What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-08 · 438 added, 361 removed, 771 unchanged (51% of the section changed)

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Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:

• the impact of monetary and fiscal policies of the U.S.

federal government and its agencies, including in connection with prolonged inflationary pressures, as well as the impact of the 2024 U.S presidential election, which could have a material adverse effect on our clients, as well as our business, our employees, and our ability to provide services to our customers;

• the impact of market interest rates and monetary and fiscal policies of the U.S.

federal government and its agencies in connection with the prolonged inflationary pressures, which could have a material adverse effect on our clients, our business, our employees, and our ability to provide services to our customers;

• the impact of unfavorable macroeconomic conditions or downturns, including an actual or threatened U.S.

government shutdown, debt default or rating downgrade, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, increased business disruptions or failures, reductions in employment, and other potential negative effects on our business, employees or clients caused by factors outside of our control, such as geopolitical instabilities or events (including the

Israel-Hamas war);

natural and other disasters (including severe weather events);

presidential administration, geopolitical instabilities or events (including the Israel-Hamas war and the

escalation and regional expansion thereof);

natural and other disasters (including severe weather events, such as Hurricanes Helene and Milton in late September and early October 2024, respectively);

health emergencies;

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• cyberattacks, ransomware attacks, computer viruses, malware or other cybersecurity incidents that may breach the security of our websites or other systems or networks to obtain unauthorized access to personal, confidential, proprietary or sensitive information, destroy data, disable or degrade service, or sabotage our systems or networks;

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

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

• application of the OCC heightened regulatory standards for certain large insured national banks, and the expenses we will incur to develop policies, programs, and systems that comply with the enhanced standards applicable to us;

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• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other public health crises, acts of terrorism or other external events;

• our ability to successfully execute our business plan and strategic initiatives;

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

• our ability to successfully execute our business plan and strategic initiatives, including our goals to reduce the commercial real estate loan concentration on our balance sheet and expand other areas of commercial lending activity;

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

A detailed discussion of factors that could affect our results is included in our SEC filings, including Item 1A.

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

At June 30, 2024, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

At September 30, 2024, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions.

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

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Company Overview.

At June 30, 2024, Valley had consolidated total assets of approximately $62.1 billion, total net loans of $49.8 billion, total deposits of $50.1 billion and total shareholders’ equity of $6.7 billion.

At September 30, 2024, Valley had consolidated total assets of approximately $62.1 billion, total net loans of $48.8 billion, total deposits of $50.4 billion and total shareholders’ equity of $7.0 billion.

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

Of our current 228 branch network, 56 percent, 18 percent, and 18 percent of the branches are located in New Jersey, New York and Florida, respectively, with the remaining 8 percent of the branches in Alabama, California, and Illinois combined.

Impacts of Hurricanes Helene and Milton.

In the early stages of the fourth quarter 2024, the credit quality of our Florida loan portfolio has remained resilient in the aftermath of Hurricane Helene, which hit Florida in late September 2024, and Hurricane Milton, which made landfall on October 9, 2024.

At this time, there have been relatively few loan concessions (mostly in the form of loan payment deferrals up to 90 days) for distressed borrowers impacted by the hurricanes.

However, we continue to assess the impact of the hurricanes on our Florida client base and, where appropriate, we will work constructively with individual borrowers.

At September 30, 2024, our allowance for loan losses included an $8.0 million qualitative reserve for estimated losses resulting from Hurricane Helene.

While not anticipated based on information currently available, Hurricane Milton and greater than expected losses from Hurricane Helene at September 30, 2024 could result in a significant increase to the current hurricane related reserves within the allowance, loan charge-offs and our provision for the fourth quarter 2024.

In an effort to support our associates who have been directly impacted by Hurricane Helene, we are offering various disaster assistance, including low interest rate personal and automobile loans with terms ranging from 12 to 60 months.

Subsequent Event.

On November 12, 2024, Valley issued and sold 49,197,860 shares of its common stock in a registered public offering, including 6,417,112 shares purchased under an over-allotment option exercised in full by the underwriters at the public offering price of $9.35 per share.

The net proceeds of the offering, after deducting underwriting discounts and commissions and offering expenses payable by Valley, were $448.9 million and are expected to be used for general corporate purposes and investments in the Bank as regulatory capital.

Financial Condition.

The combination of an inverted yield curve, a high level of competition and Federal Reserve monetary actions driven by prolonged inflationary pressures, among other factors, continued to weigh on the banking industry during the second quarter 2024.

In the face of these challenges, we have positioned our balance sheet to best mitigate these negative factors, while continuing to focus on longer term earnings performance.

The following items are key highlights at June 30, 2024.

• Total assets increased to $62.1 billion at June 30, 2024 from $61.0 billion at March 31, 2024.

Our liquid assets totaled $3.4 billion at June 30, 2024, representing 6.1 percent of interest earning assets as compared with $2.7 billion , or 4.8 percent of interest earning assets at March 31, 2024 .

During the third quarter 2024, we continued to strengthen the position of our balance sheet to best perform in the current economic environment, while also prudently managing and reducing the overall risk of our loan portfolio.

The following items, including key balance sheet initiatives, are highlights at September 30, 2024.

• Commercial Real Estate Loan Concentration:

Total commercial real estate loans (including construction loans) totaled $30.4 billion, or 61.6 percent of total loans at September 30, 2024 as compared to $31.8 billion, or 63.2 percent of total loans at June 30, 2024.

While commercial real estate lending remains a key pillar of the success of our relationship banking model and our lending expertise, we continue to proactively diversify our loan portfolio by reducing new originations of certain types of commercial real estate lending, such as non-owner occupied and multifamily loans.

We remain focused on growing our commercial and industrial, owner occupied commercial real estate, and consumer loan portfolios.

As a result, we currently have a strategic balance sheet goal to reduce our CRE loan concentration ratio (defined as total commercial real estate loans held for investment and held for sale, excluding owner occupied loans, as a percentage of total risk-based capital) to approximately 400 percent and 375 percent by December 31, 2024 and 2025, respectively.

At September 30, 2024, our CRE loan concentration ratio declined to 421 percent as compared to 442 percent and 474 percent at June 30, 2024 and December 31, 2023, respectively.

The decline in the ratio from June 30, 2024 was largely due to repayment activity during the third quarter 2024, which outpaced new and refinanced loan volumes due to the planned lower production within the non-owner occupied and multifamily loan categories.

During the third quarter 2024, we also transferred performing commercial real estate loans totaling $823.1 million, net of unearned fees, to loans held for sale at September 30, 2024.

These loans are currently under an agreement to sell to an unrelated third-party in the fourth quarter 2024.

The combined impact of this pending loan sale and the aforementioned common stock issuance on November 12, 2024 would have reduced our CRE concentration ratio of 421 percent at September 30, 2024 to 380 percent on an as adjusted basis.

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

• Regulatory Capital and Shareholders' Equity:

Total shareholders' equity increased $234.6 million to $7.0 billion at September 30, 2024 as compared to June 30, 2024 largely due to net proceeds of $144.7 million from the issuance of our Series C preferred stock in August 2024 and net income and net other comprehensive income for the third quarter 2024.

Valley's total risk-based capital, common equity Tier 1 capital, Tier 1 capital and Tier 1 leverage capital ratios were 12.56 percent, 9.57 percent, 10.29 percent, and

8.40 percent, respectively, at September 30, 2024 as compared to 12.17 percent, 9.55 percent, 9.98 percent and 8.19 percent, respectively, at June 30, 2024.

Currently, we have a strategic goal to increase Valley's common equity Tier 1 capital to 9.8 percent and 10 percent (or higher) by December 31, 2024 and 2025, respectively, largely through growth in our retained earnings and continuous management of the overall regulatory risk weighted asset profile of our balance sheet, including the goal to reduce our commercial real estate loan concentration.

We expect our regulatory capital ratios to benefit by approximately 100 basis points as a result of the combined impact of the commercial real estate loan sale expected to close during the fourth quarter 2024 and the common stock issuance in November 2024.

See the "Capital Adequacy" section below for more information.

• Allowance for Credit Losses:

The ACL for loans totaled $564.7 million and $532.5 million at September 30, 2024 and June 30, 2024, respectively, representing 1.14 percent and 1.06 percent of total loans at each respective date.

The increase reflects, among other factors, the aforementioned qualitative reserve of $8.0 million related to the estimated impact of Hurricane Helene at September 30, 2024.

Given our current projections for continued growth in our commercial and industrial loan portfolio and credit trends within our loan portfolio, including the expected impact of Hurricane Milton, we anticipate a future reserve build in the ACL to approximately 1.20 percent and 1.25 percent of total loans at December 31, 2024 and 2025, respectively.

However, we can provide no assurance that our actual future ACL for loans required under our CECL methodology will not exceed these current projections at each of the respective reporting dates.

See the “Allowance for Credit Losses" section for additional information.

• Credit Quality:

Non-performing assets (NPAs) as a percentage of total loans and NPAs decreased to 0.61 percent at September 30, 2024 as compared to 0.62 percent at June 30, 2024.

Total net loan charge-offs to average loans were 0.34 percent for the third quarter 2024 as compared with 0.29 percent for the second quarter 2024.

See the “Non-Performing Assets” section for additional information.

• Liquid Assets:

Our liquid assets totaled $4.7 billion at September 30, 2024, representing 8.2 percent of interest earning assets as compared with $3.4 billion, or 6.1 percent of interest earning assets at June 30, 2024.

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

See the “Bank Liquidity” section for additional information.

• Total deposits increased $1.0 billion to $50.1 billion at June 30, 2024 as compared to $49.1 billion at March 31, 2024 mainly due to higher indirect customer CD balances.

Total deposits increased $283.8 million to $50.4 billion at September 30, 2024 as compared to $50.1 billion at June 30, 2024 mainly due to higher direct commercial customer money market and non-interest bearing deposits, partially offset by a decline in time deposits.

During the third quarter 2024, we added roughly 25 thousand new deposit accounts, including nearly 11 thousand accounts that are non-interest bearing deposits.

Total indirect customer deposits (including both brokered money market and time deposits) totaled $9.1 billion at September 30, 2024 and remained relatively unchanged compared to June 30, 2024.

We intend to use a significant portion of the net proceeds from the expected sale of commercial real estate loans held for sale to repay maturing indirect customer deposits in the fourth quarter 2024.

See the “Deposits and Other Borrowings” section for more details.

• Total loans increased $389.7 million, or 3.1 percent on an annualized basis, to $50.3 billion at June 30, 2024 from March 31, 2024 mainly as a result of our focus on new commercial and industrial loan production during the second quarter 2024.

Strong indirect automobile loan originations from our dealer network, as well as modest organic commercial real estate loan volumes also contributed to the growth in total loans during the second quarter 2024.

Loans held for sale decreased $41.9 million to $19.9 million at June 30, 2024 from March 31, 2024 mostly due to the previously disclosed sale of $34.1 million of construction loans at par during April 2024.

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

• While non-accrual loans and net loan charge-offs increased during the second quarter 2024 mainly due to two commercial loan relationships, overall asset quality remained generally stable across the loan portfolio and continued to reflect our disciplined underwriting and lending practices.

Non-performing assets (NPAs) as a percentage of total loans and NPAs increased to 0.62 percent at June 30, 2024 as compared to 0.58 percent at March 31, 2024.

Total net loan charge-offs to average loans was 0.29 percent for the second quarter 2024 as compared with 0.19 percent for the first quarter 2024.

See the “Non-Performing Assets” section for additional information.

• Total investment securities increased $704.6 million to $5.9 billion, or 9.6 percent of total assets, at June 30, 2024 as compared to March 31, 2024 mainly due to purchases of residential mortgage backed securities largely issued by Ginnie Mae that were classified as available for sale.

• Investment Securities:

Total investment securities increased $317.7 million to $6.3 billion, or 10.1 percent of total assets, at September 30, 2024 as compared to June 30, 2024 mainly due to targeted purchases of residential mortgage backed securities primarily issued by Ginnie Mae (with a risk-weighting of zero for regulatory capital purposes) that were classified as available for sale.

See the “Investment Securities Portfolio” section for more details.

• Total shareholders' equity increased $10.6 million to $6.7 billion at June 30, 2024 as compared to March 31, 2024.

Regulatory capital remained strong with ratios of both Valley and the Bank exceeding all capital adequacy requirements at June 30, 2024.

During June 2024, we completed a synthetic credit risk transfer transaction, consisting of a credit default swap, related to approximately $1.5 billion of our $1.8 billion automobile loan portfolio at June 30, 2024.

While we retained the auto loans on-balance sheet and the transaction had no impact to our allowance for loan losses, the new credit protection significantly reduced the risk-weighted assets associated with these loans for regulatory capital purposes.

As a result, Valley’s total risk-based capital, common equity Tier 1 capital and Tier 1 capital ratios benefited by approximately 20 basis points at June 30, 2024.

Subsequent Event.

On August 5, 2024, Valley issued 6.0 million shares of its 8.250 percent Fixed Rate Reset Non-Cumulative Perpetual Preferred Stock, Series C, no par value per share, with a liquidation preference of $25 per share.

Net proceeds to Valley after deducting underwriting discounts, commissions and offering expenses were $144.7 million.

See Note 1 to the consolidated financial statements and the "Capital Adequacy" section below for more details.

Quarterly Results.

Net income for the second quarter 2024 was $70.4 million, or $0.13 per diluted common share, as compared to $139.1 million, or $0.27 per diluted common share, for the second quarter 2023.

Net income for the third quarter 2024 was $97.9 million, or $0.18 per diluted common share, as compared to $141.3 million, or $0.27 per diluted common share, for the third quarter 2023.

