What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-02-28 · 560 added, 529 removed, 2170 unchanged (33% of the section changed)

77 unchanged sentences

Net Interest Income 1,655,640 1,209,901 1,118,904

(Credit) provision for credit losses for held to maturity securities ( 263 ) 635 —

Provision (credit) for credit losses for held to maturity securities 481 ( 263 ) 635

Provision for credit losses for loans 56,336 32,896 125,087

1 unchanged sentence

Non-Interest Income

Trust and investment services 14,910 12,415 12,646

Wealth management and trust fees 34,709 14,910 12,415

Insurance commissions 11,975 7,810 7,398

Capital markets 52,362 27,377 58,962

Service charges on deposit accounts 36,930 21,424 18,257

Gains (losses) on securities transactions, net 1,758 524 ( 150 )

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

(Losses) gains on securities transactions, net ( 1,230 ) 1,758 524

Fees from loan servicing 11,273 11,651 10,352

Gains on sales of loans, net 6,418 26,669 42,251

Gains (losses) on sales of assets, net 901 ( 1,891 ) 78,333

Bank owned life insurance 8,040 8,817 10,083

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Salary and employee benefits expense 526,737 375,865 333,221

Net occupancy and equipment expense 132,098 129,002 118,191

Net occupancy expense 94,352 79,355 81,538

Technology, furniture and equipment expense 161,752 89,221 76,889

FDIC insurance assessment 22,836 14,183 18,949

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Amortization of tax credit investments 12,407 10,910 13,335

Telecommunication expenses 11,409 10,737 9,883

Other 86,422 53,343 53,187

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Net Income Available to Common Shareholders $ 555,705 $ 461,152 $ 377,918

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VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME—(Continued)

Years Ended December 31,

2021 2020 2019

(in thousands, except for share data)

Earnings Per Common Share:

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Diluted 1.14 1.12 0.93

Cash Dividends Declared Per Common Share 0.44 0.44 0.44

Weighted Average Number of Common Shares Outstanding:

Basic 407,445,379 403,754,356 337,792,270

Diluted 410,018,328 405,046,207 340,117,808

See accompanying notes to consolidated financial statements.

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Net income $ 568,851 $ 473,840 $ 390,606

Other comprehensive income, net of tax:

Other comprehensive (loss) income, net of tax:

Unrealized gains and losses on debt securities available for sale

Net (losses) gains arising during the period ( 136,981 ) ( 23,613 ) 27,845

Less reclassification adjustment for net (gains) losses included in net income ( 491 ) ( 377 ) 119

Less reclassification adjustment for net gains included in net income ( 23 ) ( 491 ) ( 377 )

Total ( 137,004 ) ( 24,104 ) 27,468

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Total 3,565 2,574 ( 177 )

Defined benefit pension plan

Net gains (losses) arising during the period 10,306 ( 3,418 ) ( 2,561 )

Defined benefit pension and postretirement benefit plans

Net (losses) gains arising during the period ( 13,175 ) 10,306 ( 3,418 )

Amortization of prior service credit ( 100 ) ( 96 ) ( 98 )

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

Adjustment due to the adoption of ASU No.

— — — — ( 1,446 ) — — ( 1,446 )

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

10 unchanged sentences

— 581 323 15,260 ( 2,855 ) — 254 12,982

Common stock issued

— 71,121 24,892 810,363 — — — 835,255

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

Adjustment due to the adoption of ASU No.

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

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

Net income — — — — 473,840 — — 473,840

Other comprehensive income, net of tax

— — — — — 24,496 — 24,496

Other comprehensive loss, net of tax — — — — — ( 10,214 ) — ( 10,214 )

Cash dividends declared:

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— 3,484 1,238 39,931 ( 6,295 ) — 484 35,358

Common stock issued in acquisition — 15,709 5,498 205,636 — — — 211,134

Purchase of treasury stock — ( 1,615 ) — — — — ( 23,114 ) ( 23,114 )

Balance - December 31, 2021 209,691 421,437 148,482 3,883,035 883,645 ( 17,932 ) ( 22,855 ) 5,084,066

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Amortization of other intangible assets 37,825 21,827 24,645

(Gains) losses on securities transactions, net ( 1,758 ) ( 524 ) 150

Losses (gains) on securities transactions, net 1,230 ( 1,758 ) ( 524 )

Proceeds from sales of loans held for sale 389,666 1,180,912 1,019,841

Gains on sales of loans, net ( 6,418 ) ( 26,669 ) ( 42,251 )

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

Originations of loans held for sale ( 267,158 ) ( 1,003,818 ) ( 1,211,227 )

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Short-term borrowings 103,794 — —

Long-term borrowings — — 430,130

Lease liabilities 79,844 — —

Accrued expenses and other liabilities 119,240 14,692 —

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Note 1)

Valley National Bancorp, a New Jersey Corporation (Valley), is a financial holding company whose princ ipal wholly-owned subsidiary is Valley National Bank (the “Bank”), a national banking association providing a full range of commercial, retail and trust and investment services largely through its offices and ATM network throughout northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida and Alabama.

The Bank is subject to intense competition from other financial service providers and is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by certain regulatory authorities.

Valley National Bank’s subsidiaries are all included in the consolidated financial statements of Valley.

These subsidiaries include, but are not limited to:

Valley National Bancorp, a New Jersey Corporation (Valley), is a financial holding company whose commercial bank subsidiary, Valley National Bank (the Bank) and its subsidiaries provide a full range of commercial, retail and trust and investment services largely through its offices and ATM network throughout northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida, Alabama, California and Illinois.

In addition to the Bank, Valley's consolidated subsidiaries include, but are not limited to:

an insurance agency offering property and casualty, life and health insurance;

an asset management adviser that is a registered investment adviser with the Securities and Exchange Commission (SEC);

registered securities broker-dealers with the SEC and members of the Financial Industry Regulatory Authority (FINRA);

a title insurance agency in New York, which also provides services in New Jersey;

an advisory firm specializing in the investment and management of tax credits;

• subsidiaries which hold, maintain and manage investment assets for the Bank;

• a subsidiary which specializes in health care equipment lending and other commercial equipment leases;

• a subsidiary which owns and services New York commercial loans.

The Bank’s subsidiaries also include real estate investment trust subsidiaries (the “REIT” subsidiaries) which own real estate related investments and a REIT subsidiary which owns some of the real estate utilized by the Bank and related real estate investments.

Except for Valley’s REIT subsidiaries and its insurance agency (10% of which is owned by the insurance agency's co-CEOs), all subsidiaries mentioned above are directly or indirectly wholly-owned by the Bank.

Because each REIT subsidiary must have 100 or more shareholders to qualify as a REIT, each REIT subsidiary has issued less than 20 percent of its outstanding non-voting preferred stock to individuals, most of whom are current and former Bank employees.

The Bank owns the remaining preferred stock and all the common stock of the REITs.

and a subsidiary which specializes in health care equipment lending and other commercial equipment leases.

Basis of Presentation

The consolidated financial statements of Valley include the Bank and all of Valley’s direct or indirect wholly-owned subsidiaries.

The consolidated financial statements of Valley include the accounts of the Bank and all other entities in which Valley has a controlling financial interest.

All inter-company transactions and balances have been eliminated.

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See Note 11 for more details.

Certain prior period amounts have been reclassified to conform to the current presentation.

Valley's previously reported consolidated statements of cash flows for the years ended December 31, 2020 and 2019 were revised to reflect a change in the presentation for loss on extinguishment of debt.

The revisions resulted in increases of $ 12.0 million and $ 32.0 million in “Loss on extinguishment of debt” and corresponding decreases in “Repayments of the long-term borrowings” for the years ended December 31, 2020 and 2019, respectively.

Management determined that the effect of the changes in presentation was immaterial to these periods.

Certain prior period amounts have been reclassified to conform to the current presentation, including changes to our operating segment reporting structure, as further discussed in Note 8 and Note 21.

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 December 31, 2022 and for all periods presented have been made.

Significant Estimates.

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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

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material estimates.

The current economic environment has increased the degree of uncertainty inherent in these material estimates.

Actual results may differ from those estimates.

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For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits in other banks (including the Federal Reserve Bank of New York) and, from time to time, overnight federal funds sold.

Effective March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero, effectively eliminating the requirements, due to a change in its approach to monetary policy.

The Federal Reserve Board indicated that it has no plans to re-impose reserve requirements but could in the future if conditions warrant.

Prior to March 2020, the Bank was required by the Federal Reserve System to maintain cash reserves equal to a percentage of certain deposits.

Federal funds sold essentially represents an uncollateralized loan.

Therefore, Valley regularly evaluates the credit risk associated with the other financial institutions to ensure that the Bank does not become exposed to any significant credit risk on these cash equivalents.

Investment Securities

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Investment securities held-to-maturity are carried at amortized cost, adjusted for amortization of premiums and accretion of discounts using the level-yield method over the contractual term of the securities, adjusted for actual prepayments, or to call date if the security was purchased at premium.

Investment securities classified as available-for-sale are carried at fair value with unrealized holding gains and losses reported as a component of other comprehensive income or loss, net of tax.

Investment securities classified as available-for-sale are carried at fair value with unrealized holding gains and losses reported as a component of

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other comprehensive income or loss, net of tax.

Realized gains or losses on the available-for-sale securities are recognized by the specific identification method and are included in net gains and losses on securities transactions within non-interest income.

Trading debt securities wholly consisting of municipal bonds are reported at fair value with the unrealized gains or losses due to changes in fair value reported within non-interest income.

Net trading gains and losses are included in net gains and

losses on securities transactions within non-interest income.

Trading debt securities, consisting of municipal bonds and U.S.

Treasury securities, are reported at fair value with the unrealized gains or losses due to changes in fair value reported within non-interest income.

Net trading gains and losses are included in net gains and losses on securities transactions within non-interest income.

Equity securities are presented on the statements of financial condition at fair value with any unrealized and realized gains and losses reported in non-interest income.

See Notes 3 and 4 for additional information.

Investments in Federal Home Loan Bank and Federal Reserve Bank stock, which have limited marketability, are carried at cost in other assets.

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Allowance for Credit Losses for Held to Maturity Debt Securities

On January 1, 2020, Valley adopted Accounting Standards Update (ASU) No.

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

Measurement of Credit Losses on Financial Instruments", which requires us to estimate and recognize an allowance for credit losses for held to maturity debt securities using the current expected credit loss methodology (CECL).

Effective January 1, 2020, Valley estimates and recognizes an allowance for credit losses for held to maturity debt securities using the current expected credit loss methodology (CECL).

Valley's CECL model includes a zero loss expectation for certain securities within the held to maturity portfolio, and therefore Valley is not required to estimate an allowance for credit losses related to these securities.

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

See Note 4 for more details regarding the allowance for credit losses for held to maturity securities.

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See Note 4 for additional information.

Impairment of Available for Sale Debt Securities

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Changes in fair value are recognized in non-interest income in the accompanying consolidated statements of income as a component of net gains on sales of loans.

Origination fees and costs related to loans originated for sale (and carried at fair value) are recognized as earned and as incurred.

Origination fees and costs related to loans originated for

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sale (and carried at fair value) are recognized as earned and as incurred.

Loans held for sale are generally sold with loan servicing rights retained by Valley.

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

Purchased Credit-Deteriorated Loans

Loans classified as purchased credit-deteriorated (PCD) loans are acquired loans, mainly through bank acquisitions, where there is evidence of more than insignificant credit deterioration since their origination.

We consider various factors in connection with this determination, including past due or non-accrual status, credit risk rating declines, and any write downs recorded based on the collectability of the asset, among other factors.

PCD loans are recorded at their purchase price plus an allowance estimated at the time of acquisition, which represents the amortized cost basis of the asset.

The difference between this amortized cost basis and the par value of the loan is the non-credit discount or premium, which is amortized into interest income over the life of the loan.

Subsequent increases and decreases in the allowance for credit losses related to purchased loans is recorded as provision expense.

Allowance for Credit Losses for Loans

As previously noted, Valley adopted ASU No.

2016-13 on January 1, 2020, and, as a result, the 2021 and 2020 periods presented in the consolidated financial statements follow the current expected credit losses methodology.

The 2019 period has been reported in accordance with previously applicable GAAP, which followed the incurred credit losses methodology.

The following policies noted are under the current expected credit losses methodology.

Effective January 1, 2020, Valley uses the CECL methodology to estimates an allowance for credit losses for loans.

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

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

Previously, an allowance for loan losses was recognized based on probable incurred losses.

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Reserves for loans that share common risk characteristics.

9 unchanged sentences

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

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

The forecasts consist of a

2022 Form 10-K

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

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

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Within the transition matrix model, each adverse classification or segment (Special Mention, Substandard, Doubtful, and Loss) has its own lifetime expected credit loss rate derived from loan-level historical transitions between the different loan risk ratings categories.

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

Reserves for loans that do not share common risk characteristics.

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

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Unsecured consumer loans are generally fully charged-off when the loan is 150 days past due.

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Allowance for Unfunded Credit Commitments

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Lease agreements may include options to renew and for the lessee to purchase the leased equipment at the end of the lease term.

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Lessee Arrangements.

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Treasury securities and residential mortgage-backed securities issued by government sponsored enterprises and Ginnie Mae.

The majority of the underlying investment portfolio is managed by one independent investment firm.

The change in the cash surrender value is included as a component of non-interest income and is exempt from federal and state income taxes as long as the policies are held until the death of the insured individuals.

4 unchanged sentences

Expenses incurred to maintain these properties, unrealized losses resulting from valuation write-downs after the date of foreclosure, and realized gains and losses upon sale of the properties are included in other non-interest expense.

OREO totaled $ 2.3 million and $ 5.1 million at December 31, 2021 and 2020, respectively.

OREO included foreclosed residential real estate properties totaling $ 1.0 million at December 31, 2020.

There were no forec losed residential real estate properties included in OREO at December 31, 2021.

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OREO totaled $ 286 thousand and $ 2.3 million at December 31, 2022 and 2021, respectively.

There were no forec losed residential real estate properties included in OREO at December 31, 2022 and 2021, respectively.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process t otaled $ 2.6 million and $ 2.5 million at December 31, 2022 and 2021, respectively.

