VALLEY NATIONAL BANCORP - Quarter Report: 2021 June (Form 10-Q)

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, 2021


☐			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 Jersey

22-2477875

(State or other jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification Number)

One Penn Plaza

New York,

10119

(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 class	Trading Symbols	Name of exchange on which registered
Common Stock, no par value	VLY	The Nasdaq Stock Market LLC
Non-Cumulative Perpetual Preferred Stock, Series A, no par value	VLYPP	The Nasdaq Stock Market LLC
Non-Cumulative Perpetual Preferred Stock, Series B, no par value	VLYPO	The 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 406,608,663 shares were outstanding as of August 6, 2021.

TABLE OF CONTENTS


		Page Number
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition as of June 3 0 , 2021 and December 31, 2020	2
	Consolidated Statements of Income for the Three and Si x Months Ended June 3 0 , 2021 and 2020	3
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020	5
	Consolidated Statements of Changes in Shareholders' Equity for the Three and Six Months Ended June 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2021 and 2020	8
	Notes to Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	81

Item 4.	Controls and Procedures	81

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	82

Item 1A.	Risk Factors	82

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83

Item 6.	Exhibits	84

SIGNATURES		85

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except for share data)


	June 30, 2021		December 31, 2020
Assets	(Unaudited)
Cash and due from banks	$	329,006	$	257,845
Interest bearing deposits with banks	1,515,757		1,071,360
Investment securities:
Equity securities	33,870		29,378
Trading debt securities	21,216		—
Available for sale debt securities	1,075,538		1,339,473
Held to maturity debt securities (net of allowance for credit losses of $1,040 at June 30, 2021 and $1,428 at December 31, 2020)	2,532,772		2,171,583
Total investment securities	3,663,396		3,540,434
Loans held for sale, at fair value	159,256		301,427
Loans	32,457,454		32,217,112
Less: Allowance for loan losses	(339,324)		(340,243)
Net loans	32,118,130		31,876,869
Premises and equipment, net	327,517		319,797
Lease right of use assets	235,165		252,053
Bank owned life insurance	535,283		535,209
Accrued interest receivable	99,068		106,230
Goodwill	1,382,442		1,382,442
Other intangible assets, net	65,523		70,449
Other assets	843,685		971,961
Total Assets	$	41,274,228	$	40,686,076
Liabilities
Deposits:
Non-interest bearing	$	10,528,946	$	9,205,266
Interest bearing:
Savings, NOW and money market	18,358,279		16,015,658
Time	4,307,549		6,714,678
Total deposits	33,194,774		31,935,602
Short-term borrowings	854,378		1,147,958
Long-term borrowings	1,885,690		2,295,665
Junior subordinated debentures issued to capital trusts	56,239		56,065
Lease liabilities	259,075		276,675
Accrued expenses and other liabilities	286,265		381,991
Total Liabilities	36,536,421		36,093,956
Shareholders’ Equity
Preferred stock, no par value; 50,000,000 authorized shares:
Series A (4,600,000 shares issued at June 30, 2021 and December 31, 2020)	111,590		111,590
Series B (4,000,000 shares issued at June 30, 2021 and December 31, 2020)	98,101		98,101
Common stock (no par value, authorized 650,000,000 shares; issued 406,090,983 shares at June 30, 2021 and 403,881,488 shares at December 31, 2020)	142,550		141,746
Surplus	3,658,636		3,637,468
Retained earnings	744,768		611,158
Accumulated other comprehensive loss	(17,735)		(7,718)
Treasury stock, at cost (7,193 common shares at June 30, 2021 and 22,490 common shares at December 31, 2020)	(103)		(225)
Total Shareholders’ Equity	4,737,807		4,592,120
Total Liabilities and Shareholders’ Equity	$	41,274,228	$	40,686,076

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except for share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest Income
Interest and fees on loans	$	315,314	$	321,883	$	628,495	$	654,951
Interest and dividends on investment securities:
Taxable	12,716		19,447		25,882		41,380
Tax-exempt	3,216		3,692		6,572		7,618
Dividends	2,167		3,092		4,038		6,493
Interest on federal funds sold and other short-term investments	235		411		459		1,876
Total interest income	333,648		348,525		665,446		712,318
Interest Expense
Interest on deposits:
Savings, NOW and money market	11,166		16,627		22,291		51,140
Time	6,279		29,857		17,372		72,671
Interest on short-term borrowings	1,168		1,980		2,926		6,687
Interest on long-term borrowings and junior subordinated debentures	14,128		17,502		29,283		33,922
Total interest expense	32,741		65,966		71,872		164,420
Net Interest Income	300,907		282,559		593,574		547,898
(Credit) provision for credit losses for held to maturity securities	(30)		41		(388)		800
Provision for credit losses for loans	8,777		41,115		17,791		75,039
Net Interest Income After Provision for Credit Losses	292,160		241,403		576,171		472,059
Non-Interest Income
Trust and investment services	3,532		2,826		6,861		6,239
Insurance commissions	2,637		1,659		4,195		3,610
Service charges on deposit accounts	5,083		3,557		10,186		9,237
Gains (losses) on securities transactions, net	375		(41)		476		(81)
Fees from loan servicing	3,187		2,227		6,086		4,975
Gains on sales of loans, net	10,061		8,337		13,574		12,887
Gains (losses) on sales of assets, net	232		(299)		36		(178)
Bank owned life insurance	2,475		5,823		4,806		8,965
Other	15,544		20,741		28,139		40,573
Total non-interest income	43,126		44,830		74,359		86,227
Non-Interest Expense
Salary and employee benefits expense	91,095		78,532		179,198		164,260
Net occupancy and equipment expense	32,451		33,217		64,710		65,658
FDIC insurance assessment	3,374		6,135		6,650		10,011
Amortization of other intangible assets	5,449		6,681		11,455		12,151
Professional and legal fees	7,486		7,797		13,758		13,884

Loss on extinguishment of debt	8,406		—		8,406		—
Amortization of tax credit investments	2,972		3,416		5,716		6,644
Telecommunication expense	2,732		2,866		5,892		5,153
Other	17,928		18,522		36,321		35,061
Total non-interest expense	171,893		157,166		332,106		312,822
Income Before Income Taxes	163,393		129,067		318,424		245,464
Income tax expense	42,881		33,466		82,202		62,595
Net Income	120,512		95,601		236,222		182,869
Dividends on preferred stock	3,172		3,172		6,344		6,344
Net Income Available to Common Shareholders	$	117,340	$	92,429	$	229,878	$	176,525

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,
	2021		2020		2021		2020
Earnings Per Common Share:
Basic	$	0.29	$	0.23	$	0.57	$	0.44
Diluted	0.29		0.23		0.56		0.44
Cash Dividends Declared per Common Share	0.11		0.11		0.22		0.22
Weighted Average Number of Common Shares Outstanding:
Basic	405,963,209		403,790,242		405,560,146		403,654,665
Diluted	408,660,778		404,631,845		408,152,458		405,043,183

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	120,512	$	95,601	$	236,222	$	182,869
Other comprehensive income, net of tax:
Unrealized gains and losses on available for sale securities
Net (losses) gains arising during the period	(1,471)		3,013		(11,907)		29,081
Less reclassification adjustment for net losses included in net income	76		31		120		58
Total	(1,395)		3,044		(11,787)		29,139




Unrealized gains and losses on derivatives (cash flow hedges)
Net (losses) gains on derivatives arising during the period	(147)		(1,280)		27		(2,337)
Less reclassification adjustment for net losses (gains) included in net income	534		(308)		1,185		130
Total	387		(1,588)		1,212		(2,207)
Defined benefit pension plan

Amortization of actuarial net loss	278		172		558		344
Total other comprehensive (loss) income	(730)		1,628		(10,017)		27,276
Total comprehensive income	$	119,782	$	97,229	$	226,205	$	210,145

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

For the Six Months Ended June 30, 2021


			Common Stock							Accumulated
	Preferred Stock		Shares	Amount		Surplus		Retained 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, 2021	209,691		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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (continued)

For the Six Months Ended June 30, 2020


			Common Stock							Accumulated
	Preferred Stock		Shares	Amount		Surplus		Retained Earnings		Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	(in thousands)
Balance - December 31, 2019	$	209,691	403,278	$	141,423	$	3,622,208	$	443,559	$	(32,214)	$	(479)	$	4,384,188
Adjustment due to the adoption of ASU No. 2016-13	—		—	—		—		(28,187)		—		—		(28,187)
Balance - January 1, 2020	209,691		403,278	141,423		3,622,208		415,372		(32,214)		(479)		4,356,001
Net income	—		—	—		—		87,268		—		—		87,268
Other comprehensive income, net of tax	—		—	—		—		—		25,648		—		25,648
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	—		—	—		—		(44,979)		—		—		(44,979)
Effect of stock incentive plan, net	—		466	190		1,828		(2,065)		—		279		232

Balance - March 31, 2020	209,691		403,744	141,613		3,624,036		452,424		(6,566)		(200)		4,420,998
Net income	—		—	—		—		95,601		—		—		95,601
Other comprehensive income, net of tax	—		—	—		—		—		1,628		—		1,628
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	—		—	—		—		(44,750)		—		—		(44,750)
Effect of stock incentive plan, net	—		52	54		4,756		(592)		—		(35)		4,183

Balance - June 30, 2020	$	209,691	403,796	$	141,667	$	3,628,792	$	499,511	$	(4,938)	$	(235)	$	4,474,488

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income	$	236,222	$	182,869
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	27,681		29,608
Stock-based compensation	10,690		8,199
Provision for credit losses	17,403		75,839
Net amortization of premiums and accretion of discounts on securities and borrowings	14,112		15,305
Amortization of other intangible assets	11,455		12,151
(Gains) losses on securities transactions, net	(476)		81
Proceeds from sales of loans held for sale	690,844		408,785
Gains on sales of loans, net	(13,574)		(12,887)
Originations of loans held for sale	(541,627)		(443,684)
(Gains) losses on sales of assets, net	(36)		178
Loss on extinguishment of debt	8,406		—
Net change in:
Trading debt securities	(21,216)		—
Cash surrender value of bank owned life insurance	(4,806)		(8,965)
Accrued interest receivable	7,162		(17,170)
Other assets	131,345		(426,776)
Accrued expenses and other liabilities	(119,331)		166,490
Net cash provided by (used in) operating activities	454,254		(9,977)
Cash flows from investing activities:
Net loan originations and purchases	(264,512)		(2,568,893)
Equity securities:
Purchases	(2,482)		(5,365)
Sales	649		—
Held to maturity debt securities:
Purchases	(744,868)		(107,136)

Maturities, calls and principal repayments	372,397		301,004
Available for sale debt securities:
Purchases	(87,366)		(302,071)
Sales	41,134		—
Maturities, calls and principal repayments	287,901		213,348
Death benefit proceeds from bank owned life insurance	3,850		13,751
Proceeds from sales of real estate property and equipment	2,747		8,202
Proceeds from sales of loans held for investment	4,498		30,020
Purchases of real estate property and equipment	(12,207)		(14,469)

Net cash used in investing activities	(398,259)		(2,431,609)


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

	Six Months Ended June 30,
	2021		2020
Cash flows from financing activities:
Net change in deposits	$	1,259,172	$	2,151,400
Net change in short-term borrowings	(293,580)		989,600
Proceeds from issuance of long-term borrowings, net	295,934		838,388
Repayments of long-term borrowings	(710,595)		(53,418)

Cash dividends paid to preferred shareholders	(6,344)		(6,344)
Cash dividends paid to common shareholders	(90,201)		(89,122)
Purchase of common shares to treasury	(684)		(4,924)
Common stock issued, net	6,194		1,140
Other, net	(333)		(264)
Net cash provided by financing activities	459,563		3,826,456
Net change in cash and cash equivalents	515,558		1,384,870
Cash and cash equivalents at beginning of year	1,329,205		434,687
Cash and cash equivalents at end of period	$	1,844,763	$	1,819,557

Supplemental disclosures of cash flow information:
Cash payments for:
Interest on deposits and borrowings	$	82,596	$	178,337
Federal and state income taxes	117,562		14,731
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned	$	141	$	2,750
Transfer of loans to loans held for sale	—		30,020
Lease right of use assets obtained in exchange for operating lease liabilities	1,993		6,407

See accompanying notes to consolidated financial statements.

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.

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, 2021 and for all periods presented have been made. The results of operations for the three and six months ended on June 30, 2021 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, 2020.

Correction of an Immaterial Error. Valley's previously reported consolidated statement of cash flows for the six months ended June 30, 2020 was revised to reflect an adjustment for an intercompany account that was not properly eliminated in consolidation. The adjustment resulted in a $90.8 million decrease in “Net change in deposits” line item to a net increase of $2.2 billion. The corresponding decrease in the “Net change in cash and cash equivalents” line item resulted in a change from a net increase of $1.5 billion to a net increase of $1.4 billion. The effect of these revisions was immaterial to the interim period.

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.

The Westchester Bank Holding Corporation. On June 29, 2021, Valley announced that it will acquire The Westchester Bank Holding Corporation (“Westchester”) and its principal subsidiary, The Westchester Bank which is headquartered in White Plains, New York. Westchester has approximately $1.3 billion in assets, $908 million in loans, $1.1 billion in deposits, and maintains a seven branch network in Westchester County, New York. The common shareholders of Westchester will receive 229.645 shares of Valley common stock for each Westchester share they own. Based on Valley’s closing stock price on June 28, 2021, Westchester’s stockholders will receive approximately $210 million in Valley common stock. Existing Westchester options will be cashed out for approximately $10 million in cash.The acquisition is expected to close in the fourth quarter 2021, subject to standard regulatory approvals, approval of Westchester stockholders, as well as other customary conditions.

Note 2. Earnings Per Common Share

The following table shows the calculation of both basic and diluted earnings per common share for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands, except for share data)
Net income available to common shareholders	$	117,340	$	92,429	$	229,878	$	176,525
Basic weighted average number of common shares outstanding	405,963,209		403,790,242		405,560,146		403,654,665
Plus: Common stock equivalents	2,697,569		841,603		2,592,312		1,388,518
Diluted weighted average number of common shares outstanding	408,660,778		404,631,845		408,152,458		405,043,183
Earnings per common share:
Basic	$	0.29	$	0.23	$	0.57	$	0.44
Diluted	0.29		0.23		0.56		0.44

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, 2021, respectively, as compared to 2.7 million and 2.3 million shares for the three and six months ended June 30, 2020, respectively.

Note 3. 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, 2021:


	Components of Accumulated Other Comprehensive Loss						Total 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, 2021	$	22,898	$	(3,081)	$	(36,822)	$	(17,005)
Other comprehensive loss before reclassification	(1,471)		(147)		—		(1,618)
Amounts reclassified from other comprehensive income	76		534		278		888
Other comprehensive (loss) income, net	(1,395)		387		278		(730)
Balance at June 30, 2021	$	21,503	$	(2,694)	$	(36,544)	$	(17,735)


	Components of Accumulated Other Comprehensive Loss						Total 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, 2020	$	33,290	$	(3,906)	$	(37,102)	$	(7,718)
Other comprehensive (loss) income before reclassification	(11,907)		27		—		(11,880)
Amounts reclassified from other comprehensive income	120		1,185		558		1,863
Other comprehensive (loss) income, net	(11,787)		1,212		558		(10,017)
Balance at June 30, 2021	$	21,503	$	(2,694)	$	(36,544)	$	(17,735)

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, 2021 and 2020:


	Amounts Reclassified from Accumulated Other Comprehensive Loss
	Three Months Ended June 30,				Six Months Ended June 30,
Components of Accumulated Other Comprehensive Loss	2021		2020		2021		2020		Income Statement Line Item
	(in thousands)
Unrealized losses on AFS securities before tax	$	(103)	$	(41)	$	(162)	$	(81)	Gains (losses) on securities transactions, net
Tax effect	27		10		42		23
Total net of tax	(76)		(31)		(120)		(58)




Unrealized (losses) gains on derivatives (cash flow hedges) before tax	(749)		438		(1,664)		(177)		Interest expense
Tax effect	215		(130)		479		47
Total net of tax	(534)		308		(1,185)		(130)
Defined benefit pension plan:
Amortization of actuarial net loss	(387)		(229)		(775)		(465)		*

Tax effect	109		57		217		121
Total net of tax	(278)		(172)		(558)		(344)
Total reclassifications, net of tax	$	(888)	$	105	$	(1,863)	$	(532)


*			Amortization of actuarial net loss is included in the computation of net periodic pension cost recognized within other non-interest expense.

Note 4. New Authoritative Accounting Guidance

New Accounting Guidance Adopted in 2021

Accounting Standards Update (ASU) No. 2020-08, "Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs" provides clarification and affects the guidance previously issued by ASU No. 2017-08 “Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” ASU No. 2020-08 clarifies that an entity should reevaluate whether a debt security with multiple call dates is within the scope of paragraph 310-20-35-33. For each reporting period, to the extent that the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the premium should be amortized to the next call date, unless the guidance to consider estimated prepayments is applied. Valley adopted ASU No. 2020-08 on January 1, 2021 and the new guidance did not have a significant impact on Valley’s consolidated financial statements.

New Accounting Guidance issued in 2021

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. The 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". The ASU No. 2021-05 updates guidance in Accounting Standards Codification (ASC) 842, Leases and requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease at lease commencement if: (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. ASU No. 2021-05 is effective for Valley for fiscal years and interim periods beginning after December 15, 2021, with early adoption permitted. The ASU No. 2021-05 is not expected to have a significant impact on Valley’s consolidated financial statements.

Note 5. 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).