The $43.5 million decrease in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:

• a $76.0 million increase in our provision for credit losses mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and additional specific reserves and charge-offs associated with the revaluation of collateral dependent commercial loans at June 30, 2024;

• an $18.1 million decrease in net interest income as higher yields on both new loan originations and adjustable-rate loans were more than offset by an increase in the cost of deposits;

• an $8.9 million decrease in non-interest income that was primarily driven by a decrease in swap fees related to commercial loan transactions (within capital market fees) and lower other income, partially offset by an increase in bank owned life insurance income.

• a $65.9 million increase in our provision for credit losses mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and the additional qualitative reserve related to the estimated impact of Hurricane Helene at September 30, 2024;

• a $2.3 million increase in non-interest expense mainly due to higher FDIC assessment fees, largely offset by lower technology and consulting related expenses;

• a $1.9 million decrease in net interest income as higher yields on both new and adjustable-rate loans and additional interest income from investment security purchases were more than offset by an increase in the overall cost of average interest bearing liabilities.

Which were partially offset by:

• a $28.9 million decrease in income tax expense mostly due to lower pre-tax income in the second quarter 2024 and a higher level of investment in tax credits as compared to one year ago;

• a $5.5 million decrease in non-interest expense largely due to $10.8 million decline in restructuring charges within salary and employee benefits expense, partially offset by higher FDIC assessment fees.

See the “Net Interest Income,” “Non-Interest Income,” “Non-Interest Expense” and “Income Taxes” sections below for more details on the impact of the items above and other infrequent non-core items impacting our second quarter 2024 results.

• a $24.7 million decrease in income tax expense mostly due to lower pre-tax income in the third quarter 2024 and a higher level of investment in tax credits as compared to one year ago;

• a $2.0 million increase in non-interest income that was mainly driven by increases in other income, tax advisory fees (within wealth management and trust fees) and bank owned life insurance income, partially offset by a mark-to-market loss on loans transferred to loans held for sale in the third quarter 2024 and a decline in net gains on the sales of assets.

Economic Conditions.

D uring the second quarter 2024, real gross GDP increased at an annual rate of 2.8 percent as compared to an increase of 1.4 percent during the first quarter 2024.

The increase was driven by personal consumption, government spending and nonresidential fixed investment.

Alternatively, residential fixed investment and net exports declined.

In addition, most measures of inflation continued to reflect a moderation in price pressures during the quarter.

Inflation rate declined to 3.0 percent in the second quarter 2024 as compared to 3.5 percent for the first quarter 2024 .

In June 2024, the Federal Reserve noted that economic activity was solid, job gains remained strong, and that inflation, while it remains elevated, has continued to decelerate at a modest pace.

As a result, the Federal Reserve decided to maintain the target range for the federal funds rate between 5.25 and 5.50 percent.

Additionally, the Federal Reserve released its updated summary of economic projections which indicated that the median participant’s expectation for the federal funds rate by the end of 2024 was 5.1 percent.

However, a softer than expected job report in July 2024 has increased market participant expectations for potential rate cuts by the Federal Reserve, including at their next committee meeting in September 2024.

During the third quarter 2024, real gross GDP increased at an annual rate of 2.8 percent as compared to an increase of 3.0 percent during the second quarter 2024.

The increase was driven by government spending, residential & nonresidential fixed investment and net exports.

In addition, most measures of inflation continued to reflect a moderation in price pressures during the third quarter 2024.

The rate of i nflation declined to 2.4 percent in the third quarter 2024 as compared to 3.0 percent for the second quarter 2024 .

At its Federal Open Market Committee meeting in September, the Federal Reserve implemented a 0.50 percent rate cut resulting in a federal funds target rate range of 4.75 percent to 5.00 percent.

The rate cut represented the first interest rate change in a year and the first rate cut in more than four years.

On November 7, 2024, the Federal Reserve cut the federal funds target rate another 0.25 percent to a current range of 4.50 percent to 4.75 percent.

The Federal Reserve's projections released in September 2024 signal that they may cut the federal funds target rate by another 0.25 percent at their next meeting in mid-December 2024.

The 10-year U.S.

Treasury note yield ended the second quarter 2024 at 4.36 percent, or 16 basis points higher as compared to the first quarter 2024 , and the 2-year U.S.

Treasury note yield ended the second quarter 2024 at 4.71 percent, or 12 basis points higher as compared to the first quarter 2024.

For all commercial banks in the U.S., total loans and leases grew 0.6 percent from March 31, 2024 to June 30, 2024.

Commercial and industrial lending increased 1.3 percent while commercial real estate lending declined 0.3 percent during the same period.

For the second quarter of 2024, banks reported some easing to underwriting standards for most commercial loan products which may support loan growth in future months.

However, banks continued to report that demand for both commercial and industrial and commercial real estate loans remained weak.

Although Federal Reserve efforts to combat inflation are showing modest progress, several factors, including, but not limited to new and proposed bank regulatory actions, the inverted yield curve, potential weakening of the labor market, elevated inflation and interest rates, the upcoming U.S.

presidential election and geopolitical conflicts have added a higher level of uncertainty to the future path of the U.S.

Treasury note yield ended the third quarter 2024 at 3.81 percent, or 55 basis points lower as compared to the second quarter 2024 , and the 2-year U.S.

Treasury note yield ended the third quarter 2024 at 3.66 percent, or 105 basis points lower as compared to the second quarter 2024.

For all commercial banks in the U.S., total loans and leases grew 0.4 percent from June 30, 2024 to September 30, 2024.

Commercial and industrial lending and commercial real estate lending increased 0.2 percent and 0.3 percent, respectively, during the same period .

For the third quarter of 2024, banks reported continued easing of underwriting standards for most commercial and industrial loan products to large and middle-market companies.

Banks reported stronger demand for commercial and industrial loans as the majority of customer demand transitioned from commercial real estate loans.

Although Federal Reserve efforts to combat inflation are showing continued, but modest progress, several factors, including, but not limited to, new and proposed bank regulatory actions, potential weakening of the labor market, elevated inflation and interest rates, future policies and legislation under the new U.S.

presidential administration and geopolitical conflicts have contributed to uncertainty to the future path of the U.S.

economy and created a challenging bank operating environment.

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Deposits and Other Borrowings

Total average deposits increased by $807.2 million to $49.4 billion for the second quarter 2024 as compared to the first quarter 2024 due to increases of $766.8 million and $40.4 million in average interest bearing and non-interest bearing deposits, respectively.

Average time deposits balances increased $712.0 million primarily due to our increased use of indirect customer (i.e., brokered) CDs as a funding source in the second quarter 2024.

Our cumulative deposit beta remained generally stable at 60 percent as of September 30, 2024 from 58 percent at June 30, 2024 and 57 percent at December 31, 2023.

The slight uptick from each comparable period was driven by a modestly higher cost of interest-bearing customer deposits and mix-shift from non-interest to interest-bearing deposit products.

We define cumulative deposit beta as the change in our cost of total deposits relative to the change in the Fed Funds rate during the current rising interest rate cycle which began in the first quarter of 2022.

See the "Net Interest Income" section for additional details on the changes in our cost of deposits during the third quarter 2024.

Total average deposits increased by $1.0 billion to $50.4 billion for the third quarter 2024 as compared to the second quarter 2024.

Average time deposits balances increased $921.8 million primarily due to our increased use of indirect customer (i.e., brokered) CDs as an alternate and attractively priced funding source (mainly compared to similar term FHLB borrowings) starting in the second quarter 2024.

Average non-interest-bearing deposits;

savings, NOW and money market deposits;

and time deposits represented

approximately 23 percent, 50 percent and 27 percent of total deposits f or the second quarter 2024, respectively as compared to 23 percent, 51 percent and 26 percent of total deposits for the first quarter 2024 , respectively.

Actual ending balances for deposits increased $1.0 billion to $50.1 billion at June 30, 2024 from March 31, 2024 mainly due to an increase of $1.5 billion in time deposits, partially offset by a decrease of $349.8 million in savings, NOW and money market deposits and a decrease of $155.6 million in non-interest bearing deposits.

The increase in time deposits was mainly due to a $1.7 billion increase in indirect customer CDs.

Non-interest bearing deposit and savings, NOW and money market deposit balances declined at June 30, 2024 from March 31, 2024 partly due to period-end fluctuations within certain direct commercial customer deposit accounts.

During the second quarter 2024, management entered into fair value swap transactions with a combined notional value of approximately $400 million that will effectively convert a portion of its fixed rate indirect CD portfolio to variable interest rates starting in the first quarter 2025 (See Note 12 to the consolidated financial statements for more details).

and time deposits represented approximately 22 percent, 50 percent and 28 percent of total deposits for the third quarter 2024, respectively as compared to 23 percent, 50 percent and 27 percent of total deposits for the second quarter 2024, respectively .

Actual ending balances for deposits increased $283.8 million to $50.4 billion at September 30, 2024 from June 30, 2024 mainly due to an increase of $358.3 million in savings, NOW and money market deposits and an increase of $36.0 million in non-interest bearing deposits, partially offset by a decrease of $110.5 million in time deposits.

Non-interest bearing deposit and savings, NOW and money market deposit balances increased at September 30, 2024 from June 30, 2024 mostly due to increases in national specialized deposits and higher direct commercial customer deposit accounts.

Total indirect customer deposits (including both brokered money market and time deposits) totaled $9.1 billion in both September 30, 2024 and June 30, 2024.

Non-interest bearing deposits;

savings, NOW and money market deposits;

and time deposits represented approximately 22 percent, 49 percent and 29 percent of total deposits as of June 30, 2024, respectively, as compared to 23 percent, 51 percent and 26 percent of total deposits as of March 31, 2024, respectively.

The following table lists, by maturity, uninsured CDs at June 30, 2024:

June 30, 2024

and time deposits represented approximately 22 percent, 50 percent and 28 percent of total deposits as of September 30, 2024, respectively, as compared to 22 percent, 49 percent and 29 percent of total deposits as of June 30, 2024, respectively.

The following table lists, by maturity, uninsured CDs at September 30, 2024:

September 30, 2024

(in thousands)

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Total $ 2,191,472

Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $11.0 billion, or 22 percent of total deposits, at June 30, 2024 as compared to $11.5 billion, or 24 percent of total deposits, at March 31, 2024.

While we maintained a diversified commercial and consumer deposit base at June 30, 2024, deposit gathering initiatives and our current deposit base could remain challenged due to market competition, attractive investment alternatives, such as U.S.

Treasury securities, and other factors.

As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at June 30, 2024.

Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $11.6 billion, or 23 percent of total deposits, at September 30, 2024 as compared to $11.0 billion, or 22 percent of total deposits, at June 30, 2024.

While we maintained a diversified commercial and consumer deposit base at September 30, 2024, deposit gathering initiatives and our current deposit base could remain challenged due to market competition, attractive non-deposit investment alternatives in the financial markets and other factors.

As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at September 30, 2024.

Management continuously monitors liquidity and all available funding sources including non-deposit borrowings discussed below.

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

Three Months Ended Six Months Ended

June 30, 2024 March 31, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Three Months Ended Nine Months Ended

September 30, 2024 June 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

(in thousands)

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Total $ 3,324,992 $ 3,319,195 $ 2,495,512 $ 3,090,874 $ 2,176,985

Average short-term borrowings decreased $1.4 billion during the second quarter 2024 as compared to the first quarter 2024 mostly due to a shift from short-term FHLB advances to indirect customer time deposits in our average mix of funding sources.

Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) increased $693.3 million as compared to the first quarter 2024 mainly due to new FHLB advances totaling $1.0 billion issued in early March 2024.

The new long-term FHLB borrowings have a weighted average rate of 4.54 percent and a weighted average remaining contractual term of 3.3 years at June 30, 2024.

Actual ending balances for short-term borrowings decreased $11.5 million to $63.8 million at June 30, 2024 as compared to March 31, 2024 mainly due to a moderate decline in securities sold under repurchase agreements.

Long-term borrowings totaled $3.3 billion at June 30, 2024 and also remained relatively unchanged as compared to March 31, 2024.

Average short-term borrowings decreased by $16.3 million and $355.3 million during the third quarter 2024 as compared to the second quarter 2024 and third quarter 2023, respectively, mostly due to a shift from the use of short-term FHLB advances to primarily indirect customer money market and time deposits in our average mix of funding sources.

Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) increased $5.8 million and $829.5 million as compared to the second quarter 2024 and third quarter 2023, respectively.

The increase as compared to the third quarter 2023 was mainly due to new FHLB advances totaling $1.0 billion issued in early March 2024.

The new long-term FHLB borrowings have a weighted average rate of 4.54 percent and a weighted average remaining contractu al term of 3.1 years at September 30, 2024.

Actual ending balances for short-term borrowings decreased $5.5 million to $58.3 million at September 30, 2024 as compared to June 30, 2024 mainly due to a moderate decline in securities sold under repurchase agreements.

Long-term borrowings totaled $3.3 billion at September 30, 2024 and remained relatively unchanged as compared to June 30, 2024.

Non-GAAP Financial Measures

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

11 unchanged sentences

Efficiency ratio, as adjusted 56.13 56.72 58.26 55.34

September 30,

2024 December 31,

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

3 unchanged sentences

FDIC special assessment (1)

1,363 — 8,757 —

Losses on available for sale and held to maturity debt securities, net (2)

Mark to market loss on commercial real estate loans transferred to loans held for sale (3)

5,794 — 5,794 —

Restructuring charge (4)

2 unchanged sentences

Merger related expenses (6)

Litigation settlements (7)

(7,334) — (7,334) —

Gain on sale of commercial premium finance lending division (8)

— — (3,629) —

Net gains on sales of office buildings (8)

— (6,721) — (6,721)

Total non-GAAP adjustments to net income $ (1,539) $ (6,953) $ 4,554 $ 13,395

3 unchanged sentences

Included in the FDIC insurance expense.

