What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-07 · 356 added, 334 removed, 765 unchanged (47% of the section changed)

17 unchanged sentences

• the impact of Federal Reserve actions affecting the level of market interest rates and increases in business failures, specifically among our clients, as well as on our business, our employees and our ability to provide services to our customers;

• the impact of recent and possible future bank failures on the business environment in which we operate and resulting market volatility and reduced confidence in depository institutions, including impact on stock price, customer deposit withdrawals from Valley National Bank, or business disruptions or liquidity issues that have or may affect our customers;

• the impact of unfavorable macroeconomic conditions or downturns, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by and factors outside of our control, such as geopolitical instabilities or events;

• the impact of a potential U.S.

Government shutdown on economic activity in the markets in which we operate and, in general, on levels of end market demand in the economy;

• the impact of possible future bank failures on the business environment in which we operate and resulting market volatility and reduced confidence in depository institutions, including impact on stock price, customer deposit withdrawals from Valley National Bank, or business disruptions or liquidity issues that have or may affect our customers;

natural and other disasters (including severe weather events) and health emergencies, acts of terrorism or other external events;

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• greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;

• the risks related to the replacement of the London Interbank Offered Rate with Secured Overnight Financing Rate and other reference rates, including increased expenses, risk of litigation and the effectiveness of hedging strategies;

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

fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;

• damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;

• changes to laws and regulations, including changes affecting oversight of the financial services industry;

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

• a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California, and Illinois, as well as an unexpected decline in commercial real estate values within our market areas;

• a prolonged downturn in the economy, as well as an unexpected decline in commercial real estate values collateralizing a significant portion of our loan portfolio;

• unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors.

5 unchanged sentences

In preparing the consolidated financial statements, management has made estimates, judgments and assumptions in accordance with these policies that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated.

At June 30, 2023, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

At September 30, 2023, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

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

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Company Overview.

A t June 30, 2023, Valley had consolidated total assets of approximately $61.7 billion, total net loans of $49.4 billion, total deposits of $49.6 billion and total shareholders’ equity of $6.6 billion.

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

A t September 30, 2023, Valley had consolidated total assets of approximately $61.2 billion, total net loans of $49.7 billion, total deposits of $49.9 billion and total shareholders’ equity of $6.6 billion.

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

Of our current 230 branch network, 55 percent, 18 percent, and 18 percent of the branches are in New Jersey, New York and Florida, respectively, with the remaining 9 percent of the branches in Alabama, California, and Illinois combined.

We have grown significantly both in asset size and locations over the past several years both through organic efforts and bank acquisitions, including our acquisition of Bank Leumi USA on April 1, 2022.

We have grown significantly both in asset size and locations over the past several years through organic efforts and bank acquisitions, including our acquisition of Bank Leumi USA on April 1, 2022.

As originally planned, Valley completed its conversion of the legacy Valley and Bank Leumi USA operating systems to a single core operating system in October 2023.

Industry Developments.

The combination of rapidly rising interest rates, increased competition and economic uncertainty continues to weigh on the banking industry in the wake of the recent bank failures.

The combination of rapidly rising interest rates, increased competition and economic uncertainty continues to weigh on the banking industry.

We have consistently operated the Bank with a focus on diversification to maintain stability through various economic cycles.

During the second quarter 2023, we continued to position our balance sheet to mitigate potential risks from the market uncertainty affecting the banking industry in general and Valley, its clients and communities in particular.

• Total assets decreased to $61.7 billion at June 30, 2023, a decrease of 4.1 percent from March 31, 2023.

Liquidity remained strong with total liquid assets of approximate ly $13.1 billion at June 30, 2023, representing 6.0 percent of interest earning assets.

During the third quarter 2023, we continued to position our balance sheet to mitigate potential risks from the market uncertainty affecting the banking industry in general and Valley, its clients and communities in particular.

• Total assets decreased $520.3 million, or 0.8 percent, to $61.2 billion at September 30, 2023 from June 30, 2023 largely driven by lower excess cash liquidity maintained overnight on our balance sheet.

Our liquid assets totaled $2.6 billion at September 30, 2023, representing 4.6 percent of interest earning assets.

We continue to maintain significant access to readily available, diverse funding sources to fulfill both short-term and long-term funding needs.

See "Bank Liquidity" section for additional information.

• Total deposits increased $2.0 billion to $49.6 billion at June 30, 2023 as compared to $47.6 billion at March 31, 2023 largely due to higher CD balances.

See the "Bank Liquidity" section for additional information.

• Total deposits increased $265.5 million to $49.9 billion at September 30, 2023 as compared to $49.6 billion at June 30, 2023, largely due to increases in direct customer interest bearing deposits, partially offset by a net decrease of $338.5 million in indirect customer deposits driven by maturity of certain brokered CDs.

See the "Deposits and Other Borrowings" section for more details.

• Capital remained strong with ratios of both Valley and the Bank exceeding all capital adequacy requirements at June 30, 2023.

Total shareholders' equity increased $63.6 million to $6.6 billion at June 30, 2023 as compared to March 31, 2023.

• Capital remained strong with ratios of both Valley and the Bank exceeding all capital adequacy requirements at September 30, 2023.

Total shareholders' equity increased $52.1 million to $6.6 billion at September 30, 2023 as compared to June 30, 2023.

See the "Capital Adequacy" section for additional details.

• Total loans increased $1.2 billion, or 10.0 percent on an annualized basis to $49.9 billion at June 30, 2023 from March 31, 2023 mainly due to continued organic loan growth in commercial loan categories and relatively low levels of prepayment activity during the second quarter 2023.

See "Loan Portfolio" section for more information.

• Asset quality continued to reflect our disciplined underwriting and lending practices during the second quarter 2023.

Non-performing assets (NPAs) as a percentage of total loans and NPAs totaled 0.51 percent and 0.50 percent at June 30, 2023 and March 31, 2023, respectively.

• Total loans increased $220.3 million , or 1.8 percent on an annualized basis to $50.1 billion at September 30, 2023 from June 30, 2023 mainly due to select organic commercial real estate loan growth during the third quarter 2023.

See the "Loan Portfolio" section for more information.

• Asset quality continued to reflect our disciplined underwriting and lending practices during the third quarter 2023.

Non-performing assets (NPAs) as a percentage of total loans and NPAs totaled 0.52 percent and 0.51 percent at September 30, 2023 and June 30, 2023, respectively.

See the "Non-Performing Assets" section for additional information.

• Total investment securities were $5.1 billion, or 8.2 percent of total assets, at June 30, 2023 and remained relatively unchanged as compared to March 31, 2023.

• Total investment securities were $5.1 billion, or 8.3 percent of total assets, at September 30, 2023 and remained relatively unchanged as compared to June 30, 2023.

See the "Investment Securities Portfolio" section for more details.

Quarterly Results.

Net income for the second quarter 2023 was $139.1 million, or $0.27 per diluted common share as compared to $96.4 million, or $0.18 per diluted common share, for the second quarter 2022.

The $42.6 million increase in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:

• a $37.9 million decrease in our provision for credit losses mainly due to a provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA in the second quarter 2022;

• a $1.6 million increase in net interest income mainly due to increased yields on both new loan originations and adjustable-rate loans and higher average loan balances, largely offset by the increased cost of deposits;

• a $1.5 million increase in non-interest income primarily due to an increase in capital markets fees and wealth management and trust fees, partially offset by lower n et gains on sales of loans ;

• a $16.8 million decrease in non-interest expense was due, in part, to a $40.2 million decrease in merger expenses, partially offset by a $11.2 million restructuring charge and various other increases;

These items were partially offset by:

• a $15.2 million increase in income tax expense mostly due to higher pre-tax income in the second quarter 2023 .

See the "Net Interest Income", "Non-Interest Income", "Non-Interest Expense" and "Income Taxes" sections below for more details on the impact of the items above on our second quarter 2023 results.

Net income for the third quarter 2023 was $141.3 million, or $0.27 per diluted common share, as compared to $178.1 million, or $0.34 per diluted common share, for the third quarter 2022.

The $36.8 million decrease in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:

• a $41.6 million decrease in net interest income as higher yields on both new loan originations and adjustable-rate loans were more than offset by an increase in the cost of deposits;

• a $7.1 million increase in our provision for credit losses;

• a $5.5 million increase in non-interest exp ense was due, in part, to a higher salary and employee benefits expense, an FDIC insurance assessment and charges for collateral liabilities related to derivative transactions;

Which were partially offset by:

• a $2.5 million increase in non-interest income that was primarily driven by net gains on sales of assets and higher wealth management and trust fees, partially offset by lower capital markets income;

• a $14.9 million decrease in income tax expense mostly due to lower pre-tax income in the third quarter 2023 .

See the "Net Interest Income," "Non-Interest Income," "Non-Interest Expense" and "Income Taxes" sections below for more details on the impact of the items above on our third quarter 2023 results.

Economic Conditions.

During t he second quarter 2023, real gross domestic product (GDP) increased at an annual rate of 2.4 percent as compared to an increase of 2.0 percent during the first quarter 2023.

The 2.4 percent increase in real GDP reflected robust consumer spending, private inventory investment, nonresidential fixed investment, and government spending, as well as improved supply chain.

Inflation moderately cooled, but remained well above the Federal Reserve’s target of 2 percent in the second quarter 2023.

During the first quarter 2023, the Federal Reserve raised the target range for the federal funds rate by an additional 25 basis points in May 2023 and paused rate increases in June to observe the full impact of its changes over the past year.

In July 2023, the Federal Reserve raised the target again by another 25 basis points to a range of 5.25 to 5.5 percent.

During the third quarter 2023, real gross domestic product (GDP) increased at an annual rate of 5.4 percent as compared to an increase of 2.1 percent during the second quarter 2023.

The 5.4 percent increase in real GDP reflected accelerated economic growth fueled by continued robust consumer spending, private inventory investment, nonresidential fixed investment and government spending.

Inflation moderately cooled, but remained at 3.7 percent in the third quarter 2023 .

During each of May and July 2023, the Federal Reserve raised the target range for the federal funds rate by an additional 25 basis points, which resulted in a current target range of 5.25 to 5.50 percent.

The Federal Reserve paused rate increases in August, September and November 2023 largely to observe the full impact of its significant rate hikes since the beginning of 2022.

The 10-year U.S.

Treasury note yield ended the second quarter 2023 at 3.81 percent, or 33 basis points higher as compared to the first quarter 2023, and the 2-year U.S.

Treasury note yield ended the second quarter 2023 at 4.87 percent, or 81 basis points higher as compared to the first quarter 2023.

commercial banks, commercial and industrial loans decreased approximately by 1.3 percent at June 30, 2023 as compared to March 31, 2023, while consumer loans increased by 1.3 percent.

Alternatively, demand for commercial real estate loans remained flat compared to the prior quarter.

Overall the commercial real estate market was constricted by the financial environment this quarter as rising interest rates eroded investment profitability.

Despite higher mortgage rates, demand for residential real estate remained steady, although sales were constrained by low inventories.

While many economic measures continue to defy recessionary concerns, further increases in market interest rates, the inverted yield curve, high inflation, and the potential for additional fallout from the recent banking crisis, including bank regulatory actions, among other factors, have added a higher level of uncertainty to the future path of the U.S.

Treasury note yield ended the third quarter 2023 at 4.59 percent, or 78 basis points higher as compared to the second quarter 2023, and the 2-year U.S.

Treasury note yield ended the third quarter 2023 at 5.03 percent, or 16 basis points higher as compared to the second quarter 2023.

commercial banks saw commercial and industrial loans remain relatively unchanged with minimal growth from June 30, 2023, to September 30, 2023.

Overall, commercial real estate lending continued to be stressed, particularly affecting regional and midsize banks that may be overexposed to office space l ending.

In light of higher uncertainty, inflated property prices, and concerns about debt repayments, most banks have become more selective in their new commercial real estate originations.

Additionally, the combination of high interest rates and tight inventories have kept residential real estate sales and both refinanced and purchased residential mortgage loan activity low during the third quarter 2023.

