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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
☒Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2022
OR
☐Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number 1-11277 
 Valley National Bancorp
(Exact name of registrant as specified in its charter)
New Jersey22-2477875
(State or other jurisdiction of
Incorporation or Organization)		(I.R.S. Employer
Identification Number)
One Penn Plaza
New York,NY10119
(Address of principal executive office)(Zip code)
973-305-8800
(Registrant’s telephone number, including area code) 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolsName of exchange on which registered
Common Stock, no par valueVLYThe Nasdaq Stock Market LLC
Non-Cumulative Perpetual Preferred Stock, Series A, no par valueVLYPPThe Nasdaq Stock Market LLC
Non-Cumulative Perpetual Preferred Stock, Series B, no par valueVLYPOThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer☒Accelerated filer
☐
Smaller reporting company
☐
Non-accelerated filer
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock (no par value), of which 506,340,635 shares were outstanding as of August 8, 2022.


TABLE OF CONTENTS
 
  Page
Number
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.

1


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except for share data)
June 30,
2022		December 31,
2021
Assets(Unaudited)
Cash and due from banks$481,414 $205,156 
Interest bearing deposits with banks906,898 1,844,764 
Investment securities:
Equity securities41,716 36,473 
Trading debt securities— 38,130 
Available for sale debt securities1,382,551 1,128,809 
Held to maturity debt securities (net of allowance for credit losses of $1,508 at June 30, 2022 and $1,165 at December 31, 2021)
3,718,469 2,667,532 
Total investment securities5,142,736 3,870,944 
Loans held for sale, at fair value18,348 139,516 
Loans43,560,777 34,153,657 
Less: Allowance for loan losses(468,819)(359,202)
Net loans43,091,958 33,794,455 
Premises and equipment, net360,819 326,306 
Lease right of use assets315,820 259,117 
Bank owned life insurance714,762 566,770 
Accrued interest receivable134,682 96,882 
Goodwill1,871,505 1,459,008 
Other intangible assets, net218,642 70,386 
Other assets1,181,223 813,139 
Total Assets$54,438,807 $43,446,443 
Liabilities
Deposits:
Non-interest bearing$16,139,559 $11,675,748 
Interest bearing:
Savings, NOW and money market23,547,951 20,269,620 
Time4,193,541 3,687,044 
Total deposits43,881,051 35,632,412 
Short-term borrowings1,522,804 655,726 
Long-term borrowings1,403,805 1,423,676 
Junior subordinated debentures issued to capital trusts56,587 56,413 
Lease liabilities368,920 283,106 
Accrued expenses and other liabilities1,000,727 311,044 
Total Liabilities48,233,894 38,362,377 
Shareholders’ Equity
Preferred stock, no par value; 50,000,000 authorized shares:
Series A (4,600,000 shares issued at June 30, 2022 and December 31, 2021)
111,590 111,590 
Series B (4,000,000 shares issued at June 30, 2022 and December 31, 2021)
98,101 98,101 
Common stock (no par value, authorized 650,000,000 shares; issued 507,896,910 and 423,034,027 shares at June 30, 2022 and December 31, 2021)
178,185 148,482 
Surplus4,965,488 3,883,035 
Retained earnings982,146 883,645 
Accumulated other comprehensive loss(108,337)(17,932)
Treasury stock, at cost (1,568,384 common shares at June 30, 2022 and 1,596,959 common shares at December 31, 2021)
(22,260)(22,855)
Total Shareholders’ Equity6,204,913 5,084,066 
Total Liabilities and Shareholders’ Equity$54,438,807 $43,446,443 
See accompanying notes to consolidated financial statements.
2


VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except for share data)

 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Interest Income
Interest and fees on loans$415,577 $315,314 $732,942 $628,495 
Interest and dividends on investment securities:
Taxable27,534 12,716 45,973 25,882 
Tax-exempt5,191 3,216 7,708 6,572 
Dividends3,076 2,167 4,752 4,038 
Interest on federal funds sold and other short-term investments1,569 235 2,030 459 
Total interest income452,947 333,648 793,405 665,446 
Interest Expense
Interest on deposits:
Savings, NOW and money market17,122 11,166 26,749 22,291 
Time3,269 6,279 6,100 17,372 
Interest on short-term borrowings4,083 1,168 4,889 2,926 
Interest on long-term borrowings and junior subordinated debentures10,313 14,128 19,838 29,283 
Total interest expense34,787 32,741 57,576 71,872 
Net Interest Income418,160 300,907 735,829 593,574 
Provision (credit) for credit losses for held to maturity securities286 (30)343 (388)
Provision for credit losses for loans43,712 8,777 47,212 17,791 
Net Interest Income After Provision for Credit Losses374,162 292,160 688,274 576,171 
Non-Interest Income
Wealth management and trust fees9,577 3,532 14,708 6,861 
Insurance commissions3,463 2,637 5,322 4,195 
Service charges on deposit accounts10,067 5,083 16,279 10,186 
(Losses) gains on securities transactions, net(309)375 (1,381)476 
Fees from loan servicing2,717 3,187 5,498 6,086 
Gains on sales of loans, net3,602 10,061 4,588 13,574 
Bank owned life insurance2,113 2,475 4,159 4,806 
Other27,303 15,776 48,630 28,175 
Total non-interest income58,533 43,126 97,803 74,359 
Non-Interest Expense
Salary and employee benefits expense154,798 91,095 262,531 179,198 
Net occupancy expense22,429 18,550 44,420 39,230 
Technology, furniture and equipment expense49,866 23,220 75,880 43,950 
FDIC insurance assessment5,351 3,374 9,509 6,650 
Amortization of other intangible assets11,400 5,449 15,837 11,455 
Professional and legal fees30,409 7,486 45,158 13,758 
Loss on extinguishment of debt— 8,406 — 8,406 
Amortization of tax credit investments3,193 2,972 6,089 5,716 
Other22,284 11,341 37,646 23,743 
Total non-interest expense299,730 171,893 497,070 332,106 
Income Before Income Taxes132,965 163,393 289,007 318,424 
Income tax expense36,552 42,881 75,866 82,202 
Net Income96,413 120,512 213,141 236,222 
Dividends on preferred stock 3,172 3,172 6,344 6,344 
Net Income Available to Common Shareholders$93,241 $117,340 $206,797 $229,878 
3



VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (continued)
(in thousands, except for share data)
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Earnings Per Common Share:
Basic$0.18 $0.29 $0.45 $0.57 
Diluted0.18 0.29 0.44 0.56 
Cash Dividends Declared per Common Share0.11 0.11 0.22 0.22 
Weighted Average Number of Common Shares Outstanding:
Basic506,302,464 405,963,209 464,172,210 405,560,146 
Diluted508,479,206 408,660,778 466,320,683 408,152,458 
See accompanying notes to consolidated financial statements.
4


VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Net income$96,413 $120,512 $213,141 $236,222 
Other comprehensive loss, net of tax:
Unrealized gains and losses on available for sale securities
Net losses arising during the period(52,269)(1,471)(91,161)(11,907)
Less reclassification adjustment for net losses (gains) included in net income— 76 (10)120 
Total(52,269)(1,395)(91,171)(11,787)
Unrealized gains and losses on derivatives (cash flow hedges)
Net (losses) gains on derivatives arising during the period(23)(147)195 27 
Less reclassification adjustment for net (gains) losses included in net income(80)534 306 1,185 
Total(103)387 501 1,212 
Defined benefit pension plan
Amortization of actuarial net loss133 278 265 558 
Total other comprehensive loss(52,239)(730)(90,405)(10,017)
Total comprehensive income$44,174 $119,782 $122,736 $226,205 
See accompanying notes to consolidated financial statements.

5


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the Six Months Ended June 30, 2022
Common StockAccumulated
Preferred StockSharesAmountSurplusRetained
Earnings		Other
Comprehensive
Loss		Treasury
Stock		Total
Shareholders’
Equity
 (in thousands)
Balance - December 31, 2021$209,691 421,437 $148,482 $3,883,035 $883,645 $(17,932)$(22,855)$5,084,066 
Net income— — — — 116,728 — — 116,728 
Other comprehensive loss, net of tax
— — — — — (38,166)— (38,166)
Cash dividends declared:
Preferred stock, Series A, $0.39 per share
— — — — (1,797)— — (1,797)
Preferred stock, Series B, $0.34 per share
— — — — (1,375)— — (1,375)
Common stock, $0.11 per share
— — — — (46,803)— — (46,803)
Effect of stock incentive plan, net
— 972 — (10,799)(5,173)— 13,220 (2,752)
Purchase of treasury stock— (1,015)— — — — (13,517)(13,517)
Balance - March 31, 2022209,691 421,394 148,482 3,872,236 945,225 (56,098)(23,152)5,096,384 
Net income— — — — 96,413 — — 96,413 
Other comprehensive loss, net of tax— — — — — (52,239)— (52,239)
Cash dividends declared:
Preferred stock, Series A, $0.39 per share
— — — — (1,797)— — (1,797)
Preferred stock, Series B, $0.34 per share
— — — — (1,375)— — (1,375)
Common stock, $0.11 per share
— — — — (56,211)— — (56,211)
Effect of stock incentive plan, net
— 72 1 5,125 (109)— 892 5,909 
Common stock issued in acquisition— 84,863 29,702 1,088,127 — — — 1,117,829 
Balance - June 30, 2022$209,691 506,329 $178,185 $4,965,488 $982,146 $(108,337)$(22,260)$6,204,913 


6


For the Six Months Ended June 30, 2021
Common StockAccumulated
Preferred StockSharesAmountSurplusRetained
Earnings		Other
Comprehensive
Loss		Treasury
Stock		Total
Shareholders’
Equity
 (in thousands)
Balance - December 31, 2020$209,691 403,859 $141,746 $3,637,468 $611,158 $(7,718)$(225)$4,592,120 
Net income— — — — 115,710 — — 115,710 
Other comprehensive loss, net of tax— — — — — (9,287)— (9,287)
Cash dividends declared:
Preferred stock, Series A, $0.39 per share
— — — — (1,797)— — (1,797)
Preferred stock, Series B, $0.34 per share
— — — — (1,375)— — (1,375)
Common stock, $0.11 per share
— — — — (45,281)— — (45,281)
Effect of stock incentive plan, net— 1,939 689 14,480 (5,764)— 175 9,580 
Balance - March 31, 2021209,691 405,798 142,435 3,651,948 672,651 (17,005)(50)4,659,670 
Net income— — — — 120,512 — — 120,512 
Other comprehensive loss, net of tax— — — — — (730)— (730)
Cash dividends declared:
Preferred stock, Series A, $0.39 per share
— — — — (1,797)— — (1,797)
Preferred stock, Series B, $0.34 per share
— — — — (1,375)— — (1,375)
Common stock, $0.11 per share
— — — — (45,093)— — (45,093)
Effect of stock incentive plan, net— 286 115 6,688 (130)— (53)6,620 
Balance - June 30, 2021$209,691 406,084 $142,550 $3,658,636 $744,768 $(17,735)$(103)$4,737,807 

See accompanying notes to consolidated financial statements.
7


VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)

 Six Months Ended
June 30,
 20222021
Cash flows from operating activities:
Net income$213,141 $236,222 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization33,185 27,681 
Stock-based compensation13,420 10,690 
Provision for credit losses47,555 17,403 
Net amortization of premiums and accretion of discounts on securities and borrowings9,680 14,112 
Amortization of other intangible assets15,837 11,455 
Losses (gains) on securities transactions, net1,381 (476)
Proceeds from sales of loans held for sale331,298 690,844 
Gains on sales of loans, net(4,588)(13,574)
Originations of loans held for sale(210,048)(541,627)
Losses (gains) on sales of assets, net265 (36)
Loss on extinguishment of debt— 8,406 
Net change in:
Fair value of borrowings hedged by derivative transactions(20,194)— 
Trading debt securities38,130 (21,216)
Cash surrender value of bank owned life insurance(4,159)(4,806)
Accrued interest receivable(12,083)7,162 
Other assets(205,964)131,345 
Accrued expenses and other liabilities558,675 (119,331)
Net cash provided by operating activities805,531 454,254 
Cash flows from investing activities:
Net loan originations and purchases(3,495,486)(264,512)
Equity securities:
Purchases(1,538)(2,482)
Sales1,110 649 
Held to maturity debt securities:
Purchases(545,934)(744,868)
Maturities, calls and principal repayments294,052 372,397 
Available for sale debt securities:
Purchases(38,000)(87,366)
Sales12,846 41,134 
Maturities, calls and principal repayments150,262 287,901 
Death benefit proceeds from bank owned life insurance3,089 3,850 
Proceeds from sales of real estate property and equipment7,265 2,747 
Proceeds from sales of loans held for investment— 4,498 
Purchases of real estate property and equipment(35,164)(12,207)
Cash and cash equivalent acquired in acquisitions, net321,540 — 
Net cash used in investing activities(3,325,958)(398,259)
8


VALLEY NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)
(in thousands)
 Six Months Ended
June 30,
 20222021
Cash flows from financing activities:
Net change in deposits$1,218,642 $1,259,172 
Net change in short-term borrowings763,284 (293,580)
Proceeds from issuance of long-term borrowings, net— 295,934 
Repayments of long-term borrowings— (710,595)
Cash dividends paid to preferred shareholders(6,344)(6,344)
Cash dividends paid to common shareholders(92,618)(90,201)
Purchase of common shares to treasury(23,886)(684)
Common stock issued, net106 6,194 
Other, net(365)(333)
Net cash provided by financing activities1,858,819 459,563 
Net change in cash and cash equivalents(661,608)515,558 
Cash and cash equivalents at beginning of year2,049,920 1,329,205 
Cash and cash equivalents at end of period$1,388,312 $1,844,763 
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on deposits and borrowings$57,151 $82,596 
Federal and state income taxes77,285 117,562 
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned$— $141 
Lease right of use assets obtained in exchange for operating lease liabilities24,745 1,993 
Acquisitions:
Non-cash assets acquired:
Equity securities 6,239 — 
Investment securities available for sale505,928 — 
Investment securities held to maturity806,627 — 
Loans, net5,844,070 — 
Premises and equipment, net38,827 — 
Lease right of use assets 49,434 — 
Bank owned life insurance126,861 — 
Accrued interest receivable25,717 — 
Goodwill407,522 — 
Other intangible assets, net159,587 — 
Other assets158,352 — 
Total non-cash assets acquired$8,129,164 $— 
Liabilities assumed:
Deposits7,029,997 — 
Short-term borrowings103,794 — 
Lease liabilities79,844 — 
Accrued expenses and other liabilities119,240 — 
Total liabilities assumed$7,332,875 $— 
Non-cash net assets acquired$796,289 $— 
Net cash and cash equivalents acquired in acquisition$321,540 $— 
Common stock issued in acquisition$1,117,829 $— 
See accompanying notes to consolidated financial statements.
9


VALLEY NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The unaudited consolidated financial statements of Valley National Bancorp, a New Jersey corporation (Valley), include the accounts of its commercial bank subsidiary, Valley National Bank (the Bank), and all of Valley’s direct or indirect wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated. The accounting and reporting policies of Valley conform to U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation, including changes to our segment reporting structure, as further discussed in Note 9 and Note 14.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at June 30, 2022 and for all periods presented have been made. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year or any subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP and industry practice have been condensed or omitted pursuant to rules and regulations of the SEC. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021.
Significant Estimates. In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include: the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment, and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results may differ from those estimates. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date.
Note 2. Business Combinations
Bank Leumi Le-Israel Corporation. On April 1, 2022, Valley completed its acquisition of Bank Leumi Le-Israel Corporation, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, and collectively referred to as "Bank Leumi USA". Bank Leumi USA maintained its headquarters in New York City with commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida. The common shareholders of Bank Leumi USA received 3.8025 shares of Valley common stock and $5.08 in cash for each Bank Leumi USA common share that they owned. As a result, Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the transaction. Based on Valley’s closing stock price on March 31, 2022, the transaction was valued at $1.2 billion, inclusive of the value of options. As a result of the acquisition, Bank Leumi Le-Israel B.M. owned approximately 14 percent of Valley's common stock as of April 1, 2022.
The transaction was accounted for under the acquisition method of accounting and accordingly the results of Bank Leumi USA's operations have been included in Valley's consolidated financial statements for the three and six months ended June 30, 2022 from the date of the acquisition.
10


The following table sets forth assets acquired and liabilities assumed in the Bank Leumi USA acquisition, at their estimated fair values as of the closing date of the transaction:
April 1, 2022
Assets acquired:
Cash and cash equivalents$443,588 
Equity securities6,239 
Available for sale debt securities505,928 
Held to maturity debt securities 806,627 
Loans5,914,389 
Allowance for loan losses (70,319)
Loans, net5,844,070 
Premises and equipment38,827 
Lease right of use assets49,273 
Bank owned life insurance126,861 
Accrued interest receivable 25,717 
Goodwill403,151 
Other intangible assets153,380 
Other assets158,352 
Total assets acquired$8,562,013 
Liabilities assumed:
Deposits:
Non-interest bearing$4,511,537 
Interest bearing:
Savings, NOW and money market2,224,834 
Time293,626 
Total deposits7,029,997 
Short-term borrowings103,794 
Lease liabilities79,683 
Accrued expense and other liabilities117,269 
Total liabilities assumed$7,330,743 
Common stock issued in acquisition1,117,829 
Cash paid in acquisition113,441 

The determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available.

Fair Value Measurement of Assets Acquired and Liabilities Assumed

Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Bank Leumi USA acquisition.

11


Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Investment securities. The estimated fair value of equity securities, which represents a privately held Community Reinvestment Act (CRA) fund, was measured at net asset value (NAV). Other investment securities acquired from Bank Leumi USA were classified as available for sale and held to maturity debt securities based on Valley's intent at the acquisition date. Their estimated fair values were calculated utilizing Level 2 inputs similar to the valuation techniques used for Valley's investment portfolios detailed in Note 3.

Loans. The acquired loan portfolio was recorded at its estimated fair value based on a discounted cash flow methodology. The acquired loan portfolio was segregated into categories for valuation purposes primarily based on loan type and loan risk rating. The estimated fair value incorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and other market factors such as liquidity from a market participant perspective. Management estimated the cash flows expected to be collected at the acquisition date by using valuation models that incorporated loan contractual characteristics (such as payment type, amortization type, and term to maturity) as well as estimates of key valuation assumptions (such as prepayment speeds, default rates, and loss severity rates).

The expected cash flows from the acquired loan portfolios were discounted to present value based on estimated market rates. The market rates were estimated using a buildup approach based on the following components: funding cost, servicing cost, and consideration of liquidity premium. In addition, coupon rates for recently originated loans and available market data regarding origination rates were also considered in the analysis. The methods used to estimate the Level 3 fair values of loans are sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets.

The acquired loans were also evaluated upon acquisition to determine whether they represented purchased credit-deteriorated (PCD) loans, defined as loans which have experienced a more-than-insignificant deterioration in credit quality since origination. Valley considered a variety of factors in assessing loans the PCD classification, including but not limited to risk grades, delinquency, non-performing status, current or previous troubled debt restructurings, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination.

For PCD loans, an initial allowance was determined based on Valley’s CECL methodology and was added to the acquisition date fair value of each PCD loan to establish its initial amortized cost basis. The difference between the unpaid principal balance of loans and the calculated amortized cost basis resulted in a net non-credit discount totaling $18.8 million. This net discount will be accreted into interest income over the loan's remaining life using the effective interest method.

The following table provides a reconciliation of the unpaid principal balance and fair value of loans identified as PCD acquired from Bank Leumi USA:
April 1, 2022
($ in thousands)
Unpaid Principal Balance of PCD loans $1,922,272 
Allowance for credit losses at acquisition *(70,319)
Non-credit discount at acquisition(18,814)
Fair value of acquired PCD loans $1,833,139 
*    Represents the initial reserve for PCD loans, reported net of an additional $62.4 million charge-offs recognized at the date of acquisition in accordance with Valley's charge-off policy.
Other intangible assets. Other intangible assets recorded consist of core deposit intangibles (CDI) and other acquired client relationships. CDI assets are measures of the value of non-maturity checking, savings, NOW and
12


money market customer deposits that are acquired in a business combination. The fair value for CDI was estimated based on a discounted cash flow methodology considering expected customer attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the interest costs associated with the customer deposits. The CDI is amortized using an accelerated amortization method over an estimated useful life of 10 years. For other acquired client relationships, fair value is measured using the multi-period excess earnings methodology under the income approach. This method measures the future economic income that can be attributed to the existing client relationships acquired, after considering revenue and expense assumptions, expected client attrition rates, and subtracting returns for other complementary assets that contribute to the income over their expected remaining useful lives. The resulting net cash flows are discounted to present value using an estimated intangible asset discount rate. The other acquired client relationships are amortized using an accelerated amortization method over an estimated remaining useful life of 14 years.
Deposits. The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing accounts and savings, NOW and money market accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities.
Supplemental Pro Forma Financial Information (Unaudited). The following table summarizes supplemental pro forma financial information giving effect to the merger as if it had been completed on January 1, 2021:
Three Months Ended
June 30,		Six Months Ended
June 30,
202120222021
(in thousands)
Net interest income$369,549$865,766$728,419
Non-interest income58,069134,483105,527
Net income104,639358,427211,823
The supplemental pro forma financial information does not necessarily reflect the results of operations that would have occurred had Valley merged with Bank Leumi USA on January 1, 2021. Costs savings and other business synergies related to the merger are not included in the supplemental pro forma financial information.
Other Recent Acquisitions
Landmark Insurance of the Palm Beaches. On February 1, 2022, the Bank's insurance agency subsidiary, Valley Insurance Services, acquired Landmark Insurance of the Palm Beaches Inc. (Landmark) agency. The purchase price included $8.6 million in cash and $1.0 million in contingent consideration. Goodwill and other intangible assets totaled $4.4 million and $6.2 million, respectively. The transaction was accounted for under the acquisition method of accounting and accordingly the results of Landmark's operations have been included in Valley's consolidated financial statements for the three and six months ended June 30, 2022 from the date of acquisition.
The Westchester Bank Holding Corporation. On December 1, 2021, Valley completed its acquisition of The Westchester Bank Holding Corporation (Westchester) and its principal subsidiary, The Westchester Bank which was headquartered in White Plains, New York. As of December 1, 2021, Westchester had approximately $1.4 billion in assets, $915.0 million in loans, and $1.2 billion in deposits, after purchase accounting adjustments, and a branch network of seven locations in Westchester County, New York. The common shareholders of Westchester received 229.645 shares of Valley common stock for each Westchester share they owned prior to the merger. The total consideration for the merger was $211.1 million, consisting of approximately 15.7 million shares of Valley common stock.
During the six months ended June 30, 2022, Valley revised the estimated fair values of the acquired assets as of the acquisition date of Westchester based upon additional information obtained that existed as of December 1, 2021. The adjustments related to the fair value of deferred tax assets and resulted in a $5.0 million increase in goodwill (see Note 9 for more information). If additional information (that existed as of the acquisition date) becomes
13


available, the fair value estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date.
Merger expenses mainly related the Bank Leumi USA acquisition above totaled $54.5 million and $58.9 million for the three and six months ended June 30, 2022, respectively. The merger expenses largely consisted of salaries and benefits expense, professional and legal fees, and other expense (largely consisting of technology related costs) within non-interest expense on the consolidated statements of income. Valley incurred no merger related expenses during the three and six months ended June 30, 2021. Incremental merger expenses related to this acquisition are expected to be incurred in future periods, including professional fees, technology and other expenses related to back office consolidation of the Bank operations.
Note 3. Earnings Per Common Share
The following table shows the calculation of both basic and diluted earnings per common share for the three and six months ended June 30, 2022 and 2021:
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands, except for share data)
Net income available to common shareholders$93,241 $117,340 $206,797 $229,878 
Basic weighted average number of common shares outstanding
506,302,464 405,963,209 464,172,210 405,560,146 
Plus: Common stock equivalents2,176,742 2,697,569 2,148,473 2,592,312 
Diluted weighted average number of common shares outstanding
508,479,206 408,660,778 466,320,683 408,152,458 
Earnings per common share:
Basic$0.18 $0.29 $0.45 $0.57 
Diluted0.18 0.29 0.44 0.56 

Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units and common stock options to purchase Valley’s common shares. Common stock options with exercise prices that exceed the average market price per share of Valley’s common stock during the periods presented may have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation along with restricted stock units. Potential anti-dilutive weighted common shares were immaterial for the three and six months ended June 30, 2022 and 2021.

















