VALLEY NATIONAL BANCORP 10-Q

Item 1. Financial Statements VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (in thousands, except for share data) June 30, 2024 December 31, 2023 Assets (Unaudited) Cash and due from banks $ 478,006 $ 284,090 Interest bearing deposits with banks 531,067 607,135 Investment securities: Equity securities 69,105 64,464 Trading debt securities 3,979 3,973 Available for sale debt securities 2,212,092 1,296,576 Held to maturity debt securities (net of allowance for credit losses of $ 1,090 at June 30, 2024 and $ 1,205 at December 31, 2023) 3,650,364 3,739,208 Total investment securities 5,935,540 5,104,221 Loans held for sale (includes fair value of $ 11,137 at June 30, 2024 and $ 20,640 at December 31, 2023 for loans originated for sale) 19,887 30,640 Loans 50,311,702 50,210,295 Less: Allowance for loan losses ( 519,310 ) ( 446,080 ) Net loans 49,792,392 49,764,215 Premises and equipment, net 363,038 381,081 Lease right of use assets 337,947 343,461 Bank owned life insurance 725,879 723,799 Accrued interest receivable 251,167 245,498 Goodwill 1,868,936 1,868,936 Other intangible assets, net 143,644 160,331 Other assets 1,611,471 1,421,567 Total Assets $ 62,058,974 $ 60,934,974 Liabilities Deposits: Non-interest bearing $ 11,117,746 $ 11,539,483 Interest bearing: Savings, NOW and money market 24,711,083 24,526,622 Time 14,283,348 13,176,724 Total deposits 50,112,177 49,242,829 Short-term borrowings 63,770 917,834 Long-term borrowings 3,264,530 2,328,375 Junior subordinated debentures issued to capital trusts 57,282 57,108 Lease liabilities 398,179 403,781 Accrued expenses and other liabilities 1,425,299 1,283,656 Total Liabilities 55,321,237 54,233,583 Shareholders’ Equity Preferred stock, no par value; 50,000,000 authorized shares: Series A ( 4,600,000 shares issued at June 30, 2024 and December 31, 2023) 111,590 111,590 Series B ( 4,000,000 shares issued at June 30, 2024 and December 31, 2023) 98,101 98,101 Common stock ( no par value, authorized 650,000,000 shares; issued 509,205,014 shares at June 30, 2024 and 507,896,910 shares at December 31, 2023) 178,645 178,187 Surplus 4,995,638 4,989,989 Retained earnings 1,516,376 1,471,371 Accumulated other comprehensive loss ( 162,613 ) ( 146,456 ) Treasury stock, at cost ( 186,983 common shares at December 31, 2023) — ( 1,391 ) Total Shareholders’ Equity 6,737,737 6,701,391 Total Liabilities and Shareholders’ Equity $ 62,058,974 $ 60,934,974 See accompanying notes to consolidated financial statements. 3 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except for per share data) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Interest Income Interest and fees on loans $ 770,964 $ 715,172 $ 1,542,517 $ 1,370,398 Interest and dividends on investment securities: Taxable 40,460 31,919 76,257 64,208 Tax-exempt 4,799 5,575 9,595 10,900 Dividends 6,341 7,517 13,169 12,702 Interest on federal funds sold and other short-term investments 10,902 27,276 20,584 49,481 Total interest income 833,466 787,459 1,662,122 1,507,689 Interest Expense Interest on deposits: Savings, NOW and money market 231,597 164,842 464,103 315,608 Time 160,442 125,764 311,507 206,062 Interest on short-term borrowings 691 50,208 21,303 84,156 Interest on long-term borrowings and junior subordinated debentures 39,051 26,880 69,976 46,078 Total interest expense 431,781 367,694 866,889 651,904 Net Interest Income 401,685 419,765 795,233 855,785 (Credit) provision for credit losses for available for sale and held to maturity securities ( 41 ) ( 282 ) ( 115 ) 4,705 Provision for credit losses for loans 82,111 6,332 127,385 15,782 Net Interest Income After Provision for Credit Losses 319,615 413,715 667,963 835,298 Non-Interest Income Wealth management and trust fees 13,136 11,176 31,066 20,763 Insurance commissions 3,958 3,139 6,209 5,559 Capital markets 7,779 16,967 13,449 27,859 Service charges on deposit accounts 11,212 10,542 22,461 21,018 Gains on securities transactions, net 3 217 52 595 Fees from loan servicing 2,691 2,702 5,879 5,373 Gains on sales of loans, net 884 1,240 2,502 1,729 (Losses) gains on sales of assets, net ( 2 ) 161 3,692 285 Bank owned life insurance 4,545 2,443 7,780 5,027 Other 7,007 11,488 19,538 26,166 Total non-interest income 51,213 60,075 112,628 114,374 Non-Interest Expense Salary and employee benefits expense 140,815 149,594 282,646 294,580 Net occupancy expense 24,252 25,949 48,575 49,205 Technology, furniture and equipment expense 35,203 32,476 70,665 68,984 FDIC insurance assessment 14,446 10,426 32,682 19,581 Amortization of other intangible assets 8,568 9,812 17,980 20,331 Professional and legal fees 17,938 21,406 34,403 38,220 Amortization of tax credit investments 5,791 5,018 11,353 9,271 Other 30,484 28,290 59,503 54,965 Total non-interest expense 277,497 282,971 557,807 555,137 Income Before Income Taxes 93,331 190,819 222,784 394,535 Income tax expense 22,907 51,759 56,080 108,924 Net Income 70,424 139,060 166,704 285,611 Dividends on preferred stock 4,108 4,030 8,227 7,904 Net Income Available to Common Shareholders $ 66,316 $ 135,030 $ 158,477 $ 277,707 Earnings Per Common Share: Basic $ 0.13 $ 0.27 $ 0.31 $ 0.55 Diluted 0.13 0.27 0.31 0.55 See accompanying notes to consolidated financial statements. 4 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net income $ 70,424 $ 139,060 $ 166,704 $ 285,611 Other comprehensive loss, net of tax: Unrealized losses and gains on available for sale securities Net losses arising during the period ( 5,600 ) ( 18,051 ) ( 15,805 ) ( 881 ) Less reclassification adjustment for net losses included in net income 8 — 8 — Total ( 5,592 ) ( 18,051 ) ( 15,797 ) ( 881 ) Unrealized gains and losses on derivatives (cash flow hedges) Net losses on derivatives arising during the period — ( 3,573 ) — ( 775 ) Less reclassification adjustment for net (gains) losses included in net income ( 210 ) 516 ( 432 ) 895 Total ( 210 ) ( 3,057 ) ( 432 ) 120 Defined benefit pension and postretirement benefit plans Amortization of actuarial net loss 37 8 72 16 Total other comprehensive loss ( 5,765 ) ( 21,100 ) ( 16,157 ) ( 745 ) Total comprehensive income $ 64,659 $ 117,960 $ 150,547 $ 284,866 See accompanying notes to consolidated financial statements. 5 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) For the Six Months Ended June 30, 2024 Common Stock Accumulated Preferred Stock Shares Amount Surplus Retained Earnings Other Comprehensive Loss Treasury Stock Total Shareholders’ Equity ($ in thousands) Balance - December 31, 2023 $ 209,691 507,710 $ 178,187 $ 4,989,989 $ 1,471,371 $ ( 146,456 ) $ ( 1,391 ) $ 6,701,391 Net income — — — — 96,280 — — 96,280 Other comprehensive loss, net of tax — — — — — ( 10,392 ) — ( 10,392 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.58 per share — — — — ( 2,322 ) — — ( 2,322 ) Common stock, $ 0.11 per share — — — — ( 56,794 ) — — ( 56,794 ) Effect of stock incentive plan, net — 1,183 348 ( 966 ) — — 1,391 773 Balance - March 31, 2024 $ 209,691 508,893 $ 178,535 $ 4,989,023 $ 1,506,738 $ ( 156,848 ) $ — $ 6,727,139 Net income — — — — 70,424 — — 70,424 Other comprehensive loss, net of tax — — — — — ( 5,765 ) — ( 5,765 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.58 per share — — — — ( 2,311 ) — — ( 2,311 ) Common stock, $ 0.11 per share — — — — ( 56,678 ) — — ( 56,678 ) Effect of stock incentive plan, net — 312 110 6,615 — — — 6,725 Balance - June 30, 2024 $ 209,691 509,205 $ 178,645 $ 4,995,638 $ 1,516,376 $ ( 162,613 ) $ — $ 6,737,737 6 For the Six Months Ended June 30, 2023 Common Stock Accumulated Preferred Stock Shares Amount Surplus Retained Earnings Other Comprehensive Loss Treasury Stock Total Shareholders’ Equity ($ in thousands) Balance - December 31, 2022 $ 209,691 506,374 $ 178,185 $ 4,980,231 $ 1,218,445 $ ( 164,002 ) $ ( 21,748 ) $ 6,400,802 Adjustment due to the adoption of ASU 2022-02 — — — — 990 — — 990 Balance - January 1, 2023 209,691 506,374 178,185 4,980,231 1,219,435 ( 164,002 ) ( 21,748 ) 6,401,792 Net income — — — — 146,551 — — 146,551 Other comprehensive income, net of tax — — — — — 20,355 — 20,355 Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.52 per share — — — — ( 2,077 ) — — ( 2,077 ) Common stock, $ 0.11 per share — — — — ( 56,488 ) — — ( 56,488 ) Effect of stock incentive plan, net — 1,061 1 ( 12,569 ) ( 3,994 ) — 16,057 ( 505 ) Common stock issued — 327 — — ( 650 ) — 4,400 3,750 Balance - March 31, 2023 $ 209,691 507,762 $ 178,186 $ 4,967,662 $ 1,300,980 $ ( 143,647 ) $ ( 1,291 ) $ 6,511,581 Net income — — — — 139,060 — — 139,060 Other comprehensive loss, net of tax — — — — — ( 21,100 ) — ( 21,100 ) Cash dividends declared: Preferred stock, Series A, $ 0.39 per share — — — — ( 1,797 ) — — ( 1,797 ) Preferred stock, Series B, $ 0.56 per share — — — — ( 2,233 ) — — ( 2,233 ) Common stock, $ 0.11 per share — — — — ( 56,474 ) — — ( 56,474 ) Effect of stock incentive plan, net — 157 1 6,845 ( 2 ) — 1,395 8,239 Common stock repurchased — ( 300 ) — — — — ( 2,092 ) ( 2,092 ) Balance - June 30, 2023 $ 209,691 507,619 $ 178,187 $ 4,974,507 $ 1,379,534 $ ( 164,747 ) $ ( 1,988 ) $ 6,575,184 See accompanying notes to consolidated financial statements. 7 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 2024 2023 Cash flows from operating activities: Net income $ 166,704 $ 285,611 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 21,510 21,425 Stock-based compensation 15,718 16,773 Provision for credit losses 127,270 20,487 Net accretion of discounts and amortization of premium on securities and borrowings ( 1,418 ) ( 639 ) Amortization of other intangible assets 17,980 20,331 Losses on available for sale and held to maturity debt securities, net 11 33 Proceeds from sales of loans held for sale at fair value 145,310 72,925 Gains on sales of loans, net ( 2,502 ) ( 1,729 ) Originations of loans held for sale ( 133,348 ) ( 76,943 ) Gains on sales of assets, net ( 3,692 ) ( 285 ) Net change in: Fair value of financial instruments hedged by derivative transactions 6,083 ( 291 ) Trading debt securities ( 6 ) 10,029 Lease right of use assets 5,506 ( 53,412 ) Cash surrender value of bank owned life insurance ( 7,748 ) ( 5,722 ) Accrued interest receivable ( 5,669 ) ( 29,312 ) Other assets ( 176,362 ) ( 230,018 ) Accrued expenses and other liabilities 138,165 233,419 Net cash provided by operating activities 313,512 282,682 Cash flows from investing activities: Net loan originations and purchases ( 496,413 ) ( 3,009,649 ) Equity securities: Purchases ( 4,691 ) ( 9,662 ) Sales 751 771 Held to maturity debt securities: Purchases ( 56,672 ) ( 114,544 ) Maturities, calls and principal repayments 144,552 175,492 Available for sale debt securities: Purchases ( 982,861 ) ( 41,470 ) Sales — 17,910 Maturities, calls and principal repayments 49,102 44,534 Death benefit proceeds from bank owned life insurance 5,667 5,218 Proceeds from sales of real estate property and equipment 2,974 490 Proceeds from sales of loans not originated for sale 230,666 — Proceeds from sale of commercial premium finance lending division 98,060 — Purchases of real estate property and equipment ( 6,378 ) ( 49,468 ) Net cash used in investing activities ( 1,015,243 ) ( 2,980,378 ) 8 VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) (in thousands) Six Months Ended June 30, 2024 2023 Cash flows from financing activities: Net change in deposits $ 869,348 $ 1,982,901 Net change in short-term borrowings ( 854,064 ) 950,170 Proceeds from issuance of long-term borrowings, net 1,000,000 1,250,000 Repayments of long-term borrowings ( 65,000 ) ( 350,000 ) Cash dividends paid to preferred shareholders ( 8,227 ) ( 7,904 ) Cash dividends paid to common shareholders ( 114,256 ) ( 113,611 ) Purchase of common shares to treasury ( 8,271 ) ( 11,133 ) Common stock issued, net 51 3,750 Other, net ( 2 ) ( 15 ) Net cash provided by financing activities 819,579 3,704,158 Net change in cash and cash equivalents 117,848 1,006,462 Cash and cash equivalents at beginning of year 891,225 947,947 Cash and cash equivalents at end of period $ 1,009,073 $ 1,954,409 Supplemental disclosures of cash flow information: Cash payments for: Interest on deposits and borrowings $ 891,336 $ 571,741 Federal and state income taxes 48,252 122,130 Supplemental schedule of non-cash investing activities: Transfer of loans to other real estate owned $ 8,059 $ 903 Transfer of loans to loans held for sale — 10,000 Lease right of use assets obtained in exchange for operating lease liabilities 15,429 81,727 See accompanying notes to consolidated financial statements. 