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, 2021 and December 31, 2020. 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, 2021		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)	$	30,357	$	19,604	$	—	$	—
Trading debt securities	21,216		—		21,216		—
Available for sale debt securities:
U.S. Treasury securities	51,010		51,010		—		—
U.S. government agency securities	23,907		—		23,907		—
Obligations of states and political subdivisions	65,685		—		65,685		—
Residential mortgage-backed securities	846,316		—		846,316		—
Corporate and other debt securities	88,620		—		88,620		—
Total available for sale debt securities	1,075,538		51,010		1,024,528		—
Loans held for sale (2)	159,256		—		159,256		—
Other assets (3)	248,843		—		248,843		—
Total assets	$	1,535,210	$	70,614	$	1,453,843	$	—
Liabilities
Other liabilities (3)	$	81,676	$	—	$	81,676	$	—
Total liabilities	$	81,676	$	—	$	81,676	$	—
Non-recurring fair value measurements:

Collateral dependent loans	$	39,655	$	—	$	—	$	39,655
Loan servicing rights	158		—		—		158
Foreclosed assets	2,202		—		—		2,202
Total	$	42,015	$	—	$	—	$	42,015


			Fair Value Measurements at Reporting Date Using:
	December 31, 2020		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)	$	26,379	$	18,600	$	—	$	—
Available for sale debt securities:
U.S. Treasury securities	51,393		51,393		—		—
U.S. government agency securities	26,157		—		26,157		—
Obligations of states and political subdivisions	79,950		—		79,135		815
Residential mortgage-backed securities	1,090,022		—		1,090,022		—

Corporate and other debt securities	91,951		—		91,951		—
Total available for sale	1,339,473		51,393		1,287,265		815

Loans held for sale (2)	301,427		—		301,427		—
Other assets (3)	387,452		—		387,452		—
Total assets	$	2,054,731	$	69,993	$	1,976,144	$	815
Liabilities
Other liabilities (3)	$	156,281	$	—	$	156,281	$	—
Total liabilities	$	156,281	$	—	$	156,281	$	—
Non-recurring fair value measurements:
Collateral dependent impaired loans	$	35,228	$	—	$	—	$	35,228
Loan servicing rights	15,603		—		—		15,603
Foreclosed assets	7,387		—		—		7,387
Total	$	58,218	$	—	$	—	$	58,218

(1)Includes equity securities measured at net asset value (NAV) per share (or its equivalent) as a practical expedient totaling $10.8 million and $7.8 million at June 30, 2021 and December 31, 2020, 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 $154.2 million and $286.4 million at June 30, 2021 and December 31, 2020, 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 largely consists of a publicly traded mutual fund, a Community Reinvestment Act (CRA) investment fund that is carried at quoted prices in active markets and privately held CRA funds measured at NAV.

Trading debt securities. The fair value of trading debt securities, consisting of municipal bonds, is reported at fair value utilizing Level 2 inputs. The prices for these investments are derived from market quotations and matrix pricing obtained through an independent pricing service.

Available for sale debt securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third-party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for sale 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, 2021 and December 31, 2020 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, 2021 and December 31, 2020), 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, 2021 and December 31, 2020.

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, loan servicing rights 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, 2021, 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, 2021, collateral dependent loans, mostly consisting of taxi medallion loans, with a total amortized cost of $104.3 million were reduced by specific allowance for loan losses allocations totaling $64.6 million to a reported total net carrying amount of $39.7 million.

Loan servicing rights. Fair values for each risk-stratified group of loan servicing rights are calculated using a fair value model from a third-party vendor that requires inputs that are both significant to the fair value measurement and unobservable (Level 3). The fair value model is based on various assumptions, including but not limited to,

prepayment speeds, internal rate of return (discount rate), servicing cost, ancillary income, float rate, tax rate, and inflation. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At June 30, 2021, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 15.4 percent and a discount rate of 9.1 percent for the valuation of the loan servicing rights. A significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate. Impairment charges are recognized on loan servicing rights when the amortized cost of a risk-stratified group of loan servicing rights exceeds the estimated fair value. At June 30, 2021, certain loan servicing rights were re-measured at fair value totaling $158 thousand. See Note 8 for additional information.

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. The adjustments to the appraisals of foreclosed assets ranged from 1.3 percent to 7.1 percent at June 30, 2021.

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.

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, 2021 and December 31, 2020 were as follows:


	Fair Value Hierarchy	June 30, 2021				December 31, 2020
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
		(in thousands)
Financial assets
Cash and due from banks	Level 1	$	329,006	$	329,006	$	257,845	$	257,845
Interest bearing deposits with banks	Level 1	1,515,757		1,515,757		1,071,360		1,071,360
Equity securities (1)	Level 3	3,513		3,513		2,999		2,999
Held to maturity debt securities:
U.S. Treasury securities	Level 1	67,874		73,575		68,126		75,484
U.S. government agency securities	Level 2	5,548		5,813		6,222		6,513
Obligations of states and political subdivisions	Level 2	444,380		454,718		470,259		484,506
Residential mortgage-backed securities	Level 2	1,926,900		1,938,608		1,550,306		1,589,655
Trust preferred securities	Level 2	37,360		31,425		37,348		30,033
Corporate and other debt securities	Level 2	51,750		52,380		40,750		41,421
Total held to maturity debt securities (2)		2,533,812		2,556,519		2,173,011		2,227,612
Net loans	Level 3	32,118,130		31,962,961		31,876,869		31,635,060
Accrued interest receivable	Level 1	99,068		99,068		106,230		106,230
Federal Reserve Bank and Federal Home Loan Bank stock (3)	Level 2	212,122		212,122		250,116		250,116
Financial liabilities
Deposits without stated maturities	Level 1	28,887,225		28,887,225		25,220,924		25,220,924
Deposits with stated maturities	Level 2	4,307,549		4,256,745		6,714,678		6,639,022
Short-term borrowings	Level 1	854,378		838,440		1,147,958		1,151,478
Long-term borrowings	Level 2	1,885,690		1,882,750		2,295,665		2,405,345
Junior subordinated debentures issued to capital trusts	Level 2	56,239		45,802		56,065		57,779
Accrued interest payable (4)	Level 1	8,115		8,115		18,839		18,839

(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 6. Investment Securities

Equity Securities

Equity securities carried at fair value totaled $33.9 million and $29.4 million at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021, Valley's equity securities consisted of one publicly traded money market mutual fund, CRA investments both publicly traded and privately held and, to a lesser extent, equity securities without readily determinable fair values.

Trading Debt Securities

The fair value of trading securities, consisting of municipal bonds, totaled $21.2 million at June 30, 2021. Net trading gains are included in net gains and losses on securities transactions within non-interest income. Net trading gains totaled $489 thousand and $707 thousand for the three and six months ended June 30, 2021, respectively.

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, 2021 and December 31, 2020 were as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
June 30, 2021
U.S. Treasury securities	$	50,023	$	987	$	—	$	51,010
U.S. government agency securities	22,695		1,218		(6)		23,907
Obligations of states and political subdivisions:
Obligations of states and state agencies	32,098		614		—		32,712
Municipal bonds	32,440		541		(8)		32,973
Total obligations of states and political subdivisions	64,538		1,155		(8)		65,685
Residential mortgage-backed securities	823,040		24,490		(1,214)		846,316

Corporate and other debt securities	85,441		3,198		(19)		88,620
Total	$	1,045,737	$	31,048	$	(1,247)	$	1,075,538
December 31, 2020
U.S. Treasury securities	$	50,031	$	1,362	$	—	$	51,393
U.S. government agency securities	25,067		1,103		(13)		26,157
Obligations of states and political subdivisions:
Obligations of states and state agencies	40,861		970		(32)		41,799
Municipal bonds	37,489		731		(69)		38,151
Total obligations of states and political subdivisions	78,350		1,701		(101)		79,950
Residential mortgage-backed securities	1,050,369		40,426		(773)		1,090,022

Corporate and other debt securities	89,689		2,294		(32)		91,951

Total	$	1,293,506	$	46,886	$	(919)	$	1,339,473

The age of unrealized losses and fair value of the related available for sale debt securities at June 30, 2021 and December 31, 2020 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, 2021

U.S. government agency securities	$	—	$	—	$	1,396	$	(6)	$	1,396	$	(6)


Municipal bonds	4,705		(8)		—		—		4,705		(8)

Residential mortgage-backed securities	116,758		(914)		12,726		(300)		129,484		(1,214)

Corporate and other debt securities	1,981		(19)		—		—		1,981		(19)
Total	$	123,444	$	(941)	$	14,122	$	(306)	$	137,566	$	(1,247)
December 31, 2020

U.S. government agency securities	$	—	$	—	$	1,479	$	(13)	$	1,479	$	(13)
Obligations of states and political subdivisions:
Obligations of states and state agencies	—		—		1,010		(32)		1,010		(32)
Municipal bonds	6,777		(69)		—		—		6,777		(69)
Total obligations of states and political subdivisions	6,777		(69)		1,010		(32)		7,787		(101)
Residential mortgage-backed securities	41,418		(500)		27,911		(273)		69,329		(773)

Corporate and other debt securities	12,517		(32)		—		—		12,517		(32)

Total	$	60,712	$	(601)	$	30,400	$	(318)	$	91,112	$	(919)

Within the available for sale debt securities portfolio, the total number of security positions in an unrealized loss position was 67 and 58 at June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, 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 $736.2 million.

The contractual maturities of available for sale debt securities at June 30, 2021 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, 2021
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	6,769	$	6,824
Due after one year through five years	84,534		86,491
Due after five years through ten years	79,866		82,581
Due after ten years	51,528		53,326
Residential mortgage-backed securities	823,040		846,316
Total	$	1,045,737	$	1,075,538

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 4.4 years at June 30, 2021.

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 the economic 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, 2021 included in the table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the three and six months ended June 30, 2021 and 2020. There was no allowance for credit losses for available for sale debt securities at June 30, 2021 and December 31, 2020.

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, 2021 and December 31, 2020 were as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
June 30, 2021
U.S. Treasury securities	$	67,874	$	5,701	$	—	$	73,575
U.S. government agency securities	5,548		265		—		5,813
Obligations of states and political subdivisions:
Obligations of states and state agencies	243,374		5,505		(43)		248,836
Municipal bonds	201,006		4,894		(18)		205,882
Total obligations of states and political subdivisions	444,380		10,399		(61)		454,718
Residential mortgage-backed securities	1,926,900		23,376		(11,668)		1,938,608
Trust preferred securities	37,360		51		(5,986)		31,425
Corporate and other debt securities	51,750		640		(10)		52,380
Total	$	2,533,812	$	40,432	$	(17,725)	$	2,556,519
December 31, 2020
U.S. Treasury securities	$	68,126	$	7,358	$	—	$	75,484
U.S. government agency securities	6,222		291		—		6,513
Obligations of states and political subdivisions:
Obligations of states and state agencies	262,762		8,060		(105)		270,717
Municipal bonds	207,497		6,292		—		213,789
Total obligations of states and political subdivisions	470,259		14,352		(105)		484,506
Residential mortgage-backed securities	1,550,306		39,603		(254)		1,589,655
Trust preferred securities	37,348		50		(7,365)		30,033
Corporate and other debt securities	40,750		672		(1)		41,421
Total	$	2,173,011	$	62,326	$	(7,725)	$	2,227,612

The age of unrealized losses and fair value of related debt securities held to maturity at June 30, 2021 and December 31, 2020 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, 2021


Obligations of states and political subdivisions:
Obligations of states and state agencies	$	—	$	—	$	5,570	$	(43)	$	5,570	$	(43)
Municipal bonds	1,328		(18)		—		—		1,328		(18)
Total obligations of states and political subdivisions	1,328		(18)		5,570		(43)		6,898		(61)
Residential mortgage-backed securities	983,406		(11,606)		4,608		(62)		988,014		(11,668)
Trust preferred securities	—		—		30,021		(5,986)		30,021		(5,986)
Corporate and other debt securities	7,990		(10)		—		—		7,990		(10)
Total	$	992,724	$	(11,634)	$	40,199	$	(6,091)	$	1,032,923	$	(17,725)
December 31, 2020



Obligations of states and state agencies	$	5,546	$	(105)	$	—	$	—	$	5,546	$	(105)


Residential mortgage-backed securities	21,599		(245)		2,470		(9)		24,069		(254)
Trust preferred securities	—		—		28,630		(7,365)		28,630		(7,365)
Corporate and other debt securities	10,749		(1)		—		—		10,749		(1)
Total	$	37,894	$	(351)	$	31,100	$	(7,374)	$	68,994	$	(7,725)

Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 44 and 13 at June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $1.6 billion.

The contractual maturities of investments in debt securities held to maturity at June 30, 2021 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, 2021
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	27,218	$	27,365
Due after one year through five years	247,844		257,620
Due after five years through ten years	129,112		130,979
Due after ten years	202,738		201,947
Residential mortgage-backed securities	1,926,900		1,938,608
Total	$	2,533,812	$	2,556,519

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 6.0 years at June 30, 2021.

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, 2021 and December 31, 2020.


	AAA/AA/A Rated		BBB rated		Non-investment grade rated		Non-rated		Total
	(in thousands)
June 30, 2021
U.S. Treasury securities	$	67,874	$	—	$	—	$	—	$	67,874
U.S. government agency securities	5,548		—		—		—		5,548
Obligations of states and political subdivisions:
Obligations of states and state agencies	210,548		—		5,613		27,213		243,374
Municipal bonds	158,111		—		—		42,895		201,006
Total obligations of states and political subdivisions	368,659		—		5,613		70,108		444,380
Residential mortgage-backed securities	1,926,900		—		—		—		1,926,900
Trust preferred securities	—		—		—		37,360		37,360
Corporate and other debt securities	—		8,000		—		43,750		51,750
Total	$	2,368,981	$	8,000	$	5,613	$	151,218	$	2,533,812
December 31, 2020
U.S. Treasury securities	$	68,126	$	—	$	—	$	—	$	68,126
U.S. government agency securities	6,222		—		—		—		6,222
Obligations of states and political subdivisions:
Obligations of states and state agencies	228,286		—		5,650		28,826		262,762
Municipal bonds	166,408		—		—		41,089		207,497
Total obligations of states and political subdivisions	394,694		—		5,650		69,915		470,259
Residential mortgage-backed securities	1,550,306		—		—		—		1,550,306
Trust preferred securities	—		—		—		37,348		37,348
Corporate and other debt securities	—		5,000		—		35,750		40,750
Total investment securities held to maturity	$	2,019,348	$	5,000	$	5,650	$	143,013	$	2,173,011

Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At June 30, 2021, 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.

At June 30, 2021, held to maturity debt securities were carried net of allowance for credit losses totaling $1.0 million and $1.4 million at June 30, 2021 and December 31, 2020, respectively. There were no net charge-offs of held to maturity debt securities for the three and six months ended June 30, 2021 and 2020.

Note 7. Loans and Allowance for Credit Losses for Loans

The detail of the loan portfolio as of June 30, 2021 and December 31, 2020 was as follows:


	June 30, 2021		December 31, 2020
	(in thousands)
Loans:
Commercial and industrial:
Commercial and industrial	$	4,733,771	$	4,709,569
Commercial and industrial PPP loans *	1,350,684		2,152,139
Total commercial and industrial loans	6,084,455		6,861,708
Commercial real estate:
Commercial real estate	17,512,142		16,724,998
Construction	1,752,838		1,745,825
Total commercial real estate loans	19,264,980		18,470,823
Residential mortgage	4,226,975		4,183,743
Consumer:
Home equity	410,856		431,553
Automobile	1,531,262		1,355,955
Other consumer	938,926		913,330
Total consumer loans	2,881,044		2,700,838
Total loans	$	32,457,454	$	32,217,112

*Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $40.9 million and $43.2 million at June 30, 2021 and December 31, 2020, respectively.

Total loans includes net unearned discounts and deferred loan fees of $86.1 million and $95.8 million at June 30, 2021 and December 31, 2020, respectively. Net unearned discounts and deferred loan fees include the non-credit discount on purchased credit deterioration (PCD) loans and net unearned fees related to PPP loans at June 30, 2021 and December 31, 2020.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $84.1 million and $90.2 million at June 30, 2021 and December 31, 2020, respectively, and is presented separately in the consolidated statements of financial condition.

Valley transferred and sold approximately $30.0 million of residential mortgage loans from the loan portfolio to loans held for sale during the six months ended June 30, 2020. Excluding the loan transfers, there were no other material sales of loans from the held for investment portfolio during the three and six months ended June 30, 2021 and 2020.

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 cyclical economic circumstances. See Valley’s Annual Report on Form 10-K for the year ended December 31, 2020 for further details.

Credit Quality

The following table presents past due, current and non-accrual loans without an allowance for credit losses by loan portfolio class at June 30, 2021 and December 31, 2020:


	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 Credit Losses
	(in thousands)
June 30, 2021
Commercial and industrial	$	3,867	$	1,361	$	2,351	$	102,594	$	110,173	$	5,974,282	$	6,084,455	$	9,550
Commercial real estate:
Commercial real estate	40,524		11,451		1,948		58,893		112,816		17,399,326		17,512,142		37,116
Construction	—		—		—		17,660		17,660		1,735,178		1,752,838		—
Total commercial real estate loans	40,524		11,451		1,948		76,553		130,476		19,134,504		19,264,980		37,116
Residential mortgage	8,479		1,608		956		35,941		46,984		4,179,991		4,226,975		16,807
Consumer loans:
Home equity	592		325		—		4,431		5,348		405,508		410,856		48
Automobile	5,521		636		441		389		6,987		1,524,275		1,531,262		—
Other consumer	129		24		22		104		279		938,647		938,926		—
Total consumer loans	6,242		985		463		4,924		12,614		2,868,430		2,881,044		48
Total	$	59,112	$	15,405	$	5,718	$	220,012	$	300,247	$	32,157,207	$	32,457,454	$	63,521


	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 Credit Losses
	(in thousands)
December 31, 2020
Commercial and industrial	$	6,393	$	2,252	$	9,107	$	106,693	$	124,445	$	6,737,263	$	6,861,708	$	4,075
Commercial real estate:
Commercial real estate	35,030		1,326		993		46,879		84,228		16,640,770		16,724,998		32,416
Construction	315		—		—		84		399		1,745,426		1,745,825		—
Total commercial real estate loans	35,345		1,326		993		46,963		84,627		18,386,196		18,470,823		32,416
Residential mortgage	17,717		10,351		3,170		25,817		57,055		4,126,688		4,183,743		11,610
Consumer loans:
Home equity	953		492		—		4,936		6,381		425,172		431,553		50
Automobile	8,056		1,107		245		338		9,746		1,346,209		1,355,955		—
Other consumer	1,248		224		26		535		2,033		911,297		913,330		—
Total consumer loans	10,257		1,823		271		5,809		18,160		2,682,678		2,700,838		50
Total	$	69,712	$	15,752	$	13,541	$	185,282	$	284,287	$	31,932,825	$	32,217,112	$	48,151

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. Loans rated as Pass 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.