Despite strong economic growth during the third quarter 2023 the following factors have added a higher level of uncertainty to the future path of the U.S.

economy and created a challenging operating environment for the banking sector including elevated inflation, the potential for additional fallout from the recent banking crisis, including bank regulatory actions, the inverted yield curve and potential further increases in market interest rates.

In addition, geopolitical tensions in the Middle East which could threaten a spike in oil prices and a possibility of the government shutdown, among other factors, have added a higher level of uncertainty to the future path of the U.S.

economy and created a challenging banking environment.

Should economic conditions deteriorate, causing business activity, spending and investment to decline, it may adversely impact our financial results, as highlighted in this MD&A.

Should these economic conditions further deteriorate, causing business activity, spending and investment to decline, it may adversely impact our financial results, as highlighted in this MD&A.

Deposits and Other Borrowings

Overall, average deposits increased by $311.6 million to $47.5 billion for the second quarter 2023 as compared to the first quarter 2023 mostly due to higher time deposits driven by successful retail CD generation and increased utilization of fully insured indirect customer (i.e., brokered) deposits, partially offset by a decrease in average non-interest bearing deposits.

The decline in non-interest bearing deposits was largely due to a moderate shift in customer balances to our interest bearing deposit products in a rising interest rate environment and outflows due to attractive investment alternatives to deposits in the marketplace.

Overall, average deposits increased by $2.4 billion to $49.8 billion for the third quarter 2023 as compared to the second quarter 2023, mostly due to a $2.7 billion increase in average time deposits, partially offset by a decrease in average non-interest bearing deposits.

The increase in time deposits was mainly driven by successful retail CD generation and increased utilization of fully insured indirect customer (i.e., brokered) deposits.

The decline in average non-interest bearing deposits was largely due to a shift in customer balances to our interest bearing deposit products in a rising interest rate environment, outflows due to attractive investment alternatives to deposits in the

marketplace, and customer use of cash reserves in place of financing.

Average non-interest-bearing deposits;

NOW and money market deposits;

and time deposits represented approximately 27 percent, 47 percent and 26 percent of total deposits as of June 30, 2023, respectively.

Actual ending balances for deposits increased $2.0 billion to approximately $49.6 billion at June 30, 2023 from March 31, 2023 mainly due to a $3.8 billion increase in time deposits, partially offset by decreases in non-interest bearing deposits, and savings, NOW and money market deposits totaling $1.1 billion and $626.1 million, respectively.

The increase in time deposits from March 31, 2023 was partially driven by higher fully-insured indirect customer CD balances at June 30, 2023.

Total fully-insured indirect customer deposits, consisting of both brokered time deposit and money market accounts, increased $3.2 billion to $10.3 billion at June 30, 2023 from March 31, 2023.

savings, NOW and money market deposits;

and time deposits represented approximately 24 percent, 46 percent and 30 percent of total deposits as of September 30, 2023, respectively.

Actual ending balances for deposits increased $265.5 million to $49.9 billion at September 30, 2023 from June 30, 2023 mainly due to increases of $833.5 million in savings, NOW and money market deposits and $194.8 million in time deposits, partially offset by a $762.8 million decrease in non-interest bearing deposits.

The increase in savings, NOW and money market deposits was largely driven by increases in digital and national specialized deposits, as well as some shift in customer balances from non-interest bearing deposits during the third quarter 2023.

The increase in time deposits was largely due to successful retail deposit campaigns, partially offset by the maturity of indirect customer deposits.

Non-interest bearing balances continued to be challenged by the high level of market interest rates and the aforementioned changes in customer behavior at September 30, 2023.

Non-interest bearing deposits;

savings, NOW and money market deposits;

and time deposits represented approximately 25 percent, 45 percent and 30 percent of total deposits as of June 30, 2023, respectively, as compared to 29 percent, 48 percent and 23 percent of total deposits as of March 31, 2023, respectively.

The following table lists, by maturity, uninsured certificates of deposit at June 30, 2023:

and time deposits represented approximately 24 percent, 46 percent and 30 percent of total deposits as of September 30, 2023, respectively, as compared to 25 percent, 45 percent and 30 percent of total deposits as of June 30, 2023, respectively.

The following table lists, by maturity, uninsured certificates of deposit at September 30, 2023:

(in thousands)

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Total $ 2,438,209

Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $12.1 billion, or 24 percent of total deposits, at June 30, 2023 as compared to $14.9 billion, or 31 percent of total deposits, at March 31, 2023.

While our diversified commercial and consumer deposit base has remained relatively stable during the early stages of the third quarter 2023, deposit gathering initiatives could remain challenging due to market competition, attractive investment alternatives, such as U.S.

Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $11.7 billion, or 23 percent of total deposits, at September 30, 2023 as compared to $12.1 billion, or 24 percent of total deposits, at June 30, 2023.

While our diversified commercial and consumer deposit base has remained relatively stable during the early stages of the fourth quarter 2023, deposit gathering initiatives could remain challenging due to market competition, attractive investment alternatives, such as U.S.

Treasury securities, and other factors.

As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at June 30, 2023.

As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at September 30, 2023.

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

Three Months Ended Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three Months Ended Nine Months Ended

September 30, 2023 June 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

(in thousands)

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Total $ 2,495,512 $ 2,339,727 $ 1,477,909 $ 2,176,985 $ 1,472,344

Average short-term borrowings increased $1.1 billion during the second quarter 2023 as compared to the first quarter 2023 mostly due to the higher utilization of FHLB advances in March 2023 to increase our excess liquidity

Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) increased $652.9 million as compared to the first quarter 2023 mainly due to the new FHLB advances issued in March 2023 and the second quarter 2023.

Actual ending balances for short-term borrowings decreased $5.3 billion to $1.1 billion at June 30, 2023 as compared to March 31, 2023 mainly due to maturities and repayment of FHLB advances.

In March 2023, we increased our short-term borrowings to bolster our liquidity position out of an abundance of caution in the wake of the two bank failures and subsequently managed these balances to a lower level during the second quarter 2023, partially through the greater use of time deposits.

We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity.

Actual ending balances for long-term borrowings totaled $2.4 billion at June 30, 2023 and remained relatively unchanged as compared to March 31, 2023.

See the "Bank Liquidity" section for more details on our available funding sources.

Average short-term borrowings decreased $3.4 billion during the third quarter 2023 as compared to the second quarter 2023 mostly due to the maturity and repayment of several FHLB advances as we trimmed our elevated excess liquidity position during the third quarter.

Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) moderately increased $155.8 million as compared to the second quarter 2023 mostly due to new FHLB advances issued in the second quarter 2023.

Actual ending balances for short-term borrowings decreased $1.0 billion to $89.8 million at September 30, 2023 as compared to June 30, 2023 mainly due to the aforementioned maturities of FHLB advances and the decrease in our excess overnight cash positions as part of our liquidity management strategies during the third quarter 2023.

Long-term borrowings totaled $2.3 billion at September 30, 2023 as compared to $2.4 billion at June 30, 2023.

The decrease was largely due to the maturity and repayment of $125.0 million of 5.125 percent subordinated notes issued in September 2013 and due on September 27, 2023, which had already been fully disallowed from a regulatory capital perspective.

Non-GAAP Financial Measures

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Efficiency ratio 56.72 49.76 55.34 51.03

September 30,

2023 December 31,

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Tangible book value per common share (non-GAAP) 8.63 8.15

Non-GAAP Reconciliations to GAAP Financial Measures

Adjusted net income is computed as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

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

— 29,282 — 29,282

Merger related expenses (net of tax) (e)

— 3,360 2,962 47,103

Net gains on sales of office buildings (net of tax) (f)

(4,817) — (4,817) —

Net income, as adjusted (non-GAAP) $ 136,363 $ 181,455 $ 437,974 $ 467,571

2 unchanged sentences

(d) Represents provision for credit losses for non-PCD loans and unfunded credit commitments acquired during the period.

(d) Represents provision for credit losses for non-PCD assets and unfunded credit commitments acquired during the period.

(e) Included primarily within salary and employee benefits expense.

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

(f) Included in gains (losses) on sale of assets, net within non-interest income.

loan customer transactions reported in capital markets fees.

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

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Average goodwill and other intangible assets 2,042,486 2,117,818 2,051,727 1,917,217

2,051,591 2,105,585 2,056,487 1,823,538

Average tangible shareholders’ equity (non-GAAP) $ 4,563,300 $ 4,138,949 $ 4,479,697 $ 3,952,519

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

11 unchanged sentences

443 (33) 476 (102)

Net gains on sales of office buildings (pre-tax) (d)

(6,721) — (6,721) —

Total net interest income and non-interest income, as adjusted (non-GAAP) $ 464,804 $ 510,153 $ 1,434,996 $ 1,343,716

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(d) Included in gains (losses) on sales of assets, net.

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

September 30,

2023 December 31,

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Net Interest Income

Net interest income on a tax equivalent basis totaling $421.3 million for the second quarter 2023 decreased $16.2 million as compared to the first quarter 2023 and increased $1.7 million as compared to the second quarter 2022.

The decrease as compared to the first quarter 2023 was mainly due to a $3.3 billion increase in average interest bearing liabilities and higher interest rates on most interest bearing deposit products and short-term borrowings, partially offset by higher loan yields.

As a result, interest expense increased $83.5 million to $367.7 million for the second quarter 2023 as compared to the first quarter 2023.

Interest income on a tax equivalent basis increased $67.3 million to $789.0 million in the second quarter 2023 as compared to the first quarter 2023.

The increase was mostly due to higher yields on both new originations and adjustable rate loans in our portfolio and a $1.6 billion increase in average loan balances driven by organic new loan volumes and a continuation of slower loan prepayments.

Average interest earning assets increased $8.5 billion to $57.4 billion for the second quarter 2023 as compared to the second quarter 2022 mainly due to a $6.9 billion increase in average loan balances and $1.4 billion increase in average interest bearing cash balances largely due to higher excess cash held overnight as part of our prudent liquidity management navigating the fallout from the recent bank failures.

Compared to the first quarter 2023,

average interest earning assets increased by $2.0 billion during the second quarter 2023.

The increase was primarily driven by a $1.6 billion increase in average loan balances mainly due to organic commercial loan growth and a $351.6 million increase in average interest bearing cash as compared to the prior linked quarter.

Average interest bearing liabilities increased $11.2 billion to $40.9 billion for the second quarter 2023 as compared to the second quarter 2022 mainly due to increases of $8.1 billion and $2.3 billion in average time deposits and short-term borrowings, respectively.

The increases in average time deposits and short-term borrowings were largely due to the enhanced liquidity management efforts during the first half of 2023, including increased usage of fully FDIC-insured indirect customer CD and successful retail CD initiatives.

As compared to the first quarter 2023, average interest bearing liabilities increased by $3.3 billion in the second quarter 2023 largely due to a $2.5 billion increase in average time deposits mainly driven by increased usage of fully FDIC-insured indirect customer CD and successful retail CD initiatives, as well as an increase in short-term borrowings, as part of our funding and liquidity sources.

Net interest income on a tax equivalent basis totaling $413.7 million for the third quarter 2023 decreased $7.6 million and $41.7 million as compared to the second quarter 2023 and third quarter 2022, respectively.

The decrease as compared to the second quarter 2023 was mainly due to increased interest rates on most interest bearing deposit products, partially offset by higher loan yields and a reduction in average short-term borrowings.

As a result of the higher cost of deposits, total interest expense increased $32.9 million to $400.6 million for the third quarter 2023 as compared to the second quarter 2023.

Interest income on a tax equivalent basis increased $25.3 million to $814.3 million in the third quarter 2023 as compared to the second quarter 2023.

The increase was mostly due to higher yields on both new originations and adjustable rate loans in our portfolio and a $561.5 million increase in average

loan balances driven by organic new loan volumes over the last six months and a continuation of slower loan prepayments in the third quarter 2023.

Average interest earning assets increased $6.3 billion to $56.8 billion for the third quarter 2023 as compared to the third quarter 2022 mainly due to a $5.7 billion increase in average loan balances and a $508.6 million increase in average interest bearing cash balances largely due to higher excess cash held overnight as part of our prudent liquidity management navigating the fallout from the bank failures in the first half of 2023.