9 VALLEY NATIONAL BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The unaudited consolidated financial state ments of Valley include the accounts of the Bank and all other entities in which Valley has a controlling financial interest. All inter-company transactions and balances have been eliminated. The accounting and reporting policies of Valley conform to GAAP and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at June 30, 2024 and for all periods presented have been made. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the entire fiscal year or any subsequent interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP and industry practice have been condensed or omitted pursuant to rules and regulations of the SEC. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report. Significant Estimates. In preparing the unaudited consolidated financial statements in conformit y with GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include: the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment, and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results may differ from those estimates. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date . Preferred Stock Series C Issuance. On August 5, 2024, Valley issued 6.0 million shares of its Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series C, no par value per share, with a liquidation preference of $ 25 per share for aggregate consideration of $ 150 million. Dividends on the preferred stock will accrue and be payable quarterly in arrears, at a fixed rate per annum equal to 8.250 % from the date of original issue to, but excluding September 30, 2029, and thereafter at a rate per annum equal to the five-year U.S. treasury rate as of the most recent dividend payment date plus 4.182 percent. Net proceeds to Valley after deducting underwriting discounts, commissions and offering expenses were $ 144.7 million. In addition, Valley has granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of the preferred stock at the public offering price, less underwriting discounts and commissions, solely to cover over-allotments, if any. 10 Note 2. Earnings Per Common Share The following table shows the calculation of both basic and diluted earnings per common share for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in thousands, except for share and per share data) Net income available to common shareholders $ 66,316 $ 135,030 $ 158,477 $ 277,707 Basic weighted average number of common shares outstanding 509,141,252 507,690,043 508,740,986 507,402,268 Plus: Common stock equivalents 1,197,250 952,982 1,696,973 1,674,035 Diluted weighted average number of common shares outstanding 510,338,502 508,643,025 510,437,959 509,076,303 Earnings per common share: Basic $ 0.13 $ 0.27 $ 0.31 $ 0.55 Diluted 0.13 0.27 0.31 0.55 Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicab le, of RSUs and common stock options to purchase Valley’s common shares. Common stock options with exercise prices that exceed the average market price of Valley’s common stock during the periods presented may have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation along with RSUs. Pote ntial anti-dilutive weighted common shares totaled approximately 6.9 million and 7.2 million for the three months ended June 30, 2024 and 2023, respectively, and 6.0 million and 3.0 million for the six months ended June 30, 2024 and 2023, respectively. Note 3. Accumulated Other Comprehensive Loss The following tables present the after-tax changes in the balances of each component of accumulated other comprehensive loss for th e three and six months ended June 30, 2024 and 2023: Components of Accumulated Other Comprehensive Loss Total Accumulated Other Comprehensive Loss Unrealized Gains and Losses on AFS Securities Unrealized Gains and Losses on Derivatives Defined Benefit Pension and Postretirement Benefit Plans (in thousands) March 31, 2024 $ ( 125,707 ) $ 1,892 $ ( 33,033 ) $ ( 156,848 ) Other comprehensive loss before reclassification ( 5,600 ) — — ( 5,600 ) Amounts reclassified from other comprehensive loss 8 ( 210 ) 37 ( 165 ) Other comprehensive (loss) income, net ( 5,592 ) ( 210 ) 37 ( 5,765 ) June 30, 2024 $ ( 131,299 ) $ 1,682 $ ( 32,996 ) $ ( 162,613 ) March 31, 2023 $ ( 110,648 ) $ 5,410 $ ( 38,409 ) $ ( 143,647 ) Other comprehensive loss before reclassification ( 18,051 ) ( 3,573 ) — ( 21,624 ) Amounts reclassified from other comprehensive loss — 516 8 524 Other comprehensive (loss) income, net ( 18,051 ) ( 3,057 ) 8 ( 21,100 ) June 30, 2023 $ ( 128,699 ) $ 2,353 $ ( 38,401 ) $ ( 164,747 ) 11 Components of Accumulated Other Comprehensive Loss Total Accumulated Other Comprehensive Loss Unrealized Gains and Losses on AFS Securities Unrealized Gains and Losses on Derivatives Defined Benefit Pension and Postretirement Benefit Plans (in thousands) December 31, 2023 $ ( 115,502 ) $ 2,114 $ ( 33,068 ) $ ( 146,456 ) Other comprehensive loss before reclassification ( 15,805 ) — — ( 15,805 ) Amounts reclassified from other comprehensive loss 8 ( 432 ) 72 ( 352 ) Other comprehensive (loss) income, net ( 15,797 ) ( 432 ) 72 ( 16,157 ) June 30, 2024 $ ( 131,299 ) $ 1,682 $ ( 32,996 ) $ ( 162,613 ) December 31, 2022 $ ( 127,818 ) $ 2,233 $ ( 38,417 ) $ ( 164,002 ) Other comprehensive loss before reclassification ( 881 ) ( 775 ) — ( 1,656 ) Amounts reclassified from other comprehensive loss — 895 16 911 Other comprehensive (loss) income, net ( 881 ) 120 16 ( 745 ) June 30, 2023 $ ( 128,699 ) $ 2,353 $ ( 38,401 ) $ ( 164,747 ) The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three and six months ended June 30, 2024 and 2023: Amounts Reclassified from Accumulated Other Comprehensive Loss Three Months Ended June 30, Six Months Ended June 30, Components of Accumulated Other Comprehensive Loss 2024 2023 2024 2023 Income Statement Line Item (in thousands) Unrealized losses on AFS securities before tax $ ( 11 ) $ — $ ( 11 ) $ — Gains on securities transactions, net Tax effect 3 — 3 — Total net of tax ( 8 ) — ( 8 ) — Unrealized gains (losses) on derivatives (cash flow hedges) before tax 299 ( 725 ) 597 ( 1,256 ) Interest income Tax effect ( 89 ) 209 ( 165 ) 361 Total net of tax 210 ( 516 ) 432 ( 895 ) Defined benefit pension and postretirement benefit plans: Amortization of actuarial net loss ( 50 ) ( 11 ) ( 99 ) ( 22 ) * Tax effect 13 3 27 6 Total net of tax ( 37 ) ( 8 ) ( 72 ) ( 16 ) Total reclassifications, net of tax $ 165 $ ( 524 ) $ 352 $ ( 911 ) * Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense. Note 4. New Authoritative Accounting Guidance New Accounting Guidance Adopted in the First Quarter 2024 ASU No. 2023-02, “Investments –Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” is intended to improve the accounting and disclosures for investments in certain tax credit structures. ASU No. 2023-02 allows the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met. ASU No. 2023-02 became effective on January 1, 2024 and did not have a significant impact on Valley's consolidated financial statements. Under the new guidance, Valley did not elect to apply the proportional amortization method as an accounting policy for its eligible 12 tax credit investments and, as a result, there were no adjustments from adoption recognized in earnings on the date of adoption. See additional disclosures regarding Valley's tax credit investments in Note 14 . ASU No. 2022-03, “Fair Value Measurement of Equity Securities subject to Contractual Sale Restrictions,” updates guidance in ASC Topic 820, Fair Value Measurement and clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities including (i) the nature and remaining duration of the restriction; (ii) the circumstances that could cause a lapse in restrictions; and (iii) the fair value of the securities with contractual sale restrictions. ASU No. 2022-03 became effective on January 1, 2024 and Valley's adoption did not have a significant impact on its consolidated financial statements. New Accounting Guidance Effective at December 31, 2024 ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” requires public entities to disclose detailed information about a reportable segment’s expenses on both an annual and interim basis. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in ASU No. 2023-07 should be applied retrospectively to all periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The adoption of ASU No. 2023-07 is not expected to have a significant impact on Valley's consolidated financial statements, other than enhanced disclosures. Note 5. Fair Value Measurement of Assets and Liabilities ASC Topic 820, “Fair Value Measurement,” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: • Level 1 - Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date. • Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets) for substantially the full term of the asset or liability. • Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis The following tables present the assets and liabilities that are measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at June 30, 2024 and December 31, 2023. The assets presented under “non-recurring fair value measurements” in the tables below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized). 