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The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities.

Goodwill is subject to annual tests for impairment or more often, if events or circumstances indicate it may be impaired.

On January 1, 2020, Valley adopted ASU No.

2017-04 "Intangibles—Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment," which simplified the impairment test by eliminating the step two requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge.

Instead, an impairment loss is recognized if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the unit (formerly step one of the two-step test).

Goodwill is allocated to Valley's reporting unit, which is a business segment or one level below, at the date goodwill is recorded.

Under current accounting guidance, Valley may choose to perform an optional qualitative assessment to determine whether it is necessary to perform the single-step quantitative goodwill impairment test for one or more reporting units each annual period.

Goodwill is not amortized and is subject, at a minimum, to an annual impairment assessment, or more often, if events or circumstances indicate it may be impaired.

An impairment loss is recognized if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the unit.

Goodwill is allocated to Valley's reporting unit, which is an operating segment or one level below, at the date goodwill is recorded.

Under current accounting guidance, Valley may choose to perform an optional qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test for one or more reporting units each annual period.

Valley reviews goodwill for impairment annually during the second quarter using a quantitative test, or more frequently if a triggering event indicates impairment may have occurred.

Our determination of whether or not goodwill is impaired requires us to make judgments, and use significant estimates and assumptions regarding estimated future cash flows.

Our determination of whether or not goodwill is impaired requires

2022 Form 10-K

us to make judgments, and use significant estimates and assumptions regarding estimated future cash flows.

If we change our strategy or if market conditions shift, our judgments may change, which may result in adjustments to the recorded goodwill balance.

During the second quarter 2022, Valley re-evaluated its segment reporting due to a bank acquisition discussed in Note 2 and other factors.

Goodwill balances were reallocated across the new operating segments and reporting units based on their relative fair values using the valuation performed during the second quarter 2022.

See Notes 8 and 21 for additional details.

Other Intangible Assets

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The amortization of loan servicing rights is recorded in non-interest income.

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Stock-Based Compensation

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Certain transaction costs are expensed as incurred.

See Note 2 for additional information.

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Fair Value Measurements

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See Note 3 for additional information.

Revenue Recognition

Revenue From Contracts With Customers

Certain revenues included in Valley's non-interest income relates to fee-based revenue from contracts with customers.

Revenue from contracts with customers within the scope of Accounting Standards Codification (ASC) Topic 606 is recognized when performance obligations, under the terms of the contract, are satisfied.

This income is measured as the amount of consideration expected to be received in exchange for the providing of services.

Contracts with customers can include multiple services, which are accounted for as separate “performance obligations” if they are determined to be distinct.

Valley's revenue contracts generally have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable, or distinct from other obligations within the contracts.

Valley does not have a material amount of long-term customer agreements that include multiple performance obligations requiring price allocation and differences in the timing of revenue recognition.

Valley has no customer contracts with variable fee agreements based upon performance.

Valley's revenue within the scope of ASC Topic 606 includes:

(i) trust and investment services income from investment management, investment, including tax credit, advisory services, trust, custody and other products;

(ii) service charges on deposit accounts from checking accounts, savings accounts, overdrafts, insufficient funds, ATM transactions and other activities;

and (iii) other income from fee income related to derivative interest rate swaps executed with commercial loan customers, fees from interchange, wire transfers, credit cards, safe deposit box, ACH, lockbox and various other products and services-related income.

The following describes revenue within scope of ASC Topic 606:

Wealth management and trust fees .

Wealth management and trust fees include brokerage fees and fees from investment management, investment advisory, trust, custody and other products.

Brokerage fees are commissions related to the execution of market trades.

Brokerage fee revenue is recognized on trade date, as the performance obligation is satisfied when the trade is executed.

Trust and investment management fee income is received for providing wealth management and investment advisory services and is typically calculated based on a percentage of client assets under management and recognized over the term of the investment management agreement as services are provided to the client.

Certain investment advisory success fees are earned when the related performance criteria have been satisfied and it is probable that the fees will be earned.

Insurance commissions.

Insurance c ommissions are received on insurance product sales.

Valley acts in the capacity of an agent between Valley's customer and the insurance carrier.

Valley's performance obligation is satisfied when the terms of the policy have been agreed upon and the insurance policy becomes effective.

Service charges on deposit accounts.

Service charges on deposit accoun ts include maintenance fees, overdraft fees, and other account related charges.

Deposit account related fees are typically recognized at the time these services are performed for the customer, or on a monthly basis.

Other income.

Revenue within the other category of non-interest income that is within the scope of ASC Topic 606 includes credit card and interchange fees, fees from wire transfers, ACH, and various other products and services income.

These fees are either recognized immediately at the transaction date or over the period in which the related service is provided.

Revenue from capital markets transactions (including interest rate swap fees, foreign exchange fees and loan syndication fees), net gains and losses on securities transactions, fees from loan servicing, net gains on sales of loans, bank owned life insurance income, and certain fees within other income are excluded from the scope of ASC Topic 606 and are recognized under other applicable accounting guidance.

Valley uses the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements.

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A valuation allowance is established to reduce deferred tax assets to the amount we expect to realize.

Deferred income tax expense or benefit results from differences between assets and liabilities measured for financial reporting versus income-tax return purposes.

The effect on deferred taxes of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

Deferred income tax expense or benefit results from

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differences between assets and liabilities measured for financial reporting versus income-tax return purposes.

The effect on deferred taxes of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

Valley maintains a reserve related to certain tax positions that management believes contain an element of uncertainty.

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Periodically, Valley evaluates each of its tax positions and strategies to determine whether the reserve continues to be appropriate.

See Note 13 for additional disclosures.

Comprehensive Income

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(ii) unrealized gains and losses on derivatives used in cash flow hedging relationships;

and (iii) the pension benefit adjustment for the unfunded portion of its various employee, officer, and director pension plans.

and (iii) the benefit adjustment for the unfunded portion of its various employee, officer, and director pension plans and other post-employment benefits.

Income tax effects are released from accumulated other comprehensive income on an individual unit of account basis.

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Common stock options with exercise prices that exceed the average market price 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 totaled approximately 411 thousand, 1.7 million, and 288 thousand for the years ended December 31, 2021, 2020 and 2019, respectively.

Potential anti-dilutive weighted common shares were immaterial for the years ended December 31, 2022 and 2021 and totaled approximately 1.7 million for the year ended December 31, 2020.

Preferred and Common Stock Dividends

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Preferred dividends declared are deducted from net income for computing income available to common shareholders and earnings per common share computations.

Cash dividends to both preferred and common shareholders are payable and accrued when declared by Valley's Board of Directors.

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Cash dividends to both preferred and common shareholders are payable and accrued when declared by Valley's Board of Directors.

Treasury Stock

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As part of its asset/liability management strategies and to accommodate commercial borrowers, Valley has used interest rate swaps to hedge variability in cash flows or fair values caused by changes in interest rates.

Valley also uses derivatives not designated as hedges for non-speculative purposes to (1) manage its exposure to interest rate movements related to a service for commercial lending customers, (2) share the risk of default on the interest rate swaps related to certain purchased or sold loan participations through the use of risk participation agreements and (3) manage the interest rate risk of mortgage banking activities with customer interest rate lock commitments and forward contracts to sell residential mortgage loans.

Valley also uses derivatives not designated as hedges for non-speculative purposes to (1) manage its exposure to interest rate movements related to a service for commercial lending customers, (2) share the risk of default on the interest rate swaps related to certain purchased or sold loan participations through the use of risk participation agreements, (3) manage the interest rate risk of mortgage banking activities with customer interest rate lock commitments and forward contracts to sell residential mortgage loans and (4) manage the exposure of foreign currency exchange rate fluctuation with foreign currency forward and option contracts primarily to accommodate our customers.

Valley also has hybrid instruments, consisting of market linked certificates of deposit with an embedded swap contract.

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If a hedging relationship is terminated due to ineffectiveness, and the derivative instrument is not re-designated to a new hedging relationship, the subsequent change in fair value of such instrument is charged directly to earnings.

See Notes 15 and 16 for additional information on our derivative instruments.

Interest Rate Contracts and Other Non-designated Hedges.

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New Authoritative Accounting Guidance

New Accounting Guidance Issued and Adopted in 2020.

2020-04, "Reference Rate Reform (Topic 848)" provides optional expedients and exceptions for applying U.S.

GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued, subject to meeting certain criteria.

Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of a contract affected by reference rate reform as a continuation of the existing contract, if certain conditions are met.

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

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

2020-04 became effective for all entities as of March 12, 2020 and can apply to all LIBOR reference rate modifications any time through December 31, 2022.

Valley’s LIBOR project working group, consisting of key stakeholders from throughout Valley, continue to monitor new developments for transitioning to alternative reference rates to align with regulatory guidelines.

Valley has provided both internal and external communications that reference and educate customers and associates regarding the LIBOR transition and continues to update fall back language that reference LIBOR-based rates to ensure full reference rates change readiness.

Valley’s technology systems have been updated to handle the new replacement rates.

Valley started originating and renewing loans at new alternative benchmark rates after December 31, 2021.

SOFR and Term SOFR are the preferred rates for loans and derivatives.

Loans that were closed before December 31, 2021, may continue to be priced using LIBOR until June 30, 2023.

Management is still assessing the expected impact of LIBOR cessation on Valley’s consolidated financial statements.

New Accounting Guidance Adopted in 2022.

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

2017-08 “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20):

Premium Amortization on Purchased

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Callable Debt Securities.” ASU No.

2020-08 clarifies that an entity should reevaluate whether a debt security with multiple call dates is within the scope of paragraph 310-20-35-33.

For each reporting period, to the extent that the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the premium should be amortized to the next call date, unless the guidance to consider estimated prepayments is applied.

Valley adopted ASU No.

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

New Accounting Guidance Issued in 2021.

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.

Accounting Standards Update (ASU) No.

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

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

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

2021-05 "Lessors – Certain Leases with Variable Lease Payments".

2021-05 updates guidance in Accounting Standards Codification (ASC) 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if:

2021-01 had no significant impact on Valley’s consolidated financial statements.

2021-05 “Lessors – Certain Leases with Variable Lease Payments” updates guidance in ASC Topic 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if:

(i) the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria;

and (ii) the lessor would have recognized a selling loss at lease commencement.

2021-05 is effective for Valley for fiscal years and interim periods beginning after December 15, 2021, with early adoption permitted.

2021-05 is not expected to have a significant impact on Valley’s consolidated financial statements

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.

2022 Form 10-K

New Accounting Guidance Issued in 2022.

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.

2022-01 also clarifies that no assets may be added to a closed portfolio once it is designated in a portfolio layer method hedge.

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.

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.

Entities can elect to adopt the guidance on TDRs using either a prospective or modified retrospective transition method.

2022-02 was effective for Valley on January 1, 2023.

Valley elected to apply the modified retrospective transition method by recording a cumulative-effect adjustment to the opening retained earnings and the allowance for loan losses as of January 1, 2023 related to expected credit losses on TDR's under ASC Topic 310-40.

While the guidance will result in expanded disclosures, the adoption of ASU No.

2022-02 and the resulting adjustments to retained earnings and the allowance for loan losses did not have a significant impact on Valley's consolidated financial statements.

2022-03, “Fair Value Measurement of Equity Securities subject to Contractual Sale Restrictions” updates guidance in ASC Topic 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.

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 did not have a significant impact on Valley's consolidated financial statements.

BUSINESS COMBINATIONS (Note 2)

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.

The transaction was accounted for under the acquisition method of accounting and accordingly t he results of Westchester's operations have been included in Valley's consolidated financial statements for the year ended December 31, 2021 from the date of acquisition.

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 year ended December 31, 2022 from the date of acquisition.

During 2022, Valley revised the estimated fair values of certain acquired assets as of the acquisition date of Bank Leumi USA based upon additional information obtained that existed as of April 1, 2022.

The adjustments mainly related to the fair val ue of deferred tax assets and other assets and resulted in a $ 2.6 million reduction in goodwill (see Note 8 for more information).

2022 Form 10-K

The following table sets forth assets acquired, and liabilities assumed in the Westchester acquisition, at their estimated fair values as of the closing date of the transaction:

December 1, 2021

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)

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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

Right of use asset 5,873

Lease right of use assets 49,273

Bank owned life insurance 126,861

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Non-interest bearing $ 4,511,537

Interest bearing:

Savings, NOW and money market 2,224,834

Time deposits 90,635

Total deposits 7,029,997

Short-term borrowings 103,794

Lease liabilities 79,683

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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.

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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 Westchester acquisition.

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.

Cash and cash equivalents.

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Investment securities .

The investment securities acquired from Westchester were classified as held to maturity debt securities based on Valley's intent at the acquisition date.

The estimated fair values of the investment securities were calculated utilizing Level 2 inputs similar to the valuation techniques used for Valley's investment portfolios detailed in Note 3.

The acquired loan portfolio was recorded at its estimated value based on a discounted cash flow methodology.

The acquired loan portfolio was segregated into categories for valuation purposes primarily based on loan type (commercial and industrial, commercial real estate, multifamily, construction, home equity and other consumer) and credit 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 the perspective of a market participant.

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

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

2022 Form 10-K

portfolios were discounted to present value based on estimated market rates.

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 3.

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 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:

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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 extremely sensitive to the assumptions and estimates used.

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.

Also, acquired portfolio loans and leases were evaluated upon acquisition and classified as either PCD, which indicates that the loan has experienced a more-than-insignificant deterioration in credit quality since origination, or non-PCD.

Valley considered a variety of factors in evaluating the acquired loans for a more-than-insignificant deterioration in credit quality, 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.

The acquired loans were also evaluated upon acquisition to determine whether they represented 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.

The net discount is expected be accreted into interest income on a level-yield method over an average contractual life of the loans totaling 8 years.