Compared to the second quarter 2023, average interest earning assets decreased by $549.2 million during the third quarter 2023.

The decrease was primarily driven by a $951.8 million decline in average overnight interest bearing cash held as compared to the prior linked quarter, partially offset by a $561.5 million increase in average loan balances mainly due to continued growth in the commercial real estate loan portfolio.

Average interest bearing liabilities increased $9.6 billion to $40.8 billion for the third quarter 2023 as compared to the third quarter 2022 mainly due to increases of $9.2 billion and $1.0 billion in average time deposits and long-term borrowings, respectively, partially offset by a decrease of $579.7 million in average short-term borrowings.

The increases in average time deposits and long-term borrowings were largely due to the enhanced liquidity management efforts during the first nine months of 2023, including increased usage of fully FDIC-insured indirect customer CD and successful retail CD initiatives.

As compared to the second quarter 2023, average interest bearing liabilities decreased by $96.7 million for the third quarter 2023 primarily due to the lower utilization of short-term FHLB advances, largely offset by higher average interest bearing deposit levels largely driven by successful retail CD generation and increased balances within our specialized national and digital products in savings, NOW and money market deposits.

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

Net interest margin on a tax equivalent basis of 2.94 percent for the second quarter 2023 decreased by 22 basis points and 49 basis points from 3.16 percent and 3.43 percent for the first quarter 2023 and the second quarter 2022, respecti vely.

The decrease as compared to the first quarter 2023 was largely driven by higher interest rates on interest bearing deposits and short-term borrowings, partially offset by a 29 basis point increase in the yield on average interest earning assets.

The yield on average loans increased by 30 basis points to 5.78 percent for the second quarter 2023 as compared to the first quarter 2023 largely due to higher interest rates on new originations and adjustable rate loans.

The yields on average taxable and non-taxable investments also increased 13 basis points and 16 basis points, respectively, from the first quarter 2023 mostly due to investment maturities and prepayments redeployed into new higher yielding securities during the first half of 2023.

Our cost of total average deposits increased to 2.45 percent for the second quarter 2023 from 1.96 percent and 0.19 percent for the first quarter 2023 and the second quarter 2022, respectively.

The overall cost of average interest bearing liabilities also increased 57 basis points to 3.59 percent for the second quarter 2023 as compared to the first quarter 2023 primarily driven by the rising market interest rates on deposits during the first half of 2023.

Based upon our current estimates at June 30, 2023 , we anticipate net interest income growth in the low single digits (i.e., less than 10 percent) for the full year of 2023 , revised down fro m 16 to 18 percent previously estimated in the M D&A of Valley's Form 10-K for the year ended December 31, 2022.

While we are seeing initial signs of stabilization in net interest income and margin as compared to the declines in both experienced in the first quarter 2023, we cannot provide any assurances with respect to the future trajectory of market interest rates or that our net interest margin or income will remain at the levels reported for the second quarter 2023.

The following table reflects the components of net interest income for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022:

Net interest margin on a tax equivalent basis of 2.91 percent for the third quarter 2023 decreased by 3 basis points and 69 basis points from 2.94 percent and 3.60 percent for the second quarter 2023 and third quarter 2022, respecti vely.

The decrease as compared to the second quarter 2023 was largely driven by higher interest rates on interest bearing deposits, partially offset by a 23 basis point increase in the yield on average interest earning assets.

The yield on average loans increased by 25 basis points to 6.03 percent for the third quarter 2023 as compared to the second quarter 2023 largely due to higher interest rates on new originations and adjustable rate loans.

Our cost of total average deposits was 2.94 percent for the third quarter 2023 as compared to 2.45 percent and 0.59 percent for the second quarter 2023 and the third quarter 2022, respectively.

The overall cost of average interest bearing liabilities also increased 33 basis points to 3.92 percent for the third quarter 2023 as compared to the second quarter 2023 primarily driven by the continued rise in the market interest rates on deposit s.

We anticipate our net interest income for the fourth quarter 2023 to be relatively unchanged from the third quarter 2023.

While we are optimistic regarding the signs of stabilization in our net interest income during the third quarter 2023 as compared to the first six months of 2023, we cannot provide any assurances with respect to the future impact of the market interest rate environment, and its uncertain trajectory on the cost of our funding sources or that our net interest income or margin will remain at the levels reported for the third quarter 2023.

The following table reflects the components of net interest income for the three months ended September 30, 2023, June 30, 2023 and September 30, 2022:

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

1 unchanged sentence

Three Months Ended

June 30, 2023 March 31, 2023 June 30, 2022

September 30, 2023 June 30, 2023 September 30, 2022

Balance Interest Average

37 unchanged sentences

2.91 % 2.94 % 3.60 %

The following table reflects the components of net interest income for the six months ended June 30, 2023 and 2022:

Six Months Ended

June 30, 2023 June 30, 2022

The following table reflects the components of net interest income for the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30, 2023 September 30, 2022

Average Balance Interest Average Rate Average Balance Interest Average Rate

46 unchanged sentences

Change in Net Interest Income on a Tax Equivalent Basis

Three Months Ended June 30, 2023 Compared to June 30, 2022 Six Months Ended June 30, 2023 Compared to June 30, 2022

Three Months Ended September 30, 2023

Compared to September 30, 2022 Nine Months Ended September 30, 2023 Compared to September 30, 2022

Volume Change

19 unchanged sentences

Non-Interest Income

Non-interest income increased $1.5 million and $16.6 million for the three and six months ended June 30, 2023, respectively, as compared to the same period of 2022.

The following table presents the components of non-interest income for the three and six months ended June 30, 2023 and 2022:

Non-interest income increased $2.5 million and $19.0 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022.

The following table presents the components of non-interest income for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Service charges on deposit accounts 10,952 10,338 31,970 26,617

Gains (losses) on securities transactions, net 217 (309) 595 (1,381)

(Losses) gains on securities transactions, net (398) 323 197 (1,058)

Fees from loan servicing 2,681 3,138 8,054 8,636

Gains on sales of loans, net 2,023 922 3,752 5,510

Gains (losses) on sales of assets, net 6,653 (106) 6,938 (372)

Bank owned life insurance 2,709 1,681 7,736 5,840

1 unchanged sentence

Total non-interest income $ 58,664 $ 56,194 $ 173,038 $ 153,997

Wealth management and trust fees income increased $1.6 million and $6.1 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022.

The increase as compared to the second quarter 2022 was mainly driven by higher revenues generated by our advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments.

The increase for the six months ended June 30, 2023 was largely related to higher brokerage fees related to our broker dealer subsidiary, Valley Financial Management, Inc., acquired on April 1, 2022 from Bank Leumi USA.

Brokerage fees totaled $9.7 million and $4.9 million for the six months ended June 30, 2023 and 2022, respectively.

Capital markets income increased $2.3 million and decreased $1.2 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 mainly due to changes in volume of interest rate swap transactions executed for commercial loan customers.

Service charges on deposit accounts increased $4.7 million for the six months ended June 30, 2023 compared to the same period in 2022 largely due to the additional deposit accounts acquired from Bank Leumi USA on April 1, 2022.

Net gains on sales of loans decreased $2.4 million and $2.9 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 mostly due to lower loan sale volumes as we continued to retain a higher percentage of new loan volumes during the first half of 2023.

During the six months ended June 30, 2023, we sold $71.8 million of residential mortgage loans as compared to $326.2 million for same period in 2022.

Other non-interest income increased $6.9 million for the six months ended June 30, 2023 as compared to the same period in 2022.

The increase for the six months ended June 30, 2023 was mostly due to incremental increases in several operating non-interest income categories caused by the acquisition of Bank Leumi USA and organic growth of our business operations over the last 12 months.

Wealth management and trust fees income increased $2.1 million and $8.2 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

The increases in both periods were mainly driven by higher brokerage fees related to our broker dealer subsidiary, Valley Financial Management, Inc., acquired on April 1, 2022 in connection with the acquisition of Bank Leumi USA and to a lesser extent by higher revenues generated by our advisory firm, Dudley Ventures, LLC, which specializes in the investment and management of tax credit investments.

Brokerage fees totaled $5.1 million and $14.8 million for the three and nine months ended September 30, 2023, respectively, and $3.9 million and $8.3 million for the same periods in 2022, respectively.

Capital markets income decreased $6.0 million and $7.2 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022 mainly due to a decline in the volume of interest rate swap transactions executed for commercial loan customers.

Service charges on deposit accounts increased $5.4 million for the nine months ended September 30, 2023 compared to the same period in 2022 largely due to the additional deposit accounts acquired from Bank Leumi USA on April 1, 2022.

Net gains (losses) on sales of assets increased $6.8 million and $7.3 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022 largely due to the sale of non-branch offices located in Wayne, New Jersey in the third quarter 2023.

Net gains on sales of loans increased $1.1 million and decreased $1.8 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

The decrease for the nine months ended September 30, 2023 was mostly due to lower loan sale volumes as we continued to retain a higher percentage of new loan volumes during the first nine months of 2023.

During the nine months ended September 30, 2023, we sold $152.6 million of residential mortgage loans as compared to $375.0 million for same period in 2022.

Our ability to generate net gains on sales of loans could continue to be challenged by a number of factors, including higher market interest rates, lower customer demand for conforming loan products and our decision to originate certain residential mortgage loans for investment in our loan portfolio rather than sale.

Other non-interest income increased $5.8 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase for the nine months ended September 30, 2023 was mostly due to incremental increases in several operating non-interest income categories caused by the acquisition of Bank Leumi USA and organic growth of our business operations over the last 12 months.

Non-Interest Expense

Non-interest expense decreased $16.8 million and increased $58.1 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022.

The following table presents the components of non-interest expense for the three and six months ended June 30, 2023 and 2022:

Non-interest expense increased $5.5 million and $63.6 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

The following table presents the components of non-interest expense for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Total non-interest expense $ 267,133 $ 261,639 $ 822,270 $ 758,709

Salary and employee benefits expense decreased $5.2 million and increased $32.0 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022.

As compared to second quarter 2022, the decline was largely due to decreases in cash incentive compensation expense and Bank Leumi USA merger related costs (which totaled $28.0 million in the second quarter 2022), partially offset by higher salary expense and a restructuring charge of $11.2 million, consisting of severance expense related to recent workforce reductions.

The increase for the six months ended June 30, 2023 was primarily driven by higher headcount from the Bank Leumi USA acquisition and organic growth in our operations, the aforementioned restructuring charge, and inflationary pressures on our overall labor costs.

Salary and employee benefits expense increased $2.7 million and $34.8 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

As compared to third quarter 2022, the increase was largely due to higher salary expense and insurance costs, partially offset by a decrease in commission expense mainly related to our home mortgage consultant teams.

The increase for the nine months ended September 30, 2023 was primarily driven by (i) higher headcount from the Bank Leumi USA acquisition and organic growth in our operations, (ii) $10.5 million of restructuring charges, consisting of severance expense related to recent workforce reductions, and (iii) inflationary pressures on our overall labor costs.

These increases were partially offset by lower cash incentive compensation expense and merger related costs.

The merger related costs totaled $4.1 million for the six months ended June 30, 2023 as compared to $28.0 million for the same period in 2022.

Net occupancy expense increased $3.5 million and $4.8 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 mainly driven by increased lease expense.

Technology, furniture and equipment expense decreased $17.4 million and $6.9 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022.

The second quarter 2023 decrease was largely due to Bank Leumi USA merger related expenses (largely consisting of technology related costs) totaling $15.3 million for the second quarter 2022.

The decrease for the six months ended June 30, 2023 was mainly due to decline in merger related expense, partially offset by higher depreciation expense as compared to the same period in 2022.

FDIC insurance assessment expense increased $5.1 million and $10.1 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods of 2022 mainly due to growth in our balance sheet, as well as a two basis point increase in the initial base rate effective for 2023.

Amortization of other intangible assets increased $4.5 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to higher amortization expense of core deposits and other intangible assets resulting from Bank Leumi USA acquisition.

Merger related costs totaled $4.1 million and $29.3 million for the nine months ended September 30, 2023 and 2022, respectively.