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, 2021 and December 31, 2020:


	Term Loans
	Amortized Cost Basis by Origination Year
June 30, 2021	2021		2020		2019		2018		2017		Prior to 2017		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Commercial and industrial
Risk Rating:
Pass	$	1,539,921	$	1,227,478	$	508,228	$	438,246	$	162,119	$	409,413	$	1,571,927	$	225	$	5,857,557
Special Mention	1,282		1,550		1,476		11,182		2,159		17,041		59,376		64		94,130
Substandard	3,325		8,658		4,366		8,803		859		1,374		17,141		321		44,847
Doubtful	129		—		2,739		—		16,370		68,683		—		—		87,921

Total commercial and industrial	$	1,544,657	$	1,237,686	$	516,809	$	458,231	$	181,507	$	496,511	$	1,648,444	$	610	$	6,084,455
Commercial real estate
Risk Rating:
Pass	$	2,100,741	$	3,055,880	$	2,875,727	$	2,005,122	$	1,552,673	$	4,978,293	$	174,277	$	12,849	$	16,755,562
Special Mention	2,000		51,271		58,418		44,118		43,019		184,694		38,615		—		422,135
Substandard	849		22,209		32,935		39,756		73,103		162,866		2,531		—		334,249
Doubtful	—		—		—		—		—		196		—		—		196

Total commercial real estate	$	2,103,590	$	3,129,360	$	2,967,080	$	2,088,996	$	1,668,795	$	5,326,049	$	215,423	$	12,849	$	17,512,142
Construction
Risk Rating:
Pass	$	112,491	$	147,431	$	87,130	$	78,332	$	6,656	$	29,216	$	1,251,972	$	—	$	1,713,228
Special Mention	—		—		1,026		—		—		1,714		8,871		—		11,611
Substandard	—		28		16		331		—		17,842		9,782		—		27,999

Total construction	$	112,491	$	147,459	$	88,172	$	78,663	$	6,656	$	48,772	$	1,270,625	$	—	$	1,752,838


	Term Loans
	Amortized Cost Basis by Origination Year
December 31, 2020	2020		2019		2018		2017		2016		Prior to 2016		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Commercial and industrial
Risk Rating:
Pass	$	3,058,596	$	605,112	$	556,284	$	212,215	$	162,483	$	337,484	$	1,677,559	$	350	$	6,610,083
Special Mention	819		10,236		2,135		9,502		10,228		14,165		49,883		51		97,019
Substandard	5,215		3,876		12,481		1,798		4,215		12,965		18,913		462		59,925
Doubtful	—		5,203		1		17,010		2,596		69,871		—		—		94,681

Total commercial and industrial	$	3,064,630	$	624,427	$	570,901	$	240,525	$	179,522	$	434,485	$	1,746,355	$	863	$	6,861,708
Commercial real estate
Risk Rating:
Pass	$	3,096,549	$	3,052,076	$	2,230,047	$	1,767,528	$	1,798,137	$	3,916,990	$	199,145	$	15,532	$	16,076,004
Special Mention	50,193		68,203		44,336		48,813		66,845		109,295		1,705		—		389,390
Substandard	18,936		17,049		30,997		59,618		11,541		118,725		2,531		—		259,397
Doubtful	—		—		—		—		—		207		—		—		207

Total commercial real estate	$	3,165,678	$	3,137,328	$	2,305,380	$	1,875,959	$	1,876,523	$	4,145,217	$	203,381	$	15,532	$	16,724,998
Construction
Risk Rating:
Pass	$	145,246	$	120,800	$	111,174	$	15,497	$	47,971	$	20,029	$	1,199,034	$	—	$	1,659,751
Special Mention	—		1,043		—		—		9,996		17,414		47,311		—		75,764
Substandard	—		26		246		2,628		17		380		7,013		—		10,310

Total construction	$	145,246	$	121,869	$	111,420	$	18,125	$	57,984	$	37,823	$	1,253,358	$	—	$	1,745,825

For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in those loan classes based on payment activity by origination year as of June 30, 2021 and December 31, 2020.


	Term Loans
	Amortized Cost Basis by Origination Year
June 30, 2021	2021		2020		2019		2018		2017		Prior to 2017		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Residential mortgage
Performing	$	687,724	$	701,963	$	671,803	$	519,568	$	446,367	$	1,108,317	$	68,012	$	—	$	4,203,754
90 days or more past due	—		1,719		1,852		2,021		3,907		13,722		—		—		23,221
Total residential mortgage	$	687,724	$	703,682	$	673,655	$	521,589	$	450,274	$	1,122,039	$	68,012	$	—	$	4,226,975
Consumer loans
Home equity
Performing	$	7,120	$	7,314	$	8,925	$	9,332	$	6,946	$	15,485	$	307,985	$	46,238	$	409,345
90 days or more past due	—		—		—		—		—		81		876		554		1,511
Total home equity	7,120		7,314		8,925		9,332		6,946		15,566		308,861		46,792		410,856
Automobile
Performing	447,260		376,473		354,978		210,941		108,085		32,683		—		—		1,530,420
90 days or more past due	25		89		175		230		198		125		—		—		842
Total automobile	447,285		376,562		355,153		211,171		108,283		32,808		—		—		1,531,262
Other Consumer
Performing	5,953		7,101		6,626		6,850		1,037		7,905		903,454		—		938,926
90 days or more past due	—		—		—		—		—		—		—		—		—
Total other consumer	5,953		7,101		6,626		6,850		1,037		7,905		903,454		—		938,926
Total consumer	$	460,358	$	390,977	$	370,704	$	227,353	$	116,266	$	56,279	$	1,212,315	$	46,792	$	2,881,044


	Term Loans
	Amortized Cost Basis by Origination Year
December 31, 2020	2020		2019		2018		2017		2016		Prior to 2016		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Residential mortgage
Performing	$	730,764	$	778,161	$	684,761	$	582,650	$	380,723	$	943,616	$	64,798	$	—	$	4,165,473
90 days or more past due	—		3,085		4,212		3,464		4,144		3,365		—		—		18,270
Total residential mortgage	$	730,764	$	781,246	$	688,973	$	586,114	$	384,867	$	946,981	$	64,798	$	—	$	4,183,743
Consumer loans
Home equity
Performing	$	8,580	$	10,634	$	11,756	$	8,886	$	5,340	$	15,393	$	318,869	$	50,879	$	430,337
90 days or more past due	—		—		—		—		25		83		378		730		1,216
Total home equity	8,580		10,634		11,756		8,886		5,365		15,476		319,247		51,609		431,553
Automobile
Performing	426,121		438,181		272,075		151,523		50,853		16,550		—		—		1,355,303
90 days or more past due	19		108		173		223		35		94		—		—		652
Total automobile	426,140		438,289		272,248		151,746		50,888		16,644		—		—		1,355,955
Other Consumer
Performing	12,271		5,558		6,815		1,112		1,077		5,314		880,748		—		912,895
90 days or more past due	—		—		—		—		—		22		5		408		435
Total other consumer	12,271		5,558		6,815		1,112		1,077		5,336		880,753		408		913,330
Total consumer	$	446,991	$	454,481	$	290,819	$	161,744	$	57,330	$	37,456	$	1,200,000	$	52,017	$	2,700,838

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 $64.1 million and $57.4 million as of June 30, 2021 and December 31, 2020, respectively. Non-performing TDRs totaled $89.8 million and $92.8 million as of June 30, 2021 and December 31, 2020, respectively.

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, 2021 and 2020. Post-modification amounts are presented as of June 30, 2021 and 2020.


	Three Months Ended June 30,
	2021					2020
Troubled Debt Restructurings	Number of Contracts	Pre-Modification Amortized Carrying Amount		Post-Modification Amortized Carrying Amount		Number of Contracts	Pre-Modification Amortized Carrying Amount		Post-Modification Amortized Carrying Amount
	($ in thousands)
Commercial and industrial	9	$	8,592	$	8,529	4	$	9,052	$	7,047
Commercial real estate:
Commercial real estate	6	12,237		12,223		1	885		900
Construction	—	—		—		2	435		218
Total commercial real estate	6	12,237		12,223		3	1,320		1,118
Residential mortgage	2	1,089		1,079		—	—		—

Total	17	$	21,918	$	21,831	7	$	10,372	$	8,165


	Six Months Ended June 30,
	2021					2020
Troubled Debt Restructurings	Number of Contracts	Pre-Modification Amortized Carrying Amount		Post-Modification Amortized Carrying Amount		Number of Contracts	Pre-Modification Amortized Carrying Amount		Post-Modification Amortized Carrying Amount
	($ in thousands)
Commercial and industrial	13	$	20,855	$	19,648	20	$	22,196	$	19,674
Commercial real estate:
Commercial real estate	6	12,237		12,223		2	4,748		4,762
Construction	—	—		—		2	435		218
Total commercial real estate	6	12,237		12,223		4	5,183		4,980
Residential mortgage	8	2,618		2,586		—	—		—
Consumer	1	169		166		—	—		—
Total	28	$	35,879	$	34,623	24	$	27,379	$	24,654

The total TDRs presented in the above table had allocated allowance for loan losses of $4.5 million and $8.4 million at June 30, 2021 and 2020, respectively. There were $697 thousand and $5.8 million of charge-offs related to TDRs for the three and six months ended June 30, 2021, respectively. There were $2.9 million and $3.7 million of charge-offs were related to TDRs for the three and six months ended June 30, 2020, 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, 2021 and 2020.

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, 2021 and 2020 were as follows:


	Three Months Ended June 30,
	2021			2020
Troubled Debt Restructurings Subsequently Defaulted	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	($ in thousands)
Commercial and industrial	—	$	—	20	$	14,986

Residential mortgage	1	445		1	220
Consumer	—	—		2	204
Total	1	$	445	23	$	15,410


	Six Months Ended June 30,
	2021			2020
Troubled Debt Restructurings Subsequently Defaulted	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	($ in thousands)
Commercial and industrial	15	$	12,384	20	$	14,986

Residential mortgage	2	692		1	220
Consumer	—	—		2	204
Total	17	$	13,076	23	$	15,410

Forbearance. In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment, when requested by customers, all of which were insignificant. As of June 30, 2021, Valley had approximately $142 million of outstanding loans remaining in their payment deferral period under short-term modifications as compared to $361 million of loans in deferral at December 31, 2020. Under the applicable guidance, none of these loans were classified as TDRs at June 30, 2021 and December 31, 2020.

Loans in Process of Foreclosure. Other real estate owned (OREO) totaled $4.5 million and $5.1 million at June 30, 2021 and December 31, 2020, respectively. OREO included foreclosed residential real estate properties which were immaterial at June 30, 2021 and totaled $1.0 million at December 31, 2020. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $2.0 million and $1.9 million at June 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
	(in thousands)

Commercial and industrial *	$	95,000	$	106,239

Commercial real estate	66,054		41,562


Residential mortgage	31,714		28,176
Home equity	48		50
Total	$	192,816	$	176,027

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

Allowance for Credit Losses for Loans

The following table summarizes the allowance for credit losses for loans at June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
	(in thousands)
Components of allowance for credit losses for loans:
Allowance for loan losses	$	339,324	$	340,243
Allowance for unfunded credit commitments	14,400		11,111
Total allowance for credit losses for loans	$	353,724	$	351,354

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,
	2021		2020		2021		2020
	(in thousands)
Components of provision for credit losses for loans:
Provision for loan losses	$	5,810	$	41,025	$	14,502	$	74,876
Provision for unfunded credit commitments	2,967		90		3,289		163
Total provision for credit losses for loans	$	8,777	$	41,115	$	17,791	$	75,039

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, 2021 and 2020:


	Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
	(in thousands)
Three Months Ended June 30, 2021
Allowance for loan 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
Three Months Ended June 30, 2020
Allowance for losses:
Beginning balance	$	127,437	$	111,585	$	29,456	$	14,864	$	283,342


Loans charged-off	(14,024)		(27)		(5)		(2,601)		(16,657)
Charged-off loans recovered	799		51		545		509		1,904
Net (charge-offs) recoveries	(13,225)		24		540		(2,092)		(14,753)
Provision (credit) for loan losses	17,827		20,093		(366)		3,471		41,025
Ending balance	$	132,039	$	131,702	$	29,630	$	16,243	$	309,614


	Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
	(in thousands)
Six Months Ended June 30, 2021
Allowance for loan 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
Six Months Ended June 30, 2020
Allowance for losses:
Beginning balance	$	104,059	$	45,673	$	5,060	$	6,967	$	161,759
Impact of ASU 2016-13 adoption*	15,169		49,797		20,575		6,990		92,531
Beginning balance, adjusted	119,228		95,470		25,635		13,957		254,290
Loans charged-off	(17,384)		(71)		(341)		(5,166)		(22,962)
Charged-off loans recovered	1,368		144		595		1,303		3,410
Net (charge-offs) recoveries	(16,016)		73		254		(3,863)		(19,552)
Provision for loan losses	28,827		36,159		3,741		6,149		74,876
Ending balance	$	132,039	$	131,702	$	29,630	$	16,243	$	309,614

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

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, 2021 and December 31, 2020.


	Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
	(in thousands)
June 30, 2021
Allowance for loan losses:
Individually evaluated for credit losses	$	64,275	$	4,788	$	618	$	885	$	70,566
Collectively evaluated for credit losses	45,414		184,351		24,685		14,308		268,758
Total	$	109,689	$	189,139	$	25,303	$	15,193	$	339,324
Loans:
Individually evaluated for credit losses	$	120,559	$	89,464	$	38,660	$	4,488	$	253,171
Collectively evaluated for credit losses	5,963,896		19,175,516		4,188,315		2,876,556		32,204,283
Total	$	6,084,455	$	19,264,980	$	4,226,975	$	2,881,044	$	32,457,454
December 31, 2020
Allowance for loan losses:
Individually evaluated for credit losses	$	73,063	$	1,338	$	1,206	$	264	$	75,871
Collectively evaluated for credit losses	58,007		162,775		27,667		15,923		264,372
Total	$	131,070	$	164,113	$	28,873	$	16,187	$	340,243
Loans:
Individually evaluated for credit losses	$	131,057	$	61,754	$	35,151	$	1,631	$	229,593
Collectively evaluated for credit losses	6,730,651		18,409,069		4,148,592		2,699,207		31,987,519
Total	$	6,861,708	$	18,470,823	$	4,183,743	$	2,700,838	$	32,217,112

Note 8. Goodwill and Other Intangible Assets

Goodwill totaled $1.4 billion at both June 30, 2021 and December 31, 2020. There were no changes to the carrying amounts of goodwill allocated to Valley’s business segments, or reporting units thereof, for goodwill impairment analysis (as reported in Valley’s Annual Report on Form 10-K for the year ended December 31, 2020).

During the second quarter 2021, Valley performed the annual goodwill impairment test at its normal assessment

date. As a result, there was no impairment of goodwill recognized during the three and six months ended June 30, 2021 and 2020.

The following table summarizes other intangible assets as of June 30, 2021 and December 31, 2020:


	Gross Intangible Assets		Accumulated Amortization		Valuation Allowance		Net Intangible Assets
	(in thousands)
June 30, 2021
Loan servicing rights	$	109,678	$	(86,681)	$	(32)	$	22,965
Core deposits	101,160		(59,590)		—		41,570
Other	3,945		(2,957)		—		988
Total other intangible assets	$	214,783	$	(149,228)	$	(32)	$	65,523
December 31, 2020
Loan servicing rights	$	103,150	$	(80,340)	$	(865)	$	21,945
Core deposits	101,160		(53,747)		—		47,413
Other	3,945		(2,854)		—		1,091
Total other intangible assets	$	208,255	$	(136,941)	$	(865)	$	70,449

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. 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, respectively. Valley recorded net impairment charges totaling $669 thousand and $778 thousand for the three and six months ended June 30, 2020, respectively. See the “Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis” section of Note 5 for additional information regarding the fair valuation.

Core deposits are amortized using an accelerated method and have a weighted average amortization period of 8.9 years. The line item labeled “Other” included in the table above primarily consists of customer lists and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 7.6 years. 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, 2021 and 2020.

The following table presents the estimated future amortization expense of other intangible assets for the remainder of 2021 through 2025:


	Loan Servicing Rights		Core Deposits		Other
	(in thousands)
2021	$	2,331	$	5,764	$	103
2022	3,901		9,876		191
2023	3,099		8,146		131
2024	2,492		6,537		117
2025	2,030		4,929		103

Valley recognized amortization expense on other intangible assets, including net (recoveries of) impairment charges on loan servicing rights, totaling approximately $5.4 million and $6.7 million for the three months ended June 30, 2021 and 2020, respectively, and $11.5 million and $12.2 million for the six months ended June 30, 2021 and 2020, respectively.

Note 9. Borrowed Funds

Short-Term Borrowings

Short-term borrowings at June 30, 2021 and December 31, 2020 consisted of the following:


	June 30, 2021		December 31, 2020
	(in thousands)
FHLB advances	$	700,000	$	1,000,000
Securities sold under agreements to repurchase	154,378		147,958
Total short-term borrowings	$	854,378	$	1,147,958

The weighted average interest rate for short-term borrowings was 0.35 percent and 0.38 percent at June 30, 2021 and December 31, 2020, respectively. The interest payments on the FHLB advances totaling $700 million were hedged with interest rate swaps at June 30, 2021. See Note 11 for additional details.

Long-Term Borrowings

Long-term borrowings at June 30, 2021 and December 31, 2020 consisted of the following:


	June 30, 2021		December 31, 2020
	(in thousands)
FHLB advances, net (1)	$	947,206	$	1,592,252
Subordinated debt, net (2)	638,484		403,413
Securities sold under agreements to repurchase	300,000		300,000
Total long-term borrowings	$	1,885,690	$	2,295,665


(1)			FHLB advances are presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling $2.6 million at December 31, 2020.
(2)			Subordinated debt is presented net of unamortized debt issuance costs totaling $6.4 billion and $2.7 million at June 30, 2021 and December 31, 2020, respectively.

FHLB Advances. Long-term FHLB advances had a weighted average interest rate of 1.91 percent and 2.02 percent at June 30, 2021 and December 31, 2020, respectively. FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans.

In June 2021, Valley prepaid approximately $248 million of long-term FHLB advances with maturities scheduled through 2025 and a weighted average effective interest rate of 1.82 percent. The transaction was funded with excess cash liquidity and accounted for as an early debt extinguishment resulting in a loss of $8.4 million reported within non-interest expense for the three and six months ended June 30, 2021.

The long-term FHLB advances at June 30, 2021 are scheduled for contractual balance repayments as follows:


Year	Amount
	(in thousands)
2021	$	157,870

2023	350,000
2024	165,000
2025	273,000

Total long-term FHLB advances	$	945,870

There are no FHLB advances with scheduled repayments in years 2021 and thereafter, reported in the table above, which are callable for early redemption by the FHLB during the next 12 months.

Subordinated debt. On April 1, 2021, Valley redeemed, at par value, $60 million of its callable 6.25 percent subordinated notes originally due April 1, 2026. No gain or loss was incurred on this transaction.

On May 25, 2021, Valley issued $300 million of 3.00 percent Fixed-to-Floating Rate subordinated notes due June 15, 2031. The subordinated notes are callable in whole or in part on or after June 15, 2026 or upon the occurrence of certain events. Interest on the subordinated notes during the initial five year term through June 15, 2026 is payable semi-annually on June 15 and December 15. Thereafter, interest is expected to be set based on three-month Secured Overnight Financing Rate (SOFR) plus 236 basis points and paid quarterly through maturity of the notes. At June 30, 2021, the subordinated notes had a carrying value of $296.0 million, net of debt issuance costs. During June 2021, Valley entered into an interest rate swap transaction used to hedge the change in the fair value of the $300 million in subordinated notes. See Note 11 for additional details.

