tax 13 ( 743 ) ( 293 ) ( 1,928 ) Defined benefit pension plan: Amortization of actuarial net loss ( 183 ) ( 388 ) ( 550 ) ( 1,163 ) * Tax effect 51 109 153 326 Total net of tax ( 132 ) ( 279 ) ( 397 ) ( 837 ) Total reclassifications, net of tax $ ( 107 ) $ ( 409 ) $ ( 668 ) $ ( 2,272 ) * Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense. Note 5. New Authoritative Accounting Guidance New Accounting Guidance Adopted in 2022 Accounting Standards Update (ASU) No. 2021-01 "Reference Rate Reform (Topic 848)" extends some o f Accounting Standards Codification Topic 848’s optional expedients to derivative contracts impacted by the discounting transition, including for derivatives that do not reference LIBOR or other reference rates that are expected to be discontinued. ASU No. 2021-01 is effective for all entities immediately upon issuance and may be elected retrospectively to eligible modifications as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications made on or after any date within the interim period including January 7, 2021 and it can be applied through December 31, 2022, similar to the other reference rate reform relief provided under Topic 848. ASU No. 2021-01 is not expected to have a significant impact on Valley’s consolidated financial statements. ASU No. 2021-05 "Lessors – Certain Leases with Variable Lease Payments" updates guidance in ASC 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an 15 operating lease at lease commencement if: (i) the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria; and (ii) the lessor would have recognized a selling loss at lease commencement. Valley adopted ASU No. 2021-05 on January 1, 2022, and the new guidance did not have a significant impact on Valley’s consolidated financial statements. New Accounting Guidance Issued in 2022 ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging –Portfolio Layer Method” expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. This method allows entities to designate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged. ASU No. 2022-01 also clarifies that no assets may be added to a closed portfolio once it is designated in a portfolio layer method hedge. ASU No. 2022-01 will be effective for Valley on January 1, 2023. Valley is currently evaluating the impact of ASU No. 2022-01 but it is not expected to have a significant impact on Valley's consolidated financial statements. ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” eliminates the troubled debt restructuring (TDR) accounting model for creditors, such as Valley, that have adopted Topic 326, “Financial Instruments – Credit Losses.” ASU No. 2022-02 will require all loan modifications to be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities will also be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public business entities within the scope of the Topic 326 vintage disclosure requirements also will be required to prospectively disclose current-period gross write-off information by vintage. However, gross recoveries will not be required. ASU No. 2022-02 will be effective for Valley on January 1, 2023, with early adoption permitted. Valley is currently evaluating the impact of ASU No. 2022-02 on its consolidated financial statements. ASU No. 2022-03, "Fair Value Measurement of Equity Securities subject to Contractual Sale Restrictions” updates guidance in ASC 820, Fair Value Measurement and clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities including (i) the nature and remaining duration of the restriction; (ii) the circumstances that could cause a lapse in restrictions; and (iii) the fair value of the securities with contractual sale restrictions. ASU No. 2022-03 will be effective for Valley on January 1, 2024, and it can be applied prospectively, with any adjustments resulting from adoption recognized in earnings on the date of adoption. The adoption of ASU No. 2022-03 is not expected to have a significant impact on Valley's consolidated financial statements. Note 6. Fair Value Measurement of Assets and Liabilities ASC Topic 820, “Fair Value Measurements” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: • Level 1 - Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date. • Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets) for substantially the full term of the asset or liability. • Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). 16 Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis The following tables present the assets and liabilities that are measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at September 30, 2022 and December 31, 2021. The assets presented under “non-recurring fair value measurements” in the tables below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized). September 30, 2022 Fair Value Measurements at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Recurring fair value measurements: Assets Investment securities: Equity securities (1) $ 34,942 $ 23,917 $ — $ — Trading debt securities 4,100 2,915 1,185 — Available for sale debt securities: U.S. Treasury securities 277,902 277,902 — — U.S. government agency securities 26,821 — 26,821 — Obligations of states and political subdivisions 141,563 — 141,563 — Residential mortgage-backed securities 646,665 — 646,665 — Corporate and other debt securities 178,903 — 178,903 — Total available for sale debt securities 1,271,854 277,902 993,952 — Loans held for sale (2) 6,073 — 6,073 — Other assets (3) 594,116 — 594,116 — Total assets $ 1,911,085 $ 304,734 $ 1,595,326 $ — Liabilities Other liabilities (3) $ 625,656 $ — $ 625,656 $ — Total liabilities $ 625,656 $ — $ 625,656 $ — Non-recurring fair value measurements: Collateral dependent loans $ 73,108 $ — $ — $ 73,108 Foreclosed assets 1,122 — — 1,122 Total $ 74,230 $ — $ — $ 74,230 17 Fair Value Measurements at Reporting Date Using: December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Recurring fair value measurements: Assets Investment securities: Equity securities (1) $ 32,844 $ 21,284 $ — $ — Trading debt securities 38,130 — 38,130 — Available for sale debt securities: U.S. government agency securities 20,925 — 20,925 — Obligations of states and political subdivisions 79,890 — 79,890 — Residential mortgage-backed securities 904,502 — 904,502 — Corporate and other debt securities 123,492 — 123,492 — Total available for sale debt securities 1,128,809 — 1,128,809 — Loans held for sale (2) 139,516 — 139,516 — Other assets (3) 181,500 — 181,500 — Total assets $ 1,520,799 $ 21,284 $ 1,487,955 $ — Liabilities Other liabilities (3) $ 52,376 $ — $ 52,376 $ — Total liabilities $ 52,376 $ — $ 52,376 $ — Non-recurring fair value measurements: Collateral dependent loans $ 47,871 $ — $ — $ 47,871 Foreclosed assets 2,931 — — 2,931 Total $ 50,802 $ — $ — $ 50,802 (1) Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $ 11.0 million and $ 11.6 million at September 30, 2022 and December 31, 2021, respectively. These securities have not been classified in the fair value hierarchy. (2) Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $ 6.2 million and $ 136.3 million at September 30, 2022 and December 31, 2021, respectively. (3) Derivative financial instruments are included in this categor y. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All the valuation techniques described below apply to the unpaid principal balance, excluding any accrued interest or dividends at the measurement date. Interest income and expense are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Equity securities. The fair value of equity securities consists of a publicly traded mutual fund, a CRA investment fund and an investment related to the development of new financial technologies that are carried at quoted prices in active markets. Valley also has privately held CRA funds measured at NAV, which are excluded from fair value hierarchy levels in the tables above. Trading debt securities. Trading debt securities consist of U.S Treasury securities and municipal bonds reported at fair value utilizing Level 1 and Level 2 inputs, respectively. The prices for municipal bonds are derived from market quotations and matrix pricing obtained through an independent pricing service. Management reviews the data and 18 assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. Available for sale debt securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for sale debt securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume. Loans held for sale. Residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at September 30, 2022 and December 31, 2021 based on the short duration these assets were held, and the credit quality of these loans. Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR, Overnight Index Swap and Secured Overnight Financing Rate (SOFR) curves for all cleared derivatives. The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at September 30, 2022 and December 31, 2021), is determined based on the current market prices for similar instruments. The fair values of most of the derivatives incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance risk of Valley and its counterparties. The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at September 30, 2022 and December 31, 2021. Assets and Liabilities Measured at Fair Value on a Non-recurring Basis The following valuation techniques were used for certain non-financial assets measured at fair value on a non-recurring basis, including collateral dependent loans reported at the fair value of the underlying collateral and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below. Collateral dependent loans . Collateral dependent loans are loans when foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and substantially all of the repayment is expected from the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs, consisting of individual third-party appraisals that may be adjusted based on certain discounting criteria. Certain real estate appraisals may be discounted based on specific market data by location and property type. At September 30, 2022, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses based on the fair value of the underlying collateral. At September 30, 2022, collateral dependent loans with a total amortized cost of $ 171.3 million, including our taxi medallion loan portfolio, were reduced by specific allowance for loan losses allocations totaling $ 98.2 million to a reported total net carrying amount of $ 73.1 million. Foreclosed assets . Certain foreclosed assets (consisting of other real estate owned and other repossessed assets included in other assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value 19 using Level 3 inputs, consisting of a third-party appraisal less estimated cost to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If further declines in the estimated fair value of the asset occur, an asset is re-measured and reported at fair value through a write-down recorded in non-interest expense. There were no adjustments to the appraisals of foreclosed assets at September 30, 2022. Other Fair Value Disclosures ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. 20 The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at September 30, 2022 and December 31, 2021 were as follows: Fair Value Hierarchy September 30, 2022 December 31, 2021 Carrying Amount Fair Value Carrying Amount Fair Value (in thousands) Financial assets Cash and due from banks Level 1 $ 431,471 $ 431,471 $ 205,156 $ 205,156 Interest bearing deposits with banks Level 1 686,877 686,877 1,844,764 1,844,764 Equity securities (1) Level 3 8,376 8,376 3,629 3,629 Held to maturity debt securities: U.S. Treasury securities Level 1 67,075 66,030 67,558 71,661 U.S. government agency securities Level 2 259,869 214,314 6,265 6,378 Obligations of states and political subdivisions Level 2 471,189 430,134 337,962 344,164 Residential mortgage-backed securities Level 2 2,811,582 2,373,581 2,166,142 2,152,301 Trust preferred securities Level 2 37,038 31,417 37,020 31,916 Corporate and other debt securities Level 2 75,267 71,176 53,750 54,185 Total held to maturity debt securities (2) 3,722,020 3,186,652 2,668,697 2,660,605 Net loans Level 3 44,710,020 41,945,829 33,794,455 33,283,251 Accrued interest receivable Level 1 159,406 159,406 96,882 96,882 Federal Reserve Bank and Federal Home Loan Bank stock (3) Level 2 267,319 267,319 206,450 206,450 Financial liabilities Deposits without stated maturities Level 1 38,980,287 38,980,287 31,945,368 31,945,368 Deposits with stated maturities Level 2 6,328,556 6,194,389 3,687,044 3,670,113 Short-term borrowings Level 1 919,283 883,100 655,726 637,490 Long-term borrowings Level 2 1,541,097 1,424,946 1,423,676 1,404,184 Junior subordinated debentures issued to capital trusts Level 2 56,673 56,543 56,413 46,306 Accrued interest payable (4) Level 1 16,519 16,519 4,909 4,909 (1) Represents equity securities without a readily determinable fair value measured at cost less impairment, if any. (2) The carrying amount is presented gross without the allowance for credit losses. (3) Included in other assets. (4) Included in accrued expenses and other liabilities. Note 7. Investment Securities Equity Securities Equity securities totaled $ 43.3 million and $ 36.5 million at September 30, 2022 and December 31, 2021, respectively. See Note 6 for further details on equity securities. Trading Debt Securities The fair value of trading debt securities totaled $ 4.1 million and $ 38.1 million at September 30, 2022 and December 31, 2021, respectively. Net trading gains and losses were included in net gains and losses on securities transactions within non-interest income. We recorded net trading losses of $ 1.2 million and net trading gains of $ 705 thousand for the nine months ended September 30, 2022 and 2021, respectively. The net trading gains and losses for the three months ended September 30, 2022 and 2021 were not material. 21 Available for Sale Debt Securities The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities at September 30, 2022 and December 31, 2021 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) September 30, 2022 U.S. Treasury securities $ 306,748 $ — $ ( 28,846 ) $ 277,902 U.S. government agency securities 29,529 50 ( 2,758 ) 26,821 Obligations of states and political subdivisions: Obligations of states and state agencies 12,576 — ( 565 ) 12,011 Municipal bonds 173,574 — ( 44,022 ) 129,552 Total obligations of states and political subdivisions 186,150 — ( 44,587 ) 141,563 Residential mortgage-backed securities 744,547 66 ( 97,948 ) 646,665 Corporate and other debt securities 197,847 15 ( 18,959 ) 178,903 Total $ 1,464,821 $ 131 $ ( 193,098 ) $ 1,271,854 December 31, 2021 U.S. government agency securities $ 20,323 $ 608 $ ( 6 ) $ 20,925 Obligations of states and political subdivisions: Obligations of states and state agencies 26,088 132 ( 93 ) 26,127 Municipal bonds 53,530 349 ( 116 ) 53,763 Total obligations of states and political subdivisions 79,618 481 ( 209 ) 79,890 Residential mortgage-backed securities 895,279 14,986 ( 5,763 ) 904,502 Corporate and other debt securities 120,871 3,177 ( 556 ) 123,492 Total $ 1,116,091 $ 19,252 $ ( 6,534 ) $ 1,128,809 22 The age of unrealized losses and fair value of the related available for sale debt securities at September 30, 2022 and December 31, 2021 were as follows: Less than Twelve Months More than Twelve Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (in thousands) September 30, 2022 U.S. Treasury securities $ 277,902 $ ( 28,846 ) $ — $ — $ 277,902 $ ( 28,846 ) U.S. government agency securities 22,614 ( 2,720 ) 1,142 ( 38 ) 23,756 ( 2,758 ) Obligations of states and political subdivisions: Obligations of states and state agencies 4,402 ( 56 ) 7,610 ( 509 ) 12,012 ( 565 ) Municipal bonds 119,722 ( 40,475 ) 9,305 ( 3,547 ) 129,027 ( 44,022 ) Total obligations of states and political subdivisions 124,124 ( 40,531 ) 16,915 ( 4,056 ) 141,039 ( 44,587 ) Residential mortgage-backed securities 376,683 ( 39,604 ) 266,591 ( 58,344 ) 643,274 ( 97,948 ) Corporate and other debt securities 160,743 ( 14,670 ) 15,145 ( 4,289 ) 175,888 ( 18,959 ) Total $ 962,066 $ ( 126,371 ) $ 299,793 $ ( 66,727 ) $ 1,261,859 $ ( 193,098 ) December 31, 2021 U.S. government agency securities $ — $ — $ 1,326 $ ( 6 ) $ 1,326 $ ( 6 ) Obligations of states and political subdivisions: Obligations of states and state agencies 10,549 ( 93 ) — — 10,549 ( 93 ) Municipal bonds 19,100 ( 116 ) — — 19,100 ( 116 ) Total obligations of states and political subdivisions 29,649 ( 209 ) — — 29,649 ( 209 ) Residential mortgage-backed securities 371,256 ( 4,770 ) 25,960 ( 993 ) 397,216 ( 5,763 ) Corporate and other debt securities 59,039 ( 556 ) — — 59,039 ( 556 ) Total $ 459,944 $ ( 5,535 ) $ 27,286 $ ( 999 ) $ 487,230 $ ( 6,534 ) Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 743 and 139 at September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, the fair value of available for sale debt securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $ 348.1 million. 23 The contractual maturities of available for sale debt securities at September 30, 2022 are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary. September 30, 2022 Amortized Cost Fair Value (in thousands) Due in one year $ 8,593 $ 8,553 Due after one year through five years 184,748 174,982 Due after five years through ten years 271,404 246,134 Due after ten years 255,529 195,520 Residential mortgage-backed securities 744,547 646,665 Total $ 1,464,821 $ 1,271,854 Actual maturities of available for sale debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. The weighted average remaining expected life for residential mortgage-backed securities available for sale was 6.6 years at September 30, 2022. Impairment Analysis of Available For Sale Debt Securities Valley's available for sale debt securities portfolio includes corporate bonds and revenue bonds, among other securities. These types of securities may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S. economy and its potential negative effect on the future performance of the security issuers, including due to current economic conditions and the effects of the COVID-19 pandemic. Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. Val ley has evaluated available for sale debt securities that are in an unrealized loss position as of September 30, 2022 included in the table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the three and nine months ended September 30, 2022 and 2021. There was no allowance for credit losses for available for sale debt securities at September 30, 2022 and December 31, 2021. 24 Held to Maturity Debt Securities The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at September 30, 2022 and December 31, 2021 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) September 30, 2022 U.S. Treasury securities $ 67,075 $ — $ ( 1,045 ) $ 66,030 U.S. government agency securities 259,869 — ( 45,555 ) 214,314 Obligations of states and political subdivisions: Obligations of states and state agencies 88,276 16 ( 5,127 ) 83,165 Municipal bonds 382,913 17 ( 35,961 ) 346,969 Total obligations of states and political subdivisions 471,189 33 ( 41,088 ) 430,134 Residential mortgage-backed securities 2,811,582 250 ( 438,251 ) 2,373,581 Trust preferred securities 37,038 1 ( 5,622 ) 31,417 Corporate and other debt securities 75,267 — ( 4,091 ) 71,176 Total $ 3,722,020 $ 284 $ ( 535,652 ) $ 3,186,652 December 31, 2021 U.S. Treasury securities $ 67,558 $ 4,103 $ — $ 71,661 U.S. government agency securities 6,265 113 — 6,378 Obligations of states and political subdivisions: Obligations of states and state agencies 141,015 3,065 ( 312 ) 143,768 Municipal bonds 196,947 3,536 ( 87 ) 200,396 Total obligations of states and political subdivisions 337,962 6,601 ( 399 ) 344,164 Residential mortgage-backed securities 2,166,142 14,599 ( 28,440 ) 2,152,301 Trust preferred securities 37,020 5 ( 5,109 ) 31,916 Corporate and other debt securities 53,750 559 ( 124 ) 54,185 Total $ 2,668,697 $ 25,980 $ ( 34,072 ) $ 2,660,605 25 The age of unrealized losses and fair value of related debt securities held to maturity at September 30, 2022 and December 31, 2021 were as follows: Less than Twelve Months More than Twelve Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (in thousands) September 30, 2022 U.S. Treasury securities $ 66,030 $ ( 1,045 ) $ — $ — $ 66,030 $ ( 1,045 ) U.S. government agency securities 213,129 ( 45,555 ) — — 213,129 ( 45,555 ) Obligations of states and political subdivisions: Obligations of states and state agencies 69,161 ( 3,397 ) 12,403 ( 1,730 ) 81,564 ( 5,127 ) Municipal bonds 284,323 ( 34,193 ) 7,674 ( 1,768 ) 291,997 ( 35,961 ) Total obligations of states and political subdivisions 353,484 ( 37,590 ) 20,077 ( 3,498 ) 373,561 ( 41,088 ) Residential mortgage-backed securities 1,354,304 ( 200,314 ) 1,007,883 ( 237,937 ) 2,362,187 ( 438,251 ) Trust preferred securities — — 30,416 ( 5,622 ) 30,416 ( 5,622 ) Corporate and other debt securities 57,181 ( 3,336 ) 7,245 ( 755 ) 64,426 ( 4,091 ) Total $ 2,044,128 $ ( 287,840 ) $ 1,065,621 $ ( 247,812 ) $ 3,109,749 $ ( 535,652 ) December 31, 2021 Obligations of states and political subdivisions: Obligations of states and state agencies $ 17,000 $ ( 254 ) $ 5,517 $ ( 58 ) $ 22,517 $ ( 312 ) Municipal bonds 9,403 ( 87 ) — — 9,403 ( 87 ) Total obligations of states and political subdivisions 26,403 ( 341 ) 5,517 ( 58 ) 31,920 ( 399 ) Residential mortgage-backed securities 1,381,405 ( 22,365 ) 206,520 ( 6,075 ) 1,587,925 ( 28,440 ) Trust preferred securities — — 30,912 ( 5,109 ) 30,912 ( 5,109 ) Corporate and other debt securities 32,627 ( 124 ) — — 32,627 ( 124 ) Total $ 1,440,435 $ ( 22,830 ) $ 242,949 $ ( 11,242 ) $ 1,683,384 $ ( 34,072 ) Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 826 and 108 at September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $ 619.5 million. 26 The contractual maturities of investments in debt securities held to maturity at September 30, 2022 are set forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary. September 30, 2022 Amortized Cost Fair Value (in thousands) Due in one year $ 31,783 $ 31,721 Due after one year through five years 195,679 191,824 Due after five years through ten years 86,011 79,844 Due after ten years 596,965 509,682 Residential mortgage-backed securities 2,811,582 2,373,581 Total $ 3,722,020 $ 3,186,652 Actual maturities of held to maturity debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 8.8 years at September 30, 2022. 27 Credit Quality Indicators Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at September 30, 2022 and December 31, 2021. AAA/AA/A Rated BBB rated Non-investment grade rated Non-rated Total (in thousands) September 30, 2022 U.S. Treasury securities $ 67,075 $ — $ — $ — $ 67,075 U.S. government agency securities 259,869 — — — 259,869 Obligations of states and political subdivisions: Obligations of states and state agencies 63,434 — 5,517 19,325 88,276 Municipal bonds 348,330 — — 34,583 382,913 Total obligations of states and political subdivisions 411,764 — 5,517 53,908 471,189 Residential mortgage-backed securities 2,811,582 — — — 2,811,582 Trust preferred securities — — — 37,038 37,038 Corporate and other debt securities 2,000 6,000 — 67,267 75,267 Total $ 3,552,290 $ 6,000 $ 5,517 $ 158,213 $ 3,722,020 December 31, 2021 U.S. Treasury securities $ 67,558 $ — $ — $ — $ 67,558 U.S. government agency securities 6,265 — — — 6,265 Obligations of states and political subdivisions: Obligations of states and state agencies 118,368 — 5,576 17,071 141,015 Municipal bonds 148,854 — — 48,093 196,947 Total obligations of states and political subdivisions 267,222 — 5,576 65,164 337,962 Residential mortgage-backed securities 2,166,142 — — — 2,166,142 Trust preferred securities — — — 37,020 37,020 Corporate and other debt securities 2,000 6,000 — 45,750 53,750 Total $ 2,509,187 $ 6,000 $ 5,576 $ 147,934 $ 2,668,697 Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At September 30, 2022, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the "non-rated" category included TEMS securities secured by Ginnie Mae securities. Trust preferred securities consist of non-rated single-issuer securities, issued by bank holding companies. Corporate bonds consist of debt primarily issued by banks. Allowance for Credit Losses for Held to Maturity Debt Securities Valley has a zero-loss expectation for certain securities within the held to maturity portfolio, and therefore it is not required to estimate an allowance for credit losses related to these securities under the CECL standard. After an evaluation of qualitative factors, Valley identified the following securities types which it believes qualify for this exclusion: U.S. Treasury securities, U.S. government agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds called TEMS. Held to maturity debt securities were carried net of allowance for credit losses totaling $ 1.7 million at September 30, 2022, and $ 1.2 million at December 31, 2021. Valley recorded a provision for credit losses of $ 188 thousand and $ 531 thousand for the three and nine months ended September 30, 2022, respectively. Valley recorded 28 a provision for credit losses of $ 35 thousand and a credit (negative) provision for credit losses of $ 353 thousand for the three and nine months ended September 30, 2021, respectively. There were no charge-offs for all the respective periods of 2022 and 2021. Note 8. Loans and Allowance for Credit Losses for Loans The detail of the loan portfolio as of September 30, 2022 and December 31, 2021 was as follows: September 30, 2022 December 31, 2021 (in thousands) Loans: Commercial and industrial: Commercial and industrial $ 8,615,557 $ 5,411,601 Commercial and industrial PPP loans * 85,820 435,950 Total commercial and industrial loans 8,701,377 5,847,551 Commercial real estate: Commercial real estate 24,493,445 18,935,486 Construction 3,571,818 1,854,580 Total commercial real estate loans 28,065,263 20,790,066 Residential mortgage 5,177,128 4,545,064 Consumer: Home equity 467,135 400,779 Automobile 1,711,086 1,570,036 Other consumer 1,063,775 1,000,161 Total consumer loans 3,241,996 2,970,976 Total loans $ 45,185,764 $ 34,153,657 * Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $ 1.4 million and $ 12.1 million at September 30, 2022 and December 31, 2021, respectively. Total loans include net unearned discounts and deferre d loan fees of $ 136.5 million an d $ 78.5 million at September 30, 2022 and December 31, 2021, respectively. The increase in total loans at September 30, 2022 is partially attributed to $ 5.9 billion of loans acquired in the Bank Leumi USA acquisition, which was inclusive of a $ 98.6 million net purchase discount at the acquisition date. Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 139.6 million and $ 83.7 million at September 30, 2022 and December 31, 2021, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition . There were no sales of loans from the held for investment portfolio during the three and nine months ended September 30, 2022 and 2021. Credit Risk Management For all of its loan types, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk appetite. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of Directors annually. Credit authority relating to a significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification, concentrations of credit, loan delinquencies, non-performing, and potential problem loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through 29 cyclical economic circumstances. See Valley’s Annual Report on Form 10-K for the year ended December 31, 2021 for further details. Credit Quality The following table presents past due, current and non-accrual loans without an allowance for loan losses by loan portfolio class at September 30, 2022 and December 31, 2021: Past Due and Non-Accrual Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Loans Non-Accrual Loans Total Past Due Loans Current Loans Total Loans Non-Accrual Loans Without Allowance for Loan Losses (in thousands) September 30, 2022 Commercial and industrial $ 19,526 $ 2,188 $ 15,072 $ 135,187 $ 171,973 $ 8,529,404 $ 8,701,377 $ 5,043 Commercial real estate: Commercial real estate 6,196 383 15,082 67,319 88,980 24,404,465 24,493,445 64,260 Construction — 12,969 — 61,098 74,067 3,497,751 3,571,818 14,941 Total commercial real estate loans 6,196 13,352 15,082 128,417 163,047 27,902,216 28,065,263 79,201 Residential mortgage 13,045 5,947 550 26,564 46,106 5,131,022 5,177,128 14,378 Consumer loans: Home equity 321 168 312 2,845 3,646 463,489 467,135 123 Automobile 4,999 702 109 286 6,096 1,704,990 1,711,086 — Other consumer 876 304 — 96 1,276 1,062,499 1,063,775 — Total consumer loans 6,196 1,174 421 3,227 11,018 3,230,978 3,241,996 123 Total $ 44,963 $ 22,661 $ 31,125 $ 293,395 $ 392,144 $ 44,793,620 $ 45,185,764 $ 98,745 30 Past Due and Non-Accrual Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Loans Non-Accrual Loans Total Past Due Loans Current Loans Total Loans Non-Accrual Loans Without Allowance for Loan Losses (in thousands) December 31, 2021 Commercial and industrial $ 6,717 $ 7,870 $ 1,273 $ 99,918 $ 115,778 $ 5,731,773 $ 5,847,551 $ 9,066 Commercial real estate: Commercial real estate 14,421 — 32 83,592 98,045 18,837,441 18,935,486 70,719 Construction 1,941 — — 17,641 19,582 1,834,998 1,854,580 — Total commercial real estate loans 16,362 — 32 101,233 117,627 20,672,439 20,790,066 70,719 Residential mortgage 10,999 3,314 677 35,207 50,197 4,494,867 4,545,064 20,401 Consumer loans: Home equity 242 98 — 3,517 3,857 396,922 400,779 4 Automobile 6,391 656 271 240 7,558 1,562,478 1,570,036 — Other consumer 178 266 518 101 1,063 999,098 1,000,161 — Total consumer loans 6,811 1,020 789 3,858 12,478 2,958,498 2,970,976 4 Total $ 40,889 $ 12,204 $ 2,771 $ 240,216 $ 296,080 $ 33,857,577 $ 34,153,657 $ 100,190 Credit quality indicators. Valley utilizes an internal loan classification system as a means of reporting problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes. Under Valley’s internal risk rating system, loan relationships could be classified as "Pass," "Special Mention," "Substandard," "Doubtful," and "Loss." Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses, and, therefore, not presented in the table below. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories but pose weaknesses that deserve management’s close attention are deemed Special Mention. Pass rated loans do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants. 31 The following table presents the internal loan classification risk by loan portfolio class by origination year based on the most recent analysis performed at September 30, 2022 and December 31, 2021: Term Loans Amortized Cost Basis by Origination Year September 30, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Commercial and industrial Risk Rating: Pass $ 1,451,283 $ 1,193,937 $ 663,575 $ 352,556 $ 279,803 $ 395,216 $ 4,076,834 $ 159 $ 8,413,362 Special Mention 15,224 3,433 20,292 5,246 9,320 3,852 56,973 9 114,349 Substandard — 2,279 5,285 2,082 4,467 5,312 71,792 — 91,217 Doubtful — — — 2,701 2,636 77,112 — — 82,449 Total commercial and industrial $ 1,466,507 $ 1,199,649 $ 689,152 $ 362,585 $ 296,226 $ 481,492 $ 4,205,599 $ 168 $ 8,701,377 Commercial real estate Risk Rating: Pass $ 5,326,845 $ 5,193,267 $ 3,280,227 $ 2,733,365 $ 1,553,479 $ 5,161,982 $ 284,891 $ 3,599 $ 23,537,657 Special Mention 102,150 63,572 90,429 43,812 75,328 155,873 15,074 — 546,239 Substandard 17,641 31,910 37,797 40,394 63,254 210,011 8,372 — 409,379 Doubtful — — — — — 170 — — 170 Total commercial real estate $ 5,446,636 $ 5,288,749 $ 3,408,453 $ 2,817,571 $ 1,692,061 $ 5,528,036 $ 308,337 $ 3,599 $ 24,493,445 Construction Risk Rating: Pass $ 743,720 $ 607,441 $ 120,837 $ 30,246 $ 10,572 $ 17,069 $ 1,952,786 $ — $ 3,482,671 Special Mention 12,917 — — — — 13,084 — 26,001 Substandard — 11,376 — 982 17,599 20,183 — 50,140 Doubtful — 643 — — 12,364 — — 13,006 Total construction $ 756,637 $ 619,460 $ 120,837 $ 31,228 $ 10,572 $ 47,032 $ 1,986,053 $ — $ 3,571,818 32 Term Loans Amortized Cost Basis by Origination Year December 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Commercial and industrial Risk Rating: Pass $ 1,563,050 $ 743,165 $ 461,022 $ 362,748 $ 143,753 $ 337,713 $ 1,968,513 $ 247 $ 5,580,211 Special Mention 4,182 1,195 3,217 14,143 1,726 9,869 102,145 40 136,517 Substandard 8,248 4,823 3,139 7,077 910 408 19,642 109 44,356 Doubtful — — 2,733 — 16,355 67,379 — — 86,467 Total commercial and industrial $ 1,575,480 $ 749,183 $ 470,111 $ 383,968 $ 162,744 $ 415,369 $ 2,090,300 $ 396 $ 5,847,551 Commercial real estate Risk Rating: Pass $ 4,517,917 $ 2,983,140 $ 2,702,580 $ 1,734,922 $ 1,474,770 $ 4,557,011 $ 195,851 $ 13,380 $ 18,179,571 Special Mention 7,700 50,019 46,911 44,187 65,623 143,540 50,168 — 408,148 Substandard 735 34,655 29,029 41,231 70,941 169,041 1,949 — 347,581 Doubtful — — — — — 186 — — 186 Total commercial real estate $ 4,526,352 $ 3,067,814 $ 2,778,520 $ 1,820,340 $ 1,611,334 $ 4,869,778 $ 247,968 $ 13,380 $ 18,935,486 Construction Risk Rating: Pass $ 274,097 $ 98,609 $ 48,555 $ 32,781 $ 6,061 $ 28,419 $ 1,313,555 $ — $ 1,802,077 Special Mention 4,131 — 1,009 — — — 18,449 — 23,589 Substandard 199 19 6 246 — 17,842 10,602 — 28,914 Total construction $ 278,427 $ 98,628 $ 49,570 $ 33,027 $ 6,061 $ 46,261 $ 1,342,606 $ — $ 1,854,580 33 For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley also evaluates credit quality based on the aging status of the loan and by payment activity. The following table presents the amortized cost in those loan classes based on payment activity by origination year as of September 30, 2022 and December 31, 2021. Term Loans Amortized Cost Basis by Origination Year September 30, 2022 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Residential mortgage Performing $ 1,040,542 $ 1,508,300 $ 586,418 $ 505,502 $ 351,579 $ 1,113,157 $ 63,694 $ — $ 5,169,192 90 days or more past due — — 129 1,508 2,526 3,773 — — 7,936 Total residential mortgage $ 1,040,542 $ 1,508,300 $ 586,547 $ 507,010 $ 354,105 $ 1,116,930 $ 63,694 $ — $ 5,177,128 Consumer loans Home equity Performing $ 36,133 $ 12,728 $ 4,788 $ 5,279 $ 5,822 $ 15,602 $ 346,709 $ 39,105 $ 466,166 90 days or more past due — — — — — — 424 545 969 Total home equity 36,133 12,728 4,788 5,279 5,822 15,602 347,133 39,650 467,135 Automobile Performing 589,413 570,603 226,848 188,741 95,798 39,039 — — 1,710,442 90 days or more past due 75 111 78 167 132 81 — — 644 Total automobile 589,488 570,714 226,926 188,908 95,930 39,120 — — 1,711,086 Other consumer Performing 21,110 2,934 7,262 7,476 7,560 16,546 1,000,795 — 1,063,683 90 days or more past due — — — — — — 92 — 92 Total other consumer 21,110 2,934 7,262 7,476 7,560 16,546 1,000,887 — 1,063,775 Total consumer $ 646,731 $ 586,376 $ 238,976 $ 201,663 $ 109,312 $ 71,268 $ 1,348,020 $ 39,650 $ 3,241,996 34 Term Loans Amortized Cost Basis by Origination Year December 31, 2021 2021 2020 2019 2018 2017 Prior to 2017 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Residential mortgage Performing $ 1,448,602 $ 635,531 $ 572,911 $ 425,152 $ 368,164 $ 1,014,190 $ 70,342 $ — $ 4,534,892 90 days or more past due — 357 2,627 2,056 2,794 2,338 — — 10,172 Total residential mortgage $ 1,448,602 $ 635,888 $ 575,538 $ 427,208 $ 370,958 $ 1,016,528 $ 70,342 $ — $ 4,545,064 Consumer loans Home equity Performing $ 13,847 $ 5,723 $ 6,994 $ 7,384 $ 5,359 $ 13,597 $ 303,888 $ 42,822 $ 399,614 90 days or more past due — — — — — 35 536 594 1,165 Total home equity 13,847 5,723 6,994 7,384 5,359 13,632 304,424 43,416 400,779 Automobile Performing 735,446 309,856 278,828 157,450 72,753 15,171 — — 1,569,504 90 days or more past due 129 — 78 163 81 81 — — 532 Total automobile 735,575 309,856 278,906 157,613 72,834 15,252 — — 1,570,036 Other consumer Performing 2,949 6,717 6,468 7,017 1,009 14,483 961,027 — 999,670 90 days or more past due — — — — — — 491 — 491 Total other consumer 2,949 6,717 6,468 7,017 1,009 14,483 961,518 — 1,000,161 Total consumer $ 752,371 $ 322,296 $ 292,368 $ 172,014 $ 79,202 $ 43,367 $ 1,265,942 $ 43,416 $ 2,970,976 Troubled debt restructured loans . From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (TDR). Generally, the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. The concessions may also involve payment deferrals but rarely result in the forgiveness of principal or accrued interest. In addition, Valley frequently obtains additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms of the loan and Valley’s underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. Performing TDRs (not reported as non-accrual loans) totaled $ 69.7 million and $ 71.3 million as of September 30, 2022 and December 31, 2021, respectively. Non-performing TDRs totaled $ 155.7 million and $ 117.2 million as of September 30, 2022 and December 31, 2021, respectively. 