Net occupancy expense decreased $1.8 million and increased $3.0 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

As compared to third quarter 2022, the decrease was mainly due to a $1.5 million decline in merger expenses, as well as lower repair and maintenance costs.

The increase for the nine months ended September 30, 2023 was primarily driven by higher lease expense.

Technology, furniture and equipment expense decreased $2.0 million and $8.9 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022.

The decrease for the nine months ended September 30, 2023 was largely a decline in merger related expense, partially offset by higher data processing expense.

Within this category, merger related costs totaled $1.8 million and $17.1 million for the three and nine months ended September 30, 2022, respectively.

FDIC insurance assessment expense increased $11.5 million for the nine months ended September 30, 2023 as compared to the same period of 2022 mainly due to growth in our balance sheet, as well as a two basis point increase in the initial base rate effective for 2023.

Amortization of other intangible assets increased $3.1 million for the nine months ended September 30, 2023 as compared to the same period in 2022 mostly due to higher amortization expense of core deposits and other

intangible assets resulting from the Bank Leumi USA acquisition.

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

Professional and legal fees decreased $9.0 million and $6.9 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022, largely due to declines in merger related expense, partially offset by higher technology transformation consulting and managed services.

Within the category, merger

related expenses (related to the Bank Leumi USA acquisition) totaled $11.4 million and $12.2 million for the three and six months ended June 30, 2023 and 2022, respectively.

Other non-interest expense increased $6.0 million and $17.3 million for the three and six months ended June 30, 2023, respectively, as compared to the same periods in 2022 primarily due to general increases in several categories caused by our acquired and organic growth in operations, higher charitable contributions, and increased charges related to collateral liabilities in connection with derivative transactions.

Professional and legal fees decreased $7.7 million for the nine months ended September 30, 2023 as compared to the same period in 2022 mainly due to lower consulting and legal expenses.

Within the category, merger related expenses (related to the Bank Leumi USA acquisition) totaled $11.5 million for the nine months ended September 30, 2022.

Other non-interest expense increased $6.2 million and $23.5 million for the three and nine months ended September 30, 2023, respectively, as compared to the same periods in 2022, primarily due to general increases in several categories caused by our acquired and organic growth in operations, higher charitable contributions, and increased charges related to collateral liabilities in connection with derivative transactions.

We continuously monitor and closely manage our non-interest expense in an effort to optimize our operating efficiency.

To offset the current headwinds impacting our net interest income and margin, we began the implementation of a new cost saving initiative in late June 2023.

The identified cost savings are expected to primarily come from workforce reductions, more efficient third-party consulting and service usage, and specific technology cost reductions.

As noted above, we incurred $11.2 million of severance expense associated with these efforts during the second quarter 2023.

Overall, the new initiative is expected to generate more than $40 million of annual pre-tax cost savings and be realized over the next 12 months.

Income tax expense totaled $51.8 million for the second quarter 2023 as compared to $57.2 million and $36.6 million for the first quarter 2023 and second quarter 2022, respectively.

Our effective tax rate was 27.1 percent, 28.1 percent and 27.5 percent for the second quarter 2023, first quarter 2023 and second quarter 2022, respectively.

The decline in the effective tax rate in the second quarter 2023 was primarily due to the release of a state valuation allowance related to New Jersey net operating loss carryforwards.

We began the implementation of a new cost saving initiative in late June 2023.

The identified cost savings are expected to primarily come from workforce reductions, more efficient third-party consulting and service usage, and certain technology cost reductions (including those resulting from the completion of our core operating system conversion in October 2023).

Benefits began to be realized in the third quarter of 2023, with the initiative expected to generate more than $40 million of annual pre-tax cost savings by mid-2024.

Income tax expense totaled $53.5 million for the third quarter 2023 as compared to $51.8 million and $68.4 million for the second quarter 2023 and third quarter 2022, respectively.

Our effective tax rate was 27.5 percent, 27.1 percent and 27.7 percent for the third quarter 2023, second quarter 2023 and third quarter 2022, respectively.

The increase in the effective tax rate from the second quarter 2023 was primarily due to the release of certain state valuation allowances in the second quarter 2023.

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

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Operating Segments

Valley manages its business operations under reportable segments consisting of Consumer Banking, Commercial Banking and Treasury and Corporate Other.

Valley manages its business operations under operating segments consisting of Consumer Banking and Commercial Banking.

Activities not assigned to the operating segments are included in Treasury and Corporate Other.

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 and no changes to the reportable segments were determined necessary during the first half of 2023.

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.

Valley regularly assesses its strategic plans, operations and reporting structures to identify its operating segments and no changes to the operating segments were determined necessary during the nine months ended September 30, 2023.

The accounting for each operating segment and Treasury and Corporate Other 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.

The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to those of any other financial institution.

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

The following tables present the financial data for Valley's operating segments for the three months ended June 30, 2023 and 2022:

Three Months Ended June 30, 2023

The following tables present the financial data for Valley's operating segments and Treasury and Corporate Other for the three months ended September 30, 2023 and 2022:

Three Months Ended September 30, 2023

Banking Commercial

5 unchanged sentences

0.55 % 2.11 % (2.03) % 1.37 %

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Banking Commercial

6 unchanged sentences

See Note 16 to the consolidated financial statements for additional details.

Consumer Banking

Consumer Banking represented 18.0 percent of our loan portfolio at June 30, 2023, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans).

The duration of the residential mortgage loan portfolio (which represented 11.1 percent of our loan portfolio at June 30, 2023) is subject to movements in the market level of interest rates and forecasted prepayment speeds.

The weighted average life of the automobile loans (which represented 3.3 percent of total loans at June 30, 2023) is relatively unaffected by movements in the market level of interest rates.

Consumer Banking Segment

The Consumer Banking segment represented 17.9 percent of our loan portfolio at September 30, 2023, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans).

The duration of the residential mortgage loan portfolio (which represented 11.1 percent of our loan portfolio at September 30, 2023) is subject to movements in the market level of interest rates and forecasted prepayment speeds.

The weighted average life of the automobile loans (which represented 3.2 percent of total loans at September 30, 2023) is relatively unaffected by movements in the market level of interest rates.

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

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

Average interest earning assets within Consumer Banking increased $937.2 million to $8.9 billion for the three months ended June 30, 2023 as compared to the same period of 2022 .

Average interest earning assets within Consumer Banking increased $633.1 million to $8.9 billion for the three months ended September 30, 2023 as compared to the same period of 2022 .

The increase was largely due to new residential mortgage loan volumes originated for investment rather than sale over the last 12-month period, and, to a lesser extent, growth in home equity and secured personal lines of credit.

Income before income taxes for Consumer Banking decreased $1.5 million to $12.2 million for the second quarter 2023 as compared to the second quarter 2022 mainly driven by lower net interest income and, to a lesser extent, an increase in non-interest expense.

Net interest income decreased $23.0 million in the second quarter 2023 as compared to the same period of 2022 due to additional interest expense generated from higher average deposit and other borrowing balances, as well as an increase in the cost of such interest bearing liabilities .

The negative impact of these items was partially offset by an increase in non-interest income and lower internal transfer expense.

Non-interest income increased $8.4 million mainly due to increases in wealth management and trust fees, capital markets and service charges on deposit accounts, partially offset by lower gains on sales of loans.

Internal transfer expense decreased $15.6 million for the second quarter 2023 as compared to the second quarter 2022 due to the lower allocation of non-interest expense over the same period.

The provision for loan losses decreased $1.9 million for the three months ended June 30, 2023 due to a decrease in non-economic qualitative factors as compared to one year ago.

Income before income taxes for Consumer Banking decreased $7.9 million to $12.3 million for the third quarter 2023 as compared to the third quarter 2022.

The decrease was mainly driven by lower net interest income, partially offset by lower provision for credit losses and decrease in non-interest expense.

Net interest income decreased $25.0 million in the third quarter 2023 as compared to the same period of 2022 due to additional interest expense generated from the higher cost of average deposit and other borrowing, as well as an increase in the average balance of these interest bearing liabilities .

The provision for loan losses decreased $11.8 million for the three months ended September 30, 2023 due, in part, to a decline in reserves related to quarterly loan growth and a decrease in non-economic qualitative factors as compared to one year ago.

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

Net interest margin on the Consumer Banking portfolio decreased 134 basis points to 1.60 percent for the second quarter 2023 as compared to the second quarter 2022 mainly due to a 224 basis point increase in the costs associated with our funding sou rces, partially offset by a 90 basis point increase in the yield on average loans .

The increase in our funding costs was mainly driven by higher interest rates on most of our interest bearing commercial and retail deposit products, increased utilization of fully FDIC-insured indirect customer deposits and higher cost of other borrowings held during the second quarter 2023 .

Non-interest expense decreased $4.4 million to $19.9 million f or the third quarter 2023 as compared to the third quarter 2022.

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

Net interest margin on the Consumer Banking portfolio decreased 131 basis points to 1.50 percent for the third quarter 2023 as compared to the third quarter 2022 mainly due to a 213 basis point increase in the costs associated with our funding sou rces, partially offset by an 82 basis point increase in the yield on average loans .

The 82 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio.

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

The return on average interest earning assets before income taxes for the consumer banking segment was 0.55 percent for the second quarter 2023 compared to 0.69 percent for the second quarter 2022.

Commercial Banking

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 business segment that is most sensitive to movements in market interest rates.

Commercial and industrial loans totaled approximately $9.3 billion and represented 18.6 percent of the total loan portfolio at June 30, 2023.

Commercial real estate loans and construction loans totaled $31.6 billion and represented 63.4 percent of the total loan portfolio at June 30, 2023.

Average interest earning assets in Commercial Banking increased $6.0 billion to $40.6 billion for the three months ended June 30, 2023 as compared to the second quarter 2022 primarily due to strong organic loan growth concentrated in the commercial real estate loan portfolio.

Income before income taxes for Commercial Banking increased $120.5 million to $247.5 million for the three months ended June 30, 2023 as compared to the same period of 2022 mainly due to an increase in net interest income and decreases in the provision for credit losses and internal transfer expense, partially offset by higher non-interest expense.

Net interest income for this segment increased $41.0 million to $373.7 million for the second quarter 2023 as compared to the same period in 2022 primarily due to higher average commercial loan balances and higher interest rates on new and adjustable loans.

Internal transfer expense decreased $55.0 million to $102.4 million for the three months ended June 30, 2023 as compared to the second quarter 2022.

The provision for credit losses decreased $35.5 million to $2.8 million as compared to the same period in 2022 mainly due to elevated provision for credit losses for the second quarter 2022 related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA.

The return on average interest earning assets before income taxes for the consumer banking segment was 0.55 percent for the third quarter 2023 compared to 0.97 percent for the third quarter 2022.

Commercial Banking Segment

The Commercial Banking 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 Banking is Valley’s operating segment that is most sensitive to movements in market interest rates.

Commercial and industrial loans totaled approximately $9.3 billion and represented 18.5 percent of the total loan portfolio at September 30, 2023.

Commercial real estate loans and construction loans totaled $31.9 billion and represented 63.6 percent of the total loan portfolio at September 30, 2023.

Average interest earning assets in Commercial Banking increased $5.0 billion to $41.1 billion for the three months ended September 30, 2023 as compared to the third quarter 2022 primarily due to organic loan growth largely concentrated in the commercial real estate loan portfolio.

Income before income taxes for Commercial Banking decreased $38.8 million to $217.0 million for the three months ended September 30, 2023 as compared to the same period of 2022 mainly due to increases in the provision for credit losses and internal transfer expense, as well as lower non-interest income.

T he provision for credit losses increased $19.1 million to $13.7 million as compared to the same period in 2022 mainly driven by higher quantitative reserves and specific reserves related to certain commercial loan portfolios.

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

Non-interest expense increased $10.9 million to $35.4 million for three months ended June 30, 2023 as compared to the second quarter 2022.

The net interest margin for this segment decreased 16 basis poin ts to 3.69 percent for the second quarter 2023 as compared to the second quarter 2022 due to a 224 basis point increase in the cost of our funding sources, partially offset by a 208 basis point increase in the yield on average loans.

The return on average interest earning assets before income taxes for the commercial banking segment was 2.44 percent for the three months ended June 30, 2023 compared to 1.47 percent for the same period in 2022.