14


Note 4. Accumulated Other Comprehensive Loss
The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three and six months ended June 30, 2022: 

 Components of Accumulated Other Comprehensive LossTotal
Accumulated
Other
Comprehensive
Loss
 Unrealized Gains
and Losses on
Available for Sale
(AFS) Securities		Unrealized Gains
and Losses on
Derivatives		Defined
Benefit
Pension Plan
 (in thousands)
Balance at March 31, 2022$(29,716)$(728)$(25,654)$(56,098)
Other comprehensive loss before reclassification (52,269)(23)— (52,292)
Amounts reclassified from other comprehensive (loss) income— (80)133 53 
Other comprehensive (loss) income, net(52,269)(103)133 (52,239)
Balance at June 30, 2022$(81,985)$(831)$(25,521)$(108,337)

 Components of Accumulated Other Comprehensive LossTotal
Accumulated
Other
Comprehensive
Loss
 Unrealized Gains
and Losses on
Available for Sale
(AFS) Securities		Unrealized Gains
and Losses on
Derivatives		Defined
Benefit
Pension Plan
 (in thousands)
Balance at December 31, 2021$9,186 $(1,332)$(25,786)$(17,932)
Other comprehensive (loss) gain before reclassification (91,161)195 — (90,966)
Amounts reclassified from other comprehensive (loss) income(10)306 265 561 
Other comprehensive (loss) income, net(91,171)501 265 (90,405)
Balance at June 30, 2022$(81,985)$(831)$(25,521)$(108,337)

The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three and six months ended June 30, 2022 and 2021:
Amounts Reclassified from
Accumulated Other Comprehensive Loss
Three Months Ended
June 30,		Six Months Ended
June 30,
Components of Accumulated Other Comprehensive Loss2022202120222021Income Statement Line Item
 (in thousands) 
Unrealized (losses) gains on AFS securities before tax$— $(103)$14 $(162)(Losses) gains on securities transactions, net
Tax effect— 27 (4)42 
Total net of tax— (76)10 (120)
Unrealized gains (losses) on derivatives (cash flow hedges) before tax116 (749)(426)(1,664)Interest expense
Tax effect(36)215 120 479 
Total net of tax80 (534)(306)(1,185)
Defined benefit pension plan:
Amortization of actuarial net loss(184)(387)(367)(775)*
Tax effect51 109 102 217 
Total net of tax(133)(278)(265)(558)
Total reclassifications, net of tax$(53)$(888)$(561)$(1,863)
15


*Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense.
Note 5. New Authoritative Accounting Guidance

New Accounting Guidance Adopted in 2022

Accounting Standards Update (ASU) No. 2021-01 "Reference Rate Reform (Topic 848)" extends some of Accounting Standards Codification Topic 848’s optional expedients to derivative contracts impacted by the discounting transition, including for derivatives that do not reference LIBOR or other reference rates that are expected to be discontinued. ASU No. 2021-01 is effective for all entities immediately upon issuance and may be elected retrospectively to eligible modifications as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications made on or after any date within the interim period including January 7, 2021 and it can be applied through December 31, 2022, similar to the other reference rate reform relief provided under Topic 848. ASU No. 2021-01 is not expected to have a significant impact on Valley’s consolidated financial statements.

ASU No. 2021-05 "Lessors – Certain Leases with Variable Lease Payments" updates guidance in ASC 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if: (i) the lease would have been classified as a sales-type lease or direct financing lease under ASC 842 classification criteria; and (ii) the lessor would have recognized a selling loss at lease commencement. Valley adopted ASU No. 2021-05 on January 1, 2022, and the new guidance did not have a significant impact on Valley’s consolidated financial statements.

New Accounting Guidance Issued in 2022

ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging –Portfolio Layer Method” expands and clarifies the current guidance on accounting for fair value hedge basis adjustments under the portfolio layer method for both single-layer and multiple-layer hedges. This method allows entities to designate multiple hedging relationships with a single closed portfolio, and therefore a larger portion of the interest rate risk associated with such a portfolio is eligible to be hedged. ASU No. 2022-01 also clarifies that no assets may be added to a closed portfolio once it is designated in a portfolio layer method hedge. ASU No. 2022-01 will be effective for Valley on January 1, 2023, and it is not expected to have a significant impact on Valley's consolidated financial statements.

ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” eliminates the troubled debt restructuring (TDR) accounting model for creditors, such as Valley, that have adopted Topic 326, “Financial Instruments – Credit Losses.” ASU No. 2022-02 will require all loan modifications to be accounted for under the general loan modification guidance in Subtopic 310-20. On a prospective basis, entities will also be subject to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public business entities within the scope of the Topic 326 vintage disclosure requirements also will be required to prospectively disclose current-period gross write-off information by vintage. However, gross recoveries will not be required. ASU No. 2022-02 will be effective for Valley on January 1, 2023, with early adoption permitted. Valley is currently evaluating the impact of ASU No. 2022-02 on its consolidated financial statements.

ASU No. 2022-03, "Fair Value Measurement of Equity Securities subject to Contractual Sale Restrictions” updates guidance in ASC 820, Fair Value Measurement and clarifies that a contractual sale restriction should not be considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities including (i) the nature and remaining duration of the restriction; (ii) the circumstances that could cause a lapse in restrictions; and (iii) the fair value of the securities with contractual sale restrictions. ASU No. 2022-03 will be effective for Valley on January 1, 2024, and it can be applied prospectively, with any adjustments resulting from
16


adoption recognized in earnings on the date of adoption. The adoption of ASU No. 2022-03 is not expected to have a significant impact on Valley's consolidated financial statements.

Note 6. Fair Value Measurement of Assets and Liabilities

ASC Topic 820, “Fair Value Measurements” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

•Level 1    - Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date.
•Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets) for substantially the full term of the asset or liability.
•Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).




17


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

The following tables present the assets and liabilities that are measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at June 30, 2022 and December 31, 2021. The assets presented under “non-recurring fair value measurements” in the tables below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized). 
 June 30,
2022		Fair Value Measurements at Reporting Date Using:
 Quoted Prices
in Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in thousands)
Recurring fair value measurements:
Assets
Investment securities:
Equity securities (1)
$35,931 $24,683 $— $— 
Available for sale debt securities:
U.S. Treasury securities292,398 292,398 — — 
U.S. government agency securities30,533 — 30,533 — 
Obligations of states and political subdivisions157,478 — 157,478 — 
Residential mortgage-backed securities721,036 — 721,036 — 
Corporate and other debt securities181,106 — 181,106 — 
Total available for sale debt securities1,382,551 292,398 1,090,153 — 
Loans held for sale (2)
18,348 — 18,348 — 
Other assets (3)
344,189 — 344,189 — 
Total assets$1,781,019 $317,081 $1,452,690 $— 
Liabilities
Other liabilities (3)
$364,266 $— $364,266 $— 
Total liabilities$364,266 $— $364,266 $— 
Non-recurring fair value measurements:
Collateral dependent loans $66,144 $— $— $66,144 
Foreclosed assets 1,200 — — 1,200 
Total$67,344 $— $— $67,344 
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  Fair Value Measurements at Reporting Date Using:
 December 31,
2021		Quoted Prices
in Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in thousands)
Recurring fair value measurements:
Assets
Investment securities:
Equity securities (1)
$32,844 $21,284 $— $— 
Trading debt securities38,130 — 38,130 — 
Available for sale debt securities:
U.S. government agency securities20,925 — 20,925 — 
Obligations of states and political subdivisions79,890 — 79,890 — 
Residential mortgage-backed securities904,502 — 904,502 — 
Corporate and other debt securities123,492 — 123,492 — 
Total available for sale debt securities1,128,809 — 1,128,809 — 
Loans held for sale (2)
139,516 — 139,516 — 
Other assets (3)
181,500 — 181,500 — 
Total assets$1,520,799 $21,284 $1,487,955 $— 
Liabilities
Other liabilities (3)
$52,376 $— $52,376 $— 
Total liabilities$52,376 $— $52,376 $— 
Non-recurring fair value measurements:
Collateral dependent loans $47,871 $— $— $47,871 
Foreclosed assets 2,931 — — 2,931 
Total$50,802 $— $— $50,802 
(1)Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $11.2 million and $11.6 million at June 30, 2022 and December 31, 2021, respectively. These securities have not been classified in the fair value hierarchy.
(2)Represents residential mortgage loans held for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $18.3 million and $136.3 million at June 30, 2022 and December 31, 2021, respectively.
(3)Derivative financial instruments are included in this category.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All the valuation techniques described below apply to the unpaid principal balance, excluding any accrued interest or dividends at the measurement date. Interest income and expense are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.

Equity securities. The fair value of equity securities consists of a publicly traded mutual fund, a CRA investment fund and an investment related to the development of new financial technologies that are carried at quoted prices in active markets. Valley also has privately held CRA funds measured at NAV, which are excluded from fair value hierarchy levels in the tables above.

Available for sale debt securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley
19


has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for sale debt securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.

Loans held for sale. Residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at June 30, 2022 and December 31, 2021 based on the short duration these assets were held, and the credit quality of these loans.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of Valley’s derivatives are determined using third-party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR, Overnight Index Swap and Secured Overnight Financing Rate (SOFR) curves for all cleared derivatives. The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at June 30, 2022 and December 31, 2021), is determined based on the current market prices for similar instruments. The fair values of most of the derivatives incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance risk of Valley and its counterparties. The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at June 30, 2022 and December 31, 2021.

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

The following valuation techniques were used for certain non-financial assets measured at fair value on a non-recurring basis, including collateral dependent loans reported at the fair value of the underlying collateral and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.

Collateral dependent loans. Collateral dependent loans are loans when foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and substantially all of the repayment is expected from the collateral. Collateral dependent loans are reported at the fair value of the underlying collateral. Collateral values are estimated using Level 3 inputs, consisting of individual third-party appraisals that may be adjusted based on certain discounting criteria. Certain real estate appraisals may be discounted based on specific market data by location and property type. At June 30, 2022, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses based on the fair value of the underlying collateral. At June 30, 2022, collateral dependent loans with a total amortized cost of $144.6 million, including our taxi medallion loan portfolio, were reduced by specific allowance for loan losses allocations totaling $78.5 million to a reported total net carrying amount of $66.1 million.

Foreclosed assets. Certain foreclosed assets (consisting of other real estate owned and other repossessed assets included in other assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value using Level 3 inputs, consisting of a third-party appraisal less estimated cost to sell. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If further declines in the estimated fair value of the asset occur, an asset is re-measured and reported at fair value through a write-down recorded in non-interest expense. There were no adjustments to the appraisals of foreclosed assets at June 30, 2022.

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Other Fair Value Disclosures

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

21


The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at June 30, 2022 and December 31, 2021 were as follows: 
 Fair Value
Hierarchy		June 30, 2022December 31, 2021
 Carrying
Amount		Fair ValueCarrying
Amount		Fair Value
 (in thousands)
Financial assets
Cash and due from banksLevel 1$481,414 $481,414 $205,156 $205,156 
Interest bearing deposits with banksLevel 1906,898 906,898 1,844,764 1,844,764 
Equity securities (1)
Level 35,785 5,785 3,629 3,629 
Held to maturity debt securities:
U.S. Treasury securitiesLevel 167,238 67,782 67,558 71,661 
U.S. government agency securitiesLevel 2259,711 243,354 6,265 6,378 
Obligations of states and political subdivisionsLevel 2504,767 486,334 337,962 344,164 
Residential mortgage-backed securitiesLevel 22,775,928 2,492,737 2,166,142 2,152,301 
Trust preferred securitiesLevel 237,033 31,453 37,020 31,916 
Corporate and other debt securitiesLevel 275,300 72,055 53,750 54,185 
Total held to maturity debt securities (2)
3,719,977 3,393,715 2,668,697 2,660,605 
Net loansLevel 343,091,958 42,056,562 33,794,455 33,283,251 
Accrued interest receivableLevel 1134,682 134,682 96,882 96,882 
Federal Reserve Bank and Federal Home Loan Bank stock (3)
Level 2268,133 268,133 206,450 206,450 
Financial liabilities
Deposits without stated maturitiesLevel 139,687,510 39,687,510 31,945,368 31,945,368 
Deposits with stated maturitiesLevel 24,193,541 4,181,719 3,687,044 3,670,113 
Short-term borrowingsLevel 11,522,804 1,488,738 655,726 637,490 
Long-term borrowingsLevel 21,403,805 1,329,047 1,423,676 1,404,184 
Junior subordinated debentures issued to capital trusts
Level 256,587 43,695 56,413 46,306 
Accrued interest payable (4)
Level 16,137 6,137 4,909 4,909 
(1)Represents equity securities without a readily determinable fair value measured at cost less impairment, if any.
(2)The carrying amount is presented gross without the allowance for credit losses.
(3)Included in other assets.
(4)Included in accrued expenses and other liabilities.
Note 7. Investment Securities

Equity Securities

Equity securities totaled $41.7 million and $36.5 million at June 30, 2022 and December 31, 2021, respectively. See Note 6 for further details on equity securities.

Trading Debt Securities

The fair value of trading debt securities, wholly consisting of municipal bonds, totaled $38.1 million at December 31, 2021. There were no trading debt securities at June 30, 2022. Net trading gains and losses were included in net gains and losses on securities transactions within non-interest income. We recorded net trading losses of $387 thousand and $1.4 million for three and six months ended June 30, 2022, respectively. Net trading gains totaled $489 thousand and $707 thousand for the three and six months ended June 30, 2021, respectively.

22


Available for Sale Debt Securities

The amortized cost, gross unrealized gains and losses and fair value of available for sale debt securities at June 30, 2022 and December 31, 2021 were as follows: 
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
 (in thousands)
June 30, 2022
U.S. Treasury securities$305,371 $— $(12,973)$292,398 
U.S. government agency securities31,083 42 (592)30,533 
Obligations of states and political subdivisions:
Obligations of states and state agencies13,252 10 (331)12,931 
Municipal bonds173,450 13 (28,916)144,547 
Total obligations of states and political subdivisions186,702 23 (29,247)157,478 
Residential mortgage-backed securities780,624 216 (59,804)721,036 
Corporate and other debt securities191,155 288 (10,337)181,106 
Total $1,494,935 $569 $(112,953)$1,382,551 
December 31, 2021
U.S. government agency securities$20,323 $608 $(6)$20,925 
Obligations of states and political subdivisions:
Obligations of states and state agencies26,088 132 (93)26,127 
Municipal bonds53,530 349 (116)53,763 
Total obligations of states and political subdivisions79,618 481 (209)79,890 
Residential mortgage-backed securities895,279 14,986 (5,763)904,502 
Corporate and other debt securities120,871 3,177 (556)123,492 
Total$1,116,091 $19,252 $(6,534)$1,128,809 

23


The age of unrealized losses and fair value of the related available for sale debt securities at June 30, 2022 and December 31, 2021 were as follows: 
 Less than
Twelve Months		More than
Twelve Months		Total
 Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
 (in thousands)
June 30, 2022
U.S. Treasury securities$292,397 $(12,973)$— $— $292,397 $(12,973)
U.S. government agency securities26,224 (575)1,202 (17)27,426 (592)
Obligations of states and political subdivisions:
Obligations of states and state agencies
9,315 (331)— — 9,315 (331)
Municipal bonds141,951 (28,916)— — 141,951 (28,916)
Total obligations of states and political subdivisions
151,266 (29,247)— — 151,266 (29,247)
Residential mortgage-backed securities660,060 (52,782)51,630 (7,022)711,690 (59,804)
Corporate and other debt securities148,818 (10,337)— — 148,818 (10,337)
Total$1,278,765 $(105,914)$52,832 $(7,039)$1,331,597 $(112,953)
December 31, 2021
U.S. government agency securities$— $— $1,326 $(6)$1,326 $(6)
Obligations of states and political subdivisions:
Obligations of states and state agencies
10,549 (93)— — 10,549 (93)
Municipal bonds19,100 (116)— — 19,100 (116)
Total obligations of states and political subdivisions
29,649 (209)— — 29,649 (209)
Residential mortgage-backed securities371,256 (4,770)25,960 (993)397,216 (5,763)
Corporate and other debt securities59,039 (556)— — 59,039 (556)
Total$459,944 $(5,535)$27,286 $(999)$487,230 $(6,534)
Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 655 and 139 at June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022, the fair value of available for sale debt securities that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $446.4 million.







24


The contractual maturities of available for sale debt securities at June 30, 2022 are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.
 June 30, 2022
 Amortized
Cost		Fair
Value
 (in thousands)
Due in one year$13,002 $12,941 
Due after one year through five years179,567 176,480 
Due after five years through ten years249,507 237,046 
Due after ten years272,235 235,048 
Residential mortgage-backed securities780,624 721,036 
Total $1,494,935 $1,382,551 
Actual maturities of available for sale debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted average remaining expected life for residential mortgage-backed securities available for sale was 5.3 years at June 30, 2022.
Impairment Analysis of Available For Sale Debt Securities

Valley's available for sale debt securities portfolio includes corporate bonds and revenue bonds, among other securities. These types of securities may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S. economy and its potential negative effect on the future performance of the security issuers, including due to current economic conditions and the effects of the COVID-19 pandemic.

Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. Valley has evaluated available for sale debt securities that are in an unrealized loss position as of June 30, 2022 included in the table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the three and six months ended June 30, 2022 and 2021. There was no allowance for credit losses for available for sale debt securities at June 30, 2022 and December 31, 2021.


















25


Held to Maturity Debt Securities

The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at June 30, 2022 and December 31, 2021 were as follows: 
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
 (in thousands)
June 30, 2022
U.S. Treasury securities$67,238 $573 $(29)$67,782 
U.S. government agency securities259,711 138 (16,495)243,354 
Obligations of states and political subdivisions:
Obligations of states and state agencies102,677 222 (2,468)100,431 
Municipal bonds402,090 520 (16,707)385,903 
Total obligations of states and political subdivisions504,767 742 (19,175)486,334 
Residential mortgage-backed securities2,775,928 814 (284,005)2,492,737 
Trust preferred securities37,033 3 (5,583)31,453 
Corporate and other debt securities75,300 31 (3,276)72,055 
Total $3,719,977 $2,301 $(328,563)$3,393,715 
December 31, 2021
U.S. Treasury securities$67,558 $4,103 $— $71,661 
U.S. government agency securities6,265 113 — 6,378 
Obligations of states and political subdivisions:
Obligations of states and state agencies141,015 3,065 (312)143,768 
Municipal bonds196,947 3,536 (87)200,396 
Total obligations of states and political subdivisions337,962 6,601 (399)344,164 
Residential mortgage-backed securities2,166,142 14,599 (28,440)2,152,301 
Trust preferred securities37,020 5 (5,109)31,916 
Corporate and other debt securities53,750 559 (124)54,185 
Total $2,668,697 $25,980 $(34,072)$2,660,605 
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The age of unrealized losses and fair value of related debt securities held to maturity at June 30, 2022 and December 31, 2021 were as follows: 
 Less than
Twelve Months		More than
Twelve Months		Total
 Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
 (in thousands)
June 30, 2022
U.S. Treasury securities$34,914 $(29)$— $— $34,914 $(29)
U.S. government agency securities220,737 (16,495)— — 220,737 (16,495)
Obligations of states and political subdivisions:
Obligations of states and state agencies
61,460 (1,466)9,610 (1,002)71,070 (2,468)
Municipal bonds251,294 (16,606)1,311 (101)252,605 (16,707)
Total obligations of states and political subdivisions
312,754 (18,072)10,921 (1,103)323,675 (19,175)
Residential mortgage-backed securities
1,931,648 (197,148)524,191 (86,857)2,455,839 (284,005)
Trust preferred securities— — 30,450 (5,583)30,450 (5,583)
Corporate and other debt securities67,524 (3,276)— — 67,524 (3,276)
Total$2,567,577 $(235,020)$565,562 $(93,543)$3,133,139 $(328,563)
December 31, 2021
Obligations of states and political subdivisions:
Obligations of states and state agencies$17,000 $(254)$5,517 $(58)$22,517 $(312)
Municipal bonds9,403 (87)— — 9,403 (87)
Total obligations of states and political subdivisions
26,403 (341)5,517 (58)31,920 (399)
Residential mortgage-backed securities
1,381,405 (22,365)206,520 (6,075)1,587,925 (28,440)
Trust preferred securities— — 30,912 (5,109)30,912 (5,109)
Corporate and other debt securities
32,627 (124)— — 32,627 (124)
Total$1,440,435 $(22,830)$242,949 $(11,242)$1,683,384 $(34,072)

Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 717 and 108 at June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law was $892.6 million.







27


The contractual maturities of investments in debt securities held to maturity at June 30, 2022 are set forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.  
 June 30, 2022
 Amortized
Cost		Fair
Value
 (in thousands)
Due in one year$33,206 $33,186 
Due after one year through five years220,521 219,462 
Due after five years through ten years73,729 72,398 
Due after ten years616,593 575,932 
Residential mortgage-backed securities2,775,928 2,492,737 
Total$3,719,977 $3,393,715 
Actual maturities of held to maturity debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 7.7 years at June 30, 2022.

















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Credit Quality Indicators
Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at June 30, 2022 and December 31, 2021.
AAA/AA/A RatedBBB ratedNon-investment grade ratedNon-ratedTotal
 (in thousands)
June 30, 2022
U.S. Treasury securities$67,238 $— $— $— $67,238 
U.S. government agency securities259,711 — — — 259,711 
Obligations of states and political subdivisions:
Obligations of states and state agencies76,322 — 5,537 20,818 102,677 
Municipal bonds346,261 — — 55,829 402,090 
Total obligations of states and political subdivisions
422,583 — 5,537 76,647 504,767 
Residential mortgage-backed securities2,775,928 — — — 2,775,928 
Trust preferred securities— — — 37,033 37,033 
Corporate and other debt securities2,000 6,000 — 67,300 75,300 
Total $3,527,460 $6,000 $5,537 $180,980 $3,719,977 
December 31, 2021
U.S. Treasury securities$67,558 $— $— $— $67,558 
U.S. government agency securities6,265 — — — 6,265 
Obligations of states and political subdivisions:
Obligations of states and state agencies118,368 — 5,576 17,071 141,015 
Municipal bonds148,854 — — 48,093 196,947 
Total obligations of states and political subdivisions
267,222 — 5,576 65,164 337,962 
Residential mortgage-backed securities2,166,142 — — — 2,166,142 
Trust preferred securities— — — 37,020 37,020 
Corporate and other debt securities2,000 6,000 — 45,750 53,750 
Total$2,509,187 $6,000 $5,576 $147,934 $2,668,697 

Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At June 30, 2022, most of the obligations of states and political subdivisions were rated investment grade and a large portion of the "non-rated" category included TEMS securities secured by Ginnie Mae securities. Trust preferred securities consist of non-rated single-issuer securities, issued by bank holding companies. Corporate bonds consist of debt primarily issued by banks.

Allowance for Credit Losses for Held to Maturity Debt Securities

Valley has a zero loss expectation for certain securities within the held to maturity portfolio, and therefore it is not required to estimate an allowance for credit losses related to these securities under the CECL standard. After an evaluation of qualitative factors, Valley identified the following securities types which it believes qualify for this exclusion: U.S. Treasury securities, U.S. government agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds called TEMS.