Included in gains on securities transactions, net.

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

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

Represents severance expense related to workforce reductions within salary and employee benefits expense.

Included in provision for credit losses for available for sale and held to maturity securities (tax disallowed).

Represents salary and employee benefits expense during first quarter 2023.

Included in net (losses) gains on sale of assets.

Included in salary and employee benefits expense during the first quarter 2023.

Represents recoveries from legal settlements included in other income.

Included in gains on sales of assets, net.

Calculated using the appropriate blended statutory tax rate for the applicable period.

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

2 unchanged sentences

FDIC Special assessment (1)

1,363 — 8,757 —

Restructuring charge (2)

6 unchanged sentences

Losses on available for sale and held to maturity debt securities, net (4)

Mark to market loss on commercial real estate loans transferred to loans held for sale (5)

5,794 — 5,794 —

Litigation settlements (6)

(7,334) — (7,334) —

Gain on sale of commercial premium finance lending division (7)

— — (3,629) —

Net gains on sales of office buildings (7)

— (6,721) — (6,721)

Gross operating income, as adjusted (non-GAAP) $ 469,630 $ 464,804 $ 1,373,873 $ 1,434,996

2 unchanged sentences

Represents severance expense related to workforce reductions within salary and employee benefits expense.

Represents salary and employee benefits expense during first quarter 2023.

Included in gains on securities transactions, net.

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

Included in salary and employee benefits expense during first quarter 2023.

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

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

Represents recoveries from legal settlements included in other income.

Included in gains on sales of assets, net.

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

September 30,

2024 December 31,

8 unchanged sentences

Net Interest Income

Net interest income on a tax equivalent basis of $403.0 million for the second quarter 2024 increased $8.1 million compared to the first quarter 2024 and decreased $18.3 million as compared to the second quarter 2023.

Interest income on a tax equivalent basis increased $4.8 million to $834.8 million for the second quarter 2024 as compared to the first quarter 2024 mostly due to additional interest income from targeted investment purchases within the available for sale securities portfolio, as well as higher average overnight interest bearing deposits with banks during the second quarter 2024.

A higher yield on average loans also contributed to the increase in interest income but was more than offset by the impact of lower average loan balances during the second quarter 2024 mostly caused by the sale of certain commercial loans in the first quarter 2024 and April 2024.

Total interest expense decreased $3.3 million to $431.8 million for the second quarter 2024 as compared to the first quarter 2024 mainly

due to greater utilization of long-term FHLB borrowings and indirect customer time deposits as liquidity funding sources and a reduction in higher cost short-term FHLB borrowings starting in March 2024.

Average interest earning assets decreased $578.9 million to $56.8 billion for the second quarter 2024 as compared to the second quarter 2023 mainly due to a $1.4 billion decline in average interest bearing cash held overnight as our excess liquidity returned to more normalized levels in 2024 after being elevated in response to the bank failures in 2023.

The decrease in average interest bearing cash was partially offset by a $563.0 million increase in average loan balances mostly driven by organic commercial loan growth since June 30, 2023 and the increase in average investment securities stemming from our second quarter 2024 purchase activity in the available for sale portfolio.

Compared to the first quarter 2024, average interest earning assets increased by $154.2 million during the second quarter 2024 .

The increase was mainly driven by increases of $284.1 million and $100.3 million in average taxable investments and average overnight interest bearing cash balances, respectively, as compared to the prior linked quarter, partially offset by a $225.7 million decline in average loan balances.

The decline in average loans was largely due to (1) the sale of $196.5 million of commercial real estate and construction loans through loan participation agreements at par value in March 2024, (2) the sale of $93.6 million of commercial and industrial loans associated with the sale of our premium finance lending division in February 2024, and (3) the sale of $34.1 million of construction loans at par during April 2024, partially offset by (4) organic loan growth in the second quarter 2024.

Average interest bearing liabilities increased $650.6 million to $41.6 billion for the second quarter 2024 as compared to the second quarter 2023 mainly due to increases of $3.5 billion and $979.5 million in average interest bearing deposits and long-term borrowings, respectively, partially offset by a decrease of $3.8 billion in average short-term borrowings.

The increase in average time deposits was largely due to increased usage of fully FDIC-insured indirect customer CDs and successful direct retail CD initiatives since June 30, 2023, while average long-term borrowings increased mostly due to several new FHLB advances totaling $1.0 billion in early March 2024 .

As compared to the first quarter 2024, average interest bearing liabilities increased by only $19.8 million for the second quarter 2024 as increases of $766.8 million and $693.3 million in average interest bearing deposits and long-term borrowings, respectively, were mostly offset by a $1.4 billion decrease in average short-term borrowings.

Net interest income on a tax equivalent basis of $411.8 million for the third quarter 2024 increased $8.8 million compared to the second quarter 2024 and decreased $1.8 million as compared to the third quarter 2023.

Interest income on a tax equivalent basis increased $27.1 million to $861.9 million for the third quarter 2024 as compared to

the second quarter 2024.

The increase was mostly due to higher yields on both new loan originations and adjustable rate loans, as well as higher yields and additional interest income from targeted purchases of taxable investments within the available for sale securities portfolio during the second and third quarter 2024.

Total interest expense increased $18.3 million to $450.1 million for the third quarter 2024 as compared to the second quarter 2024 mainly due to an increase in average time deposit balances coupled with higher costs on most interest bearing deposit products.

See the "Deposits" and "Other Borrowings" sections below for more details.

Average interest earning assets increased $849.1 million to $57.7 billion for the third quarter 2024 as compared to the third quarter 2023 mainly due to a $1.1 billion increase in average taxable investments largely resulting from purchases of residential mortgage-backed securities classified as available for sale during the nine months ended September 30, 2024.

Compared to the second quarter 2024, average interest earning assets increased by $878.7 million .

The increase was mainly driven by increases of $598.1 million and $176.7 million in average taxable investments and average overnight interest bearing cash balances, respectively, as compared to the prior linked quarter.

The average loan balances also increased by $106.1 million to $50.1 billion for the third quarter 2024 mostly due to organic loan growth in the latter half of the second quarter 2024 .

Average interest bearing liabilities increased $1.8 billion to $42.7 billion for the third quarter 2024 as compared to the third quarter 2023 primarily due to increases of $1.4 billion and $829.5 million in average interest bearing deposits and long-term borrowings, respectively, partially offset by a decrease of $355.3 million in average short-term borrowings.

The increase in average interest bearing deposits was largely due to increased NOW deposit balances, while average long-term borrowings increased mostly due to several new FHLB advances totaling $1.0 billion in early March 2024.

The $355.3 million decrease in average short-term borrowings was mostly the result of a shift from the use of short-term FHLB advances to indirect customer time deposits in our mix of liquidity funding sources.

As compared to the second quarter 2024, average interest bearing liabilities increased by $1.1 billion for the third quarter 2024 largely due to an increase in average indirect customer time deposit balances .

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

Net interest margin on a tax equivalent basis of 2.84 percent for the second quarter 2024 increased by 5 basis points from 2.79 percent for the first quarter 2024 and decreased 10 basis points from 2.94 percent for the second quarter 2023.

The increase as compared to the first quarter 2024 was largely driven by the combination of a higher yield on average interest earning assets and a decline in the cost of average interest bearing liabilities.

The yield on average interest earning assets increased by 2 basis points to 5.88 percent on a linked quarter basis largely due to higher yielding investment purchases and new loan originations during the second quarter 2024.

The overall cost of average interest bearing liabilities decreased 4 basis points to 4.15 percent for the second quarter 2024 as compared to the first quarter 2024 primarily due to a reduction in both higher cost short-term FHLB borrowings and government banking non-maturity deposit account balances.

Our cost of total average deposits was 3.18 percent for the second quarter 2024 as compared to 3.16 percent and 2.45 percent for the first quarter 2024 and the second quarter 2023, respectively.

Based upon our latest model estimates, we anticipate net interest income growth in the range of 1.5 to 3.0 percent on a quarterly basis for both the third and fourth quarter 2024 as compared to the second quarter 2024.

While we remain optimistic that our net interest income should continue to stabilize and grow during the remainder of 2024 as compared to the second quarter 2024, our forecasts include several uncertain assumptions, including changes in the level of market interest rates.

As such, we cannot provide any assurances that our net interest income or margin will remain at the levels reported for the second quarter 2024.

Net interest margin on a tax equivalent basis of 2.86 percent for the third quarter 2024 increased by 2 basis points from 2.84 percent for the second quarter 2024 and decreased 5 basis points from 2.91 percent for the third quarter 2023.

The increase as compared to the second quarter 2024 was largely driven by higher yield on average interest earning assets largely offset by an increase in the cost of average interest bearing liabilities.

The yield on average interest earning assets increased by 10 basis points to 5.98 percent on a linked quarter basis largely due to higher yielding investment purchases and new loan originations during the second and third quarter 2024.

The overall cost of average interest bearing liabilities increased 7 basis points to 4.22 percent for the third quarter 2024 as compared to the second quarter 2024 largely due to higher interest rates on deposits.

Our cost of total average deposits was 3.25 percent for the third quarter 2024 as compared to 3.18 percent and 2.94 percent for the second quarter 2024 and the third quarter 2023, respectively.

Based upon our latest model estimates, we anticipate net interest income to decline approximately one percent for the fourth quarter 2024 as compared to the third quarter 2024.

The projected decline is largely due to lower forecasted interest income resulting from the expected sale of the commercial real estate loans transferred to loans held for sale during the third quarter 2024.

Exclusive of this, we would have forecasted net interest income for the fourth quarter 2024 to be slightly higher relative to the third quarter 2024 as a result of modest loan growth and lower funding costs in the wake of the 50 basis point reduction to the federal funds target rate in September 2024.

Our forecasts include several other uncertain assumptions, including changes in the level of market interest rates and the interest sensitivity of our balance sheet.

As such, we cannot provide any assurances that our future net interest income or margin will meet our current estimates or remain near the levels reported for the third quarter 2024.

For a detailed discussion on the risks related to interest rates please refer to Part I, Item 1A.

“Risk Factors” in our Annual Report.

The following table reflects the components of net interest income for the three months ended June 30, 2024, March 31, 2024 and June 30, 2023:

The following table reflects the components of net interest income for the three months ended September 30, 2024, June 30, 2024 and September 30, 2023:

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

1 unchanged sentence

Three Months Ended

June 30, 2024 March 31, 2024 June 30, 2023

September 30, 2024 June 30, 2024 September 30, 2023

Balance Interest Average

37 unchanged sentences

2.86 % 2.84 % 2.91 %

Six Months Ended

June 30, 2024 June 30, 2023

Nine Months Ended

September 30, 2024 September 30, 2023

Average Balance Interest Average Rate Average Balance Interest Average Rate

46 unchanged sentences

Change in Net Interest Income on a Tax Equivalent Basis

Three Months Ended June 30, 2024

Compared to June 30, 2023 Six Months Ended June 30, 2024 Compared to June 30, 2023

Three Months Ended September 30, 2024

Compared to September 30, 2023 Nine Months Ended September 30, 2024 Compared to September 30, 2023

Volume Change

7 unchanged sentences

Interest bearing deposits with banks (3,743) 15 (3,728) (38,224) 5,599 (32,625)

Total (decrease) increase in interest income

Total increase in interest income

6,427 41,179 47,606 16,353 185,336 201,689

9 unchanged sentences

Non-Interest Income

Non-interest income represented 5.8 percent and 7.1 percent of total interest income plus non-interest income for the three months ended June 30, 2024 and 2023, respectively and 6.3 percent and 7.1 percent of total interest income plus non-interest income for the six months ended June 30, 2024 and 2023, respectively.

For the three and six months ended June 30, 2024, non-interest income decreased $8.9 million and $1.7 million as compared to the same periods in 2023.

The following table presents the components of non-interest income for the three and six months ended June 30, 2024 and 2023:

Non-interest income represented 6.6 percent and 6.7 percent of total interest income plus non-interest income for the three months ended September 30, 2024 and 2023, respectively and 6.4 percent and 6.9 percent of total interest income plus non-interest income for the nine months ended September 30, 2024 and 2023, respectively.

For the three and nine months ended September 30, 2024, non-interest income increased $2.0 million and $261.0 thousand as compared to the same periods in 2023.

The following table presents the components of non-interest income for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

4 unchanged sentences

Service charges on deposit accounts 12,826 10,952 35,287 31,970

Gains on securities transactions, net 3 217 52 595

Gains (losses) on securities transactions, net 47 (398) 99 197

Fees from loan servicing 3,443 2,681 9,322 8,054

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

(Losses) gains on sales of loans, net (3,644) 2,023 (1,142) 3,752

Gains on sales of assets, net 55 6,653 3,747 6,938

Bank owned life insurance 5,387 2,709 13,167 7,736

1 unchanged sentence

Total non-interest income $ 60,671 $ 58,664 $ 173,299 $ 173,038

Wealth management and trust fees income increased $2.0 million and $10.3 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

The increase as compared to the

second quarter 2023 was mainly driven by higher brokerage fees.

The increase for the six months ended June 30, 2024 was mainly due to a higher volume of success fees and other related periodic revenues generated by our tax credit advisory subsidiary, as well as increased brokerage fees.

Brokerage fees increased by $1.2 million to $6.1 million for the second quarter 2024 and increased $2.6 million to $12.3 million for the six months ended June 30, 2024 as compared to the same periods in 2023 due to stronger customer trading volume at our broker dealer subsidiary.

Capital markets income decreased $9.2 million and $14.4 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 mainly due to a decline in the volume of interest rate swap transactions, and resulting fees related to commercial loan customers, as well as lower loan syndication fees.