Valley also had the following subordinated debt outstanding at June 30, 2021:

•$125 million aggregate principal amount of 5.125 percent subordinated notes due September 27, 2023 with no call dates or prepayments allowed except upon the occurrence of certain events;

•$100 million aggregate principal amount of 4.55 percent subordinated notes due June 30, 2025 with no call dates or prepayments allowed except upon the occurrence of certain events;

•$115 million aggregate principal amount of 5.25 percent subordinated notes due June 15, 2030 and callable in whole or in part on or after June 15, 2025 or upon the occurrence of certain events.

Long-term securities sold under agreements to repurchase (repos). The long-term repos had a weighted average interest rate of 3.41 percent and 3.37 percent at June 30, 2021 and December 31, 2020, respectively. All long-term repos outstanding as of June 30, 2021 have maturities in the second half of 2021.

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 Resources Committee (the Committee) as appointed by Valley's Board of Directors. The purposes of the 2021 Plan are to provide additional incentives to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain officers, other employees and non-employee directors whose efforts will result in the continued and long-term growth of Valley's business. Upon shareholder approval of the 2021 Plan, Valley ceased granting new awards under the Valley National Bancorp 2016 Long-Term Stock Incentive Plan (the 2016 Plan).

Under the 2021 Plan, Valley may issue awards to its officers, employees and non-employee directors in amounts up to 9 million shares of common stock (less one share for every share granted after December 31, 2020 under the 2016 Plan) in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs). If after December 31, 2020 any award granted under the 2016 Plan is forfeited, expires, settled for cash, withheld for tax obligations, or otherwise does not result in the issuance of all or a portion of the shares subject to such award, the shares will be added to the 2021 Plan's share reserve. As of June 30, 2021, 7.4 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.

Valley granted 109 thousand and 142 thousand of time-based RSUs during the three months ended June 30, 2021 and 2020, respectively, and 1.2 million for both the six months ended June 30, 2021 and 2020. 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, 2021 and 2020 was $11.63 per share and $10.48 per share, respectively.

Valley granted 604 thousand and 589 thousand of performance-based RSUs to certain executive officers for the six months ended June 30, 2021 and 2020, respectively. There were no grants of performance-based RSUs during the three months ended June 30, 2021 and 2020, 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, 2021 and 2020 was $11.75 per share and $10.82 per share, respectively.

Valley recorded total stock-based compensation expense of $5.2 million and $4.2 million for the three months ended June 30, 2021 and 2020, respectively, and $10.7 million and $8.2 million for the six months ended June 30, 2021 and 2020, respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period. As of June 30, 2021, the unrecognized amortization expense for all stock-based employee compensation totaled approximately $28.9 million and will be recognized over an average remaining vesting period of approximately two 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 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. From time to time, Valley uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. 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.

In June 2021, Valley entered into a $300 million forward-starting interest rate swap agreement with a notional amount of $300 million, maturing in June 2026, to hedge the change in the fair value of the 3.00 percent subordinated debt issued on May 28, 2021. Under the swap agreement, beginning in January 2022, Valley will receive fixed rate payments and pay variable rate amounts based on SOFR plus 2.187 percent.

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.

Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide service to customers but do not meet the requirements for hedge accounting under U.S. 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, 2021, Valley had 26 credit swaps with an aggregate notional amount of $215.8 million related to risk participation agreements.

At June 30, 2021, 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 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.

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, 2021						December 31, 2020
	Fair Value						Fair Value
	Other Assets		Other Liabilities		Notional Amount		Other Assets		Other Liabilities		Notional Amount
	(in thousands)
Derivatives designated as hedging instruments:
Cash flow hedge interest rate swaps	$	—	$	349	$	900,000	$	—	$	179	$	1,100,000
Fair value hedge interest rate swaps	80		—		300,000		—		—		—
Total derivatives designated as hedging instruments	$	80	$	349	$	1,200,000	$	—	$	179	$	1,100,000
Derivatives not designated as hedging instruments:
Interest rate swaps and other derivatives *	$	248,440	$	80,215	$	9,962,230	$	387,008	$	154,025	$	8,889,557
Mortgage banking derivatives	323		1,112		330,528		444		2,077		321,486
Total derivatives not designated as hedging instruments	$	248,763	$	81,327	$	10,292,758	$	387,452	$	156,102	$	9,211,043

* Other derivatives include risk participation agreements.

The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account with the cash flow hedges and over-the-counter (OTC) non-designated derivative instruments. As a result, the fair value of the applicable derivative assets and liabilities are reported net of variation margin at June 30, 2021 and December 31, 2020 in the table above.

Gains (losses) included in the consolidated statements of income and other comprehensive income (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,
	2021		2020		2021		2020
	(in thousands)
Amount of (loss) gain reclassified from accumulated other comprehensive loss to interest expense	$	(749)	$	438	$	(1,664)	$	(177)
Amount of (loss) gain recognized in other comprehensive income (loss)	(158)		(1,773)		19		(3,253)

The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $2.7 million and $4.0 million at June 30, 2021 and December 31, 2020, 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 $2.3 million 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,
	2021		2020		2021		2020
	(in thousands)
Derivative - interest rate swap:
Interest income	$	—	$	71	$	—	$	82
Interest expense	80		—		80		—
Hedged item - subordinated debt and loans:
Interest income	$	—	$	(71)	$	—	$	(82)
Interest expense	(83)		—		(83)		—

The following table presents the hedged items related to interest rate derivatives designated as hedges of fair value and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at June 30, 2021.


Line Item in the Statement of Financial Position in Which the Hedged Item is Included	Carrying Amount of the Hedged Liability		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
	(in thousands)
Long-term borrowings	$	(300,083)	$	(83)

The net (gains) losses 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,
	2021		2020		2021		2020
	(in thousands)
Non-designated hedge interest rate swaps and credit derivatives
Other non-interest expense	$	(2,210)	$	1,416	$	(425)	$	1,505

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 $7.6 million and $14.7 million for the three months ended June 30, 2021 and 2020, respectively, and $13.8 million and $28.9 million for the six months ended June 30, 2021 and 2020, respectively.

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, 2021, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of June 30, 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $79.6 million. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.

Note 12. Balance Sheet Offsetting

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

Valley is party to master netting arrangements with its financial institution counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by 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.

The table below presents information about Valley’s financial instruments eligible for offset in the consolidated statements of financial condition as of June 30, 2021 and December 31, 2020.


							Gross Amounts Not Offset
	Gross Amounts Recognized		Gross Amounts Offset		Net Amounts Presented		Financial Instruments			Cash Collateral (1)		Net Amount
	(in thousands)
June 30, 2021
Assets:
Interest rate swaps	$	248,520	$	—	$	248,520	$	—		$	—	$	248,520
Liabilities:
Interest rate swaps	$	80,564	$	—	$	80,564	$	—		$	(72,732)	$	7,832
Repurchase agreements	300,000		—		300,000		(300,000)		(2)	—		—
Total	$	380,564	$	—	$	380,564	$	(300,000)		$	(72,732)	$	7,832
December 31, 2020
Assets:
Interest rate swaps	$	150,487	$	—	$	150,487	$	—		$	—	$	150,487
Liabilities:
Interest rate swaps	$	150,487	$	—	$	150,487	$	—		$	(150,487)	$	—
Repurchase agreements	300,000		—		300,000		(300,000)		(2)	—		—
Total	$	450,487	$	—	$	450,487	$	(300,000)		$	(150,487)	$	—

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

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

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 Community Reinvestment Act (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.

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, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
	(in thousands)
Other Assets:
Affordable housing tax credit investments, net	$	18,298	$	20,074
Other tax credit investments, net	43,066		47,301
Total tax credit investments, net	$	61,364	$	67,375
Other Liabilities:
Unfunded affordable housing tax credit commitments	$	1,379	$	1,379

Total unfunded tax credit commitments	$	1,379	$	1,379

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, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Components of Income Tax Expense:
Affordable housing tax credits and other tax benefits	$	899	$	1,393	$	1,796	$	2,627
Other tax credit investment credits and tax benefits	2,743		2,540		5,428		3,840
Total reduction in income tax expense	$	3,642	$	3,933	$	7,224	$	6,467
Amortization of Tax Credit Investments:
Affordable housing tax credit investment losses	$	460	$	537	$	1,003	$	1,091
Affordable housing tax credit investment impairment losses	431		665		772		1,083
Other tax credit investment losses	351		679		524		1,223
Other tax credit investment impairment losses	1,730		1,535		3,417		3,247
Total amortization of tax credit investments recorded in non-interest expense	$	2,972	$	3,416	$	5,716	$	6,644

Note 14. Business Segments

Valley has four business segments that it monitors and reports on to manage Valley’s business operations. These segments are consumer lending, commercial lending, investment management, and corporate and other adjustments. Valley’s reportable segments have been determined based upon its internal structure of operations and lines of business. Each business segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from the corporate and other adjustments segment to each of the other three business segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/or liabilities outstanding for the period. The financial reporting for each segment contains allocations and reporting in line with Valley’s operations, which may not necessarily be comparable to any other financial institution. The accounting for each segment includes internal accounting policies designed to measure consistent and reasonable financial reporting and may result in income and expense measurements that differ from amounts under U.S. GAAP. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data.

The following tables represent the financial data for Valley’s four business segments for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30, 2021
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,150,137		$	25,485,161		$	5,272,116		$	—	$	37,907,414

Interest income	$	59,419		$	255,895		$	19,239		$	(905)	$	333,648
Interest expense	5,192			18,467			3,867			5,215		32,741
Net interest income (loss)	54,227			237,428			15,372			(6,120)		300,907
Provision (credit) for credit losses	711			8,066			(30)			—		8,747
Net interest income (loss) after provision for credit losses	53,516			229,362			15,402			(6,120)		292,160
Non-interest income	21,915			9,819			2,475			8,917		43,126
Non-interest expense	19,792			27,241			(258)			125,118		171,893
Internal transfer expense (income)	19,862			71,207			14,632			(105,701)		—
Income (loss) before income taxes	$	35,777		$	140,733		$	3,503		$	(16,620)	$	163,393
Return on average interest earning assets (pre-tax)	2.00		%	2.21		%	0.27		%	N/A		1.72		%


	Three Months Ended June 30, 2020
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,214,368		$	24,826,832		$	5,737,187		$	—	$	37,778,387

Interest income	$	66,807		$	255,152		$	27,623		$	(1,057)	$	348,525
Interest expense	11,469			40,640			9,728			4,129		65,966
Net interest income (loss)	55,338			214,512			17,895			(5,186)		282,559
Provision for credit losses	3,106			38,009			41			—		41,156
Net interest income (loss) after provision for credit losses	52,232			176,503			17,854			(5,186)		241,403
Non-interest income	17,175			16,172			5,823			5,660		44,830
Non-interest expense	20,440			23,250			642			112,834		157,166
Internal transfer expense (income)	19,406			66,858			15,505			(101,769)		—
Income (loss) before income taxes	$	29,561		$	102,567		$	7,530		$	(10,591)	$	129,067
Return on average interest earning assets (pre-tax)	1.64		%	1.65		%	0.52		%	N/A		1.37		%


	Six Months Ended June 30, 2021
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,099,973		$	25,509,061		$	5,039,222		$	—	$	37,648,256

Interest income	$	120,264		$	508,231		$	38,748		$	(1,797)	$	665,446
Interest expense	11,607			41,702			8,238			10,325		71,872
Net interest income (loss)	108,657			466,529			30,510			(12,122)		593,574
(Credit) provision for credit losses	(1,924)			19,715			(388)			—		17,403
Net interest income (loss) after provision for credit losses	110,581			446,814			30,898			(12,122)		576,171
Non-interest income	35,600			17,533			4,806			16,420		74,359
Non-interest expense	39,641			52,772			1,520			238,173		332,106
Internal transfer expense (income)	39,364			141,790			27,881			(209,035)		—
Income (loss) before income taxes	$	67,176		$	269,785		$	6,303		$	(24,840)	$	318,424
Return on average interest earning assets (pre-tax)	1.89		%	2.12		%	0.25		%	N/A		1.69		%


	Six Months Ended June 30, 2020
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,215,756		$	23,804,558		$	5,205,918		$	—	$	36,226,232

Interest income	$	135,062		$	520,027		$	59,392		$	(2,163)	$	712,318
Interest expense	31,169			102,826			22,488			7,937		164,420
Net interest income (loss)	103,893			417,201			36,904			(10,100)		547,898
Provision for credit losses	9,891			65,148			800			—		75,839
Net interest income (loss) after provision for credit losses	94,002			352,053			36,104			(10,100)		472,059
Non-interest income	31,852			31,771			8,965			13,639		86,227
Non-interest expense	40,311			47,408			1,029			224,074		312,822
Internal transfer expense (income)	39,741			131,054			28,680			(199,475)		—
Income (loss) before income taxes	$	45,802		$	205,362		$	15,360		$	(21,060)	$	245,464
Return on average interest earning assets (pre-tax)	1.27		%	1.73		%	0.59		%	N/A		1.36		%

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 1, 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.

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, including the potential effects of the COVID-19 pandemic on our businesses and financial results and conditions. These statements may be identified by such forward-looking terminology as “should,” “expect,” “believe,” “view,” “will,” “opportunity,” “allow,” “continues,” “would,” “could,” “typically,” “usually,” “anticipate,” 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 continued impact of COVID-19 on the U.S. and global economies, including business disruptions, reductions in employment 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 of COVID-19 may arise in our primary markets;

•potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic or as a result of our actions in response to, or failure to implement or effectively implement, federal, state and local laws, rules or executive orders requiring that we grant forbearances or not act to collect our loans;

•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;

•failure to obtain shareholder or regulatory approval for the acquisition of The Westchester Bank Holding Corporation (Westchester) on the anticipated terms and within the anticipated timeframe;

•the inability to realize expected cost savings and synergies from the Westchester acquisition in amounts or in the timeframe anticipated;

•costs or difficulties relating to Westchester integration matters might be greater than expected;

•the inability to retain customers and qualified employees of Westchester;

•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 and Alabama, 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;

•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;

•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; and

•the failure of other financial institutions with whom we have trading, clearing, counterparty and other financial relationships.

A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020 and Item 1A of this Quarterly Report.

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, 2021, 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 with the Audit Committee of Valley’s Board of Directors. Our critical accounting policies are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2020.

New Authoritative Accounting Guidance

See Note 4 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, 2021, Valley had consolidated total assets of approximately $41.3 billion, total net loans of $32.1 billion, total deposits of $33.2 billion and total shareholders’ equity of $4.7 billion. Our commercial bank operations include branch office locations in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn, Queens, and Long Island, Florida and Alabama. Of our current 226 branch network, 58 percent, 17 percent, 18 percent and 7 percent of the branches are in New Jersey, New York, Florida and Alabama, respectively. Despite targeted branch consolidation activity, we have significantly grown both in asset size and locations over the past several years primarily through bank acquisitions.

The Westchester Bank Holding Corporation. On June 29, 2021, Valley announced that it will acquire The Westchester Bank Holding Corporation (“Westchester”) and its principal subsidiary, The Westchester Bank which is headquartered in White Plains, New York. Westchester has approximately $1.3 billion in assets, $908 million in loans, $1.1 billion in deposits, and maintains a seven branch network that will provide Valley with a physical footprint and additional commercial lending expertise in the demographically attractive Westchester County, New York market. The acquisition is expected to close in the fourth quarter 2021, subject to standard regulatory approvals, approval of Westchester stockholders, as well as other customary conditions. See Note 1 to the consolidated financial statements for additional information.

Impact of COVID-19. Broad based public vaccination rollouts, government stimulus, continued business re-openings and increased consumer activity (as social restrictions have eased) led to a sharp rebound in economic activity during the second quarter 2021. However, there are substantial variations in the pace of recovery across and within corporate sectors, and certain industries remain vulnerable to a loss of the economic momentum due to labor shortages and other factors. In addition, the potential rise of Delta variant cases may threaten to undermine the economic recovery.

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 $1.8 billion of these loans have received forgiveness from the SBA, including $1.0 billion during the second quarter 2021. As of June 30, 2021, we had approximately $1.4 billion of PPP loans still outstanding.

In response to the COVID-19 pandemic and its economic impact on certain customers and in accordance with provisions set forth by the CARES Act, Valley implemented short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant, when requested by customers. As of June 30, 2021, Valley had $142 million of outstanding loans remaining in their payment deferral period under short-term modifications representing approximately 0.4 percent of our total loan portfolio at June 30, 2021 as compared to $361 million, or 1.1 percent of total loans at December 31, 2020.

We continue to monitor the impact of COVID-19 closely, including its impact on our employees, customers, communities and results of operations, as well as any effects that may result from the CARES Act, Appropriations Act and other government stimulus or Federal Reserve actions. However, the extent to which the COVID-19 pandemic will impact our operations and financial results during the second half of 2021 and beyond is highly uncertain. See the "Operating Environment" section of MD&A for more details.

We continue to closely monitor local conditions in the areas we serve and will take actions as circumstances warrant, which may necessitate certain branches or other office closures and reduced lobby services. The majority of our non-customer facing employees have returned to our offices in July 2021 with flexible hybrid work schedules. We continue to follow proper protocols designed to ensure safety of our employees and customers.

Quarterly Results. Net income for the second quarter 2021 was $120.5 million, or $0.29 per diluted common share, compared to $95.6 million, or $0.23 per diluted common share, for the second quarter 2020. The $24.9 million increase in quarterly net income as compared to the same quarter one year ago was largely due to:

•an $18.3 million increase in net interest income mainly due to (i) lower rates on our deposit products combined with a continued customer shift to deposits without stated maturities, (ii) continued run-off of higher cost time deposits, (iii) the prepayment of $534 million of long-term FHLB advances with a combined weighted average interest rate of 2.48 percent in December 2020, and (iv) interest and fee income from PPP loans and other organic loan growth; and

•a $32.4 million decrease in our provision for credit losses mainly due to the improved economic forecast component of the reserve as compared to June 30, 2020,

partially offset by:

•a $1.7 million decrease in non-interest income due to the combination of lower commercial loan customer swap fees and BOLI income, partially offset by moderate increases in other fee categories;

•a $14.7 million increase in non-interest expense due to higher salary and employee benefits expenses and an $8.4 million loss on the early extinguishment of debt in June 2021; and

•a $9.4 million increase in income tax expense mainly due to the increase in income before income taxes.

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 2021 results.