13 June 30, 2024 Fair Value Measurements at Reporting Date Using: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Recurring fair value measurements: Assets Investment securities: Equity securities $ 23,094 $ 23,094 $ — $ — Equity securities at net asset value (NAV) 12,159 — — — Trading debt securities 3,979 3,979 — — Available for sale debt securities: U.S. Treasury securities 286,274 286,274 — — U.S. government agency securities 22,766 — 22,766 — Obligations of states and political subdivisions 188,688 — 188,688 — Residential mortgage-backed securities 1,535,690 — 1,535,690 — Corporate and other debt securities 178,674 — 178,674 — Total available for sale debt securities 2,212,092 286,274 1,925,818 — Loans held for sale (1) 11,137 — 11,137 — Other assets (2) 514,661 — 514,661 — Total assets $ 2,777,122 $ 313,347 $ 2,451,616 $ — Liabilities Other liabilities (2) $ 531,746 $ — $ 531,746 $ — Total liabilities $ 531,746 $ — $ 531,746 $ — Non-recurring fair value measurements: Non-performing loan held for sale (3) $ 8,750 $ — $ 8,750 $ — Collateral dependent loans 112,575 — — 112,575 Foreclosed assets 9,666 — — 9,666 Total $ 130,991 $ — $ 8,750 $ 122,241 14 Fair Value Measurements at Reporting Date Using: December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Recurring fair value measurements: Assets Investment securities: Equity securities $ 23,307 $ 23,307 $ — $ — Equity securities at net asset value (NAV) 12,126 — — — Trading debt securities 3,973 3,973 — — Available for sale debt securities: U.S. Treasury securities 288,157 288,157 — — U.S. government agency securities 23,702 — 23,702 — Obligations of states and political subdivisions 191,690 — 191,690 — Residential mortgage-backed securities 626,572 — 626,572 — Corporate and other debt securities 166,455 — 166,455 — Total available for sale debt securities 1,296,576 288,157 1,008,419 — Loans held for sale (1) 20,640 — 20,640 — Other assets (2) 466,227 — 466,227 — Total assets $ 1,822,849 $ 315,437 $ 1,495,286 $ — Liabilities Other liabilities (2) $ 488,103 $ — $ 488,103 $ — Total liabilities $ 488,103 $ — $ 488,103 $ — Non-recurring fair value measurements: Non-performing loan held for sale (3) $ 10,000 $ — $ 10,000 $ — Collateral dependent loans 90,580 — — 90,580 Foreclosed assets 1,444 — — 1,444 Total $ 102,024 $ — $ 10,000 $ 92,024 (1) Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling $ 11.0 million and $ 20.1 million at June 30, 2024 and December 31, 2023, respectively. (2) Derivative financial instruments are included in this category. (3) Reported at lower of cost or fair value . Assets and Liabilities Measured at Fair Value on a Recurring Basis The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All the valuation techniques described below apply to the unpaid principal balance, excluding any accrued interest or dividends at the measurement date. Interest income and expense are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium. Equity securities . The equity securities consisted of two publicly traded mutual funds, CRA inves tments and several other equity investments we have made in companies that develop new financial technologies and in partnerships that invest in such companies. These investments are reported at fair value utilizing Level 1 inputs. Equity securities at NAV . Valley also has privately held CRA funds at fair value measured at NAV using the most recently available financial information from the investee. Certain equity investments without readily determinable 15 fair values are measured at NAV per share (or its equivalent) as a practical expedient, which are excluded from fair value hierarchy levels in the tables above. Trading debt securities . The fair value of trading debt securitie s, consisting of U.S. Treasury securities, are reported at fair value utilizing Level 1 inputs at June 30, 2024 and December 31, 2023 . Man agement reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. Available for sale debt securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for a ll AFS debt s ecurities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume. Loans held for sale. Residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at June 30, 2024 and December 31, 2023 based on the short duration these assets were held and their credit quality. Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the SOFR curve at June 30, 2024. The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at June 30, 2024 and December 31, 2023), is determined based on the current market prices for similar instruments. The fair value of a credit default swap related to a portion of Valley's automobile loan portfolio is based on estimated discounted cash flows that incorporate market data for auto credit loss forecasts and anticipated cash outflows for the instrument's premium payments. The fair value of most of the derivatives incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance risk of Valley and its counterparties. The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at June 30, 2024 and December 31, 2023. See Note 12 for additional details on Valley's derivatives. Assets and Liabilities Measured at Fair Value on a Non-recurring Basis The following valuation techniques were used for certain non-financial assets measured at fair value on a non-recurring basis, including collateral dependent loans reported at the fair value of the underlying collateral and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below. Non-performing loan held for sale . Du ring the year ended December 31, 2023 , Valley transferred a non-performing construction loan totaling $ 10.0 million, net of charge-offs, to loans held for sale. The transfer at the loan's fair value resulted in a $ 4.2 million charge-off to the allowance of loan losses. The fair value of the loan was determined using Level 2 inputs, including bids from a third-party broker engaged to solicit interest from potential purchasers. The broker coordinated loan level due diligence with interested parties and established a formal bidding process in which each participant was required to provide an indicative non-binding bid. Fair value was determined based on a non-binding sale agreement selected by Valley during the bidding process. During the second quarter 16 ended June 30, 2024, an additional $ 1.2 million write-down was recorded to reflect the loan's current estimated fair value of $ 8.8 million at June 30, 2024. Collateral dependent loans . Collateral dependent loans are loans where foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and substantially all of the repayment is expected from the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs, consisting of individual third-party appraisals that may be adjusted based on certain discounting criteria. Certain real estate appraisals may be discounted based on specific market data by location and property type. At June 30, 2024, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses based on the fair value of the underlying collateral. At June 30, 2024, collateral dependent loans with a total amortized cost of $ 196.2 million, including taxi medallion loans totaling $ 41.6 million, were reduced by specific allowance for loan losses allocations totaling $ 83.6 million to a reported total net carrying amount of $ 112.6 million. Foreclosed assets . Certain foreclosed assets (consisting of other real estate owned and other repossessed assets included in other assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value using Level 3 inputs, consisting of a third-party appraisal less estimated cost to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If further declines in the estimated fair value of an asset occur, the a sset is re-measured and reported at fair value through a write-down recorded in non-interest expense. There were no adjustments to the appraisals of foreclosed assets at June 30, 2024 and December 31, 2023. Other Fair Value Disclosures ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operations, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. 17 The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at June 30, 2024 and December 31, 2023 were as follows: Fair Value Hierarchy June 30, 2024 December 31, 2023 Carrying Amount Fair Value Carrying Amount Fair Value (in thousands) Financial assets Cash and due from banks Level 1 $ 478,006 $ 478,006 $ 284,090 $ 284,090 Interest bearing deposits with banks Level 1 531,067 531,067 607,135 607,135 Equity securities (1) Level 3 33,852 33,852 29,031 29,031 Held to maturity debt securities: U.S. Treasury securities Level 1 25,861 25,579 26,232 25,978 U.S. government agency securities Level 2 304,308 257,457 305,996 261,555 Obligations of states and political subdivisions Level 2 393,163 366,611 405,470 387,527 Residential mortgage-backed securities Level 2 2,804,769 2,379,255 2,885,303 2,521,926 Trust preferred securities Level 2 37,071 29,848 37,062 30,650 Corporate and other debt securities Level 2 86,282 81,198 80,350 74,676 Total held to maturity debt securities (2) 3,651,454 3,139,948 3,740,413 3,302,312 Net loans Level 3 49,792,392 48,010,633 49,764,215 47,981,499 Accrued interest receivable Level 1 251,167 251,167 245,498 245,498 FRB and FHLB stock (3) Level 2 327,561 327,561 320,727 320,727 Financial liabilities Deposits without stated maturities Level 1 35,828,829 35,828,829 36,066,105 36,066,105 Deposits with stated maturities Level 2 14,283,348 14,251,483 13,176,724 13,103,381 Short-term borrowings Level 2 63,770 47,379 917,834 901,617 Long-term borrowings Level 2 3,264,530 3,209,974 2,328,375 2,256,997 Junior subordinated debentures issued to capital trusts Level 2 57,282 48,130 57,108 47,374 Accrued interest payable (4) Level 1 135,049 135,049 159,496 159,496 (1) Represents equity securities without a readily determinable fair value, which are measured based on the price at which the investment was acquired plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. Total changes in the valuation of equity securities for the six months ended June 30, 2024 and for the year ended December 31, 2023 were immaterial. (2) The carrying amount is presented gross without the allowance for credit losses. (3) Included in other assets. (4) Included in accrued expenses and other liabilities. Note 6. Investment Securities Equity Securities Equity securities totaled $ 69.1 million and $ 64.5 million at June 30, 2024 and December 31, 2023, respectively. See Note 5 for further details on equity securities. Trading Debt Securities The fair value of trading debt securities totaled $ 4.0 million at both June 30, 2024 and December 31, 2023. Net trading gains and losses are included in net gains and losses on securities transactions within non-interest income. The net trading gains for the three and six months ended June 30, 2024 were not material. We recorded net trading gains of $ 226 thousand and $ 628 thousand for the three and six months ended June 30, 2023, respectively. 18 Available for Sale Debt Securities The amortized cost, gross unrealized gains and losses and fair value of AFS debt securities at June 30, 2024 and December 31, 2023 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) June 30, 2024 U.S. Treasury securities $ 316,642 $ — $ ( 30,368 ) $ 286,274 U.S. government agency securities 25,177 23 ( 2,434 ) 22,766 Obligations of states and political subdivisions: Obligations of states and state agencies 50,154 — ( 676 ) 49,478 Municipal bonds 171,552 — ( 32,342 ) 139,210 Total obligations of states and political subdivisions 221,706 — ( 33,018 ) 188,688 Residential mortgage-backed securities 1,625,542 1,565 ( 91,417 ) 1,535,690 Corporate and other debt securities 202,487 59 ( 23,872 ) 178,674 Total $ 2,391,554 $ 1,647 $ ( 181,109 ) $ 2,212,092 December 31, 2023 U.S. Treasury securities $ 313,772 $ — $ ( 25,615 ) $ 288,157 U.S. government agency securities 25,967 19 ( 2,284 ) 23,702 Obligations of states and political subdivisions: Obligations of states and state agencies 48,283 — ( 588 ) 47,695 Municipal bonds 170,260 — ( 26,265 ) 143,995 Total obligations of states and political subdivisions 218,543 — ( 26,853 ) 191,690 Residential mortgage-backed securities 703,875 728 ( 78,031 ) 626,572 Corporate and other debt securities 192,282 — ( 25,827 ) 166,455 Total $ 1,454,439 $ 747 $ ( 158,610 ) $ 1,296,576 Accrued interest on investments , which is excluded from the amortized cost of AFS debt securities, totaled $ 8.9 million and $ 5.9 million at June 30, 2024 and December 31, 2023, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition. 