Held to maturity debt securities were carried net of allowance for credit losses totaling $1.5 million at June 30, 2022 and $1.2 million at December 31, 2021. Valley recorded a provision for credit losses of $286 thousand and $343
29


thousand for the three and six months ended June 30, 2022, respectively, and a credit (negative) provision for credit losses of $30 thousand and $388 thousand, respectively, for the three and six months ended June 30, 2021.
Note 8. Loans and Allowance for Credit Losses for Loans

The detail of the loan portfolio as of June 30, 2022 and December 31, 2021 was as follows: 
 June 30, 2022December 31, 2021
 (in thousands)
Loans:
Commercial and industrial:
Commercial and industrial $8,378,454 $5,411,601 
Commercial and industrial PPP loans *136,004 435,950 
Total commercial and industrial loans8,514,458 5,847,551 
Commercial real estate:
Commercial real estate23,535,086 18,935,486 
Construction3,374,373 1,854,580 
Total commercial real estate loans26,909,459 20,790,066 
Residential mortgage5,005,069 4,545,064 
Consumer:
Home equity431,455 400,779 
Automobile1,673,482 1,570,036 
Other consumer1,026,854 1,000,161 
Total consumer loans3,131,791 2,970,976 
Total loans$43,560,777 $34,153,657 
*Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $2.5 million and $12.1 million at June 30, 2022 and December 31, 2021, respectively.

Total loans includes net unearned discounts and deferred loan fees of $141.2 million and $78.5 million at June 30, 2022 and December 31, 2021, respectively. The increase in total loans at June 30, 2022 is partially attributed to $5.9 billion of loans acquired in the Bank Leumi USA acquisition, which was inclusive of a $98.6 million net purchase discount at the acquisition date.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $115.7 million and $83.7 million at June 30, 2022 and December 31, 2021, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.

There were no sales of loans from the held for investment portfolio during the three and six months ended June 30, 2022 and 2021.

Credit Risk Management

For all of its loan types, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk appetite. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of Directors annually. Credit authority relating to a significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification, concentrations of credit, loan delinquencies, non-performing, and potential problem loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through
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cyclical economic circumstances. See Valley’s Annual Report on Form 10-K for the year ended December 31, 2021 for further details.

Credit Quality

The following table presents past due, current and non-accrual loans without an allowance for loan losses by loan portfolio class at June 30, 2022 and December 31, 2021:
Past Due and Non-Accrual Loans
 30-59  Days 
Past Due Loans		60-89  Days 
Past Due Loans		90 Days or More
Past Due Loans		Non-Accrual Loans
Total Past Due Loans
Current Loans
Total Loans		Non-Accrual Loans Without Allowance for Loan Losses
 (in thousands)
June 30, 2022
Commercial and industrial
$7,143 $3,870 $15,470 $148,404 $174,887 $8,339,571 $8,514,458 $6,648 
Commercial real estate:
Commercial real estate
10,516 630 — 85,807 96,953 23,438,133 23,535,086 68,128 
Construction9,108 3,862 — 49,780 62,750 3,311,623 3,374,373 9,494 
Total commercial real estate loans19,624 4,492 — 135,587 159,703 26,749,756 26,909,459 77,622 
Residential mortgage12,326 2,410 1,188 25,847 41,771 4,963,298 5,005,069 14,889 
Consumer loans:
Home equity377 2 — 2,920 3,299 428,156 431,455 126 
Automobile4,696 588 267 262 5,813 1,667,669 1,673,482 — 
Other consumer936 112 — 97 1,145 1,025,709 1,026,854 — 
Total consumer loans6,009 702 267 3,279 10,257 3,121,534 3,131,791 126 
Total$45,102 $11,474 $16,925 $313,117 $386,618 $43,174,159 $43,560,777 $99,285 

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 Past Due and Non-Accrual Loans  
 
30-59
Days
Past Due Loans		60-89 
Days
Past Due Loans		90 Days or More
Past Due Loans		Non-Accrual Loans
Total Past Due Loans
Current Loans		Total LoansNon-Accrual Loans Without Allowance for Loan Losses
(in thousands)
December 31, 2021
Commercial and industrial$6,717 $7,870 $1,273 $99,918 $115,778 $5,731,773 $5,847,551 $9,066 
Commercial real estate:
Commercial real estate14,421 — 32 83,592 98,045 18,837,441 18,935,486 70,719 
Construction1,941 — — 17,641 19,582 1,834,998 1,854,580 — 
Total commercial real estate loans16,362 — 32 101,233 117,627 20,672,439 20,790,066 70,719 
Residential mortgage10,999 3,314 677 35,207 50,197 4,494,867 4,545,064 20,401 
Consumer loans:
Home equity242 98 — 3,517 3,857 396,922 400,779 4 
Automobile6,391 656 271 240 7,558 1,562,478 1,570,036 — 
Other consumer178 266 518 101 1,063 999,098 1,000,161 — 
Total consumer loans6,811 1,020 789 3,858 12,478 2,958,498 2,970,976 4 
Total$40,889 $12,204 $2,771 $240,216 $296,080 $33,857,577 $34,153,657 $100,190 

Credit quality indicators. Valley utilizes an internal loan classification system as a means of reporting problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes. Under Valley’s internal risk rating system, loan relationships could be classified as "Pass," "Special Mention," "Substandard," "Doubtful," and "Loss." Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses, and, therefore, not presented in the table below. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories but pose weaknesses that deserve management’s close attention are deemed Special Mention. Pass rated loans do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants.
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The following table presents the internal loan classification risk by loan portfolio class by origination year based on the most recent analysis performed at June 30, 2022 and December 31, 2021:
 Term Loans  
Amortized Cost Basis by Origination Year
June 30, 202220222021202020192018Prior to 2018Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term LoansTotal
 (in thousands)
Commercial and industrial
Risk Rating:
Pass$1,087,572 $1,322,828 $740,213 $407,985 $306,393 $423,058 $3,964,927 $184 $8,253,160 
Special Mention2,654 7,639 670 2,827 4,987 5,708 57,210 10 81,705 
Substandard— 2,049 5,704 3,727 4,722 4,790 70,131 66 91,189 
Doubtful1,102 141 — 2,712 — 78,067 6,382 — 88,404 
Total commercial and industrial$1,091,328 $1,332,657 $746,587 $417,251 $316,102 $511,623 $4,098,650 $260 $8,514,458 
Commercial real estate
Risk Rating:
Pass$3,704,273 $5,379,241 $3,371,598 $2,752,901 $1,659,319 $5,504,795 $288,599 $13,193 $22,673,919 
Special Mention73,171 40,956 82,875 34,661 64,861 129,785 15,052 — 441,361 
Substandard— 43,945 39,372 39,803 58,886 229,266 8,358 — 419,630 
Doubtful— — — — — 176 — — 176 
Total commercial real estate$3,777,444 $5,464,142 $3,493,845 $2,827,365 $1,783,066 $5,864,022 $312,009 $13,193 $23,535,086 
Construction
Risk Rating:
Pass$472,849 $631,399 $157,587 $59,657 $10,664 $25,089 $1,900,402 $— $3,257,647 
Special Mention28,296 — — — — — 25,610 — 53,906 
Substandard— 13,059 — — — 17,616 19,531 — 50,206 
Doubtful498 643 11,473 — — — — — 12,614 
Total construction$501,643 $645,101 $169,060 $59,657 $10,664 $42,705 $1,945,543 $— $3,374,373 

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 Term Loans  
Amortized Cost Basis by Origination Year
December 31, 202120212020201920182017Prior to 2017Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term LoansTotal
 (in thousands)
Commercial and industrial
Risk Rating:
Pass$1,563,050 $743,165 $461,022 $362,748 $143,753 $337,713 $1,968,513 $247 $5,580,211 
Special Mention4,182 1,195 3,217 14,143 1,726 9,869 102,145 40 136,517 
Substandard8,248 4,823 3,139 7,077 910 408 19,642 109 44,356 
Doubtful— — 2,733 — 16,355 67,379 — — 86,467 
Total commercial and industrial$1,575,480 $749,183 $470,111 $383,968 $162,744 $415,369 $2,090,300 $396 $5,847,551 
Commercial real estate
Risk Rating:
Pass$4,517,917 $2,983,140 $2,702,580 $1,734,922 $1,474,770 $4,557,011 $195,851 $13,380 $18,179,571 
Special Mention7,700 50,019 46,911 44,187 65,623 143,540 50,168 — 408,148 
Substandard735 34,655 29,029 41,231 70,941 169,041 1,949 — 347,581 
Doubtful— — — — — 186 — — 186 
Total commercial real estate$4,526,352 $3,067,814 $2,778,520 $1,820,340 $1,611,334 $4,869,778 $247,968 $13,380 $18,935,486 
Construction
Risk Rating:
Pass$274,097 $98,609 $48,555 $32,781 $6,061 $28,419 $1,313,555 $— $1,802,077 
Special Mention4,131 — 1,009 — — — 18,449 — 23,589 
Substandard199 19 6 246 — 17,842 10,602 — 28,914 
Total construction$278,427 $98,628 $49,570 $33,027 $6,061 $46,261 $1,342,606 $— $1,854,580 
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For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley also evaluates credit quality based on the aging status of the loan and by payment activity. The following table presents the amortized cost in those loan classes based on payment activity by origination year as of June 30, 2022 and December 31, 2021.
 Term Loans  
Amortized Cost Basis by Origination Year
June 30, 202220222021202020192018Prior to 2018Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term LoansTotal
 (in thousands)
Residential mortgage
Performing$768,137 $1,518,240 $593,271 $515,561 $363,811 $1,162,383 $75,509 $— $4,996,912 
90 days or more past due— — 1,370 1,511 2,044 3,232 — — 8,157 
Total residential mortgage $768,137 $1,518,240 $594,641 $517,072 $365,855 $1,165,615 $75,509 $— $5,005,069 
Consumer loans
Home equity
Performing$21,198 $13,068 $4,946 $5,645 $6,212 $15,064 $324,606 $39,702 $430,441 
90 days or more past due— — — — — 1 425 588 1,014 
Total home equity21,198 13,068 4,946 5,645 6,212 15,065 325,031 40,290 431,455 
Automobile
Performing408,872 621,275 252,127 215,999 113,834 60,789 — — 1,672,896 
90 days or more past due— 90 57 132 214 93 — — 586 
Total automobile408,872 621,365 252,184 216,131 114,048 60,882 — — 1,673,482 
Other consumer
Performing14,481 3,094 7,339 7,610 7,156 4,821 982,353 — 1,026,854 
Total other consumer14,481 3,094 7,339 7,610 7,156 4,821 982,353 — 1,026,854 
Total consumer$444,551 $637,527 $264,469 $229,386 $127,416 $80,768 $1,307,384 $40,290 $3,131,791 

35


 Term Loans  
Amortized Cost Basis by Origination Year
December 31, 202120212020201920182017Prior to 2017Revolving Loans Amortized Cost BasisRevolving Loans Converted to Term LoansTotal
 (in thousands)
Residential mortgage
Performing$1,448,602 $635,531 $572,911 $425,152 $368,164 $1,014,190 $70,342 $— $4,534,892 
90 days or more past due— 357 2,627 2,056 2,794 2,338 — — 10,172 
Total residential mortgage $1,448,602 $635,888 $575,538 $427,208 $370,958 $1,016,528 $70,342 $— $4,545,064 
Consumer loans
Home equity
Performing$13,847 $5,723 $6,994 $7,384 $5,359 $13,597 $303,888 $42,822 $399,614 
90 days or more past due— — — — — 35 536 594 1,165 
Total home equity13,847 5,723 6,994 7,384 5,359 13,632 304,424 43,416 400,779 
Automobile
Performing735,446 309,856 278,828 157,450 72,753 15,171 — — 1,569,504 
90 days or more past due129 — 78 163 81 81 — — 532 
Total automobile735,575 309,856 278,906 157,613 72,834 15,252 — — 1,570,036 
Other consumer
Performing2,949 6,717 6,468 7,017 1,009 14,483 961,027 — 999,670 
90 days or more past due— — — — — — 491 — 491 
Total other consumer2,949 6,717 6,468 7,017 1,009 14,483 961,518 — 1,000,161 
Total consumer$752,371 $322,296 $292,368 $172,014 $79,202 $43,367 $1,265,942 $43,416 $2,970,976 
Troubled debt restructured loans. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (TDR).
Generally, the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. The concessions may also involve payment deferrals but rarely result in the forgiveness of principal or accrued interest. In addition, Valley frequently obtains additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms of the loan and Valley’s underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
Performing TDRs (not reported as non-accrual loans) totaled $67.3 million and $71.3 million as of June 30, 2022 and December 31, 2021, respectively. Non-performing TDRs totaled $154.4 million and $117.2 million as of June 30, 2022 and December 31, 2021, respectively.

36


The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs during the three and six months ended June 30, 2022 and 2021. Post-modification amounts are presented as of June 30, 2022 and 2021.
Three Months Ended June 30,
20222021
Troubled Debt RestructuringsNumber
of
Contracts		Pre-Modification
Outstanding Recorded Investment		Post-Modification
Outstanding Recorded Investment		Number
of
Contracts		Pre-Modification
Outstanding Recorded Investment		Post-Modification
Outstanding Recorded Investment
 ($ in thousands)
Commercial and industrial49 $82,120 $78,051 9 $8,592 $8,529 
Commercial real estate1 8,811 8,735 6 12,237 12,223 
Residential mortgage7 4,970 4,969 2 1,089 1,079 
Consumer1 125 124 — — — 
Total58 $96,026 $91,879 17 $21,918 $21,831 
Six Months Ended June 30,
20222021
Troubled Debt RestructuringsNumber
of
Contracts		Pre-Modification
Outstanding Recorded Investment		Post-Modification
Outstanding Recorded Investment		Number
of
Contracts		Pre-Modification
Outstanding Recorded Investment		Post-Modification
Outstanding Recorded Investment
 ($ in thousands)
Commercial and industrial60 $91,804 $87,685 13 $20,855 $19,648 
Commercial real estate3 14,072 13,986 6 12,237 12,223 
Residential mortgage8 5,090 5,087 8 2,618 2,586 
Consumer1 125 124 1 169 166 
Total72 $111,091 $106,882 28 $35,879 $34,623 

The total TDRs presented in the above table had allocated allowance for loan losses of $56.0 million and $4.5 million at June 30, 2022 and 2021, respectively. There were $1.5 million in charge-offs related to TDRs for the three and six months ended June 30, 2022. There were charge-offs of $697 thousand and $5.8 million related to TDRs for the three and six months ended June 30, 2021, respectively. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three and six months ended June 30, 2022 and 2021.

Loans modified as TDRs within the previous 12 months and for which there was a payment default (90 or more days past due) for the three and six months ended June 30, 2022 and 2021 were as follows:
 Three Months Ended June 30,
20222021
Troubled Debt Restructurings Subsequently DefaultedNumber of
Contracts		Recorded InvestmentNumber of
Contracts		Recorded
Investment
 ($ in thousands)
Construction2 $17,599 — $— 
Residential mortgage— — 1 445 
Total2 $17,599 1 $445 
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 Six Months Ended June 30,
20222021
Troubled Debt Restructurings Subsequently DefaultedNumber of
Contracts		Recorded InvestmentNumber of
Contracts		Recorded
Investment
 ($ in thousands)
Commercial and industrial— $— 15 $12,384 
Construction2 17,599 — — 
Residential mortgage— — 2 692 
Total2 $17,599 17 $13,076 

Loans in Process of Foreclosure. Other real estate owned (OREO) totaled $422 thousand and $2.3 million at June 30, 2022 and December 31, 2021, respectively. There were no foreclosed residential real estate properties included in OREO at June 30, 2022 and at December 31, 2021. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $2.0 million and $2.5 million at June 30, 2022 and December 31, 2021, respectively.

Collateral dependent loans. Loans are collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process.
The following table presents collateral dependent loans by class as of June 30, 2022 and December 31, 2021:
 June 30,
2022		December 31,
2021
 (in thousands)
Collateral dependent loans:
Commercial and industrial *$100,783 $95,335 
Commercial real estate:
Commercial real estate94,248 110,174 
Construction50,176 — 
Total commercial real estate loans144,424 110,174 
Residential mortgage21,695 35,745 
Home equity2 4 
Total $266,904 $241,258 
*    The majority of the loans are collateralized by taxi medallions for all periods.

Allowance for Credit Losses for Loans
The allowance for credit losses (ACL) for loans consists of the allowance for loan losses and the allowance for unfunded credit commitments. The ACL for loans increased $115.3 million from December 31, 2021 largely reflecting a net ACL of $70.3 million for PCD loans acquired from Bank Leumi USA that was recorded at April 1, 2022 and recognition of a $41.0 million provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA during the three months ended June 30, 2022. Overall, an increased economic forecast reserve component of our CECL model caused by elevated uncertainty in economic conditions was largely offset by lower expected quantitative loss experience at June 30, 2022 as compared to December 31, 2021.

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The following table summarizes the ACL for loans at June 30, 2022 and December 31, 2021: 
June 30,
2022		December 31,
2021
 (in thousands)
Components of allowance for credit losses for loans:
Allowance for loan losses$468,819 $359,202 
Allowance for unfunded credit commitments22,144 16,500 
Total allowance for credit losses for loans$490,963 $375,702 

The following table summarizes the provision for credit losses for loans for the periods indicated:
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands)
Components of provision for credit losses for loans:
Provision for loan losses$38,310 $5,810 $41,568 $14,502 
Provision for unfunded credit commitments5,402 2,967 5,644 3,289 
Total provision for credit losses for loans$43,712 $8,777 $47,212 $17,791 
The following table details the activity in the allowance for loan losses by loan portfolio segment for the three and six months ended June 30, 2022 and 2021: 
Commercial
and Industrial		Commercial
Real Estate		Residential
Mortgage		ConsumerTotal
 (in thousands)
Three Months Ended
June 30, 2022
Allowance for loan losses:
Beginning balance$101,203 $219,949 $28,189 $13,169 $362,510 
Allowance for purchased credit deteriorated (PCD) loans *33,452 36,618 206 43 70,319 
Loans charged-off(4,540)— (1)(726)(5,267)
Charged-off loans recovered 1,952 224 74 697 2,947 
Net (charge-offs) recoveries(2,588)224 73 (29)(2,320)
Provision for loan losses12,472 20,436 1,421 3,981 38,310 
Ending balance$144,539 $277,227 $29,889 $17,164 $468,819 
Three Months Ended
June 30, 2021
Allowance for losses:
Beginning balance$126,408 $174,236 $27,172 $15,064 $342,880 
Loans charged-off (10,893)— (1)(1,480)(12,374)
Charged-off loans recovered 678 665 191 1,474 3,008 
Net (charge-offs) recoveries(10,215)665 190 (6)(9,366)
(Credit) provision for loan losses(6,504)14,238 (2,059)135 5,810 
Ending balance$109,689 $189,139 $25,303 $15,193 $339,324 

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Commercial
and Industrial		Commercial
Real Estate		Residential
Mortgage		ConsumerTotal
 (in thousands)
Six Months Ended
June 30, 2022
Allowance for loan losses:
Beginning balance$103,090 $217,490 $25,120 $13,502 $359,202 
Allowance for PCD loans *33,452 36,618 206 43 70,319 
Loans charged-off(6,111)(173)(27)(1,551)(7,862)
Charged-off loans recovered 2,776 331 531 1,954 5,592 
Net (charge-offs) recoveries(3,335)158 504 403 (2,270)
Provision for loan losses11,332 22,961 4,059 3,216 41,568 
Ending balance$144,539 $277,227 $29,889 $17,164 $468,819 
Six Months Ended
June 30, 2021
Allowance for losses:
Beginning balance$131,070 $164,113 $28,873 $16,187 $340,243 
Loans charged-off (18,035)(382)(139)(2,618)(21,174)
Charged-off loans recovered 2,267 734 348 2,404 5,753 
Net (charge-offs) recoveries(15,768)352 209 (214)(15,421)
(Credit) provision for loan losses(5,613)24,674 (3,779)(780)14,502 
Ending balance$109,689 $189,139 $25,303 $15,193 $339,324 

*    Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $62.4 million in the second quarter 2022.

























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The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at June 30, 2022 and December 31, 2021.
Commercial
and Industrial		Commercial
Real Estate		Residential
Mortgage		ConsumerTotal
 (in thousands)
June 30, 2022
Allowance for loan losses:
Individually evaluated for credit losses
$93,698 $10,757 $641 $100 $105,196 
Collectively evaluated for credit losses
50,841 266,470 29,248 17,064 363,623 
Total$144,539 $277,227 $29,889 $17,164 $468,819 
Loans:
Individually evaluated for credit losses
$164,235 $169,737 $32,303 $1,531 $367,806 
Collectively evaluated for credit losses
8,350,223 26,739,722 4,972,766 3,130,260 43,192,971 
Total$8,514,458 $26,909,459 $5,005,069 $3,131,791 $43,560,777 
December 31, 2021
Allowance for loan losses:
Individually evaluated for credit losses
$64,359 $6,277 $470 $390 $71,496 
Collectively evaluated for credit losses
38,731 211,213 24,650 13,112 287,706 
Total$103,090 $217,490 $25,120 $13,502 $359,202 
Loans:
Individually evaluated for credit losses
$119,760 $134,135 $42,469 $2,431 $298,795 
Collectively evaluated for credit losses
5,727,791 20,655,931 4,502,595 2,968,545 33,854,862 
Total$5,847,551 $20,790,066 $4,545,064 $2,970,976 $34,153,657 
Note 9. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill as allocated to Valley's business segments, or reporting units thereof, for goodwill impairment analysis were:

 Business Segment / Reporting Unit *
 Wealth
Management		Consumer
Lending		Commercial
Lending		Total
 (in thousands)
Balance at December 31, 2021$36,399 $284,366 $1,138,243 $1,459,008 
Goodwill from business combinations15,564 85 396,848 412,497 
Balance at June 30, 2022$51,963 $284,451 $1,535,091 $1,871,505 
*    Valley’s Wealth Management Division is comprised of trust, asset management, brokerage, insurance, and tax credit advisory services. This reporting unit is included in the Consumer Lending segment for financial reporting purposes.

During the second quarter 2022, Valley performed the annual goodwill impairment test at its normal assessment date. The results of the 2022 annual impairment test resulted in no impairment. As discussed in Note 14, Valley made changes to its operating structure and strategy during the second quarter 2022 (and subsequent to the annual goodwill impairment test), which resulted in changes in its operating segments and reporting units to reflect how the CEO, who is the chief operating decision maker, intends to manage Valley, allocate resources and measure performance. Goodwill balances were reallocated across the new operating segments and reporting units (as reflected in the table above) based on their relative fair values using the valuation performed during the second quarter 2022.

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The goodwill from business combinations set forth in the above table during the six months ended June 30, 2022, related to the acquisitions of Bank Leumi USA and Landmark totaled $403.2 million and $4.4 million, respectively. The goodwill from Landmark transaction was allocated entirely to the Wealth Management reporting unit. During the six months ended June 30, 2022, Valley recorded $5.0 million of additional goodwill reflecting an adjustment to the deferred tax assets acquired from Westchester as of the acquisition date. See Note 2 for details related to these acquisitions.

The following table summarizes other intangible assets as of June 30, 2022 and December 31, 2021: 
Gross
Intangible
Assets		Accumulated
Amortization		Net
Intangible
Assets
 (in thousands)
June 30, 2022
Loan servicing rights$119,142 $(93,697)$25,445 
Core deposits223,670 (76,447)147,223 
Other51,299 (5,325)45,974 
Total other intangible assets$394,111 $(175,469)$218,642 
December 31, 2021
Loan servicing rights$114,636 $(90,951)$23,685 
Core deposits109,290 (65,488)43,802 
Other6,092 (3,193)2,899 
Total other intangible assets$230,018 $(159,632)$70,386 

Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets over the period of the economic life of the assets arising from estimated net servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Impairment charges on loan servicing rights are recognized in earnings when the book value of a stratified group of loan servicing rights exceeds its estimated fair value. There was no net impairment recognized during the three and six months ended June 30, 2022. Valley recorded net recoveries of impairment charges on its loan servicing rights totaling $42 thousand and $833 thousand for the three and six months ended June 30, 2021.