The following table provides a reconciliation of the difference between the purchase price and the par value of the PCD loans acquired from Westchester:

December 1, 2021

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 at the acquisition date:

April 1, 2022

($ in thousands)

Purchase price of PCD loans $ 346,883

Unpaid Principal Balance of PCD loans $ 1,922,272

Allowance for credit losses at acquisition * ( 70,319 )

Non-credit discount at acquisition ( 18,814 )

Par value of acquired PCD loans $ 361,882

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 consisting of core deposit intangibles (CDI) are measures of the value of non-maturity checking, savings, NOW and 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 that gave appropriate consideration to 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 over an estimated useful life of 10 years to approximate the existing deposit relationships acquired.

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 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.

2022 Form 10-K

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:

(in thousands)

Net interest income $ 1,729,034 $ 1,487,190

Non-interest income 228,284 217,204

Net income 623,052 486,225

Other Recent Acquisitions

Landmark 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 year ended December 31, 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.

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 first quarter 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 8 for details.

Dudley Ventures.

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The transaction included the acquisition of DV Fund Advisors and DV Advisory Services, which were both subsequently merged and renamed Dudley Ventures, as well as DV's community development entity, DV Community Investment.

The transaction price included $ 11.3 million of cash at the closing date and fixed future stock consideration totaling $ 3.8 million.

The transaction price included $ 11.3 million of cash at the closing date and fixed future stock consideration totaling $ 3.75 million, which resulting in the issuance of 327,083 shares of our common stock to the former principals of Dudley Ventures in February 2023.

On November 16, 2021, Valley also acquired DV Financial Services, a registered broker-dealer regulated by FINRA, which is largely inactive.

Goodwill and other intangible assets related to the acquired DV entities totaled $ 13.1 million and $ 2.1 million, respectively.

See Note 8 for further details.

Oritani Financial Corp.

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

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

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

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

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

2021 Form 10-K

During 2020, Valley revised the estimated fair values of the acquired assets as of the Oritani acquisition date due to additional information obtained that existed as of December 1, 2019.

The adjustments mostly related to the fair value of certain loans, current taxes payable and the valuation of deferred tax assets as of the acquisition date.

These adjustments resulted in an $ 8.8 million increase in goodwill (see Note 8 for amount of goodwill as allocated to Valley's business segments).

Had the acquisition of Oritani taken place in the beginning of 2019.

Valley’s revenues (defined as the sum of net interest income and non-interest income), net income, basic earnings per share, and diluted earnings per share would have equaled the amounts indicated in the following table for the year ended December 31, 2019:

(in thousands, except per share data) Unaudited

Revenues $ 1,219,887

Net income 361,079

Basic earnings per share 0.86

Diluted earnings per share 0.85

Pending Acquisition (Unaudited)

Bank Leumi Le-Israel Corporation

On September 23, 2021, Valley announced that it will acquire Bank Leumi Le-Israel Corporation, the U.S.

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

Bank Leumi USA maintains its headquarters in New York City and also has commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida.

As of December 31, 2021, Bank Leumi USA had total asset s of $ 8.3 billion, total deposits of $ 7.1 billion, and gross loans of $ 5.7 billion.

T he common stockholders of Bank Leumi USA will receive 3.8025 shares of Valley common stock and $ 5.08 in cash (subject to specified adjustments) for each Bank Leumi USA common share they own .

Based on Valley’s closing stock price on December 31, 2021, the transaction is valued at an estimated $ 1.2 billion, inclusive of the value of options and upon completion of the acquisition, Bank Leumi Le-Israel B.M.

will own approximately 14 percent of Valley's common stock.

Valley has received regulatory approval from the Federal Reserve Bank of New York and the Office of the C omptroller of the Currency, as well as Valley shareholder approval of the issuance of Valley common stock in connection with the acquisition.

The acquisition remains subject to regulatory approval by the New York State Department of Financial Services, as well as other customary closing conditions.

The acquisition is anticipated to close in the second quarter 2022.

Merger expenses for all Valley acquisition related activities totaled $ 8.9 million, $ 1.9 million and $ 16.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The merger expenses mainly consisted of salary and employee benefits, as well as professional and legal, net occupancy and equipment, and other expenses included in non-interest expense on the consolidated statements of income.

Merger expenses for all acquisition related activities totaled $ 71.2 million, $ 8.9 million and $ 1.9 million for the years ended December 31, 2022, 2021 and 2020, 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.

FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES (Note 3)

Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurement” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

ASC Topic 820, “Fair Value Measurement” 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).

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• 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.

2022 Form 10-K

• 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).

2021 Form 10-K 92

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

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$ 23,494 $ 23,494 $ — $ —

Equity securities at net asset value (NAV)

Trading debt securities 13,438 3,282 10,156 —

Available for sale debt securities:

Treasury securities 279,498 279,498 — —

government agency securities 26,964 — 26,964 —

13 unchanged sentences

Non-recurring fair value measurements:

Collateral dependent loans $ 47,871 $ — $ — $ 47,871

Collateral dependent loans, net $ 92,923 $ — $ — $ 92,923

Foreclosed assets 1,937 — — 1,937

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$ 21,284 $ 21,284 $ — $ —

Equity securities at net asset value (NAV)

Trading debt securities 38,130 — 38,130 —

Available for sale debt securities:

Treasury securities 51,393 51,393 — —

government agency securities 20,925 — 20,925 —

13 unchanged sentences

Non-recurring fair value measurements:

Collateral dependent impaired loans $ 35,228 $ — $ — $ 35,228

Loan servicing rights 15,603 — — 15,603

Collateral dependent impaired loans, net $ 47,871 $ — $ — $ 47,871

Foreclosed assets 2,931 — — 2,931

Total $ 50,802 $ — $ — $ 50,802

(1) Includes equity securities measured as net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $ 11.6 million and $ 7.8 million at December 31, 2021 and 2020, respectively.

These securities have not been classified in the fair value hierarchy.

(1) Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $ 17.9 million and $ 136.3 million at December 31, 2022 and 2021, respectively.

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The fair value of equity securities consists of a publicly traded mutual fund, Community Reinvestment Act (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.

Equity securities at NAV .

Valley also has privately held CRA funds at fair value measured at NAV using the most recently available financial information from the investee.

Investments measured at NAV (or its equivalent) as a practical expedient are excluded from fair value hierarchy levels in the tables above.

Trading debt securities .

The fair value of trading debt securities, consisting of municipal bonds, is reported at fair value utilizing Level 2 inputs.

The prices for these investments are derived from market quotations and matrix pricing obtained through an independent pricing service.

The fair value of trading debt securities, consisting 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 investments are derived from market quotations and matrix pricing obtained through an independent pricing service.

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.

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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.

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 mortga ges.

Non-performance risk did not materially impact the fair value of mortgage loans held for sale at December 31, 2022 and 2021 based on the short duration these assets were held and the credit quality of these loans.

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At December 31, 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.

The collateral dependent loan direct charge-offs to the allowance for loan losses totaled $ 2.1 million and $ 4.5 million for the years ended December 31, 2021 and 2020, respectively.

At December 31, 2022, collateral dependent loans with a total amortized cost of $ 172.2 million and $ 114.8 million at December 31, 2022 and 2021, respectively, including our taxi medallion loan portfolio, were reduced by specific allowance for loan losses allocations totaling $ 79.2 million and $ 66.9 million to a reported total net carrying amount of $ 92.9 million and $ 47.9 million at December 31, 2022 and 2021, respectively .

Loan servicing rights.

Fair values for each risk-stratified group of loan servicing rights are calculated using a fair value model from a third party vendor that requires inputs that are both significant to the fair value measurement and unobservable (Level 3).

The fair value model is based on various assumptions, including but not limited to, prepayment speeds, internal rate of return (discount rate), servicing cost, ancillary income, float rate, tax rate, and inflation.

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

At December 31, 2021, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 12.9 percent and a discount rate of 9.0 percent for the valuation of the loan servicing rights.

A significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs.

The use of different assumptions could have a significant positive or negative effect on the fair value estimate.

Impairment charges are recognized on loan servicing rights when the amortized cost of a risk-stratified group of loan servicing rights exceeds the estimated fair value.

Certain loan servicing rights were re-measured at fair value totaling $ 15.6 million at December 31, 2020.

There were no loan servicing rights re-measured at fair value at December 31, 2021.

See Note 8 for additional information.

2021 Form 10-K

Foreclosed assets.

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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.

At December 31, 2021, the adjustments to appraisals of foreclosed assets were no t material as compared to adjustments ranging from 1.5 percent to 22 percent at December 31, 2020.

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

At December 31, 2022 and 2021, the adjustments to appraisals of foreclosed assets were no t material.

Other Fair Value Disclosures

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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.

Because no market exists for a portion of

2022 Form 10-K

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.

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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.

For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operations, 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.

2021 Form 10-K 96

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 December 31, 2022 and 2021 were as follows:

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(4) Included in accrued expenses and other liabilities.

2022 Form 10-K

INVESTMENT SECURITIES (Note 4)

Equity Securities

Equity securities carried at fair value totaled $ 36.5 million and $ 29.4 million at December 31, 2021 and 2020, respectively.

At December 31, 2021, Valley's equity securities consisted of one publicly traded mutual fund, CRA investments and to a lesser extent, equity investments related to the development of new financial technologies.

Valley's CRA and other equity investments are a mixture of both public traded entities and privately held entities without readily determinable fair market values.

Equity securities totaled $ 48.7 million and $ 36.5 million at December 31, 2022 and 2021, respectively.

See Note 3 for further details on equity securities.

Trading Debt Securities

The fair value of trading debt securities, wholly consisting of municipal bonds, totaled $ 38.1 million at December 31, 2021.

We had no trading debt securities at December 31, 2020.

The fair value of trading debt securities totaled $ 13.4 million and $ 38.1 million at December 31, 2022 and 2021, respectively.

Net trading gains were included in net gains and losses on securities transactions within non-interest income.

See the “Realized Gains and Losses” section below.

2021 Form 10-K

Available for Sale Debt Securities

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December 31, 2022

Treasury securities $ 308,137 $ — $ ( 28,639 ) $ 279,498

government agency securities 29,494 47 ( 2,577 ) 26,964

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December 31, 2021

Treasury securities $ 50,031 $ 1,362 $ — $ 51,393

government agency securities $ 20,323 $ 608 $ ( 6 ) $ 20,925

15 unchanged sentences

December 31, 2022

Treasury securities $ 279,498 $ ( 28,639 ) $ — $ — $ 279,498 $ ( 28,639 )

government agency securities

45 unchanged sentences

These types of securities may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S.

economy and its potential negative effect on the future performance of the security issuers, including due to the economic effects of the COVID-19 pandemic.

economy and the COVID-19 pandemic, and their potential negative effect on the future performance of the security issuers.

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

See Note 1 for further information regarding Valley's accounting policy.

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

Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the years ended December 31, 2021 and 2020, respectively, and, as a result, there was no allowance for credit losses for available for sale debt securities at December 31, 2021 and 2020.

Valley has evaluated available for sale debt securities that are in an unrealized loss position as of December 31, 2022 included in the tables above and has determined that the declines in fair value are mainly attributable to interest rates, credit spreads, market volatility and liquidity conditions, 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 years ended December 31, 2022, 2021 and 2020, and, as a result, there was no allowance for credit losses for available for sale debt securities at December 31, 2022 and 2021.

Held to Maturity Debt Securities

The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at December 31, 2022 and 2021 were as follows:

Losses Fair Value

Losses Fair Value Allowance for Credit Losses Net Carrying Value

(in thousands)

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December 31, 2022

Treasury securities $ 65,889 $ ( 1,022 ) $ — $ — $ 65,889 $ ( 1,022 )

government agency securities 209,863 ( 47,508 ) 1,673 ( 172 ) 211,536 ( 47,680 )

Obligations of states and political subdivisions:

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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

3 unchanged sentences

Total $ 1,440,435 $ ( 22,830 ) $ 242,949 $ ( 11,242 ) $ 1,683,384 $ ( 34,072 )

Within the securities held to maturity portfolio, the total number of security positions in an unrealized loss position at December 31, 2021 was 108 as compared to 13 at December 31, 2020.

As of December 31, 2021, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $ 1.2 billion.

Within the securities held to maturity portfolio, the total number of security positions in an unrealized loss position was 802 and 108 at December 31, 2022 and 2021, respectively.

As of December 31, 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 $ 771.8 million.

The contractual maturities of investments in debt securities held to maturity at December 31, 2022 are set forth in the table below.

10 unchanged sentences

Total $ 3,828,984 $ 3,329,470

2022 Form 10-K

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 10.2 years at December 31, 2022.

2021 Form 10-K

Credit Quality Indicators

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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:

After an evaluation of qualitative factors, Valley identified the following security types which it believes qualify for this exclusion:

Treasury securities, U.S.

5 unchanged sentences

The following table details the activity in the allowance for credit losses for the years ended December 31, 2022, 2021and 2020:

2022 2021 2020

(in thousands)

2 unchanged sentences

2016-13 on January 1, 2020 — — 793

(Credit) provision for credit losses ( 263 ) 635

Provision (credit) for credit losses 481 ( 263 ) 635

Ending balance $ 1,646 $ 1,165 $ 1,428

1 unchanged sentence

Realized Gains and Losses

Gross gains and losses realized on sales, maturities and other securities transactions related to non-trading securities and net gains on trading debt securities included in earnings for the years ended December 31, 2021, 2020 and 2019 were as follows:

Gross gains and losses realized on sales, maturities and other securities transactions related to available for sale securities and net gains on trading debt securities included in earnings for the years ended December 31, 2022, 2021 and 2020 were as follows:

2022 2021 2020

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Total 95 ( 275 ) ( 132 )

Net gains on trading debt securities 1,213 — —

Net gains (losses) on securities transactions $ 1,758 $ 524 $ ( 150 )

Net gains on sales transaction s (as presented in the table above) include sales of available for sale debt securit ies related to $ 92.0 million of U.S.

Treasury securities and residential mortgage-backed securities for the year ended December 31, 2021, and $ 30.0 million of certain municipal securities for the for the year ended December 31, 2020.

Net (losses) gains on trading debt securities ( 1,325 ) 1,213 —

(Losses) gains on securities transactions, net $ ( 1,230 ) $ 1,758 $ 524

2022 Form 10-K

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Total loans $ 46,917,200 $ 34,153,657

* Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $ 12.1 million and $ 43.2 million at December 31, 2021 and 2020, respectively.

* Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $ 667 thousand and $ 12.1 million at December 31, 2022 and 2021, respectively.

Total loans include net unearned discounts and deferred loan fees of $ 120.5 million and $ 78.5 million at December 31, 2022 and 2021, respectively.

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

The increase in total loans at December 31, 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.

Net unearned discounts and deferred loan fees include the non-credit discount on acquired PCD loans and net unearned fees related to PPP loans at December 31, 2022 and 2021.

Accrued interest on loans , which is excluded from the amortized cost of loans held for investment, totaled $ 175.9 million and $ 83.7 million at December 31, 2022 and 2021, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.

Valley transferred and sold approximately $ 30.0 million of residential mortgage loans from the loan portfolio to loans held for sale in 2020.

Excluding the loan transfers, there were no other sales of loans from the held for investment portfolio during the years December 31, 2021 and 2020.

There wer e no sales of loans from the held for investment portfolio during the years December 31, 2022 and 2021.

Related Party Loans

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

Additionally, Valley does not accept crypto assets as loan collateral for any of its loan portfolio classes discussed further below.

Commercial and industrial loans.

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Whenever possible, Valley will obtain the personal guarantee of the borrower’s principals to mitigate the risk.

Unsecured loans, when made, are generally granted to the Bank’s most credit worthy borrowers.

Unsecured commercial and industrial loans totaled $ 1.0 billion and $ 2.7 billion at December 31, 2021 and 2020, respectively (including $ 436.0 million and $ 2.2 billion of SBA guaranteed PPP loans, respectively).

Unsecured loans, when made, are generally granted to the Bank’s most creditworthy borrowers.

Unsecured commercial and industrial loans totaled $ 555.3 million and $ 1.0 billion at December 31, 2022 and 2021, respectively (including $ 33.6 million and $ 436.0 million of SBA guaranteed PPP loans, respectively).

The commercial portfolio also includes taxi medallion loans totaling approximately $ 66.5 million with related reserves of $ 42.2 million at December 31, 2022.

All of these loans are on non-accrual status due to ongoing weakness exhibited in the taxi industry caused by strong competition from alternative ride-sharing services and the economic stress caused by the COVID-19 pandemic.

Commercial real estate loans .

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Substandard 12,969 12,601 — 974 — 17,599 20,138 — 64,281

Doubtful — — — — — 13,743 — — 13,743

Total construction $ 955,349 $ 524,647 $ 61,131 $ 23,819 $ 8,676 $ 51,941 $ 2,075,272 $ — $ 3,700,835

20 unchanged sentences

2022 Form 10-K

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

For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley 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 December 31, 2022 and 2021:

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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 $ 71.3 million and $ 57.4 million as of December 31, 2021 and 2020, respectively.

Performing TDRs (not reported as non-accrual loans) t otaled $ 77.5 million and $ 71.3 million as of December 31, 2022 and 2021, respectively.

Non-performing TDRs totaled $ 124.0 million and $ 117.2 million as of December 31, 2022 and 2021, respectively.

2021 Form 10-K

The following table presents pre- and post-modification amortized cost of loans by loan class modified as TDRs during the years ended December 31, 2022 and 2021.

Post-modification amounts are presented as of December 31, 2022 and 2021, respectively.

2022 Form 10-K

Troubled Debt

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There were $ 26.2 million and $ 6.0 million of charge-offs related to TDRs for the years ended December 31, 2022 and 2021, respectively .

At December 31, 2021, the commercial and industrial loan category in the above table mostly consisted of non-accrual TDR taxi medallion loans classified as substandard and doubtful.

As of December 31, 2022 and 2021 , the commercial and industrial loan category in the above table mostly consisted of non-accrual TDR taxi medallion loans classified as substandard and doubtful.

Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the year ended December 31, 2022.

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Total 4 $ 27,122 3 $ 27,860

Forbearance .

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

As of December 31, 2021, Valley had approximately $ 28 million of outstanding loans remaining in their payment deferral period under short-term modifications as compared to

2021 Form 10-K 112

approximately $ 361 million of loans in deferral at December 31, 2020.

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

Collateral dependent loans.

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The following table presents collateral dependent loans by class as of December 31, 2022 and 2021:

2022 Form 10-K

(in thousands)

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Total $ 258,692 $ 241,258

* Commercial and industrial loans are primarily collateralized by taxi medallions .

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

Allowance for Credit Losses for Loans

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Beginning balance $ 103,090 $ 217,490 $ 25,120 $ 13,502 $ 359,202

Allowance for purchased credit deteriorated (PCD) loans 3,528 2,953 57 4 6,542

Allowance for PCD loans (1)

33,452 36,618 206 43 70,319

Loans charged-off ( 33,250 ) ( 4,561 ) ( 28 ) ( 4,057 ) ( 41,896 )

1 unchanged sentence

Net (charge-offs) recoveries ( 16,169 ) ( 2,488 ) 683 ( 1,128 ) ( 19,102 )

(Credit) provision for loan losses ( 13,935 ) 48,249 ( 4,346 ) ( 2,461 ) 27,507

Provision for loan losses 19,568 7,788 13,011 7,869 48,236

Ending balance $ 139,941 $ 259,408 $ 39,020 $ 20,286 $ 458,655

2 unchanged sentences

Beginning balance $ 131,070 $ 164,113 $ 28,873 $ 16,187 $ 340,243

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

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

Allowance for PCD loans (2)

3,528 2,953 57 4 6,542

Loans charged-off ( 21,507 ) ( 382 ) ( 140 ) ( 4,303 ) ( 26,332 )

1 unchanged sentence

Net (charge-offs) recoveries ( 17,573 ) 2,175 536 ( 228 ) ( 15,090 )

Provision for loan losses 44,516 67,904 3,166 8,336 123,922

(Credit) provision for loan losses ( 13,935 ) 48,249 ( 4,346 ) ( 2,461 ) 27,507

Ending balance $ 103,090 $ 217,490 $ 25,120 $ 13,502 $ 359,202

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

(1) T he allowance for PCD loans is presented net of PCD loan charge-offs totaling $ 62.4 million in the second quarter 2022 related to the Bank Leumi USA acquisition.

(2) T he allowance for PCD loans related to the Westchester acquisition during the fourth quarter 2021.

2022 Form 10-K

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Sublease income ( 2,982 ) ( 3,044 ) ( 2,520 )

Total lease cost (included in net occupancy and equipment expense) $ 36,384 $ 39,162 $ 35,218

Total lease cost (primarily included in net occupancy expense) $ 45,216 $ 36,384 $ 39,162

The following table presents supplemental cash flow information related to leases for the years ended December 31, 2022, 2021, and 2020:

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The following table presents supplemental information related to leases at December 31, 2022 and 2021:

Weighted-average remaining lease term

Weighted-average remaining lease term (in thousands)

Operating leases 10.8 years 11.7 years

Finance leases 1.0 year 2.0 years

Finance leases 2.3 years 1.0 year

Weighted-average discount rate

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Finance leases 1.39 % 7.24 %

2022 Form 10-K

The following table presents a maturity analysis of lessor and lessee arrangements outstanding as of December 31, 2022:

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Total $ 863,839 $ 358,851 $ 33

2021 Form 10-K 116

The total net investment in direct financing and sales-type leases was $ 863.8 million and $ 747.8 million at December 31, 2022 and 2021, respectively, comprised of $ 859.3 million and $ 745.2 million in lease receivables and $ 4.5 million and $ 2.6 million in unguaranteed residuals, respectively.

10 unchanged sentences

Total premises and equipment, net $ 358,556 $ 326,306

Depreciation and amortization of premises and equipment included in non-interest expense for the years ended December 31, 2021, 2020 and 2019 was approximately $ 28.8 million, $ 30.6 million, and $ 29.4 million, respectively.

Depreciation and amortization of premises and equipment included in net occupancy expense for the years ended December 31, 2022, 2021 and 2020 was approximately $ 41.2 million, $ 28.8 million, and $ 30.6 million, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS (Note 8)

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Lending Commercial

Lending Investment

Management Total

Lending Total

(in thousands)

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Balance at December 31, 2022 $ 49,767 $ 284,873 $ 1,534,296 $ 1,868,936

* Valley’s Wealth Management Division is comprised of trust, asset management, insurance and tax credit advisory services.

This reporting unit is included in the Consumer Lending segment for financial reporting purposes.

* Valley’s Wealth Management and Insurance Division is comprised of trust, asset management, insurance and tax credit advisory services.

This reporting unit is included in the Consumer Banking segment for financial reporting purposes.

2022 Form 10-K

During the second quarter 2022, Valley performed the annual goodwill impairment test at its normal assessment date.

There was no impairment of goodwill recognized during the years ended December 31, 2022, 2021 and 2020.

As discussed in Note 21, 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.

The goodwill from business combinations set forth in the table above during 2022 related to the acquisitions of Bank Leumi USA and Landmark totaled $ 400.6 million and $ 4.4 million, respectively.

The goodwill from Landmark transaction was allocated entirely to the Wealth Management reporting unit during t he year ended December 31, 2022.

Valley also recorded $ 5.0 million of additional goodwill during 2022 reflecting an adjustment to the deferred tax assets acquired from Westchester as of the acquisition date.

The goodwill from business combinations set forth in the table above during 2021 related to the Westchester and DV acquisitions and totaled $ 63.5 million and $ 13.1 million, respectively.

Goodwill resulting from the DV acquisition was allocated entirely to the Wealth Management reporting unit.

During 2020, goodwill from business combinations reflected the effect of the combined adjustments to the estimated fair values of certain loans, current taxes payable and deferred tax assets related to the Oritani acquisition on December 1, 2019.

See Note 2 for further details related to these acquisitions.

There was no imp airment of goodwill during the years ended December 31, 2021, 2020 and 2019.

2021 Form 10-K

See Note 2 for further details related to acquisitions.

The following tables summarize other intangible assets as of December 31, 2022 and 2021:

Assets Accumulated

Amortization Valuation

Allowance Net

Amortization Net

(in thousands)

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Total other intangible assets $ 230,018 $ ( 159,632 ) $ 70,386

Core deposits are amortized using an accelerated method and have a weighted average amortization period of 9.2 years .

The line item labeled “Other” included in the table above primarily consists of certain financial asset servicing contracts, customer lists and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of 6.0 years .

Valley recorded $ 8.1 million of core deposit intangibles res ulting from the Westchester acquisition.

Core deposits are amortized using an accelerated method over a period of 10.0 years.

Valley recorded $ 114.4 million of core deposit intangibles res ulting 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 13.4 years.

Valley recorded $ 39.0 million and $ 6.2 million of other intangible assets resulting from the Bank Leumi USA and Landmark acquisitions, respectively, during year ended December 31, 2022.

Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists.

No impairment was recognized during the years ended December 31, 2022, 2021 and 2020.

2022 Form 10-K

The following table summarizes the change in loan servicing rights during the years ended December 31, 2022, 2021 and 2020:

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Loan servicing rights are accounted for using the amortization method.

As shown in the above table, Valley recorded net recoveries of impairment charges totaling $ 865 thousand and $ 36 thousand for the years ended December 31, 2021 and 2019, respectively, and net impairment charges on its loan servicing rights totaling $ 818 thousand for the year ended December 31, 2020.

There was no net impairment recognized during December 31, 2022.

As shown in the above table, Valley recorded net recoveries of impairment charges totaling $ 865 thousand for the year ended December 31, 2021 and net impairment charges on its loan servicing rights totaling $ 818 thousand for the year ended December 31, 2020.

The Bank is a servicer of residential mortgage loan portfolios, and it is compensated for loan administrative services performed for mortgage servicing rights of loans originated and sold by the Bank, and to a lesser extent, purchased mortgage servicing rights.

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Valley recognized amortization expense on other intangible assets, including net (recoveries of) impairment charges on loan servicing rights (reflected in the table above), of $ 37.8 million, $ 21.8 million and $ 24.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

2021 Form 10-K 118

The following table presents the estimated amortization expense of other intangible assets over the next five-year period:

T he following table presents the estimated amortization expense of other intangible assets over the next five-year period:

Year Loan Servicing

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DEPOSITS (Note 9)

Included in time deposits are certificates of deposit over $250 thousand totaling $ 861.5 million and $ 1.4 billion at December 31, 2021 and 2020, respectively.

Included in time deposits are certificates of deposit over $250 thousand totaling $ 1.8 billion and $ 861.5 million at December 31, 2022 and 2021, respectively.

Interest expense on time deposits of $250 thousand or more totaled approximately $ 3.4 million, $ 1.1 million and $ 4.5 million in 2022, 2021 and 2020, respectively.

2022 Form 10-K

The scheduled maturities of time deposits as of December 31, 2022 were as follows:

1 unchanged sentence

2023 $ 7,187,385

2024 2,168,998

Thereafter 32,803

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The weighted average interest rate for short-term FHLB advances was 1.60 percent and 0.37 percent at December 31, 2022 and 2021, respectively.

The interest payments on the FHLB advances totaling $ 500 million were hedged with interest rate swaps at December 31, 2021.

See Note 15 for additional details.

2021 Form 10-K

The interest payments on the FHLB advances totaling $ 500 million at December 31, 2021 were hedged with interest rate swaps that expired during 2022.

See Note 15 for details on our derivative hedging activities.

Long-Term Borrowings

4 unchanged sentences

754,639 634,643

Securities sold under agreements to repurchase — 300,000

Total long-term borrowings $ 1,543,058 $ 1,423,676

(1) FHLB advances are presented net of unamortized premiums totaling $ 1.0 million at December 31, 2021 and prepayment penalties, and other purchase accounting adjustments totaling $ 2.6 million at December 31, 2020.

(1) FHLB advances are presented net of unamortized premiums totaling $ 419 thousand and $ 1.0 million at December 31, 2022 and 2021, respectively.

(2) Subordinated debt is presented net of unamortized debt issuance costs totaling $ 6.9 million and $ 5.8 million at December 31, 2022 and 2021, respectively.

FHLB Advances.

Long-term FHLB advances had a weighted average interest rate of 1.88 percent and 2.02 percent at December 31, 2021 and 2020, respectively.