Operating Environment. During the second quarter 2021, real gross domestic product expanded 6.5 percent as compared to 6.3 percent growth in the first quarter of the year. The acceleration in growth was driven primarily by personal consumption, particularly for services. Residential investment was lower and inventory restocking continued to drag on overall activity, driven in part by supply chain constraints. Although economic activity has rebounded from the sharp recession in the first half of 2020, the pace of growth is likely to moderate through the remainder of 2021.

The Federal Reserve continued to maintain its stance on monetary policy. At the July meeting, the Federal Open Market Committee maintained the target range for the federal funds rate between zero and 0.25 percent. Additionally, the Committee maintained several programs, including purchasing Treasury and mortgage-backed securities to support the flow of credit to households and businesses in order to promote its maximum employment and price stability goals.

The 10-year U.S. Treasury note yield ended the second quarter at 1.45 percent, 29 basis points lower as compared with March 31, 2021. The spread between the 2- and 10-year U.S. Treasury note yields ended the second quarter 2021 at 1.20 percent, 38 basis points narrower as compared to the end of the first quarter 2021 and 70 basis points wider as compared to June 30, 2020.

For all commercial banks in the U.S., loans and leases increased approximately 0.1 percent in the second quarter 2021 as compared to the previous quarter. For the industry, the trend for loans secured by multifamily residential structures persisted and banks continued to relax lending standards which drove demand to its highest level in over a year. However, the picture for other types of commercial lending remained mixed. During the quarter, lending standards in the industry were relaxed for these products, but this did not influence increased demand.

In the second quarter 2021, Valley's originations increased from commercial real estate loans, residential mortgage and automobile lending. We witnessed stronger origination pipeline for commercial real estate loans across our market areas. However, should loan demand weaken or the expected recovery from the COVID-19 pandemic in Valley's primary markets be prolonged, our business operations and results could be adversely impacted, as highlighted elsewhere in this MD&A.

Loans. Total loans decreased $229.0 million to $32.5 billion at June 30, 2021 from March 31, 2021 due to a $1.0 billion decrease in PPP loans within the commercial and industrial loan category. Offsetting this impact, our non-PPP loan portfolio increased $785.0 million, or 10.4 percent on an annualized basis, to $31.1 billion at June 30, 2021 from $30.3 billion at March 31, 2021. The increase in non-PPP loans was largely driven by increases of $588.5 million, $166.5 million and $86.4 million in the commercial real estate, residential mortgage and auto loan categories, respectively. Additionally, our second quarter 2021 new and refinanced loan originations included approximately $254 million of residential mortgage loans originated for sale. Net gains on sales of residential loans were $10.1 million and $3.5 million in the second quarter 2021 and first quarter 2021, respectively. See further details on our loan activities under the “Loan Portfolio” section below.

Asset Quality. Total non-performing assets (NPAs), consisting of non-accrual loans, other real estate owned (OREO), and other repossessed assets increased $16.1 million to $226.6 million at June 30, 2021 as compared to

March 31, 2021. Non-accrual loans increased $16.0 million to $220.0 million at June 30, 2021 as compared to March 31, 2021 mainly due to a $17.6 million increase in non-accrual construction loans almost entirely related to one borrower relationship with $3.0 million of related allowance reserves as of June 30, 2021. Non-accrual loans represented 0.68 percent of total loans at June 30, 2021, as compared to 0.62 percent at March 31, 2021.

Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) increased $27.5 million to $80.2 million, or 0.25 percent of total loans, at June 30, 2021 as compared to $52.8 million, or 0.16 percent of total loans, at March 31, 2021 driven by a $36.8 million increase in the commercial real estate loan delinquencies, partially offset by an improvement in the early stage delinquencies in the residential mortgage loan category. See further details in the "Non-performing Assets" section below.

Deposits and Other Borrowings. Average non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 32 percent, 54 percent and 14 percent of total deposits as of June 30, 2021, respectively. Overall, average deposits increased by $887.9 million to $32.7 billion for the second quarter 2021 as compared to the first quarter 2021. Our mix of the deposit categories within total average deposits for the second quarter 2021 as compared to the first quarter 2021 experienced a continued shift of maturing time deposits and a consumer preference to non-maturity deposit accounts due to the low level of interest rates.

Actual ending balances for deposits increased $609.6 million to approximately $33.2 billion at June 30, 2021 from March 31, 2021 largely due to increases of $1.3 billion and $475.9 million in the non-maturity interest bearing deposit and non-interest bearing deposit categories, respectively, partially offset by a $1.1 billion decrease in time deposits. The decrease in time deposits was driven by normal run-off of maturing retail and brokered CDs with some continued migration of retail balances to more liquid deposit product categories. Total brokered deposits (consisting of both time and money market deposit accounts) decreased approximately $321 million to $2.0 billion at June 30, 2021 as compared to $2.3 billion at March 31, 2021. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 32 percent, 55 percent and 13 percent of total deposits as of June 30, 2021, respectively. While we believe the current operating environment will likely 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, 2021.

Average short-term borrowings decreased $294.7 million to $873.9 million for the second quarter 2021 as compared to the first quarter 2021 due to debt maturities funded with excess cash liquidity from increased deposits. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased by $122.4 million to $2.2 billion for the second quarter 2021 as compared to the first quarter 2021, partly due to Valley's redemption of $60 million of callable 6.25 percent subordinated notes on April 1, 2021 and other normal repayments of maturing FHLB borrowings.

Actual ending balances for short-term borrowings decreased by $230.3 million to $854.4 million at June 30, 2021 as compared to March 31, 2021 due to repayments of FHLB borrowings. Long-term borrowings decreased by $357.2 million to $1.9 billion at June 30, 2021 as compared to March 31, 2021 mainly due to the combination the prepayment of approximately $248 million of long-term FHLB advances in June 2021, the aforementioned redemption of $60 million in subordinated notes and other normal repayments of maturing FHLB advances, partially offset by the issuance of $300 million of 3.00 percent subordinated notes. See Note 9 to the consolidated financial statements for additional information.

Selected Performance Indicators. The following table presents our annualized performance ratios for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Return on average assets	1.17	%	0.92	%	1.15	%	0.92	%
Return on average assets, as adjusted	1.23		0.93		1.18		0.93

Return on average shareholders’ equity	10.24		8.54		10.10		8.23
Return on average shareholders’ equity, as adjusted	10.76		8.57		10.37		8.29

Return on average tangible shareholders’ equity (ROATE)	14.79		12.66		14.64		12.26
ROATE, as adjusted	15.54		12.70		15.03		12.34

Adjusted return on average assets, adjusted return on average shareholders' equity, ROATE and adjusted ROATE included in the table above are non-GAAP measures. Management believes these measures provide information useful to management and investors in understanding our underlying operational performance, business and performance trends, and the measures facilitate comparisons of our prior performance 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. The non-GAAP measure reconciliations are presented below.

Adjusted net income is computed as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Net income, as reported	$	120,512	$	95,601	$	236,222	$	182,869
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)	81		29		166		58

Add: Merger related expenses (net of tax) (b)	—		263		—		1,199

Net income, as adjusted	$	126,617	$	95,893	$	242,412	$	184,126

(a) Included in gains on securities transactions, net within other non-interest income.

(b) Merger related expenses are primarily within professional and legal fees, and other non-interest 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 and 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 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,
	2021			2020			2021			2020
	($ in thousands)
Net income, as adjusted	$	126,617		$	95,893		$	242,412		$	184,126
Average assets	$	41,161,459		$	41,429,725		$	40,967,174		$	39,773,288
Annualized return on average assets, as adjusted	1.23		%	0.93		%	1.18		%	0.93		%

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,
	2021			2020			2021			2020
	($ in thousands)
Net income, as adjusted	$	126,617		$	95,893		$	242,412		$	184,126
Average shareholders' equity	$	4,708,797		$	4,477,446		$	4,677,273		$	4,443,016
Annualized return on average shareholders' equity, as adjusted	10.76		%	8.57		%	10.37		%	8.29		%

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,
	2021			2020			2021			2020
	($ in thousands)
Net income	$	120,512		$	95,601		$	236,222		$	182,869
Net income, as adjusted	126,617			95,893			$	242,412		$	184,126
Average shareholders’ equity	$	4,708,797		$	4,477,446		$	4,677,273		$	4,443,016
Less: Average goodwill and other intangible assets	1,449,388			1,456,781			1,450,562			1,458,885
Average tangible shareholders’ equity	$	3,259,409		$	3,020,665		$	3,226,711		$	2,984,131
Annualized ROATE	14.79		%	12.66		%	14.64		%	12.26		%
Annualized ROATE, as adjusted	15.54		%	12.70		%	15.03		%	12.34		%

Valley 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 $301.8 million for the second quarter 2021 increased $8.2 million and $18.2 million as compared to the first quarter 2021 and second quarter 2020, respectively. The increase as compared to the first quarter 2021 was mainly due to (i) continued run-off of higher cost time deposits and some account balance migration to lower cost deposits without stated maturities, (ii) repayment of FHLB advances upon their maturity, (iii) the redemption of $60 million of callable 6.25 percent subordinated notes on April 1, 2021 and (iv) a slightly higher yield on the PPP loan portfolio due to the accelerated recognition of unearned loan fees for loans forgiven during the second quarter 2021. Interest expense of $32.7 million for the second quarter 2021 decreased $6.4 million as compared to the first quarter 2021 as we continue to reduce our cost of funding in the low rate environment. Interest income on a tax equivalent basis in the second quarter 2021 increased by $1.8 million to $334.5 million as compared to the first quarter 2021 mainly due to moderately higher earned fees on our loan

portfolio driven by the accelerated recognition of unearned PPP loan fees, partially offset by lower yields on our investment securities portfolio.

Average interest earning assets increased $129.0 million to $37.9 billion for the second quarter 2021 as compared to the second quarter 2020 primarily due to organic loan growth, including PPP loans, over the 12-month period, partially offset by principal repayments on residential mortgage-backed securities and lower overall reinvestment in our investment securities portfolio. As compared to the first quarter 2021, average interest earning assets increased by $521.2 million from $37.4 billion, mostly driven by higher levels of excess liquidity held in overnight investments with banks caused by the surge in customer deposit balances and fluctuations in timing of loan and investment funding.

Average interest bearing liabilities decreased $2.0 billion to $25.5 billion for the second quarter 2021 as compared to the second quarter 2020 primarily due to the repayments of overnight and other short-term borrowings, repayments of long-term FHLB advances and the redemption of $60 million in callable subordinated debt. As compared to the first quarter 2021, average interest bearing liabilities decreased by $484.7 million in the second quarter 2021 mainly due to the continued repayments of short-term and long-term borrowings and redemption of $60 million in subordinated debt, partially offset by the surge in customer deposits, as well as some growth in relatively new deposit initiatives, including our marijuana related business (MRB) with a few large state licensed customers in our primary markets. Total average deposits increased $887.9 million to $32.7 billion for the second quarter 2021 as compared to the first quarter 2021. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.

Our net interest margin on a tax equivalent basis of 3.18 percent for the second quarter 2021 increased by 4 basis points and 18 basis points from 3.14 percent and 3.00 percent for the first quarter 2021 and second quarter 2020, respectively. The yield on average interest earning assets decreased by 3 basis points on a linked quarter basis, mostly due to the lower yield on our investment securities portfolio, a higher mix of excess cash liquidity held in low yielding overnight investments, partially offset by the positive impact of one more day during the second quarter 2021 as compared to first quarter 2021. The yield on average loans increased by 2 basis points to 3.87 percent for the second quarter 2021 as compared to the first quarter 2021 partially due to the accelerated recognition of unearned PPP loan fees during the second quarter 2021. The overall cost of average interest bearing liabilities decreased 9 basis points to 0.51 percent for the second quarter 2021 as compared to the linked first quarter 2021 and was largely due to continued runoff of time deposits and the customer shift to lower cost deposits without stated maturities. Additionally, the net interest margin benefited from a 7 basis point decrease in the average cost of short-term borrowings driven by our greater reliance on funding from deposits and the repayment of FHLB advances during the second quarter 2021. Our cost of total average deposits was 0.21 percent for the second quarter 2021 as compared to 0.28 percent for the first quarter 2021.

Looking forward, we expect moderate ongoing interest rate pressures on our net interest margin for the second half of 2021 and beyond due to the low level of market rates and the potential negative impact on the overall yield on new and refinanced loan originations. However, we are also encouraged by the continued potential opportunity to repay or reprice stated maturity deposits and borrowings maturing at low costs during the remainder of 2021.

The following table reflects the components of net interest income for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020:

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

Net Interest Income on a Tax Equivalent Basis


	Three Months Ended
	June 30, 2021						March 31, 2021						June 30, 2020
	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
	($ in thousands)
Assets
Interest earning assets:
Loans (1)(2)	$	32,635,298	$	315,339	3.87	%	$	32,582,479	$	313,206	3.85	%	$	32,041,200	$	321,883	4.02	%
Taxable investments (3)	3,159,842		14,883		1.88		3,111,116		15,037		1.93		3,673,090		22,539		2.45
Tax-exempt investments (1)(3)	498,971		4,071		3.26		513,809		4,248		3.31		562,172		4,673		3.32
Interest bearing deposits with banks	1,613,303		235		0.06		1,178,815		224		0.08		1,501,925		411		0.11
Total interest earning assets	37,907,414		334,528		3.53		37,386,219		332,715		3.56		37,778,387		349,506		3.70
Allowance for credit losses	(350,388)						(347,262)						(284,184)
Cash and due from banks	335,083						312,882						424,625
Other assets	3,237,689						3,373,506						3,466,724
Unrealized gains on securities available for sale, net	31,661						45,386						44,173
Total assets	$	41,161,459					$	40,770,731					$	41,429,725
Liabilities and shareholders’ equity
Interest bearing liabilities:
Savings, NOW and money market deposits	$	17,784,985	$	11,166	0.25	%	$	16,617,762	$	11,125	0.27	%	$	13,715,162	$	16,627	0.48	%
Time deposits	4,609,778		6,279		0.54		5,844,524		11,093		0.76		8,585,782		29,857		1.39
Total interest bearing deposits	22,394,763		17,445		0.31		22,462,286		22,218		0.40		22,300,944		46,484		0.83
Short-term borrowings	873,927		1,168		0.53		1,168,617		1,758		0.60		2,317,992		1,980		0.34
Long-term borrowings (4)	2,200,836		14,128		2.57		2,323,279		15,155		2.61		2,886,016		17,502		2.43
Total interest bearing liabilities	25,469,526		32,741		0.51		25,954,182		39,131		0.60		27,504,952		65,966		0.96
Non-interest bearing deposits	10,328,412						9,373,000						8,463,230
Other liabilities	654,724						798,149						984,097
Shareholders’ equity	4,708,797						4,645,400						4,477,446
Total liabilities and shareholders’ equity	$	41,161,459					$	40,770,731					$	41,429,725
Net interest income/interest rate spread (5)			$	301,787	3.02	%			$	293,584	2.96	%			$	283,540	2.74	%
Tax equivalent adjustment			(880)						(917)						(981)
Net interest income, as reported			$	300,907					$	292,667					$	282,559
Net interest margin (6)					3.18	%					3.13	%					2.99	%
Tax equivalent effect					0.00						0.01						0.01
Net interest margin on a fully tax equivalent basis (6)					3.18	%					3.14	%					3.00	%

The following table reflects the components of net interest income for the six months ended June 30, 2021 and 2020:


	Six Months Ended
	June 30, 2021						June 30, 2020
	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
	($ in thousands)
Assets
Interest earning assets:
Loans (1)(2)	$	32,609,034	$	628,545	3.86	%	$	31,020,314	$	654,951	4.22	%
Taxable investments (3)	3,135,614		29,920		1.91		3,615,502		47,873		2.65
Tax-exempt investments (1)(3)	506,349		8,319		3.29		574,080		9,643		3.36
Interest bearing deposits with banks	1,397,259		459		0.07		1,016,336		1,876		0.37
Total interest earning assets	37,648,256		667,243		3.54		36,226,232		714,343		3.94
Allowance for credit losses	(348,834)						(270,430)
Cash and due from banks	324,044						331,800
Other assets	3,305,222						3,459,441
Unrealized gains (losses) on securities available for sale, net	38,486						26,245
Total assets	$	40,967,174					$	39,773,288
Liabilities and shareholders’ equity
Interest bearing liabilities:
Savings, NOW and money market deposits	$	17,204,598	$	22,291	0.26	%	$	13,477,273	$	51,140	0.76	%
Time deposits	5,223,740		17,372		0.67		8,741,858		72,671		1.66
Total interest bearing deposits	22,428,338		39,663		0.35		22,219,131		123,811		1.11
Short-term borrowings	1,020,458		2,926		0.57		1,820,346		6,687		0.73
Long-term borrowings (4)	2,261,719		29,283		2.59		2,830,533		33,922		2.40
Total interest bearing liabilities	25,710,515		71,872		0.56		26,870,010		164,420		1.22
Non-interest bearing deposits	9,853,345						7,578,666
Other liabilities	726,041						881,596
Shareholders’ equity	4,677,273						4,443,016
Total liabilities and shareholders’ equity	$	40,967,174					$	39,773,288
Net interest income/interest rate spread (5)			$	595,371	2.98	%			$	549,923	2.72	%
Tax equivalent adjustment			(1,797)						(2,025)
Net interest income, as reported			$	593,574					$	547,898
Net interest margin (6)					3.15	%					3.02	%
Tax equivalent effect					0.01	%					0.02	%
Net interest margin on a fully tax equivalent basis (6)					3.16	%					3.04	%

_____________

(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.

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, 2021 Compared to June 30, 2020						Six Months Ended June 30, 2021 Compared to June 30, 2020
	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*	$	5,894	$	(12,438)	$	(6,544)	$	32,462	$	(58,868)	$	(26,406)
Taxable investments	(2,875)		(4,781)		(7,656)		(5,782)		(12,171)		(17,953)
Tax-exempt investments*	(517)		(85)		(602)		(1,117)		(207)		(1,324)
Interest bearing deposits with banks	29		(205)		(176)		522		(1,939)		(1,417)
Total increase (decrease) in interest income	2,531		(17,509)		(14,978)		26,085		(73,185)		(47,100)
Interest Expense:
Savings, NOW and money market deposits	4,028		(9,489)		(5,461)		11,389		(40,238)		(28,849)
Time deposits	(10,191)		(13,387)		(23,578)		(22,202)		(33,097)		(55,299)
Short-term borrowings	(1,599)		787		(812)		(2,508)		(1,253)		(3,761)
Long-term borrowings and junior subordinated debentures	(4,350)		976		(3,374)		(7,208)		2,569		(4,639)
Total decrease in interest expense	(12,112)		(21,113)		(33,225)		(20,529)		(72,019)		(92,548)
Total increase (decrease) in net interest income	$	14,643	$	3,604	$	18,247	$	46,614	$	(1,166)	$	45,448

*Interest income is presented on a tax equivalent basis using 21 percent as the federal tax rate.