Internal transfer expense increased $13.3 million to $127.2 million for the three months ended September 30, 2023 as compared to the third quarter 2022.

Non-interest income decreased $12.3 million to $11.2 million for the three months ended September 30, 2023 as compared to the third quarter 2022 mainly due to a decline in the volume of interest rate swap transactions executed for commercial loan customers.

The negative impact of the above items was partially offset by higher net interest income.

Net interest income for this segment increased $7.3 million to $379.9 million for the third quarter 2023 as compared to the same period in 2022 primarily due to both higher average commercial loan balances and interest rates on new and adjustable loans.

The net interest margin for this segment decreased 44 basis poin ts to 3.70 percent for the third quarter 2023 as compared to the third quarter 2022 due to a 213 basis point increase in the cost of our funding sources, partially offset by a 169 basis point increase in the yield on average loans.

The return on average interest earning assets before income taxes for the commercial banking segment was 2.11 percent for the three months ended September 30, 2023 compared to 2.84 percent for the same period in 2022.

Treasury and Corporate Other

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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 Banking and Commercial Banking segments.

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 interest earning assets and/or liabilities outstanding for the period.

Other items disclosed in this segment include net gains and losses on available for sale and held to maturity securities transactions, interest expense related to subordinated notes, amortization of tax credit investments, as well as other non-core items, including merger expenses.

Average interest earning assets within Treasury and Corporate Other increased $1.5 billion to $7.9 billion for the three months ended June 30, 2023 mainly due to a $1.4 billion increase in average overnight interest bearing deposits with banks as compared to the same period in 2022.

Our average overnight cash levels increased in the second quarter 2023 as a cautionary liquidity manageme nt measure resulting from the bank failures in March and April 2023.

For the three months ended June 30, 2023, loss before income taxes in this segment totaled $68.8 million compared to $7.7 million for the same period in 2022.

The $61.1 million increase in the pre-tax loss during the second quarter 2023 period was mainly due to lower internal transfer income and net interest income, partially offset by a decrease in non-interest expense.

The internal transfer income decreased $70.6 million to $124.4 million for the three months ended June 30, 2023 as compared to the same period a year ago due to the lower allocation of non-interest expense over the same period.

Non-interest expense decreased $32.1 million to $224.4 million during the three months ended June 30, 2023 as compared to the same period in 2022 mainly attributable to merger expenses incurred during the second quarter 2022 resulting from the Bank Leumi USA acquisition.

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 Banking 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 interest earning assets and/or liabilities outstanding for the period.

Other items disclosed in Treasury and Corporate Other include net gains and losses on available for sale and held to maturity securities transactions, interest expense related to subordinated notes, amortization of tax credit investments, as well as other non-core items, including merger and restructuring expenses.

Average interest earning assets within Treasury and Corporate Other increased $593.8 million to $6.8 billion for the three months ended September 30, 2023 largely due to a $508.6 million increase in average overnight interest bearing deposits with banks as compared to the same period in 2022.

Our average overnight cash levels largely increased during the first half of 2023 as a cautionary liquidity manageme nt measure resulting from the bank failures in March and April 2023.

During the third quarter 2023, we began to manage these excess cash levels down to more normalized overnight levels by September 30, 2023.

For the three months ended September 30, 2023, loss before income taxes totaled $34.5 million compared to $29.4 million for the same period in 2022.

The $5.1 million increase in the pre-tax loss during the third quarter 2023 was mainly due to lower net interest income and higher non-interest expense, partially offset by increases in the internal transfer income and non-interest income.

The internal transfer income increased $15.3 million to $155.5 million for the three months ended September 30, 2023 as compared to the same period a year ago due to the lower allocation of non-interest expense over the same period.

Non-interest expense increased $8.5 million to $214.0 million during the three months ended September 30, 2023 as compared to the same period in 2022 largely due to general increases in several categories caused by our acquired and organic growth in operations.

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

The net interest margin for this segment decreased 93 basis points to 1.19 percent for the second quarter 2023 as compared to the second quarter 2022 due to a 224 basis point increase in cost of our funding sources, partially offset by a 131 basis point increase in the yield on average investments.

The net interest margin for Treasury and Corporate Other decreased 123 basis points to 0.78 percent for the third quarter 2023 as compared to the third quarter 2022 due to a 213 basis point increase in cost of our funding sources, partially offset by a 90 basis point increase in the yield on average investments.

The increase in the yield on average investments as compared to the same period a year ago was largely driven by new higher yielding investments and a reduction in premium amortization expense mostly caused by slower principal repayments in the rising interest rate environment.

The following tables present the financial data for Valley's operating segments for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30, 2023

The following tables present the financial data for Valley's operating segments and Treasury and Corporate Other for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30, 2023

Banking Commercial

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Average interest earning assets $ 8,871,992 $ 40,248,161 $ 7,390,844 $ 56,510,997

Income before income taxes 13,224 471,069 (89,758) 394,535

Income (loss) before income taxes 25,496 688,117 (124,246) 589,367

Annualized return on average interest earning assets (before tax)

0.38 % 2.28 % (2.24) % 1.39 %

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Banking Commercial

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0.95 % 2.13 % (0.90) % 1.53 %

Consumer Banking

Consumer Banking's average interest earning assets increased $988.1 million to $8.8 billion for the six months ended June 30, 2023 as compared to the same period in 2022.

Consumer Banking Segment

The Consumer Banking segment's average interest earning assets increased $893.3 million to $8.9 billion for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase was largely due to new residential mortgage loan volumes originated for investment rather than sale over the last 12-month period, as well as growth in home equity loans and secured personal lines of credit.

Income before income taxes generated by Consumer Banking decreased $23.4 million to $13.2 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly driven by lower net interest income, and, to a lesser extent, increases in non-interest expense and the provision for loan losses.

Net interest income decreased $37.0 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to additional interest expense generated from higher average deposit balances, as well as an increase in interest rate s on such balances.

The provision for loan losses increased $2.7 million for the six months ended June 30, 2023 due to additional reserves related to residential loan growth, and changes in the economic forecast component within our CECL model as compared to one year ago.

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

The negative impact of these items was partially offset by an $8.9 million increase in non-interest income coupled with a $13.4 million decrease in the internal transfer expense f or the six months ended June 30, 2023 as compared to the same period in 2022.

Income before income taxes generated by Consumer Banking decreased $31.3 million to $25.5 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The decrease was mainly driven by lower net interest income.

Net interest income decreased $61.9 million for the nine months ended September 30, 2023 as compared to the same period in 2022 mainly due to additional interest expense generated from higher average deposit balances, as well as an increase in interest rate s on such balances.

The negative impact of these items was partially offset by an $11.9 million increase in non-interest income coupled with a lower provision for loan losses and internal transfer expense.

The increase in non-interest income was mainly driven by increases in wealth management and trust fees and service charges on deposit accounts.

Net interest margin on the Consumer Banking portfolio decreased 116 basis points to 1.76 percent for the six months ended June 30, 2023 as compared to the same period one year ago mainly due to a 202 basis point increase in the costs associated with our funding sources, partially offset by an 86 basis point increase in the yield on average loans.

The provision for loan losses decreased $9.1 million for the nine months ended September 30, 2023 mainl y due to a decrease in non-economic qualitative factors within our CECL model as compared to the same period in 2022 .

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

Net interest margin on the Consumer Banking portfolio decreased 122 basis points to 1.67 percent for the nine months ended September 30, 2023 as compared to the same period in 2022 mainly due to a 205 basis point increase in the costs associated with our funding sources, partially offset by an 83 basis point increase in the yield on average loans.

The 83 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio.

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

The return on average interest earning assets before income taxes for the consumer banking segment was 0.30 percent for the six months ended June 30, 2023 compared to 0.93 percent as compared to the same period one year ago .

Commercial Banking

Average interest earning assets in Commercial Banking increased $9.1 billion to $39.8 billion for the six months ended June 30, 2023 as compared to the same period in 2022.

This increase was primarily due to strong organic loan growth, especially in the commercial real estate portfolio over the 12-month period ended June 30, 2023, as well as loans acquired from Bank Leumi USA on April 1, 2022.

For the six months ended June 30, 2023, income before income taxes for Commercial Banking increased $207.2 million to $471.1 million as compared to the same period in 2022 mainly due to an increase in net interest income and a lower provision for credit losses, partially offset by higher non-interest expense.

Net interest income increased $172.6 million to $751.9 million for the six months ended June 30, 2023 as compared to the same period in 2022 primarily due to higher average commercial loan balances and higher interest rates on new and adjustable loans.

T he provision for credit losses decreased $34.1 million to $5.8 million during the six months ended June 30, 2023 as compared to $39.9 million for the same period in 2022 mainly due to a provision for non-PCD loans and unfunded credit commitments acquired from Bank Leumi in the second quarter 2022.

The return on average interest earning assets before income taxes for the Consumer Banking segment was 0.38 percent for the nine months ended September 30, 2023 compared to 0.95 percent for the same period in 2022.

Commercial Banking Segment

Average interest earning assets in the Commercial Banking segment increased $7.7 billion to $40.2 billion for the nine months ended September 30, 2023 as compared to the same period in 2022.

This increase was primarily due to organic loan growth, especially in the commercial real estate portfolio over the 12-month period ended September 30, 2023, as well as average balances related to loans acquired from Bank Leumi USA on April 1, 2022.

For the nine months ended September 30, 2023, income before income taxes for Commercial Banking increased $168.5 million to $688.1 million as compared to the same period in 2022 mainly due to an increase in net interest income and lower provision for credit losses, partially offset by higher non-interest expense and lower non-interest income.

Net interest income increased $179.9 million to $1.1 billion for the nine months ended September 30, 2023 as compared to the same period in 2022 primarily due to higher average commercial loan balances and higher interest rates on new and adjustable loans.

T he provision for credit losses decreased $15.0 million to $19.6 million during the nine months ended September 30, 2023 as compared to $34.6 million for the same period in 2022 due, in part to a provision for non-PCD loans and unfunded credit commitments acquired from Bank Leumi in the second quarter 2022.

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

Non-interest expense increased $21.6 million to $71.1 million for the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to acquired and organic growth in our commercial operations .

Non-interest expense increased $22.9 million to $104.2 million for the nine months ended September 30, 2023 as compared to the same period in 2022 mainly due to acquired and organic growth in our commercial operations .

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

The net interest margin for this segment increased 1 basis point to 3.78 percent for the six months ended June 30, 2023 as compared to the same period in 2022 due to a 203 basis point increase in yield on average loans, partially offset by a 202 basis point increase in the cost of our funding sources.

The return on average interest earning assets before income taxes for the commercial banking segment was 2.37 percent for the six months ended June 30, 2023 compared to 1.72 percent for the same period in 2022.

The net interest margin for this segment decreased 15 basis point to 3.75 percent for the nine months ended September 30, 2023 as compared to the same period in 2022 due to a 205 basis point increase in the cost of our funding sources, partially offset by a 190 basis point increase in yield on average loans.

The return on average interest earning assets before income taxes for the commercial banking segment was 2.28 percent for the nine months ended September 30, 2023 compared to 2.13 percent for the same period in 2022.

Treasury and Corporate Other

Treasury and Corporate Other's average interest earning assets increased $1.7 billion during the six months ended June 30, 2023 as compared to the same period in 2022 mainly due to investment securities acquired from Bank Leumi USA, as well as other select new investment securities purchases over the last 12-month period .

Average interest bearing deposits with banks increased $47.5 million as compared to the same period in 2022 due to additional cash held as a cautionary liquidity management measur e starting in March 2023 and through most of the second quarter 2023.

The loss before income taxes for this segment totaled $89.8 million for the six months ended June 30, 2023 as compared to $11.5 million for the same period in 2022.

The $78.3 million increase in pre-tax loss was mainly due to an increase in non-interest expense and decreases in both net interest income and internal transfer income, partially offset by higher non-interest income.

Non-interest expense increased $30.4 million to $442.6 million for the six months ended June 30, 2023 as compared to the same period in 2022 largely due to expenses related to our expanded banking operations and organic business growth including higher salary and employee benefits expense, technology, furniture and equipment and professional and legal fees.

Internal transfer income decreased $36.7 million to $286.9 million for the six months ended June 30, 2023 as compared to the same period in 2022 due to the higher allocation of non-interest expense over the same period.

Non-interest income increased $8.9 million during the six months ended June 30, 2023 as compared to the same period in 2022 mostly due to incremental increases in several operating non-interest income categories caused by acquired and organic growth of our business operations over the last 12-month period.

Treasury and Corporate Other's average interest earning assets increased $1.3 billion during the nine months ended September 30, 2023 as compared to the same period in 2022 mainly due to higher excess liquidity, investment securities acquired from Bank Leumi USA, and, to a much lesser extent, purchases of new investment securities over the last 12-month period .

Average interest bearing deposits with banks increased $786.5 million for the nine months ended September 30, 2023 as compared to the same period in 2022 due to additional cash held as a cautionary liquidity management measur e from March 2023 and through a portion of the third quarter 2023.

The loss before income taxes totaled $124.2 million for the nine months ended September 30, 2023 as compared to $40.9 million for the same period in 2022.

The $83.3 million increase in pre-tax loss was mainly due to decreases in both net interest income and internal transfer income combined with an increase in non-interest expense, partially offse t by higher non-interest income.

Non-interest expense increased $38.9 million to $656.6 million for the nine months ended September 30, 2023 as compared to the same period in 2022 largely due to expenses related to our expanded banking operations and organic business growth, including higher salary and employee benefits expense, technology, furniture and equipment and professional and legal fees.

Internal transfer income decreased $21.3 million to $442.4 million for the nine months ended September 30, 2023 as compared to the same period in 2022 due to lower allocations of the overhead expense to the Consumer Banking and Commercial Banking segments over the same period.

Non-interest income increased $20.7 million during t he nine months ended September 30, 2023 as compared to the same period in 2022 mostly due to incremental increases in several operating non-interest income categories caused by acquired and organic growth of our business operations over the last 12-month period.

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

Provision for credit losses increased $4.4 million mainly due to a corporate bond issued by Signature Bank within our AFS debt securities portfolio that was fully charged-off during the first quarter 2023.

Treasury and Corporate Other's net interest margin decreased 46 basis points to 1.35 percent for the six months ended June 30, 2023 as compared to the same period in 2022 due to a 202 basis point increase in cost of our funding sources, partially offset by a 156 basis point increase in the yield on average investments.

Provision for credit losses increased $4.1 million mainly due to a corporate bond issued by one failed bank within our AFS debt securities portfolio that was fully charged-off during the first quarter 2023.

Treasury and Corporate Other's net interest margin decreased 71 basis points to 1.16 percent for the nine months ended September 30, 2023 as compared to the same period in 2022 due to a 205 basis point increase in cost of our funding sources, partially offset by a 134 basis point increase in the yield on average investments.

The increased yield on average investments as compared to the same period in 2022 was largely driven by new higher yielding investments and a reduction in premium amortization expense mostly caused by slower principal repayments in the rising interest rate environment.

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

The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates and the prepayment assumptions of certain assets and liabilities as of June 30, 2023.

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

In the model, the forecasted shape of the yield curve remains static as of June 30, 2023.

In the model, the forecasted shape of the yield curve remains static as of September 30, 2023.

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

Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of June 30, 2023.

Although the size of Valley’s balance sheet is forecasted to remain static as of June 30, 2023 in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the second quarter 2023.

The model also utilizes an immediate parallel shift in market interest rates at June 30, 2023.

Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of September 30, 2023.

Although the size of Valley’s balance sheet is forecasted to remain static as of September 30, 2023 in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the third quarter 2023.

The model also utilizes an immediate parallel shift in market interest rates at September 30, 2023.

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

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interest income over the next 12-month period by 3.35 percent.

Management believes the interest rate sensitivity of our balance sheet remains within an acceptable tolerance range at June 30, 2023.

Management believes the interest rate sensitivity of our balance sheet remains within an acceptable tolerance range at September 30, 2023.

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

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Management maintains flexibility to temporarily exceed these thresholds in certain operating environments.

The following table presents Valley's loan to deposits and wholesale funding to total funding ratios at June 30, 2023 and December 31, 2022:

The following table presents Valley's loan to deposits and wholesale funding to total funding ratios at September 30, 2023 and December 31, 2022:

September 30,

2023 December 31,

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The following table summarizes Valley's sources of liquid assets:

September 30,

2023 December 31,

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(1) Represents securities that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid) within the held to maturity debt security portfolio.

(2) Includes a pproximately $847 million and $333 million of various investment securities that were pledged to counterparties to support our earning asset funding strategies at June 30, 2023 and December 31, 2022, respectively.

Total liquid assets represented 6.0 percent and 4.6 percent of earning assets at June 30, 2023 and December 31, 2022, respectively.

(2) Includes a pproximately $803 million and $333 million of various investment securities that were pledged to counterparties to support our earning asset funding strategies at September 30, 2023 and December 31, 2022, respectively.

Total liquid assets represented 4.6 percent of interest earning assets at both September 30, 2023 and December 31, 2022.

Other sources of funds on the asset side are derived from scheduled loan payments of principal and interest, as well as prepayments received.

At June 30, 2023, estimated cash inflows from total loans are projected to be approximately $14.7 billion over the next 12-month period.

At September 30, 2023, estimated cash inflows from total loans are projected to be approximately $14.8 billion over the next 12-month period.

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

We anticipate the receipt of approx imately $386.2 million in principal payments from securities in the total investment portfolio at June 30, 2023 over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.

We anticipate the receipt of approx imately $385.0 million in principal payments from securities in the total investment portfolio at September 30, 2023 over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.

On the liability side of the balance sheet, we utilize multiple sources of funds to meet liquidity needs, including retail and commercial deposits, fully FDIC-insured indirect customer deposits, collateralized municipal deposits, and short-term and long-term borrowings.

Our core deposit base, which generally excludes all fully insured indirect customer deposits, as well as retail certificates of deposit over $250 thousand, represents the largest of these source s.

Average core deposits totaled approximately $42.0 billion and $38.1 billion for the six months ended June 30, 2023 and for the year ended December 31, 2022, respectively, representing 74.6 percent and 79.2 percent of average interest earning assets for the respective periods.

Average core deposits totaled approximately $39.8 billion and $38.1 billion for the nine months ended September 30, 2023 and for the year ended December 31, 2022, respectively, representing 70.5 percent and 79.2 percent of average interest earning assets for the respective periods.

The level of interest bearing deposits is affected by interest rates offered, which is often influenced by our need for funds, rates prevailing in the capital markets, competition, and the need to manage interest rate risk sensitivity.

In addition to customer deposits, the Bank has ample access to readily available borrowing sources available to supplement its current and projected funding needs.

The following table presents short-term borrowings outstanding at June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

The following table presents short-term borrowings outstanding at September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

(in thousands)

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Total short-term borrowings $ 89,802 $ 138,729

The following table summarizes the Bank's estimated unused available non-deposit borrowing capacities at June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

The following table summarizes the Bank's estimated unused available non-deposit borrowing capacities at September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

(in thousands)

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This Program is currently another short-term liquidity source for Valley.

Valley had no outstanding borrowings under the Program at June 30, 2023.

Valley had no outstanding borrowings under the Program at September 30, 2023.

Corporation Liquidity

Valley’s recurring cash requirements primarily consist of dividends to preferred and common shareholders and interest expense on subordinated notes and junior subordinated debentures issued to capital trusts.

As part of our ongoing asset/liability management strategies, Valley could also use cash to repurchase shares of its outstanding common stock under its share repurchase program or redeem its callable junior subordinated debentures and subordinated notes (including $125 million of 5.125 percent subordinated notes which are maturing on September 27, 2023).

Valley's cash needs are routinely satisfied by dividends collected from the Bank.

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Investment Securities Portfolio

As of June 30, 2023, we had $61.0 million, $1.2 billion, and $3.8 billion in equity, available for sale debt securities and held to maturity debt securities, respectively.

As of September 30, 2023, we had $63.2 million, $1.2 billion, and $3.8 billion in equity, available for sale debt securities and held to maturity debt securities, respectively.

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

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

We also had $3.4 million of trading debt securities at June 30, 2023 consisting of U.S.

We also had $3.4 million of trading debt securities at September 30, 2023 consisting of U.S.

Treasury securities.

We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which we are exposed to.

These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments primarily made into the available for sale and held to maturity debt securities portfolios.

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such as declines due to changes in market interest rates, are recorded through other comprehensive income, net of applicable taxes.

We have evaluated all available for sale debt securities that are in an unrealized loss position as of June 30, 2023 and December 31, 2022 and determined that the declines in fair value were mainly attributable to changes in market v olatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors.

Based on a comparison of the present value of expected cash flows to the amortized cost, Valley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in both a provision for credit losses and full charge-off of the security totaling $5.0 million during the six months ended June 30, 2023.

There was no other impairment recognized within the available for sale debt securities portfolio during the three months ended June 30, 2023 and the three and six months ended June 30, 2022.

We have evaluated all available for sale debt securities that are in an unrealized loss position as of September 30, 2023 and December 31, 2022 and determined that the declines in fair value were mainly attributable to changes in market v olatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors.

There was no other impairment recognized within the available for sale debt securities portfolio during the three months ended September 30, 2023 and the three and nine months ended September 30, 2022.

Valley does not intend to sell any of its available for sale debt securities in an unrealized loss position prior to

recovery of our amortized cost basis, and it is more likely than not that Valley will not be required to sell any of its securities prior to recovery of our amortized cost basis.

None of the available for sale debt securities were past due as of June 30, 2023 and t here was no allowance for credit losses for available for sale debt securities at June 30, 2023 and December 31, 2022.

None of the available for sale debt securities were past due as of September 30, 2023 and there was no allowance for credit losses for available for sale debt securities at September 30, 2023 and December 31, 2022.

Held to maturity debt securities.

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

Held to maturity debt securities were carried net of an allowance for credit losses totaling approximately $1.4 million and $1.6 million at June 30, 2023 and December 31, 2022, respectively.

Held to maturity debt securities were carried net of an allowance for credit losses totaling approximately $1.3 million and $1.6 million at September 30, 2023 and December 31, 2022, respectively.

Investment grades.

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

The following table presents the available for sale and held to maturity debt investment securities portfolios by investment grades at June 30, 2023:

June 30, 2023

The following table presents the available for sale and held to maturity debt investment securities portfolios by investment grades at September 30, 2023:

September 30, 2023

Losses Fair Value

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The unrealized losses in the AAA and AA rated categories of both the available for sale and held to maturity debt securities portfolios (in the above table) were largely related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and continued to be driven by the rising interest rate environment during the last 12 months.

The investment securities available for sale and held to maturity portfolio included $120.6 million and $178.8 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $13.8 million and $16.0 million, respectively, at June 30, 2023.

The investment securities available for sale and held to maturity portfolio included $97.0 million and $173.3 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $14.0 million and $16.0 million, respectively, at September 30, 2023.

The unrealized losses within non-rated available for sale debt securities mostly related to several large corporate bonds negatively impacted by rising interest rates, and not changes in underlying credit.

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

2023 March 31,

September 30,

2023 June 30,

2023 December 31,

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Total 100.0 % 100.0 % 100.0 %

* Includes net unearned discount and deferred loan fees of $119.1 million, $125.4 million and $120.5 million at June 30, 2023, March 31, 2023 and December 31, 2022, respectively.

Total loans increased $1.2 billion, or 10.0 percent on an annualized basis to $49.9 billion at June 30, 2023 from March 31, 2023 mainly due to continued organic loan growth in commercial loan categories and relatively low levels of loan prepayment activity during the second quarter 2023 .

Residential mortgage loans held for sale at fair value totaled $23.0 million and $17.2 million at June 30, 2023 and March 31, 2023, respectively.

At June 30, 2023, loans held for sale also included one non-performing construction loan totaling $10.0 million, net of charge-offs, transferred from the loan portfolio during the second quarter 2023.

Commercial and industrial loans increased $243.4 million to $9.3 billion at June 30, 2023 as compared to March 31, 2023.