Core deposits are amortized using an accelerated method over a period of 10 years. Valley recorded $114.4 million of core deposit intangibles resulting from the Bank Leumi USA acquisition.

The line item labeled “Other” included in the table above primarily consists of customer lists, certain financial asset servicing contracts and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 13.3 years. Valley recorded $39.0 million and $6.2 million of other intangible assets during the six months ended June 30, 2022 resulting from the Bank Leumi USA and Landmark acquisitions, respectively.

Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. No impairment was recognized during the three and six months ended June 30, 2022 and 2021.


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The following table presents the estimated future amortization expense of other intangible assets for the remainder of 2022 through 2026: 
Loan Servicing
Rights		Core
Deposits		Other
 (in thousands)
2022$1,792 $16,039 $3,509 
20233,253 28,746 6,522 
20242,849 24,897 5,951 
20252,483 21,048 5,380 
20262,153 17,223 4,805 

Valley recognized amortization expense on other intangible assets totaling approximately $11.4 million and $5.4 million (including net recoveries of impairment charges on loan servicing rights) for the three months ended June 30, 2022 and 2021, respectively, and $15.8 million and $11.5 million for the six months ended June 30, 2022 and 2021, respectively.

Note 10. Stock–Based Compensation
On April 19, 2021, Valley's shareholders approved the Valley National Bancorp 2021 Incentive Compensation Plan (the 2021 Plan) administered by the Compensation and Human Capital Management Committee as appointed by Valley's Board of Directors. The purposes of the 2021 Plan are to provide additional incentives to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain officers, other employees and non-employee directors whose efforts will result in the continued and long-term growth of Valley's business.
As of June 30, 2022, 5.2 million shares of common stock were available for issuance under the 2021 Plan. The essential features of each award are described in the award agreement relating to that award. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair value of Valley's common stock on the last sale price reported for Valley's common stock on such date or the last sale price reported preceding such date, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third-party specialist using a Monte Carlo valuation model.
On April 1, 2022, Valley issued replacement options for the pre-existing and fully vested stock awards consisting of Bank Leumi USA options for 2.7 million shares of Valley common stock (which all remained outstanding at June 30, 2022) at a weighted average exercise price of $8.47. The stock plan under which the original Bank Leumi stock awards were issued is no longer active at the acquisition date.
Valley granted 937 thousand and 109 thousand of time-based restricted stock units (RSUs) during the three months ended June 30, 2022 and 2021, respectively, and 2.1 million and 1.2 million for the six months ended June 30, 2022 and 2021, respectively. Generally, time-based RSUs vest ratably over a three-year period. The average grant date fair value of the RSUs granted during the six months ended June 30, 2022 and 2021 was $13.51 per share and $11.63 per share, respectively.
Valley granted 619 thousand and 604 thousand of performance-based RSUs to certain officers for the six months ended June 30, 2022 and 2021, respectively. The performance-based RSU awards include RSUs with vesting conditions based upon certain levels of growth in Valley's tangible book value per share plus dividends and RSUs with vesting conditions based upon Valley's total shareholder return as compared to its peer group. The RSUs “cliff” vest after three years based on the cumulative performance of Valley during that time period. The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common stock) over the applicable performance period. Dividend equivalents are accumulated and paid to the grantee at the vesting date or forfeited if the performance conditions are not met. The grant date fair value of the performance-based RSUs granted during the six months ended June 30, 2022 and 2021 was $14.72 per share and $12.36 per share, respectively.

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Valley recorded total stock-based compensation expense of $6.2 million and $5.2 million for the three months ended June 30, 2022 and 2021, respectively, and $13.4 million and $10.7 million for the six months ended June 30, 2022 and 2021, respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period. As of June 30, 2022, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $43.3 million and will be recognized over an average remaining vesting period of approximately 2.18 years.
Note 11. Derivative Instruments and Hedging Activities

Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest and currency rates.

Fair Value Hedges of Fixed Rate Assets and Liabilities. Valley is exposed to changes in the fair value of fixed-rate subordinated debt due to changes in interest rates. Valley uses interest rate swaps to manage its exposure to changes in fair value on fixed rate debt instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings.

Cash Flow Hedges of Interest Rate Risk. Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively.

Valley had five interest rate swaps with a total notional amount of $500 million that matured during the six months ended June 30, 2022. These swaps were used to hedge the changes in cash flows associated with certain short-term Federal Home Loan Bank of New York (FHLB) advances.

Non-designated Hedges. Derivatives not designated as hedges are used to manage Valley’s exposure to interest rate movements, foreign currency risk, credit risk, and to provide services to customers or for other purposes. These derivatives do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes.

Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that Valley minimizes its net risk exposure resulting from such transactions. As these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the participation type. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At June 30, 2022, Valley had 26 credit swaps with an aggregate notional amount of $243.9 million related to risk participation agreements. 

At June 30, 2022, Valley had two “steepener” swaps, each with a current notional amount of $10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve. Although these types of instruments do not meet the hedge accounting
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requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month LIBOR rate and therefore provide an effective economic hedge.

Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rate on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.

Valley enters foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments. Upon the origination of a certain foreign currency denominated transactions (including foreign currency holdings and non-U.S. dollar denominated loans) with a client, we enter into a respective hedging contract with a third party financial institution to mitigate the economic impact of foreign currency exchange rate fluctuation.

Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows: 
 June 30, 2022December 31, 2021
 Fair ValueFair Value
Other AssetsOther LiabilitiesNotional AmountOther AssetsOther LiabilitiesNotional Amount
 (in thousands)
Derivatives designated as hedging instruments:
Cash flow hedge interest rate swaps
$490 $— $200,000 $— $310 $700,000 
Fair value hedge interest rate swaps — 22,056 300,000 — 3,335 300,000 
Total derivatives designated as hedging instruments$490 $22,056 $500,000 $— $3,645 $1,000,000 
Derivatives not designated as hedging instruments:
Interest rate swaps and other contracts*
$318,521 $318,277 $12,523,601 $180,701 $47,044 $10,179,294 
Foreign currency derivatives24,489 23,481 1,590,130 311 233 122,166 
Mortgage banking derivatives689 452 86,421 488 1,454 312,428 
Total derivatives not designated as hedging instruments
$343,699 $342,210 $14,200,152 $181,500 $48,731 $10,613,888 
*    Other derivatives include risk participation agreements.
The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account as settlements of the cash flow hedges and other non-designated derivative instruments. As a result, the fair value of the applicable derivative assets and liabilities are reported net of variation margin at June 30, 2022 and December 31, 2021 in the table above.


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Gains (losses) included in the consolidated statements of income and other comprehensive loss, on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows: 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands)
Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense$116 $(749)$(426)$(1,664)
Amount of gain (loss) recognized in other comprehensive loss121 (158)441 19 
The accumulated after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $831 thousand and $1.3 million at June 30, 2022 and December 31, 2021, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest expense as interest payments are made on the hedged variable interest rate liabilities. Valley estimates that $730 thousand will be reclassified as an increase to interest expense over the next 12 months.

Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows: 
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
 (in thousands)
Derivative - interest rate swap:
Interest expense$76 $80 $606 $80 
Hedged item - subordinated debt
Interest expense$(147)$(83)$(477)$(83)
The changes in the fair value of the hedged item designated as a qualifying hedge are captured as an
adjustment to the carrying amount of the hedged item (basis adjustment). The following table presents the hedged item related to interest rate derivatives designated as fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at June 30, 2022.
Line Item in the Statement of Financial Position in Which the Hedged Item is IncludedCarrying Amount of the Hedged LiabilityCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
(in thousands)
Long-term borrowings$277,486 $(22,514)
The net losses (gains) included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows: 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands)
Non-designated hedge interest rate swaps and credit derivatives
Other non-interest expense$1,143 $(2,210)$(1,654)$(425)

Other non-interest income included fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaling $11.1 million and $7.6 million for the three months ended June 30, 2022 and 2021, respectively, and $25.1 million and $13.8 million for the six months ended June 30, 2022 and 2021, respectively.
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Credit Risk Related Contingent Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board of Directors.

Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of June 30, 2022, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of June 30, 2022, there were no derivatives in an aggregate net liability position. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.

Note 12. Balance Sheet Offsetting

Certain financial instruments, including certain over-the-counter (OTC) derivatives (mostly interest rate swaps) and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated statements of financial condition and/or subject to master netting arrangements or similar agreements. OTC derivatives include interest rate swaps executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house (presented in the table below). The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements.

Valley is party to master netting arrangements with its financial institution counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts. In such cases, the collateral would be used to settle the fair value of the swap or repurchase agreement should Valley be in default. The total amount of collateral held or pledged cannot exceed the net derivative fair values with the counterparty.


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The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of June 30, 2022 and December 31, 2021.
    Gross Amounts Not Offset 
 Gross Amounts
Recognized		Gross Amounts
Offset		Net Amounts
Presented		Financial
Instruments		Cash
Collateral *		Net
Amount
 (in thousands)
June 30, 2022
Assets
Interest rate swaps $319,011 $— $319,011 $11,492 $307,724 $— 
Liabilities
Interest rate swaps$340,333 $— $340,333 $(11,492)$(1,142)$327,699 
December 31, 2021
Assets
Interest rate swaps$180,701 $— $180,701 $— $— $180,701 
Liabilities
Interest rate swaps$50,689 $— $50,689 $— $(44,231)$6,458 
*    Cash collateral received (pledged) to our counterparties in relation to market value exposures of OTC derivative contacts in a liability position.

Note 13. Tax Credit Investments

Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the CRA. Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense.

Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable.













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The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at June 30, 2022 and December 31, 2021:
June 30,
2022		December 31,
2021
(in thousands)
Other Assets:
Affordable housing tax credit investments, net$26,003 $15,343 
Other tax credit investments, net49,483 57,006 
Total tax credit investments, net
$75,486 $72,349 
Other Liabilities:
Unfunded affordable housing tax credit commitments$1,360 $1,360 
    Total unfunded tax credit commitments$1,360 $1,360 

The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three and six months ended June 30, 2022 and 2021: 

Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(in thousands)
Components of Income Tax Expense:
Affordable housing tax credits and other tax benefits$1,614 $899 $2,358 $1,796 
Other tax credit investment credits and tax benefits2,539 2,743 5,090 5,428 
Total reduction in income tax expense
$4,153 $3,642 $7,448 $7,224 
Amortization of Tax Credit Investments:
Affordable housing tax credit investment losses$653 $460 $1,068 $1,003 
Affordable housing tax credit investment impairment losses
363 431 625 772 
Other tax credit investment losses386 351 695 524 
Other tax credit investment impairment losses1,791 1,730 3,701 3,417 
Total amortization of tax credit investments recorded in non-interest expense$3,193 $2,972 $6,089 $5,716 

Note 14. Operating Segments

Prior to the second quarter 2022, Valley operated as four reportable segments: Consumer Lending, Commercial Lending, Investment Management, and Corporate and Other Adjustments. Valley re-evaluated its segment reporting during the second quarter 2022 to consider the Bank Leumi USA acquisition on April 1, 2022 along with other factors, including changes in the internal structure of operations, discrete financial information reviewed by key decision-makers, balance sheet management strategies and personnel. As a result, Valley determined it operated reportable segments consisting of Consumer Lending, Commercial Lending and Treasury and Corporate Other at June 30, 2022. Treasury and Corporate Other was reorganized to consolidate Treasury and other corporate-wide functions, including the Treasury managed investment securities portfolios and overnight interest earning cash balances formerly reported under Investment Management. The discrete financial information related to the activities previously reported in the Investment Management segment is no longer provided to Valley's CEO, who is the chief operating decision maker. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations, and reporting structures to identify its reportable segments.

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Consumer Lending is mainly comprised of residential mortgages and automobile loans, and to a lesser extent, secured personal lines of credit, home equity loans and other consumer loans. The duration of the residential mortgage loan portfolio is subject to movements in the market level of interest rates and forecasted prepayment speeds. The average weighted life of the automobile loans within the portfolio is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. Consumer Lending also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.

Commercial Lending is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, commercial lending is Valley’s operating segment that is most sensitive to movements in market interest rates.

Treasury and Corporate Other largely consists of the Treasury managed held to maturity debt securities and available for sale debt securities portfolios mainly utilized in the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment. Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the Federal Reserve Bank of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to the Consumer Lending and Commercial Lending segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each operating segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and or liabilities outstanding for the period.

The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution. The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The prior period balances presented in the tables below reflect reclassifications to conform the presentation in those periods to the current operating segment structure. Valley's consolidated results were not impacted by the changes discussed above and remain unchanged for all periods presented.


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The following tables represent the financial data for Valley’s operating segments for the three and six months ended June 30, 2022 and 2021:
 Three Months Ended June 30, 2022
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets
$7,967,305 $34,549,982 $6,373,943$48,891,230 
Interest income$63,137 $352,440 $37,370$452,947 
Interest expense4,723 19,735 10,32934,787 
Net interest income58,414 332,705 27,041418,160 
Provision for credit losses5,402 38,310 28643,998 
Net interest income after provision for credit losses53,012 294,395 26,755374,162 
Non-interest income17,086 14,425 27,02258,533 
Non-interest expense18,791 24,448 256,491299,730 
Internal transfer expense (income)37,629 157,365 (194,994)— 
Income (loss) before income taxes$13,678 $127,007 $(7,720)$132,965 
Return on average interest earning assets (pre-tax)
0.69 %1.47 %(0.48)%1.09 %
 Three Months Ended June 30, 2021
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets
$7,150,137 $25,485,161 $5,272,116$37,907,414 
Interest income$59,419 $255,895 $18,334$333,648 
Interest expense5,192 18,467 9,08232,741 
Net interest income54,227 237,428 9,252300,907 
Provision (credit) for credit losses711 8,066 (30)8,747 
Net interest income after provision for credit losses53,516 229,362 9,282292,160 
Non-interest income21,915 9,819 11,39243,126 
Non-interest expense19,792 27,241 124,860171,893 
Internal transfer expense (income)19,862 71,207 (91,069)— 
Income (loss) before income taxes$35,777 $140,733 $(13,117)$163,393 
Return on average interest earning assets (pre-tax)
2.00 %2.21 %(1.00)%1.72 %

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 Six Months Ended June 30, 2022
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets
$7,848,764 $30,743,387 $6,017,817$44,609,968 
Interest income$122,596 $610,346 $60,463$793,405 
Interest expense7,930 31,062 18,58457,576 
Net interest income (loss)114,666 579,284 41,879735,829 
Provision for credit losses7,275 39,937 34347,555 
Net interest income (loss) after provision for credit losses
107,391 539,347 41,536688,274 
Non-interest income30,903 31,305 35,59597,803 
Non-interest expense35,359 49,533 412,178497,070 
Internal transfer expense (income)66,276 257,281 (323,557)— 
Income (loss) before income taxes$36,659 $263,838 $(11,490)$289,007 
Return on average interest earning assets (pre-tax)
0.93 %1.72 %(0.38)%1.30 %

 Six Months Ended June 30, 2021
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets
$7,099,973 $25,509,061 $5,039,222$37,648,256 
Interest income$120,264 $508,231 $36,951$665,446 
Interest expense11,607 41,702 18,56371,872 
Net interest income108,657 466,529 18,388593,574 
(Credit) provision for credit losses(1,924)19,715 (388)17,403 
Net interest income after provision for credit losses110,581 446,814 18,776576,171 
Non-interest income35,600 17,533 21,22674,359 
Non-interest expense39,641 52,772 239,693332,106 
Internal transfer expense (income)39,364 141,790 (181,154)— 
Income (loss) before income taxes$67,176 $269,785 $(18,537)$318,424 
Return on average interest earning assets (pre-tax)
1.89 %2.12 %(0.74)%1.69 %
Item 2. Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations

The following MD&A should be read in conjunction with the consolidated financial statements and notes thereto appearing in Part I, Item 1 of this report. The words "Valley," the "Company," "we," "our" and "us" refer to Valley National Bancorp and its wholly owned subsidiaries, unless we indicate otherwise. Additionally, Valley’s principal subsidiary, Valley National Bank, is commonly referred to as the “Bank” in this MD&A.

The MD&A contains supplemental financial information, described in the sections that follow, which has been determined by methods other than U.S. generally accepted accounting principles (U.S. GAAP) that management uses in its analysis of our performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance, our business and performance trends and facilitate comparisons with the performance of others in the financial services industry. These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
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Cautionary Statement Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q, both in the MD&A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about our business, new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by such forward-looking terminology as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “would,” “could,” “typically,” “usually,” “anticipate,” “may,” “estimate,” “outlook,” “project,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, include, but are not limited to:
•the inability to realize expected cost savings and synergies from the Bank Leumi USA acquisition in amounts or in the timeframe anticipated;
•greater than expected costs or difficulties relating to Bank Leumi USA integration matters;
•the inability to retain customers and qualified employees of Bank Leumi USA;
•greater than expected non-recurring charges related to the Bank Leumi USA acquisition;
•the continued impact of COVID-19 on the U.S. and global economies, including business disruptions, reductions in employment, supply chain interruptions, inflation, Federal Reserve actions impacting the level of market interest rates and an increase in business failures, specifically among our clients;
•the continued impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases and new variants of COVID-19 may arise in our primary markets;
•continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets;
•the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral;
•the risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and litigation and the effectiveness of hedging strategies;
•damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;
•a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California, and Illinois, as well as an unexpected decline in commercial real estate values within our market areas;
•higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
•the inability to grow customer deposits to keep pace with loan growth;
•a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;
•the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
•greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
•the loss of or decrease in lower-cost funding sources within our deposit base, including our inability to achieve deposit retention targets under Valley's branch transformation strategy;
•cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
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•results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank (FRB), the Consumer Financial Protection Bureau (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;
•our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;
•unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, the COVID-19 pandemic or other external events; and
•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.

A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Critical Accounting Policies and Estimates

Valley’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. At June 30, 2022, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed the application of these policies and estimates with the Audit Committee of Valley’s Board of Directors. Our critical accounting policies and estimates are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no material changes in such policies and estimates since the date of such report.
New Authoritative Accounting Guidance
See Note 5 to the consolidated financial statements for a description of new authoritative accounting guidance, including the respective dates of adoption and effects on results of operations and financial condition.
Executive Summary
Company Overview. At June 30, 2022, Valley had consolidated total assets of approximately $54.4 billion, total net loans of $43.1 billion, total deposits of $43.9 billion and total shareholders’ equity of $6.2 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 238 branch network, 55 percent, 19 percent, 18 percent of the branches are in New Jersey, New York and Florida, respectively, with the remaining 8 percent of the branches in Alabama, California, and Illinois combined. Despite targeted branch consolidation activity, we have significantly grown both in asset size and locations over the past several years both through organic efforts and bank acquisitions. Our most recent bank acquisition is discussed below.
Bank Leumi Le-Israel Corporation. On April 1, 2022, Valley completed its acquisition of Bank Leumi Le-Israel Corporation, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, and collectively referred to as "Bank Leumi USA". At the acquisition date, Bank Leumi USA had approximately $8.1
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billion in assets, $5.9 billion of loans and $7.0 billion of deposits, after purchase accounting adjustments. Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the transaction. The consideration for the acquisition totaled approximately $1.2 billion, inclusive of the value of stock options. The transaction resulted in $403.2 million of goodwill and $153.4 million of combined core deposit and other intangible assets subject to amortization. See Note 2 to the consolidated financial statements for additional details regarding the acquisition of Bank Leumi USA and other recent acquisition activities.
Impact of COVID-19. During the second quarter 2022, the impact of the COVID pandemic and new global outbreaks of the COVID variants were mostly overshadowed by inflationary concerns. Inflation remains elevated, reflecting supply and demand imbalances related to the COVID pandemic, higher food and energy prices, and broader price pressures. In June 2022, travel restrictions were further loosened by eliminating COVID-19 test requirement to enter the U.S. We continue to monitor the impact of COVID-19 including the emergence of any new more severe variants closely, including its impact on our employees, customers, communities and results of operations and other government or Federal Reserve actions. See the "Operating Environment" section of MD&A for more details.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act and additional legislation that followed including the Consolidated Appropriations Act and the American Rescue Plan Act of 2021 provided funding for the SBA's Paycheck Protection Program (PPP) and established rules for qualifying borrowers to receive loan forgiveness by the SBA under this program. Valley extended a total of $3.2 billion PPP loans under the program, of which $3.1 billion of these loans have received forgiveness from the SBA. As of June 30, 2022, we had $136.0 million (including $45.7 million acquired from Bank Leumi USA) of PPP loans still outstanding.
Quarterly Results. Net income for the second quarter 2022 was $96.4 million, or $0.18 per diluted common share as compared to $120.5 million, or $0.29 per diluted common share, for the second quarter 2021. The $24.1 million decrease in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:
•a $127.8 million increase in non-interest expense largely due to $54.5 million of merger expenses incurred during the second quarter 2022 and our expanded banking operations resulting from the acquisition of Bank Leumi USA on April 1, 2022 and The Westchester Bank Holding Corporation (Westchester) on December 1, 2021; and
•a $35.3 million increase in our provision for credit losses mainly due to $41.0 million of provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA; partially offset by:
•a $117.3 million increase in net interest income mainly due to higher average loan balances driven by both acquired and organic loan volumes and increased yields on new and adjustable rate loans;
•a $15.4 million increase in non-interest income primarily driven by increases in wealth management and trust fees, service charges on deposit accounts and other income totaling $6.0 million, $5.0 million and $11.5 million, respectively, generated from the aforementioned bank acquisitions, partially offset by lower new gains on sales of loans; and
•a $6.3 million decrease in income tax expense mostly caused by lower pre-tax income.
See the “Net Interest Income”, “Non-Interest Income”, “Non-Interest Expense”, and “Income Taxes” sections below for more details on the items above impacting our second quarter 2022 results.
Operating Environment. During the second quarter 2022, real gross domestic product (GDP) at an annual rate decreased 1.3 percent compared to a decline of 1.6 percent in the first quarter 2022. The second consecutive quarter of decline in economic activity was driven in large part by a decline in inventory restocking and household fixed investment. Otherwise, household demand for goods and services improved modestly despite a continued acceleration in overall prices.

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In May, June and July 2022, the Federal Reserve raised the federal funds rate by 50 basis points, 75 basis points and 75 basis points, respectively, resulting in a current target range of 2.25 percent to 2.50 percent. In addition, the Federal Reserve continued to reduce its holdings of Treasury securities and agency debt and mortgage-backed securities. The Federal Reserve indicated it will reduce its Treasury and agency securities portfolio by $47.5 billion per month and after three months will increase to $95 billion per month. The changes in policy reflect the Federal Reserve’s strong commitment to returning inflation to its 2 percent objective.

The 10-year U.S. Treasury note yield ended the second quarter 2022 at 2.98 percent, 66 basis points higher compared with March 31, 2022. The spread between the 2- and 10-year U.S. Treasury note yields ended the quarter at 0.06 percent, 2 basis points higher compared to March 31, 2022.