Non-Interest Income

Non-interest income decreased $1.7 million and $11.9 million for the three and six months ended June 30, 2021 as compared to the same periods of 2020. The following table presents the components of non-interest income for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Trust and investment services	$	3,532	$	2,826	$	6,861	$	6,239
Insurance commissions	2,637		1,659		4,195		3,610
Service charges on deposit accounts	5,083		3,557		10,186		9,237
Gains (losses) on securities transactions, net	375		(41)		476		(81)
Fees from loan servicing	3,187		2,227		6,086		4,975
Gains on sales of loans, net	10,061		8,337		13,574		12,887
Gains (losses) on sales of assets, net	232		(299)		36		(178)
Bank owned life insurance	2,475		5,823		4,806		8,965
Other	15,544		20,741		28,139		40,573
Total non-interest income	$	43,126	$	44,830	$	74,359	$	86,227

Service charges of deposits accounts increased by $1.5 million and $949 thousand for the three and six months ended June 30, 2021, respectively as compared to the same periods in 2020, which was mostly due to a decline in waived fees largely related to COVID-19 customer relief efforts during the second quarter 2020.

Net gains on sales of loans increased $1.7 million for the three months ended June 30, 2021 as compared to the second quarter 2020. Our 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 period end. The net decrease in the fair value of loans held for sale totaled $460 thousand for the three months ended June 30, 2021 as compared to a net increase of $3.2 million for the three months ended June 30, 2020. During the second quarter 2021, we sold approximately $326.2 million of residential mortgage loans as compared to $237.1 million during the second quarter 2020. See further discussion of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.

Bank owned life insurance income decreased $3.3 million and $4.2 million for the three and six months ended June 30, 2021, respectively, as compared to the same periods in 2020 partly due to lower yields on the underlying fixed income investments held by insurance policies and periodic death benefits received in the second quarter 2020.

Other non-interest income decreased $5.2 million and $12.4 million for the three and six months ended June 30, 2021, respectively, mainly caused by lower fee income related to derivative interest rate swaps executed with commercial lending customers due to lower transaction volumes. Swap fee income totaled $7.6 million and $14.7 million for the three months ended June 30, 2021 and 2020, respectively, and $13.8 million and $28.9 million for the six months ended June 30, 2021 and 2020, respectively.

Non-Interest Expense

Non-interest expense increased $14.7 million and $19.3 million for the three and six months ended June 30, 2021, respectively, as compared to the same periods of 2020. The following table presents the components of non-interest expense for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(in thousands)
Salary and employee benefits expense	$	91,095	$	78,532	$	179,198	$	164,260
Net occupancy and equipment expense	32,451		33,217		64,710		65,658
FDIC insurance assessment	3,374		6,135		6,650		10,011
Amortization of other intangible assets	5,449		6,681		11,455		12,151
Professional and legal fees	7,486		7,797		13,758		13,884
Loss on extinguishment of debt	8,406		—		8,406		—
Amortization of tax credit investments	2,972		3,416		5,716		6,644
Telecommunications expense	2,732		2,866		5,892		5,153
Other	17,928		18,522		36,321		35,061
Total non-interest expense	$	171,893	$	157,166	$	332,106	$	312,822

Salary and employee benefits expense increased $12.6 million and $14.9 million for the three and six months ended June 30, 2021, respectively, as compared to the same periods of 2020 primarily due to strategic increases in our headcount to enhance lending and operations, increased health insurance costs, and higher cash and stock-based incentive compensation accruals. The six months ended June 30, 2020 period included a special bonus expense of $1.8 million paid to hourly employees impacted by COVID-19 that was incurred in the first quarter 2020.

FDIC insurance assessment expense decreased $2.8 million and $3.4 million for the three and six months ended June 30, 2021, respectively, as compared to the same periods of 2020 partially due to the Bank's improved capital position and overall risk profile.

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. The prepayments were funded by excess cash liquidity at the Bank. See Note 9 to the consolidated financial statements for additional information regarding our borrowed funds.

See Notes 8 and 13 to the consolidated financial statements for information regarding the amortization of other intangible assets and tax credit investments, respectively.

Efficiency Ratio

The efficiency ratio measures total non-interest expense as a percentage of net interest income plus total non-interest income. We believe this non-GAAP measure provides a meaningful comparison of our operational performance and facilitates investors’ assessments of business performance and trends in comparison to our peers in the banking industry. Our overall efficiency ratio, and its comparability to some of our peers, is negatively impacted primarily by the amortization of tax credit investments, as well as infrequent charges within non-interest income and expense, including, but not limited to loss on extinguishment of debt and merger related expenses.

The following table presents our efficiency ratio and a reconciliation of the efficiency ratio adjusted for certain items during the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
	($ in thousands)
Total non-interest expense	$	171,893		$	157,166		$	332,106		$	312,822
Less: Loss on extinguishment of debt (pre-tax)	8,406			—			8,406			—

Less: Amortization of tax credit investments (pre-tax)	2,972			3,416			5,716			6,644


Less: Merger related expenses (pre-tax) (a)	—			366			—			1,668
Total non-interest expense, adjusted	$	160,515		$	153,384		$	317,984		$	304,510
Net interest income	$	300,907		$	282,559		$	593,574		$	547,898
Total non-interest income	43,126			44,830			74,359			86,227

Add: Losses on available for sale and held to maturity securities transactions, net (pre-tax) (b)	113			41			231			81


Total net interest income and non-interest income	$	344,146		$	327,430		$	668,164		$	634,206
Efficiency ratio	49.96		%	48.01		%	49.72		%	49.33		%
Efficiency ratio, adjusted	46.64		%	46.84		%	47.59		%	48.01		%

(a) Merger related expenses are primarily within professional and legal fees, and other non-interest expense.

(b) Included in gains on securities transactions, net within other non-interest income.

Income Taxes

Income tax expense totaled $42.9 million for the second quarter 2021 as compared to $39.3 million and $33.5 million for the first quarter 2021 and second quarter 2020, respectively, and $82.2 million and $62.6 million for the six months ended June 30, 2021 and 2020, respectively. Our effective tax rate was 26.2 percent, 25.4 percent and 25.9 percent for the second quarter 2021, first quarter 2021 and second quarter 2020, respectively. The increase in income tax expense as compared to the first quarter 2021 was mainly due to the increase in 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.

Business Segments

We have four business segments that we monitor and report on to manage our business operations. These segments are consumer lending, commercial lending, investment management, and corporate and other adjustments. Our reportable segments have been determined based upon Valley’s internal structure of operations and lines of business. Each business segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Expenses related to the branch network, all other components of retail banking, along with the back office departments of the Bank are allocated from the corporate and other adjustments segment to each of the other three business segments. Interest expense and internal transfer expense (for general corporate expenses) are allocated to each business segment utilizing a transfer pricing methodology, which

involves the allocation of operating and funding costs based on each segment's respective mix of average earning assets and/or liabilities outstanding for the period. The financial reporting for each segment contains allocations and reporting in line with our 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 following tables present the financial data for each business segment for the three months ended June 30, 2021 and 2020:


	Three Months Ended June 30, 2021
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,150,137		$	25,485,161		$	5,272,116		$	—	$	37,907,414
Income (loss) before income taxes	35,777			140,733			3,503			(16,620)		163,393
Annualized return on average interest earning assets (before tax)	2.00		%	2.21		%	0.27		%	N/A		1.72		%


	Three Months Ended June 30, 2020
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,214,368		$	24,826,832		$	5,737,187		$	—	$	37,778,387
Income (loss) before income taxes	29,561			102,567			7,530			(10,591)		129,067
Annualized return on average interest earning assets (before tax)	1.64		%	1.65		%	0.52		%	N/A		1.37		%

See Note 14 to the consolidated financial statements for additional information.

Consumer Lending

This consumer lending segment represented 21.9 percent of our loan portfolio at June 30, 2021, 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 13.0 percent of our loan portfolio at June 30, 2021) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (representing 4.7 percent of total loans at June 30, 2021) 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. The consumer lending segment also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, and insurance services.

Average interest earning assets in this segment decreased $64.2 million to $7.2 billion for the three months ended June 30, 2021 as compared to the second quarter 2020. The decrease was largely due to runoff from principal repayments with a higher percentage of new and refinanced mortgage loans originated for sale rather than held for investment over the last 12 month period. Automobile loan demand was also tempered during the onset of the COVID-19 pandemic before steadily strengthening since the fourth quarter 2020.

Income before income taxes generated by the consumer lending segment increased $6.2 million to $35.8 million for the second quarter 2021 as compared to the second quarter 2020 largely due to a $4.7 million increase in non-interest income coupled with a $2.4 million decrease in provision for loan losses, partially offset by $1.1 million decrease in the net interest income. The increase in non-interest income was partly due to a $1.7 million increase in net gains on sales of loans for the three months ended June 30, 2021, higher fee income from our wealth management division, and moderate increases in other fee categories as compared to the same period in 2020. The decrease in the provision for loan losses was mainly due to the improvement in the economic forecast component of the allowance for loan losses at June 30, 2021 as compared to June 30, 2020. See further details in the "Allowance for Credit Losses" section of this MD&A. The decrease in net interest income was largely driven by lower yields on new loans and the decline in average loan balances, partially offset by lower funding costs.

The net interest margin on the consumer lending portfolio decreased 2 basis points to 3.03 percent for the second quarter 2021 as compared to the second quarter 2020 mainly due to a 38 basis point decrease in the yield on average loans, partially offset by a 36 basis point decrease in the costs associated with our funding sources. The 38 basis point decrease in loan yield was due to lower yielding new and refinanced loan volumes. The decrease in our funding costs was largely due to continued runoff of time deposits and the customer shift to lower cost deposits without stated maturities and lower rates offered on deposit products. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest margin and funding sources.

Commercial Lending

The commercial lending segment is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, commercial lending is Valley’s business segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately $6.1 billion and represented 18.7 percent of the total loan portfolio at June 30, 2021. Commercial real estate loans and construction loans totaled $19.3 billion and represented 59.4 percent of the total loan portfolio at June 30, 2021.

Average interest earning assets in this segment increased approximately $658.3 million to $25.5 billion for the three months ended June 30, 2021 as compared to the second quarter 2020. The increase was mostly due to strong organic commercial real estate loan growth during the first half of 2021.

For the three months ended June 30, 2021, income before income taxes for the commercial lending segment increased $38.2 million to $140.7 million as compared to the second quarter 2020 mainly driven by a lower

provision for credit losses coupled with and an increase in net interest income. The provision for loan losses decreased by $29.9 million mainly due to the improvement in the economic forecast component of the allowance for loan losses as compared to June 30, 2020. Net interest income for this segment increased $22.9 million to $237.4 million for the second quarter 2021 as compared to the same period in 2020 primarily due to lower funding costs and loan growth. The positive impact of the aforementioned items was partially offset by a decrease in non-interest income and higher internal transfer expense. Non-interest income decreased $6.4 million to $9.8 million for the three months ended June 30, 2021 as compared to the second quarter 2020 mainly due to a $7.1 million decrease in swap fee income related to derivative interest rate swaps executed with commercial loan customers. Internal transfer expense increased $4.3 million for the second quarter 2021 as compared to the second quarter 2020 partly due to general increases related to organic growth in our business.

The net interest margin for this segment increased 27 basis points to 3.73 percent for the second quarter 2021 as compared to the second quarter 2020 due to a 36 basis point decrease in the cost of our funding sources, which was partially offset by a 9 basis point decrease in the yield on average loans.

Investment Management

The investment management segment generates a large portion of our income through investments in various types of securities and interest-bearing deposits with other banks. These investments are mainly comprised of fixed rate securities and, depending on our liquid cash position, federal funds sold and interest-bearing deposits with banks (primarily the Federal Reserve Bank of New York) as part of our asset/liability management strategies. The fixed

rate investments are one of Valley’s least sensitive assets to changes in market interest rates. However, a portion of the investment portfolio is invested in shorter-duration securities to maintain the overall asset sensitivity of our balance sheet. See the “Asset/Liability Management” section below for further analysis.

Average interest earning assets in this segment decreased $465.1 million during the second quarter 2021 as compared to the second quarter 2020 primarily due to a $576.4 million decrease in average investment securities partially offset by a $111.4 million increase in average interest bearing deposits with banks. The decrease in average investment securities was mainly driven by principal repayments on securities with lower reinvestment activity due to the low interest rate environment and funding of loan growth. The increase in overnight investments and deposits with other banks was largely due to our higher levels of excess liquidity during the second quarter 2021.

During the second quarter 2021, income before income taxes for the investment management segment decreased $4.0 million to $3.5 million as compared to the second quarter 2020 mostly due to decreases both in non-interest income and net interest income. Non-interest income decreased $3.3 million to $2.5 million in the second quarter 2021 as compared to the second quarter 2020 mainly due to lower bank owned life insurance income. The decrease in net interest income totaling $2.5 million was primarily due to accelerated repayments of higher yielding securities, higher amortization expense and the low yields on the increased overnight investment balances.

The net interest margin for this segment decreased 11 basis points to 1.17 percent for the second quarter 2021 as compared to the same quarter in 2020 largely due to a 47 basis point decrease in the yield on average investments, partially offset by a 36 basis point decrease in our cost of funding. The decrease in the yield on average investments as compared to the second quarter 2020 was largely driven by principal repayments on higher yielding residential mortgage-backed securities, acceleration of premium amortization expense related to the increased prepayment of mortgage-backed securities and purchases of lower yielding investment securities over the last 12 months.

Corporate and other adjustments

The amounts disclosed as “corporate and other adjustments” represent income and expense items not directly attributable to a specific segment, including net securities gains and losses not reported in the investment management segment above, interest expense related to subordinated notes, amortization and impairment of tax credit investments, as well as non-core items, including merger expenses.

The corporate segment recognized pre-tax losses of $16.6 million and $10.6 million for the three months ended June 30, 2021 and 2020, respectively. The increase in the pre-tax loss for the second quarter 2021 was mainly driven by the $12.3 million increase in non-interest expense partially due to a $8.4 million loss on extinguishment of debt during the three months ended June 30, 2021, partially offset by $3.3 million increase in non-interest income. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A.

The following tables present the financial data for each business segment for the six months ended June 30, 2021 and 2020:


	Six Months Ended June 30, 2021
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,099,973		$	25,509,061		$	5,039,222		$	—	$	37,648,256
Income (loss) before income taxes	67,176			269,785			6,303			(24,840)		318,424
Annualized return on average interest earning assets (before tax)	1.89		%	2.12		%	0.25		%	N/A		1.69		%


	Six Months Ended June 30, 2020
	Consumer Lending			Commercial Lending			Investment Management			Corporate and Other Adjustments		Total
	($ in thousands)
Average interest earning assets	$	7,215,756		$	23,804,558		$	5,205,918		$	—	$	36,226,232
Income (loss) before income taxes	45,802			205,362			15,360			(21,060)		245,464
Annualized return on average interest earning assets (before tax)	1.27		%	1.73		%	0.59		%	N/A		1.36		%

Consumer Lending

Average interest earning assets in this segment decreased $115.8 million to $7.1 billion for the six months ended June 30, 2021 as compared to the same period in 2020. The decrease was largely due to runoff from principal repayments with a higher percentage of new and refinanced mortgage loans originated for sale rather than held for investment over the last 12 month period. Automobile loan demand was also tempered during the onset of the pandemic in early 2020 before steadily strengthening since the fourth quarter 2020.

Income before income taxes generated by the consumer lending segment increased $21.4 million to $67.2 million for the six months ended June 30, 2021 as compared to the same period in 2020 largely due to a lower provision for loan losses and increases in both, net interest income and non-interest income. The provision for loan losses decreased $11.8 million from a $9.9 million provision for the six months ended June 30, 2020 to a credit (negative) provision of $1.9 million for the corresponding period in 2021 mainly due to the improved economic forecast component of the allowance for loan losses as compared to June 30, 2020, as well as better actual loan performance within these loan categories. See further details in the "Allowance for Credit Losses" section of this MD&A. The net interest income and non-interest income increased $4.8 million and $3.7 million, respectively. The increase in net interest income was mainly driven by lower funding costs, which were partially offset by lower loan yields and average loans. The increase in non-interest income was largely attributable to higher net gains on sales of loans for the six months ended June 30, 2021 as compared to the same period in 2020.

The net interest margin on the consumer lending portfolio increased 18 basis points to 3.06 percent for the six months ended June 30, 2021 as compared to the same period one year ago mainly due to a 53 basis point decrease in the costs associated with our funding sources, partially offset by a 35 basis point decrease in the yield on average loans. 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 and the repayment of maturing higher cost borrowings. The 35 basis point decrease in loan yield was largely due to lower yielding new loan volumes and normal loan repayments.

Commercial Lending

Average interest earning assets in this segment increased $1.7 billion to $25.5 billion for the six months ended June 30, 2021 as compared to the same period in 2020. This increase was mainly due to PPP loans originations during the last 12 months, as well as organic commercial real estate loan growth during the first half of 2021.

For the six months ended June 30, 2021, income before income taxes for the commercial lending segment increased $64.4 million to $269.8 million as compared to the same period in 2020 mainly driven by an increase in net interest income and a lower provision for credit losses, partially offset by a decline in non-interest income. Net interest income increased $49.3 million to $466.5 million for the six months ended June 30, 2021 as compared to the same period in 2020 largely due to lower funding costs and the higher average commercial loan balances during the current period. The provision for credit losses decreased $45.4 million to $19.7 million during the six months ended June 30, 2021 as compared to $65.1 million for the same period in 2020. The decrease in the provision for loan losses was mainly due to an improvement in the economic forecast component of the allowance for loan losses and other qualitative factors related to the COVID-19 pandemic as compared to June 30, 2020. See the "Allowance for Credit Losses" section below for further details. The positive impact of the aforementioned items was partially offset by a $14.2 million decrease in non-interest income for the six months ended June 30, 2021 as compared to the same period in 2020 primarily due to a $15.1 million decrease in fee income related to derivative interest rate swaps executed with commercial loan customers. Internal transfer expense also increased $10.7 million to $141.8 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The net interest margin for this segment increased 14 basis points to 3.65 percent for the six months ended June 30, 2021 as compared to the same period in 2020 due to a 53 basis point decrease in the cost of our funding sources, partially offset by a 39 basis point decrease in yield on average loans.