35 The following tables present the pre- and post-modification amortized cost of loans by loan class modified as TDRs during the three and nine months ended September 30, 2022 and 2021. Post-modification amounts are presented as of September 30, 2022 and 2021. Three Months Ended September 30, 2022 2021 Troubled Debt Restructurings Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment ($ in thousands) Commercial and industrial 65 $ 54,586 $ 54,747 4 $ 2,446 $ 2,414 Commercial real estate: Commercial real estate 1 2,187 2,187 5 14,473 14,539 Construction 2 11,025 7,811 2 17,599 17,599 Total commercial real estate 3 13,212 9,998 7 32,072 32,138 Residential mortgage 1 44 44 4 356 350 Total 69 $ 67,842 $ 64,789 15 $ 34,874 $ 34,902 Nine Months Ended September 30, 2022 2021 Troubled Debt Restructurings Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment ($ in thousands) Commercial and industrial 79 $ 109,779 $ 105,495 16 $ 21,822 $ 19,060 Commercial real estate: Commercial real estate 4 16,259 15,660 11 26,710 26,730 Construction 2 11,025 7,811 2 17,599 17,599 Total commercial real estate 6 27,284 23,471 13 44,309 44,329 Residential mortgage 9 5,135 5,116 12 2,974 2,909 Consumer 1 125 123 1 170 163 Total 95 $ 142,323 $ 134,205 42 $ 69,275 $ 66,461 The total TDRs presented in the above tables had allocated allowance for loan losses of $ 71.5 million and $ 8.2 million at September 30, 2022 and 2021, respectively. There were $ 3.8 million and $ 5.4 million in charge-offs related to TDRs for the three and nine months ended September 30, 2022. There were charge-offs of $ 206 thousand and $ 6.0 million related to TDRs for the three and nine months ended September 30, 2021, respectively. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three and nine months ended September 30, 2022 and 2021. 36 Loans modified as TDRs within the previous 12 months and for which there was a payment default ( 90 or more days past due) for the three and nine months ended September 30, 2022 and 2021 were as follows: Three Months Ended September 30, 2022 2021 Troubled Debt Restructurings Subsequently Defaulted Number of Contracts Recorded Investment Number of Contracts Recorded Investment ($ in thousands) Commercial and industrial 1 $ 42,771 — $ — Commercial real estate 2 5,207 1 419 Residential mortgage 1 1,071 1 129 Total 4 $ 49,049 2 $ 548 Nine Months Ended September 30, 2022 2021 Troubled Debt Restructurings Subsequently Defaulted Number of Contracts Recorded Investment Number of Contracts Recorded Investment ($ in thousands) Commercial and industrial 1 $ 42,771 — $ — Commercial real estate 2 5,207 1 419 Residential mortgage 1 1,071 1 129 Total 4 $ 49,049 2 $ 548 Loans in Process of Foreclosure. Other real estate owned (OREO) totaled $ 286 thousand and $ 2.3 million at September 30, 2022 and December 31, 2021, respectively. There were no forec losed residential real estate properties included in OREO at September 30, 2022 and December 31, 2021. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $ 1.9 million and $ 2.5 million at September 30, 2022 and December 31, 2021, respectively. Collateral dependent loans. Loans are collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process. The following table presents collateral dependent loans by class as of September 30, 2022 and December 31, 2021: September 30, 2022 December 31, 2021 (in thousands) Collateral dependent loans: Commercial and industrial * $ 129,776 $ 95,335 Commercial real estate: Commercial real estate 73,862 110,174 Construction 41,726 — Total commercial real estate loans 115,588 110,174 Residential mortgage 32,487 35,745 Home equity — 4 Total $ 277,851 $ 241,258 * The majority of the loans are collateralized by taxi medallions for all periods. 37 Allowance for Credit Losses for Loans The allowance for credit losses (ACL) for loans consists of the allowance for loan losses and the allowance for unfunded credit commitments. The ACL for loans at September 30, 2022 increased $ 122.7 million from December 31, 2021 largely reflecting a net ACL of $ 70.3 million for PCD loans acquired from Bank Leumi USA that was recorded at April 1, 2022 and recognition of a $ 41.0 million provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA during the three months ended June 30, 2022. Overall, an increased economic forecast reserve component of our CECL model caused by elevated uncertainty in economic conditions was largely offset by lower expected quantitative loss experience at September 30, 2022 as compared to December 31, 2021. The following table summarizes the ACL for loans at September 30, 2022 and December 31, 2021: September 30, 2022 December 31, 2021 (in thousands) Components of allowance for credit losses for loans: Allowance for loan losses $ 475,744 $ 359,202 Allowance for unfunded credit commitments 22,664 16,500 Total allowance for credit losses for loans $ 498,408 $ 375,702 The following table summarizes the provision for credit losses for loans for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Components of provision for credit losses for loans: Provision for loan losses $ 1,315 $ 3,496 $ 42,883 $ 17,998 Provision for unfunded credit commitments 520 — 6,164 3,289 Total provision for credit losses for loans $ 1,835 $ 3,496 $ 49,047 $ 21,287 38 The following table details the activity in the allowance for loan losses by loan portfolio segment for the three and nine months ended September 30, 2022 and 2021: Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) Three Months Ended September 30, 2022 Allowance for loan losses: Beginning balance $ 144,539 $ 277,227 $ 29,889 $ 17,164 $ 468,819 Loans charged-off ( 5,033 ) ( 4,000 ) — ( 962 ) ( 9,995 ) Charged-off loans recovered 13,236 1,729 163 477 15,605 Net recoveries (charge-offs) 8,203 ( 2,271 ) 163 ( 485 ) 5,610 Provision (credit) for loan losses 1,309 ( 7,176 ) 6,105 1,077 1,315 Ending balance $ 154,051 $ 267,780 $ 36,157 $ 17,756 $ 475,744 Three Months Ended September 30, 2021 Allowance for loan losses: Beginning balance $ 109,689 $ 189,139 $ 25,303 $ 15,193 $ 339,324 Loans charged-off ( 1,248 ) — — ( 771 ) ( 2,019 ) Charged-off loans recovered 514 29 228 955 1,726 Net (charge-offs) recoveries ( 734 ) 29 228 184 ( 293 ) (Credit) provision for loan losses ( 5,078 ) 10,553 ( 799 ) ( 1,180 ) 3,496 Ending balance $ 103,877 $ 199,721 $ 24,732 $ 14,197 $ 342,527 Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) Nine Months Ended September 30, 2022 Allowance for loan losses: Beginning balance $ 103,090 $ 217,490 $ 25,120 $ 13,502 $ 359,202 Allowance for PCD loans * 33,452 36,618 206 43 70,319 Loans charged-off ( 11,144 ) ( 4,173 ) ( 27 ) ( 2,513 ) ( 17,857 ) Charged-off loans recovered 16,012 2,060 694 2,431 21,197 Net recoveries (charge-offs) 4,868 ( 2,113 ) 667 ( 82 ) 3,340 Provision for loan losses 12,641 15,785 10,164 4,293 42,883 Ending balance $ 154,051 $ 267,780 $ 36,157 $ 17,756 $ 475,744 Nine Months Ended September 30, 2021 Allowance for loan losses: Beginning balance $ 131,070 $ 164,113 $ 28,873 $ 16,187 $ 340,243 Loans charged-off ( 19,283 ) ( 382 ) ( 139 ) ( 3,389 ) ( 23,193 ) Charged-off loans recovered 2,781 763 576 3,359 7,479 Net (charge-offs) recoveries ( 16,502 ) 381 437 ( 30 ) ( 15,714 ) (Credit) provision for loan losses ( 10,691 ) 35,227 ( 4,578 ) ( 1,960 ) 17,998 Ending balance $ 103,877 $ 199,721 $ 24,732 $ 14,197 $ 342,527 * Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $ 62.4 million in the second quarter 2022 related to the Bank Leumi USA acquisition. 39 The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at September 30, 2022 and December 31, 2021. Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) September 30, 2022 Allowance for loan losses: Individually evaluated for credit losses $ 89,822 $ 8,544 $ 4,592 $ 100 $ 103,058 Collectively evaluated for credit losses 64,229 259,236 31,565 17,656 372,686 Total $ 154,051 $ 267,780 $ 36,157 $ 17,756 $ 475,744 Loans: Individually evaluated for credit losses $ 151,415 $ 149,775 $ 42,911 $ 1,507 $ 345,608 Collectively evaluated for credit losses 8,549,962 27,915,488 5,134,217 3,240,489 44,840,156 Total $ 8,701,377 $ 28,065,263 $ 5,177,128 $ 3,241,996 $ 45,185,764 December 31, 2021 Allowance for loan losses: Individually evaluated for credit losses $ 64,359 $ 6,277 $ 470 $ 390 $ 71,496 Collectively evaluated for credit losses 38,731 211,213 24,650 13,112 287,706 Total $ 103,090 $ 217,490 $ 25,120 $ 13,502 $ 359,202 Loans: Individually evaluated for credit losses $ 119,760 $ 134,135 $ 42,469 $ 2,431 $ 298,795 Collectively evaluated for credit losses 5,727,791 20,655,931 4,502,595 2,968,545 33,854,862 Total $ 5,847,551 $ 20,790,066 $ 4,545,064 $ 2,970,976 $ 34,153,657 Note 9. Goodwill and Other Intangible Assets The changes in the carrying amount of goodwill as allocated to Valley's business segments, or reporting units thereof, for goodwill impairment analysis were: Business Segment / Reporting Unit * Wealth Management Consumer Lending Commercial Lending Total (in thousands) Balance at December 31, 2021 $ 38,851 $ 222,390 $ 1,197,767 $ 1,459,008 Goodwill from business combinations 10,984 62,875 338,638 412,497 Balance at September 30, 2022 $ 49,835 $ 285,265 $ 1,536,405 $ 1,871,505 * Valley’s Wealth Management Division is comprised of trust, asset management, brokerage, insurance, and tax credit advisory services. This reporting unit is included in the Consumer Lending segment for financial reporting purposes. During the second quarter 2022, Valley performed the annual goodwill impairment test at its normal assessment date. There was no i mpairment of goodwill recognized during the three and nine months ended September 30, 2022 and 2021. As discussed in Note 15, Valley made changes to its operating structure and strategy during the second quarter 2022 (and subsequent to the annual goodwill impairment test), which resulted in changes in its operating segments and reporting units to reflect how the CEO, who is the chief operating decision maker, intends to manage Valley, allocate resources and measure performance. Goodwill balances were reallocated across the new operating segments and reporting units (as reflected in the table above) based on their relative fair values using the valuation performed during the second quarter 2022. 40 The goodwill from business combinations set forth in the above table during the nine months ended September 30, 2022, related to the acquisitions of Bank Leumi USA and Landmark totaled $ 403.2 million and $ 4.4 million, respectively. The goodwill from Landmark transaction was allocated entirely to the Wealth Management reporting unit. During the nine months ended September 30, 2022, Valley recorded $ 5.0 million of additional goodwill reflecting an adjustment to the deferred tax assets acquired from Westchester as of the acquisition date. See Note 2 for details related to these acquisitions. The following table summarizes other intangible assets as of September 30, 2022 and December 31, 2021: Gross Intangible Assets Accumulated Amortization Net Intangible Assets (in thousands) September 30, 2022 Loan servicing rights $ 119,813 $ ( 94,956 ) $ 24,857 Core deposits 223,670 ( 84,511 ) 139,159 Other 51,299 ( 7,089 ) 44,210 Total other intangible assets $ 394,782 $ ( 186,556 ) $ 208,226 December 31, 2021 Loan servicing rights $ 114,636 $ ( 90,951 ) $ 23,685 Core deposits 109,290 ( 65,488 ) 43,802 Other 6,092 ( 3,193 ) 2,899 Total other intangible assets $ 230,018 $ ( 159,632 ) $ 70,386 Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets over the period of the economic life of the assets arising from estimated net servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Impairment charges on loan servicing rights are recognized in earnings when the book value of a stratified group of loan servicing rights exceeds its estimated fair value. There was no net impairment recognized during the three and nine months ended September 30, 2022. Valley recorded net recoveries of impairment charges on its loan servicing rights totaling $ 32 thousand and $ 864 thousand for the three and nine months ended September 30, 2021, respectively. Core deposits are amortized using an accelerated method over a period of 10 years. Valley recorded $ 114.4 million of core deposit intangibles resulting from the Bank Leumi USA acquisition. The line item labeled “Other” included in the table above primarily consists of customer lists, certain financial asset servicing contracts and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 13.3 years. Valley recorded $ 39.0 million and $ 6.2 million of other intangible assets during the nine months ended September 30, 2022 resulting from the Bank Leumi USA and Landmark acquisitions, respectively. Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. No impairment was recognized during the three and nine months ended September 30, 2022 and 2021. 41 The following table presents the estimated future amortization expense of other intangible assets for the remainder of 2022 through 2026: Loan Servicing Rights Core Deposits Other (in thousands) 2022 $ 865 $ 7,975 $ 1,745 2023 3,195 28,746 6,522 2024 2,817 24,897 5,951 2025 2,471 21,048 5,380 2026 2,156 17,223 4,805 Valley recognized amortization expense on other intangible assets (including net recoveries of impairment charges on loan servicing rights) totaling approximately $ 11.1 million and $ 5.3 million for the three months ended September 30, 2022 and 2021, respectively, and $ 26.9 million and $ 16.8 million for the nine months ended September 30, 2022 and 2021, respectively. Note 10. Borrowed Funds Short-Term Borrowings Short-term borrowings at September 30, 2022 and December 31, 2021 consisted of the following: September 30, 2022 December 31, 2021 (in thousands) FHLB advances $ 785,767 $ 500,000 Securities sold under agreements to repurchase 133,516 155,726 Total short-term borrowings $ 919,283 $ 655,726 The weighted average interest rate for short-term FHLB advances was 3.21 percent and 0.37 percent at September 30, 2022 and December 31, 2021, respectively. Long-Term Borrowings Long-term borrowings at September 30, 2022 and December 31, 2021 consisted of the following: September 30, 2022 December 31, 2021 (in thousands) FHLB advances, net (1) $ 788,574 $ 789,033 Subordinated debt, net (2) 752,523 634,643 Total long-term borrowings $ 1,541,097 $ 1,423,676 (1) FHLB advances are presented net of unamortized premiums totaling $ 574 thousand and $ 1.0 million at September 30, 2022 and December 31, 2021, respectively. (2) Subordinated debt is presented net of unamortized debt issuance costs totaling $ 7.3 million and $ 5.8 million at September 30, 2022 and December 31, 2021, respectively. FHLB Advances. Long-term FHLB advances had a weighted average interest rate of 1.88 percent at both September 30, 2022 and December 31, 2021. FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans. 42 The long-term FHLB advances at September 30, 2022 are scheduled for contractual balance repayments as follows: Year Amount (in thousands) 2023 $ 350,000 2024 165,000 2025 273,000 Total long-term FHLB advances $ 788,000 There are no FHLB advances with scheduled repayments in years 2023 and thereafter, reported in the table above, which are callable for early redemption by the FHLB during the next 12 months. Subordinated debt. On September 20, 2022, Valley issued $ 150 million of 6.25 percent fixed-to-floating rate subordinated notes due September 30, 2032. Interest on the subordinated notes during the initial five year term through September 30, 2027, is payable semi-annually in arrears on March 30 and September 30, commencing on March 30, 2023. Thereafter, interest is expected to be set based on three-month Secured Overnight Financing Rate (SOFR) plus 278 basis points and paid quarterly through maturity of the notes. At September 30, 2022, the subordinated notes had a carrying value of $ 147.5 million, net of unamortized debt issuance costs. Valley also had the following subordinated debt outstanding at September 30, 2022: • $ 125 million aggregate principal amount of 5.125 percent subordinated notes due September 27, 2023 with no call dates or prepayments allowed except upon the occurrence of certain events; • $ 100 million aggregate principal amount of 4.55 percent subordinated notes due June 30, 2025 with no call dates or prepayments allowed except upon the occurrence of certain events; • $ 115 million aggregate principal amount of 5.25 percent fixed-to-floating rate subordinated notes due June 15, 2030 and callable in whole or in part on or after June 15, 2025 or upon the occurrence of certain events; and • $ 300 million aggregate principal amount of 3.00 percent fixed-to-floating rate subordinated notes due June 15, 2031 and are callable in whole or in part on or after June 15, 2026 or upon the occurrence of certain events. Note 11. Stock–Based Compensation On April 19, 2021, Valley's shareholders approved the Valley National Bancorp 2021 Incentive Compensation Plan (the 2021 Plan) administered by the Compensation and Human Capital Management Committee as appointed by Valley's Board of Directors. The purposes of the 2021 Plan are to provide additional incentives to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain officers, other employees and non-employee directors whose efforts will result in the continued and long-term growth of Valley's business. As of September 30, 2022 , 5.1 million shares of common stock were available for issuance under the 2021 Plan. The essential features of each award are described in the award agreement relating to that award. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair value of Valley's common stock on the last sale price reported for Valley's common stock on such date or the last sale price reported preceding such date, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third-party specialist using a Monte Carlo valuation model. On April 1, 2022, Valley issued replacement options for the pre-existing and fully vested stock awards consisting of Bank Leumi USA options for 2.7 million shares of Valley common stock (which all remained outstanding at 43 September 30, 2022) at a weighted average exercise price of $ 8.47 . The stock plan under which the original Bank Leumi stock awards were issued is no longer active at the acquisition date. Valley granted 234 thousand and 30 thousand of time-based restricted stock units (RSUs) during the three months ended September 30, 2022 and 2021, respectively, and 2.3 million and 1.2 million for the nine months ended September 30, 2022 and 2021, respectively. Generally, time-based RSUs vest ratably over a three-year period. The average grant date fair value of the RSUs granted during the nine months ended September 30, 2022 and 2021 was $ 13.31 per share and $ 11.98 per share, respectively. Valley granted 619 thousand and 604 thousand of performance-based RSUs to certain officers for the nine months ended September 30, 2022 and 2021, respectively. The performance-based RSU awards include RSUs with vesting conditions based upon certain levels of growth in Valley's tangible book value per share plus dividends and RSUs with vesting conditions based upon Valley's total shareholder return as compared to its peer group. The RSUs “cliff” vest after three years based on the cumulative performance of Valley during that time period. The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common stock) over the applicable performance period. Dividend equivalents are accumulated and paid to the grantee at the vesting date or forfeited if the performance conditions are not met. The grant date fair value of the performance-based RSUs granted during the nine months ended September 30, 2022 and 2021 was $ 14.72 per share and $ 12.36 per share, respectively. Valley recorded total stock-based compensation expense of $ 7.6 million and $ 5.2 million for the three months ended September 30, 2022 and 2021, respectively, and $ 21.0 million and $ 15.9 million for the nine months ended September 30, 2022 and 2021, respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period. As of September 30, 2022, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $ 40.0 million and will be recognized over an average remaining vesting period of approximately 2.1 years. Note 12. Derivative Instruments and Hedging Activities Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest and currency rates. Fair Value Hedges of Fixed Rate Assets and Liabilities . Valley is exposed to changes in the fair value of fixed-rate subordinated debt due to changes in interest rates. Valley uses interest rate swaps to manage its exposure to changes in fair value on fixed rate debt instruments attributable to changes in the designated benchmark interest rate . Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. Cash Flow Hedges of Interest Rate Risk . Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively. Valley had six interest rate swaps with a total notional amount of $ 700 million that matured during the nine months ended September 30, 2022. These swaps were used to hedge the changes in cash flows associated with certain short-term FHLB advances and brokered deposits. Non-designated Hedges. Derivatives not designated as hedges are used to manage Valley’s exposure to interest rate movements, foreign currency risk, credit risk, and to provide services to customers or for other purposes. These 44 derivatives do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes. Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that Valley minimizes its net risk exposure resulting from such transactions. As these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the participation type. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At September 30, 2022, Valley had 28 credit swaps with an aggregate notional amount of $ 290.7 million related to risk participation agreements. At September 30, 2022, Valley had two “steepener” swaps, each with a current notional amount of $ 10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve. Although these types of instruments do not meet the hedge accounting requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month LIBOR rate and therefore provide an effective economic hedge. Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rate on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale. Valley enters foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments. Upon the origination of a certain foreign currency denominated transactions (including foreign currency holdings and non-U.S. dollar denominated loans) with a client, we enter into a respective hedging contract with a third party financial institution to mitigate the economic impact of foreign currency exchange rate fluctuation. 45 Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows: September 30, 2022 December 31, 2021 Fair Value Fair Value Other Assets Other Liabilities Notional Amount Other Assets Other Liabilities Notional Amount (in thousands) Derivatives designated as hedging instruments: Cash flow hedge interest rate swaps $ — $ — $ — $ — $ 310 $ 700,000 Fair value hedge interest rate swaps — 32,566 300,000 — 3,335 300,000 Total derivatives designated as hedging instruments $ — $ 32,566 $ 300,000 $ — $ 3,645 $ 1,000,000 Derivatives not designated as hedging instruments: Interest rate swaps and other contracts * $ 576,213 $ 575,917 $ 13,347,157 $ 180,701 $ 47,044 $ 10,179,294 Foreign currency derivatives 17,873 17,142 1,205,558 311 233 122,166 Mortgage banking derivatives 30 31 1,875 488 1,454 312,428 Total derivatives not designated as hedging instruments $ 594,116 $ 593,090 $ 14,554,590 $ 181,500 $ 48,731 $ 10,613,888 * I ncludes risk participation agreements. The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account as settlements of the cash flow hedges and other non-designated derivative instruments. As a result, the fair value of the applicable derivative assets and liabilities are reported net of variation margin at September 30, 2022 and December 31, 2021 in the table above . Gains (losses) included in the consolidated statements of income and other comprehensive loss, on a pre-tax basis, elated to interest rate derivatives designated as hedges of cash flows were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense $ 21 $ ( 1,044 ) $ ( 405 ) $ ( 2,708 ) Amount of (loss) gain recognized in other comprehensive loss ( 6 ) ( 144 ) 435 ( 125 ) The accumulated after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 929 thousand and $ 1.3 million at September 30, 2022 and December 31, 2021, respectively. Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest expense as interest payments are made on the hedged variable interest rate liabilities. Valley estimates that $ 995 thousand before tax will be reclassified as an increase to interest expense over the next 12 months. 