For all commercial banks in the U.S., loans and leases increased approximately 3.9 percent from March 31, 2022 to June 30, 2022. The banking industry reported softening in demand for most commercial loan products (particularly for commercial real estate loans secured by non-farm nonresidential structures) in recent months as compared to the beginning of the year. During the second quarter 2022, Valley’s new loan originations experienced solid increases across most product types primarily driven by an increase in non-owner occupied commercial real estate, commercial and industrial, residential mortgage and automobile loans. However, further declines in GDP, continued increases in market interest rates, persistently high inflation, the lingering impact of the pandemic on supply chains and business opportunities, labor market conditions, and fallout from the Russia-Ukraine war, among other factors, add a high level of uncertainty to the future path of the U.S. economy and the risk of a recession. Should economic conditions continue to deteriorate causing business activity, spending and investment to decline, it would adversely impact the Bank’s financial results, as highlighted below in this MD&A.
Loans. Total loans increased $8.2 billion to $43.6 billion at June 30, 2022 from March 31, 2022 largely due to a combination of $5.9 billion of acquired loans from Bank Leumi USA and strong organic loan growth. Excluding acquired loans from Bank Leumi USA, our loan portfolio increased 26 percent on an annualized basis during the second quarter 2022 as a result of strong commercial loan volumes and a continued uptick in new residential mortgage loans originated for investment rather than sale. We sold approximately $125 million of residential mortgage loans resulting in total pre-tax gains of $3.6 million in the second quarter 2022. See further details on our loan activities under the “Loan Portfolio” section.
Asset Quality. Total accruing past due loans decreased $19.3 million to $73.5 million, or 0.17 percent of total loans, at June 30, 2022 as compared to $92.8 million, or 0.26 percent of total loans, at March 31, 2022. Non-accrual loans represented 0.72 percent and 0.65 percent of total loans at June 30, 2022 and March 31, 2022, respectively. See further details in the "Non-performing Assets" section below.
Deposits and Other Borrowings. Overall, average deposits increased by $7.1 billion to $42.9 billion for the second quarter 2022 as compared to the first quarter 2022 mostly due to deposits assumed from Bank Leumi USA on April 1, 2022, as well as continued growth in commercial and retail customer deposits without stated maturities. Average non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 38 percent, 54 percent and 8 percent of total deposits as of June 30, 2022, respectively. While we experienced some growth in time deposits due to recent CD promotions and deposits assumed from Bank Leumi USA, our overall mix of average deposits for the second quarter 2022 continued to shift away from higher cost time deposits to the non-maturity deposit categories as compared to the first quarter 2022.
Actual ending balances for deposits increased $8.2 billion to approximately $43.9 billion at June 30, 2022 from March 31, 2022 mostly due to $7.0 billion of assumed deposits from Bank Leumi USA and continued commercial customer deposit organic growth, and our increased utilization of brokered deposits, consisting of money market and time deposit accounts, in our funding mix. Total brokered deposits increased to $2.3 billion at June 30, 2022 as compared to $1.2 billion at March 31, 2022. Non-interest bearing deposits and the savings, NOW and money market category increased $4.2 billion and $3.3 billion, respectively, at June 30, 2022 as compared to March 31, 2022. The increase in non-interest bearing deposits during the second quarter 2022 was mainly attributable to $4.5 billion of deposits assumed from Bank Leumi USA. While we believe the current operating environment will likely
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continue to be favorable for Valley’s deposit gathering initiatives, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at June 30, 2022.
The following table presents average short-term and long-term borrowings for the periods indicated:
Three Months EndedSix Months Ended
June 30, 2022March 31, 2022June 30, 2021June 30, 2022June 30, 2021
(in thousands)
Average short-term borrowings:
FHLB advances$822,913 $434,444 $707,692 $629,753 $851,381 
Securities sold under repurchase agreements142,790 148,575 166,125 145,666 155,983 
Federal funds purchased637,495 11,278 110 326,116 13,094 
Total $1,603,198 $594,297 $873,927 $1,101,535 $1,020,458 
Average long-term borrowings:
FHLB advances$788,803 $788,956 $1,391,382 $788,879 $1,477,207 
Subordinated debt617,291 631,056 453,258 624,135 428,358 
Securities sold under repurchase agreements— — 300,000 — 300,000 
Junior subordinated debentures issued to capital trusts56,544 56,457 56,196 56,501 56,154 
Total$1,462,638 $1,476,469 $2,200,836 $1,469,515 $2,261,719 
Average short-term borrowings increased $729.3 million during the second quarter 2022 as compared to the second quarter 2021 mostly due to an increase in the federal funds purchased balance as a part of our funding strategy. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased $738.2 million from the second quarter 2021 largely due to the repayment of several maturing FHLB advances and repurchase agreements subsequent to the second quarter 2021.
Actual ending balances for short-term borrowings increased by $1.0 billion to $1.5 billion at June 30, 2022 as compared to March 31, 2022 largely due to additional FHLB advances, including approximately $103.8 million assumed from Bank Leumi USA, partially offset by a $125 million decrease in federal funds purchased at June 30, 2022. Long-term borrowings totaled $1.4 billion at June 30, 2022 and remained relatively unchanged from March 31, 2022.










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Non-GAAP Financial Measures. The table below presents selected performance indicators, their comparative non-GAAP measures and the (non-GAAP) efficiency ratio for the periods indicated. The Company believes that the non-GAAP financial measures provide useful supplemental information to both management and investors in understanding Valley’s underlying operational performance, business, and performance trends, and may facilitate comparisons of our current and prior performance with the performance of others in the financial services industry. Management utilizes these measures for internal planning, forecasting and analysis purposes. Management believes that Valley’s presentation and discussion of this supplemental information, together with the accompanying reconciliations to the GAAP financial measures, also allows investors to view performance in a manner similar to management. These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.

 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Selected Performance Indicators($ in thousands, except for %)
GAAP measures:
Net income, as reported$96,413 $120,512 $213,141 $236,222 
Return on average assets0.72 %1.17 %0.88 %1.15 %
Return on average shareholders’ equity6.18 10.24 7.51 10.10 
Non-GAAP measures:
Net income, as adjusted$165,803 $126,617 $286,116 $242,412 
Return on average assets, as adjusted 1.25 %1.23 %1.18 %1.18 %
Return on average shareholders' equity, as adjusted 10.63 10.76 10.09 10.37 
Return on average tangible shareholders' equity (ROATE)9.33 14.79 11.07 14.64 
ROATE, as adjusted16.05 15.54 14.87 15.03 
Efficiency ratio50.78 46.64 51.81 47.59 
June 30,
2022		December 31,
2021
 Common Equity Per Share Data:
Book value per common share (GAAP)$11.84 $11.57 
Tangible book value per common share (non-GAAP)7.71 7.94 
Non-GAAP Reconciliations to GAAP Financial Measures
Adjusted net income is computed as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
(in thousands)
Net income, as reported (GAAP)$96,413 $120,512 $213,141 $236,222 
Add: Loss on extinguishment of debt (net of tax)— 6,024 — 6,024 
Add: Losses on available for sale and held to maturity securities transactions (net of tax) (a)
(56)81 (50)166 
Add: Non-PCD provision for credit losses (net of tax) (b)
29,282 — 29,282 — 
Add: Merger related expenses (net of tax) (c)
40,164 — 43,743 — 
Net income, as adjusted (non-GAAP)$165,803 $126,617 $286,116 $242,412 
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(a)    Included in (losses) gains on securities transactions, net.
(b)    Represents the provision for credit losses for non-PCD loans, unfunded credit commitments and held to maturity debt securities acquired from Bank Leumi USA on April 1, 2022.
(c)    Merger related expenses are primarily within salary and employee benefits expense, professional and legal fees, and other expense.

In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans, wealth management fees, swap fees recognized from commercial loan customer transactions. These amounts can vary widely from period to period due to, among other factors, the amount of residential mortgage loans originated for sale, loan portfolio sales, brokerage fees, and commercial loan customer demand for certain products. See the “Non-Interest Income” section below for more details.
Adjusted annualized return on average assets is computed by dividing adjusted net income by average assets, as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
($ in thousands)
Net income, as adjusted (non-GAAP)$165,803$126,617$286,116$242,412
Average assets$53,211,422$41,161,459$48,417,469$40,967,174
Annualized return on average assets, as adjusted (non-GAAP)1.25 %1.23 %1.18 %1.18 %
Adjusted annualized return on average shareholders' equity is computed by dividing adjusted net income by average shareholders' equity, as follows:
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
($ in thousands)
Net income, as adjusted (non-GAAP)$165,803$126,617$286,116$242,412
Average shareholders' equity$6,238,985$4,708,797$5,673,014$4,677,273
Annualized return on average shareholders' equity, as adjusted (non-GAAP)10.63 %10.76 %10.09 %10.37 %

ROATE and adjusted ROATE are computed by dividing net income and adjusted net income, respectively, by average shareholders’ equity less average goodwill and average other intangible assets, as follows:
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 ($ in thousands)
Net income, as reported (GAAP)$96,413$120,512$213,141$236,222
Net income, as adjusted (non-GAAP)165,803126,617$286,116$242,412
Average shareholders’ equity$6,238,985$4,708,797$5,673,014$4,677,273
Less: Average goodwill and other intangible assets
2,105,5851,449,3881,823,5381,450,562
Average tangible shareholders’ equity $4,133,400$3,259,409$3,849,476$3,226,711
Annualized ROATE (non-GAAP)9.33 %14.79 %11.07 %14.64 %
Annualized ROATE, as adjusted (non-GAAP)16.05 %15.54 %14.87 %15.03 %

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The efficiency ratio is computed as follows:
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 ($ in thousands)
Total non-interest expense, as reported (GAAP)$299,730 $171,893 $497,070 $332,106 
Less: Loss on extinguishment of debt (pre-tax)— 8,406 — 8,406 
Less: Amortization of tax credit investments (pre-tax)3,193 2,972 6,089 5,716 
Less: Merger related expenses (pre-tax) (a)
54,496 — 59,124 — 
Total non-interest expense, as adjusted (non-GAAP)$242,041 $160,515 $431,857 $317,984 
Net interest income, as reported (GAAP)$418,160 $300,907 $735,829 $593,574 
Total non-interest income, as reported (GAAP)58,533 43,126 97,803 74,359 
Add: Losses on available for sale and held to maturity securities transactions, net (pre-tax) (b)
(78)113 (69)231 
Total net interest income and non-interest income, as adjusted (non-GAAP)$476,615 $344,146 $833,563 $668,164 
Efficiency ratio (non-GAAP)50.78 %46.64 %51.81 %47.59 %
(a)    Included primarily within salary and employee benefits expense, professional and legal fees, and other expense.
(b)    Included in gains on securities transactions, 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: 
June 30,
2022		December 31,
2021
 ($ in thousands, except for share data)
Common shares outstanding506,328,526 421,437,068 
Shareholders’ equity$6,204,913 $5,084,066 
Less: Preferred stock209,691 209,691 
Less: Goodwill and other intangible assets2,090,147 1,529,394 
Tangible common shareholders’ equity$3,905,075 $3,344,981 
Tangible book value per common share (non-GAAP)$7.71 $7.94 
Book value per common share (GAAP)$11.84 $11.57 

Net Interest Income
Net interest income consists of interest income and dividends earned on interest earning assets, less interest expense on interest bearing liabilities, and represents the main source of income for Valley.
Net interest income on a tax equivalent basis totaling $419.6 million for the second quarter 2022 increased $101.2 million as compared to the first quarter 2022 and increased $117.8 million from the second quarter 2021. Interest income on a tax equivalent basis in the second quarter 2022 increased $113.2 million to $454.4 million as compared to the first quarter 2022. The increase was mostly due to higher average loan balances driven both by acquired and organic loans and increased yields on both new originations and adjustable rate loans in our portfolio. Interest expense of $34.8 million for the second quarter 2022 increased $12.0 million as compared to the first quarter 2022 largely due to a moderate increase in interest rates on both non-maturity deposits and short-term borrowings, as well as interest expense related to deposits and borrowings assumed in the Bank Leumi USA acquisition.
Average interest earning assets increased $11.0 billion to $48.9 billion for the second quarter 2022 as compared to the second quarter 2021 primarily due to the acquisitions of Bank Leumi USA and Westchester on April 1, 2022
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and December 1, 2021, respectively, as well as strong organic loan growth over the 12-month period ended June 30, 2022. Compared to the first quarter 2022, average interest earning assets increased by $8.6 billion during the second quarter 2022. The increase was primarily driven by a $7.9 billion increase in average loan balances due to $5.9 billion of loans acquired form Bank Leumi USA and continued organic loan growth mainly in the non-PPP commercial loan categories, as well as residential mortgage loans.
Average interest bearing liabilities increased $4.2 billion to $29.7 billion for the second quarter 2022 as compared to the second quarter 2021 mainly due to $2.5 billion of interest bearing deposits assumed from Bank Leumi USA, strong growth in commercial and retail customer deposit balances without stated maturities, and $727 million of interest bearing deposits assumed from Westchester. As compared to the first quarter 2022, average interest bearing liabilities increased by $3.5 billion in the second quarter 2022 mainly due to the deposits from Bank Leumi USA and continued growth in average non-maturity deposits balances, including supplemental growth from commercial depositors, a relatively new niche product targeting professional service firms and an increased utilization of short-term borrowings as part of our funding and liquidity sources. Total average deposits, including non-interest bearing deposits, increased $7.1 billion to $42.9 billion for the second quarter 2022 as compared to the first quarter 2022. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.
Our net interest margin on a tax equivalent basis of 3.43 percent for the second quarter 2022 increased by 27 basis points and 25 basis points from 3.16 percent and 3.18 percent for the first quarter 2022 and second quarter 2021, respectively. The yield on average interest earning assets increased by 33 basis points on a linked quarter basis mostly due to the aforementioned higher yields on new and adjustable rate loans in the second quarter 2022 as compared to the first quarter 2022. The yield on average loans increased by 24 basis points to 3.91 percent for the second quarter 2022 as compared to the first quarter 2022 largely due to the higher level of market interest rates. The yields on average taxable and non-taxable investments also increased 39 basis points and 67 basis points, respectively, from the first quarter 2022 largely due to interest income, including discount accretion, on investment securities acquired from Bank Leumi USA. The overall cost of average interest bearing liabilities increased 12 basis points to 0.47 percent for the second quarter 2022 as compared to the first quarter 2022. The increase was mainly due to moderately higher pricing of non-maturity deposits combined with greater utilization of brokered deposits and short-term borrowings in our loan funding mix during the second quarter 2022. Our cost of total average deposits only increased to 0.19 percent for the second quarter 2022 from 0.14 percent for the first quarter 2022.
As noted in the "Operating Environment" section above, the Federal Reserve raised the federal funds rate by 50 basis points, 75 basis points and 75 basis points, in May, June, and July 2022, respectively, resulting in a current target range of 2.25 percent to 2.50 percent. Higher levels of market interest rates would benefit certain interest earning assets on our balance sheet and likely provide us the opportunity to reinvest any excess cash, including normal repayments of loans and investments, at higher rates. Funding costs also increased during the second quarter 2022 and the early stages of the third quarter 2022, however at this time, we expect a continued benefit to our net interest income from a certain amount of lag in higher funding costs due to the current market and our ability to manage the balance sheet. While our outlook for our net interest income for the remainder of 2022 is positive, we cannot provide any assurances that our net interest income or margin will remain at the levels reported for the second quarter 2022.

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The following table reflects the components of net interest income for the three months ended June 30, 2022, March 31, 2022 and June 30, 2021:

Quarterly Analysis of Average Assets, Liabilities and Shareholders’ Equity and
Net Interest Income on a Tax Equivalent Basis
 Three Months Ended
 June 30, 2022March 31, 2022June 30, 2021
 Average
Balance		InterestAverage
Rate		Average
Balance		InterestAverage
Rate		Average
Balance		InterestAverage
Rate
 ($ in thousands)
Assets
Interest earning assets:
Loans (1)(2)
$42,517,287 $415,602 3.91 %$34,623,402 $317,390 3.67 %$32,635,298 $315,339 3.87 %
Taxable investments (3)
4,912,994 30,610 2.49 3,838,468 20,115 2.10 3,159,842 14,883 1.88 
Tax-exempt investments (1)(3)
684,471 6,571 3.84 401,742 3,186 3.17 498,971 4,071 3.26 
Interest bearing deposits with banks776,478 1,569 0.81 1,419,436 461 0.13 1,613,303 235 0.06 
Total interest earning assets48,891,230 454,352 3.72 40,283,048 341,152 3.39 37,907,414 334,528 3.53 
Allowance for credit losses(428,193)(367,989)(350,388)
Cash and due from banks426,187 281,883 335,083 
Other assets4,362,789 3,361,185 3,237,689 
Unrealized gains on securities available for sale, net(40,591)12,124 31,661 
Total assets$53,211,422 $43,570,251 $41,161,459 
Liabilities and shareholders’ equity
Interest bearing liabilities:
Savings, NOW and money market deposits$23,027,347 $17,122 0.30 %$20,522,629 $9,627 0.19 %$17,784,985 $11,166 0.25 %
Time deposits3,601,088 3,269 0.36 3,554,520 2,831 0.32 4,609,778 6,279 0.54 
Total interest bearing deposits26,628,435 20,391 0.31 24,077,149 12,458 0.21 22,394,763 17,445 0.31 
Short-term borrowings1,603,198 4,083 1.02 594,297 806 0.54 873,927 1,168 0.53 
Long-term borrowings (4)
1,462,638 10,313 2.82 1,476,469 9,525 2.58 2,200,836 14,128 2.57 
Total interest bearing liabilities29,694,271 34,787 0.47 26,147,915 22,789 0.35 25,469,526 32,741 0.51 
Non-interest bearing deposits16,267,946 11,686,534 10,328,412 
Other liabilities1,010,220 631,093 654,724 
Shareholders’ equity6,238,985 5,104,709 4,708,797 
Total liabilities and shareholders’ equity$53,211,422 $43,570,251 $41,161,459 
Net interest income/interest rate spread (5)
$419,565 3.25 %$318,363 3.04 %$301,787 3.02 %
Tax equivalent adjustment(1,405)(694)(880)
Net interest income, as reported$418,160 $317,669 $300,907 
Net interest margin (6)
3.42 %3.15 %3.18 %
Tax equivalent effect0.01 0.01 — 
Net interest margin on a fully tax equivalent basis (6)
3.43 %3.16 %3.18 %




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The following table reflects the components of net interest income for the six months ended June 30, 2022 and 2021:
Six Months Ended
June 30, 2022June 30, 2021
Average BalanceInterestAverage RateAverage BalanceInterestAverage Rate
($ in thousands)
Assets
Interest earning assets:
Loans (1)(2)
$38,592,151 $732,991 3.80 %$32,609,034 $628,545 3.86 %
Taxable investments (3)
4,377,990 50,725 2.32 %3,135,614 29,920 1.91 
Tax-exempt investments (1)(3)
543,646 9,757 3.59 %506,349 8,319 3.29 
Interest bearing deposits with banks1,096,181 2,030 0.37 %1,397,259 459 0.07 
Total interest earning assets44,609,968 795,503 3.57 %37,648,256 667,243 3.54 
Allowance for credit losses(398,258)(348,834)
Cash and due from banks354,433 324,044 
Other assets3,864,997 3,305,222 
Unrealized gains on securities available for sale, net(13,671)38,486 
Total assets$48,417,469 $40,967,174 
Liabilities and shareholders’ equity
Interest bearing liabilities:
Savings, NOW and money market deposits$21,781,907 $26,749 0.25 %17,204,598 22,291 0.26 %
Time deposits3,577,933 6,100 0.34 5,223,740 17,372 0.67 
Total interest bearing deposits25,359,840 32,849 0.26 22,428,338 39,663 0.35 
Short-term borrowings1,101,535 4,889 0.89 1,020,458 2,926 0.57 
Long-term borrowings (4)
1,469,515 19,838 2.70 2,261,719 29,283 2.59 
Total interest bearing liabilities27,930,890 57,576 0.41 25,710,515 71,872 0.56 
Non-interest bearing deposits13,989,897 9,853,345 
Other liabilities823,668 726,041 
Shareholders’ equity5,673,014 4,677,273 
Total liabilities and shareholders’ equity$48,417,469 $40,967,174 
Net interest income/interest rate spread (5)
$737,927 3.16 %$595,371 2.98 %
Tax equivalent adjustment(2,098)(1,797)
Net interest income, as reported$735,829 $593,574 
Net interest margin (6)
3.30 %3.15 %
Tax equivalent effect0.01 0.01 
Net interest margin on a fully tax equivalent basis (6)
3.31 %3.16 %
_____________

(1)Interest income is presented on a tax equivalent basis using a 21 percent federal tax rate.
(2)Loans are stated net of unearned income and include non-accrual loans.
(3)The yield for securities that are classified as available for sale is based on the average historical amortized cost.
(4)Includes junior subordinated debentures issued to capital trusts which are presented separately on the consolidated
statements of financial condition.
(5)Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(6)Net interest income as a percentage of total average interest earning assets.


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The following table demonstrates the relative impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by us on such assets and liabilities. Variances resulting from a combination of changes in volume and rates are allocated to the categories in proportion to the absolute dollar amounts of the change in each category.

Change in Net Interest Income on a Tax Equivalent Basis
 Three Months Ended June 30, 2022
Compared to June 30, 2021		Six Months Ended June 30, 2022 Compared to June 30, 2021
 Change
Due to
Volume		Change
Due to
Rate		Total
Change		Change
Due to
Volume		Change
Due to
Rate		Total
Change
 (in thousands)
Interest Income:
Loans*$96,554 $3,709 $100,263 $113,763 $(9,317)$104,446 
Taxable investments9,942 5,785 15,727 13,503 7,302 20,805 
Tax-exempt investments*1,695 805 2,500 638 800 1,438 
Interest bearing deposits with banks(183)1,517 1,334 (119)1,690 1,571 
Total increase in interest income108,008 11,816 119,824 127,785 475 128,260 
Interest Expense:
Savings, NOW and money market deposits3,665 2,291 5,956 5,672 (1,214)4,458 
Time deposits(1,192)(1,818)(3,010)(4,426)(6,846)(11,272)
Short-term borrowings1,398 1,517 2,915 249 1,714 1,963 
Long-term borrowings and junior subordinated debentures(5,099)1,284 (3,815)(10,647)1,202 (9,445)
Total (decrease) increase in interest expense(1,228)3,274 2,046 (9,152)(5,144)(14,296)
Total increase (decrease) in net interest income$109,236 $8,542 $117,778 $136,937 $5,619 $142,556 
*Interest income is presented on a tax equivalent basis using 21 percent as the federal tax rate.
Non-Interest Income
Non-interest income increased $15.4 million and $23.4 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021. The following table presents the components of non-interest income for the three and six months ended June 30, 2022 and 2021:
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands)
Wealth management and trust fees$9,577 $3,532 $14,708 $6,861 
Insurance commissions3,463 2,637 5,322 4,195 
Service charges on deposit accounts10,067 5,083 16,279 10,186 
(Losses) gains on securities transactions, net(309)375 (1,381)476 
Fees from loan servicing2,717 3,187 5,498 6,086 
Gains on sales of loans, net3,602 10,061 4,588 13,574 
Bank owned life insurance2,113 2,475 4,159 4,806 
Other27,303 15,776 48,630 28,175 
Total non-interest income$58,533 $43,126 $97,803 $74,359 
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Wealth management and trust fees income increased by $6.0 million and $7.8 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021 mostly due to $4.4 million of brokerage fees resulting from the acquisition of Bank Leumi USA and its wholly-owned broker dealer subsidiary now legally named Valley Financial Management, Inc. The increases in both 2022 periods were also supplemented by an additional revenues generated by our advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments, which we acquired in October 2021.