19 The age of unrealized losses and fair value of the related AFS debt securities at June 30, 2024 and December 31, 2023 were as follows: Less than 12 Months More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (in thousands) June 30, 2024 U.S. Treasury securities $ — $ — $ 286,274 $ ( 30,368 ) $ 286,274 $ ( 30,368 ) U.S. government agency securities — — 21,457 ( 2,434 ) 21,457 ( 2,434 ) Obligations of states and political subdivisions: Obligations of states and state agencies — — 6,608 ( 676 ) 6,608 ( 676 ) Municipal bonds — — 139,210 ( 32,342 ) 139,210 ( 32,342 ) Total obligations of states and political subdivisions — — 145,818 ( 33,018 ) 145,818 ( 33,018 ) Residential mortgage-backed securities 543,665 ( 2,396 ) 529,338 ( 89,021 ) 1,073,003 ( 91,417 ) Corporate and other debt securities 4,803 ( 197 ) 163,811 ( 23,675 ) 168,614 ( 23,872 ) Total $ 548,468 $ ( 2,593 ) $ 1,146,698 $ ( 178,516 ) $ 1,695,166 $ ( 181,109 ) December 31, 2023 U.S. Treasury securities $ — $ — $ 288,156 $ ( 25,615 ) $ 288,156 $ ( 25,615 ) U.S. government agency securities — — 22,364 ( 2,284 ) 22,364 ( 2,284 ) Obligations of states and political subdivisions: Obligations of states and state agencies — — 8,276 ( 588 ) 8,276 ( 588 ) Municipal bonds 1,019 ( 4 ) 142,976 ( 26,261 ) 143,995 ( 26,265 ) Total obligations of states and political subdivisions 1,019 ( 4 ) 151,252 ( 26,849 ) 152,271 ( 26,853 ) Residential mortgage-backed securities 9,010 ( 3 ) 569,629 ( 78,028 ) 578,639 ( 78,031 ) Corporate and other debt securities 4,977 ( 23 ) 161,478 ( 25,804 ) 166,455 ( 25,827 ) Total $ 15,006 $ ( 30 ) $ 1,192,879 $ ( 158,580 ) $ 1,207,885 $ ( 158,610 ) Within the AFS debt securities portfolio, the total number of security positions in an unrealized loss position was 706 and 687 at June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024, the fair value of AFS securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $ 1.7 billion. The contractual maturities of AFS debt securities at June 30, 2024 are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary. 20 June 30, 2024 Amortized Cost Fair Value (in thousands) Due in one year $ 351 $ 349 Due after one year through five years 292,140 278,674 Due after five years through ten years 183,029 159,565 Due after ten years 290,492 237,814 Residential mortgage-backed securities 1,625,542 1,535,690 Total $ 2,391,554 $ 2,212,092 Actual maturities of AFS debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. The weighted average remaining expected life for residential mortgage-backed securities AFS was 6.73 years at June 30, 2024. Impairment Analysis of Available For Sale Debt Securities Valley's AFS debt securities portfolio includes corporate bonds and revenue bonds, among other securities. These types of securities may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S. economy and its potential negative effect on the future performance of the security issuers. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. Valley also evaluated AFS debt securities that were in an unrealized loss position as of June 30, 2024 included in the tables above and has determined that the declines in fair value are mainly attributable to interest rates, credit spreads, market volatility and liquidity conditions, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, th ere was no impairment recognized during the three and six months ended June 30, 2024. During the three and six months ended June 30, 2023, 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 based on a comparison of the present value of expected cash flows to the amortized cost. The bond was subsequently sold and the sale resulted in a $ 869 thousand gain during the fourth quarter 2023. Valley does not intend to sell any of its AFS debt securities in an unrealized loss position prior to recovery of their 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 their amortized cost basis. None of the AFS debt securities were past due as of June 30, 2024. As a result, there was no allowance for credit los ses for AFS debt securities at June 30, 2024, December 31, 2023 and June 30, 2023. 21 Held to Maturity Debt Securities The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at June 30, 2024 and December 31, 2023 were as follows: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Net Carrying Value (in thousands) June 30, 2024 U.S. Treasury securities $ 25,861 $ — $ ( 282 ) $ 25,579 $ — $ 25,861 U.S. government agency securities 304,308 — ( 46,851 ) 257,457 — 304,308 Obligations of states and political subdivisions: Obligations of states and state agencies 84,910 — ( 5,303 ) 79,607 382 84,528 Municipal bonds 308,253 3 ( 21,252 ) 287,004 52 308,201 Total obligations of states and political subdivisions 393,163 3 ( 26,555 ) 366,611 434 392,729 Residential mortgage-backed securities 2,804,769 2,008 ( 427,522 ) 2,379,255 — 2,804,769 Trust preferred securities 37,071 — ( 7,223 ) 29,848 445 36,626 Corporate and other debt securities 86,282 — ( 5,084 ) 81,198 211 86,071 Total $ 3,651,454 $ 2,011 $ ( 513,517 ) $ 3,139,948 $ 1,090 $ 3,650,364 December 31, 2023 U.S. Treasury securities $ 26,232 $ — $ ( 254 ) $ 25,978 $ — $ 26,232 U.S. government agency securities 305,996 — ( 44,441 ) 261,555 — 305,996 Obligations of states and political subdivisions: Obligations of states and state agencies 88,556 552 ( 4,155 ) 84,953 395 88,161 Municipal bonds 316,914 40 ( 14,380 ) 302,574 49 316,865 Total obligations of states and political subdivisions 405,470 592 ( 18,535 ) 387,527 444 405,026 Residential mortgage-backed securities 2,885,303 6,059 ( 369,436 ) 2,521,926 — 2,885,303 Trust preferred securities 37,062 — ( 6,412 ) 30,650 506 36,556 Corporate and other debt securities 80,350 — ( 5,674 ) 74,676 255 80,095 Total $ 3,740,413 $ 6,651 $ ( 444,752 ) $ 3,302,312 $ 1,205 $ 3,739,208 Accrued interest on investments , which is excluded from the amortized cost of HTM debt securities, totaled $ 13.7 million and $ 13.9 million at June 30, 2024 and December 31, 2023, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition. HTM debt securities are carried net of an allowance for credit losses. 22 The age of unrealized losses and fair value of related debt securities held to maturity at June 30, 2024 and December 31, 2023 were as follows: Less than 12 Months More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (in thousands) June 30, 2024 U.S. Treasury securities $ — $ — $ 25,578 $ ( 282 ) $ 25,578 $ ( 282 ) U.S. government agency securities 41,012 ( 95 ) 215,334 ( 46,756 ) 256,346 ( 46,851 ) Obligations of states and political subdivisions: Obligations of states and state agencies 23,423 ( 560 ) 55,433 ( 4,743 ) 78,856 ( 5,303 ) Municipal bonds 47,542 ( 990 ) 207,639 ( 20,262 ) 255,181 ( 21,252 ) Total obligations of states and political subdivisions 70,965 ( 1,550 ) 263,072 ( 25,005 ) 334,037 ( 26,555 ) Residential mortgage-backed securities 155,245 ( 950 ) 2,042,485 ( 426,572 ) 2,197,730 ( 427,522 ) Trust preferred securities 951 ( 49 ) 28,897 ( 7,174 ) 29,848 ( 7,223 ) Corporate and other debt securities 18,858 ( 142 ) 62,340 ( 4,942 ) 81,198 ( 5,084 ) Total $ 287,031 $ ( 2,786 ) $ 2,637,706 $ ( 510,731 ) $ 2,924,737 $ ( 513,517 ) December 31, 2023 U.S. Treasury securities $ — $ — $ 25,978 $ ( 254 ) $ 25,978 $ ( 254 ) U.S. government agency securities 43,664 ( 151 ) 216,759 ( 44,290 ) 260,423 ( 44,441 ) Obligations of states and political subdivisions: Obligations of states and state agencies 10,700 ( 102 ) 48,149 ( 4,053 ) 58,849 ( 4,155 ) Municipal bonds 11,958 ( 121 ) 207,520 ( 14,259 ) 219,478 ( 14,380 ) Total obligations of states and political subdivisions 22,658 ( 223 ) 255,669 ( 18,312 ) 278,327 ( 18,535 ) Residential mortgage-backed securities 57,085 ( 505 ) 2,164,704 ( 368,931 ) 2,221,789 ( 369,436 ) Trust preferred securities 938 ( 63 ) 29,712 ( 6,349 ) 30,650 ( 6,412 ) Corporate and other debt securities 12,575 ( 426 ) 59,102 ( 5,248 ) 71,677 ( 5,674 ) Total $ 136,920 $ ( 1,368 ) $ 2,751,924 $ ( 443,384 ) $ 2,888,844 $ ( 444,752 ) Within the HTM securities portfolio, the total number of security positions in an unrealized loss position was 816 and 762 at June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024, the fair value of debt securities HTM that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $ 2.7 billion. 23 The contractual maturities of investments in HTM debt securities at June 30, 2024 are set forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary. June 30, 2024 Amortized Cost Fair Value (in thousands) Due in one year $ 26,489 $ 26,345 Due after one year through five years 109,365 106,796 Due after five years through ten years 165,751 154,096 Due after ten years 545,080 473,456 Residential mortgage-backed securities 2,804,769 2,379,255 Total $ 3,651,454 $ 3,139,948 Actual maturities of HTM debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty. The weighted-average remaining expected life for residential mortgage-backed securitie s HTM was 9.45 years at June 30, 2024. 24 Credit Quality Indicators Valley monitors the credit quality of the HTM debt securities utilizing the most c urrent credit ratings from external rating agencies. The following table summarizes the amortized cost of HTM debt securities by external credit rating at June 30, 2024 and December 31, 2023. AAA/AA/A Rated BBB rated Non-investment grade rated Non-rated Total (in thousands) June 30, 2024 U.S. Treasury securities $ 25,861 $ — $ — $ — $ 25,861 U.S. government agency securities 304,308 — — — 304,308 Obligations of states and political subdivisions: Obligations of states and state agencies 63,002 — 5,248 16,660 84,910 Municipal bonds 280,002 — — 28,251 308,253 Total obligations of states and political subdivisions 343,004 — 5,248 44,911 393,163 Residential mortgage-backed securities 2,804,769 — — — 2,804,769 Trust preferred securities — — — 37,071 37,071 Corporate and other debt securities — 6,000 — 80,282 86,282 Total $ 3,477,942 $ 6,000 $ 5,248 $ 162,264 $ 3,651,454 December 31, 2023 U.S. Treasury securities $ 26,232 $ — $ — $ — $ 26,232 U.S. government agency securities 305,996 — — — 305,996 Obligations of states and political subdivisions: Obligations of states and state agencies 66,502 — 5,330 16,724 88,556 Municipal bonds 283,441 — — 33,473 316,914 Total obligations of states and political subdivisions 349,943 — 5,330 50,197 405,470 Residential mortgage-backed securities 2,885,303 — — — 2,885,303 Trust preferred securities — — 37,062 37,062 Corporate and other debt securities — 6,000 — 74,350 80,350 Total $ 3,567,474 $ 6,000 $ 5,330 $ 161,609 $ 3,740,413 Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At June 30, 2024, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the “non-rated” category included municipal bonds secured by Ginnie Mae securities. Trust preferred securities consist of non-rated single-issuer securities issued by bank holding companies. Corporate bonds consist of debt primarily issued by banks. Allowance for Credit Losses for Held to Maturity Debt Securities Valley has a zero loss expectation for certain securities within the HTM portfolio, and therefore it is not required to estimate an allowance for credit losses related to these securities under the CECL standard. After an evaluation of qualitative factors, Valley identified the following security types which it believes qualify for this exclusion: U.S. Treasury securities, U.S. government agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds. To measure the expected credit losses on HTM debt securities that have loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by a third-party. 