Net gains on sales of assets increased $3.4 million for the six months ended June 30, 2024 as compared to the same period in 2023 largely due to a $3.6 million net gain on the sale of our commercial premium finance lending business in the first quarter 2024.

Bank owned life insurance income increased $2.1 million and $2.8 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 due to improved performance of the underlying investment securities.

Other non-interest income decreased $4.5 million and $6.6 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

Wealth management and trust fees income increased $3.7 million and $14.0 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

Increases in both periods as compared to the same periods in 2023 were mainly driven by stronger fee production from tax credit advisory services.

Brokerage fees also increased $2.7 million to $17.5 million for the nine months ended September 30, 2024 as compared to the same period in 2023 due to stronger customer trading volume at our broker dealer subsidiary during the first half of 2024.

Capital markets income decreased $15.2 million for the nine months ended September 30, 2024 as compared to the same period in 2023 mainly due to a decline in the volume of interest rate swap transac tions, and resulting fees related to commercial loan customers .

Service charges on deposit accounts income increased $1.9 million and $3.3 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 mainly due to additional treasury service related fees for commercial deposit accounts.

Net gains on sales of loans decreased $5.7 million and $4.9 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 mainly due to a $5.8 million mark-to- market loss recognized on the transfer of performing commercial real estate loans to loans held for sale at September 30, 2024 reported within this line item.

Overall, our ability to generate net gains on sales of residential mortgage loans originated for sale continues to be challenged by several factors, including the historically higher level of mortgage interest rates, lower customer demand for conforming loan products, and our decision to not originate certain residential mortgage loans for sale.

This decision can be influenced by many factors, including our current goal to reduce our commercial real estate loan concentration and further diversify our loan portfolio.

Net gains on sales of assets decreased $6.6 million and $3.2 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

The decrease as compared to the

second quarter 2023 was due, in part, to net losses related to the decline in the valuation of certain equity method investments at June 30, 2024.

The decrease for the six months ended June 30, 2024 was mainly attributable to a $2.7 million litigation recovery in the same period in 2023, and to a lesser extent, the decline in the valuation of certain equity method investments.

third quarter 2023 was mainly attributable to a $6.7 million net gain on the sale of non-branch offices located in Wayne, New Jersey in the third quarter 2023.

The decrease for the nine months ended September 30, 2024 was net of a $3.6 million net gain realized on the sale of our commercial premium finance lending business in the first quarter 2024.

Bank owned life insurance income increased $2.7 million and $5.4 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 due to improved performance of the underlying investment securities.

Other non-interest income increased $5.1 million for the three months ended September 30, 2024 as compared to the same period in 2023 largely due to income from litigation settlements totaling $7.3 million for the third quarter 2024.

Non-Interest Expense

Non-interest expense decreased $5.5 million and increased $2.7 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023.

The following table presents the components of non-interest expense for the three and six months ended June 30, 2024 and 2023:

Non-interest expense increased $2.3 million and $5.0 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.

The following table presents the components of non-interest expense for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

9 unchanged sentences

Total non-interest expense $ 269,471 $ 267,133 $ 827,278 $ 822,270

Salary and employee benefits expense decreased $8.8 million and $11.9 million for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023.

The decreases in both 2024 periods were largely attributable to restructuring charges of $11.2 million recognized in the second quarter 2023, consisting of severance expense related to workforce reductions, partially offset by normal increases in labor costs and a decline in deferred compensation.

The net decrease for the six months ended June 30, 2024 was also due to merger related costs,

primarily consisting of severance and retention compensation, totaling $4.1 million for the six months ended June 30, 2023.

Net occupancy expense decreased $1.7 million for the three months ended June 30, 2024 compared to the same period in 2023 mainly due to lower building repair and utilities expenses.

Technology, furniture and equipment expense increased $2.7 million and $1.7 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023 mostly due to higher investments in technology, partially offset by decreases in equipment maintenance and repair expense.

FDIC insurance assessment expense increased $4.0 million and $13.1 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods of 2023 due, in part, to additional estimated expenses of $1.4 million and $8.8 million recorded during the three and six months ended June 30, 2024, respectively, related to the FDIC special assessment.

Professional and legal fees decreased $3.5 million and $3.8 million for the three and six months ended June 30, 2024, respectively, as compared to the sa me periods in 2023.

The decreases in both periods were largely attributable to lower technology managed services and consulting expenses, partially offset by higher legal fees.

Other non-interest expense increased $2.2 million and $4.5 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023 mainly due to increased interest charges on collateral related to derivative transactions and the costs related to the loan credit risk transfer transaction, consisting of a credit default swap, executed in June 2024.

Total transaction costs included $400 thousand of one-time charges and $1.1 million of premium expense recorded in other expense during the second quarter 2024.

The premium expense associated with the credit protection is estimated to be approximately $6.0 million for the remainder of 2024.

Income tax expense totaled $22.9 million for the second quarter 2024 as compared to $33.2 million and $51.8 million for the first quarter 2024 and second quarter 2023, respectively.

Our effective tax rate was 24.5 percent, 25.6 percent and 27.1 percent for the second quarter 2024, first quarter 2024 and second quarter 2023, respectively.

The decrease in the effective tax rate from the first quarter 2024 and second quarter 2023 was primarily due to lower pre-tax income and larger investments in tax credits.

Salary and employee benefits expense decreased $10.4 million for the nine months ended September 30, 2024 compared to the same period in 2023 largely due to restructuring severance charges of $10.5 million and merger related costs, primarily consisting of severance and retention compensation, totaling $4.1 million for the nine months ended September 30, 2023.

These items were partially offset by normal increases in labor costs for the nine months ended September 30, 2024.

Net occupancy expense increased $2.3 million for the three months ended September 30, 2024 compared to the same period in 2023 mainly due to an increase in property tax expense, as well as incremental increases in rent and repairs expense on buildings.

Technology, furniture and equipment expense decreased $8.4 million and $6.7 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods of 2023 mostly due to a decrease in software licensing costs, as well as lower telecommunication related expense.

FDIC insurance assessment expense increased $6.8 million and $19.9 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods of 2023 part ly due to the overall growth of our balance sheet as well as an increase in internally classified loans (see the "Credit Quality Indicators" section under Note 7 to the consolidated financial statements for more details) .

The increase for the nine months ended September 30, 2024 was also due to $8.8 million expense related to the FDIC special assessment accruals recorded during the first six months of 2024.

Professional and legal fees decreased $3.0 million and $6.8 million for the three and nine months ended September 30, 2024, respectively, as compared to the sa me periods in 2023 largely due to lower technology managed services and consulting expenses.

Other non-interest expense increased $2.4 million and $6.9 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 mainly due to additional costs related to the loan credit risk transfer transaction, consisting of a credit default swap, executed in June 2024.

The premium expense and other transaction costs associated with the credit protection totaled $3.2 million and $4.7 million for the three and nine months ended September 30, 2024.

The increase for the nine months ended September 30, 2024 was also attributable to increased interest charges on collateral held related to derivative transactions.

Income tax expense totaled $28.8 million for the third quarter 2024 as compared to $22.9 million and $53.5 million for the second quarter 2024 and third quarter 2023, respectively.

Our effective tax rate was 22.7 percent, 24.5

percent and 27.5 percent for the third quarter 2024, second quarter 2024 and third quarter 2023, respectively.

The decrease in the effective tax rate from the second quarter 2024 and third quarter 2023 was primarily due to lower pre-tax income and larger investments in tax credits.

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

6 unchanged sentences

Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes, 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 the operating segments were determined necessary during the first half of 2024.

Certain prior period amounts have been reclassified to conform to the current presentation for each operating segment and Treasury and Corporate Other.

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 those of any other

financial institution.

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

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

The following tables present the financial data for Valley's operating segments, and Treasury and Corporate Other for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30, 2024

The following tables present the financial data for Valley's operating segments, and Treasury and Corporate Other for the three months ended September 30, 2024 and 2023:

Three Months Ended September 30, 2024

Banking Commercial

4 unchanged sentences

Return on average interest earning assets (before tax) 0.54 % 1.33 % (1.08) % 0.88 %

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Banking Commercial

6 unchanged sentences

Consumer Banking Segment

The Consumer Banking segment represented 18.0 percent of our loan portfolio at June 30, 2024, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans).

The duration of the residential mortgage loan portfolio (which represented 11.2 percent of our loan portfolio at June 30, 2024) is subject to movements in the market level of interest rates and forecasted prepayment speeds.

The weighted average life of the automobile loans portfolio (which represented 3.5 percent of total loans at June 30, 2024) is relatively unaffected by movements in the market level of interest rates.

The Consumer Banking segment represented 18.5 percent of our loan portfolio at September 30, 2024, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans).

The duration of the residential mortgage loan portfolio (which represented 11.5 percent of our loan portfolio at September 30, 2024) is subject to movements in the market level of interest rates and forecasted prepayment speeds.

The weighted average life of the automobile loans portfolio (which represented 3.7 percent of total loans at September 30, 2024) 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.

Consumer Banking’s average interest earning assets increased $201.0 million to $9.8 billion for the three months ended June 30, 2024 as compared to the same period of 2023 .

The increase was largely due to new residential mortgage loan volumes originated for investment rather than sale over the last 12-month period and, to a lesser extent, an increase in average auto loan balances.

Income before income taxes generated by the Consumer Banking segment increased $3.4 million to $15.7 million for the second quarter 2024 as compared to the second quarter 2023 and was mainly driven by a combination of increases in non-interest income and net interest income, partially offset by an increase in internal transfer expense and a higher provision for loan losses.

The non-interest income increased $4.1 million mainly due to brokerage fees generated from certain private banking clients.

See further details in the “Non-Interest Income” section of this MD&A.

Net interest income for this segment increased $3.0 million mainly due to higher interest rates on new and adjustable loans, largely offset by an increase in funding costs driven by higher interest rates.

The provision for loan losses increased $1.3 million for the second quarter 2024 as compared to the second quarter 2023 mainl y due to loan growth.

Consumer Banking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services, as well as Valley's international and domestic private banking businesses.

Consumer Banking’s average interest earning assets increased $248.3 million to $9.9 billion for t he three months ended September 30, 2024 as compared to the same period of 2023 .

The increase was largely due to increases in average auto loan balances and new residential mortgage loan volumes originated for investment rather than sale over the last 12-month peri od, partially offset by a decline in average other consumer loans mainly driven by lower secured personal lines of credit balances.

Income before income taxes generated by the Consumer Banking segment decreased $1.8 million to $13.3 million for the third quarter 2024 as compared to the third quarter 2023 and was mainly driven by a combination of higher provision for loan losses and an increase in non-interest expense, partially offset by increases in net interest income and non-interest income.

The provision for loan losses increased $10.6 million for the third quarter 2024 as compared to the third quarter 2023 mainly due to additional qualitative reserves related to the estimated impact of Hurricane Helene, as well as the level of residential mortgage and automobile loan growth in the 2024 period .

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

Net interest margin on the Consumer Banking portfolio increased 7 basis points to 1.86 percent for the second quarter 2024 as compared to the second quarter 2023 mainly due to a 56 basis point increase in the yield on average loa ns, partially offset by a 49 basis point increase in the costs associated with our funding sou rces.

The increase in our funding costs was mainly driven by higher interest rates on most of our interest bearing deposit products during the second quarter 2024.

Non-interest expense increased $3.4 million for the third quarter 2024 mainly due to additional costs related to our automobile loan credit risk transfer transaction, consisting of a credit default swap, executed in June 2024.

Net interest income for this segment increased $6.6 million mainly due to higher interest rates on new and adjustable loans, partially offset by an increase in funding costs driven by higher interest rates.

The non-interest income increased $5.2 million mainly due to a higher volume of transaction and other related fees generated by our tax credit advisory subsidiary.

See further details in the “Non-Interest Income” section of this MD&A.

Net interest margin on the Consumer Banking portfolio increased 21 basis points to 1.89 percent for the third quarter 2024 as compared to the third quarter 2023 mainly due to a 53 basis point increase in the yield on average loa ns, partially offset by a 32 basis point increase in the costs associated with our funding sou rces.

The 53 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio.

Our cost of total average deposits was 3.18 percent for the second quarter 2024 as compared to 2.45 percent for the second quarter 2023.

The increase in our funding costs w as mainly driven by higher interest rates on most of our interest bearing deposit products during the third quarter 2024.

Our cost of total average deposits was 3.25 percent for the third quarter 2024 as compared to 2.94 percent for the third quarter 2023.

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

The return on average interest earning assets before income taxes for the Consumer Banking segment was 0.64 percent for the second quarter 2024 compared to 0.51 percent for the second quarter 2023.

The return on average interest earning assets before income taxes for the Consumer Banking segment was 0.54 percent for the third quarter 2024 compared to 0.62 percent for the third quarter 2023.

Commercial Banking Segment

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

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

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

Commercial and industrial loans totaled approximately $9.5 billion and represented 18.8 percent of the total loan portfolio at June 30, 2024.

Commercial real estate loans and construction loans totaled $31.8 billion and represented 63.2 percent of the total loan portfolio at June 30, 2024.

Average interest earning assets in Commercial Banking segment increased $362.0 million to $40.2 billion for the three months ended June 30, 2024 as compared to the second quarter 2023 primarily due to organic loan growth over the last 12 month period largely within the commercial real estate loan portfolio.

Income before income taxes for Commercial Banking decreased $100.2 million to $130.7 million for the three months ended June 30, 2024 as compared to the same period of 2023 mainly due to a combination of a higher provision for credit losses, a decrease in net interest income and higher internal transfer expense.

The provision for credit losses increased $74.5 million to $77.3 million as compared to the same period in 2023 mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and additional specific reserves and charge-offs associated with the revaluation of collateral dependent commercial loans at June 30, 2024.