The organic and diverse growth was mainly a result of new loan volumes from our pre-existing long-term customer base.

Commercial real estate loans (excluding construction loans) increased $742.0 million to $27.8 billion at June 30, 2023 from March 31, 2023 reflecting solid organic growth mainly within non-owner occupied and multi-family loans across our geographic market areas.

At June 30, 2023 , commercial real estate loans collateralized by office buildings were approximately $3.2 billion of the $27.8 billion portfolio.

* Includes net unearned discount and deferred loan fees of $110.9 million, $119.1 million and $120.5 million at September 30, 2023, June 30, 2023 and December 31, 2022, respectively.

Total loans increased $220.3 million, or 1.8 percent on an annualized basis to $50.1 billion at September 30, 2023 from June 30, 2023 mainly as a result of select new loan originations in the commercial real estate loan portfolio.

Loans held for sale at fair value, presented separately from total loans on the consolidated statements of financial condition totaled $33.8 million and $33.0 million at September 30, 2023 and June 30, 2023, respect ively.

Commercial real estate loans (excluding construction loans) increased $248.0 million to $28.0 billion at September 30, 2023 from June 30, 2023 reflecting new originations mainly within non-owner occupied and multi-family loans across our geographic market areas.

At September 30, 2023, commercial real estate loans collateralized by office buildings were approximately $3.2 billion of the $28.0 billion portfolio.

These loans are geographically disbursed largely across Florida, Alabama, New Jersey, New York and Manhattan with a combined weighted average loan to value ratio of 53 percent and debt service coverage ratio of 1.63.

Construction loans increased only $89.8 million to $3.8 billion at June 30, 2023 from March 31, 2023 and was largely due to advances on pre-existing construction loan projects in New Jersey, New York and Florida.

Residential mortgage loans increased $74.1 million, or 5.4 percent on an annualized basis, during the second quarter 2023 as we largely originated new loans for the held for investment portfolio rather than for sale.

New and refinanced residential mortgage loan originations totaled $188.0 million for the second quarter 2023 as compared to

$194.4 million and $540.7 million for the first quarter 2023 and second quarter 2022, respectively.

Florida originations totaled $63.2 million and represented 33.61 percent of total residential mortgage loan originations in the quarter.

During the second quarter 2023, we retained approximately 73.2 percent of the total residential mortgage originations in our held for investment loan portfolio.

Of the total originations in the second quarter 2023, $50.4 million of residential mortgage loans were originated for sale rather than held for investment as compared to $61.9 million during the second quarter 2022 .

Additionally, the volume of both new and refinanced loan applicat ions has remained relatively low in the early stages of the third quarter 2023 due to the high level of mortgage interest rates and tight housing inventories and may challenge our ability to grow this loan category.

Home equity loans increased by $18.9 million to $535.5 million at June 30, 2023 compared to March 31, 2023 as a result of lower new originations and line utilization in an unfavorable high interest rate environment.

Automobile loans decreased by $84.3 million, or 19.6 percent on an annualized basis, to $1.6 billion at June 30, 2023 as compared to March 31, 2023 largely due to continued low consumer demand for new and used vehicle financing because of the higher interest rate environment.

During the second quarter 2023, the interest rates on new car loans reached the highest level since 2008.

We originated $16.2 million in auto loans through our Florida dealership network during the second quarter 2023 as compared to $31.5 million in the first quarter 2023.

Of the total originations, our Florida dealership network represented approximately 20 percent of new loans, during the second quarter 2023.

Despite adequate new automobile inventories available to consumers, we anticipate that the impact of inflation on average new vehicle prices coupled with rising interest rates could continue to have a negative impact on our ability to grow this loan category during the third quarter 2023.

Other consumer loans increased $133.5 million to $1.3 billion at June 30, 2023 as compared to March 31, 2023 mainly due to moderate growth in our collateralized personal lines of credit portfolio.

The majority of the office space loans are multi-tenant with no recent charge-offs.

Construction loans increased only $17.5 million to $3.8 billion at September 30, 2023 from June 30, 2023 due to minimal advances on pre-existing construction loan projects and highly selective underwriting of new projects during the third quarter 2023.

Residential mortgage loans remained relatively unchanged at September 30, 2023 from June 30, 2023.

New and refinanced residential mortgage loan originations totaled $150.2 million for the third quarter 2023 as compared to $188.0 million and $342.9 million for the second quarter 2023 and third quarter 2022, respectively.

During the third quarter 2023, we retained approximately 45.7 percent of the total residential mortgage originations in our held for investment loan portfo lio.

Additionally, the volume of primarily new loan applications has continued to be relatively low in the early stages of the fourth quarter 2023 largely due to the higher level of mortgage interest rates and this may continue to challenge our ability to grow this loan category.

Home equity loans increased by $13.4 million to $548.9 million at September 30, 2023 compared to June 30, 2023 largely due to moderate increases in pre-existing line utilization, while new home equity loan originations remain challenged due to the unfavorable high interest rate environment .

Automobile loans decreased by $46.9 million, or 11.5 percent on an annualized basis, to $1.6 billion at September 30, 2023 as compared to June 30, 2023 as a moderate uptick in new indirect auto loan volumes from our dealership network did not keep pace with the portfolio repayment activity during the third quarter 2023.

We anticipate that the impact of inflation on average new and used vehicle prices coupled with high market interest rates could deter consumer demand and continue to have a negative impact on our ability to grow this loan category during the fourth quarter 2023.

Other consumer loans decreased $1.4 million to $1.3 billion at September 30, 2023 as compared to June 30, 2023 as demand and utilization of collateralized personal lines of credit slowed during the third quarter 2023.

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

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

Annualized loan growth slowed to 10 percent during the second quarter 2023 from 16 percent in the first quarter 2023 as we worked through the majority of the strong loan pipeline that was present at the beginning of 2023.

We will continue to be selective on the lending side and generally supportive of compelling projects led by our high quality and tenured customer base.

Moving forward, we anticipate moderate levels of overall loan growth in the mid to high single digits on an annualized basis for the remainder of 2023.

Annualized loan growth slowed to 1.8 percent for the third quarter 2023 from 1 0.0 percent in the second quarter 2023 largely as expected mostly due to the impact of higher market interest rates.

Annualized loan growth for the nine months ended September 30, 2023 totaled 9.0 percent.

We remain selective on new loan originations and generally supportive of compelling projects led by our high quality and tenured customer base.

Moving forward, we anticipate loan growth in the fourth quarter 2023 to approximate the linked quarter level experienced in the third quarter 2023 .

Non-performing Assets

Non-performing assets (NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consist of automobiles and taxi medallions) at June 30, 2023.

Non-performing assets (NPAs) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consist of automobiles and taxi medallions) at September 30, 2023.

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

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

Our NPAs increased $11.2 million to $256.1 million at June 30, 2023 as compared to March 31, 2023 mostly due to increases in both non-accrual commercial real estate loans and commercial and industrial loans, partially offset by decreases in construction loans and residential mortgage loans.

NPAs as a percentage of total loans and NPAs totaled 0.51 percent and 0.50 percent at June 30, 2023 and March 31, 2023, respectively (as shown in the table below).

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

Our NPAs increased $4.2 million to $260.3 million at September 30, 2023 as compared to June 30, 2023 mostly driven by an increase in non-accrual commercial and industrial loans.

NPAs as a pe rcentage of total loans and NPAs totaled 0.52 percent and 0.51 percent at September 30, 2023 and June 30, 2023, respectively (as shown in the table below).

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

For additional details, see the "Credit quality indicators" section in Note 8 to the consolidated financial statements.

Our lending strategy is based on underwriting standards designed to maintain high credit quality and we remain optimistic regarding the overall future performance of our loan portfolio.

During the six months ended June 30, 2023, our overall credit trends have remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the recent challenges across the banking system, slower economic growth, elevated inflation and the overall uncertain economy .

However, management cannot provide assurance that the non-performing assets will not materially increase from the levels reported at June 30, 2023 due to the aforementioned or other factors potentially impacting our lending customers.

During the nine months ended September 30, 2023, our overall credit trends have remained stable, and the majority of our borrowers continued to demonstrate resilience despite the impact of higher borrowing costs, slower economic growth, elevated inflation and the overall uncertain economy .

However, management cannot provide assurance that the non-performing assets will not materially increase from the levels reported at September 30, 2023 due to the aforementioned or other factors potentially impacting our lending customers.

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

September 30,

2023 June 30,

2023 March 31,

2023 December 31,

($ in thousands)

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170.76 171.76 180.54

Loans past due 30 to 59 days decreased $20.9 million to $33.8 million at June 30, 2023 as compared to March 31, 2023 due, in part, to the commercial real estate loans totaling $10.2 million included in this delinquency category at March 31, 2023 that reclassified to non-accrual loans at June 30, 2023.

Commercial and industrial loans 30 to 59 days past due decreased $14.5 million mainly due to improved performance during the second quarter 2023.

Loans past due 60 to 89 days decreased $14.8 million to $12.9 million at June 30, 2023 as compared to March 31, 2023 largely due to a commercial and industrial loan relationship totaling $21.2 million included in this delinquency category at March 31, 2023 that became current to all its contractual payments at June 30, 2023.

Loans 90 days or more past due and still accruing interest decreased $2.8 million to $15.0 million at June 30, 2023 as compared to March 31, 2023 mainly due to decreases in the commercial and industrial and construction loan categories, partially offset by one new matured commercial real estate loan of $2.2 million expected to be paid off in the near term.

Loans past due 30 to 59 days increased $13.6 million to $47.4 million at September 30, 2023 as compared to June 30, 2023.

The increase within this early stage delinquency category was mainly due to one $7.0 million commercial real estate loan, as well as increases in commercial and industrial and secured consumer loan delinquencies.

Loans past due 60 to 89 days increased $6.8 million to $19.8 million at September 30, 2023 as compared to June 30, 2023 largely due to higher residential mortgage delinquencies and a $2.3 million commercial real estate loan that migrated from the 30-59 days past due category at June 30, 2023, partially offset by a decline in commercial and industrial and consumer loan delinquencies.

Loans 90 days or more past due and still accruing interest decreased $2.6 million to $12.4 million at September 30, 2023 as compared to June 30, 2023 mainly due to a payoff of a $2.2 million commercial real estate loan.

All loans 90 days or more past due and still accruing interest are well-secured and in the process of collection.

Non-accrual loans increased $12.1 million to $254.1 million at June 30, 2023 as compared to $242.0 million at March 31, 2023 mostly driven by an increase in the commercial real estate loan category.

Non-accrual commercial real estate loans increased $14.8 million to $82.7 million at June 30, 2023 due, in part, to the aforementioned migration of two loans totaling $10.2 million from the 30 to 59 days past due delinquency category at March 31, 2023 and one new $4.5 million non-performing loan at June 30, 2023.

Non-accrual construction loans decreased $5.6 million to $63.0 million at June 30, 2023 from March 31, 2023 primarily due to the $4.2 million partial charge-off of one loan, which was transferred to loans held for sale at June 30, 2023.

Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at June 30, 2023, are well secured and largely collectible based in part, on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable.

Non-accrual loans increased $4.8 million to $258.9 million at September 30, 2023 as compared to $254.1 million at June 30, 2023 mostly driven by an increase in the commercial and industrial loan category.

Non-accrual commercial and industrial loans increased $3.2 million to $87.7 million at September 30, 2023 mainly due to one new non-performing loan relationship totaling $4.2 million at September 30, 2023.

Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at September 30, 2023, are well secured and largely collectible, based in part on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable.

Any estimated shortfall in each collateral valuation results in an allocation of specific reserves within our allowance for credit losses for loans.

Non-performing taxi medallion loans totaled $65.8 million of the $84.4 million non-accrual commercial and industrial loans at June 30, 2023.

At June 30, 2023, all taxi medallion loans in the loan portfolio were on non-accrual status and had related reserves of $41.7 million, or 63.4 percent of such loans, within the allowance for loan losses.

Non-performing taxi medallion loans totaled $65.1 million of the $87.7 million non-accrual commercial and industrial loans at September 30, 2023.