Long-term FHLB advances had a weighted average interest rate of 1.88 percent at December 31, 2022 and 2021.

FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S.

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In June 2021, Valley prepaid $ 247.5 million of long-term FHLB advances with maturities scheduled through 2025 and a weighted average effective interest rate of 1.82 percent.

In December 2020, Valley prepaid $ 534.3 million of long-term FHLB advances scheduled to mature in 2021 and 2022 with a weighted average effective interest rate of 2.48 percent.

The June 2021 and December 2020 transactions were funded with excess cash liquidity and accounted for as an early debt extinguishment resulting in losses of $ 8.4 million and $ 9.7 million reported within non-interest expense for the years ended December 31, 2021 and 2020, respectively.

The transactions were funded with excess cash liquidity and accounted for as an early debt extinguishment resulting in a loss of $ 8.4 million reported within non-interest expense for the year ended December 31, 2021.

2022 Form 10-K

Long-Term Borrowings

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Subordinated Debt.

On April 1, 2021, Valley redeemed, at par value, $ 60 million of its callable 6.25 percent subordinated notes originally due April 1, 2026.

No gain or loss was incurred on this transaction.

At December 31, 2022, Valley had the following subordinated debt outstanding by its maturity date:

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The subordinated notes had a net carrying value of $ 99.7 million and $ 99.6 million at December 31, 2022 and 2021, respectively.

2021 Form 10-K 120

• $ 115 million of 5.25 percent Fixed-to-Floating Rate subordinated notes issued in June 2020 and due June 15, 2030 callable in whole or in part on or after June 15, 2025 or upon the occurrence of certain events.

Interest on the subordinated notes during the initial five-year term through June 15, 2025 is payable semi-annually on June 15 and December 15.

Thereafter, interest is expected to be set based on Three-Month Term Secured Overnight Financing Rate (SOFR) plus 514 basis points and paid quarterly through maturity of the notes.

Thereafter, interest is expected to be set based on three-month Term SOFR plus 514 basis points and paid quarterly through maturity of the notes.

The subordinated notes had a net carrying value of $ 113.6 million and $ 113.4 million at December 31, 2022 and 2021, respectively.

2 unchanged sentences

Interest on the subordinated notes during the initial five-year term through June 15, 2026 is payable semi-annually on June 15 and December 15.

Thereafter, interest is expected to be set based on three-month SOFR plus 236 basis points and paid quarterly through maturity of the notes.

At December 31, 2021, the subordinated notes had a carrying value of $ 296.4 million, net of unamortized debt issuance costs.

Thereafter, interest is expected to be set based on three-month Term SOFR plus 236 basis points and paid quarterly through maturity of the notes.

The subordinated notes had a carrying value of $ 267.1 million and $ 293.0 million, net of unamortized debt issuance costs and fair value of hedging adjustment at December 31, 2022 and 2021, respectively.

During June 2021, Valley entered into an interest rate swap transaction used to hedge the change in the fair value of the $ 300 million in subordinated notes.

See Note 15 for additional details.

Long-term securities sold under agreements to repurchase (repos).

The long-term institutional repos had a weighted average interest rate of 3.37 percent at December 31, 2020.

Long-term repos outstanding as of December 31, 2020 were repaid upon their respective contractual maturity dates during the third quarter 2021.

In September 2020, Valley prepaid $ 50 million of long-term institutional repo borrowings with an interest rate of 3.70 percent and an original contractual maturity date in January 2022.

The debt prepayment was funded by excess cash liquidity.

The transaction was accounted for as an early debt extinguishment resulting in a loss of $ 2.4 million for the year ended December 31, 2020.

• $ 150 million of 6.25 percent fixed-to-floating rate subordinated notes issued on September 20, 2022 and 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 will be set based on three-month Term SOFR plus 278 basis points and paid quarterly through maturity of the notes.

The subordinated notes had a net carrying va lue of $ 147.6 million at December 31, 2022.

On April 1, 2021, Valley redeemed, at par value, $ 60 million of its callable 6.25 percent subordinated notes originally due April 1, 2026.

No gain or loss was incurred on this transaction.

Pledged Securities.

The fair value of securities pledged to secure public deposits, repurchase agreements, lines of credit, FHLB advances and for other purposes required by law approximated $ 1.7 billion and $ 2.1 billion for December 31, 2021 and 2020, respectively.

The fair value of securities pledged to secure public deposits, repurchase agreements, lines of credit, FHLB advances and for other purposes required by law approximate d $ 1.1 billion and $ 1.7 billion for December 31, 2022 and 2021, respectively.

2022 Form 10-K

JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS (Note 11)

All of the statutory trusts presented in the table below were acquired in past bank acquisitions.

All of the statutory trusts presented in the table below were acquired in bank acquisitions.

These trusts were established for the sole purpose of issuing trust preferred securities and related trust common securities.

3 unchanged sentences

GAAP but wholly owns all of the common securities of each trust.

2021 Form 10-K

The table below summarizes the outstanding junior subordinated debentures and the related trust preferred securities issued by each trust as of December 31, 2021 and 2020:

The table below summarizes the outstanding callable junior subordinated debentures and the related trust preferred securities issued by each trust as of December 31, 2022 and 2021:

Capital Trust III State Bancorp

15 unchanged sentences

Stated maturity date July 30, 2037 November 7, 2032 January 23, 2034 December 15, 2036

Initial call date July 30, 2017 November 7, 2007 January 23, 2009 December 15, 2011

Trust Preferred Securities:

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BENEFIT PLANS (Note 12)

The Bank has a non-contributory defined benefit plan (qualified plan) covering most of its employees.

The qualified plan benefits are based upon years of credited service and the employee’s highest average compensation as defined.

Additionally, the Bank has a supplemental non-qualified, non-funded retirement plan, which is designed to supplement the pension plan for key officers, and Valley has a non-qualified, non-funded directors’ retirement plan (both of these plans are referred to as the “non-qualified plans” below).

Effective December 31, 2013, the benefits earned under the qualified and non-qualified plans were frozen.

As a result, Valley re-measured the projected benefit obligation of the affected plans and the funded status of each plan at June 30, 2013.

Consequently, participants in each plan will not accrue further benefits and their pension benefits will be determined based on their compensation and service as of December 31, 2013.

Plan benefits will not increase for any compensation or service earned after such date.

All participants were immediately vested in their frozen accrued benefits if they were employed by the Bank as of December 31, 2013.

Defined Benefit Pension and Postretirement Benefit Plans

The Bank had offered a qualified non-contributory defined benefit plan and non-qualified supplement retirement plan to eligible employees and key executives who met certain age and service requirements, as well as a non-qualified directors' retirement plan.

The qualified and non-qualified plans were frozen effective December 31, 2013.

Consequently, participants in

2022 Form 10-K

The following table sets forth the change in the projected benefit obligation, the change in fair value of plan assets and the funded status and amounts recognized in Valley’s consolidated financial statements for the qualified and non-qualified plans at December 31, 2021 and 2020:

each plan will not accrue further benefits and their pension benefits were immediately vested and determined based on their compensation and service as of December 31, 2013.

On April 1, 2022, Valley assumed a qualified non-contributory defined benefit pension plan (frozen to both benefits and new participants) covering certain former employees of Bank Leumi USA.

Valley also assumed other post-employment medical and life insurance benefit (OPEB) plans from Bank Leumi USA covering certain retired employees.

The OPEB plans are active, but closed to new participants.

Collectively, all qualified and non-qualified plans are referred to as the "Pension" in the tables below unless indicated otherwise.

The following table sets forth the change in the projected benefit obligation, the change in fair value of plan assets and the funded status and amounts recognized in Valley’s consolidated financial statements for the Pension and OPEB plans at December 31, 2022 and 2021, if applicable:

2022 2021 2022

(in thousands)

1 unchanged sentence

Projected benefit obligation at beginning of year $ 180,204 $ 190,849 $ —

Acquisition (1)

49,008 — 7,445

Interest cost 5,373 3,510 174

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Fair value of plan assets at beginning of year $ 278,420 $ 260,651 $ —

Acquisition 53,433 — —

Actual return on plan assets ( 47,029 ) 25,057 —

2 unchanged sentences

Fair value of plan assets at end of year (2)

$ 275,406 $ 278,420 $ —

Funded status of the plan

Asset recognized $ 98,216 $ 69,802

Assets (liabilities) recognized $ 99,910 $ 98,216 $ ( 5,981 )

Accumulated benefit obligation 175,496 180,204 $ 5,981

* Includes accrued interest receivable of $ 783 thousand and $ 623 thousand as of December 31, 2021 and 2020, respectively.

Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not been recognized as a component of the net periodic pension expense for Valley’s qualified and non-qualified plans are presented in the following table.

Valley expects to recognize approximately $ 698 thousand of the net actuarial loss reported in the following table as of December 31, 2021 as a component of net periodic pension expense during 2022.

(1) Beginning balances of the Pension and OPEB plans assumed from Bank Leumi USA are presented as of April 1, 2022, based on the actuarial valuation by the plan administrator.

(2) Pension includes accrued interest receivable of $ 710 thousand and $ 783 thousand as of December 31, 2022 and 2021, respectively.

Amounts recognized as a component of accumulated other comprehensive loss at end of year that have not been recognized as a component of the net periodic pension expense for Valley’s Pension and OPEB plans are presented in the following table:

2022 2021 2022

(in thousands)

Net actuarial loss $ 34,623 $ 50,272

Net actuarial loss (gain) $ 53,400 $ 34,623 $ ( 881 )

Prior service cost 251 286 —

Deferred tax benefit ( 9,703 ) ( 14,132 )

Deferred (benefit) tax expense ( 15,116 ) ( 9,703 ) 249

Total $ 38,535 $ 25,206 $ ( 632 )

The non-qualified plans had a projected benefit obligation, accumulated benefit obligation, and fair value of plan assets as follows:

2022 Form 10-K

The non-qualified plans presented within Pension in the tables above had a projected benefit obligation, accumulated benefit obligation, and fair value of plan assets as follows:

(in thousands)

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Fair value of plan assets — —

In determining discount rate assumptions, management looks to current rates on fixed-income corporate debt securities that receive a rating of AA or higher from either Moody’s or S&P with durations equal to the expected benefit payments streams required of each plan.

The weighted average discount rate used in determining the actuarial present value of benefit obligations for the qualified and non-qualified plans was 2.87 percent a nd 2.52 percent as of December 31, 2021 and 2020, respectively.

2021 Form 10-K

The net periodic pension income for the qualified and non-qualified plans reported within other non-interest expense included the following components for the years ended December 31, 2021, 2020 and 2019:

In determining the discount rate assumptions, management looks to current rates on fixed-income corporate debt securities that receive a rating of AA or higher from either Moody’s or S&P with durations equal to the expected benefit payments streams required of each plan.

The weighted average discount rate used in determining the actuarial present value of benefit obligations for the Pension plans was 5.31 percent a nd 2.87 percent as of December 31, 2022 and 2021, respectively, and 5.29 percent for the OPEB plans as of December 31, 2022.

The net periodic benefit (income) cost for the Pension and OPEB plans were reported within other non-interest expense included the following components for the years ended December 31, 2022, 2021 and 2020:

2022 2021 2020 2022

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Expected return on plan assets ( 20,858 ) ( 16,364 ) ( 17,200 ) —

Amortization of net loss 1,538 1,003 264

Total net periodic pension income $ ( 11,316 ) $ ( 11,256 ) $ ( 10,076 )

Valley estimated the interest cost component of net periodic pension income (as shown in the table above) using a spot rate approach for the plans by applying the specific spot rates along the yield curve to the relevant projected cash flows.

Amortization of net loss (gain) 1,000 1,538 1,003 ( 95 )

Amortization of prior service cost 135 135 135 —

Net periodic benefit (income) cost $ ( 14,350 ) $ ( 11,181 ) $ ( 11,121 ) $ 79

Valley estimated the interest cost component of net periodic benefit (income) cost (as shown in the table above) using a spot rate approach for the plans by applying the specific spot rates along the yield curve to the relevant projected cash flows.

Valley believes this provides a better estimate of interest costs than a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the applicable period.

Other changes in the qualified and non-qualified plan assets and benefit obligations recognized in other comprehensive (loss) income for the years ended December 31, 2021 and 2020 were as follows:

Other changes in plan assets and benefit obligations recognized in other comprehensive loss for the years ended December 31, 2022 and 2021 were as follows:

2022 2021 2022

(in thousands)

Net (gain) loss $ ( 14,381 ) $ 4,754

Net actuarial loss (gain) $ 19,777 $ ( 14,111 ) $ ( 976 )

Amortization of prior service cost ( 135 ) ( 135 ) —

Amortization of actuarial loss ( 1,538 ) ( 1,003 )

Total recognized in other comprehensive (loss) income $ ( 15,784 ) $ 3,887

Total recognized in net periodic pension income and other comprehensive (loss) income (before tax)

$ ( 26,965 ) $ ( 7,233 )

Amortization of actuarial (loss) gain ( 1,000 ) ( 1,538 ) 95

Total recognized in other comprehensive loss $ 18,642 $ ( 15,784 ) $ ( 881 )

Total recognized in net periodic benefit (income) cost and other comprehensive loss (before tax) $ 4,292 $ ( 26,965 ) $ ( 802 )

2022 Form 10-K

The benefit payments, which reflect expected future service, as appropriate, expected to be paid in future years are presented in the following table:

Year Pension OPEB

(in thousands)

2023 $ 9,362 $ 533

2024 9,547 461

2025 9,778 421

2026 10,075 390

2027 10,179 383

Thereafter 49,889 1,784

The weighted average discount rate, expected long-term rate of return on assets and rate of compensation increase used in determining Valley’s pension expense for the years ended December 31, 2021, 2020 and 2019 were as follows:

The weighted average assumptions used to determine net periodic benefit (income) cost for the years ended December 31, 2022, 2021 and 2020 were as follows:

2022 2021 2020 2022

Discount rate - projected benefit obligation 2.85 % 2.50 % 3.29 % 2.85 %

Discount rate - service cost N/A N/A N/A 2.85 %

Discount rate - interest cost 2.49 % 1.88 % 2.62 % 2.85 %

Expected long-term return on plan assets 6.75 % 7.50 % 7.50 %

Rate of compensation increase N/A N/A N/A

Expected long-term return on plan assets 6.79 % 6.75 % 7.50 % N/A

Rate of compensation increase N/A N/A N/A N/A

Assumed healthcare cost trend rate * N/A N/A N/A 5.75 %

* The assumed healthcare cost trend rate used to measure the expected cost of benefits covered by the OPEB plans for 2023 is 5.75 percent.