Commercial and industrial loans totaled approximately $9.8 billion and represented 19.9 percent of the total loan portfolio at September 30, 2024.

Commercial real estate loans and

construction loans totaled $30.4 billion and represented 61.6 percent of the total loan portfolio at September 30, 2024.

Average interest earning assets in Commercial Banking segment decreased $140.8 million to $40.2 billion for the three months ended September 30, 2024 as compared to the third quarter 2023 mainly due to our strategic initiatives in 2024, including loan sales and low new loan volumes outpaced by repayment activity, to reduce our commercial real estate loan concentration as a percentage of regulatory capital.

Income before income taxes for Commercial Banking decreased $76.4 million to $133.6 million for the three months ended September 30, 2024 as compared to the same period of 2023 mainly due to a higher provision for credit losses and a decrease in net interest income.

The provision for credit losses increased $55.3 million to $69.0 million as compared to the same period in 2023 mainly due to higher quantitative reserves allocated to commercial real estate loans and the reserve build required for our strong commercial and industrial loan growth.

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

Net interest income for this segment decreased $10.7 million to $355.4 million for the second quarter 2024 as compared to the same period in 2023 primarily due to the higher cost of funding and the inverted yield curve.

Internal transfer expense also increased $11.1 million to $121.6 million for the three months ended June 30, 2024 as compared to the second quarter 2023.

The net interest margin for this segment decreased 15 basis poin ts to 3.53 percent for the second quarter 2024 as compared to the second quarter 2023 due to a 49 basis point increase in the cost of our funding sources, partially offset by a 34 basis point increase in the yield on average loans.

The return on average interest earning assets before income taxes for the commercial banking segment was 1.30 percent for the three months ended June 30, 2024 compared to 2.32 percent for the same period in 2023.

Net interest income for this segment decreased $13.8 million to $359.1 million for the third quarter 2024 as compared to the same period in 2023 primarily due to the higher cost of funding.

The net interest margin for this segment decreased 13 basis poin ts to 3.57 percent for the third quarter 2024 as compared to the third quarter 2023 due to a 32 basis point increase in the cost of our funding sources, largely offset by a 19 basis point increase in the yield on average loans.

The return on average interest earning assets before income taxes for the commercial banking segment was 1.33 percent for the three months ended September 30, 2024 compared to 2.08 percent for the same period in 2023.

Treasury and Corporate Other

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

Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which

involves the allocation of operating and funding costs based on each segment's respective mix of average interest earning assets and/or liabilities outstanding for the period.

Other items disclosed in Treasury and Corporate Other include net gains and losses on AFS and HTM securities transactions, interest expense related to subordinated notes, amortization of tax credit investments, as well as other non-core items, including merger, restructuring expenses and FDIC special assessment charges.

Treasury and Corporate Other's average interest earning assets decreased $1.1 billion to $6.8 billion for the three months ended June 30, 2024 primarily due to a $1.4 billion decline in average interest bearing cash held overnight as our excess liquidity returned to more normalized levels in 2024 after being elevated in response to the bank failures in most of 2023.

For the three months ended June 30, 2024, loss before income taxes totaled $53.1 million compared to $52.4 million for the same period in 2023.

The $702 thousand increase in the pre-tax loss during the second quarter 2024 was mainly driven by a decrease in net interest income on interest bearing deposits with banks combined with lower non-interest income.

The negative impact of these items was largely offset by lower non-interest expense and higher internal transfer income.

Non-interest expense decreased $5.1 million to $220.3 million during the three months ended June 30, 2024 as compared to the same period in 2023.

The internal transfer income increased $14.2 million to $151.4 million for the three months ended June 30, 2024 as compared to the same period in 2023 due to higher allocations of the overhead expense to the Consumer Banking and Commercial Banking segments over the same period.

Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average interest earning assets and/or liabilities outstanding for the period.

Other items disclosed in Treasury and Corporate Other include net gains and losses on AFS and HTM securities transactions, interest expense related to subordinated notes, amortization of tax credit investments, as well as other non-core items, including income from litigation settlements, merger, restructuring expenses and FDIC special assessment charges.

Treasury and Corporate Other's average interest earning assets increased $741.5 million to $7.5 billion for the three months ended September 30, 2024 primarily due to higher average AFS investment securities balances.

The increase in securities was partially offset by a $272.5 million decline in average interest bearing cash held overnight as our excess liquidity returned to more normalized levels in 2024 after being elevated in response to the bank failures in most of 2023.

For the three months ended September 30, 2024, loss before income taxes totaled $20.3 million compared to $30.3 million of income before taxes for the same period in 2023.

The $10 million increase in the pre-tax loss during the third quarter 2024 was mainly driven by lower internal transfer income, partially offset by lower non-interest expense.

The internal transfer income decreased $1.2 million to $150.8 million for the three months ended September 30, 2024 as compared to the same period in 2023.

Non-interest expense decreased $5.5 million to $200.6 million during the three months ended September 30, 2024 as compared to the same period in 2023.

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

Treasury and Corporate Other's net interest margin decreased 45 basis points to 0.74 percent for the second quarter 2024 as compared to the second quarter 2023 due to a 49 basis point increase in cost of our funding sources, partly offset by a 4 basis point increase in the yield on average investments.

The following tables present the financial data for Valley's operating segments and Treasury and Corporate Other for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30, 2024

Treasury and Corporate Other's net interest margin increased 27 basis points to 0.23 percent for the third quarter 2024 as compared to the third quarter 2023 due to a 43 basis point increase in the yield on average investments, partly offset by a 16 basis point increase in cost of our funding sources.

The increased investment yield was largely due to growth within our AFS portfolio due to purchases of higher yielding residential mortgage-backed securities during the nine months ended September 30, 2024.

The following tables present the financial data for Valley's operating segments and Treasury and Corporate Other for the nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30, 2024

Banking Commercial

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0.50 % 1.35 % (1.86) % 0.82 %

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Banking Commercial

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Consumer Banking Segment

The Consumer Banking segment's average interest earning assets increased $259.7 million to $9.8 billion for the six months ended June 30, 2024 as compared to the same period in 2023.

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

Income before income taxes generated by Consumer Banking increased $3.3 million to $27.9 million for the six months ended June 30, 2024 as compared to the same period in 2023 and was mainly driven by a combination of an increase in non-interest income and lower provision for loan losses, largely offset by higher internal transfer expense and lower net interest income.

The non-interest income increase d $12.7 million mainly due to a higher volume of success fees and other related periodic fees generated by our tax credit advisory subsidiary, as well as brokerage fees generated from certain private banking clients.

See further details in the “Non-Interest Income” section of this MD&A.

Net interest income for this segment decreased $6.0 million mainly due to higher funding costs driven by higher interest rates.

The provision for loan losses decreased $2.0 million for the six months ended June 30, 2024 mainl y due to lower loan growth and an improved economic outlook as compared to one year ago.

The Consumer Banking segment's average interest earning assets increased $255.7 million to $9.9 billion for the nine months ended September 30, 2024 as compared to the same period in 2023.

The increase was primarily due to a higher level of new residential mortgage loans originated for investment rather than sale over the last 12-month period, as well as strong automobile loan application volumes from our indirect auto dealer network.

Income before income taxes generated by Consumer Banking increased $6.1 million to $37.3 million for the nine months ended September 30, 2024 as compared to the same period in 2023 and was mainly driven by an increase in non-interest income, partially offset by higher provision for loan losses.

Non-interest income increased $17.9 million mainly due to a higher volume of transaction and other related fees generated by our tax credit advisory subsidiary, as well as brokerage fees generated from our private banking clients.

See further details in the “Non-Interest Income” section of th is MD&A.

The provision for loan losses increased $8.5 million for the nine months ended September 30, 2024 largely due to loan growth and additional qualitative reserves related to the estimated impact of Hurricane Helene.

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

Net interest margin on the Consumer Banking portfolio decreased 18 basis points to 1.76 percent for the six months ended June 30, 2024 as compared to the same period in 2023 mainly due to a 75 basis point increase in the costs associated with our funding sources, partially offset by a 57 basis point increase in the yield on average loans .

The increase in our funding costs was mainly driven by higher interest rates on most of our interest bearing deposit products, as well as the mix of our adjustable rate and other borrowings during the six months ended June 30, 2024.

The 57 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio.

Non-interest expense also increased largely due to $4.7 million of premium fees associated with credit risk transfer swaps executed in June 2024 for a portion of our auto portfolio.

Net interest margin on the Consumer Banking portfolio decreased 4 basis points to 1.81 percent for the nine months ended September 30, 2024 as compared to the same period in 2023 mainly due to a 60 basis point increase in the costs associated with our funding sources, mostly offset by a 56 basis point increase in the yield on average loans .

The increase in our funding costs was mainly driven by higher interest rates on most of our interest bearing deposit products and indirect customer deposits, as well as the mix of our adjustable rate and other borrowings during the nine months ended September 30, 2024.

The 56 basis point increase in loan yield was largely due to higher yielding

new loan volumes and adjustable rate loans in our portfolio.

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

The return on average interest earning assets before income taxes for the Consumer Banking segment was 0.57 percent for the six months ended June 30, 2024 compared to 0.51 percent for the same period in 2023.

The return on average interest earning assets before income taxes for the Consumer Banking segment was 0.50 percent for the nine months ended September 30, 2024 compared to 0.43 percent for the same period in 2023.

Commercial Banking Segment

Average interest earning assets in the Commercial Banking segment increased $1.2 billion to $40.3 billion for the six months ended June 30, 2024 as compared to the same period in 2023.

This increase was primarily due to organic loan growth over the last 12 month period largely within the commercial real estate loan portfolio.

For the six months ended June 30, 2024, income before income taxes for Commercial Banking decreased $172.2 million to $289.4 million as compared to the same period in 2023 mainly driven by higher provision for credit losses and internal transfer expense and a decrease in net interest income.

T he provision for credit losses increased $113.6 million to $119.5 million during the six months ended June 30, 2024 as compared to the same period in 2023 mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and additional specific reserves and charge-offs associated with the revaluation of collateral dependent commercial loans at June 30, 2024.

Average interest earning assets in the Commercial Banking segment increased $755.6 million to $40.3 billion for the nine months ended September 30, 2024 as compared to the same period in 2023.

This increase was primarily due to organic loan growth over the last 12 month period, largely within the commercial and industrial loan portfolio.

For the nine months ended September 30, 2024, income before income taxes for Commercial Banking decreased $225.1 million to $408.2 million as compared to the same period in 2023 mainly driven by higher provision for credit losses, a decrease in net interest income and an increase in non-interest expense.

T he provision for credit losses increased $169.0 million to $188.5 million during the nine months ended September 30, 2024 as compared to the same period in 2023 mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and additional specific reserves and charge-offs associated with the revaluation of collateral dependent commercial loans during the 2024 period.

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

Net interest income for this segment decreased $26.0 million to $711.2 million for the six months ended June 30, 2024 as compared to the same period in 2023 primarily due to the higher cost of funding and the inverted yield curve.

Internal transfer expense also increased $30.3 million to $258.3 million for the six months ended June 30, 2024 as compared to the same period in 2023.

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

The net interest margin for this segment decreased 24 basis points to 3.53 percent for the six months ended June 30, 2024 as compared to the same period in 2023 due to a 75 basis point increase in the cost of our funding sources, partially offset by a 51 basis point increase in yield on average loans.

The return on average interest earning assets before income taxes for the commercial banking segment was 1.44 percent for the six months ended June 30, 2024 compared to 2.36 percent for the same period in 2023.

Net interest income for this segment decreased $39.8 million to $1.1 billion for the nine months ended September 30, 2024 as compared to the same period in 2023 primarily due to the higher cost of funding.

Non-interest expense increased $8.8 million to $136.7 million for nine months ended September 30, 2024 as compared to the same period in 2023 mainly due to higher FDIC insurance assessment expense resulting from both special assessments and the impact of changes in our internal risk classification of certain commercial real estate loans .

See further details in the “Non-Interest Income” and “Non-Interest Expense” sections of this MD&A, as well as under the "Credit Quality Indicators" section of Note 7 to the consolidated financial statements.

The net interest margin for this segment decreased 20 basis points to 3.55 percent for the nine months ended September 30, 2024 as compared to the same period in 2023, as a 60 basis point increase in the cost of our funding sources was partially offset by a 40 basis point increase in yield on average loans.

The return on average interest earning assets before income taxes for the commercial banking segment was 1.35 percent for the nine months ended September 30, 2024 compared to 2.14 percent for the same period in 2023.

Treasury and Corporate Other

Treasury and Corporate Other's average interest earning assets decreased $1.1 billion during the six months ended June 30, 2024 primarily due to a $1.3 billion decline in average interest bearing cash held overnight as our excess

liquidity returned to more normalized levels in 2024 after being elevated in response to the bank failures in most of 2023.

The loss before income taxes totaled $94.4 million for the six months ended June 30, 2024 as compared to $91.6 million for the same period in 2023.

The $2.9 million increase in pre-tax loss was mainly driven by a decrease in net interest income on interest bearing deposits with banks combined with lower non-interest income.

Non-interest expense increased $3.5 million to $445.6 million for the six months ended June 30, 2024 as compared to the same period in 2023 largely due to a $13.1 million increase in the FDIC insurance assessment expense, partially offset by decreases in salary and employee benefits expense and professional and legal fees.

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

The negative impact of these items was largely offset by higher internal transfer income and a decrease in the provision for credit losses.

The internal transfer income increased $37.5 million to $321.1 million for the six months ended June 30, 2024 as compared to the same period in 2023 due to higher allocations of the overhead expense to the Consumer Banking and Commercial Banking segments over the same period.

Provision for credit losses decreased $4.8 million mostly due to credit related impairment of one corporate bond issued by Signature Bank during the six months ended June 30, 2023 .