Investment Management

Average interest earning assets in this segment decreased $166.7 million during the six months ended June 30, 2021 as compared to the same period in 2020 largely due to a $547.6 million decrease in average investment securities partially offset by an increase of $380.9 million in average interest bearing deposits with banks. The decrease in average investment securities was mainly driven by principal repayments on securities with lower reinvestment activity due to the low interest rate environment and funding of loan growth. The increase in our excess liquidity held in overnight interest bearing deposits with banks was mainly caused by strong deposits growth over the 12-month period and management's lower rate of reinvestment in investment securities.

For the six months ended June 30, 2021, income before income taxes for the investment management segment decreased $9.1 million to $6.3 million as compared to the same period in 2020 mainly due to decreases in net interest income and non-interest income. The negative impact of these items was partially offset by a decline in the provision for credit losses for held to maturity debt securities from an $800 thousand provision for the six months ended June 30, 2020 to a credit of $388 thousand for the first half of 2021.

The net interest margin for this segment decreased 21 basis points to 1.21 percent for the six months ended June 30, 2021 as compared to the same period in 2020 largely due to a 74 basis point decrease in the yield on average investments, partially offset by a 53 basis point decrease in costs associated with our funding sources. The decrease in the yield on average investments as compared to the same period of 2020 was mainly due to repayment and prepayment of higher yield residential mortgage-backed securities, increased premium amortization and lower yielding new investments purchased over the last 12 months, and low yielding excess liquidity held in overnight investments.

Corporate and other adjustments

The pre-tax net loss for the corporate segment totaled $24.8 million for the six months ended June 30, 2021 as compared to $21.1 million for the same period in 2020. The negative change of $3.8 million was mainly due to an increase in non-interest expense, partially offset by higher internal transfer income. Non-interest expense increased $14.1 million to $238.2 million for the six months ended June 30, 2021 as compared to the same period in 2020 largely due to the $8.4 million loss on extinguishment of debt during the second quarter 2021 and increases in salaries and employee benefits expenses. See further details in the "Non-Interest Expense" section above. Internal transfer income increased $9.6 million to $209.0 million for the six months ended June 30, 2021 as compared to the same period in 2020.

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, 2021. The model assumes immediate changes in interest rates without any proactive change in the composition or size of the balance sheet, or other future actions that management might undertake to mitigate this risk. In the model, the forecasted shape of the yield curve remains static as of June 30, 2021. 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, 2021. Although the size of Valley’s balance sheet is forecasted to remain static as of June 30, 2021 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 2021. The model also utilizes an immediate parallel shift in market interest rates at June 30, 2021.

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 Rates	Dollar Change		Percentage Change
(in basis points)	($ in thousands)
+200	$	73,064	6.21	%
+100	35,915		3.05
–100	(43,188)		(3.67)
–200	(63,235)		(5.38)

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 3.05 percent. Management believes the interest rate sensitivity remains within an acceptable tolerance range at June 30, 2021. 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.

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, 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, 2021.

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 $3.2 billion, representing 8.5 percent of earning assets at June 30, 2021 and $3.1 billion, representing 8.3 percent of earning assets at December 31, 2020. Of the $3.2 billion of liquid assets at June 30, 2021, approximately $736.2 million of various investment securities were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of approximately $758 million in principal payments from securities in the total investment portfolio 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 (including loans held for sale at June 30, 2021) are projected in accordance with their scheduled contractual terms to be approximately $7.9 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 $29.4 billion and $25.8 billion for the six months ended June 30, 2021 and for the year ended December 31, 2020, respectively, representing 77.7 percent and 69.8 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 $1.5 billion from these banks on a collective basis. 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, 2021, Valley had $700 million 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, 2021, our borrowing capacity (excluding added capacity available to us by pledging PPP loans) under the Federal Reserve Bank's discount window was $1.8 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 $293.6 million to $854.4 million at June 30, 2021 as compared to December 31, 2020 due to normal FHLB advance repayments.

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.

During the second quarter 2021, Valley redeemed $60 million of callable subordinated notes and issued $300 million of 3.00 percent subordinated notes. See Note 9 to the consolidated financial statements for additional information.

Investment Securities Portfolio

As of June 30, 2021, we had $33.9 million, $21.2 million, $1.1 billion and $2.5 billion in equity, trading debt, available for sale and held to maturity debt securities, respectively. Our trading securities portfolio wholly consists of investment grade municipal bonds. The equity securities portfolio is mainly comprised of a money market mutual fund and investments in public and private Community Reinvestment Act funds. Held to maturity and available for sale debt securities portfolios include of 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.

There were no securities in the name of any one issuer exceeding 10 percent of shareholders’ equity, except for residential mortgage-backed securities issued by Ginnie Mae and Fannie Mae. Certain securities with limited marketability and/or restrictions, such as Federal Home Loan Bank and Federal Reserve Bank stocks, are carried at cost and are included in other assets.

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. 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, 2021 and determined that the declines in fair value are 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, 2021 and, as a result, there was no allowance for credit losses for

available for sale debt securities at June 30, 2021.There was no allowance for credit losses for available for sale debt securities at December 31, 2020.

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, which are excluded from the model. 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 allowance for credit losses totaling $1.0 million and $1.4 million at June 30, 2021 and December 31, 2020, respectively. There were no net charge-offs of held to maturity debt securities for the three and six months ended June 30, 2021 and 2020.

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.

The following table presents the held to maturity and available for sale debt securities portfolios by investment grades at June 30, 2021:


	June 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in thousands)
Available for sale investment grades: *
AAA Rated	$	918,080	$	27,103	$	(1,220)	$	943,963
AA Rated	28,753		506		(8)		29,251
A Rated	6,167		117		—		6,284
BBB Rated	29,322		921		—		30,243
Non-investment grade	4,995		36		—		5,031
Not rated	58,420		2,365		(19)		60,766
Total	$	1,045,737	$	31,048	$	(1,247)	$	1,075,538
Held to maturity investment grades: *
AAA Rated	$	2,190,451	$	33,965	$	(11,668)	$	2,212,748
AA Rated	165,565		4,943		(18)		170,490
A Rated	12,965		374		—		13,339
BBB Rated	8,000		529		—		8,529
Non-investment grade	5,613		—		(43)		5,570
Not rated	151,218		621		(5,996)		145,843
Total	$	2,533,812	$	40,432	$	(17,725)	$	2,556,519


*			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 rated category of the held to maturity debt securities (in the above table) are mainly related to residential mortgage-backed securities issued by Ginnie Mae and Fannie Mae. The investment securities held to maturity portfolio included $151.2 million of investments not rated by the rating agencies with

aggregate unrealized losses of $6.0 million at June 30, 2021 related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million.

See Note 6 to the consolidated financial statements for additional information regarding our investments securities portfolio.

Loan Portfolio

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


	June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
	($ in thousands)
Loans
Commercial and industrial:
Commercial and industrial	$	4,733,771		$	4,784,017		$	4,709,569		$	4,625,880		$	4,670,362
Commercial and industrial PPP loans	1,350,684			2,364,627			2,152,139			2,277,465			2,214,327
Total commercial and industrial *	6,084,455			7,148,644			6,861,708			6,903,345			6,884,689
Commercial real estate:
Commercial real estate	17,512,142			16,923,627			16,724,998			16,815,587			16,571,877
Construction	1,752,838			1,786,331			1,745,825			1,720,775			1,721,352
Total commercial real estate	19,264,980			18,709,958			18,470,823			18,536,362			18,293,229
Residential mortgage	4,226,975			4,060,492			4,183,743			4,284,595			4,405,147
Consumer:
Home equity	410,856			409,576			431,553			457,083			471,115
Automobile	1,531,262			1,444,883			1,355,955			1,341,659			1,369,489
Other consumer	938,926			912,863			913,330			892,542			890,942
Total consumer loans	2,881,044			2,767,322			2,700,838			2,691,284			2,731,546
Total loans*	$	32,457,454		$	32,686,416		$	32,217,112		$	32,415,586		$	32,314,611
As a percent of total loans:
Commercial and industrial	18.7		%	21.9		%	21.3		%	21.3		%	21.3		%
Commercial real estate	59.4			57.2			57.3			57.2			56.6
Residential mortgage	13.0			12.4			13.0			13.2			13.6
Consumer loans	8.9			8.5			8.4			8.3			8.5
Total	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

* Includes net unearned discount and deferred loan fees of $86.1 million, $108.6 million, $95.8 million, $116.2 million, and $131.3 million at June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020, respectively. Net unearned discounts and deferred loan fees included $40.9 million, $57.2 million, $43.2 million, $54.4 million and $62.1 million of net unearned fees related to PPP loans at June 30, 2021, March 31, 2021, December 31, 2020, September 30, 2020, and June 30, 2020, respectively.

Commercial and industrial loans decreased $1.1 billion, or 59.5 percent on an annualized basis, to $6.1 billion at June 30, 2021 as compared to March 31, 2021 mostly due to $1.0 billion of PPP loans that were forgiven (i.e., repaid) during the second quarter 2021. As of June 30, 2021, over 75 percent of the PPP loan balances from the first two rounds of our funding under the SBA program have been forgiven. Valley expects the majority of the remaining $1.4 billion of PPP loans on June 30, 2021 to qualify for forgiveness under the guidelines of the SBA program, which will impact our ability to grow the commercial and industrial loan portfolio. Non-PPP commercial and industrial loans modestly decreased by $50.2 million at June 30, 2021 as compared to March 31, 2021 as demand continues to be tempered by the uncertain sustainability of improving the economic recovery. The usage (i.e., outstanding balances) of commercial lines of credit by our existing borrowers also declined.

Commercial real estate loans (excluding construction loans) increased $588.5 million, or 13.9 percent on an annualized basis, to $17.5 billion at June 30, 2021 from March 31, 2021 reflecting solid organic growth due to a strong demand across our geographic footprint driven by low interest rates. Construction loans decreased $33.5 million to $1.8 billion at June 30, 2021 from March 31, 2021 partly due to the migration of completed construction projects to permanent loans.

Residential mortgage loans increased $166.5 million, or 16.4 percent on an annualized basis during the second quarter 2021 due to strong origination of new and refinanced residential mortgage loans totaling approximately $753.2 million for the second quarter 2021 as compared to $550.6 million and $494.2 million for the first quarter 2021 and second quarter 2020, respectively. Florida originations totaled $206 million and represented 27 percent of total originations. Of the total originations in the second quarter 2021, approximately $254 million of residential mortgage loans were originated for sale rather than held for investment. During the second quarter 2021, the non-conforming residential mortgages originations outpaced conforming loans resulting in a higher percentage of our production held for investment in the loan portfolio as compared the first quarter 2021. We sold approximately $326 million of residential mortgage loans originated for sale during the second quarter 2021 and may continue to sell a large portion of our new fixed rate residential mortgage loan originations during the third quarter 2021 based upon normal management of the interest rate risk and mix of the interest earning assets on our balance sheet.

Home equity loans increased by $1.3 million to $410.9 million at June 30, 2021 from March 31, 2021. New home equity loan volumes and customer usage of existing home equity lines of credit continue to be modest, despite the favorable low interest rate environment.

Automobile loans increased by $86.4 million, or 23.9 percent on an annualized basis, to $1.5 billion at June 30, 2021 as compared to March 31, 2021 due to strong consumer demand seen across the auto industry during the first half of 2021. We originated $251 million in auto loans through our dealership network during the second quarter 2021 as compared to $243 million in the first quarter 2021. Of the total originations our Florida dealership network contributed approximately $41 million in auto loan originations, representing approximately 16 percent of new loans, during the second quarter 2021. However, the strong auto loan originations experienced in the second quarter 2021 may be slowed during the second half of 2021 if inventory and auto part shortages remain problematic for the auto industry.

Other consumer loans increased $26.1 million to $938.9 million at June 30, 2021 as compared to $912.9 million at March 31, 2021 mainly due to higher new loan originations and consumer usage of collateralized personal lines of credit.

Most of our lending is in northern and central New Jersey, New York City, Long Island, Florida and Alabama, except for smaller auto and residential mortgage loan portfolios derived from other neighboring states of New Jersey. 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 2021, we remain cautiously optimistic about our non-PPP loan growth as the economic recovery continues and loan demand has largely returned to pre-pandemic levels. In the early stages of the third quarter 2021, we are encouraged that our loan origination pipelines remain robust as the economy begins to accelerate as the supply chain for many industries improves. During the second quarter 2021, approximately 45 percent of our commercial real estate loan growth came from Florida, which appears to be somewhat closer to pre-pandemic levels than our Northeast markets. However, there can be no assurance that those positive trends will continue, or balances will not decline from June 30, 2021 given the uncertainty associated with COVID-19 and other market conditions, including the recent increase in COVID-19 cases in certain jurisdictions primarily caused by the Delta variant and the potential for unforeseen changes in consumer confidence and the economy. We believe that many of our SBA PPP loans will continue to be forgiven in 2021 in accordance with the rules of this program resulting in further reduction in these loan balances.

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, 2021. Loans are generally placed on non-accrual status when they become past due in excess of 90 days as to payment of principal or interest. Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of collection. OREO is acquired through foreclosure on loans secured by land or real estate. OREO and other repossessed assets are reported at the lower of cost or fair value, less estimated cost to sell. Our NPAs increased $16.1 million to $226.6 million at June 30, 2021 as compared to March 31, 2021 mainly due to a $16.0 million increase in non-accrual loans in the second quarter 2021. NPAs as a percentage of total loans and NPAs totaled 0.69 percent and 0.64 percent at June 30, 2021 and March 31, 2021, respectively (as shown in the table below). We believe our total NPAs has remained relatively low as a percentage of the total loan portfolio over the past 12 months, despite the uptick in non-accrual borrowers mainly caused by COVID-19 pandemic. 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 7 to the consolidated financial statements.

Our lending strategy is based on underwriting standards designed to maintain high credit quality and we remain optimistic regarding the overall future performance of our loan portfolio . However, due to the potential for future credit deterioration caused by the uncertain path of the recovery from the COVID -19 pandemic and some of our borrowers that are still performing under forbearance agreements, management cannot provide assurance that our non-performing assets will not increase substantially from the levels reported at June 30, 2021.

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, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
	($ in thousands)
Accruing past due loans:
30 to 59 days past due:
Commercial and industrial	$	3,867		$	3,763		$	6,393		$	6,587		$	6,206
Commercial real estate	40,524			11,655			35,030			26,038			13,912
Construction	—			—			315			142			—
Residential mortgage	8,479			16,004			17,717			22,528			35,263
Total Consumer	6,242			5,480			10,257			8,979			12,962
Total 30 to 59 days past due	59,112			36,902			69,712			64,274			68,343
60 to 89 days past due:
Commercial and industrial	1,361			1,768			2,252			3,954			4,178
Commercial real estate	11,451			5,455			1,326			610			1,543

Residential mortgage	1,608			2,233			10,351			3,760			4,169
Total Consumer	985			1,021			1,823			1,352			3,786
Total 60 to 89 days past due	15,405			10,477			15,752			9,676			13,676
90 or more days past due:
Commercial and industrial	2,351			2,515			9,107			6,759			5,220
Commercial real estate	1,948			—			993			1,538			—

Residential mortgage	956			2,472			3,170			891			3,812
Total Consumer	463			417			271			753			2,082
Total 90 or more days past due	5,718			5,404			13,541			9,941			11,114
Total accruing past due loans	$	80,235		$	52,783		$	99,005		$	83,891		$	93,133
Non-accrual loans:
Commercial and industrial	$	102,594		$	108,988		$	106,693		$	115,667		$	130,876
Commercial real estate	58,893			54,004			46,879			41,627			43,678
Construction	17,660			71			84			2,497			3,308
Residential mortgage	35,941			33,655			25,817			23,877			25,776
Total Consumer	4,924			7,292			5,809			7,441			6,947
Total non-accrual loans	220,012			204,010			185,282			191,109			210,585

Other real estate owned (OREO)	4,523			4,521			5,118			7,746			8,283
Other repossessed assets	2,060			1,857			3,342			3,988			3,920
Non-accrual debt securities	—			129			815			783			1,365
Total non-performing assets (NPAs)	$	226,595		$	210,517		$	194,557		$	203,626		$	224,153
Performing troubled debt restructured loans	$	64,080		$	67,102		$	57,367		$	58,090		$	53,936
Total non-accrual loans as a % of loans	0.68		%	0.62		%	0.58		%	0.59		%	0.65		%
Total NPAs as a % of loans and NPAs	0.69			0.64			0.60			0.62			0.69
Total accruing past due and non-accrual loans as a % of loans	0.93			0.79			0.88			0.85			0.94
Allowance for loan losses as a % of non-accrual loans	154.23			168.07			183.64			170.08			147.03

Loans past due 30 to 59 days increased $22.2 million to $59.1 million at June 30, 2021 as compared to March 31, 2021. Commercial real estate loans past due 30 to 59 days increased $28.9 million to $40.5 million at June 30, 2021 as compared to March 31, 2021 largely due to three loans totaling $18.7 million related to borrowers negatively impacted by the COVID-19 pandemic. Offsetting this negative impact, the residential mortgage loan delinquencies

decreased by $7.5 million to $8.5 million at June 30, 2021 as compared March 31, 2021 partly due to improved customer performance and results of our collection efforts during the second quarter 2021.

Loans past due 60 to 89 days increased $4.9 million to $15.4 million at June 30, 2021 as compared to March 31, 2021 mainly due to a $6.0 million increase in commercial real estate loan delinquencies. Commercial real estate loans in this delinquency category totaled $11.5 million at June 30, 2021 and largely reflected one $11.2 million loan negatively impacted by the COVID-19 pandemic.

Loans past due 90 days or more and still accruing interest totaled $5.7 million at June 30, 2021 as compared to $5.4 million at March 31, 2021. All of the loans past due 90 days or more and still accruing reported at June 30, 2021 are considered to be well secured and in the process of collection.

Non-accrual loans increased $16.0 million to $220.0 million at June 30, 2021 as compared to $204.0 million at March 31, 2021 almost entirely related to one construction borrower relationship with $3.0 million of related allowance reserves at June 30, 2021.

During second quarter 2021, we sold the majority of our Chicago taxi medallion loans for $4.5 million and charged-off $1.3 million of these loans to the reserve for credit losses for loans. We continue to closely monitor our non-performing New York City taxi medallion loans totaling $86.5 million and the remaining $721 thousand of the Chicago taxi medallion portfolio within the commercial and industrial loan category at June 30, 2021. Due to continued negative trends in estimated fair valuations of the underlying taxi medallion collateral, a weak operating environment for ride services and uncertain borrower performance, all of the taxi medallion loans are on non-accrual status. At June 30, 2021, taxi medallion loans totaling $87.2 million had related reserves of $58.6 million, or 67.2 percent of such loans, within the allowance for loan losses as compared to $93.8 million with related reserves of $63.2 million at March 31, 2021.