The rate to which the healthcare cost trend rate is assumed to decline (ultimate trend rate) along with the year that the ultimate trend rate will be reached is 4.50 percent in 2028.

The expected long-term rate of return on plans assets is the average rate of return expected to be realized on funds invested or expected to be invested to provide for the benefits included in the benefit obligation.

The expected long-term rate of return on plans assets is established at the beginning of the year based upon historical and projected returns for each asset category.

The expected rate of return on plan assets assumption is based on the concept that it is a long-term assumption independent of the current economic environment and changes would be made in the expected return only when long-term inflation expectations change, asset allocations change materially or when asset class returns are expected to change for the long-term.

In accordance with Section 402 (c) of ERISA, the qualified plan’s investment managers are granted full discretion to buy, sell, invest and reinvest the portions of the portfolio assigned to them consistent with the Bank’s Pension Committee’s policy and guidelines.

The target asset allocation set for the qualified plan is an approximate equal weighting of 50 percent fixed income securities and 50 percent equity securities.

Although much depends upon market conditions, the absolute investment

2021 Form 10-K 124

objective for the equity portion is to earn at least a mid-to-high single digit return, after adjustment by the Consumer Price Index (CPI), over rolling five-year periods.

In accordance with Section 402 (c) of ERISA, the investment management advisory firm and individual asset managers, if applicable, of both defined benefit pension plans are granted full discretion to buy, sell, invest and reinvest the portions of the portfolio assigned to them consistent with the Bank’s Pension Committee’s policy and guidelines.

The target asset allocation set for the plans are an approximate equal weighting of 50 percent fixed income securities and 50 percent equity securities.

Although much depends upon market conditions, the absolute investment objective for the equity portion is to earn at least a mid-to-high single digit return, after adjustment by the Consumer Price Index (CPI), over rolling five-year periods.

Relative performance should be above the median of a suitable grouping of other equity portfolios and a suitable index over rolling three-year periods.

2 unchanged sentences

Cash equivalents will be invested in money market funds or in other high quality instruments approved by the Trustees of the qualified plan.

The exposure of the plan assets of the qualified plan to risk is limited by the Bank’s Pension Committee’s diversification of the investments into various investment options with multiple asset managers.

The Pension Committee engages an investment management advisory firm that regularly monitors the performance of the asset managers and ensures they are within compliance of the policies adopted by the Trustees.

The risk exposure of the qualified plan assets is managed by the Bank’s Pension Committee and diversification of the investments into various investment options, including plan assets managed by several asset managers.

The Pension Committee engages an investment management advisory firm that regularly monitors the performance of the plan assets and the individual asset managers to ensure they are compliant with the policies adopted by the Pension Trustees.

If the risk profile and overall return of assets managed are not in line with the risk objectives or expected return benchmarks for the qualified plan, the advisory firm may recommend the termination of an asset manager to the Pension Committee.

In general, the plan assets of the qualified plan are investment securities that are well-diversified in terms of industry, capitalization and asset class.

The following table presents the qualified plan weighted-average asset allocations by asset category that are measured at fair value on a recurring basis by level within the fair value hierarchy under ASC Topic 820.

Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

2022 Form 10-K

The following table presents the weighted-average asset allocations by asset category for the defined benefit pension plans that are measured at fair value by level within the fair value hierarchy.

See Note 3 for further details regarding the fair value hierarchy.

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Mutual funds 30 % $ 78,712 $ 78,712 $ — $ —

Corporate bonds 23 64,715 — 64,715 —

Treasury securities 20 57,587 57,587 — —

Equity securities 20 55,157 55,157 — —

Corporate bonds 17 46,839 — 46,839 —

Commingled fund 9 23,395 — 23,395 —

government agency securities 3 9,271 — 9,271 —

10 unchanged sentences

Mutual funds 28 % $ 79,462 $ 79,462 $ — $ —

Corporate bonds 20 51,410 — 51,410 —

Treasury securities 22 59,931 59,931 — —

Equity securities 21 57,987 57,987 — —

Corporate bonds 23 64,715 — 64,715 —

government agency securities 4 10,590 — 10,590 —

4 unchanged sentences

Treasury securities and cash and money market funds are valued at fair value in the tables above utilizing exchange quoted prices in active markets for identical instruments (Level 1 inputs).

Mutual funds are measured at their respective net asset values, which represents fair values of the securities held in the funds based on exchange quoted prices available in active markets (Level 1 inputs).

2021 Form 10-K

Mutual funds are measured at their respective net asset values, which represent fair values of the securities held in the funds based on exchange quoted prices available in active markets (Level 1 inputs).

Corporate bonds and U.S.

3 unchanged sentences

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.

Based upon actuarial estimates, Valley does not expect to make any contributions to the qualified plan.

Funding requirements for subsequent years are uncertain and will significantly depend on whether the plan’s actuary changes any assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements.

For tax planning, financial planning, cash flow management or cost reduction purposes, Valley may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Commingled funds are valued based on the NAV as reported by the trustee of the funds.

The funds' underlying investments, which primarily comprise fixed-income debt securities and open-end mutual funds, are valued using quoted market prices in active markets or unobservable inputs for similar assets.

Therefore, commingled funds are classified as Level 2 within the fair value hierarchy.

Transactions may occur daily within the fund.

Based upon actuarial estimates, Valley does not expect to make any contributions to the defined benefit pension plans.

Funding requirements for subsequent years are uncertain and will significantly depend on whether the plans' actuary changes

2022 Form 10-K

any assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plans, and any legislative or regulatory changes affecting plan funding requirements.

For tax planning, financial planning, cash flow management or cost reduction purposes, Valley may increase, accelerate, decrease or delay contributions to the plans to the extent permitted by law.

Other Non-Qualified Plans

Valley maintains separate non-qualified plans for former directors and senior management of Merchants Bank of New York acquired in January of 2001.

At December 31, 2021 and 2020, the remaining obligations under these plans were $ 1.3 million and $ 1.4 million, respectively, of which $ 348 thousand and $ 399 thousand, respectively, were funded by Valley.

At December 31, 2022 and 2021, the remaining obligations under these p lans were $ 1.1 million and $ 1.3 million, respectively, of which $ 297 thousand an d $ 348 thousand, respectively, were funded by Valley.

As of December 31, 2022 and 2021, all of the obligations were included in other liabilities and $ 585 thousand (net of a $ 231 thousand tax benefit) and $ 660 thousand (net of a $ 257 thousand tax benefit), respectively, were recorded in accumulated other comprehensive loss.

3 unchanged sentences

This plan was terminated on November 30, 2019 and the accrued benefits are payable to plan participants in five equal installments beginning annually on December 1, 2020 through December 1, 2024.

The funded obligation under this plan totaled $ 979 thousand and $ 1.3 million at December 31, 2021 and 2020, respectively.

The funded obligation under this plan totaled $ 653 thousand and $ 979 thousand at December 31, 2022 and 2021, respectively.

• Supplemental Executive Retirement Income Agreement (the SERP) for the former CEO of Oritani.

2 unchanged sentences

The funded obligation under the SERP totaled $ 12.3 million and $ 13.9 million at December 31, 2022 and 2021, respectively.

Valley recorded $ 357 thousand and $ 1.5 million of expenses related to the SERP for the year ended December 31, 2021 and 2020, respectively.

Valley recorded net benefit income of $ 1.8 million and $ 357 thousand related to the valuation of the SERP for the years ended December 31, 2022 and 2021, respectively, and net benefit expense of $ 1.5 million for the year ended December 31, 2020 .

The above Oritani non-qualified plans are secured by investments in money market mutual funds which are held in a trust and classified as equity securities on the consolidated statements of financial condition at both December 31, 2022 and 2021.

3 unchanged sentences

The accrued liability for the Split-Dollar plan totaled $ 1.6 million and $ 1.7 million at December 31, 2022 and 2021, respectively.

Valley recorded $ 104 thousand and $ 812 thousand of expenses related to the Split-Dollar plan f or the years ended December 31, 2021 and 2020 , respectively .

Valley recorded $ 121 thousand, $ 104 thousand and $ 812 thousand of expenses related to the Split-Dollar plan for the years ended December 31, 2022 , 2021 and 2020 respectively.

Valley National Bank and its subsidiaries may award cash incentive and merit bonuses to its officers and employees based upon a percentage of the covered employees’ compensation as determined by the achievement of certain performance objectives.

3 unchanged sentences

The Bank recorded $ 14.0 million, $ 10.7 million and $ 10.1 million in expense for contributions to the plan for the years ended December 31, 2022, 2021 and 2020, respectively.

2021 Form 10-K 126

Deferred Compensation Plan

Valley has a non-qualified, unfunded deferred compensation plan maintained for the purpose of providing deferred compensation for selected employees participating in the 401(k) plan whose contributions are limited as a result of the limitations under Section 401(a)(17) of the Internal Revenue Code.

Each participant in the plan is permitted to defer per calendar year, up to five percent of the portion of the participant’s salary and cash bonus above the limit in effect under the Company's 401(k) plan and receive employer matching contributions that become fully vested after two years of participation in the plan.

Each participant in the plan is permitted to defer per calendar year, up to five percent of the portion of the participant’s salary and cash bonus above the limit in effect under the

2022 Form 10-K

Company's 401(k) plan and receive employer matching contributions that become fully vested after two years of participation in the plan.

Plan participants also receive an annual interest crediting on their balances held as of December 31 each year.

4 unchanged sentences

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 (the Committee) as appointed by Valley's Board of Directors.

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

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

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

18 unchanged sentences

The grant date fair value of the performance-based RSUs was $ 14.72 , $ 12.36 and $ 10.99 per share for the years ended December 31, 2022, 2021, and 2020, respectively.

The grant date fair value of time-based RSUs was $ 12.01 , $ 10.29 , $ 10.32 for the years ended December 31, 2021, 2020, and 2019, respectively.

2021 Form 10-K

The grant date fair value of time-based RSUs was $ 13.22 , $ 12.01 and $ 10.29 for the years ended December 31, 2022, 2021, and 2020, respectively.

The following table sets forth the changes in RSUs outstanding for the years ended December 31, 2022, 2021 and 2020:

6 unchanged sentences

Outstanding at end of year 5,196,609 3,889,756 3,228,659

2022 Form 10-K

Restricted Stock.

15 unchanged sentences

and expected exercise term calculated based on Valley’s historical exercise experience.

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 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.

The following table summarizes stock options activity as of December 31, 2022, 2021 and 2020 and changes during the years ended on those dates:

19 unchanged sentences

2,927,031 3.0 8

217,555 5.2 7

2022 Form 10-K

17 unchanged sentences

Employee benefits 39,917 22,587

Investment securities 48,598 —

Net operating loss carryforwards 13,904 15,859

13 unchanged sentences

Valley's federal net operating loss carryforwards totaled approximately $ 47.9 million at December 31, 2022 and expire during the period from 2029 through 2034.

Valley's capital loss carryforwards totaled $ 3.1 million at December 31, 2021 and begin to expire at December 31, 2022.

State net operating loss carryforwards totaled approximately $ 86.2 million at December 31, 2021 and expire during the period from 2029 through 2038.

Based upon taxes paid and projections of future taxable income over the periods in which the net deferred tax assets are deductible, management believes that it is more likely than not that Valley will realize the benefits, net of an immaterial valuation allowance, of these deductible differences and loss carryforwards.

State net operating loss carryforwards totaled approximately $ 80.2 million, net of a valuation allowance of $ 916 thousand at December 31, 2022, and expire during the period from 2029 through 2038.

Valley's capital loss carryforwards totaled $ 2.7 million at December 31, 2022.

These capital losses expire at the end of 2023.

It is unlikely Valley will recognize the benefit of the deferred tax asset and therefore a full valuation allowance was established against the capital loss carryforward of $ 726 thousand during 2022.

Based upon taxes paid and projections of future taxable income over the periods in which the net deferred tax assets are deductible, management believes that it is more likely than not that Valley will realize the benefits of these deductible differences and loss carryforwards.

2022 Form 10-K

10 unchanged sentences

Tax credits from securities and other investments ( 12,872 ) ( 9,942 ) ( 10,071 )

FDIC insurance premium 2,457 3,283 2,507

Addition to reserve for uncertainties — — 31,123

Non-deductible FDIC insurance premiums 4,796 2,457 3,283

Other, net 2,969 935 3,002

Income tax expense $ 211,816 $ 166,899 $ 139,460

We invest in certain tax-advantaged investments that support qualified affordable housing projects and community development.

We invest in certain tax-advantaged investments that support qualified affordable housing projects, community development, and prior to 2019, renewable energy resources.

Our investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods.

5 unchanged sentences

DC Solar and related entities are in Chapter 7 bankruptcy.

A group of investors who purchased mobile solar gener ators from, and leased them back to DC Solar, including Valley received tax credits for making these renewable resource investments.

A group of investors who purchased mobile solar generators from, and leased them back to, DC Solar, including us received tax credits for making these renewable resource investments.

During the fourth quarter 2019, several of the co- conspirators pleaded guilty to fraud in the on-going federal investigation.

Based upon this information, Valley deemed that its tax positions related to the DC Solar funds did not meet the more likely than not recognition threshold in Valley's tax reserve assessment at December 31, 2019.

The principals pleaded guilty to fraud in early 2020.

The principals pled guilty to fraud in early 2020.

As of December 31, 2022, 2021, and 2020, Valley believes that it was fully reserved for the renewable energy tax credits and other tax benefits previously recognized from the investments in the DC Solar funds plus interest.

Valley will continue to evaluate all of its existing tax positions, however, there can be no assurance that Valley will not recognize additional tax provisions related to this uncertain tax liability in the future.

Valley will continue to evaluate all its existing tax positions, however, cannot provide assurance that it will not recognize additional tax provisions related to this uncertain tax liability in the future.