Treasury and Corporate Other's net interest margin decreased 67 basis points to 0.68 percent for the six months ended June 30, 2024 as compared to the same period in 2023 due to a 75 basis point increase in cost of our funding sources, partially offset by an 8 basis point increase in the yield on average investments.

The increase in the yield on average investments as compared to the same period in 2023 was largely driven by new higher yielding investments and a reduction in premium amortization expense mostly caused by slower principal repayments in the elevated market interest rate environment.

Treasury and Corporate Other's average interest earning assets decreased $505.5 million during the nine months ended September 30, 2024 mainly due to a $938.3 million decline in average interest bearing cash held overnight, partially offset by an increase of $432.8 million in average investments.

O ur excess cash liquidity held overnight returned to more normalized levels in 2024 after being elevated in response to the bank failures for most of 2023.

The loss before income taxes totaled $96.1 million for the nine months ended September 30, 2024 as compared to $75.3 million for the same period in 2023.

The $20.8 million increase in pre-tax loss was mainly driven by a decrease in ne t interest income combined with lower non-interest income.

Net interest income decrease d $23.3 million as compared to the same period a year ago mainly due to the higher cost of funding.

The negative impact of these items was largely offset by decrease in non-interest expense and provision for credit losses and higher internal transfer income.

Non-interest expense decreased $6.5 million to $622.4 million for the nine months ended September 30, 2024 as compared to the same period in 2023 partly due to additional severance expense related to workforce reductions in 2023 period.

See further details in the “Non-Interest Expense” section of this MD&A.

Provision for credit losses decreased $4.8 million mostly due to credit related impairment of one corporate bond issued by Signature Bank during the nine months ended September 30, 2023 .

The internal transfer income increased $3.8 million to $466.7 million for the nine months ended September 30, 2024 as compared to the same period in

2023 due to slightly higher allocations of the overhead expense to the Consumer Banking and Commercial Banking segments.

Treasury and Corporate Other's net interest margin decreased 40 basis points to 0.76 percent for the nine months ended September 30, 2024 as compared to the same period in 2023 due to a 60 basis point increase in cost of our funding sources, partially offset by a 20 basis point increase in the yield on average investments.

The increase in the yield on average investments as compared to the same period in 2023 was largely driven by new higher yielding investme nts.

ASSET/LIABILITY MANAGEMENT

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

The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates and the prepayment assumptions of certain assets and liabilities as of June 30, 2024.

The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates, non-maturity deposit betas, and the prepayment assumptions of certain assets and liabilities as of September 30, 2024.

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

In the model, the forecasted shape of the yield curve remains static as of June 30, 2024.

In the model, the forecasted shape of the yield curve remains static as of September 30, 2024.

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

Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of June 30, 2024.

Although the size of Valley’s balance sheet is forecasted to remain static as of June 30, 2024, in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the second quarter 2024.

The model utilizes an immediate parallel shift in market interest rates at June 30, 2024.

Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of September 30, 2024.

Although the size of Valley’s balance sheet is forecasted to remain static as of September 30, 2024, in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the third quarter 2024.

The model utilizes an immediate parallel shift in market interest rates at September 30, 2024.

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

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Competition can negatively impact the level of interest rates attainable on loans and increase the cost of deposits, which may result in downward pressure on our net interest margin in future periods.

Other factors, including, but not limited to, the slope of the yield curve and projected cash flows will impact our net interest income results and may increase or decrease the level of asset sensitivity of our balance sheet.

Other factors, including, but not limited to, the slope of the yield curve and

projected cash flows will impact our net interest income results and may increase or decrease the level of asset sensitivity of our balance sheet.

Convexity is a measure of how the duration of a financial instrument changes as market interest rates change.

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As noted in the table above, a 100 basis point immediate decrease in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to decrease net interest income over the next 12-month period by 4.68 percent.

Management believes the interest rate sensitivity of our balance sheet remains within a n expected t olerance range at June 30, 2024.

Management believes the interest rate sensitivity of our balance sheet remains within a n expected t olerance range at September 30, 2024.

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

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Our objective is to have liquidity available to fulfill loan demands, repay deposits and other liabilities, and execute balance sheet strategies in all market conditions while adhering to internal controls and income targets.

Valley's liquidity program is managed by the Treasury Department and routinely monitored by the Asset and Liability Management Committee and two board committees.

Valley's liquidity program is managed by the Treasury Department and routinely monitored by the Asset and Liability Management Committee and Board Risk Committee.

Among other actions, the Treasury Department actively monitors Valley's current liquidity profile, sources and stability of funding, availability of assets for pledging or sale, opportunities to gather additional funds, and anticipated future funding needs, including the level of unfunded commitments.

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

The following table presents Valley's loan to deposits and wholesale funding to total funding ratios at June 30, 2024 and December 31, 2023:

The following table presents Valley's loans to deposits and wholesale funding to total funding ratios at September 30, 2024 and December 31, 2023:

September 30,

2024 December 31,

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

September 30,

2024 December 31,

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

(2) Includes a pproximately $1.7 billion and $840.3 million of various investment securities that were pledged to counterparties to support our earning asset funding strategies at June 30, 2024 and December 31, 2023, respectively.

Total liquid assets represented 6.1 percent and 4.3 percent of interest earning assets at June 30, 2024 and December 31, 2023, respectively.

(2) Includes a pproximately $2.1 billion and $840.3 million of various investment securities that were pledged to counterparties to support our earning asset funding strategies at September 30, 2024 and December 31, 2023, respectively.

Total liquid assets represented 8.2 percent and 4.3 percent of interest earning assets at September 30, 2024 and December 31, 2023, respectively.

While not part of our liquidity management strategy, we executed certain asset sales (largely under an initiative to reduce our commercial real estate loan concentration risk and the sale of a small specialized commercial lending business) and a preferred stock offering with the primary goal to bolster our regulatory capital, which also benefited the Bank's liquidity and cash position during the nine months ended September 30, 2024, including the following:

• an additional capital contribution of $95 million to the Bank from Valley in the third quarter 2024 related to net cash proceeds of $144.7 million from Valley's issuance of Series C preferred stock;

• net cash proceeds of $230.7 million related to the sales of commercial real estate and construction loans during the first half of 2024;

• net cash proceeds of $98.1 million from the sale of our commercial premium finance lending division, mostly consisting of commercial and industrial loans, in the first quarter 2024.

While not isolated from the mix of our other sources of funds, these discrete transactions contributed to funding primarily used to grow our available for sale debt securities portfolio during the nine months ended September 30, 2024, while we maintained a relatively consistent level of cash liquidity on the balance sheet (as noted in the table above).

As noted in the "Executive Summary" section and elsewhere in this MD&A, we also expect to complete the sale of approximately $823.1 million of commercial real estate loans held for sale in the fourth quarter 2024 and use a significant portion of net cash proceeds to repay maturing indirect customer deposits.

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

At June 30, 2024, estimated cash inflows from total loans are projected to be approximately $14.1 billion over the next 12-month period.

At September 30, 2024, estimated cash inflows from total loans are projected to be approximately $14.5 billion over the next 12-month period.

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

We anticipate the receipt of approx imately $432.0 million in principal payments from securities in the total investment portfolio at June 30, 2024 over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.

We anticipate the receipt of approx imately $520.0 million in principal payments from securities in the total investment portfolio at September 30, 2024 over the next 12-month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.

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

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

Average core deposits totaled approximately $40.2 billion and $37.6 billion for the six months ended June 30, 2024 and for the year ended December 31, 2023, respectively, representing 70.8 percent and 66.6 percent of average interest earning assets for the respective periods.

Average core deposits totaled approximately $38.5 billion and $37.6 billion for the nine months ended September 30, 2024 and for the year ended December 31, 2023, respectively, representing 67.6 percent and 66.6 percent of average interest earning assets for the respective periods.

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

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

The following table presents short-term borrowings outstanding at June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

The following table presents short-term borrowings outstanding at September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

(in thousands)

2 unchanged sentences

Total short-term borrowings $ 58,268 $ 917,834

The following table summarizes the Bank's estimated unused available non-deposit borrowing capacities at June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

The following table summarizes the Bank's estimated unused available non-deposit borrowing capacities at September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

(in thousands)

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Projected cash flows from the Bank are expected to be adequate to pay preferred and common dividends, if declared, and interest expense payable to subordinated note holders and capital trusts, given the current capital levels and current profitable operations of the Bank.

In addition to dividends received from the Bank, Valley can satisfy its cash requirements by utilizing its own cash and potential new funds borrowed from outside sources or capital issuances.

In addition to dividends received from the Bank, Valley can satisfy its cash requirements by utilizing its own cash and potential new funds borrowed from outside sources or capital issuances, such as the undistributed net proceeds of our Series C preferred stock in August 2024.

Valley also has the right to defer interest payments on the junior subordinated debentures, and therefore distributions on its trust preferred securities for consecutive quarterly periods of up to five years, but not beyond the stated maturity dates, and subject to other conditions.

On November 12, 2024, Valley issued and sold 49,197,860 shares of its common stock in a registered public offering.

The net proceeds of the offering were $448.9 million and are expected to be used for general corporate purposes and investments in the Bank as regulatory capital.

See the "Executive Summary" and "Capital Adequacy" sections and Note 1 to the consolidated financial statements for more details.

Investment Securities Portfolio

As of June 30, 2024, we had $69.1 million, $2.2 billion, and $3.7 billion in equity, AFS debt and HTM debt securities, respectively.

We also had $4.0 million of trading securities consisting of U.S.

Treasury securities at June 30, 2024.

As of September 30, 2024, we had $73.1 million, $2.6 billion, and $3.6 billion in equity, AFS debt and HTM debt securities, respectively.

We also had $4.0 million of trading debt securities, consisting of U.S.

Treasury securities, at September 30, 2024.

The AFS and HTM debt securities portfolios, which comprise the majority of the securities we own, include:

2 unchanged sentences

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

The equity securities consist of two publicly traded mutual funds, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in partnerships that invest in such companies.

The equity securities consist of two publicly traded mutual funds, CRA investments and several other equity investments that we have made in companies that develop new financial technologies and in partnerships that invest in such companies.

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

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In assessing whether a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value is less than the amortized cost basis.

If the present

value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount that the fair value is less than the amortized cost basis.

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

We have evaluated all AFS debt securities that are in an unrealized loss position as of June 30, 2024 and December 31, 2023 and determined that the declines in fair value were mainly attributable to changes in market

v olatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors.

During the first quarter 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.

We have evaluated all AFS debt securities that are in an unrealized loss position as of September 30, 2024 and December 31, 2023 and determined that the declines in fair value were mainly attributable to changes in market volatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors.

During the firs t quarter 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.

There was no other impairment recognized within the AFS debt securities portfolio during the three and six months ended June 30, 2024 and June 30, 2023.

There was no other impairment recognized within the AFS debt securities portfolio during the three and nine months ended September 30, 2024 and September 30, 2023.

Valley does not intend to sell any of its AFS debt securities in an unrealized loss position prior to recovery of our amortized cost basis, and it is more likely than not that Valley will not be required to sell any of its securities prior to recovery of our amortized cost basis.

None of the AFS debt securities were past due as of June 30, 2024 and there was no allowance for credit losses for AFS debt securities at June 30, 2024 and December 31, 2023 .

None of the AFS debt securities were past due as of September 30, 2024 and there was no allowance for credit losses for AFS debt securities at September 30, 2024 and December 31, 2023 .

Held to maturity debt securities.

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

HTM debt securities were carried net of an allowance for credit losses totaling approximately $1.1 million and $1.2 million at June 30, 2024 and December 31, 2023, respectively.

HTM debt securities were carried net of an allowance for credit losses totaling approximately $1.1 million and $1.2 million at September 30, 2024 and December 31, 2023, respectively.

Investment grades.

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

The following table presents the available for sale and held to maturity debt investment securities portfolios by investment grades at June 30, 2024:

June 30, 2024

The following table presents the available for sale and held to maturity debt investment securities portfolios by investment grades at September 30, 2024:

September 30, 2024

Losses Fair Value

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The unrealized losses in the AAA/AA/A rated categories of both the AFS and HTM debt securities portfolios (in the above table) were largely related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and continue to be driven by the higher market interest rate environment.

The investment securities AFS and HTM portfolios included $135.4 million and $162.3 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $16.7 million and $13.5 million, respectively, at June 30, 2024.

The investment securities AFS and HTM portfolios included investments with carrying values of $130.4 million and $159.6 million, respectively, at September 30, 2024 not rated by the rating agencies with aggregate unrealized losses of $12.7 million and $11.9 million, respectively.

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

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

2024 March 31,

September 30,

2024 June 30,

2024 December 31,

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$ 49,355,319 $ 50,311,702 $ 50,210,295

As a percent of total loans:

As a percentage of total loans:

Commercial and industrial 19.9 % 18.8 % 18.4 %

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Total 100.0 % 100.0 % 100.0 %

Reflects approximately $1.1 billion of non-owner occupied loans reclassified to owner occupied loans at June 30, 2024 based upon Valley's re-assessment of such loans under the applicable bank regulatory guidance.

Includes loans collateralized by properties that are greater than 50 percent rent regulated totaling approximately $528 million, $531 million and $545 million at June 30, 2024, March 31, 2024 and December 31, 2023, respectively.

Includes net unearned discount and deferred loan fees of $61.6 million, $71.8 million and $85.4 million at June 30, 2024, March 31, 2024 and December 31, 2023, respectively.

Total loans increased $389.7 million, or 3.1 percent on an annualized basis, to $50.3 billion at June 30, 2024 from March 31, 2024 mainly as a result of our focus on new commercial and industrial loan production during the second quarter 2024.