Service charges on deposit accounts increased by $5.0 million and $6.1 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods in 2021 mostly driven by additional checking accounts related revenues resulting from deposit accounts acquired from Leumi USA.
Net losses on securities transactions of $1.4 million for the six months ended June 30, 2022 were mostly due to
net trading losses related to our trading municipal bond portfolio.
Net gains on sales of loans for each period are comprised of both gains on sales of residential mortgages and the net change in the mark to market gains and losses on our loans originated for sale and carried at fair value at each reporting period end. Net gains on sales of loans decreased $6.5 million and $9.0 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021. The quarter over quarter decrease was mostly due to lower loan sale volumes and spreads (i.e., margin on individual loan sales). During the second quarter 2022, we sold approximately $125.0 million of residential mortgage loans as compared to $326.2 million during the second quarter 2021. The mark to market change on loans held for sale at fair value resulted in net gains totaling $1.5 million for the three months ended June 30, 2022 as compared to $460 thousand of net losses for the same period of 2021, and net losses totaling $3.3 million and $10.0 million for the six months ended June 30, 2022 and 2021, respectively. Our ability to generate net gains on sales of loans could continue to be challenged by a number of factors, including increases in market interest rates, lower customer demand for conforming loan products and our potential decision to change the mix of loans originated for investment in our loan portfolio rather than sale. See further discussion of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.
Other non-interest income increased $11.5 million and $20.5 million for the three and six months ended June 30, 2022 as compared to the same periods in 2021, respectively, mostly due to higher fee income from derivative interest rate swaps executed with commercial lending customers caused by a greater volume of transactions and higher foreign exchange fees. Swap fee income totaled $11.1 million and $7.6 million for the three months ended June 30, 2022 and 2021, respectively, and $25.1 million and $13.8 million for the six months ended June 30, 2022 and 2021, respectively. While we believe our commercial loan swap based product will remain attractive to borrowers in the current interest rate environment, we can provide no assurance that our swap fees will remain at the level reported for the second quarter 2022. Foreign exchange fees totaled $2.1 million and $2.5 million three and six months ended June 30, 2022, respectively. Foreign exchange fees for the respective reporting periods in 2021 were not material.








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Non-Interest Expense
Non-interest expense increased $127.8 million and $165.0 million for the three and six months ended June 30, 2022 as compared to the same periods in 2021, respectively. The following table presents the components of non-interest expense for the three and six months ended June 30, 2022 and 2021:
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands)
Salary and employee benefits expense$154,798 $91,095 $262,531 $179,198 
Net occupancy expense22,429 18,550 44,420 39,230 
Technology, furniture and equipment expense49,866 23,220 75,880 43,950 
FDIC insurance assessment5,351 3,374 9,509 6,650 
Amortization of other intangible assets11,400 5,449 15,837 11,455 
Professional and legal fees30,409 7,486 45,158 13,758 
Loss on extinguishment of debt— 8,406 — 8,406 
Amortization of tax credit investments3,193 2,972 6,089 5,716 
Other22,284 11,341 37,646 23,743 
Total non-interest expense$299,730 $171,893 $497,070 $332,106 
Salary and employee benefits expense increased $63.7 million and $83.3 million for the three and six months ended June 30, 2022 as compared to the same periods of 2021, respectively. The increases in both 2022 periods were primarily due to strategic increases in our headcount to enhance lending and operations (including additions to staff due to the Bank Leumi USA and Westchester acquisitions), increases in our branch compensation to preserve staffing and service levels, and to keep pace with the increases in wage demand across the industry. In addition, salary and employee benefits expense included approximately $28.0 million in merger expense, primarily consisting of change in control and severance payments, related to Bank Leumi USA during the second quarter 2022.
Net occupancy expense increased $3.9 million and $5.2 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021 mainly due to higher depreciation expense and repair and maintenance costs.
Technology, furniture and equipment expense increased $26.6 million and $31.9 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021. The increases were due, in part, to Bank Leumi USA merger related expenses (largely consisting of technology related costs) totaling $15.3 million in the second quarter 2022 and higher data processing costs.
FDIC insurance assessment expense increased $2.0 million and $2.9 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021 mainly due to the Bank Leumi USA acquisition and continued organic loan growth.
Amortization of other intangible assets increased $6.0 million and $4.4 million for the three and six months ended June 30, 2022, respectively, as compared to the same period of 2021 mostly due to additional core deposit and other intangible assets resulting from the Bank Leumi USA acquisition. See Notes 2 and 9 to the consolidated financial statements for additional information.
Professional and legal fees increased $22.9 million and $31.4 million for the three and six months ended June 30, 2022, respectively, as compared to the same periods of 2021. The increases were due, in part, to services expense, increased consulting expense mainly related to technology transformation and new product initiatives during the three and six months and merger related expenses. Merger related expenses totaled $11.4 million (related to the Bank Leumi USA acquisition) and $12.2 million for the three and six months ended June 30, 2022, respectively.
Loss on extinguishment of debt totaled $8.4 million for the three and six months ended June 30, 2021 reflecting the
prepayment of approximately $248 million of long-term FHLB advances during the second quarter 2021.
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Other non-interest expense increased $10.9 million and $13.9 million for the three and six months ended June 30, 2022 as compared to the same periods of 2021. These increases within this expense category related to advertising and other incrementally higher operating expenses due to the expansion of our operations, including acquisitions of Bank Leumi USA on April 1, 2022 and Westchester on December 1, 2021.
Income Taxes
Income tax expense totaled $36.6 million for the second quarter 2022 as compared to $39.3 million and $42.9 million for the first quarter 2022 and second quarter 2021, respectively. Our effective tax rate was 27.5 percent, 25.2 percent and 26.2 percent for the second quarter 2022, first quarter 2022 and second quarter 2021, respectively. The increase in the effective tax rate in the second quarter 2022 as compared to the first quarter 2022 was mainly due to the tax effect of an increase in permanent difference disallowances, lower discrete tax items, as well as moderate state tax rate adjustments recognized during the second quarter 2022. The decrease in income tax expense as compared to the second quarter 2021 was mainly due to lower pre-tax income.
U.S. 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. Our adherence to these tax guidelines may result in volatile effective income tax rates in future quarterly and annual periods. Factors that could impact management’s judgment include changes in income, tax laws and regulations, and tax planning strategies. Based on the current information available, we anticipate that our effective tax rate will range from 26 percent to 28 percent for 2022, exclusive of pending
potential tax rate increases.
Operating Segments
Prior to the second quarter 2022, Valley operated as four reportable segments: Consumer Lending, Commercial Lending, Investment Management, and Corporate and Other Adjustments. Valley re-evaluated its segment reporting during the second quarter 2022 to consider the Bank Leumi USA acquisition on April 1, 2022 along with other factors, including changes in the internal structure of operations, discrete financial information reviewed by key decision-makers, balance sheet management strategies and personnel. As a result, Valley determined it operated reportable segments consisting of Consumer Lending, Commercial Lending and Treasury and Corporate Other at June 30, 2022. Treasury and Corporate Other was reorganized to consolidate Treasury and other corporate-wide functions, including the Treasury managed investment securities portfolios and overnight interest earning cash balances formerly reported under Investment Management. The discrete financial information related to the activities previously reported in the Investment Management segment is no longer provided to Valley's CEO, who is the chief operating decision maker. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations, and reporting structures to identify its reportable segments.
The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The prior-period balances reflect reclassifications to conform the presentation in those periods to the current operating segment structure. Valley's consolidated results were not impacted by the changes discussed above and remain unchanged for all periods presented.

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The following tables present the financial data for Valley's operating segments for the three months ended June 30, 2022 and 2021:
 Three Months Ended June 30, 2022
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets$7,967,305$34,549,982$6,373,943$48,891,230
Income (loss) before income taxes13,678127,007(7,720)132,965
Annualized return on average interest earning assets (before tax)
0.69 %1.47 %(0.48)%1.09 %
 
 Three Months Ended June 30, 2021
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets$7,150,137$25,485,161$5,272,116$37,907,414
Income (loss) before income taxes35,777140,733(13,117)163,393
Annualized return on average interest earning assets (before tax)
2.00 %2.21 %(1.00)%1.72 %

See Note 14 to the consolidated financial statements for additional details.
Consumer Lending
Consumer Lending represented 18.7 percent of our loan portfolio at June 30, 2022, 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 June 30, 2022) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (representing 3.8 percent of total loans at June 30, 2022) is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. Consumer Lending also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.
Average interest earning assets in Consumer Lending increased $817.2 million to $8.0 billion for the three months ended June 30, 2022 as compared to the second quarter 2021. The increase was largely due to solid new and refinanced residential mortgage loan volumes over the last 12-month period, as well as growth in automobile loans and secured personal lines of credit. Loans acquired from Bank Leumi USA on April 1, 2022 and Westchester on December 1, 2021 did not materially impact this operating segment.
Income before income taxes generated by Consumer Lending decreased $22.1 million to $13.7 million for the second quarter 2022 as compared to the second quarter 2021 largely due to a $17.8 million increase in the internal transfer expense, $4.7 million increase in the provision for loan losses, and lower non-interest income. The negative impact of these items was partially offset by a $4.2 million increase in net interest income. The higher internal transfer expense was mostly driven by general increases related to organic growth in our retail business and the recent bank acquisitions. The increase in the provision for loan losses was mainly due to higher quantitative reserves for residential mortgage loans, as well as loan growth in this category. Non-interest income decreased $4.8 million or the second quarter 2022 as compared to the second quarter 2021 largely due to lower gains on sales of residential mortgage loans. The negative impact of these items was partially offset by a $4.2 million increase in net interest income mainly driven by higher average loan balances.
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The net interest margin on the Consumer Lending portfolio decreased 9 basis points to 2.94 percent for the second quarter 2022 as compared to the second quarter 2021 mainly due to a 15 basis point decrease in the yield on average loans, partially offset by a 6 basis point decrease in the costs associated with our funding sources. The 15 basis point decrease in loan yield was largely due to lower yielding new loan volumes and normal loan repayments over the last 12-month period. The decrease in our funding costs was mainly due to continued runoff of higher cost time deposits, greater mix of non-interest bearing deposits. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest margin and funding sources.
Commercial Lending
Commercial Lending is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, Commercial Lending is Valley’s business segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately $8.5 billion and represented 19.5 percent of the total loan portfolio at June 30, 2022. Commercial real estate loans and construction loans totaled $26.9 billion and represented 61.8 percent of the total loan portfolio at June 30, 2022.
Average interest earning assets in this segment increased approximately $9.1 billion to $34.5 billion for the three months ended June 30, 2022 as compared to the second quarter 2021 mostly due to acquired loans from Bank Leumi USA and Westchester and strong new organic loan originations primarily concentrated in the commercial real estate loan portfolio, partially offset by run-off of commercial and industrial PPP loans due to SBA loan forgiveness.
Income before income taxes for the three months ended June 30, 2022 for Commercial Lending decreased $13.7 million to $127.0 million as compared to the second quarter 2021. The decrease was mainly driven by an increase in the internal transfer expense coupled with higher provision for loan losses, partially offset by increases in both net interest income and non-interest income. Internal transfer expense increased $86.2 million for the second quarter 2022 as compared to the second quarter 2021 due to general increases related to both organic and acquired growth in our business. The provision for loan losses increased by $30.2 million as compared to the second quarter 2021 mainly due to the provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA. See further details in the "Allowance for Credit Losses for Loans" section of this MD&A. Net interest income for this segment increased $95.3 million to $332.7 million for the second quarter 2022 as compared to the same period in 2021 primarily due to additional income generated on higher average loan balances. Non-interest income increased $4.6 million to $14.4 million for the three months ended June 30, 2022 as compared to the second quarter 2021 mainly due to a $3.5 million increase in swap fee income from derivative interest rate swaps executed with commercial loan customers.
The net interest margin for this segment increased 12 basis points to 3.85 percent for the second quarter 2022 as compared to the second quarter 2021 due to a 6 basis point decrease in the cost of our funding sources and a 6 basis point increase in the yield on average loans.
Treasury and Corporate Other
Treasury and Corporate Other largely consists of the Treasury managed held to maturity debt securities and available for sale debt securities portfolios mainly utilized in the liquidity management needs of our lending segments and income and expense items resulting from support functions not directly attributable to a specific segment. Interest income is generated through investments in various types of securities (mainly comprised of fixed rate securities) and interest-bearing deposits with other banks (primarily the Federal Reserve Bank of New York). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from Treasury and Corporate Other to the Consumer Lending and Commercial Lending segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/or liabilities outstanding for the period. Other items disclosed in this segment include net gains and losses on available for sale
69


and held to maturity securities transactions, not reported in the investment management segment above, interest expense related to subordinated notes, amortization and impairment of tax credit investments, as well as other non-core items, including merger expenses.
Average interest earning assets in this segment increased $1.1 billion during the three months ended June 30, 2022
mainly due to an increase of $1.8 billion in average investment securities, partially offset by lower average interest bearing deposits with banks. The increase in the average investment securities balance was mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA. The $836.8 million decrease in average interest bearing deposits with banks as compared to the same period in 2021 was mainly due to continued funding of loan growth and fluctuations in the timing of loan and investment activity.
Treasury and Corporate Other recognized pre-tax losses of $7.7 million and $13.1 million for the three months ended June 30, 2022 and 2021, respectively. The $5.4 million decrease in the pre-tax loss during the 2022 period was due to increases in internal transfer income, net interest income and non-interest income that were more than offset by an increase in non-interest expense. The internal transfer income increased by $103.9 million to $195.0 million for the three months ended June 30, 2022 as compared to the same period a year ago mostly due to general increases related to our growth and recent acquisitions. Non-interest expense increased $131.6 million to $256.5 million during the three months ended June 30, 2022 as compared to the same period a year ago largely due to $54.5 million of merger expenses incurred during the second quarter 2022 and our expanded banking operations resulting from the Bank Leumi USA acquisition. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.
The net interest margin for this segment increased 102 basis points to 2.12 percent for the for the second quarter 2022 as compared to the second quarter 2021 due to a 96 basis point increase in the yield on average investments, and a 6 basis point decrease in cost of our funding sources. The increase in the yield on average investments as
compared to the second quarter 2021 was largely due to higher interest income, including discount accretion, on securities acquired from Bank Leumi USA.

The following tables present the financial data for Valley's operating segment for the six months ended June 30, 2022 and 2021:
 Six Months Ended June 30, 2022
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets$7,848,764$30,743,387$6,017,817$44,609,968
Income (loss) before income taxes36,659263,838(11,490)289,007
Annualized return on average interest earning assets (before tax)
0.93 %1.72 %(0.38)%1.30 %
 Six Months Ended June 30, 2021
 Consumer
Lending		Commercial
Lending		Treasury and Corporate OtherTotal
 ($ in thousands)
Average interest earning assets$7,099,973$25,509,061$5,039,222$37,648,256
Income (loss) before income taxes67,176269,785(18,537)318,424
Annualized return on average interest earning assets (before tax)
1.89 %2.12 %(0.74)%1.69 %



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Consumer Lending

Consumer Lending's average interest earning assets increased $748.8 million to $7.8 billion for the six months ended June 30, 2022 as compared to the same period in 2021. The increase was largely due to solid new and refinanced residential mortgage loan volumes over the last 12-month period, as well as growth in automobile loans and secured personal lines of credit.

Income before income taxes generated by Consumer Lending decreased $30.5 million to $36.7 million for the six months ended June 30, 2022 as compared to the same period in 2021 largely due to a $26.9 million increase in the internal transfer expense coupled with higher provision for loan losses and non-interest expense. The provision for loan losses increased $9.2 million for the six months ended June 30, 2022 from $1.9 million credit (negative) provision for the same period of 2021. The increase in provision was mainly due to higher reserves related to residential loan growth. See further details in the "Allowance for Credit Losses" section of this MD&A. Net interest income increased $6.0 million primarily due to the lower funding costs, as well as additional income generated on higher average loan balances. The higher net interest income was largely offset by a $4.7 million decrease in non-interest income, which was mostly attributable to lower net gains on sales of residential mortgage loans for the six months ended June 30, 2022 as compared to the same period in 2021.

Net interest margin on the Consumer Lending portfolio decreased 14 basis points to 2.92 percent for the six months ended June 30, 2022 as compared to the same period one year ago mainly due to a 27 basis point decrease in the yield on average loans, partially offset by a 13 basis point decrease in the costs associated with our funding sources. The 27 basis point decrease in loan yield was largely due to lower yielding new loan volumes prior to the second quarter 2022 and normal loan repayments. The decrease in our funding costs was mainly due to a greater mix of non-interest bearing deposits, deposits continuing to reprice at lower interest rates prior to the second quarter 2022 and the repayment of maturing higher cost borrowings.
Commercial Lending

Average interest earning assets in Commercial Lending increased $5.2 billion to $30.7 billion for the six months ended June 30, 2022 as compared to the same period in 2021. This increase was primarily due to strong organic loan growth over the 12-month period ended June 30, 2022, as well as loans acquired from Bank Leumi USA and Westchester.

For the six months ended June 30, 2022, income before income taxes for Commercial Lending decreased $5.9 million to $263.8 million as compared to the same period in 2021 mainly driven by increases in internal transfer expense and provision for loan losses, largely offset by higher net interest income and non-interest income. Internal transfer expense increased $115.5 million to $257.3 million for the six months ended June 30, 2022 as compared to the same period in 2021. The provision for credit losses increased $20.2 million to $39.9 million during the six months ended June 30, 2022 as compared to $19.7 million for the same period in 2021 mainly due to the provision related to non-PCD loans and unfunded credit commitments acquired from Bank Leumi USA. See the "Allowance for Credit Losses for Loans" section below for further details. The negative impact of the aforementioned items was largely offset by increases in net interest income and non-interest income. Net interest income increased $112.8 million to $579.3 million for the six months ended June 30, 2022 as compared to the same period in 2021 largely due to higher average commercial loan balances during the 2022 period. Non-interest income increased $13.8 million for the six months ended June 30, 2022 as compared to the same period in 2021 primarily due to a $11.3 million increase in fee income related to derivative interest rate swaps executed with commercial loan customers.

The net interest margin for this segment increased 12 basis points to 3.77 percent for the six months ended June 30, 2022 as compared to the same period in 2021 due to a 13 basis point decrease in the cost of our funding sources, partially offset by a 1 basis point decrease in yield on average loans.

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Treasury and Corporate Other
Treasury and Corporate Other's average interest earning assets increased $978.6 million during the six months ended June 30, 2022 as compared to the same period in 2021. Within the category, a $1.2 billion increase in taxable investment securities was partially offset by a $301.1 million decrease in average interest bearing deposits with banks. The increase in the average investment securities balance was mainly due to $1.3 billion of investment securities acquired from Bank Leumi USA. The lower levels of excess liquidity were mainly due to the strong organic loan growth over the last 12-month period.

The pre-tax net loss for this segment totaled $11.5 million for the six months ended June 30, 2022 as compared to $18.5 million for the same period in 2021. The positive change of $7.0 million was mainly due to increases in internal transfer income and non-interest income, partially offset by higher non-interest expense. Internal transfer income increased $142.4 million to $323.6 million for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in net interest income totaled $23.5 million and was mostly driven by higher yields and average investment balances. Non-interest expense increased $172.5 million to $412.2 million for the six months ended June 30, 2022 as compared to the same period in 2021 partially due to $54.5 million of merger expenses incurred during the second quarter 2022 and other increases in expenses related to our expanded banking operations and organic business growth, partially offset by the loss on extinguishment of debt recorded during the comparative 2021 period. 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 increased 67 basis points to 1.81 percent for the six months ended June 30, 2022 as compared to the same period in 2021 due to a 54 basis point increase in the yield on average investments, and a 13 basis point decrease in cost of our funding sources. The increase in the yield on average investments as compared to the same period in 2021 was largely driven by the higher amortization expense in the prior year caused, in part, by acceleration of principal repayments in the low interest rate environment mostly during the second half of 2021.
ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity
Our success is largely dependent upon our ability to manage interest rate risk. Interest rate risk can be defined as the exposure of our interest rate sensitive assets and liabilities to the movement in interest rates. Our Asset/Liability Management Committee is responsible for managing such risks and establishing policies that monitor and coordinate our sources and uses of funds. Asset/Liability management is a continuous process due to the constant change in interest rate risk factors. In assessing the appropriate interest rate risk levels for us, management weighs the potential benefit of each risk management activity within the desired parameters of liquidity, capital levels and management’s tolerance for exposure to income fluctuations. Many of the actions undertaken by management utilize fair value analysis and attempt to achieve consistent accounting and economic benefits for financial assets and their related funding sources. We have predominantly focused on managing our interest rate risk by attempting to match the inherent risk and cash flows of financial assets and liabilities. Specifically, management employs multiple risk management activities such as optimizing the level of new residential mortgage originations retained in our mortgage portfolio through increasing or decreasing loan sales in the secondary market, product pricing levels, the desired maturity levels for new originations, the composition levels of both our interest earning assets and interest bearing liabilities, as well as several other risk management activities.
We use a simulation model to analyze net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on various interest rate scenarios over a 12-month and 24-month period. 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, 2022. 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
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forecasted shape of the yield curve remains static as of June 30, 2022. 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, 2022. Although the size of Valley’s balance sheet is forecasted to remain static as of June 30, 2022 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 2022. The model also utilizes an immediate parallel shift in market interest rates at June 30, 2022.
The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the table below due to the frequency and timing of changes in interest rates and changes in spreads between maturity and re-pricing categories. Overall, our net interest income is affected by changes in interest rates and cash flows from our loan and investment portfolios. We actively manage these cash flows in conjunction with our liability mix, duration and interest rates to optimize the net interest income, while structuring the balance sheet in response to actual or potential changes in interest rates. Additionally, our net interest income is impacted by the level of competition within our marketplace. 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.
Convexity is a measure of how the duration of a financial instrument changes as market interest rates change. Potential movements in the convexity of bonds held in our investment portfolio, as well as the duration of the loan portfolio may have a positive or negative impact on our net interest income in varying interest rate environments. As a result, the increase or decrease in forecasted net interest income may not have a linear relationship to the results reflected in the table below. Management cannot provide any assurance about the actual effect of changes in interest rates on our net interest income.
The following table reflects management’s expectations of the change in our net interest income over the next 12- month period considering the aforementioned assumptions. While an instantaneous and severe shift in interest rates was used in this simulation model, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact than shown in the table below.
 Estimated Change in
Future Net Interest Income
Changes in Interest RatesDollar
Change		Percentage
Change
(in basis points)($ in thousands)
+200$148,467 8.38 %
+10082,263 4.64 
–100(82,438)(4.65)
–200(144,574)(8.16)
As noted in the table above, a 100 basis point immediate increase in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to increase net interest income over the next 12 month period by 4.64 percent. Management believes the interest rate sensitivity remains within an acceptable tolerance range at June 30, 2022. 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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Liquidity and Cash Requirements

Bank Liquidity
Liquidity measures the ability to satisfy current and future cash flow needs as they become due. A bank’s liquidity reflects its ability to meet loan demand, to accommodate possible outflows in deposits and to take advantage of interest rate opportunities in the marketplace. Liquidity management is carefully performed and routinely reported by our Treasury Department to two board committees. Among other actions, Treasury reviews historical funding requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient liquidity to cover current and potential funding requirements.
The Bank has no required regulatory liquidity ratios to maintain; however, it adheres to an internal liquidity policy. The current policy maintains that we may not have a ratio of loans to deposits in excess of 110 percent or reliance on wholesale funding greater than 25 percent of total funding. The Bank was in compliance with the foregoing policies at June 30, 2022.
Valley's short and long-term cash requirements include contractual obligations under borrowings, deposits, payment related to leases, capital expenditures and other purchase commitments. In the ordinary course of operations, the Bank also enters into various financial obligations, including contractual obligations that may require future cash payments. Management believes the Bank has the ability to generate and obtain adequate amounts of cash to meet its short-term and long-term obligations as they come due by utilizing various cash resources described below.
On the asset side of the balance sheet, the Bank has numerous sources of liquid funds in the form of cash and due from banks, interest bearing deposits with banks (including the Federal Reserve Bank of New York), investment securities held to maturity 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), investment securities classified as trading and available for sale, loans held for sale, and from time to time, federal funds sold and receivables related to unsettled securities transactions. Total liquid assets were approximately $3.0 billion, representing 6.0 percent of earning assets at June 30, 2022 and $3.5 billion, representing 8.7 percent of earning assets at December 31, 2021. Of the $3.0 billion of liquid assets at June 30, 2022, approximately $446.4 million of various investment securities were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of approximately $1.6 billion in principal payments from securities in the total investment portfolio at June 30, 2022 over the next 12 month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.
Additional liquidity is derived from scheduled loan payments of principal and interest, as well as prepayments received. Loan principal payments from total loans and loans held for sale at June 30, 2022 are projected in accordance with their scheduled contractual terms to be approximately $12.4 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 curtailment of lending activities.
On the liability side of the balance sheet, we utilize multiple sources of funds to meet liquidity needs, including retail and commercial deposits, brokered and municipal deposits, and short-term and long-term borrowings. Our core deposit base, which generally excludes fully insured brokered deposits and both retail and brokered certificates of deposit over $250 thousand, represents the largest of these sources. Average core deposits totaled approximately $36.8 billion and $29.4 billion for the six months ended June 30, 2022 and for the year ended December 31, 2021, respectively, representing 82.5 percent and 78.3 percent of average 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 and the need to match the maturities of assets and liabilities.
Additional funding may be provided through deposit gathering networks and in the form of federal funds purchased through our well established relationships with numerous banks. While these lending lines are uncommitted, management believes that the Bank could borrow approximately $1.9 billion from these banks on a collective basis.
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The Bank is also a member of the Federal Home Loan Bank of New York (FHLB) and has the ability to borrow from them in the form of FHLB advances secured by pledges of certain eligible collateral, including but not limited to U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans. Additionally, Valley's collateral pledged to the FHLB may be used to obtain Municipal Letters of Credit (MULOC) to collateralize certain municipal deposits held by Valley. At June 30, 2022, Valley had $1.6 billion of MULOCs outstanding for this purpose. Furthermore, we can obtain overnight borrowings from the Federal Reserve Bank of New York via the discount window as a contingency for additional liquidity. At June 30, 2022, our borrowing capacity under the Federal Reserve Bank's discount window was $2.0 billion.
We also have access to other short-term and long-term borrowing sources to support our asset base, such as repos (i.e., securities sold under agreements to repurchase). Short-term borrowings (consisting of FHLB advances, repos, and from time to time, federal funds purchased) decreased approximately $867.1 million to $1.5 billion at June 30, 2022 as compared to December 31, 2021 largely due to normal repayments of FHLB advances, partially offset by $125 million of federal funds purchased at June 30, 2022.
Corporation Liquidity
Valley’s recurring cash requirements primarily consist of dividends to preferred and common shareholders and interest expense on subordinated notes and junior subordinated debentures issued to capital trusts. As part of our on-going asset/liability management strategies, Valley could also use cash to repurchase shares of its outstanding common stock under its share repurchase program or redeem its callable junior subordinated debentures and subordinated notes. Valley's cash needs are routinely satisfied by dividends collected from the Bank. 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. 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 up to five years, but not beyond the stated maturity dates, and subject to other conditions.
Investment Securities Portfolio

As of June 30, 2022, we had $41.7 million, $1.4 billion, and $3.7 billion in equity, available for sale and held to maturity debt securities, respectively. There were no trading debt securities at June 30, 2022. The equity securities consisted 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 a partnership that invests in such companies. Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities. The available for sale and held to maturity debt securities portfolios, which comprise the majority of the securities we own, include U.S. Treasury securities, U.S. government agency securities, tax-exempt and taxable issuances of states and political subdivisions, residential mortgage-backed securities, single-issuer trust preferred securities principally issued by bank holding companies, and high quality corporate bonds. Among other securities, our available for sale debt securities include securities such as bank issued and other corporate bonds, as well as municipal special revenue bonds, that 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.