25 The following table details the activity in the allowance for credit losses for HTM securities for the three and six months ended June 30, 2024 and 2023: Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 (in thousands) Beginning balance $ 1,131 $ 1,633 $ 1,205 $ 1,646 Credit for credit losses ( 41 ) ( 282 ) ( 115 ) ( 295 ) Ending balance $ 1,090 $ 1,351 $ 1,090 $ 1,351 Note 7. Loans and Allowance for Credit Losses for Loans The detail of the loan portfolio as of June 30, 2024 and December 31, 2023 was as follows: June 30, 2024 December 31, 2023 (in thousands) Loans: Commercial and industrial $ 9,479,147 $ 9,230,543 Commercial real estate: Commercial real estate 28,223,123 28,243,239 Construction 3,545,723 3,726,808 Total commercial real estate loans 31,768,846 31,970,047 Residential mortgage 5,627,113 5,569,010 Consumer: Home equity 566,467 559,152 Automobile 1,762,852 1,620,389 Other consumer 1,107,277 1,261,154 Total consumer loans 3,436,596 3,440,695 Total loans $ 50,311,702 $ 50,210,295 Total loans include net unearned discounts and deferred loan fees of $ 61.6 million and $ 85.4 million at June 30, 2024 and December 31, 2023, respectively. Accrued interest on loans , which is excluded from the amortized cost of loans held for investment, totaled $ 224.3 million and $ 222.2 million at June 30, 2024 and December 31, 2023, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition. Loans Portfolio Sales and Transfers to Loans Held for Sale Valley sells residential mortgage loans originated for sale (at fair value) primarily to Fannie Mae and Freddie Mac in the normal course of business. Under certain circumstances, Valley may decide to sell loans that were not originated with the intent to sell. During the first quarter 2024, Valley sold $ 151.0 million and $ 45.6 million of commercial real estate and construction loans, respectively, at par value through loan participation agreements with a related party, Bank Leumi Le-Israel B.M . (BLITA). During the first quarter 2024, Valley also transferred $ 34.1 million of construction loans from loans held for investment to loans held for sale as of March 31, 2024. These loans were subsequently sold at par value through loan participation agreements with BLITA in April 2024. In February 2024, Valley completed the sale of its commercial premium finance lending business for $ 96.8 million. This asset sale included $ 95.5 million of assets, mainly consisting of $ 93.6 million of loans, and $ 2.8 million of related liabilities. The transaction generated a $ 3.6 million net gain for the first quarter 2024. Valley continues to 26 hold certain commercial premium finance loans totaling $ 67.5 million at June 30, 2024 which are mostly expected to run-off at their scheduled maturity dates. There were no other sales or transfers of loans from the held for investment portfolio during the three and six months ended June 30, 2024 and June 30, 2023. Credit Risk Management For all of its loan types, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk appetite. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board annually. Credit authority relating to a significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification, concentrations of credit, loan delinquencies, non-performing, and potential problem loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through cyclical economic circumstances. Additionally, Valley does not accept crypto assets as loan collateral for any of its loan portfolio classes. See Valley’s Annual Report for further details. Credit Quality The following table presents past due, current and non-accrual loans without an allowance for loan losses by loan portfolio class at June 30, 2024 and December 31, 2023: Past Due and Non-Accrual Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Loans Non-Accrual Loans Total Past Due Loans Current Loans Total Loans Non-Accrual Loans Without Allowance for Loan Losses (in thousands) June 30, 2024 Commercial and industrial $ 5,086 $ 1,621 $ 2,739 $ 102,942 $ 112,388 $ 9,366,759 $ 9,479,147 $ 18,588 Commercial real estate: Commercial real estate 1,879 — 4,242 123,011 129,132 28,093,991 28,223,123 93,213 Construction — — 3,990 45,380 49,370 3,496,353 3,545,723 25,192 Total commercial real estate loans 1,879 — 8,232 168,391 178,502 31,590,344 31,768,846 118,405 Residential mortgage 17,389 6,632 2,609 28,322 54,952 5,572,161 5,627,113 18,395 Consumer loans: Home equity 693 698 — 3,402 4,793 561,674 566,467 316 Automobile 7,680 1,301 606 189 9,776 1,753,076 1,762,852 — Other consumer 13,266 1,672 292 33 15,263 1,092,014 1,107,277 — Total consumer loans 21,639 3,671 898 3,624 29,832 3,406,764 3,436,596 316 Total $ 45,993 $ 11,924 $ 14,478 $ 303,279 $ 375,674 $ 49,936,028 $ 50,311,702 $ 155,704 27 Past Due and Non-Accrual Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Loans Non-Accrual Loans Total Past Due Loans Current Loans Total Loans Non-Accrual Loans Without Allowance for Loan Losses (in thousands) December 31, 2023 Commercial and industrial $ 9,307 $ 5,095 $ 5,579 $ 99,912 $ 119,893 $ 9,110,650 $ 9,230,543 $ 6,594 Commercial real estate: Commercial real estate 3,008 1,257 — 99,739 104,004 28,139,235 28,243,239 81,282 Construction — — 3,990 60,851 64,841 3,661,967 3,726,808 12,007 Total commercial real estate loans 3,008 1,257 3,990 160,590 168,845 31,801,202 31,970,047 93,289 Residential mortgage 26,345 8,200 2,488 26,986 64,019 5,504,991 5,569,010 14,654 Consumer loans: Home equity 1,687 613 — 3,539 5,839 553,313 559,152 — Automobile 11,850 1,855 576 212 14,493 1,605,896 1,620,389 — Other consumer 7,017 2,247 512 632 10,408 1,250,746 1,261,154 589 Total consumer loans 20,554 4,715 1,088 4,383 30,740 3,409,955 3,440,695 589 Total $ 59,214 $ 19,267 $ 13,145 $ 291,871 $ 383,497 $ 49,826,798 $ 50,210,295 $ 115,126 Credit quality indicators. Valley utilizes an internal loan classification system as a means of reporting problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes. Under Valley’s internal risk rating system, loan relationships could be classified as “Pass,” “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses and, therefore, not presented in the table below. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories but pose weaknesses that deserve management’s close attention are deemed Special Mention. Pass rated loans do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants. 28 The following table presents the internal loan classification risk by loan portfolio class by origination year based on the most recent analysis performed at June 30, 2024 and December 31, 2023, as well as the gross loan charge-offs by year of origination for the six months ended June 30, 2024 and for the year ended December 31, 2023: Term Loans Amortized Cost Basis by Origination Year June 30, 2024 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Commercial and industrial Risk Rating: Pass $ 935,588 $ 1,082,487 $ 836,514 $ 628,483 $ 312,509 $ 605,263 $ 4,569,348 $ 10,703 $ 8,980,895 Special Mention 1,569 19,089 68,632 12,424 345 12,956 84,912 487 200,414 Substandard 3,640 47,951 6,118 5,859 3,494 7,633 136,764 19,181 230,640 Doubtful 25,510 6,004 15 928 655 27,958 6,128 — 67,198 Total commercial and industrial $ 966,307 $ 1,155,531 $ 911,279 $ 647,694 $ 317,003 $ 653,810 $ 4,797,152 $ 30,371 $ 9,479,147 Commercial real estate Risk Rating: Pass $ 968,014 $ 3,659,695 $ 6,091,432 $ 4,424,016 $ 2,588,616 $ 7,029,002 $ 846,354 $ 121,498 $ 25,728,627 Special Mention 14,118 268,022 229,614 170,904 73,508 352,075 14,721 — 1,122,962 Substandard 24,805 187,914 248,842 268,394 232,927 406,610 2,042 — 1,371,534 Total commercial real estate $ 1,006,937 $ 4,115,631 $ 6,569,888 $ 4,863,314 $ 2,895,051 $ 7,787,687 $ 863,117 $ 121,498 $ 28,223,123 Construction Risk Rating: Pass $ 334,093 $ 794,473 $ 594,972 $ 169,683 $ 22,469 $ 45,294 $ 1,366,676 $ 62,442 $ 3,390,102 Special Mention 9,051 — — — — — 19,767 — 28,818 Substandard — 6,748 — 8,933 — — 78,985 — 94,666 Doubtful — — 12,955 — 7,272 11,910 — — 32,137 Total construction $ 343,144 $ 801,221 $ 607,927 $ 178,616 $ 29,741 $ 57,204 $ 1,465,428 $ 62,442 $ 3,545,723 Gross loan charge-offs $ — $ 2,106 $ 3,177 $ 21,351 $ 11,061 $ 17,219 $ 3,930 $ 1,324 $ 60,168 29 Term Loans Amortized Cost Basis by Origination Year December 31, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Commercial and industrial Risk Rating: Pass $ 1,494,417 $ 1,047,513 $ 765,335 $ 377,047 $ 211,504 $ 523,430 $ 4,382,361 $ 29,798 $ 8,831,405 Special Mention 70,807 73,423 15,296 358 1,870 915 99,981 139 262,789 Substandard 3,100 1,837 2,629 1,714 1,221 5,900 29,569 4,225 50,195 Doubtful 11,658 595 1,166 ( 22 ) 2,653 57,817 12,287 — 86,154 Total commercial and industrial $ 1,579,982 $ 1,123,368 $ 784,426 $ 379,097 $ 217,248 $ 588,062 $ 4,524,198 $ 34,162 $ 9,230,543 Commercial real estate Risk Rating: Pass $ 4,088,835 $ 6,630,322 $ 4,791,190 $ 2,789,275 $ 2,329,385 $ 5,385,809 $ 618,056 $ 104,839 $ 26,737,711 Special Mention 125,296 82,917 248,900 184,720 69,949 358,059 26 183 1,070,050 Substandard 58,115 25,709 12,122 48,506 70,439 214,095 4,415 2,077 435,478 Total commercial real estate $ 4,272,246 $ 6,738,948 $ 5,052,212 $ 3,022,501 $ 2,469,773 $ 5,957,963 $ 622,497 $ 107,099 $ 28,243,239 Construction Risk Rating: Pass $ 753,759 $ 655,198 $ 267,336 $ 10,318 $ 40,584 $ 43,560 $ 1,762,890 $ 139,599 $ 3,673,244 Substandard 6,721 — 9,276 — — 17,668 — — 33,665 Doubtful — 19,899 — — — — — — 19,899 Total construction $ 760,480 $ 675,097 $ 276,612 $ 10,318 $ 40,584 $ 61,228 $ 1,762,890 $ 139,599 $ 3,726,808 Gross loan charge-offs $ 307 $ 12,919 $ 28,438 $ 6,946 $ 5,031 $ 13,446 $ 3,729 $ 145 $ 70,961 30 For residential mortgages, home equity, automobile and other consumer loan portfolio classes, Valley evaluates credit quality based on the aging status of the loan and by payment activity. The following table presents the amortized cost in those loan classes based on payment activity by origination year as of June 30, 2024 and December 31, 2023, as well as the gross loan charge-offs by year of origination for the six months ended June 30, 2024 and for the year ended December 31, 2023: Term Loans Amortized Cost Basis by Origination Year June 30, 2024 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Residential mortgage Performing $ 210,754 $ 450,310 $ 1,295,317 $ 1,478,365 $ 513,072 $ 1,583,270 $ 78,117 $ 1,772 $ 5,610,977 90 days or more past due — — 2,864 1,164 1,141 10,967 — — 16,136 Total residential mortgage $ 210,754 $ 450,310 $ 1,298,181 $ 1,479,529 $ 514,213 $ 1,594,237 $ 78,117 $ 1,772 $ 5,627,113 Consumer loans Home equity Performing $ 9,088 $ 33,421 $ 41,705 $ 10,895 $ 3,690 $ 52,290 $ 403,918 $ 10,492 $ 565,499 90 days or more past due — — 51 13 — 859 — 45 968 Total home equity 9,088 33,421 41,756 10,908 3,690 53,149 403,918 10,537 566,467 Automobile Performing $ 442,959 $ 416,685 $ 448,353 $ 280,337 $ 88,898 $ 84,848 $ — $ — $ 1,762,080 90 days or