Loans held for sale are presented separately from total loans on the consolidated statements of financial condition totaling $19.9 million and $61.8 million at June 30, 2024 and March 31, 2024, respectively.

Commercial and industrial loans increased $375.0 million to $9.5 billion at June 30, 2024 from March 31, 2024 mainly as a result of our focus on new loan production from specialized industries and organic loan growth during the second quarter 2024.

Commercial real estate loans (excluding construction loans) increased $74.2 million to $28.2 billion at June 30, 2024 from March 31, 2024 due, in part, to an increase in multifamily loans during the second quarter 2024 as a

result of the conversion to permanent financing of certain construction loans.

During the second quarter 2024, we reassessed the loan classification of skilled nursing facility loans based on the qualifying criteria for owner occupied loans outlined in the applicable bank regulatory reporting guidance.

As a result, we reclassified loans totaling approximately $1.1 billion from non-owner occupied to owner occupied loans at June 30, 2024 (as reflected in the table above).

Overall, we continue to be selective in our organic commercial real estate loan originations, which primarily consist of loans to existing and other well-established clients within our markets of Florida, New Jersey, New York and Manhattan.

The commercial real estate loan portfolio had a combined weighted average loan to value ratio of 57 percent and debt service coverage ratio of 1.64 at June 30, 2024.

Commercial real estate collateralized by office buildings totaled approximately $3.3 billion at June 30, 2024 and remained relatively unchanged as compared to March 31, 2024.

Our loans collateralized by office buildings had a combined weighted average loan to value rate of 55 percent and debt service coverage ratio of 1.63 at June 30, 2024.

Construction loans decreased $10.8 million to $3.5 billion at June 30, 2024 from March 31, 2024 partly due to the migration of completed projects to both internal and external permanent financing and a low level of new advances on existing projects.

Residential mortgage loans totaled $5.6 billion at June 30, 2024 and only increased $8.8 million from March 31, 2024.

New and refinanced residential mortgage loan originations totaled $135.4 million for the second quarter 2024 as compared to $115.0 million and $188.0 million for the first quarter 2024 and second quarter 2023, respectively.

During the second quarter 2024, we retained approximately 61.9 percent of the total residential mortgage originations in our held for investment loan portfolio.

The volume of primarily new home loan applications remained relatively low in the earl y stages of the third quarter 2024 largely due to the higher level of mortgage interest rates which may continue to challenge our ability to grow this loan category.

Home equity loans increased $2.4 million to $566.5 million at June 30, 2024 compared to March 31, 2024 as new home equity loan originations and customer utilization of lines of credit remained challenged due to the unfavorable high interest rate environment.

Automobile loans increased by $62.3 million, or 14.7 percent on an annualized basis, to $1.8 billion at June 30, 2024 as compared to March 31, 2024 as application volume from our indirect auto dealer network remained strong during the second quarter 2024.

Other consumer loans decreased $122.2 million to $1.1 billion at June 30, 2024 as compared to March 31, 2024, primarily due to the negative impact of high market interest rates on the demand and usage of collateralized personal lines of credit.

Reflects the reclassification of approximately $1.1 billion of non-owner occupied loans to owner occupied loans at June 30, 2024 based upon Valley's re-assessment of such loans under the applicable bank regulatory guidance during the second quarter 2024.

Includes loans collateralized by properties that are greater than 50 percent rent regulated totaling approximately $566 million, $528 million and $545 million at September 30, 2024, June 30, 2024 and December 31, 2023, respectively.

Includes net unearned discount and deferred loan fees of $48.1 million, $61.6 million and $85.4 million at September 30, 2024, June 30, 2024 and December 31, 2023, respectively.

Total loans decreased $956.4 million, or 7.6 percent on an annualized basis, to $49.4 billion at September 30, 2024 from June 30, 2024 mostly due to the transfer of performing commercial real estate loans totaling $823.1 million, net of unearned fees, to loans held for sale at September 30, 2024 and normal repayment activity mainly within commercial real estate non-owner occupied and multi-family loans, as we continue to actively reduce these loan categories.

Loans held for sale are presented separately from total loans on the consolidated statements of financial condition and totaled $843.2 million and $19.9 million at September 30, 2024 and June 30, 2024, respectively.

Commercial and industrial loans increased $320.1 million to $9.8 billion at September 30, 2024 from June 30, 2024 largely due to our continued multi-year strategic initiative to expand new loan production within this category.

The solid organic growth during the third quarter 2024 remained broad-based mainly from relationship-driven middle market businesses in our primary markets.

Commercial real estate loans (excluding construction loans) decreased $1.3 billion to $26.9 billion at September 30, 2024 from June 30, 2024 primarily due to our strategic balance sheet goals to reduce our CRE loan concentration ratio to approximately 400 percent and 375 percent by December 31, 2024 and 2025, respectively.

As part of these efforts, we transferred $823.1 million of commercial real estate loans to loans held for sale at September 30, 2024 and remained selective with new loan originations, which were outpaced by runoff from normal repayment activity within the non-owner occupied and multifamily loan categories during the third quarter 2024.

The commercial real estate loan portfolio had a combined weighted average loan to value ratio of 58 percent and debt service coverage ratio of 1.62 at September 30, 2024, which both remained relatively unchanged from June 30, 2024.

Commercial real estate collateralized by office buildings totaled approximately $3.2 billion at September 30, 2024 as compared to $3.3 billion at June 30, 2024.

Our loans collateralized by office buildings had a combined weighted average loan to value rate of 58 percent and debt service coverage ratio of 1.68 at September 30, 2024 as compared to 55 percent and 1.63, respectively, at June 30, 2024.

Construction loans decreased $58.3 million to $3.5 billion at September 30, 2024 from June 30, 2024 partly due to the migration of completed projects to both internal and external permanent financing, a low level of new advances on both existing and select new projects.

Residential mortgage loans totaled $5.7 billion at September 30, 2024 and increased $57.0 million from June 30, 2024.

New and refinanced residential mortgage loan originations totaled $179.3 million for the third quarter 2024 as compared to $135.4 million and $150.2 million for the second quarter 2024 and third quarter 2023, respectively.

We retained approximately 67.0 percent and 61.9 percent of the total residential mortgage originations in our held for investment loan portfolio during the third quarter 2024 and the second quarter 2024, respectively.

During the three and nine months ended 2024, Valley also purchased $15.2 million and $33.5 million, respectively, of 1-4 family residential mortgage loans from an unrelated third party lender for qualifying CRA purposes.

The volume of residential mortgage loan applications remained relatively low in the early stages of the fourth quarter 2024 largely due to the stubbornly high level of mortgage interest rates, as well as normal seasonal declines in new home purchase activity which may continue to challenge our ability to grow this loan category.

Home equity loans increased $14.7 million to $581.2 million at September 30, 2024 compared to June 30, 2024.

Despite the modest increase in loans, growth from new home equity loan originations and customer utilization of lines of credit remained challenged by high market interest rates.

Automobile loans increased by $60.9 million, or 13.8 percent on an annualized basis, to $1.8 billion at September 30, 2024 as compared to June 30, 2024 mainly due to continued consumer demand generated by our indirect auto dealer network and low prepayment activity within the portfolio.

Other consumer loans decreased $42.4 million to $1.1 billion at September 30, 2024 as compared to June 30, 2024, primarily due to the negative impact of high market interest rates on the demand and usage of collateralized personal lines of credit.

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

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

Looking forward to third quarter 2024 and beyond, we expect to remain highly selective on new loan originations and generally supportive of compelling projects led by our high quality and tenured customer base.

We will continue to focus our new origination efforts on traditional commercial and industrial, owner-occupied real estate and healthcare and controlling non-owner occupied and multifamily originations in efforts to reduce our commercial real estate concentration level.

For the second half of 2024, we currently expect low single digits annualized loan growth as compared to total loans of $50.3 billion at June 30, 2024.

Looking forward to fourth quarter 2024 and beyond, we continue to execute on our strategic initiative to enhance commercial and industrial loan production and de-emphasize non-owner occupied and multifamily originations in efforts to reduce our commercial real estate concentration level.

Our current pipeline for commercial and industrial loan originations has remained strong in the fourth quarter and continues to be broad-based across our geographies and business lines.

For the fourth quarter of 2024, we currently expect low single digits annualized loan growth as compared to total loans of $49.4 billion at September 30, 2024.

See additional information regarding our initiative to reduce our commercial real estate loan concentration in the "Executive Summary" section.

Non-performing Assets

NPAs include non-accrual loans, OREO, and other repossessed assets (which primarily consist of automobiles and taxi medallions) at June 30, 2024.

NPAs include non-accrual loans, OREO, and other repossessed assets (which primarily consist of automobiles and taxi medallions) at September 30, 2024.

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

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

OREO is acquired through foreclosure on

loans secured by land or real estate.

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

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

Our NPAs increased $24.2 million to $312.9 million at June 30, 2024 as compared to March 31, 2024 mainly due to higher non-accrual commercial real estate loan balances.

NPAs as a percentage of total loans and NPAs totaled 0.62 percent and 0.58 percent at June 30, 2024 and March 31, 2024, respectively (as shown in the table below).

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

Our NPAs decreased $7.8 million to $305.1 million at September 30, 2024 as compared to June 30, 2024 mainly due to lower non-accrual construction and commercial real estate loan balances, partially offset by an increase in non-accrual commercial and industrial loans.

NPAs as a percentage of total loans and NPAs totaled 0.61 percent and 0.62 percent at September 30, 2024 and June 30, 2024, respectively (as shown in the table below).

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

For additional details, see the “Credit quality indicators” section in Note 7 to the consolidated financial statements.

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

During the six months ended June 30, 2024, most of our credit trends have remained generally stable, and the majority of our borrowers continued to demonstrate resilience despite the impact of higher borrowing costs, elevated inflation, labor costs and other factors.

During the nine months ended September 30, 2024, most of our credit trends have remained generally stable, and the majority of our borrowers continued to demonstrate resilience despite the impact of higher borrowing costs, inflation, labor costs and other factors.

We continue to proactively monitor our commercial loans for potential negative trends/borrower weakness due to the current operating environment and internally risk rate them accordingly.

However, management cannot provide assurance that the non-performing assets will not increase from the levels reported at June 30, 2024 due to the aforementioned or other factors potentially impacting our lending customers.

However, management cannot provide assurance that the non-performing assets will not increase from the levels reported at September 30, 2024 due to the aforementioned or other factors potentially impacting our lending customers.

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

2024 March 31,

September 30,

2024 June 30,

2024 December 31,

37 unchanged sentences

185.05 171.23 152.83

Loans 30 to 59 days past due decreased $851 thousand to $46.0 million at June 30, 2024 as compared to March 31, 2024 mainly due to improved performance across the most loan categories, largely offset by higher personal lines of credit delinquencies within consumer loans.

Loans 60 to 89 days past due decreased $2.3 million to $11.9 million at June 30, 2024 as compared to March 31, 2024 mostly due to a commercial real estate loan relationship totaling $3.7 million at March 31, 2024 that migrated from this past due category to non-accrual loans during the second quarter 2024.

Loans 90 days or more past due and still accruing interest increased $1.1 million to $14.5 million at June 30, 2024 as compared to March 31, 2024 largely due to one matured commercial real estate loan in the process of collection, partially offset by lower commercial and industrial delinquencies within the category.

Loans 30 to 59 days past due increased $69.1 million to $115.1 million at September 30, 2024 as compared to June 30, 2024 mainly due to a $74.5 million increase in commercial real estate loans, partially offset by a $7.0 million decline in consumer loan delinquencies.

The increase in commercial real estate loans 30 to 59 days past due was mostly due to one new delinquent loan totaling $40.9 million, which is expected to be fully repaid, subject to the borrower's pending sale of certain collateral, as well as a few smaller new loan delinquencies.

Loans 60 to 89 days past due increased $42.9 million to $54.8 million at September 30, 2024 as compared to June 30, 2024 mostly due to one well-secured commercial real estate loan totaling $43.9 million currently in the process of loan modification.

Loans 90 days or more past due and still accruing interest decreased $9.7 million to $4.8 million at September 30, 2024 as compared to June 30, 2024 largely due to one $4.0 million construction loan that was fully repaid and one $4.2 million commercial real estate loan that migrated from this past due category to non-accrual loans during the third quarter 2024.

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

Non-accrual loans increased $16.0 million to $303.3 million at June 30, 2024 as compared to $287.3 million at March 31, 2024.

Non-accrual commercial real estate loans increased $23.0 million to $123.0 million at June 30, 2024 as compared to March 31, 2024 mainly due to two additional non-performing loan relationships totaling a combined $24.1 million which were placed on non-accrual status during the second quarter 2024.

Non-accrual construction loans decreased $6.5 million to $45.4 million at June 30, 2024 as compared to March 31, 2024 mainly due to the repayment of one loan totaling $5.2 million during the second quarter 2024.

Non-performing taxi medallion loans included in non-accrual commercial and industrial loans totaled $52.6 million at June 30, 2024 and had related reserves of $28.0 million, or 53.3 percent of such loans, within the allowance for loan losses as compared to $53.0 million of loans with related reserves of $28.2 million at March 31, 2024 .

Non-accrual loans decreased $7.0 million to $296.3 million at September 30, 2024 as compared to $303.3 million at June 30, 2024.

Non-accrual construction and commercial real estate loans decreased $20.7 million and $9.3 million, respectively, to $24.7 million and $113.8 million, respectively, at September 30, 2024 as compared to June 30, 2024 mainly due to loan payoffs during the third quarter 2024.

The decreases in these loan categories were partially offset by two new non-accrual commercial and industrial loans totaling $19.0 million, as well as moderate increases in non-accrual residential mortgage and consumer loans at September 30, 2024.