We acquired $6.2 million, $505.9 million, and $806.6 million of equity securities, available for sale debt and held to maturity debt securities, respectively, from Bank Leumi USA on April 1, 2022.
Allowance for Credit Losses and Impairment Analysis
Available for sale debt securities. Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. 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.
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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 the fair value is less than 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 available for sale debt securities that are in an unrealized loss position as of June 30, 2022 and December 31, 2021 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. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment charges during the three and six months ended June 30, 2022 and the year ended December 31, 2021, as a result, there was no allowance for credit losses for available for sale debt securities at June 30, 2022 and December 31, 2021.
Held to maturity debt securities. Valley estimates the expected credit losses on held to maturity debt securities that have loss expectations using a discounted cash flow model developed by a third party. Valley has a zero loss expectation for certain securities within the held to maturity portfolio, including U.S. Treasury securities, U.S. agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds. To measure the expected credit losses on held to maturity debt securities that have loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by a third party. Assumptions used in the model for pools of securities with common risk characteristics include the historical lifetime probability of default and severity of loss in the event of default, with the model incorporating several economic cycles of loss history data to calculate expected credit losses given default at the individual security level. Held to maturity debt securities were carried net of an allowance for credit losses totaling approximately $1.5 million and $1.2 million at June 30, 2022 and December 31, 2021, respectively. There were no net charge-offs of held to maturity debt securities for the three and six months ended June 30, 2022 and 2021.
Investment grades. The investment grades in the table below reflect the most current independent analysis performed by third parties of each security as of the date presented and not necessarily the investment grades at the date of our purchase of the securities. For many securities, the rating agencies may not have performed an independent analysis of the tranches owned by us, but rather an analysis of the entire investment pool. 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.

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The following table presents the held to maturity and available for sale debt securities portfolios by investment grades at June 30, 2022:
 June 30, 2022
 Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(in thousands)
Available for sale investment grades: *
AAA Rated$1,153,626 $264 $(78,607)$1,075,283 
AA Rated149,516 14 (24,967)124,563 
A Rated12,041 — (640)11,401 
BBB Rated84,590 108 (4,006)80,692 
Not rated95,162 183 (4,733)90,612 
Total$1,494,935 $569 $(112,953)$1,382,551 
Held to maturity investment grades: *
AAA Rated$3,260,777 $1,871 $(306,324)$2,956,324 
AA Rated256,294 342 (11,623)245,013 
A Rated10,389 25 (125)10,289 
BBB Rated6,000 31 (141)5,890 
Non-investment grade5,537 — (760)4,777 
Not rated180,980 32 (9,590)171,422 
Total$3,719,977 $2,301 $(328,563)$3,393,715 
Allowance for credit losses1,508 — — — 
Total, net of allowance for credit losses$3,718,469 $2,301 $(328,563)$3,393,715 
*Rated using external rating agencies. Ratings categories include the entire range. For example, “A rated” includes A+, A, and A-. Split rated securities with two ratings are categorized at the higher of the rating levels.
The unrealized losses in the AAA and AA rated categories of both the held to maturity and available for sale debt securities portfolios (in the above table) were mainly related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and were driven by the rising interest rate environment during the second quarter 2022. The investment securities held to maturity portfolio included $181.0 million of investments not rated by the rating agencies with aggregate unrealized losses of $9.6 million at June 30, 2022 mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million.
See Note 7 to the consolidated financial statements for additional information regarding our investment securities portfolio.

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Loan Portfolio

The following table reflects the composition of the loan portfolio as of the dates presented:
June 30,
2022		March 31,
2022		December 31,
2021
 ($ in thousands)
Loans
Commercial and industrial:
Commercial and industrial$8,378,454 $5,587,781 $5,411,601 
Commercial and industrial PPP loans136,004 203,609 435,950 
Total commercial and industrial *8,514,458 5,791,390 5,847,551 
Commercial real estate:
Commercial real estate23,535,086 19,763,202 18,935,486 
Construction3,374,373 2,174,542 1,854,580 
Total commercial real estate26,909,459 21,937,744 20,790,066 
Residential mortgage5,005,069 4,691,935 4,545,064 
Consumer:
Home equity431,455 393,538 400,779 
Automobile1,673,482 1,552,928 1,570,036 
Other consumer1,026,854 996,870 1,000,161 
Total consumer loans3,131,791 2,943,336 2,970,976 
Total loans*
$43,560,777 $35,364,405 $34,153,657 
As a percent of total loans:
Commercial and industrial19.5 %16.4 %17.1 %
Commercial real estate61.8 62.0 60.9 
Residential mortgage11.5 13.3 13.3 
Consumer loans7.2 8.3 8.7 
Total100.0 %100.0 %100.0 %
*     Includes net unearned discount and deferred loan fees of $141.2 million, $62.0 million, and $78.5 million at June 30, 2022, March 31, 2022, and December 31, 2021, respectively. The linked quarter increase was largely due to a $98 million net purchase discount associated with the loans acquired from Bank Leumi USA on April 1, 2022.
Total loans increased $8.2 billion to approximately $43.6 billion at June 30, 2022 from March 31, 2022 largely due to a combination of acquired loans from Bank Leumi USA totaling $5.9 billion and strong organic loan growth. Excluding the Bank Leumi USA acquired loans, non-PPP commercial and industrial, total commercial real estate (including construction) and residential mortgage loans increased 37 percent, 26 percent, and 25 percent, respectively, on an annualized basis during the second quarter 2022.
Commercial and industrial loans increased $2.7 billion to $8.5 billion at June 30, 2022 as compared to March 31, 2022. Excluding $2.4 billion of loan acquired from Bank Leumi USA and PPP loans, the non-commercial and industrial loan organic growth totaled $514.4 million during the second quarter 2022 mainly due to the solid new loan pipeline in most of our markets driven by direct calling efforts of our growing commercial lending team. The PPP loans decreased $67.6 million to $136.0 million at June 30, 2022 compared to $203.6 million at March 31, 2022 mainly due to loan forgiveness (repayments), partially offset by $45.7 million of PPP loans acquired from Bank Leumi USA.
Commercial real estate loans (excluding construction loans) increased $3.8 billion to $23.5 billion at June 30, 2022 from March 31, 2022. Excluding $3.1 billion of loans acquired from Bank Leumi USA, the approximate $700 million increase was driven by solid organic growth across most of our geographic footprints. Construction loans increased $1.2 billion to $3.4 billion at June 30, 2022 from March 31, 2022 due, in part, to approximately $834 million of loans acquired from Bank Leumi USA and higher volume of advances on new, and to a lesser extent, pre-existing loan projects during the second quarter 2022.
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Residential mortgage loans increased $313.1 million, or 26.7 percent on an annualized basis, during the second quarter 2022 primarily due to new loan activity in the purchased home market and an increase in such loans originated for investment rather than sale. Residential mortgage loans acquired from Bank Leumi USA were not material. New and refinanced residential mortgage loans totaled $540.7 million for the second quarter 2022 as compared to $552.6 million and $753.2 million for the first quarter 2022 and second quarter 2021, respectively. Florida originations totaled approximately $154.9 million and represented 28.7 percent of total residential mortgage loan originations in the quarter. Of the total originations in the second quarter 2022, only $61.9 million of residential mortgage loans were originated for sale rather than held for investment as compared to $144.5 million during the first quarter 2022. During the second quarter 2022, we retained approximately 89 percent of the total residential mortgages originations in our held for investment loan portfolio. We sold approximately $125.0 million of residential mortgage loans held for sale during the second quarter 2022. We may continue to retain a higher percentage of new loan volumes during the third quarter 2022 due to several factors, including consumer demand and preferences for certain mortgage products and our management of the interest rate risk and the mix of the interest earning assets on our balance sheet. Additionally, refinanced loan applications continue to be a low percentage of our volume in the early stages of the third quarter 2022 due to the increase in the level of mortgage interest rates and may challenge our ability to grow this loan category.
Home equity loans increased by $37.9 million to $431.5 million at June 30, 2022 compared to March 31, 2022. New home equity loan volumes and customer usage of existing home equity lines of credit continue to be modest and challenged by a less favorable rising interest rate environment.
Automobile loans increased by $120.6 million, or 31.1 percent on an annualized basis, to $1.7 billion at June 30, 2022 as compared to March 31, 2022 as loan originations volumes outpaced loan repayments during the second quarter 2022. Loan originations were mainly driven by high consumer demand for vehicle purchases and our competitive rates offered for new and used car financing. We originated $278.2 million in auto loans through our dealership network during the second quarter 2022 as compared to $148.1 million in the fourth quarter 2021. Of the total originations, our Florida dealership network contributed $40.6 million in auto loan originations, representing approximately 15 percent of new loans, during the second quarter 2022. The current low levels of new and used automobile inventories and rising interest rates could negatively impact our auto loan growth during the third quarter 2022.
Other consumer loans increased $30.0 million to $1.0 billion at June 30, 2022 from March 31, 2022.
A large part of our lending 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.

For the remainder of 2022, we anticipate strong organic commercial and industrial non-PPP and commercial real estate loan growth. In the early stages of the third quarter 2022, we are encouraged that our commercial loan origination pipelines remain robust and overall loan growth should remain well-diversified across our markets in our commercial loan categories. Based upon current projections, we anticipate 8 to 10 percent annualized loan growth for the second half of 2022. However, there can be no assurance that those positive trends will continue, or balances will not decline from June 30, 2022 given the forecasted slowdown of the U.S. economy growth due to several factors, including the Russia-Ukraine war, persistently high inflation, and the impact of the Federal Reserve's rapid monetary policy tightening. In addition, we anticipate that consumer loan activity will slow meaningfully for the remainder of the year.

Non-performing Assets
Non-performing assets (NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consists of automobiles and taxi medallions) at June 30, 2022. 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
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collection. OREO is acquired through foreclosure on loans secured by land or real estate. OREO and other repossessed assets are reported at the lower of cost or fair value, less estimated cost to sell.
Our NPAs increased $82.1 million to $314.7 million at June 30, 2022 as compared to March 31, 2022 mostly due to $70.5 million of acquired non-accrual loans from Bank Leumi USA. NPAs as a percentage of total loans and NPAs totaled 0.72 percent and 0.65 percent at June 30, 2022 and March 31, 2022, 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 the level of NPAs is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased from third parties. For additional details, see the "Credit quality indicators" section in Note 8 to the consolidated financial statements.
Our lending strategy is based on underwriting standards designed to maintain high credit quality and we remain
optimistic regarding the overall future performance of our loan portfolio. During 2021 and the first half of 2022, our overall credit trends remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the continuing challenges of the COVID-19 pandemic and the uncertain economy. However, management cannot provide assurance that the non-performing assets will not increase substantially from the levels reported at June 30, 2022 due to high inflation, aggressive tightening of the U.S. monetary policy and the resulting potential for credit deterioration.


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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: 
June 30,
2022		March 31,
2022		December 31,
2021
 ($ in thousands)
Accruing past due loans:
30 to 59 days past due:
Commercial and industrial$7,143 $6,723 $6,717 
Commercial real estate10,516 30,807 14,421 
Construction9,108 1,708 1,941 
Residential mortgage12,326 9,266 10,999 
Total consumer6,009 5,862 6,811 
Total 30 to 59 days past due45,102 54,366 40,889 
60 to 89 days past due:
Commercial and industrial3,870 14,461 7,870 
Commercial real estate630 6,314 — 
Construction3,862 3,125 — 
Residential mortgage2,410 2,560 3,314 
Total consumer702 554 1,020 
Total 60 to 89 days past due11,474 27,014 12,204 
90 or more days past due:
Commercial and industrial15,470 9,261 1,273 
Commercial real estate— — 32 
Residential mortgage1,188 1,746 677 
Total consumer267 400 789 
Total 90 or more days past due16,925 11,407 2,771 
Total accruing past due loans$73,501 $92,787 $55,864 
Non-accrual loans:
Commercial and industrial$148,404 $96,631 $99,918 
Commercial real estate85,807 79,180 83,592 
Construction49,780 17,618 17,641 
Residential mortgage25,847 33,275 35,207 
Total consumer3,279 3,754 3,858 
Total non-accrual loans313,117 230,458 240,216 
Other real estate owned (OREO)422 1,024 2,259 
Other repossessed assets1,200 1,176 2,931 
Total non-performing assets (NPAs)$314,739 $232,658 $245,406 
Performing troubled debt restructured loans
$67,274 $56,538 $71,330 
Total non-accrual loans as a % of loans0.72 %0.65 %0.70 %
Total NPAs as a % of loans and NPAs0.72 0.65 0.71 
Total accruing past due and non-accrual loans as a % of loans
0.89 0.91 0.87 
Allowance for loan losses as a % of non-accrual loans
149.73 157.30 149.53 
Loans past due 30 to 59 days decreased $9.3 million to $45.1 million at June 30, 2022 as compared to March 31, 2022. Commercial real estate loans past due 30 to 59 days decreased $20.3 million to $10.5 million at June 30, 2022 as compared to March 31, 2022 due, in part, to a $13.2 million loan included in this delinquency category at March 31, 2022 that moved to non-accrual loans as of June 30, 2022. The decrease in commercial real estate loans was partially offset by higher construction loan delinquencies mostly due to one loan acquired from Bank Leumi USA included in this category at June 30, 2022.
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Loans past due 60 to 89 days decreased $15.5 million to $11.5 million at June 30, 2022 as compared to March 31, 2022. Commercial and industrial within this delinquency category decreased $10.6 million largely due to the migration of loans totaling $8.8 million to the 90 days or more past due category at June 30, 2022. Commercial real estate loans delinquencies decreased $5.7 million at June 30, 2022 mainly due to a $6.0 million loan included in this delinquency category at March 31, 2022 that became current as to all contractual payments at June 30, 2022.
Loans past due 90 days or more and still accruing interest increased $5.5 million to $16.9 million at June 30, 2022 as compared to March 31, 2022. The increase was mainly driven by the aforementioned migration of commercial and industrial loans totaling $8.8 million from the 60 to 89 days past due category at June 30, 2022. All of the loans past due 90 days or more and still accruing interest reported at June 30, 2022 are considered to be well-secured and in the process of collection.
Non-accrual loans increased $82.7 million to $313.1 million at June 30, 2022 as compared to $230.5 million at March 31, 2022. Commercial and industrial loans increased $51.8 million mainly due to a $43 million borrower relationship with related reserves of $22.0 million within the allowance for loan losses at June 30, 2022. Construction loan delinquencies increased $32.2 million mainly due to two loan relationships acquired from Bank Leumi USA. The $6.6 million increase in non-accrual commercial real estate loans was mainly due to the aforementioned $13.2 million non-performing loan at June 30, 2022 that was previously reported in the 30 to 59 days past due delinquency category at March 31, 2022.
Non-accrual commercial and industrial loans totaled $148.4 million at June 30, 2022 and included non-performing taxi medallion loans totaling $80.4 million. At June 30, 2022, the taxi medallion loans (mostly collateralized by New York City medallions) had related reserves of $55.3 million, or 68.8 percent of such loans. The tax medallion loans and related reserves remained relatively unchanged from March 31, 2022. Potential declines in the market valuation of taxi medallions and the stressed operating environment mainly within New York City due to the COVID-19 pandemic could negatively impact the future performance of this portfolio. For example, a 25 percent decline in our current estimated market value of the taxi medallions would require additional allocated reserves of $5.5 million within the allowance for loan losses based upon the taxi medallion loan balances at June 30, 2022. See the "Allowance for Credit Losses" section below for further details on our reserves.
OREO properties totaled $422 thousand at June 30, 2022 and declined $602 thousand as compared to March 31, 2022. Net gains from sales of OREO totaled $309 thousand and $623 thousand for the three and six months ended June 30, 2022 respectively. Net gains and losses from sales of OREO totaled $300 thousand and $335 thousand, respectively, for the three and six months ended June 30, 2021. The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $2.0 million and $2.5 million at June 30, 2022 and December 31, 2021, respectively.

TDRs represent loan modifications for customers experiencing financial difficulties where a concession has been granted. Performing TDRs (i.e., TDRs not reported as loans 90 days or more past due and still accruing interest or as non-accrual loans) totaled $67.3 million at June 30, 2022 as compared to $56.5 million at March 31, 2022. Performing TDRs consisted of 93 loans at June 30, 2022. On an aggregate basis, the $67.3 million in performing TDRs at June 30, 2022 had a modified weighted average interest rate of approximately 4.58 percent as compared to a pre-modification weighted average interest rate of 4.21 percent.
Allowance for Credit Losses for Loans
The allowance for credit losses (ACL) for loans includes the allowance for loan losses and the reserve for unfunded credit commitments. Under CECL, our methodology to establish the allowance for loan losses has two basic components: (i) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (ii) an individual reserve component for loans that do not share risk characteristics, consisting of collateral dependent, TDR, and expected TDR loans. Valley also maintains a separate allowance for unfunded credit commitments mainly consisting of undisbursed non-cancellable lines of credit, new loan commitments and commercial standby letters of credit.
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Valley estimated the collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. In estimating the component of the allowance on a collective basis we use a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by generating probability of default and loss given default metrics. The metrics are based on the migration of loans from performing to loss by credit quality rating or delinquency categories using historical life-of-loan analysis periods for each loan portfolio pool and the severity of loss based on the aggregate net lifetime losses. The model's expected losses based on loss history are adjusted for qualitative factors. Among other things, these adjustments include and account for differences in: (i) the impact of the reasonable and supportable economic forecast, relative probability weightings and reversion period, (ii) other asset specific risks to the extent they do not exist in the historical loss information, and (iii) net expected recoveries of charged-off loan balances. 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. 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. The forecasts consist of a multi-scenario economic forecast model to estimate future credit losses and is governed by a cross-functional committee. The committee meets each quarter to determine which economic scenarios developed by Moody's will be incorporated into the model, as well as the relative probability weightings of the selected scenarios, based upon all readily available information. The model projects economic variables under each scenario based on detailed statistical analyses. 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.
For the second quarter 2022, we incorporated a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and S-4 scenarios. At June 30, 2022, Valley maintained the majority of its probability weighting to the Moody’s Baseline scenario with less emphasis on the S-3 downside and S-4 (most adverse) scenarios relatively consistent with its weighting in the March 31, 2022 ACL analysis. However, the Baseline forecast and weighting at June 30, 2022 reflects a less optimistic outlook than at March 31, 2022 in terms of GDP growth and unemployment levels and potential near term negative economic impacts, given present uncertain economic conditions.
At June 30, 2022, the Moody's Baseline forecast included the following specific assumptions:
•GDP expansion by about 3.6 percent in the third quarter 2022;
•Unemployment of 3.4 percent in the third quarter 2022 and 3.4 to 3.6 percent over the remainder of the forecast period ending in the first quarter 2024; and
•U.S. economic growth continues in 2022 as the impact of COVID-19 wanes and consumer spending increases on entertainment and travel.
See more details regarding our allowance for credit losses for loans in Note 8 to the consolidated financial statements.