more past due — 301 169 99 23 180 — — 772 Total automobile 442,959 416,986 448,522 280,436 88,921 85,028 — — 1,762,852 Other consumer Performing $ 11,919 $ 28,714 $ 18,284 $ 2,262 $ 1,153 $ 61,730 $ 948,227 $ 34,875 $ 1,107,164 90 days or more past due — 11 61 — — 38 — 3 113 Total other consumer 11,919 28,725 18,345 2,262 1,153 61,768 948,227 34,878 1,107,277 Total consumer $ 463,966 $ 479,132 $ 508,623 $ 293,606 $ 93,764 $ 199,945 $ 1,352,145 $ 45,415 $ 3,436,596 Gross loan charge-offs $ 45 $ 638 $ 968 $ 430 $ 347 $ 615 $ — $ 28 $ 3,071 31 Term Loans Amortized Cost Basis by Origination Year December 31, 2023 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Loans Total (in thousands) Residential mortgage Performing $ 467,178 $ 1,304,026 $ 1,505,133 $ 538,853 $ 435,669 $ 1,244,986 $ 57,052 $ 1,771 $ 5,554,668 90 days or more past due — 1,968 1,681 1,357 3,391 5,945 — — 14,342 Total residential mortgage $ 467,178 $ 1,305,994 $ 1,506,814 $ 540,210 $ 439,060 $ 1,250,931 $ 57,052 $ 1,771 $ 5,569,010 Consumer loans Home equity Performing $ 40,599 $ 44,893 $ 14,948 $ 4,096 $ 4,850 $ 46,274 $ 396,960 $ 4,608 $ 557,228 90 days or more past due — 51 13 — — 1,132 — 728 1,924 Total home equity 40,599 44,944 14,961 4,096 4,850 47,406 396,960 5,336 559,152 Automobile Performing $ 468,152 $ 531,728 $ 356,144 $ 121,658 $ 86,147 $ 34,504 $ 20,227 $ 763 $ 1,619,323 90 days or more past due 90 284 54 92 237 309 — — 1,066 Total automobile 468,242 532,012 356,198 121,750 86,384 34,813 20,227 763 1,620,389 Other consumer Performing $ 32,662 $ 20,376 $ 2,986 $ 1,722 $ 10,381 $ 52,659 $ 1,120,863 $ 18,655 $ 1,260,304 90 days or more past due 10 79 — — — 628 — 133 850 Total other consumer 32,672 20,455 2,986 1,722 10,381 53,287 1,120,863 18,788 1,261,154 Total consumer $ 541,513 $ 597,411 $ 374,145 $ 127,568 $ 101,615 $ 135,506 $ 1,538,050 $ 24,887 $ 3,440,695 Gross loan charge-offs $ 296 $ 903 $ 357 $ 232 $ 752 $ 1,921 $ 31 $ — $ 4,492 Loan modifications to borrowers experiencing financial difficulty. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. 32 The following tables present the amortized cost basis of loans to borrowers experiencing financial difficulty at June 30, 2024 that were modified during the three and six months ended June 30, 2024 and 2023, disaggregated by class of financing receivable and type of modification. Term extension Term extension and interest rate reduction Total % of Total Loan Class ($ in thousands) Three Months Ended June 30, 2024 Commercial and industrial $ 45,807 $ — $ 45,807 0.48 % Commercial real estate 180 — 180 — Residential mortgage 898 — 898 0.02 Total $ 46,885 $ — $ 46,885 0.09 % Three Months Ended June 30, 2023 Commercial and industrial $ 37,762 $ 1,482 $ 39,244 0.42 % Commercial real estate 3,512 3,754 7,266 0.03 Residential mortgage 578 — 578 0.01 Total $ 41,852 $ 5,236 $ 47,088 0.10 % Six Months Ended June 30, 2024 Commercial and industrial $ 79,953 $ 138 $ 80,091 0.84 % Commercial real estate 224 16,221 16,445 0.06 Residential mortgage 898 — 898 0.02 Total $ 81,075 $ 16,359 $ 97,434 0.19 % Six Months Ended June 30, 2023 Commercial and industrial $ 39,033 $ 2,003 $ 41,036 0.44 % Commercial real estate 49,617 3,754 53,371 0.19 Residential mortgage 790 — 790 0.01 Other consumer 53 — 53 — Total $ 89,493 $ 5,757 $ 95,250 0.19 % 33 The following tables describe the types of modifications made to borrowers experiencing financial difficulty. Types of Modifications Three and Six months ended June 30, 2024 Commercial and industrial 3 to 24 month term extensions 24 month term extensions combined with a reduction in interest rate from 2.10 percent to 1.00 percent Commercial real estate 2 to 36 month term extensions 12 to 18 month term extensions combined with a reduction in interest rate from 8.06 percent to 7.00 percent Residential mortgage 50 month term extensions Home equity 120 month term extension Three and Six months ended June 30, 2023 Commercial and industrial 12 month term extensions 12 month term extensions combined with a reduction in interest rate from 9.38 percent to 6.50 percent Commercial real estate 6 - 36 month term extensions 9 month term extension combined with a reduction in interest rate from 8.75 percent to 6.00 percent Residential mortgage 12 month term extensions Consumer 60 month term extensions Valley closely monitors the performance of modified loans to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the aging analysis of loans that have been modified within the previous 12 months. At June 30, 2024 Current 30-89 Days Past Due 90 Days or More Past Due * Total ($ in thousands) Commercial and industrial $ 92,728 $ 96 $ — $ 92,824 Commercial real estate 99,970 — 2,153 102,123 Residential mortgage — — 898 898 Home equity 30 — — 30 Total $ 192,728 $ 96 $ 3,051 $ 195,875 * All loan balances in this delinquency category were non-accrual loans at June 30, 2024. Valley did not extend any commitments to lend additional funds to borrowers experiencing financial difficulty whose loans had been modified during the three and six months ended June 30, 2024 and 2023. Loans in process of foreclosure. During the three months ended June 30, 2024, two commercial properties were transferred to OREO at the lower of cost or fair value totaling $ 8.1 million at June 30, 2024. The balance of OREO was not material at December 31, 2023. There were no f oreclosed residential real estate properties included in OREO at June 30, 2024 and December 31, 2023. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $ 3.5 million and $ 1.6 million at June 30, 2024 and December 31, 2023, respectively. Collateral dependent loans. Loans are collateral dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated 34 current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process. The following table presents collateral dependent loans by class as of June 30, 2024 and December 31, 2023: June 30, 2024 December 31, 2023 (in thousands) Collateral dependent loans: Commercial and industrial * $ 125,186 $ 96,827 Commercial real estate 153,503 98,785 Construction 42,151 46,634 Total commercial real estate loans 195,654 145,419 Residential mortgage 18,721 21,843 Home equity 316 — Consumer — 589 Total $ 339,877 $ 264,678 * Includes non-accrual loans collateralized by taxi medallions totaling $ 52.6 million and $ 62.3 million at June 30, 2024 and December 31, 2023, respectively. Allowance for Credit Losses for Loans The allowance for credit losses for loans consists of the allowance for loan losses and the allowance for unfunded credit commitments. The following table summarizes the ACL for loans at June 30, 2024 and December 31, 2023: June 30, 2024 December 31, 2023 (in thousands) Components of allowance for credit losses for loans: Allowance for loan losses $ 519,310 $ 446,080 Allowance for unfunded credit commitments 13,231 19,470 Total allowance for credit losses for loans $ 532,541 $ 465,550 The following table summarizes the provision for credit losses for loans for the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in thousands) Components of provision for credit losses for loans: Provision for loan losses $ 86,901 $ 8,159 $ 133,624 $ 18,138 Credit for unfunded credit commitments ( 4,790 ) ( 1,827 ) ( 6,239 ) ( 2,356 ) Total provision for credit losses for loans $ 82,111 $ 6,332 $ 127,385 $ 15,782 35 The following tables detail the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2024 and 2023: Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) Three Months Ended June 30, 2024 Allowance for loan losses: Beginning balance $ 138,593 $ 265,847 $ 44,377 $ 20,431 $ 469,248 Loans charged-off ( 14,721 ) ( 22,356 ) — ( 1,262 ) ( 38,339 ) Charged-off loans recovered 742 150 5 603 1,500 Net (charge-offs) recoveries ( 13,979 ) ( 22,206 ) 5 ( 659 ) ( 36,839 ) Provision for loan losses 24,629 57,452 3,315 1,505 86,901 Ending balance $ 149,243 $ 301,093 $ 47,697 $ 21,277 $ 519,310 Three Months Ended June 30, 2023 Allowance for loan losses: Beginning balance $ 127,992 $ 243,332 $ 41,708 $ 23,866 $ 436,898 Loans charged-off ( 3,865 ) ( 6,273 ) ( 149 ) ( 1,040 ) ( 11,327 ) Charged-off loans recovered 2,173 4 135 390 2,702 Net charge-offs ( 1,692 ) ( 6,269 ) ( 14 ) ( 650 ) ( 8,625 ) Provision for loan losses 1,945 2,632 2,459 1,123 8,159 Ending balance $ 128,245 $ 239,695 $ 44,153 $ 24,339 $ 436,432 Six Months Ended June 30, 2024 Allowance for loan losses: Beginning balance $ 133,359 $ 249,598 $ 42,957 $ 20,166 $ 446,080 Loans charged-off ( 29,014 ) ( 31,154 ) — ( 3,071 ) ( 63,239 ) Charged-off loans recovered 1,424 391 30 1,000 2,845 Net (charge-offs) recoveries ( 27,590 ) ( 30,763 ) 30 ( 2,071 ) ( 60,394 ) Provision for loan losses 43,474 82,258 4,710 3,182 133,624 Ending balance $ 149,243 $ 301,093 $ 47,697 $ 21,277 $ 519,310 Six Months Ended June 30, 2023 Allowance for loan losses: Beginning balance $ 139,941 $ 259,408 $ 39,020 $ 20,286 $ 458,655 Impact of the adoption of ASU No. 2022-02 ( 739 ) ( 589 ) ( 12 ) ( 28 ) ( 1,368 ) Beginning balance, adjusted 139,202 258,819 39,008 20,258 457,287 Loans charged-off ( 29,912 ) ( 11,971 ) ( 149 ) ( 1,868 ) ( 43,900 ) Charged-off loans recovered 3,572 28 156 1,151 4,907 Net (charge-offs) recoveries ( 26,340 ) ( 11,943 ) 7 ( 717 ) ( 38,993 ) Provision (credit) for loan losses 15,383 ( 7,181 ) 5,138 4,798 18,138 Ending balance $ 128,245 $ 239,695 $ 44,153 $ 24,339 $ 436,432 36 The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at June 30, 2024 and December 31, 2023. Commercial and Industrial Commercial Real Estate Residential Mortgage Consumer Total (in thousands) June 30, 2024 Allowance for loan losses: Individually evaluated for credit losses $ 50,494 $ 33,096 $ 29 $ — $ 83,619 Collectively evaluated for credit losses 98,749 267,997 47,668 21,277 435,691 Total $ 149,243 $ 301,093 $ 47,697 $ 21,277 $ 519,310 Loans: Individually evaluated for credit losses $ 125,186 $ 195,654 $ 18,721 $ 316 $ 339,877 Collectively evaluated for credit losses 9,353,961 31,573,192 5,608,392 3,436,280 49,971,825 Total $ 9,479,147 $ 31,768,846 $ 5,627,113 $ 3,436,596 $ 50,311,702 December 31, 2023 Allowance for loan losses: Individually evaluated for credit losses $ 55,993 $ 17,987 $ 235 $ — $ 74,215 Collectively evaluated for credit losses 77,366 231,611 42,722 20,166 371,865 Total $ 133,359 $ 249,598 $ 42,957 $ 20,166 $ 446,080 Loans: Individually evaluated for credit losses $ 96,827 $ 145,419 $ 21,843 $ 589 $ 264,678 Collectively evaluated for credit losses 9,133,716 31,824,628 5,547,167 3,440,106 49,945,617 Total $ 9,230,543 $ 31,970,047 $ 5,569,010 $ 3,440,695 $ 50,210,295 Note 8. Goodwill and Other Intangible Assets The carrying amounts of goodwill allocated to Valley's reporting units at both June 30, 2024 and December 31, 2023, were as follows: Reporting Unit * Wealth Management Consumer Banking Commercial Banking Total (in thousands) $ 78,142 $ 349,646 $ 1,441,148 $ 1,868,936 * The Wealth Management and Consumer Banking reporting units are both components of the overall Consumer Banking operating segment, which is further described in Note 15 . During the second quarter 2024, Valley performed the annual goodwill impairment test at its normal assessment date. The results of the 2024 annual impairment test resulted in no impairment of goodwill. During the six months ended June 30, 2024 , there were no triggering events that would more likely than not reduce the fair value of any reporting unit below its carrying amount. There was no impairment of goodwill recognized during the three and six months ended June 30, 2024 and 2023. 