A reconciliation of Valley’s reserve for uncertain tax liability positions for 2022, 2021 and 2020 is presented in the table below:

2 unchanged sentences

Beginning balance $ 30,359 $ 31,918 $ 31,918

Additions based on tax positions related to prior years — — 31,918

Settlements with taxing authorities — ( 1,559 ) —

Ending balance $ 30,359 $ 30,359 $ 31,918

The entire balance of the reserve for uncertain tax liability positions, if recognized, would favorably affect Valley's effective income tax rate.

It is reasonably possible that the reserve for uncertain tax liability positions could increase or decrease in the next twelve months due to completion of tax authorities’ exams or the expiration of statutes of limitations.

The United States Bankruptcy Court approved the sale of the mobile solar generators resulting in a tax credit recapture of $ 1.6 million in 2021.

Management estimates that the reserve for uncertain tax liability positions could decrease by $ 7.0 million within the next twelve months.

Valley’s policy is to report interest and penalties, if any, related to the reserve for uncertain tax liability positions in income tax expense.

Valley accrued approximately $ 8.7 million, $ 7.6 million, and $ 6.1 million of interest expense associated with Valley’s uncertain tax positions at December 31, 2021, 2020, and 2019, respectively.

2021 Form 10-K 130

The entire balance of unrecognized tax benefits, if recognized, would favorably affect Valley's effective income tax rate.

It is reasonably possible that the liability for unrecognized tax benefits could increase or decrease in the next 12 months due to completion of tax authorities’ exams or the expiration of statutes of limitations.

Management estimates that the liability for unrecognized tax benefits could decrease by $ 30.4 million within the next 12 months.

Valley’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Valley had accrued liabilities of approximately $ 10.5 million, $ 8.7 million and $ 7.6 million at December 31, 2022, 2021 and 2020, respectively, for interest expense associated with Valley’s uncertain tax positions at the respective period ends.

Valley monitors its tax positions for the underlying facts, circumstances, and information available including the federal investigation of DC Solar and changes in tax laws, case law, and regulations that may necessitate subsequent de-recognition of previous tax benefits.

2022 Form 10-K

Valley files income tax returns in the U.S.

3 unchanged sentences

Valley is under examination by the IRS and also under routine examination by various state jurisdictions, and we expect the examinations to be completed within the next 12 months.

Valley has considered, for all open audits, any potential adjustments in establishing our reserve for uncertain tax liability positions as of December 31, 2021.

Valley has considered, for all open audits, any potential adjustments in establishing our reserve for unrecognized tax benefits as of December 31, 2022.

TAX CREDIT INVESTMENTS (Note 14)

18 unchanged sentences

Total unfunded tax credit commitments $ 1,338 $ 1,360

2021 Form 10-K

The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the years ended December 31, 2022, 2021 and 2020:

13 unchanged sentences

$ 12,407 $ 10,910 $ 13,335

2022 Form 10-K

Impairment Analysis

14 unchanged sentences

If management determines that a decline in value is other than temporary per its quarterly and annual reviews, including current probable cash flow projections, the applicable tax credit investment is written down to its estimated fair value through an impairment charge to earnings, which establishes the new cost basis of the investment.

During the first quarter 2019, Valley determined that future cash flows related to the remaining investments in three federal renewable energy tax credit funds sponsored by DC Solar (previously reported in other tax credit investments, net) were not probable based upon new information available, including the sponsor’s bankruptcy proceedings which were reclassified to Chapter 7 from Chapter 11 in late March 2019.

As a result, Valley recognized an impairment charge for the entire aggregate unamortized investment of $ 2.4 million in the first quarter 2019, which is included within amortization of tax credit investments for the year ended December 31, 2019.

2021 Form 10-K 132

COMMITMENTS AND CONTINGENCIES (Note 15)

11 unchanged sentences

Outstanding residential mortgage loan commitments 317,108 355,523

Commitments to sell loans 210,468 155,627

Commitments under unused lines of credit—credit card 116,208 96,734

Commitments to sell loans 22,008 210,468

Commercial letters of credit 5,863 7,603

2 unchanged sentences

Commitments generally have specified expiration dates, which may be extended upon request, or other termination clauses and generally require payment of a fee.

These commitments do not necessarily represent future cash requirements, as it is anticipated that many of these commitments will expire without being fully drawn upon.

These commitments do not necessarily represent future cash requirements, as it is anticipated that

2022 Form 10-K

many of these commitments will expire without being fully drawn upon.

The Bank’s lending activity for outstanding loan commitments is primarily to customers within the states of New Jersey, New York, and Florida.

12 unchanged sentences

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

2021 Form 10-K

payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty.

At December 31, 2021 , Valley had 6 interest rate swap agreements, with a total notional amount of $ 700 million, to hedge the changes in cash flows associated with certain short-term FHLB advances and brokered deposits.

Valley is required to pay fixed-rates of interest ranging from 0.05 percent to 0.63 percent and receives variable rates of interest that reset quarterly based on three-month LIBOR.

Expiration dates for the swaps range from March 2022 to August 2 022.

To accomplish these objectives, 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.

At December 31, 2022, Valley had 6 interest rate swap agreements, with a total notional amount of $ 600 million, to hedge the changes in cash flows associated with certain variable rate loans.

Valley is required to pay variable rate amounts based on one-month CME Term SOFR and receives fixed rate payments based on the tenor of each swap.

Expiration dates for the swaps range from November 2024 to November 2026.

Fair Value Hedges of Fixed Rate Assets and Liabilities.

Valley is exposed to changes in the fair value of fixed-rate subordinated debt due to changes in interest rates.

From time to time, Valley uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate.

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 va lue hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings.

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

In June 2021, Valley entered into a $ 300 million forward-starting interest rate swap agreement with a notional amount of $ 300 million, maturing in June 2026, to hedge the change in the fair value of the 3.00 percent subordinated debt issued on May 28, 2021.

Under the swap agreement, beginning in January 2022, Valley will receive fixed rate payments and pay variable rate amounts based on SOFR plus 2.187 percent.

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

In June 2021, Valley entered into a $ 300 million forward-starting interest rate swap agreement with a notional amount of

$ 300 million, maturing in June 2026, to hedge the change in the fair value of the 3 percent subordinated debt issued on May

Under the swap agreement, beginning in January 2022, Valley will receive fixed rate payments and pay variable rate

amounts based on SOFR plus 2.187 percent.

Non-designated Hedges.

Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide service to customers but do not meet the requirements for hedge accounting under U.S.

Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide a service to customers but do not meet the requirements for hedge accounting under U.S.

Derivatives not designated as hedges are not entered into for speculative purposes.

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At December 31, 2022, Valley had 35 credit swaps with an aggregate notional amount of $ 374.3 million related to risk participation agreements.

At December 31, 2021, Valley h ad two "steepener" swaps with a total current notional amount of $ 10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits.

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 three-month LIBOR rate and therefore provide an effective economic hedge.

2022 Form 10-K

At December 31, 2022, Valley h ad 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.

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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 rates on Valley’s commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.

2021 Form 10-K 134

Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows:

December 31, 2021 December 31, 2020

Valley enters foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments.

Upon the origination of 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.

Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows at December 31, 2022 and 2021:

Fair Value Fair Value

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$ 449,280 $ 564,678 $ 14,753,330 $ 180,701 $ 47,044 $ 10,179,294

Foreign currency derivatives 13,709 12,604 1,273,735 311 233 122,166

Mortgage banking derivatives 167 157 31,299 488 1,454 312,428

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* Other derivatives include risk participation agreements.

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

The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account as settlements of 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 December 31, 2022 and 2021 in the table above.

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Amount of loss reclassified from accumulated other comprehensive loss to interest expense $ ( 274 ) $ ( 3,436 ) $ ( 2,912 )

Amount of gain (loss) recognized in other comprehensive income 138 ( 3,169 ) ( 1,380 )

The net gains or losses related to cash flow hedge ineffectiveness were immaterial during the years ended December 31, 2021, 2020 and 2019.

The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 1.3 million and $ 3.9 million at December 31, 2021 and 2020, respectively.

Amount of gain (loss) recognized in other comprehensive income (loss) 4,683 138 ( 3,169 )

The accumulated net after-tax gains and losses related to effective cash flow hedges included in accumulated other comprehensive loss were $ 2.2 million and $ 1.3 million at December 31, 2022 and 2021, respectively.

2022 Form 10-K

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 $ 1.1 million will be reclassified as an increase to interest expense in 2022.

Valley estimates that $ 3.5 million will be reclassified as a decrease to interest expense in 2023.

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

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Interest expense 741 3,397 —

2021 Form 10-K

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 items 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 items at December 31, 2021:

Line Item in the Statement of Financial Position in Which the Hedged Item is Included Carrying Amount of the Hedged Liability Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability

Line Item in the Statement of Financial Position in Which the Hedged Item is Included Net Carrying Amount of the Hedged Liability * Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability

(in thousands)

December 31, 2022

Long-term borrowings $ 267,076 $ ( 30,132 )

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

December 31, 2021

Long-term borrowings 293,003 ( 3,397 )

* Net carrying amount includes unamortized debt issuance costs of $ 2.8 million and $ 3.6 million at December 31, 2022 and 2021, respectively.

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

2022 2021 2020

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Other non-interest expense $ ( 1,392 ) $ 54 $ 1,067

Fee income related to derivative interest rate swaps executed with commercial loan customers totaled $ 26.9 million , $ 59.0 million and $ 33.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Capital markets income reported in 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 $ 43.1 million , $ 26.9 million and $ 59.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Collateral Requirements and Credit Risk Related Contingency Features.

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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.

If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparties could terminate the derivative positions and

2022 Form 10-K

Valley would be required to settle its obligations under the agreements.

As of December 31, 2022, Valley was in compliance with all of the provisions of its derivative counterparty agreements.

As of December 31, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $ 44.2 million .

The ag gregate fair value of all derivative financial instruments with credit risk-related contingent features in a net liability position at December 31, 2022 was not material.

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

BALANCE SHEET OFFSETTING (Note 16)

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

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).

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

2021 Form 10-K 136

The table below presents information about Valley’s financial instruments that are eligible for offset in the consolidated statements of financial condition as of December 31, 2022 and 2021.

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Instruments Cash

Collateral (1)

Collateral * Net

(in thousands)

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Interest rate swaps $ 50,922 $ — $ 50,922 $ — $ ( 44,231 ) $ 6,691

Repurchase agreements 300,000 — 300,000 ( 300,000 ) (2)

Total liabilities $ 50,922 $ — $ 50,922 $ — $ ( 44,231 ) $ 6,691

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

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

* Cash collateral received from or pledged to our counterparties in relation to market value exposures of OTC derivative contacts in a asset/liability position.

REGULATORY AND CAPITAL REQUIREMENTS (Note 17)

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Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct significant impact on Valley’s consolidated financial statements.

Under capital adequacy guidelines Valley and Valley National Bank must meet specific capital guidelines that involve quantitative measures of Valley’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

2022 Form 10-K

accounting practices.

Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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Valley is required to maintain a common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, Tier 1 capital to risk-weighted assets of 6.0 percent, ratio of total capital to risk-weighted assets of 8.0 percent, and minimum leverage ratio of 4.0 percent, plus a 2.5 percent capital conservation buffer added to the minimum requirements for capital adequacy purposes.

As of December 31, 2021 and 2020, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

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

Additionally, 25 percent, or $ 19.1 million on an after tax basis of the reserve build (i.e., provision for credit losses less net charge-offs) since CECL adoption through December 31, 2021 is being phased in over the same time frame.

As of December 31, 2022 and 2021, Valley and Valley Nationa l Bank exceeded all capital adequacy requirements (see table below).

For regulatory capital purposes, in accordance with the Federal Reserve Board’s final interim rule as of April 3, 2020, w e deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) for a two-year period ending January 1, 2022.

On January 1, 2022, the deferral amount totaling $ 47.3 million after-tax started to be phased-in by 25 percent and will increase by 25 percent per year until fully phased-in on January 1, 2025.

As of December 31, 2022, approximately $ 11.8 million of the $ 47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk based capital ratios by approximately 3 basis points.

2022 Form 10-K

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Repurchased shares are held in treasury and are expected to be used for general corporate purposes.

During the fourth quarter 2021, Valley repurchased approximately 1.6 million of its common shares on the open market at an average price of $ 14.31 per share totaling $ 23.1 million.

Valley made no share repurchases under the plan during the years ended December 31, 2020 and 2019.

During 2022 and 2021, Valley repurchased approximately 1.0 million and 1.6 million of its common shares on the open market at an average price of $ 13.32 and $ 14.31 per share, respectively, under its 2007 stock repurchase plan.

Valley made no share repurchases under the plan during the year ended December 31, 2020.

In April 2022, Valley terminated its 2007 stock repurchase plan (and its remaining shares available for repurchase) and publicly announced a new stock purchase program for up to 25 million shares of Valley common stock.

The authorization to repurchase shares will expire on April 25, 2024.

Other Stock Repurchases.

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During the years ended December 31, 2022, 2021 and 2020, Valley purchased approximately 761 thousand, 510 thousand and 510 thousand shares, respectively, of its outstanding common stock at an average price of $ 13.93 , $ 10.85 and $ 10.61 , respectively, for such purpose.

2022 Form 10-K

Preferred Stock

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On June 19, 2015, Valley issued 4.6 million shares of its Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series A, no par value per share, with a liquidation preference of $ 25 per share.

Dividends on the preferred stock accrue and are payable quarterly in arrears, at a fixed rate per annum equal to 6.25 percent from the original

2021 Form 10-K 138

issue date to, but excluding, June 30, 2025, and thereafter at a floating rate per annum equal to three-month LIBOR plus a spread of 3.85 percent.

Dividends on the preferred stock accrue and are payable quarterly in arrears, at a fixed rate per annum equal to 6.25 percent from the original issue date to, but excluding, June 30, 2025, and thereafter at a floating rate per annum equal to three-month LIBOR plus a spread of 3.85 percent.

The net proceeds from the preferred stock offering totaled $ 111.6 million.