46 Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Derivative - interest rate swap: Interest expense $ ( 989 ) $ ( 396 ) $ ( 383 ) $ ( 316 ) Hedged item - subordinated debt Interest expense $ 325 $ 405 $ 802 $ 322 The changes in the fair value of the hedged item designated as a qualifying hedge are captured as an adjustment to the carrying amount of the hedged item (basis adjustment). The following table presents the hedged item related to interest rate derivatives designated as fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at September 30, 2022. Line Item in the Statement of Financial Position in Which the Hedged Item is Included Carrying Amount of the Hedged Liability Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability (in thousands) Long-term borrowings $ 267,640 $ ( 32,360 ) The net losses (gains) included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Non-designated hedge interest rate swaps and credit derivatives Other non-interest expense $ 463 $ 216 $ ( 1,191 ) $ ( 209 ) Other non-interest income included fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaling $ 10.7 million and $ 8.8 million for the three months ended September 30, 2022 and 2021, respectively, and $ 35.8 million and $ 22.6 million for the nine months ended September 30, 2022 and 2021, respectively. Credit Risk Related Contingent Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board of Directors. Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of September 30, 2022, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of September 30, 2022, there were no derivatives in an aggregate net liability position. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties. 47 Note 13. Balance Sheet Offsetting Certain financial instruments, including certain over-the-counter (OTC) derivatives (mostly interest rate swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated statements of financial condition and/or subject to master netting arrangements or similar agreements. OTC derivatives include interest rate swaps executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house (presented in the table below). The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements. Valley is party to master netting arrangements with its financial institution counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts. In such cases, the collateral would be used to settle the fair value of the swap or repurchase agreement should Valley be in default. The total amount of collateral held or pledged cannot exceed the net derivative fair values with the counterparty. The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of September 30, 2022 and December 31, 2021. Gross Amounts Not Offset Gross Amounts Recognized Gross Amounts Offset Net Amounts Presented Financial Instruments Cash Collateral * Net Amount (in thousands) September 30, 2022 Assets Interest rate swaps $ 576,213 $ — $ 576,213 $ ( 914 ) $ ( 374,030 ) $ 201,269 Liabilities Interest rate swaps $ 608,483 $ — $ 608,483 $ ( 914 ) $ ( 454 ) $ 607,115 December 31, 2021 Assets Interest rate swaps $ 180,701 $ — $ 180,701 $ — $ — $ 180,701 Liabilities Interest rate swaps $ 50,689 $ — $ 50,689 $ — $ ( 44,231 ) $ 6,458 * Cash collateral received from or pledged to our counterparties in relation to market value exposures of OTC derivative contacts in a liability position. Note 14. Tax Credit Investments Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the CRA. Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense. Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization 48 of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable. The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at September 30, 2022 and December 31, 2021: September 30, 2022 December 31, 2021 (in thousands) Other Assets: Affordable housing tax credit investments, net $ 25,139 $ 15,343 Other tax credit investments, net 52,749 57,006 Total tax credit investments, net $ 77,888 $ 72,349 Other Liabilities: Unfunded affordable housing tax credit commitments $ 1,360 $ 1,360 Total unfunded tax credit commitments $ 1,360 $ 1,360 The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and nine months ended September 30, 2022 and 2021: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) Components of Income Tax Expense: Affordable housing tax credits and other tax benefits $ 1,184 $ 948 $ 3,542 $ 2,744 Other tax credit investment credits and tax benefits 2,557 2,702 7,647 8,130 Total reduction in income tax expense $ 3,741 $ 3,650 $ 11,189 $ 10,874 Amortization of Tax Credit Investments: Affordable housing tax credit investment losses $ 598 $ 681 $ 1,666 $ 1,684 Affordable housing tax credit investment impairment losses 266 387 891 1,159 Other tax credit investment losses 308 256 1,003 780 Other tax credit investment impairment losses 1,933 1,755 5,634 5,172 Total amortization of tax credit investments recorded in non-interest expense $ 3,105 $ 3,079 $ 9,194 $ 8,795 Note 15. 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 49 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. There were no additional changes to Valley's reportable segments at September 30, 2022. Consumer Lending is mainly comprised of residential mortgages and automobile loans, and to a lesser extent, secured personal lines of credit, home equity loans and other consumer loans. The duration of the residential mortgage loan portfolio is subject to movements in the market level of interest rates and forecasted prepayment speeds. The average weighted life of the automobile loans within the portfolio 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. Consumer Lending also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services. 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 operating segment that is most sensitive to movements in market interest rates. 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. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and or liabilities outstanding for the period. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution. The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The prior period balances presented in the tables below 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. 50 The following tables represent the financial data for Valley’s operating segments for the three and nine months ended September 30, 2022 and 2021: Three Months Ended September 30, 2022 Consumer Lending Commercial Lending Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 8,307,993 $ 36,033,901 $ 6,189,348 $ 50,531,242 Interest income $ 70,590 $ 425,930 $ 40,208 $ 536,728 Interest expense 12,288 53,294 17,154 82,736 Net interest income 58,302 372,636 23,054 453,992 Provision (credit) for credit losses 7,182 ( 5,347 ) 188 2,023 Net interest income after provision for credit losses 51,120 377,983 22,866 451,969 Non-interest income 19,637 23,510 13,047 56,194 Non-interest expense 24,352 31,759 205,528 261,639 Internal transfer expense (income) 26,268 113,932 ( 140,200 ) — Income before income taxes $ 20,137 $ 255,802 $ ( 29,415 ) $ 246,524 Return on average interest earning assets (pre-tax) 0.97 % 2.84 % ( 1.90 ) % 1.95 % Three Months Ended September 30, 2021 Consumer Lending Commercial Lending Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 7,373,897 $ 25,324,485 $ 5,634,492 $ 38,332,874 Interest income $ 58,887 $ 250,866 $ 19,048 $ 328,801 Interest expense 4,032 13,795 9,948 27,775 Net interest income 54,855 237,071 9,100 301,026 (Credit) provision for credit losses ( 4,614 ) 8,110 35 3,531 Net interest income after provision for credit losses 59,469 228,961 9,065 297,495 Non-interest income 11,845 11,611 18,975 42,431 Non-interest expense 13,520 27,504 133,898 174,922 Internal transfer expense (income) 20,662 71,141 ( 91,803 ) — Income (loss) before income taxes $ 37,132 $ 141,927 $ ( 14,055 ) $ 165,004 Return on average interest earning assets (pre-tax) 2.01 % 2.24 % ( 1.00 ) % 1.72 % 51 Nine Months Ended September 30, 2022 Consumer Lending Commercial Lending Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 7,978,732 $ 32,551,062 $ 6,075,623 $ 46,605,417 Interest income $ 193,186 $ 1,036,276 $ 100,671 $ 1,330,133 Interest expense 20,218 84,356 35,738 140,312 Net interest income 172,968 951,920 64,933 1,189,821 Provision for credit losses 14,457 34,590 531 49,578 Net interest income after provision for credit losses 158,511 917,330 64,402 1,140,243 Non-interest income 50,540 54,815 48,642 153,997 Non-interest expense 59,711 81,292 617,706 758,709 Internal transfer expense (income) 92,544 371,213 ( 463,757 ) — Income before income taxes $ 56,796 $ 519,640 $ ( 40,905 ) $ 535,531 Return on average interest earning assets (pre-tax) 0.95 % 2.13 % ( 0.90 ) % 1.53 % Nine Months Ended September 30, 2021 Consumer Lending Commercial Lending Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 7,176,086 $ 25,465,276 $ 5,261,185 $ 37,902,547 Interest income $ 179,151 $ 759,097 $ 55,999 $ 994,247 Interest expense 15,639 55,497 28,511 99,647 Net interest income 163,512 703,600 27,488 894,600 (Credit) provision for credit losses ( 6,538 ) 27,825 ( 353 ) 20,934 Net interest income after provision for credit losses 170,050 675,775 27,841 873,666 Non-interest income 47,445 29,144 40,201 116,790 Non-interest expense 53,161 80,276 373,591 507,028 Internal transfer expense (income) 60,026 212,931 ( 272,957 ) — Income (loss) before income taxes $ 104,308 $ 411,712 $ ( 32,592 ) $ 483,428 Return on average interest earning assets (pre-tax) 1.94 % 2.16 % ( 0.83 ) % 1.70 %