37 The following table summarizes other intangible assets as of June 30, 2024 and December 31, 2023: Gross Intangible Assets Accumulated Amortization Net Intangible Assets (in thousands) June 30, 2024 Loan servicing rights $ 123,879 $ ( 102,812 ) $ 21,067 Core deposits 215,620 ( 125,951 ) 89,669 Other 50,393 ( 17,485 ) 32,908 Total other intangible assets $ 389,892 $ ( 246,248 ) $ 143,644 December 31, 2023 Loan servicing rights $ 122,586 $ ( 100,636 ) $ 21,950 Core deposits 215,620 ( 113,183 ) 102,437 Other 50,393 ( 14,449 ) 35,944 Total other intangible assets $ 388,599 $ ( 228,268 ) $ 160,331 Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets over the period of the economic life of the assets arising from estimated net servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Impairment charges on loan servicing rights are recognized in earnings when the book value of a stratified group of loan servicing rights exceeds its estimated fair value. There was no impairment of loan servicing rights recognized during the three and six months ended June 30, 2024 and 2023. Core deposits are amortized using an accelerated method over a period of 10.0 years. The line item labeled “Other” included in the table above primarily consists of customer lists, certain financial asset servicing contracts and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 13.5 years. Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. There was no impairment of core deposits and other intangibles recognized during the three and six months ended June 30, 2024 and 2023. The following table presents the estimated future amortization expense of other intangible assets for the remainder of 2024 through 2028: Year Loan Servicing Rights Core Deposits Other (in thousands) 2024 $ 1,370 $ 12,129 $ 2,915 2025 2,541 21,048 5,380 2026 2,249 17,223 4,805 2027 1,969 13,544 4,205 2028 1,722 10,117 3,633 Valley recognized amortization expense on other intangible assets totaling approximately $ 8.6 million and $ 9.8 million for the three months ended June 30, 2024 and 2023, respectively, and $ 18.0 million and $ 20.3 million for the six months ended June 30, 2024 and 2023, respectively. 38 Note 9. Deposits Included in time deposits are certificates of deposit over $250 thousand totaling $ 2.1 billion and $ 2.6 billion at June 30, 2024 and December 31, 2023, respectively. Interest expense on time deposits of over $250 thousand total ed $ 23.3 million and $ 5.1 million for the three months ended June 30, 2024 and 2023, respectively, and $ 48.1 million and $ 7.5 million for the six months ended June 30, 2024 and 2023, respectively. The scheduled maturities of time deposits as of June 30, 2024 were as follows: Year Amount (in thousands) 2024 $ 8,341,448 2025 4,379,106 2026 692,650 2027 814,424 2028 22,111 Thereafter 33,609 Total time deposits $ 14,283,348 Note 10. Borrowed Funds Short-Term Borrowings Short-term borrowings at June 30, 2024 and December 31, 2023 consisted of the following: June 30, 2024 December 31, 2023 (in thousands) FHLB advances $ — $ 850,000 Securities sold under agreements to repurchase 63,770 67,834 Total short-term borrowings $ 63,770 $ 917,834 The weighted average interest rate for short-term FHLB advances was 5.62 percent at December 31, 2023. Long-Term Borrowings Long-term borrowings at June 30, 2024 and December 31, 2023 consisted of the following: June 30, 2024 December 31, 2023 (in thousands) FHLB advances, net (1) $ 2,624,911 $ 1,690,013 Subordinated debt, net (2) 639,619 638,362 Total long-term borrowings $ 3,264,530 $ 2,328,375 (1) FHLB advances are presented net of unamortized premiums totaling $ 107 thousand and $ 209 thousand at June 30, 2024 and December 31, 2023, respectively. (2) Subordinated debt is presented net of unamortized debt issuance costs totaling $ 4.4 million and $ 5.2 million at June 30, 2024 and December 31, 2023, respectively. FHLB advances. Long-term FHLB advances had a weighted average interest rate of 4.10 percent and 3.75 percent at June 30, 2024 and December 31, 2023, respectively. FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket 39 assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans. The long-term FHLB advances at June 30, 2024 are scheduled for contractual balance repayments as follows: Year Amount (in thousands) 2024 $ 100,000 2025 273,000 2026 601,804 2027 925,000 2028 475,000 Thereafter 250,000 Total long-term FHLB advances $ 2,624,804 The FHLB advances reported in the table above are not callable for early redemption. Subordinated debt. There were no new issuances of subordinated debt during the six months ended June 30, 2024. See Note 10 in Valley’s Annual Report for additional information on the outstanding subordinated debt at June 30, 2024. Note 11. Stock–Based Compensation Valley maintains an incentive compensation plan to provide additional long-term incentives to employees, directors and officers whose contributions are essential to the continued growth and success of Valley. Under the plan, Valley may issue awards to its officers, employees and non-employee directors in amounts up to 14.5 million, subject to certain adjustments. As of June 30, 2024, 9.3 million shares of common stock were available for issuance under the plan. RSUs are awarded as performance-based RSUs and time-based RSUs. The performance-based RSU awards are granted to certain officers and include RSUs subject to vesting conditions based upon certain levels of growth in Valley's tangible book value per share, plus dividends; and RSUs subject to vesting conditions based upon Valley's total shareholder return as compared to its peer group. The table below summarizes RSU awards granted and average grant date fair values for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in thousands, except per share data) Award shares granted: Performance-based RSUs — — 958 723 Time-based RSUs 193 178 2,987 1,731 Average grant date fair value per share: Performance-based RSUs $ — $ — $ 7.88 $ 12.80 Time-based RSUs $ 7.68 $ 8.35 $ 8.46 $ 11.55 Stock award fair values are expensed over the shorter of the vesting or required service period. Valley recorded total stock-based compensation expense of approximately $ 7.6 million and $ 8.7 million for the three months ended June 30, 2024 and 2023, respectively, and $ 15.7 million and $ 16.8 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $ 47.4 million. This expense will be recognized over an average remaining 40 vesting period of approximately 2.0 years. See Note 12 in Valley’s Annual Report for additional information on the stock-based compensation awards. Note 12. Derivative Instruments and Hedging Activities Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest and currency rates. Cash Flow Hedges of Interest Rate Risk. Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively. Fair Value Hedges of Fixed Rate Assets and Liabilities. Valley is exposed to changes in the fair value of certain fixed-rate assets and liabilities due to changes in interest rates and interest rate swaps to manage its exposure to changes in fair value. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. During the second quarter 2024, Valley entered into nine forward-starting interest rate swap agreements with notional amounts totaling $ 404.3 million to hedge the changes in fair value of certain fixed rate brokered time deposits. Commencing in January and February 2025, Valley will receive fixed rate amounts ranging from approximately 4.12 percent to 4.65 percent, in exchange for variable-rate payments based on the Floating SOFR Overnight Indexed Swap (OIS) compound rate. The swaps have expiration dates ranging from April 2026 to May 2027. Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide a service to customers but do not meet the requirements for hedge accounting under GAAP. Derivatives not designated as hedges are not entered into for speculative purposes. Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third- party, such that Valley minimizes its net risk exposure resulting from such transactions. As these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the participation type. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At June 30, 2024, Valley had 49 credit swaps with an aggregate notional amount of $ 605.4 million related to risk participation agreements. At June 30, 2024, Valley had two “steepener” swaps, each with a current notional amount of $ 10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the Constant Maturity Swap rate curve. Although these types of instruments do not meet the hedge accounting requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month Term SOFR rate and, therefore, provide an effective economic hedge. Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are 41 entered into in order to economically hedge the effect of future changes in interest rates on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale. Valley enters into foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments. Upon the origination of certain foreign currency denominated transactions (including foreign currency holdings and non-U.S. dollar denominated loans) with a client, we enter into a respective hedging contract with a third party financial institution to mitigate the economic impact of foreign currency exchange rate fluctuation. During June 2024, Valley entered into a credit default swap related to $ 1.5 billion of its $ 1.8 billion automobile loan portfolio at June 30, 2024 primarily to enhance the risk profile of these assets for regulatory capital purposes. The credit default swap is a freestanding contract measured at fair value with resulting gains or losses recognized in non-interest expense. The fair value of the credit default swap upon initial recognition was zero at June 30, 2024. Valley recorded approximately $ 400 thousand of transaction costs and $ 1.1 million of premium expense in other expense during the second quarter 2024 related to the credit default swap. Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows: June 30, 2024 December 31, 2023 Fair Value Fair Value Other Assets Other Liabilities Notional Amount Other Assets Other Liabilities Notional Amount (in thousands) Derivatives designated as hedging instruments: Fair value hedge interest rate swaps $ 3,212 $ 20,982 $ 1,204,296 $ — $ 21,460 $ 800,000 Derivatives not designated as hedging instruments: Interest rate swaps and other contracts * $ 498,938 $ 498,676 $ 16,233,160 $ 458,129 $ 457,885 $ 16,282,279 Foreign currency derivatives 12,466 11,845 1,939,866 8,024 8,286 1,557,167 Mortgage banking derivatives 45 243 58,378 74 472 38,797 Credit default swap — — 1,501,038 — — — Total derivatives not designated as hedging instruments $ 511,449 $ 510,764 $ 19,732,442 $ 466,227 $ 466,643 $ 17,878,243 Total derivative financial instruments $ 514,661 $ 531,746 $ 20,936,738 $ 466,227 $ 488,103 $ 18,678,243 * Other derivative contracts include risk participation agreements. Gains (losses) included in the consolidated statements of income and other comprehensive loss, on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in thousands) Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest income $ 299 $ ( 725 ) $ 597 $ ( 1,256 ) Amount of loss recognized in other comprehensive loss — ( 4,991 ) — ( 1,093 ) The accumulated after-tax gains related to effective cash flow hedges included in accumulated other comprehensive loss were $ 1.7 million and $ 2.1 million at June 30, 2024 and December 31, 2023, respectively. 