At September 30, 2023, all taxi medallion loans in the loan portfolio were on non-accrual status and had related reserves of $37.9 million, or 58.7 percent of such loans, within the allowance for loan losses.

Potential further declines in the market valuation of taxi medallions and the c urrent operating environment mainly within New York City may negatively impact the performance of this portfolio.

OREO properties totaled $824 thousand at June 30, 2023 and decreased $365 thousand as compared to March 31, 2023.

Th e sales of OREO p roperties and net gains on sales of OREO during t he three and six months ended June 30, 2023 and 2022 were not material.

The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totale d $454 thousand and $2.6 million at June 30, 2023 and December 31, 2022, respectively.

OREO properties totaled $71 thousand at September 30, 2023 and decreased $753 thousand as compared to June 30, 2023 primarily due to sales of OREO p roperties.

The sales of OREO properties resulted in gains of $256 thousand and $370 thousand for the three and nine months ended September 30, 2023, respectively, as compared to net losses of $69 thousand and $692 thousand for the three and nine months ended September 30, 2022, respectively.

The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totale d $970 thousand and $2.6 million at September 30, 2023 and December 31, 2022, respectively.

Allowance for Credit Losses for Loans

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Valley estimated the collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances.

In estimating the component of the allowance on a collective basis, we use a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by generating

probability of default and loss given default metrics.

In estimating the component of the allowance on a collective basis, we use a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by generating probability of default and loss given default metrics.

The metrics are based on the migration of loans within the commercial and industrial loan categories from performing to loss by credit quality rating or delinquency categories using historical life-of-loan analysis periods for each loan portfolio pool and the severity of loss based on the aggregate net lifetime losses.

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The expected lifetime loss rate is the life of loan loss percentage from the transition matrix model plus the impact of the adjustments for qualitative factors.

The expected credit losses are the product of multiplying the model’s expected lifetime loss rate by the exposure at default at period end on an undiscounted basis.

credit losses are the product of multiplying the model’s expected lifetime loss rate by the exposure at default at period end on an undiscounted basis.

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 and is governed by a cross-functional committee.

The forecasts consist of a multi-scenario economic forecast model to estimate future credit losses and are 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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GDP, unemployment and the Case-Shiller Home Price Index.

At June 30, 2023, Valley continued to maintain the majority of its probability weighting used in the economic forecast to the Moody’s Baseline scenario with less emphasis on the S-3 downside and S-4 adverse scenarios.

However, the standalone Moody's Baseline scenario reflected a more pessimistic outlook as compared to March 31, 2023 in terms of GDP growth, unemployment levels and potential near term negative economic impacts given the present uncertain economic conditions.

At June 30, 2023, the Moody's Baseline forecast included the following specific assumptions:

• GDP expansion of approximately 0.6 percent in the third quarter 2023;

• Unemployment of 3.6 percent in the third quarter 2023 and 3.8 to 4.3 percent over the remainder of the forecast period ending in the second quarter 2025;

• Continued concerns about increased debt burden pushed by rising interest rates, high inflation, and elevated house prices;

At September 30, 2023, Valley continued to maintain the majority of its probability weighting used in the economic forecast to the Moody’s Baseline scenario with slightly less emphasis on the S-3 downside and S-4 adverse scenarios as compared to June 30, 2023.

The standalone Moody's Baseline forecast at September 30, 2023 contained, among other things, slower but positive GDP growth rates, a cooling labor market and a continued deceleration of inflation, and overall, it provided a moderately more pessimistic outlook as compared to June 30, 2023.

At September 30, 2023, the Moody's Baseline forecast included the following specific assumptions:

• GDP expansion of approximately 0.5 percent in the fourth quarter 2023;

• Unemployment of 3.9 percent in the fourth quarter 2023 and 4.0 to 4.2 percent over the remainder of the forecast period ending in the third quarter 2025;

• Continued concerns about increased debt burden pushed by rising interest rates, elevated inflation and house prices;

• Consumer spending remained a source of growth and its contribution grew to the largest in nearly two years, as the cost-of-living adjusted boosted after-tax income adding another 1.1 percent to growth;

• The Federal Reserve opted to pause its rate hikes in June 2023, keeping the federal funds rate at 5 - 5.25 percent with possible additional reductions in 2023;

• Inflation remains elevated but continues to trend downward, while reporting at approximately 4 percent in May 2023.

• The Federal Reserve opted to pause its rate hikes, keeping the federal funds rate at 5.25 - 5.50 percent with possible increases by the end of 2023;

• Inflation moderately cooled, but remained at 3.7 percent in the third quarter 2023.

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

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

Three Months Ended Six Months Ended

2023 March 31,

2023 June 30,

2022 June 30,

Three Months Ended Nine Months Ended

September 30,

2023 June 30,

2023 September 30,

2022 September 30,

2023 September 30,

($ in thousands)

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Total consumer (1,156) (1,040) (962) (3,024) (2,513)

Total charge-offs (11,327) (32,573) (5,267) (43,900) (7,862)

Total loans charge-offs (8,918) (11,327) (9,995) (52,818) (17,857)

Charged-off loans recovered:

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Total consumer 362 390 477 1,513 2,431

Total recoveries 2,702 2,205 2,947 4,907 5,592

Total net loan charge-offs (8,625) (30,368) (2,320) (38,993) (2,270)

Total loans recovered 3,440 2,702 15,605 8,347 21,197

Total net loan (charge-offs) recoveries (5,478) (8,625) 5,610 (44,471) 3,340

Provision charged for credit losses 9,147 6,332 1,835 24,929 49,047

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$ 11,221 $ 8,159 $ 1,315 $ 29,359 $ 42,883

Provision for unfunded credit commitments

(Credit) provision for unfunded credit commitments

(2,074) (1,827) 520 (4,430) 6,164

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

Three Months Ended Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Three Months Ended Nine Months Ended

September 30, 2023 June 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

($ in thousands)

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Total loans 0.04 0.07 (0.05) 0.12 (0.01)

Net loan charge-offs totaled $8.6 million for the second quarter 2023 as compared to $30.4 million and $2.3 million for the first quarter 2023 and the second quarter 2022, respectively.

The decrease from the first quarter 2023 was mainly due to the elevated net loan charges-offs during the first quarter 2023 largely related to one commercial and industrial loan participation charged-off.

Gross charge-offs totaled $11.3 million for the second quarter 2023 and included the $4.2 million partial charge-off related to the valuation of a non-performing construction loan transferred from the held for investment loan portfolio to loans held for sale at June 30, 2023.

This construction loan had specific reserves of $5.2 million within the allowance for loan losses at March 31, 2023 and, as a result, the partial charge-off was fully reserved for prior to the second quarter 2023.

The amount of net loan charge-offs (as presented in the above table) and the low level of individual loan charge-offs for the second quarter 2023 continued to trend within management's expectations for the credit quality of the loan portfolio at June 30, 2023.

Net loan charge-offs totaled $5.5 million for the third quarter 2023 as compared to $8.6 million for the second quarter 2023 and net recoveries of loan charge-offs of $5.6 million for the third quarter 2022.

The decrease from the second quarter 2023 was largely due to slightly elevated net loan charges-offs during the second quarter 2023 partly resulting from the valuation/and partial write down of a non-performing construction loan transferred from the held for investment loan portfolio to loans held for sale at June 30, 2023.

Gross charge-offs totaled $8.9 million for the third quarter 2023 and included a $4.0 million partial charge-off of one commercial and industrial loan relationship.

The amount of net loan charge-offs (as presented in the above table) and the low level of individual loan charge-offs for the third quarter 2023 continued to trend within management's expectations for the credit quality of the loan portfolio at September 30, 2023.

The following table summarizes the allocation of the allowance for credit losses for loans to loan portfolio categories and the allocations as a percentage of each loan category:

June 30, 2023 March 31, 2023 June 30, 2022

September 30, 2023 June 30, 2023 September 30, 2022

Allocation Allocation

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Allowance for credit losses for loans as a % total loans 0.92 % 0.92 % 1.10 %

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 0.92 percent at June 30, 2023 as compared to 0.95 percent and 1.13 percent at March 31, 2023 and June 30, 2022, respectively.

During the second quarter 2023, the provision for credit losses for loans tota led $6.3 million as compared to $9.5 million and $43.7 million for the first quarter 2023 and second quarter 2022, respectively.

At June 30, 2023, our allowance for credit losses for loans as a percentage of total loans decreased as compared to March 31, 2023 as higher economic forecast reserves driven by a more pessimistic Moody's Baseline outlook was more than offset by lower non-economic qualitative reserves for commercial loans .

The net impact of other changes in quantitative reserves for each loan category was not significant to the total allowance for loan losses at June 30, 2023 .

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 0.92 percent at both September 30, 2023 and June 30, 2023, and 1.10 percent at September 30, 2022.

During the third quarter 2023, t he provision for credit losses for loans totaled $9.1 million as compared to $6.3 million and $1.8 million for the second quarter 2023 and third quarter 2022, respectively.

The provision for credit losses for the third quarter 2023 reflects, among other factors, higher quantitative reserves related to classified loans within the commercial portfolios and specific reserves associated with collateral dependent loans, partially offset by a negative (credit) provision for unfunded credit commitments driven by a decline in these obligations at September 30, 2023.

Our economic forecast related reserves at September 30, 2023 remained relatively unchanged from June 30, 2023 .

Capital Adequacy

A significant measure of the strength of a financial institution is its shareholders’ equity.

At June 30, 2023 and December 31, 2022, shareholders’ equity totaled approximately $6.6 billion and $6.4 billion, which represented 10.7 percent and 11.1 percent of total assets, respectively.

During the six months ended June 30, 2023, total shareholders’ equity increased by approximately $174.4 million primarily due to the following:

At September 30, 2023 and December 31, 2022, shareholders’ equity totaled approximately $6.6 billion and $6.4 billion, which represented 10.8 percent and 11.1 percent of total assets, respectively.

During the nine months ended September 30, 2023, total shareholders’ equity increased by approximately $226.5 million primarily due to the following:

• net income of $427.0 million,

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• cash dividends declared on common and preferred stock totaling a combined $181.5 million,

• repurchases of $2.1 million of our common stock with these shares held in treasury stock and

• other comprehensive loss of $745 thousand.

Valley and Valley National Bank are subject to the regulatory capital requirements administered by the Federal Reserve Bank and the OCC.

• other comprehensive loss of $37.9 million, and

• repurchases of $2.1 million of our common stock with these shares held in treasury stock.

Valley and Valley National Bank are subject to the regulatory capital requirements administered by the FRB and the OCC.

Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations.

We are required to maintain common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, Tier 1 capital to risk-weighted assets ratio of 6.0 percent, ratio of total capital to risk-weighted assets of 8.0 percent, and a 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 June 30, 2023 and December 31, 2022, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

As of September 30, 2023 and December 31, 2022, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

For regulatory capital purposes, in accordance with the Federal Reserve Board’s final interim rule as of April 3, 2020, we deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e., 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 25 percent per year until fully phased-in on January 1, 2025.

As of June 30, 2023, approximately $23.6 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 6 basis points.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at June 30, 2023 and December 31, 2022:

As of September 30, 2023, approximately $23.6 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 6 basis points.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at September 30, 2023 and December 31, 2022:

Actual Minimum Capital

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($ in thousands)

As of June 30, 2023

As of September 30, 2023

Total Risk-based Capital

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Our rate of earnings retention is derived by dividing undistributed earnings per common share by earnings (or net income available to common shareholders) per common share.

Our retention ratio was approximately 60.0 percent for the six months ended June 30, 2023 as compared to 61.4 percent for the year ended December 31, 2022.

Cash dividends declared amounted to $0.22 per common share for each of the six months ended June 30, 2023 and 2022.

Our retention ratio was approximately 59.3 percent for the nine months ended September 30, 2023 as compared to 61.4 percent for the year ended December 31, 2022.

Cash dividends declared amounted to $0.33 per common share for each of the nine months ended September 30, 2023 and 2022.

The Board is committed to examining and weighing relevant facts and considerations, including its commitment to shareholder value, each time it makes a cash dividend decision.

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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-Q

Item 2. Management’s Discussion and Analysis