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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 EndedSix Months Ended
June 30,
2022		March 31,
2022		June 30,
2021		June 30,
2022		June 30,
2021
 ($ in thousands)
Average loans outstanding$42,517,287$34,623,402$32,635,298$38,592,151$32,609,034
Allowance for credit losses for loans
Beginning balance$379,252$375,702$354,313$375,702$351,354
Allowance for purchased credit deteriorated (PCD) loans (1)
70,319——70,319—
Loans charged-off:
Commercial and industrial(4,540)(1,571)(10,893)(6,111)(18,035)
Commercial real estate—(173)—(173)(382)
Residential mortgage(1)(26)(1)(27)(139)
Total consumer(726)(825)(1,480)(1,551)(2,618)
Total charge-offs(5,267)(2,595)(12,374)(7,862)(21,174)
Charged-off loans recovered:
Commercial and industrial1,9528246782,7762,267
Commercial real estate224107665331730
Construction————4
Residential mortgage74457191531348
Total consumer6971,2571,4741,9542,404
Total recoveries2,9472,6453,0085,5925,753
Net loan (charge-offs) recoveries (2,320)50(9,366)(2,270)(15,421)
Provision charged for credit losses43,7123,5008,77747,21217,791
Ending balance$490,963$379,252$353,724$490,963$353,724
Components of allowance for credit losses for loans:
Allowance for loan losses$468,819$362,510$339,324$468,819$339,324
Allowance for unfunded credit commitments22,14416,74214,40022,14414,400
Allowance for credit losses for loans$490,963$379,252$353,724$490,963$353,724
Components of provision for credit losses for loans:
Provision for credit losses for loans (2)
$38,310$3,258$5,810$41,568$14,502
Provision for unfunded credit commitments (2)
5,4022422,9675,6443,289
Total provision for credit losses for loans$43,712$3,500$8,777$47,212$17,791
Annualized ratio of net charge-offs (recoveries) to average loans outstanding0.02 %0.00 %0.11 %0.01 %0.09 %
(1)    Represents the allowance for acquired PCD loans, net of PCD loan charge-offs totaling $62.4 million in the second quarter 2022.
(2)    Includes $36.3 million and $4.7 million of provision related to non-PCD loans and unfunded credit commitments, respectively, acquired from Bank Leumi USA in the second quarter 2022.
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The following table presents the relationship among net loans charged-off and recoveries, and average loan balances outstanding for the indicated:
 Three Months EndedSix Months Ended
 June 30, 2022March 31, 2022June 30, 2021June 30, 2022June 30, 2021
 ($ in thousands)
Net loan (charge-offs) recoveries
Commercial and industrial$(2,588)$(747)$(10,215)$(3,335)$(15,768)
Commercial real estate224(66)665158348
Construction————4
Residential mortgage73431190504209
Total consumer(29)432(6)403(214)
Total $(2,320)$50$(9,366)$(2,270)$(15,421)
Average loans outstanding
Commercial and industrial$8,304,822$5,727,350$6,899,503$7,017,820$6,895,469
Commercial real estate23,319,41919,342,69716,831,25921,303,88916,872,338
Construction2,925,7411,914,4131,754,3992,421,6781,741,254
Residential mortgage4,727,4814,681,4174,292,0524,706,6954,363,650
Total consumer3,239,8242,957,5252,858,0853,142,0692,736,323
Total$42,517,287$34,623,402$32,635,298$38,592,151$32,609,034
Net loan charge-offs (recoveries) to average loans outstanding
Commercial and industrial0.03%0.01%0.15%0.05%0.23%
Commercial real estate0.000.000.000.000.00
Construction0.000.000.000.000.00
Residential mortgage0.00(0.01)0.00(0.01)0.00
Total consumer0.00(0.01)0.00(0.01)0.01
Net loan charge-offs totaled $2.3 million (excluding $62.4 million of Day 1 PCD loan charge-offs related to the Bank Leumi USA acquisition) for the second quarter 2022 as compared to net recoveries of $50 thousand for the first quarter 2022 and net loan charge-offs of $9.4 million for the second quarter 2021. Gross partial loan charge-offs of taxi medallion loans totaled $2.7 million within the commercial and industrial loan category for the second quarter 2022 as compared to $1.4 million and $206 thousand during the second quarter 2021 and first quarter 2022, respectively. The overall level of loan charge-offs (as presented in the above table) continued to remain very low and trend well within management's expectations for the credit quality of the loan portfolio for the second quarter 2022.


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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, 2022March 31, 2022June 30, 2021
 Allowance
Allocation		Allocation
as a % of
Loan
Category		Allowance
Allocation		Allocation
as a % of
Loan
Category		Allowance
Allocation		Allocation
as a % of
Loan
Category
 ($ in thousands)
Loan Category:
Commercial and industrial loans$144,539 1.70 %$101,203 1.75 %$109,689 1.80 %
Commercial real estate loans:
Commercial real estate227,457 0.97 189,927 0.96 168,220 0.96 
Construction49,770 1.47 30,022 1.38 20,919 1.19 
Total commercial real estate loans277,227 1.03 219,949 1.00 189,139 0.98 
Residential mortgage loans29,889 0.60 28,189 0.60 25,303 0.60 
Consumer loans:
Home equity3,907 0.91 3,656 0.93 4,602 1.12 
Auto and other consumer13,257 0.49 9,513 0.37 10,591 0.43 
Total consumer loans17,164 0.55 13,169 0.45 15,193 0.53 
Allowance for loan losses468,819 1.08 362,510 1.03 339,324 1.05 
Allowance for unfunded credit commitments
22,144 16,742 14,400 
Total allowance for credit losses for loans
$490,963 $379,252 $353,724 
Allowance for credit losses for loans as a % total loans1.13 %1.07 %1.09 %
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 1.13 percent at June 30, 2022 as compared to 1.07 percent and 1.09 percent at March 31, 2022 and June 30, 2021, respectively. The allowance for credit losses at June 30, 2022 was impacted by (i) the total provision for credit losses for loans during the second quarter 2022, (ii) a net $70.3 million allowance for credit losses for PCD loans acquired from Bank Leumi USA recorded at the acquisition date, and (iii) the net loan charge-offs during the second quarter 2022.
During the second quarter 2022, the provision for credit losses for loans totaled $43.7 million as compared to $3.5 million and $8.8 million for the first quarter 2022 and second quarter 2021, respectively. The increase in the second quarter 2022 provision as compared to the first quarter 2022 was primarily due to $36.3 million and $4.7 million of provision related to non-PCD loans and unfunded credit commitments, respectively, acquired from Bank Leumi USA. Overall, an increased economic forecast reserve component of our CECL model was largely offset by lower expected quantitative loss experience at June 30, 2022 as compared to March 31, 2022.
Capital Adequacy
A significant measure of the strength of a financial institution is its shareholders’ equity. At June 30, 2022 and December 31, 2021, shareholders’ equity totaled approximately $6.2 billion and $5.1 billion, which represented 11.4 percent and 11.7 percent of total assets, respectively. During the six months ended June 30, 2022, total shareholders’ equity increased by $1.1 billion primarily due to:
•additional capital of $1.1 billion issued in the Bank Leumi USA acquisition,
•net income of $213.1 million,
•a $3.2 million increase attributable to the effect of our stock incentive plan, partially offset by
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•cash dividends declared on common and preferred stock totaling a combined $109.4 million,
•an other comprehensive loss of $90.4 million, and
•repurchases of $13.5 million of our common stock with these shares held as treasury stock.
Valley and Valley National Bank are subject to the regulatory capital requirements administered by the Federal Reserve Bank and the OCC. Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations.
We are required to maintain common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, Tier 1 capital to risk-weighted assets ratio of 6.0 percent, ratio of total capital to risk-weighted assets of 8.0 percent, and 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, 2022 and December 31, 2021, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).
For regulatory capital purposes, in accordance with the Federal Reserve Board’s final interim rule as of April 3, 2020, we deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e. provision for credit losses less net charge-offs) for a two-year period ending January 1, 2022. Starting January 1, 2022, the deferral amount totaling $47.3 million after-tax will be phased-in 25 percent per year until fully phased-in on January 1, 2025. As of June 30, 2022, approximately $11.8 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk based capital ratios by approximately 3 basis points.

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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, 2022 and December 31, 2021:
 ActualMinimum Capital
Requirements		To Be Well Capitalized
Under Prompt Corrective
Action Provision
 AmountRatioAmountRatioAmountRatio
 
 ($ in thousands)
As of June 30, 2022
Total Risk-based Capital
Valley$5,146,322 11.53 %$4,686,340 10.50 %N/AN/A
Valley National Bank5,326,861 11.94 4,684,699 10.50 $4,461,618 10.00 %
Common Equity Tier 1 Capital
Valley4,043,465 9.06 3,124,227 7.00 N/AN/A
Valley National Bank4,977,845 11.16 3,123,133 7.00 2,900,052 6.50 
Tier 1 Risk-based Capital
Valley4,258,306 9.54 3,793,704 8.50 N/AN/A
Valley National Bank4,977,845 11.16 3,792,375 8.50 3,569,294 8.00 
Tier 1 Leverage Capital
Valley4,258,306 8.33 2,045,320 4.00 N/AN/A
Valley National Bank4,977,845 9.74 2,044,412 4.00 2,555,515 5.00 
As of December 31, 2021
Total Risk-based Capital
Valley$4,454,485 13.10 %$3,569,144 10.50 %N/AN/A
Valley National Bank4,571,448 13.45 3,567,618 10.50 $3,397,732 10.00 %
Common Equity Tier 1 Capital
Valley3,417,930 10.06 2,379,429 7.00 N/AN/A
Valley National Bank4,308,734 12.68 2,378,412 7.00 2,208,526 6.50 
Tier 1 Risk-based Capital
Valley3,632,771 10.69 2,889,307 8.50 N/AN/A
Valley National Bank4,308,734 12.68 2,888,072 8.50 2,718,185 8.00 
Tier 1 Leverage Capital
Valley3,632,771 8.88 1,635,508 4.00 N/AN/A
Valley National Bank4,307,734 10.53 1,636,097 4.00 2,045,121 5.00 
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 50.0 percent for the six months ended June 30, 2022 as compared to 60.7 percent for the year ended December 31, 2021.
Cash dividends declared amounted to $0.22 per common share for each of the six months ended June 30, 2022 and 2021. 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.
Off-Balance Sheet Arrangements, Contractual Obligations and Other Matters
For a discussion of Valley’s off-balance sheet arrangements and contractual obligations see information included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021 in the MD&A section - “Liquidity and Cash Requirements” and Notes 11 and 12 to the consolidated financial statements included in this report.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, and commodity prices. Valley’s market risk is composed primarily of interest rate risk. See page 56 for a discussion of interest rate sensitivity.

Item 4.Controls and Procedures
(a) Disclosure controls and procedures. Valley maintains disclosure controls and procedures which, consistent with Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), are defined to mean controls and other procedures that are designed to ensure that information required to be disclosed in the reports that Valley files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that such information is accumulated and communicated to Valley’s management, including Valley’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure.
Valley’s CEO and CFO, with the assistance of other members of Valley’s management, have evaluated the effectiveness of Valley’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, Valley’s CEO and CFO have concluded that Valley’s disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in internal controls over financial reporting. Valley’s CEO and CFO have also concluded that there have not been any changes in Valley’s internal control over financial reporting in the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, Valley’s internal control over financial reporting.
Valley’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and all fraud. A system of internal control, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the system of internal control are met. The design of a system of internal control reflects resource constraints and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Valley have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of a simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
89



PART II - OTHER INFORMATION 
Item 1.Legal Proceedings
In the normal course of business, we are a party to various outstanding legal proceedings and claims. There have been no material changes in the legal proceedings, if any, previously disclosed under Part I, Item 3 of Valley’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 1A.Risk Factors
There have been no material changes in the risk factors previously disclosed in the section titled "Risk Factors" in Part I, Item 1A of Valley’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter, we did not sell any equity securities not registered under the Securities Act of 1933, as amended. Purchases of equity securities by the issuer and affiliated purchasers during the three months ended June 30, 2022 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES 
PeriodTotal  Number of
Shares  Purchased (1)		Average
Price Paid
Per Share		Total Number of Shares
Purchased as Part of
Publicly Announced
Plans (2) (3)		Maximum Number of
Shares that May Yet Be
Purchased Under the Plans (3)
April 1, 2022 to April 30, 20221,130 $12.60 — 25,000,000 
May 1, 2022 to May 31, 202210,142 11.98 — 25,000,000 
June 1, 2022 to June 30, 20229,031 13.63 — 25,000,000 
Total20,303 $12.75 — 
(1)Includes repurchases made in connection with the vesting of employee restricted stock awards.
(2)On January 17, 2007, Valley publicly announced its intention to repurchase up to 4.7 million outstanding common shares in the open market or in privately negotiated transactions. On April 26, 2022, Valley terminated its 2007 stock repurchase plan.
(3)On April 26, 2022, Valley publicly announced a stock repurchase program for up to 25 million shares of Valley common stock. The authorization to repurchase will expire on April 25, 2024.


Item 5. Other Items
Ronald H. Janis, Senior Executive Vice President and General Counsel of the Company, notified the Company in April 2022 of his intention to retire as of May 1, 2022. Gary G. Michael, who joined the Company in November 2006, most recently serving as the Company’s Deputy General Counsel since January 2017, was appointed as Executive Vice President and General Counsel effective May 1, 2022.
90



Item 6.Exhibits

(3)Articles of Incorporation and By-laws:
(3.1)
(3.2)
(10)Material Contracts:
(10.1)
(31.1)
(31.2)
(32)
(101)Interactive Data File (XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) **
(104)Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Filed herewith.
**Furnished herewith


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  VALLEY NATIONAL BANCORP
  (Registrant)
Date:   /s/ Ira Robbins
August 9, 2022  Ira Robbins
  Chairman of the Board and
  Chief Executive Officer
(Principal Executive Officer)
Date:   /s/ Michael D. Hagedorn
August 9, 2022  Michael D. Hagedorn
  Senior Executive Vice President and
  Chief Financial Officer
(Principal Financial Officer)
91
EXHIBIT 10.1
CONSULTING AGREEMENT

    THIS CONSULTING AGREEMENT (“Agreement”) is entered into as of May 1, 2022 (“Effective Date”) by and between Valley National Bank, a national banking association with its principal place of business at 1455 Valley Road, Wayne, New Jersey 07470 on behalf of itself, its subsidiaries and affiliated companies (hereinafter collectively “Valley”), and ALREM LLC, a New York limited liability company (“Consultant”), (each individually a “Party”, and collectively, the “Parties”) in connection with the agreement of Consultant to provide certain services to Valley as an independent contractor, and Valley's agreement to pay Consultant for those services on the terms hereof.
WHEREAS Avner Mendelson, a Member of Consultant (the “Member”), is currently a director on Valley’s board of directors;
WHEREAS Valley desires to engage Consultant to provide certain Services (as defined below) to Valley; and
WHEREAS Consultant desires to provide the Services to Valley; and
    WHEREAS Consultant acknowledges that all elements of Valley's Confidential Information (as defined below) are valuable, special and unique assets of Valley and need to be protected from improper disclosure, and acknowledges that during Consultant’s relationship with Valley he may be given access to Valley’s Confidential Information; and
    WHEREAS Consultant acknowledges Valley's requirement that Consultant not use or disclose Valley’s Confidential Information at any time for any purpose other than providing Services to Valley.
    NOW THEREFORE, in consideration of the foregoing premises and mutual promises and undertakings herein and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the Parties agree as follows:
1.Services. For the duration of the Term, Consultant agrees to retain and assign the Member to exclusively provide the services to Valley as set out on Schedule A (the “Services”). Consultant shall ensure that the Member complies with the obligations of Consultant under this Agreement, and Consultant shall be responsible for the actions of the Member.
2.Compensation. As compensation for the Services provided, Valley agrees to pay Consultant pursuant to the Compensation Schedule set forth on Schedule B. Valley shall also reimburse Consultant for all reasonable expenses and other costs (including, without limitation, reasonable travel expenses) associated with this Agreement in accordance with Valley’s standard policies and procedures.
3.Term; Termination. This Agreement shall be in full force and effect from the Effective Date until the twelve (12) month anniversary thereof (the “Initial Term”), and shall be automatically renewable for additional twelve (12) month terms (each, an “Extended Term”; together, the Initial Term and all Extended Terms, if any, the “Term”) unless either party notifies the other no later than thirty (30) days prior to the end of the Initial Term or any Extended Term that such party desires to terminate this Agreement.
During the Initial Term, (i) upon thirty (30) days prior written notice Consultant may terminate this Agreement if the Member accepts full time employment with any other employer, and (ii) in the event that Valley reasonably believes that Consultant has engaged in activities which would constitute “Cause” (as such term is defined in Valley’s 2019 Change in Control


Severance Plan) or that Consultant has otherwise materially breached this Agreement, then Valley may terminate this Agreement on five (5) days written notice to Consultant.
At any time during an Extended Term: (i) either party may terminate this Agreement on thirty (30) days written notice to the other party; or (ii) in the event that Valley reasonably believes that Consultant has engaged in activities which would constitute “Cause” (as such term is defined in Valley’s 2019 Change in Control Severance Plan) or that Consultant has otherwise materially breached this Agreement, then Valley may terminate this Agreement on five (5) days written notice to Consultant
Upon any termination of this Agreement, Valley shall have no further financial or other obligation to Consultant, except for payment of fees earned for Services actually performed in accordance with this Agreement up to the date of the notice.
4.Independent Contractor. In furnishing the Services, the relationship of Consultant to Valley is intended to be and will be that of an independent contractor. Nothing in this Agreement is intended to, and nothing shall render Consultant as an agent or partner of Valley, and Consultant shall not hold itself out as such.
As a result of Consultant’s independent contractor status:
i.Neither party shall have any apparent or actual agency authority to bind the other party to any agreement or to incur any expenditure in the name of or for the account of the other party, and neither party shall hold itself out as having such authority;
ii.Valley will report the gross amount of all payments made to Consultant to the Internal Revenue Service on Form 1099-MISC and/or on such other state and local government forms and systems as required for the relevant jurisdictions. Consultant is solely responsible for all governmental assessments as well as income or other taxes which may be due with respect to the Services.
5.Confidential Information. Consultant agrees to be bound by the terms of Valley’s Confidentiality and Non-Disclosure Provisions as set out in Schedule C.
6.Restrictive Covenants. The restrictive covenants set forth in Section 6 of the Non-Competition Agreement between the parties dated September 22, 2021 are hereby affirmed by Consultant and incorporated herein by reference.
7.No Conflict; Duty of Loyalty. Consultant warrants and represents that as of the date of this Agreement, and continuing for the duration of this Agreement, Consultant is not a party to and will not enter into any oral or written contract, understanding or undertaking with any third party that is inconsistent with this Agreement and/or Consultant’s performance hereunder, or that will in any way limit or conflict with Consultant’s ability to fulfill the terms of this Agreement.

Additionally, Consultant acknowledges that Consultant shall become aware of business opportunities pertaining to Valley’s business, and Consultant is under fiduciary obligations of confidentiality and loyalty to Valley with respect to such opportunities. Therefore, Consultant further represents that Consultant shall promptly take all reasonable steps to offer (or cause to be offered) such opportunities to Valley. Such opportunities shall not be offered by the Consultant (or caused by the Consultant to be offered) to any other party. Notwithstanding the foregoing, nothing in this clause shall require the Consultant to disclose, and Consultant shall not disclose,
    2

any business opportunity to Valley if to do so would result in a breach by Consultant of any obligation of confidentiality or of any fiduciary duty owed by Consultant to a third party.
8.Dispute Resolution. Before the commencement of any legal proceedings, the parties shall attempt in good faith to settle by mediation any controversy or claim arising out of or relating to this Agreement or the breach thereof. Mediation shall be conducted before a single mediator unless otherwise mutually agreed. The substantive laws of the State of New Jersey shall be applied to the resolution of the dispute, and the mediator shall be familiar with the applicable laws regarding the type of dispute to be mediated. Mediation shall not be the exclusive remedy of either party, but a party may only institute legal proceedings in a court of competent jurisdiction after such party has attempted to resolve the matter through the use of mediation. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey (without giving effect to its choice of law principles).
9.No Assignment by Consultant. Consultant may not assign its obligations under this Agreement to any other individual or entity without the express, prior written consent of Valley. Any attempt to do so shall be void and constitute a breach of this Agreement by Consultant, and Valley may terminate this Agreement at its discretion on notice to Consultant without any further financial or other obligation of Valley to Consultant.
10.Other Agreements. This Agreement, including all Schedules annexed hereto and made a part hereof by reference, fully expresses the entire understanding of the Parties and supersedes all prior oral or written agreements and understandings between Valley and the Consultant as to the subject hereof. This Agreement may not be modified, changed or altered by any oral promise or statement by whomsoever made, nor shall any written modification of this Agreement be binding on Valley until such modification shall have been approved in writing by a duly authorized officer of Valley.
11.No Waiver. The waiver by Valley of a breach of any of the provisions of this Agreement by the Consultant shall not operate or be construed as a waiver of any subsequent breach by the Consultant.
12.Notices. Any notice required under this Agreement will be considered given one (1) day after such notice is sent via e-mail or if properly addressed and shipped via overnight service.

[Remainder of page intentionally left blank; signature page follows]

    3

    IN WITNESS WHEREOF, each Party has caused this Agreement to be executed as of the Effective Date.
ALREM LLC



By:        
    Avner Mendelson, Member


VALLEY NATIONAL BANK



By:        
    Ira Robbins, CEO


    4

SCHEDULE A
Consulting Services

Assist Valley in executing its tech banking plan, including building future growth strategies;
Assist Valley with development and implementation of VC investment strategy;
Retention of BLUSA clients;
Exploring a renewables/project finance vertical with BLITA;
Provide advice to the CEO in developing Valley’s strategic initiatives; and
Assist Valley with maintaining its relationship with BLITA.

    5

SCHEDULE B
Compensation Schedule

$60,000 per month for the months of May and June, 2022, payable on the 30th day of each month; and
$61,792 for the month of July 2022, payable on July 30, 2022; and
$62,800 per month for each month during the remainder of the Term of the Agreement, payable on the 30th day of each month, commencing with August 2022; and
$120,000 on each July 31, October 31, January 31 and April 30 that this Agreement is in effect and has not been terminated by either party.

    6

SCHEDULE C
Confidentiality and Non-Disclosure Provisions

Consultant acknowledges that to perform the Services, it will be given access to Confidential Information (as defined below), and in performance of the Services, Consultant may develop certain Confidential Information. The purpose of these Confidentiality and Non-Disclosure Provisions (“Provisions”) is to ensure that such Confidential Information is properly protected and used. All Confidential Information is protected by these Provisions regardless of the execution of any other agreements between the Parties.

1. Definition of “Confidential Information”

“Confidential Information” means any information, written, electronic or oral, in whatever form, which Valley possesses that has commercial value or the unauthorized disclosure of which could cause loss or harm to Valley, or which Valley otherwise deems proprietary and/or confidential. This Confidential Information includes but is not limited to the customers, prospects, systems, business plans, financial (including audited and unaudited statements and projections) and non-financial information, products, marketing strategies, manufacturing and information techniques, systems, and processes, and other trade secrets as they may exist from time to time of Valley.
However Confidential Information shall not include:
a.    Information which at disclosure is in the public domain, by publication or otherwise, through no act of Consultant.
b.    Information that can be demonstrated was in Consultant’s lawful possession prior to Valley’s disclosure.
c.    Information which is furnished by Valley to others on a non-confidential basis.

2. Position of Trust/Ownership of Confidential Information

Consultant acknowledges that all elements of Valley’s Confidential Information are valuable, special and unique assets of Valley and need to be protected from improper disclosure. Consultant agrees that the nature of the Services and its business arrangement with Valley is one of trust and confidence with respect to Confidential Information, and that Valley will entrust Confidential Information to Consultant in reliance upon such relationship. Consultant further agrees that Valley is the sole owner of all Confidential Information and that Valley does not give up any of its ownership rights by providing Confidential Information for use by Consultant.

3. Protection of Confidential Information

Consultant will hold and protect all Confidential Information in confidence. Consultant agrees that it will not at any time or in any manner, either directly or indirectly, use or disclose any Confidential Information for its own benefit or for the benefit of others. Consultant agrees not to divulge, or disclose, or communicate in any manner any Confidential Information or the existence of any Confidential Information to any affiliate or third party without the prior consent of Valley or to any others unless they are subject to the same duty of confidentiality as Consultant. These obligations shall continue until the Confidential Information is made public by means other than a disclosure by Consultant.

4. Term of Agreement

Regardless of the date that the Agreement is signed, these Provisions are effective as of the time at which any Confidential Information is disclosed to Consultant. These Provisions will remain in force indefinitely, even after the Agreement terminates.
    7



    8

EXHIBIT 31.1


CERTIFICATION
I, Ira Robbins, certify that:
1.    I have reviewed this Quarterly Report on Form 10-Q of Valley National Bancorp;
 
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)    Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 Date: August 9, 2022
 
/s/ Ira Robbins
Ira Robbins
Chairman of the Board and
Chief Executive Officer

EXHIBIT 31.2


I, Michael D. Hagedorn, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Valley National Bancorp;
2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)    Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


 Date: August 9, 2022
/s/ Michael D. Hagedorn
Michael D. Hagedorn
Senior Executive Vice President and
Chief Financial Officer

EXHIBIT 32


CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Valley National Bancorp (the “Company”) for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Ira Robbins, as Chief Executive Officer of the Company, and Michael D. Hagedorn, as Chief Financial Officer of the Company, each hereby certify, pursuant to 18 U.S.C. (section) 1350, as adopted pursuant to (section) 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Ira Robbins
Ira Robbins
Chairman of the Board and
Chief Executive Officer
August 9, 2022
/s/ Michael D. Hagedorn
Michael D. Hagedorn
Senior Executive Vice President and
Chief Financial Officer
August 9, 2022