42 Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest income. The reclassification amoun t for the three and six months ended June 30, 2024 represents amortization of a gain recognized from the termination of six interest rate swaps during the second quarter 2023. Valley estimates that $ 1.2 million (before tax) will be reclassified as an increase to interest income over the next 12 months. Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in thousands) Derivative - interest rate swap: Interest income $ 676 $ — $ 5,555 $ — Interest expense 3,004 ( 3,790 ) 1,713 902 Hedged items - loans, brokered deposits and subordinated debt: Interest income $ ( 702 ) $ — $ ( 5,626 ) $ — Interest expense ( 3,063 ) 3,952 ( 1,680 ) ( 820 ) The changes in the fair value of the hedged item designated as a qualifying hedge are captured as an adjustment to the carrying amount of the hedged item (basis adjustment). The following table presents the hedged item related to interest rate derivatives designated as fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at June 30, 2024 and December 31, 2023, respectively. Line Item in the Statement of Financial Condition in Which the Hedged Item is Included Net Carrying Amount of the Hedged Asset/ Liability Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset/Liability (in thousands) June 30, 2024 Loans $ 498,251 $ ( 1,749 ) Time deposits 401,673 ( 1,223 ) Long-term borrowings * 277,433 ( 20,988 ) December 31, 2023 Loans $ 503,877 $ 3,877 Long-term borrowings * 276,572 ( 21,445 ) * Net carrying amount includes unamortized debt issuance costs of $ 1.6 million and $ 2.0 million at June 30, 2024 and December 31, 2023, respectively. The net losses (gains) included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in thousands) Non-designated hedge interest rate swaps and credit derivatives Other non-interest expense $ 1,781 $ ( 368 ) $ 726 $ ( 160 ) Capital markets income reported in non-interest income included fee income related to non-designated hedge derivative interest rate swaps executed with commer cial loan customers and foreign exchange contracts (not 43 designated as hedging instruments) with a combined total of $ 6.8 million and $ 14.1 million for the three months ended June 30, 2024 and 2023, respectively, and $ 11.3 million and $ 24.0 million for the six months ended June 30, 2024 and 2023, respectively. Collateral Requirements and Credit Risk Related Contingent Features . By using derivati ves, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board. Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparties could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of June 30, 2024, Valley was in compliance with all of the provisions of its derivative counterparty agreements. The aggregate fair value of all derivative financial instruments with credit risk-related contingent features was in a net asset position at June 30, 2024. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties. Note 13. Balance Sheet Offsetting Certain financial instruments, including certain OTC derivatives (mostly interest rate swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated statements of financial condition and/or subject to master netting arrangements or similar agreements. OTC derivatives include interest rate swaps executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house (presented in the table below). The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements. Valley is party to master netting arrangements with its financial institution counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by or received from the counterparty with net liability or asset positions, respectively, in accordance with contract thresholds. Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts. In such cases, the collateral would be used 44 to settle the fair value of the swap or repurchase agreement should Valley be in default. Total amount of collateral held or pledged cannot exceed the net derivative fair values with the counterparty. The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of June 30, 2024 and December 31, 2023. Gross Amounts Not Offset Gross Amounts Recognized Gross Amounts Offset Net Amounts Presented Financial Instruments Cash Collateral * Net Amount (in thousands) June 30, 2024 Assets Interest rate swaps and other contracts $ 502,150 $ — $ 502,150 $ 11,418 $ ( 420,020 ) $ 93,548 Liabilities Interest rate swaps and other contracts $ 519,658 $ — $ 519,658 $ ( 11,418 ) $ — $ 508,240 December 31, 2023 Assets Interest rate swaps and other contracts $ 458,129 $ — $ 458,129 $ 53,780 $ ( 302,180 ) $ 209,729 Liabilities Interest rate swaps and other contracts $ 479,345 $ — $ 479,345 $ ( 53,780 ) $ — $ 425,565 * Cash collateral received from or pledged to our counterparties in relation to market value exposures of OTC derivative contracts in an asset/liability position. Note 14. Tax Credit Investments Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the CRA. Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense. Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable. 45 The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at June 30, 2024 and December 31, 2023: June 30, 2024 December 31, 2023 (in thousands) Other Assets: Affordable housing tax credit investments, net $ 20,161 $ 22,158 Other tax credit investments, net 206,941 117,659 Total tax credit investments, net $ 227,102 $ 139,817 Other Liabilities: Unfunded affordable housing tax credit commitments $ — $ 1,305 Total unfunded tax credit commitments $ — $ 1,305 The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 (in thousands) Components of Income Tax Expense: Affordable housing tax credits and other tax benefits $ 1,263 $ 1,460 $ 2,659 $ 2,919 Other tax credit investment credits and tax benefits 6,684 3,430 13,029 6,651 Total reduction in income tax expense $ 7,947 $ 4,890 $ 15,688 $ 9,570 Amortization of Tax Credit Investments: Affordable housing tax credit investment losses $ 876 $ 938 $ 1,751 $ 1,875 Affordable housing tax credit investment impairment losses 10 448 491 896 Other tax credit investment losses 1,680 719 2,280 725 Other tax credit investment impairment losses 3,225 2,913 6,831 5,775 Total amortization of tax credit investments recorded in non-interest expense $ 5,791 $ 5,018 $ 11,353 $ 9,271 Note 15. Operating Segments 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 operating segments and no changes to Valley's operating segments were determined necessary d uring the three and six months ended June 30, 2024 . The Consumer Banking segment is mainly comprised of residential mortgages and automobile loans, and to a lesser extent, secured personal lines of credit, home equity loans and other consumer loans. The duration of the residential mortgage loan portfolio is subject to movements in the market level of interest rates and forecasted prepayment speeds. The average weighted life of the automobile loans within the portfolio is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. Consumer Banking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services. 46 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. Treasury and Corporate Other largely consists of the Treasury managed HTM debt securities and AFS debt securities portfolios mainly utilized in the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment. Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the FRB of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to the Consumer and Commercial Banking segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average interest earning assets and or liabilities outstanding for the period. 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 GAAP. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The following tables represent the financial data for Valley’s operating segments and Treasury and Corporate Other for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, 2024 Consumer Banking Commercial Banking Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 9,839,291 $ 40,181,610 $ 6,752,049 $ 56,772,950 Interest income $ 118,668 $ 652,295 $ 62,503 $ 833,466 Interest expense 72,700 296,872 62,209 431,781 Net interest income 45,968 355,423 294 401,685 Provision (credit) for credit losses 4,820 77,291 ( 41 ) 82,070 Net interest income after provision for credit losses 41,148 278,132 335 319,615 Non-interest income 24,995 10,802 15,416 51,213 Non-interest expense 20,666 36,577 220,254 277,497 Internal transfer expense (income) 29,775 121,621 ( 151,396 ) — Income (loss) before income taxes $ 15,702 $ 130,736 $ ( 53,107 ) $ 93,331 Return on average interest earning assets (pre-tax) 0.64 % 1.30 % ( 3.15 ) % 0.66 % 47 Three Months Ended June 30, 2023 Consumer Banking Commercial Banking Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 9,638,329 $ 39,819,608 $ 7,893,871 $ 57,351,808 Interest income $ 102,678 $ 612,494 $ 72,287 $ 787,459 Interest expense 59,739 246,331 61,624 367,694 Net interest income 42,939 366,163 10,663 419,765 Provision (credit) for credit losses 3,492 2,840 ( 282 ) 6,050 Net interest income after provision for credit losses 39,447 363,323 10,945 413,715 Non-interest income 20,941 14,343 24,791 60,075 Non-interest expense 21,365 36,249 225,357 282,971 Internal transfer expense (income) 26,741 110,475 ( 137,216 ) — Income (loss) before income taxes $ 12,282 $ 230,942 $ ( 52,405 ) $ 190,819 Return on average interest earning assets (pre-tax) 0.51 % 2.32 % ( 2.66 ) % 1.33 % Six Months Ended June 30, 2024 Consumer Banking Commercial Banking Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 9,817,377 $ 40,316,369 $ 6,562,128 $ 56,695,874 Interest income $ 232,299 $ 1,310,217 $ 119,606 $ 1,662,122 Interest expense 145,873 599,046 121,970 866,889 Net interest income 86,426 711,171 ( 2,364 ) 795,233 Provision (credit) for credit losses 7,892 119,493 ( 115 ) 127,270 Net interest income after provision for credit losses 78,534 591,678 ( 2,249 ) 667,963 Non-interest income 51,541 28,796 32,291 112,628 Non-interest expense 39,317 72,865 445,625 557,807 Internal transfer expense (income) 62,886 258,252 ( 321,138 ) — Income (loss) before income taxes $ 27,872 $ 289,357 $ ( 94,445 ) $ 222,784 Return on average interest earning assets (pre-tax) 0.57 % 1.44 % ( 2.88 ) % 0.79 % 48 Six Months Ended June 30, 2023 Consumer Banking Commercial Banking Treasury and Corporate Other Total ($ in thousands) Average interest earning assets $ 9,557,669 $ 39,105,820 $ 7,699,305 $ 56,362,794 Interest income $ 198,641 $ 1,171,757 $ 137,291 $ 1,507,689 Interest expense 106,215 434,584 111,105 651,904 Net interest income 92,426 737,173 26,186 855,785 Provision for credit losses 9,936 5,846 4,705 20,487 Net interest income after provision for credit losses 82,490 731,327 21,481 835,298 Non-interest income 38,823 30,090 45,461 114,374 Non-interest expense 40,998 71,972 442,167 555,137 Internal transfer expense (income) 55,709 227,936 ( 283,645 ) — Income (loss) before income taxes $ 24,606 $ 461,509 $ ( 91,580 ) $ 394,535 Return on average interest earning assets (pre-tax) 0.51 % 2.36 % ( 2.38 ) % 1.40 %