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unrealized gains and losses on derivatives used in cash flow hedging relationships;

and the pension benefit adjustment for the unfunded portion of various employee, officer and director pension plans.

and the defined benefit pension and postretirement benefit plan adjustments for the unfunded portion of various employee, officer and director benefit plans.

2022 2021 2020

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4,957 ( 1,392 ) 3,565 3,574 ( 1,000 ) 2,574 ( 257 ) 80 ( 177 )

Defined benefit pension plan

Net gains (losses) arising during the period 14,381 ( 4,075 ) 10,306 ( 5,719 ) 2,301 ( 3,418 ) ( 2,385 ) ( 176 ) ( 2,561 )

Defined benefit pension and postretirement benefit plans

Net (losses) gains arising during the period ( 18,531 ) 5,356 ( 13,175 ) 14,381 ( 4,075 ) 10,306 ( 5,719 ) 2,301 ( 3,418 )

Amortization of prior service (cost) credit (3)

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Total other comprehensive (loss) income $ ( 202,036 ) $ 55,966 $ ( 146,070 ) $ ( 13,891 ) $ 3,677 $ ( 10,214 ) $ 32,844 $ ( 8,348 ) $ 24,496

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

2022 Form 10-K

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

(2) Included in interest expense.

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See Note 12 for details.

2021 Form 10-K

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the years ended December 31, 2022, 2021 and 2020:

4 unchanged sentences

and Losses on

Derivatives Defined

Derivatives Defined benefit pension and postretirement benefit plans

(in thousands)

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Other comprehensive income (loss) before reclassifications 27,845 ( 2,251 ) ( 3,418 ) 22,176

Amounts reclassified from other comprehensive income (loss) 119 1,291 95 1,505

Amounts reclassified from other comprehensive (loss) income ( 377 ) 2,074 623 2,320

Other comprehensive income (loss), net 27,468 ( 177 ) ( 2,795 ) 24,496

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

Other comprehensive income (loss) before reclassifications

27,845 ( 2,251 ) ( 3,418 ) 22,176

Other comprehensive (loss) income before reclassifications ( 23,613 ) 127 10,306 ( 13,180 )

Amounts reclassified from other comprehensive (loss) income ( 491 ) 2,447 1,010 2,966

Other comprehensive income (loss), net 27,468 ( 177 ) ( 2,795 ) 24,496

Other comprehensive (loss) income, net ( 24,104 ) 2,574 11,316 ( 10,214 )

Balance-December 31, 2021 9,186 ( 1,332 ) ( 25,786 ) ( 17,932 )

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Balance-December 31, 2022 $ ( 127,818 ) $ 2,233 $ ( 38,417 ) $ ( 164,002 )

2022 Form 10-K

PARENT COMPANY INFORMATION (Note 20)

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Total Liabilities and Shareholders’ Equity $ 7,354,618 $ 5,872,623

2021 Form 10-K 140

Condensed Statements of Income

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Income from subsidiary — — 4,436

Net (losses) gains on equity securities ( 1,136 ) 1,491 —

Other interest and income 82 20 21

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370,842 122,974 166,973

Income tax (benefit) expense ( 9,501 ) ( 3,946 ) 24,524

Income tax benefit ( 13,098 ) ( 9,501 ) ( 3,946 )

Income before equity in undistributed earnings of subsidiary 383,940 132,475 170,919

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Purchases of equity securities ( 10,424 ) ( 1,644 ) ( 2,500 )

Cash and cash equivalents (paid) acquired in acquisitions, net ( 3,983 ) — 11,947

Cash and cash equivalents paid in acquisitions, net ( 113,244 ) ( 3,983 ) —

Repayment of subordinated debt by subsidiary — — 100,000

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Other, net — — ( 1,200 )

Net cash (used in) provided by investing activities ( 232,627 ) ( 113,700 ) 11,947

Net cash used in investing activities ( 248,723 ) ( 232,627 ) ( 113,700 )

Cash flows from financing activities:

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Common stock issued, net 120 11,245 2,202

Net cash provided by (used in) financing activities 30,905 ( 80,679 ) ( 158,073 )

Net cash (used in) provided by financing activities ( 95,640 ) 30,905 ( 80,679 )

Net change in cash and cash equivalents 67,887 ( 52,153 ) 10,950

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Cash and cash equivalents at end of year $ 145,897 $ 78,010 $ 130,163

BUSINESS SEGMENTS (Note 21)

Valley has four business segments that it monitors and reports on to manage Valley’s business operations.

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

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

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

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

Interest expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/or liabilities outstanding for the period.

The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution.

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

OPERATING SEGMENTS (Note 21)

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.

In connection with the re-evaluation, Valley determined it operated reportable segments consisting of Consumer Banking, Commercial Banking and Treasury and Corporate Other.

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

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

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

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

There were no additional changes to Valley's reportable segments at December 31, 2022.

2022 Form 10-K

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

The consumer lending segment 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.

Consumer Banking 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.

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

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

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

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

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

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

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

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

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

The following tables represent the financial data for Valley’s four business segments for the years ended December 31, 2021, 2020 and 2019:

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

Commercial Banking 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 banking 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 and Commercial Banking 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.

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.

The foll owing tables represent the financial data for Valley’s operating segments for the years ended December 31, 2022, 2021and 2020:

Year Ended December 31, 2022

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

Banking Commercial

Banking Treasury and Corporate Other Total

($ in thousands)

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Interest expense 48,843 202,948 69,252 321,043

Net interest income (loss) 219,598 951,409 65,808 ( 26,914 ) 1,209,901

(Credit) provision for credit losses ( 6,807 ) 39,703 ( 263 ) — 32,633

Net interest income (loss) after provision for credit losses 226,405 911,706 66,071 ( 26,914 ) 1,177,268

Net interest income 223,452 1,353,234 78,954 1,655,640

Provision for credit losses 20,880 35,456 481 56,817

Net interest income after provision for credit losses 202,572 1,317,778 78,473 1,598,823

Non-interest income 56,506 79,695 70,592 206,793

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Internal transfer expense (income) 121,220 491,507 ( 612,727 ) —

Income (loss) before income taxes $ 138,192 $ 552,394 $ 12,441 $ ( 62,288 ) $ 640,739

Return on average interest earning assets (pre-tax) (unaudited) 1.90 % 2.16 % 0.23 % N/A 1.68 %

Income before income taxes $ 64,753 $ 787,047 $ ( 71,133 ) $ 780,667

Return on average interest earning assets (pre-tax) (unaudited) 0.80 % 2.33 % ( 1.16 ) % 1.62 %

2022 Form 10-K

Year Ended December 31, 2021

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

Banking Commercial

Banking Treasury and Corporate Other Total

($ in thousands)

2 unchanged sentences

Interest expense 19,117 67,265 37,943 124,325

Net interest income (loss) 209,484 863,721 68,069 ( 22,370 ) 1,118,904

Provision for credit losses 11,502 113,585 635 — 125,722

Net interest income (loss) after provision for credit losses 197,982 750,136 67,434 ( 22,370 ) 993,182

Net interest income 219,598 951,409 38,894 1,209,901

(Credit) provision for credit losses ( 6,807 ) 39,703 ( 263 ) 32,633

Net interest income after provision for credit losses 226,405 911,706 39,157 1,177,268

Non-interest income 72,063 35,600 47,350 155,013

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Income (loss) before income taxes $ 138,192 $ 552,394 $ ( 49,847 ) $ 640,739

Return on average interest earning assets (pre-tax) (unaudited) 1.73 % 1.82 % 0.37 % N/A 1.43 %

Return on average interest earning assets (pre-tax) (unaudited) 1.90 % 2.16 % ( 0.92 ) % 1.68 %

Year Ended December 31, 2020

Lending Commercial

Lending Investment

Management Corporate

Adjustments Total

Banking Commercial

Banking Treasury and Corporate Other Total

($ in thousands)

2 unchanged sentences

Interest expense 47,712 164,075 53,028 264,815

Net interest income (loss) 180,975 668,658 68,908 ( 20,493 ) 898,048

Net interest income 209,484 863,721 45,699 1,118,904

Provision for credit losses 11,502 113,585 635 125,722

Net interest income (loss) after provision for credit losses 174,287 651,128 68,908 ( 20,493 ) 873,830

Net interest income after provision for credit losses 197,982 750,136 45,064 993,182

Non-interest income 81,499 64,783 36,750 183,032

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Income (loss) before income taxes $ 124,064 $ 448,621 $ ( 42,619 ) $ 530,066

Return on average interest earning assets (pre-tax) (unaudited) 1.12 % 1.91 % 0.62 % N/A 1.49 %

Return on average interest earning assets (pre-tax) (unaudited) 1.73 % 1.82 % ( 0.82 ) % 1.43 %

2022 Form 10-K

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC Topic 326, Financial Instruments – Credit Losses.

Basis for Opinion

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In estimating the collective ALL, the Company uses a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by using probability of default and loss given default metrics.

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

2021 Form 10-K

severity of loss, based on the aggregate net lifetime losses incurred.

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

The expected credit losses are the product of multiplying the model’s expected life of loan loss percentages by the exposure at default at period end.

The model’s expected losses are adjusted for qualitative factors which includes a two-year reasonable and supportable forecast period followed by a one-year period over which estimated losses revert to historical loss experience on a straight-line basis for the remaining life of the loan.

The forecasts consist of a multi-scenario economic forecast model which is assigned relative probability weightings.

The forecasts consist of a multi-scenario economic forecast model which is

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assigned relative probability weightings.

These adjustments are based on qualitative factors not reflected in the quantitative model but are likely to impact the measurement of estimated credit losses.

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• testing individual credit risk ratings for a selection of commercial loans by evaluating the financial performance of the borrower, sources of repayment and any relevant guarantees or underlying collateral

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• evaluating the methodology used to develop the qualitative factor framework and the effect of those factors on the collective ALL by comparing the qualitative factors to the specific portfolio risk characteristics, trends and relevant industry practices and identified limitations of the underlying quantitative models.

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We also assessed the sufficiency of the audit evidence obtained related to the collective ALL by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices and potential bias in the accounting estimate.

Goodwill impairment assessment of the Company’s reporting units

As discussed in Notes 1 and 8 to the consolidated financial statements, the carrying value of the Company’s goodwill balance is $1.5 billion as of December 31, 2021.

The Company’s goodwill is not amortized but is subject to annual tests for impairment in the second quarter, or more often, if events or circumstances indicate it may be impaired.

The Company elected to perform a quantitative impairment test for its annual assessment in the second quarter which compared the fair value of each of the reporting units with their carrying amounts, including goodwill.

If the fair value of each of the reporting units exceeded its carrying amounts, the goodwill of the reporting unit was not impaired.

An impairment loss is recognized if the carrying value of the net assets assigned to the reporting units exceeds the fair value, with the impairment charge not to exceed the amount of goodwill recorded.

Fair value is determined using market multiples and certain discounted cash flow analyses.

Factors that may materially affect the fair value estimate include, among others, changes in discount rates, terminal values and specific industry or market sector conditions.

We identified the measurement of the fair value of each of the reporting units in the Company’s annual goodwill impairment assessment as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgement was involved in performing procedures over the individual reporting unit estimated cash flows and related key assumptions, which included the discount rate and the terminal value growth rate used in the discounted cash flow analyses.

The key assumptions were challenging to test as they represented subjective determinations of future market and economic conditions that were also more sensitive to variation.

Minor changes in these assumptions could have had a significant effect on the Company’s measurement of the fair value of the reporting units and the impairment assessment of the carrying value of the goodwill.

Fair value measurement of the acquired loans in the Bank Leumi USA business combination

As discussed in Note 2 to the consolidated financial statements, the Company acquired 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) on April 1, 2022.

The transaction was accounted for as a business combination using the acquisition method of accounting.

Accordingly, assets acquired, liabilities assumed, and consideration paid for Bank Leumi USA were recorded at their fair values at the acquisition date, including the fair value of acquired loans of $5.9 billion.

The fair value of acquired loans was based on a discounted cash flow methodology and the portfolio was segregated into categories for valuation purposes primarily based on loan type and loan risk rating.

The expected cash flows from the acquired loan categories were discounted using a forecast of principal and interest payments based on certain loan contractual characteristics, loan risk ratings and key valuation assumptions such as estimated market rates, prepayment speeds, default rates, and loss severity rates.

We identified the assessment of the fair value measurement of the acquired loans in the Bank Leumi USA business combination as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and auditor judgment was involved in the assessment due to significant measurement uncertainty.

Specifically, the assessment of the fair value measurement encompassed the evaluation of the fair value methodology and the development of key valuation assumptions.

The assessment also included an evaluation of loan risk ratings.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s determination of the estimated fair value of the reporting units in the annual goodwill impairment assessment, including controls over the selection and development of key assumptions used in the discounted cash flow analyses.

We involved valuation professionals with specialized skill and knowledge, who assisted in:

• evaluating the Company’s fair value methodology for the reporting units for compliance with U.S.

generally accepted accounting principles

• evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available data for comparable entities

• evaluating the Company’s terminal value growth rate by comparing it against an average growth rate range that was independently developed using publicly available economic and industry data for comparable entities

• developing an independent estimate of the reporting units’ fair value using the reporting units’ cash flow forecast and an independently developed discount rate and compared our estimate of fair value to the Company’s fair value estimate

• reconciling the Company’s estimated fair value to its market capitalization as of the measurement date and evaluating the implied control premium for alignment with industry standards.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s fair value measurement process for acquired loans, including controls related to (1) the development of the fair value methodology for acquired loans, (2) the determination of key valuation assumptions, and (3) the determination of loan risk ratings.

We involved credit risk professionals with specialized skills and knowledge who assisted in testing individual loan risk ratings for a selection of commercial loan relationships by evaluating the financial performance of the borrower, sources of repayment and any relevant guarantees or underlying collateral.

We involved valuation professionals with specialized skills and knowledge who assisted in:

• evaluating the fair value methodology for compliance with U.S.

generally accepted accounting principles, and

• developing an independent estimate of the fair value of acquired loans using key valuation assumptions, by loan category, used by other market participants and comparing the results to the Company’s fair value estimate.

We have served as the Company’s auditor since 2008.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data