Potential further 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 also negatively impact the future performance of this portfolio. For example, a 25 percent further decline in our current estimated market value of the taxi medallions would require additional allocated reserves of $6.4 million within the allowance for loan losses based upon taxi medallion loan balances at June 30, 2021. See the "Allowance for Credit Losses" section below for further details on our reserves.

OREO properties totaled $4.5 million at June 30, 2021 and remained relatively unchanged as compared to March 31, 2021. Net gains and losses from the sales of OREO properties totaled $300 thousand and $335 thousand for the three and six months ended June 30, 2021, respectively, and $274 thousand and $431 thousand for the three and six months ended June 30, 2020, respectively. 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 $1.9 million at June 30, 2021 and December 31, 2020, 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 or as non-accrual loans) decreased $3.0 million to $64.1 million at June 30, 2021 as compared to $67.1 million at March 31, 2021. Performing TDRs consisted of 93 loans at June 30, 2021. On an aggregate basis, the $64.1 million in performing TDRs at June 30, 2021 had a modified weighted average interest rate of approximately 4.31 percent as compared to a pre-modification weighted average interest rate of 4.54 percent.

Loan Forbearance. In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment, when requested by customers, all of which were insignificant. As of June 30, 2021, Valley had approximately $142 million of outstanding loans remaining in their payment deferral period under short-term modifications, as compared to $284 million of loans in deferral at March 31, 2021. Under the applicable guidance, none of these loans were classified as TDRs at June 30, 2021, March 31, 2021 and December 31, 2020.

The following table presents the outstanding loan balances and number of loans in an active payment deferral period under short-term modifications as of June 30, 2021:


	June 30, 2021
	Amount		Number of loans
	($ in thousands)
Commercial and industrial	$	877	1
Commercial real estate	93,636		20
Residential mortgage	46,137		102
Consumer	1,317		58
Total	$	141,967	181

Higher Risk COVID-19 Credit Exposures. Valley has identified certain borrower industries that may pose a higher risk of credit losses to us due to the negative impact of the COVID-19 pandemic. The following table presents non-PPP loans in the primary COVID-19 exposure industries at June 30, 2021:


	June 30, 2021
	Non-PPP loan balance		% of non-PPP loans

	($ in thousands)
Retail trade	$	592,631	1.9	%
Hotels and hospitality	503,837		1.6
Doctors and surgery	485,681		1.6
Restaurants and food service	317,460		1.0
Entertainment and recreation	221,775		0.7
Total	$	2,121,384	6.8	%

As of June 30, 2021, Valley had outstanding loans of approximately $2.1 billion, or 6.8 percent of total loans (excluding PPP loans), that were made to borrowers in these industries. There were no active deferrals in this category at June 30, 2021, as compared to $48.0 million, or 2.3 percent of total loans at March 31, 2021. As of June 30, 2021, approximately 86 percent of loans within the higher risk industries were pass-rated under Valley’s internal risk rating system as compared to 88 percent at March 31, 2021.

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: (1) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (2) 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 letters of credit.

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 2021, we continued to incorporate a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and S-1 scenarios as compared to Moody's Baseline, S-3 and S-4 scenarios used at March 31, 2021. At June 30, 2021, Valley maintained its higher weighting to the Moody’s Baseline scenario and placed less emphasis on the Moody’s S-3 downside and S-1 upside scenario. The Baseline weighting and the incorporation of the S-1 scenario at June 30, 2021 reflects the positive economic developments including federal stimulus and increasing vaccination levels that are expected to lead to improved labor market conditions and stronger economic growth during the remainder of 2021. However, this positive outlook could still be tempered by continued COVID-19 hot spots in various locales, continued high unemployment rates in New York and New Jersey, and other factors.

The Moody's Baseline forecast carried the highest weighting in our three-scenario forecast and including the following assumptions at June 30, 2021:

•GDP expansion by over 6.7 percent in the third quarter 2021;

•Unemployment of 5.2 percent in the third quarter 2021 and improving to 3.5 percent by the second quarter 2023; and

•A U.S. economy poised for robust growth primarily due to a continued surge in consumer spending as the economy fully reopens.

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

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


	Three Months Ended									Six Months Ended
	June 30, 2021			March 31, 2021			June 30, 2020			June 30, 2021			June 30, 2020
	($ in thousands)
Average loans outstanding	$	32,635,298		$	32,582,479		$	32,041,200		$	32,609,034		$	31,020,314
Beginning balance - Allowance for credit losses for loans	354,313			351,354			293,361			351,354			164,604
Impact of ASU No. 2016-13 adoption on January 1, 2020 *	—			—			—			—			37,989
Allowance for purchased credit deteriorated (PCD) loans *	—			—			—			—			61,643
Beginning balance, adjusted	354,313			351,354			293,361			351,354			264,236
Loans charged-off:
Commercial and industrial	(10,893)			(7,142)			(14,024)			(18,035)			(17,384)
Commercial real estate	—			(382)			(27)			(382)			(71)

Residential mortgage	(1)			(138)			(5)			(139)			(341)
Total consumer	(1,480)			(1,138)			(2,601)			(2,618)			(5,166)
Total charge-offs	(12,374)			(8,800)			(16,657)			(21,174)			(22,962)
Charged-off loans recovered:
Commercial and industrial	678			1,589			799			2,267			1,368
Commercial real estate	665			65			31			730			104
Construction	—			4			20			4			40
Residential mortgage	191			157			545			348			595
Total consumer	1,474			930			509			2,404			1,303
Total recoveries	3,008			2,745			1,904			5,753			3,410
Net charge-offs	(9,366)			(6,055)			(14,753)			(15,421)			(19,552)
Provision charged for credit losses	8,777			9,014			41,115			17,791			75,039
Ending balance - Allowance for credit losses for loans	$	353,724		$	354,313		$	319,723		$	353,724		$	319,723
Components of allowance for credit losses for loans:
Allowance for loan losses	$	339,324		$	342,880		$	309,614		$	339,324		$	309,614
Allowance for unfunded credit commitments	14,400			11,433			10,109			14,400			10,109
Allowance for credit losses for loans	$	353,724		$	354,313		$	319,723		$	353,724		$	319,723
Components of provision for credit losses for loans:
Provision for credit losses for loans	$	5,810		$	8,692		$	41,025		$	14,502		$	74,876
Provision for unfunded credit commitments	2,967			322			90			3,289			163
Total provision for credit losses for loans	$	8,777		$	9,014		$	41,115		$	17,791		$	75,039

Annualized ratio of net charge-offs to average loans outstanding	0.11		%	0.07		%	0.18		%	0.09		%	0.13		%

* The adjustment represents an increase in the allowance for credit losses for loans as a result of the adoption of ASU No. 2016-13 effective January 1, 2020.

Net loan charge-offs totaled $9.4 million for the second quarter 2021 as compared to $6.1 million and $14.8 million for the first quarter 2021 and second quarter 2020, respectively. The increase in net loan charge-offs for the second quarter 2021 was mainly due to an $8.0 million full charge-off of a commercial and industrial loan to an insurance

carrier in bankruptcy. The partial gross charge-offs of taxi medallion loans totaled $1.4 million for the second quarter 2021 as compared to $3.3 million and $2.9 million for the first quarter 2021 and second quarter 2020, respectively. Gross charge-offs of taxi medallion loans for the second quarter 2021 were primarily related to partial charge-offs of Chicago taxi medallion loans sold from the loans held for investment portfolio during the period. The overall level of loan charge-offs (as presented in the above table) continues to trend within management's expectations for the credit quality of the loan portfolio.

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, 2021				March 31, 2021				June 30, 2020
	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	$	109,689	1.80	%	$	126,408	1.77	%	$	132,039	1.92	%
Commercial real estate loans:
Commercial real estate	168,220		0.96		153,680		0.91		117,743		0.71
Construction	20,919		1.19		20,556		1.15		13,959		0.81
Total commercial real estate loans	189,139		0.98		174,236		0.93		131,702		0.72
Residential mortgage loans	25,303		0.60		27,172		0.67		29,630		0.67
Consumer loans:
Home equity	4,602		1.12		4,199		1.03		4,766		1.01
Auto and other consumer	10,591		0.43		10,865		0.46		11,477		0.51
Total consumer loans	15,193		0.53		15,064		0.54		16,243		0.59
Total allowance for loan losses	339,324		1.05		342,880		1.05		309,614		0.96
Allowance for unfunded credit commitments	14,400				11,433				10,109
Total allowance for credit losses for loans	$	353,724			$	354,313			$	319,723
Allowance for credit losses for loans as a % loans			1.09	%			1.08	%			0.99	%

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments (including letters of credit), as a percentage of total loans was 1.09 percent, 1.08 percent and 0.99 percent at June 30, 2021, March 31, 2021 and June 30, 2020, respectively. During the second quarter 2021, we recorded a $8.8 million provision for credit losses as compared to $9.0 million and $41.1 million for the first quarter 2021 and the second quarter 2020, respectively. The provision in the second quarter 2021 reflects, among other factors, additional quantitative reserves related to certain segments of our commercial real estate portfolio and non-PPP loan growth, and the improvement in our economic forecast component of the reserve as compared to March 31, 2021. The $8.8 million second quarter 2021 provision also included a $3.0 million provision for unfunded credit commitments largely related to an increase of approximately $375 million in our unfunded construction loan commitments at June 30, 2021 as compared to March 31, 2021.

At June 30, 2021, the allowance allocations for credit losses as a percentage of total loans increased in most loan categories as compared to March 31, 2021. The allocated reserves as a percentage of commercial real estate loans increased 5 basis points mainly due to higher quantitative reserves for non-owner occupied loans, as well as loan growth within this category during the second quarter 2021. The allocated reserves as a percentage of commercial and industrial loans increased by 3 basis points mainly due to repayments (loan forgiveness) of PPP loans guaranteed by the SBA with no related allowance at June 30, 2021. The allowance for credit losses as a percentage

of total non-PPP loans was 1.14 percent, 1.17 percent and 1.06 percent for the second quarter 2021, first quarter 2021 and second quarter 2020, respectively.

Capital Adequacy

A significant measure of the strength of a financial institution is its shareholders’ equity. At June 30, 2021 and December 31, 2020, shareholders’ equity totaled approximately $4.7 billion and $4.6 billion, respectively, which represented 11.5 percent and 11.3 percent of total assets, respectively. During the six months ended June 30, 2021, total shareholders’ equity increased by $145.7 million primarily due to net income of $236.2 million and a $16.2 million increase attributable to the effect of our stock incentive plan. These positive changes were partially offset by cash dividends declared on common and preferred stock totaling a combined $96.7 million and an increase in other comprehensive loss of $10.0 million.

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

For regulatory capital purposes, in connection with the Federal Reserve Board’s final interim rule as of April 3, 2020, 100 percent of the CECL Day 1 impact to shareholders' equity equaling $28.2 million after-tax will be deferred over a two-year period ending January 1, 2022, at which time it will be phased in on a pro-rata basis over a three-year period ending January 1, 2025. Additionally, 25 percent of the reserve build since adoption (i.e., provision for credit losses less net charge-offs) will be phased in over the same time frame.

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, 2021 and December 31, 2020:


	Actual				Minimum Capital Requirements				To Be Well Capitalized Under Prompt Corrective Action Provision
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	($ in thousands)
As of June 30, 2021
Total Risk-based Capital
Valley	$	4,196,323	13.36	%	$	3,297,403	10.50	%	N/A		N/A
Valley National Bank	4,237,436		13.48		3,299,948		10.50		$	3,142,808	10.00	%
Common Equity Tier 1 Capital
Valley	3,153,222		10.04		2,198,269		7.00		N/A		N/A
Valley National Bank	3,993,176		12.71		2,199,965		7.00		2,042,825		6.50
Tier 1 Risk-based Capital
Valley	3,368,063		10.73		2,669,326		8.50		N/A		N/A
Valley National Bank	3,393,176		12.71		2,671,387		8.50		2,514,246		8.00
Tier 1 Leverage Capital
Valley	3,368,063		8.49		1,586,715		4.00		N/A		N/A
Valley National Bank	3,993,176		10.07		1,586,790		4.00		1,983,487		5.00
As of December 31, 2020
Total Risk-based Capital
Valley	$	3,802,223	12.64	%	$	3,159,019	10.50	%	N/A		N/A
Valley National Bank	3,839,922		12.76		3,158,842		10.50		$	3,008,421	10.00	%
Common Equity Tier 1 Capital
Valley	2,991,085		9.94		2,106,013		7.00		N/A		N/A
Valley National Bank	3,607,625		11.99		2,105,894		7.00		1,955,473		6.50
Tier 1 Risk-based Capital
Valley	3,205,926		10.66		2,557,301		8.50		N/A		N/A
Valley National Bank	3,607,625		11.99		2,557,158		8.50		2,406,736		8.00
Tier 1 Leverage Capital
Valley	3,205,926		8.06		1,591,852		4.00		N/A		N/A
Valley National Bank	3,607,625		9.07		1,591,457		4.00		1,989,321		5.00

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, 2021		December 31, 2020
	($ in thousands, except for share data)
Common shares outstanding	406,083,790		403,858,998
Shareholders’ equity	$	4,737,807	$	4,592,120
Less: Preferred stock	209,691		209,691
Less: Goodwill and other intangible assets	1,447,965		1,452,891
Tangible common shareholders’ equity	$	3,080,151	$	2,929,538
Tangible book value per common share	$	7.59	$	7.25
Book value per common share	$	11.15	$	10.85

Management believes the tangible book value per common share ratio provides information useful to management and investors in understanding our underlying operational performance, our business and performance trends and

facilitates comparisons with the performance of others in the financial services industry. This non-GAAP financial measure should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with U.S. GAAP. This non-GAAP financial measure may also be calculated differently from similar measures disclosed by other companies.

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 60.7 percent for the six months ended June 30, 2021 as compared to 52.7 percent for the year ended December 31, 2020.

Cash dividends declared amounted to $0.22 per common share for each of the six months ended June 30, 2021 and 2020. 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, 2020 in the MD&A section - “Liquidity and Cash Requirements” and Notes 11 and 12 to the consolidated financial statements included in this report.


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 65 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, 2021 that have materially affected, or are reasonably likely to materially affect, Valley’s internal control over financial reporting.

Valley has not experienced any material impact to its internal controls over financial reporting due to the fact that most of Valley’s employees responsible for financial reporting are working remotely during the COVID-19 pandemic. Valley is continually monitoring and assessing the impact of the COVID-19 pandemic on Valley’s internal controls over financial reporting to minimize the impact to their design and operating effectiveness.

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.

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, 2020.


Item 1A.			Risk Factors

The section titled Risk Factors in Part I, Item 1A of our 2020 Annual Report on Form 10-K includes a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity). The information presented below provides an update to, and should be read in conjunction with, the risk factors and other information contained in our 2020 Annual Report on Form 10-K. Except as presented below, there have been no material changes to these risk factors.

Cyber-attacks could compromise our information or result in the data of our customers being improperly divulged or our systems being disrupted which could expose us to liability, losses and escalating operating costs.

Valley regularly collects, processes, transmits and stores confidential information regarding its customers, employees and others for whom it services loans. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on Valley’s behalf. Information security risks have increased because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. Many financial institutions and companies engaged in data processing have reported significant breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, denial-of-service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks and other means. In addition, recently there have been well-publicized “ransomware” attacks against various U.S. companies with the intent to materially disrupt their computer network and services. Valley frequently experiences attempted cybersecurity attacks against its systems. In 2021, there was a breach by a threat actor of a legacy network from an acquired bank. The breach resulted in the unauthorized access of certain data stored on the legacy network. The legacy network was isolated from Valley’s network, which was not affected by the incident. There can be no assurances that Valley will not incur breaches of our systems or that of our vendors which may expose the data of our customers or disrupt our services, exposing us to significant damage, on-going operational costs and/or reputational harm.

Cyber risk exposure will remain elevated or increase in the future due to, among other things, the increasing size and prominence of Valley in the financial services industry, our expansion of Internet and mobile banking tools and new products based on customer needs, and the system and customer account conversions associated with the integration of merger targets. Successful attacks on any one of many our third-party service providers may

adversely affect our business and result in the disclosure or misuse of our confidential information or that of our customers. There can be no assurance that we or our third-party service providers will not suffer a cyber-attack that exposes us to significant damages, operational costs, or reputational harm.


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, 2021 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (2)	Maximum Number of Shares that May Yet Be Purchased Under the Plans (2)
April 1, 2021 to April 30, 2021	2,696	$	13.80	—	4,112,465
May 1, 2021 to May 31, 2021	1,008	13.77		—	4,112,465
June 1, 2021 to June 30, 2021	9,636	14.31		—	4,112,465
Total	13,340	$	14.17	—

(1)Represents 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. The repurchase plan has no stated expiration date. No repurchase plans or programs expired or terminated during the three months ended June 30, 2021.


Item 6.			Exhibits


(3)	Articles of Incorporation and By-laws:
	(3.1)	Restated Certificate of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the Registrant's Form 10-Q Quarterly Report filed on August 7, 2020.
	(3.2)	By-laws of the Registrant, as amended and restated, incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form 8-K Current Report filed on October 24, 2018.
(4)	Instruments Defining the Rights of Security Holders:
	(4.1)	Base Indenture, dated May 28, 2021, by and between Valley National Bancorp and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form 8-K Current Report filed on May 25, 2021.
	(4.2)	First Supplemental Indenture, dated May 28, 2021, by and between Valley National Bancorp and U.S. Bank National Association, incorporated herein by reference to Exhibit 4.2 to the Registrant’s Form 8-K Current Report filed on May 25, 2021.
(10)	Material Contracts:
	(10.1)	Underwriting Agreement, dated as of May 25, 2021, by and among Valley National Bancorp, Valley National Bank, Piper Sandler & Co. and BofA Securities, Inc., incorporated herein by reference to Exhibit 1.1 to the Registrant’s Form 8-K Current Report filed on May 25, 2021.
(31.1)	Certification of Ira Robbins, Chairman of the Board, President and Chief Executive Officer of the Company, pursuant to Securities Exchange Rule 13a-14(a).*
(31.2)	Certification of Michael D. Hagedorn, Senior Executive Vice President and Chief Financial Officer of the Company, pursuant to Securities Exchange Rule 13a-14(a).*
(32)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Ira Robbins, Chairman of the Board, President and Chief Executive Officer of the Company, and Michael D. Hagedorn, Senior Executive Vice President and Chief Financial Officer of the Company.**
(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 6, 2021

Ira Robbins

Chairman of the Board, President

and Chief Executive Officer

(Principal Executive Officer)

Date:

/s/ Michael D. Hagedorn

August 6, 2021

Michael D. Hagedorn

Senior Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)