Non-performing taxi medallion loans included in non-accrual commercial and industrial loans totaled $52.2 million at September 30, 2024 and had related reserves of $27.8 million, or 53.3 percent of such loans, within the allowance for loan losses as compared to $52.6 million of loans with related reserves of $28.0 million at June 30, 2024 .

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

OREO increased $8.0 million at June 30, 2024 from March 31, 2024 due to the foreclosure and transfer of two commercial real estate properties from the loan portfolio during the second quarter 2024.

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.

Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at June 30, 2024, are well secured and largely collectable, based in part on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable.

OREO decreased $887 thousand at September 30, 2024 from June 30, 2024 mostly due to the sale of one commercial property, which resulted in the recognition of a $311 thousand loss for the third quarter 2024.

Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $4.2 million and $1.6 million at September 30, 2024 and December 31, 2023, respectively.

Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at September 30, 2024, are well secured and largely collectable, based in part on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable.

Any estimated shortfall in the net realizable value for collateral dependent loans is charged-off when a loan is 90 or 120 days past due or sooner if it is probable that a loan may not be fully collectable.

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These adjustments are based on qualitative factors not reflected in the quantitative model but are likely to impact the measurement of estimated credit losses.

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

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

The expected lifetime loss rate is the life of loan loss

percentage from the transition matrix model plus the impact of the adjustments for qualitative factors.

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

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

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We have identified and selected key variables that most closely correlated to our historical credit performance, which include GDP, unemployment and the Case-Shiller Home Price Index.

At June 30, 2024, Valley maintained the majority of its probability weighting used in the economic forecast to the Moody’s Baseline scenario with less emphasis on the S-3 downside and S-1 upside scenarios.

The probability weightings were unchanged from March 31, 2024 and December 31, 2023 .

At June 30, 2024 , the standalone Moody's Baseline scenario reflected a more optimistic outlook as compared to March 31, 2024 in terms of most metrics highlighted below.

At June 30, 2024, the Moody's Baseline forecast included the following specific assumptions:

• GDP expansion of approximately 2.1 percent in the third quarter 2024;

• Unemployment of 4.0 percent in the second quarter 2024 and approximately 4.0 to 4.1 percent over the remainder of the forecast period ending in the second quarter 2026;

At September 30, 2024, Valley maintained the majority of its probability weighting used in the economic forecast to the Moody’s Baseline scenario with less emphasis on the S-3 downside and S-1 upside scenarios.

The probability weightings were unchanged from June 30, 2024 and December 31, 2023.

At September 30, 2024, all three scenarios reflected a slightly more optimistic outlook as compared to June 30, 2024 in terms of most economic metrics.

At September 30, 2024, the Moody's Baseline forecast included the following specific assumptions:

• GDP expansion of approximately 2.0 percent in the fourth quarter 2024;

• Unemployment of 4.1 percent in the third quarter 2024 and approximately 4.0 to 4.1 percent over the remainder of the forecast period ending in the third quarter 2026;

• Inflation continues to slow, but at a slower than expected rate.

The inflation rate was at 3.3 percent in May 2024 and was mostly driven by an increased shelter inflation component;

• The Federal Reserve continues to pause with the federal funds rate at 5.25 - 5.50 percent and two potential rate cuts totaling 0.50 percent during the remainder of 2024.

The inflation rate was at 2.9 percent in July 2024 and is expected to continue decreasing to 2.7 percent by the fourth quarter 2024;

• The Federal Reserve lowered the federal funds rate by 50 pts to a range of 4.75 - 5.00 percent with potential rate cut of an additional 0.50 percent during the fourth quarter of 2024.

See more details regarding our allowance for credit losses for loans in Note 7 to the consolidated financial statements.

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

Three Months Ended Six Months Ended

2024 March 31,

2024 June 30,

2023 June 30,

Three Months Ended Nine Months Ended

September 30,

2024 June 30,

2024 September 30,

2023 September 30,

2024 September 30,

($ in thousands)

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Commercial real estate 66 150 5 457 33

Construction 1,535 — — 1,535 —

Residential mortgage 29 5 30 59 186

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$ 71,925 $ 86,901 $ 11,221 $ 205,549 $ 29,359

Credit for unfunded credit commitments

Provision (credit) for unfunded credit commitments

3,113 (4,790) (2,074) (3,126) (4,430)

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

Three Months Ended Six Months Ended

June 30, 2024 March 31, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Three Months Ended Nine Months Ended

September 30, 2024 June 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

($ in thousands)

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Total annualized net loan charge-offs to total average loans outstanding 0.34 0.29 0.04 0.27 0.12

Net loan charge-offs totaled $36.8 million for the second quarter 2024 as compared to $23.6 million and $8.6 million for the first quarter 2024 and second quarter 2023, respectively.

Gross loan charge-offs for the second quarter 2024 incl uded (i) partial charge-offs totaling $20.6 million related to a single non-performing commercial real estate loan relationship and (ii) $11.0 million of partial loan charge-offs related to one commercial and industrial loan (with prior reserves within the allowance for loan losses totaling $8.0 million at March 31, 2024).

While the amount of net loan charge-offs (as presented in the above table) has increased in the second quarter 2024, the relatively low level of individual loan charge-offs has continued to trend within management's expectations for the credit quality of the loan portfolio at June 30, 2024.

Net loan charge-offs totaled $42.9 million for the third quarter 2024 as compared to $36.8 million and $5.5 million for the second quarter 2024 and third quarter 2023, respectively.

Gross loan charge-offs for the third quarter 2024 included partial charge-offs totaling $30.1 million related to two non-performing commercial real estate loan relationships that had combined specific reserves of $25.9 million within the allowance for loan losses at June 30, 2024, and partial charge-offs of two construction loans totaling $4.8 million.

One of the two partially charged-off construction loans had specific reserves of $1.7 million at June 30, 2024.

While the amount of net loan charge-offs (as presented in the above table) has increased in the third quarter 2024, the relatively low level of individual loan charge-offs has continued to trend within management's expectations for the credit quality of the loan portfolio at September 30, 2024.

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

June 30, 2024 March 31, 2024 June 30, 2023

September 30, 2024 June 30, 2024 September 30, 2023

Allocation Allocation

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Allowance for credit losses for loans as a % of total loans 1.14 % 1.06 % 0.92 %

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 1.06 percent at June 30, 2024 as compared to 0.98 percent and 0.92 percent at March 31, 2024 and June 30, 2023, respectively.

During the second quarter 2024, we recorded a provision for credit losses for loans of $82.1 million as compared to $45.3 million and $6.3 million for the first quarter 2024 and second quarter 2023, respectively.

The increase in the second quarter 2024 provision was mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and additional specific reserves and charge-offs associated with the revaluation of collateral dependent commercial loans at June 30, 2024.

The allowance for unfunded credit commitments declined to $13.2 million at June 30, 2024 mainly due to a continued decline in the level of our commercial real estate loan commitments pipeline.

Our provision for credit losses could remain elevated during the remainder of 2024 due to several factors, including, but not limited to, the impact of future changes in (1) our economic outlook, (2) the overall performance of our loan portfolio, (3) potential downgrades in the internal risk classification of commercial loans and (4) the composition of our loan portfolio, including targeted growth in loan categories not secured by real estate such as commercial and industrial loans.

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 1.14 percent at September 30, 2024, 1.06 percent at June 30, 2024, and 0.92 percent at September 30, 2023.

For the third quarter 2024, the provision for credit losses for loans totaled $75.0 million as compared to $82.1 million and $9.1 million for the second quarter 2024 and third quarter 2023, respectively.

The provision for credit losses remained somewhat elevated for the third quarter 2024 largely due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth and an $8.0 million qualitative reserve related to the estimated impact of Hurricane Helene.

The allowance for unfunded credit commitments increased to $16.3 million at September 30, 2024 from $13.2 million at June 30, 2024 mainly due to increases in both non-cancellable construction commitments and commercial and industrial standby letters of credit.

As previously noted, we are currently evaluating the impact of Hurricane Milton, and we also continue to evaluate any further impact of Hurricane Helene, on our loan portfolio.

While not anticipated based on information currently available, Hurricane Milton and/or greater than expected losses from Hurricane Helene could result in a significant increase to the current hurricane related reserves within the allowance, loan charge-offs and our provision for the fourth quarter 2024.

Our provision for credit losses could also remain elevated during the fourth quarter 2024 due to several other factors, including, but not limited to, the impact of future changes in (1) our economic outlook, (2) the overall performance of our loan portfolio, (3) potential downgrades in the internal risk classification of commercial loans and (4) the composition of our loan portfolio, including targeted growth in loan categories not secured by real estate such as commercial and industrial loans.

Capital Adequacy

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

At both June 30, 2024 and December 31, 2023, shareholders' equity totaled approximately $6.7 billion which represented 10.9 percent and 11.0 percent of total assets, respectively.

During the six months ended June 30, 2024, total shareholders’ equity increased by approximately $36.3 million primarily due to the following:

• net income of $166.7 million, and

• a $7.5 million increase attributable to the effect of our stock incentive plan, partially offset by

• cash dividends declared on common and preferred stock totaling a combined $121.7 million, and

• other comprehensive loss of $16.2 million.

At both September 30, 2024 and December 31, 2023, shareholders' equity totaled approximately $7.0 billion which represented 11.2 percent and 11.0 percent of total assets, respectively.

During the nine months ended September 30, 2024, total shareholders’ equity increased by approximately $271.0 million primarily due to the following:

• net income of $264.6 million,

• net proceeds from the issuance of our Series C preferred stock of $144.7 million,

• a $14.6 million increase attributable to the effect of our stock incentive plan,

• other comprehensive income of $31.7 million, partially offset by

• cash dividends declared on common and preferred stock totaling a combined $184.6 million.

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

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

As of June 30, 2024 and December 31, 2023, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

As of September 30, 2024 and December 31, 2023, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

For regulatory capital purposes, in accordance with the Federal Reserve Board’s final rule as of August 26, 2020, we deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e., provision for credit losses less net charge-offs) for a two-year period ending January 1, 2022.

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

As of June 30, 2024, approximately $35.5 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk-based capital ratios by approximately 9 basis points.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at June 30, 2024 and December 31, 2023:

As of September 30, 2024, approximately $35.5 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk-based capital ratios by approximately 9 basis points.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at September 30, 2024 and December 31, 2023:

Actual Minimum Capital

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($ in thousands)

As of June 30, 2024

As of September 30, 2024

Total Risk-based Capital

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Valley National Bank 5,420,894 9.14 2,372,322 4.00 2,965,403 5.00

The increases in the total risk-based capital, common equity Tier 1 capital, and Tier 1 capital ratios at June 30, 2024 as compared to December 31, 2023 were largely due to the credit risk transfer transaction related to a portion of the automobile loan portfolio executed in June 2024.

See the "Executive Summary" section for more details.

Net proceeds to Valley after deducting underwriting discounts, commissions and offering expenses were $144.7 million and are expected to enhance our regulatory capital and ratios reported at September 30, 2024.

Valley intends to use the proceeds for general corporate purposes and investments in Valley National Bank for future growth.

The following table sets forth Valley’s (1) actual capital positions and ratios under Basel III risk-based capital guidelines at June 30, 2024 and (2) on an adjusted basis to give effect to the Series C preferred stock, net of issuance costs.

The increases in the total risk-based capital, common equity Tier 1 capital, and Tier 1 capital ratios at September 30, 2024 as compared to December 31, 2023 were largely due to the credit risk transfer transaction related to a portion of the automobile loan portfolio executed in June 2024 and the net proceeds from Valley's issuance of Series C preferred stock in August 2024.

See Notes 1 and 12 to the consolidated financial statements for more details on the Series C preferred stock issuance and credit risk transfer transaction, respectively.

On November 12, 2024, Valley issued and sold 42,780,748 shares of its common stock in a registered public offering.

The net proceeds of the offering were $448.9 m illion and are expected to be used for general corporate purposes and investments in the Bank as regulatory capital.

The following table sets forth Valley’s (1) actual capital positions and ratios under Basel III risk-based capital guidelines at September 30, 2024 and (2) on an as adjusted basis to give effect to the November 2024 common stock issuance, net of issuance costs.

Actual As Adjusted

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($ in thousands)

As of June 30, 2024

As of September 30, 2024

Total Risk-based Capital $ 6,194,835 12.56 % $ 6,643,730 13.47 %

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Tier 1 Leverage Capital 5,077,405 8.40 5,526,300 9.08

See Note 1 to the consolidated financial statements for more details on the Series C preferred stock.

See Note 1 to the consolidated financial statements for more details on the common stock issuance.

Typically, our primary source of capital growth is through retention of earnings.

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

Our retention ratio was approximately 29.0 percent for the six months ended June 30, 2024 as compared to 53.7 percent for the year ended December 31, 2023.

The decline in the retention ratio during the first half of 2024 was partly due to the increased provision for credit losses during the second quarter 2024.

Cash dividends declared amounted to $0.22 per common share for each of the six months ended June 30, 2024 and 2023.

Our retention ratio was approximately 32.7 percent for the nine months ended September 30, 2024 as compared to 53.7 percent for the year ended December 31, 2023.

The decline in the retention ratio during the first nine months of 2024 was largely due to the significant increase in our provision for credit losses and resulting decline in our level of earnings before dividends as compared to the year ended December 31, 2023 .

Cash dividends declared amounted to $0.33 per common share for each of the nine months ended September 30, 2024 and 2023.

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

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However, the Federal Reserve has reiterated its long-standing guidance in recent years that banking organizations should consult them before declaring dividends in excess of earnings for the corresponding quarter.

The renewed guidance was largely due to the increased risk of the COVID-19 pandemic and other factors negatively impacting the future level of bank earnings.

Risk Factors of Valley's Annual Report for additional information.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis