# Valley National Bancorp: Form 10-Q for the period ended Mar 31, 2022

- Company: [Valley National Bancorp](/companies/vly.md) (CIK 714310)
- Form: 10-Q
- Filed: 2022-05-09
- Accepted by EDGAR: May 9, 2022, 14:52 ET
- Period: 2022-03-31
- Accession: 0000714310-22-000085
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/714310/000071431022000085/vly-20220331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/714310/000071431022000085/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2022-01-01 to 2022-03-31 | $22.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | $39.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | $116.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.27 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 423,506,550 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | $496.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $22.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2022-01-01 to 2022-03-31 | $46.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2022-01-01 to 2022-03-31 | $23.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2022-03-31 | $43.55bn | us-gaap:Assets |
| Total liabilities | at 2022-03-31 | $38.46bn | us-gaap:Liabilities |
| Short-term borrowings | at 2022-03-31 | $484.2m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2022-03-31 | $5.10bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 116,302 characters.

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

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

### Cautionary Statement Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q, both in the MD&A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about our business, new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by such forward-looking terminology as “should,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “would,” “could,” “typically,” “usually,” “anticipate,” “may,” “estimate,” “outlook,” “project,” or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, include, but are not limited to:

- the inability to realize expected cost savings and synergies from the Bank Leumi USA acquisition in amounts or in the timeframe anticipated;
- greater than expected costs or difficulties relating to Bank Leumi USA integration matters;
- the inability to retain customers and qualified employees of Bank Leumi USA;
- greater than expected non-recurring charges related to the Bank Leumi USA acquisition;
- the continued impact of COVID-19 on the U.S. and global economies, including business disruptions, reductions in employment 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;
- the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral;
- the risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and litigation and the effectiveness of hedging strategies;
- damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters;
- a prolonged downturn in the economy, mainly in New Jersey, New York, Florida, Alabama, California and Illinois, as well as an unexpected decline in commercial real estate values within our market areas;
- higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law;
- the inability to grow customer deposits to keep pace with loan growth;
- a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios;
- the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
- greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations;
- the loss of or decrease in lower-cost funding sources within our deposit base, including our inability to achieve deposit retention targets under Valley's branch transformation strategy;
- cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
- results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank, the Consumer Financial Protection Bureau and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
- our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;
- unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, the COVID-19 pandemic or other external events; and
- unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors.

A detailed discussion of factors that could affect our results is included in our SEC filings, including the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

### 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 March 31, 2022, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed the application of these policies and estimates with the Audit Committee of Valley’s Board of Directors. Our critical accounting policies are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no material changes in such policies and estimates since the date of such report.

### New Authoritative Accounting Guidance

See Note 5 to the consolidated financial statements for a description of new authoritative accounting guidance, including the respective dates of adoption and effects on results of operations and financial condition.

### Executive Summary

**Company Overview.** At March 31, 2022, Valley had consolidated total assets of approximately $43.6 billion, total net loans of $35.0 billion, total deposits of $35.6 billion and total shareholders’ equity of $5.1 billion. Our commercial bank operations include branch office locations in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn, Queens, Long Island, Westchester County, New York, Florida and Alabama. Of our current 232 branch network, 56 percent, 19 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 both through organic efforts and bank acquisitions as discussed below.

**Landmark Insurance of the Palm Beaches**. On February 1, 2022, the Bank's insurance agency subsidiary, Valley Insurance Services, acquired Landmark Insurance of the Palm Beaches, Inc. for $8.6 million in cash and $1.0 million in contingent consideration. This acquisition expanded Valley's presence in Florida and is expected to provide additional cross-selling opportunities across the Bank's service and product offerings.

**Bank Leumi Le-Israel Corporation.** On April 1, 2022, Valley completed its acquisition of Bank Leumi Le-Israel Corporation, the U.S. subsidiary of Bank Leumi Le-Israel B.M. and parent company of Bank Leumi USA, and collectively referred to as "Bank Leumi USA". Bank Leumi USA was headquartered in New York City with commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida. As of the acquisition date, Bank Leumi USA had total assets of $8.3 billion, total deposits of $7.1 billion and gross loans of $6.1 billion, unadjusted for purchase accounting. The common shareholders of Bank Leumi USA received 3.8025 shares of Valley common stock and 5.08 in cash for each Bank Leumi USA common share that they owned. As a result, Valley issued approximately 85 million shares of common stock and paid $113.4 million in cash in the transaction.

See Note 2 to the consolidated financial statements for additional details regarding our acquisition activities.

**Impact of COVID-19.** COVID-19 infection rates declined during the first quarter 2022 and consumer and business activities remained robust. These factors combined with global supply chain disruptions, labor shortages and other factors contributed to higher inflation in the U.S. We continue to monitor the impact of COVID-19 including the emergence of any new variants closely, including its impact on our employees, customers, communities and results of operations and other government or Federal Reserve actions. See the "Operating Environment" section of MD&A for more details.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and additional legislation that followed including the Consolidated Appropriations Act and the American Rescue Plan Act of 2021 provided funding for the SBA's Paycheck Protection Program (PPP) and established rules for qualifying borrowers to receive loan forgiveness by the SBA under this program. Valley extended a total of $3.2 billion PPP loans under the program, of which $3.0 billion of these loans have received forgiveness from the SBA. As of March 31, 2022, we had $203.6 million 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. Valley had $23.0 million of outstanding loans remaining in their payment deferral period under short-term modifications at March 31, 2022 as compared to $27.9 million at December 31, 2021.

**Quarterly Results.** Net income for the first quarter 2022 was $116.7 million, or $0.27 per diluted common share as compared to $115.7 million, or $0.28 per diluted common share, for the first quarter 2021. The $1.0 million increase in quarterly net income as compared to the same quarter one year ago was largely due to following changes:

- a $25.0 million increase in net interest income mainly due to (i) higher average loan balances driven by strong organic growth and loans acquired from The Westchester Bank Holding Corporation (Westchester) on December 1, 2021, (ii) higher average investment securities, (iii) a continued customer shift to deposits without stated maturities and the run-off of higher cost time deposits, (iv) lower average other borrowings driven by repayment of maturing FHLB advances, partially offset by (v) an $18.9 million decrease in PPP loan related interest and fees;
- an $8.0 million increase in non-interest income mainly due to a $7.8 million increase in fee income related to derivative interest rate swaps executed with commercial lending customers, fees generated by Dudley Ventures, our tax credit advisory subsidiary acquired in the fourth quarter 2021, partially offset by a decrease in net gains on sales of residential mortgage loans; and
- a $5.1 million decrease in our provision for credit losses mostly due to lower expected loss rates for the commercial real estate portfolio; partially offset by:
- a $37.1 million increase in non-interest expense mainly due to increases in salary and employee benefits, net occupancy and equipment, and professional and legal fees expense categories driven, in part, by our expansion of business operations due to acquisitions and targeted growth in our lending and technology teams, as well as merger related expenses totaling $4.6 million for the first quarter 2022.

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 first quarter 2022 results.

**Operating Environment.** During the first quarter 2022, real gross domestic product at an annual rate decreased 1.4 percent compared to a 6.9 percent increase in the fourth quarter 2021 largely as a result of a slowdown in inventory restocking and trade. Household demand and fixed investment from businesses and households improved modestly despite an acceleration in overall prices.

In March, the Federal Reserve raised the federal funds rate 0.25 percent to a target range of 0.25 percent to 0.50 percent. Following its meeting in May, the Federal Reserve raised the federal fund rate by another 0.50 percent to a target range of 0.75 percent to 1.00 percent to tame building inflationary pressures. Further interest rate hikes are expected during the remainder of 2022 largely due to the Federal Reserve's efforts to curtail the current high level of inflation, which has reached a 40-year high. In addition, the Federal Reserve slowed its purchase of Treasury securities and agency residential and commercial mortgage-backed securities and the Federal Reserve indicated at its recent meeting that it expects to reduce its securities holdings starting in June as securities reach their maturities.

The 10-year U.S. Treasury note yield ended the first quarter 2022 at 2.32 percent, 80 basis points higher compared with December 31, 2021. The spread between the 2- and 10-year U.S. Treasury note yields ended the first quarter 2022 at 0.04 percent, which is 75 basis points lower as compared to December 31, 2021.

The industry reported that demand for most commercial loan products continued to increase during the first quarter 2022. The increase was broad-based across commercial real estate lending and loans to middle market firms. Our loan originations increased sharply across most products in the first quarter 2022 primarily driven by increases in commercial real estate loans. However, anticipated higher market interest rates, persistent inflation, the lingering impact of the pandemic on supply chains and business opportunities, labor market conditions, and fallout from the Russia-Ukraine war, among other factors, add a high level of uncertainty to the future path of the U.S. economy. Should economic conditions deteriorate causing business activity, spending and investment to slow, it would adversely impact the Bank’s financial results, as highlighted below in this MD&A.

**Loans.** Total loans increased $1.2 billion to $35.4 billion at March 31, 2022 from December 31, 2021 despite a $232.3 million decrease in commercial and industrial PPP loans. Our non-PPP loan portfolio increased $1.4 billion, or 17.1 percent on an annualized basis, largely due to well-balanced commercial loan production across our primary markets and an uptick in new residential mortgage loans originated for investment rather than sale. 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 decreased $12.7 million to $232.7 million at March 31, 2022 as compared to December 31, 2021. Non-accrual loans decreased $9.8 million to $230.5 million at March 31, 2022 as compared to December 31, 2021 partly due to lower commercial real estate non-accruals reflecting one loan payoff partly offset by two loans which were moved to non-accrual status. In addition, commercial and industrial along with residential mortgage non-accrual loans decreased partly due to loan payoffs during the first quarter 2022. Non-accrual loans represented 0.65 percent of total loans at March 31, 2022 compared to 0.70 percent at December 31, 2021.

Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) increased $36.9 million to $92.8 million, or 0.26 percent of total loans, at March 31, 2022 as compared to $55.9 million, or 0.16 percent of total loans at December 31, 2021. Commercial real estate loans past due 30 to 59 days and 60 to 89 days increased $16.4 million and $6.3 million, respectively, to $30.8 million and $6.3 million, respectively at March 31,

2022 as compared to December 31, 2021 mainly due to two loans totaling $13.2 million and $6.0 million included in these respective delinquency categories at March 31, 2022. Commercial and industrial loans past due 60 to 89 days and 90 days or more increased $6.6 million and $8.0 million, respectively, as compared to December 31, 2021 mainly due to a few additional loans that are considered well-secured and in the process of collection. See further details in the "Non-performing Assets" section below.

**Deposits and Other Borrowings.** Overall, average deposits increased by $1.0 billion to $35.8 billion for the first quarter 2022 as compared to the fourth quarter 2021 mostly due to increased quarterly average balances related to deposits assumed from Westchester on December 1, 2021. Average non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 33 percent, 57 percent and 10 percent of total deposits as of March 31, 2022, respectively. Our mix of average deposits for the first quarter 2022 continued to shift away from higher cost time deposits to the non-maturity deposit categories as compared to the fourth quarter 2021. The shift has been aided by normal CD maturities and our ability to increase commercial and retail non-maturity deposits.

Actual ending balances for deposits increased $14.9 million to approximately $35.6 billion at March 31, 2022 from December 31, 2021 largely due to increases of $271.3 million and $16.3 million in the non-maturity non-interest bearing deposit and interest bearing deposit categories, respectively, mostly offset by a $272.7 million decrease in time deposits. The decrease in time deposits was driven by run-off of maturing retail CDs with some continued migration to the more liquid deposit product categories. Total brokered deposits (consisting of money market deposit accounts) decreased approximately $203 million to $1.2 billion at March 31, 2022 as compared to $1.4 billion at December 31, 2021 as our funding mix continued to shift to commercial and retail deposit customers. 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 March 31, 2022.

The following table presents average short-term and long-term borrowings for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021:

*(in thousands)*

| Average short-term borrowings: | Three Months Ended March 31, 2022 | December 31, 2021 | March 31, 2021 |
| --- | ---: | ---: | ---: |
| FHLB advances | $434,444 | $500,000 | $996,667 |
| Securities sold under repurchase agreements | 148,575 | 170,433 | 145,728 |
| Federal funds purchased | 11,278 | — | 26,222 |
| Total | $594,297 | $670,433 | $1,168,617 |
| **Average long-term borrowings:** |  |  |  |
| FHLB advances | $788,956 | $789,108 | $1,563,987 |
| Subordinated debt | 631,056 | 636,514 | 403,181 |
| Securities sold under repurchase agreements | — | — | 300,000 |
| Junior subordinated debentures issued to capital trusts | 56,457 | 56,379 | 56,111 |
| Total | $1,476,469 | $1,482,001 | $2,323,279 |

Average short-term borrowings decreased $574.3 million during the first quarter 2022 as compared to the first quarter 2021 mostly due to our repayment of maturing FHLB advances funded with excess cash liquidity. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased $846.8 million from the first quarter 2021 largely due to the combination of prepayments of FHLB advances during the second quarter 2021, repayments at maturity of several FHLB advances and $300 million of long-term repurchase agreements which matured during the third quarter 2021, partially offset by our issuance of $300 million subordinated notes in the second quarter 2021.

Actual ending balances for short-term borrowings decreased by $171.5 million to $484.2 million at March 31, 2022 as compared to December 31, 2021 largely due to normal repayments of maturing FHLB advances, partially offset by $125 million of federal funds purchased at March 31, 2022. Long-term borrowings of $1.4 billion at March 31, 2022 remained relatively unchanged as compared to December 31, 2021.

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

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Return on average assets | 1.07% | 1.14% |
| Return on average assets, as adjusted | 1.10 | 1.14 |
| Return on average shareholders’ equity | 9.15 | 9.96 |
| Return on average shareholders’ equity, as adjusted | 9.43 | 9.97 |
| Return on average tangible shareholders’ equity (ROATE) | 13.09 | 14.49 |
| ROATE, as adjusted | 13.49 | 14.50 |

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:

*(in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net income, as reported | $116,728 | $115,710 |
| Add: Losses on available for sale and held to maturity securities transactions (net of tax) (a) | 6 | 85 |
| Add: Merger related expenses (net of tax) (b) | 3,579 | — |
| Net income, as adjusted | $120,313 | $115,795 |

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

(c) Merger related expenses are primarily within salary and employee benefits expense, and professional and legal fees.

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:

*($ in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net income, as adjusted | $120,313 | $115,795 |
| Average assets | $43,570,251 | $40,770,731 |
| Annualized return on average assets, as adjusted | 1.10% | 1.14% |

Adjusted annualized return on average shareholders' equity is computed by dividing adjusted net income by average shareholders' equity, as follows:

*($ in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net income, as adjusted | $120,313 | $115,795 |
| Average shareholders' equity | $5,104,709 | $4,645,400 |
| Annualized return on average shareholders' equity, as adjusted | 9.43% | 9.97% |

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:

*($ in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net income | $116,728 | $115,710 |
| Net income, as adjusted | 120,313 | 115,795 |
| Average shareholders’ equity | $5,104,709 | $4,645,400 |
| Less: Average goodwill and other intangible assets | 1,538,356 | 1,451,750 |
| Average tangible shareholders’ equity | $3,566,353 | $3,193,650 |
| Annualized ROATE | 13.09% | 14.49% |
| Annualized ROATE, as adjusted | 13.49% | 14.50% |

### 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 $318.4 million for the first quarter 2022 increased $2.4 million as compared to the fourth quarter 2021 and increased $24.8 million from the first quarter 2021. Interest income on a tax equivalent basis in the first quarter 2022 increased $475 thousand to $341.2 million as compared to the fourth quarter 2021. The increase was mainly due to increases in average loans and taxable investments totaling $1.3 billion and $275.1 million, respectively, largely offset by a $10.1 million decrease in PPP loan related interest and fees during the first quarter 2022 caused by the significant wind-down of our remaining PPP loan portfolio over the last several quarters. Interest expense of $22.8 million for the first quarter 2022 decreased $1.9 million as compared to the fourth quarter 2021 as we reduced our cost of funding from deposits and borrowings.

Average interest earning assets increased $2.9 billion to $40.3 billion for the first quarter 2022 as compared to the first quarter 2021 primarily due to strong organic loan growth over the 12-month period ended March 31, 2022, loans acquired from Westchester on December 1, 2021, purchases of taxable investment securities and higher interest bearing overnight funds due to fluctuations in the timing of loan and investment activity, as well as deposit growth. Compared to the fourth quarter 2021, average interest earning assets increased by $1.1 billion during the first quarter 2022. The increase was primarily driven by a $1.3 billion increase in average loan balances due to continued organic loan growth mainly in the commercial and residential mortgage loan categories and loans acquired from Westchester.

Average interest bearing liabilities increased $193.7 million to $26.1 billion for the first quarter 2022 as compared to the first quarter 2021 mainly due to the general solid growth in commercial and retail customer deposits without stated maturities and $727 million of interest bearing deposits assumed from Westchester, partially offset by repayments of other borrowings during the last 12-month period. As compared to the fourth quarter 2021, average interest bearing liabilities increased by $565.0 million in the first quarter 2022 mainly due to continued growth in average non-maturity deposits balances, including supplemental growth from relatively new niche product efforts targeting cannabis companies and professional service firms, partially offset by continued run-off of higher cost time deposits and lower utilization of short-term FHLB advances as a funding source. Total average deposits, including non-interest bearing deposits, increased $1.0 billion to $35.8 billion for the first quarter 2022 as compared to the fourth 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 3.16 percent for the first quarter 2022 decreased by 7 basis points and increased by 2 basis points from 3.23 percent and 3.14 percent for the fourth quarter 2021 and first quarter 2021, respectively. The yield on average interest earning assets decreased by 9 basis points on a linked quarter basis mostly due to the lower yield on loans and two less days in the first quarter 2022 as compared to the fourth quarter 2021. The yield on average loans decreased by 16 basis points to 3.67 percent for the first quarter 2022 as compared to the fourth quarter 2021 largely due to the decrease in PPP loan related interest and fees. The overall cost of average interest bearing liabilities decreased 4 basis points to 0.35 percent for the first quarter 2022 as compared to the fourth quarter 2021. The decrease was mainly due to a 22 basis point decrease in the cost of average long-term borrowings, the continued runoff of maturing higher cost time deposits, and the moderately lower cost of our average non-maturity interest bearing deposits. Our cost of total average deposits was 0.14 percent for the first quarter 2022 as compared to 0.15 percent for the fourth quarter 2021.

In March 2022, the Federal Reserve increased the federal funds target rate by 0.25 percent to 0.50 percent and projected as many as six more similar interest rate hikes during the remainder of 2022. Higher levels of market interest rates would benefit certain interest earning assets on our balance sheet and likely provide us the opportunity to reinvest any excess cash, including normal repayments of loans and investments, at higher rates. Under this scenario, we continue to anticipate a certain lag in higher funding costs given the current liquidity present in the U.S. banking system. Based upon our estimates at March 31, 2022, we anticipate net interest income for the full 12 months of 2022 to be approximately 8 to 12 percent higher than reported net interest income in 2021, excluding the impact of our recent acquisition of Bank Leumi USA on April 1, 2022.

On May 4, 2022, the Federal Reserve increased the federal funds target rate by 0.50 percent to a range of 0.75 percent to 1.00 percent. This increase was generally anticipated in the interest rate backdrop used to forecast our net interest income as of March 31, 2022 and as such, our projected net interest income range given above for 2022 is unchanged.

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

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

### Net Interest Income on a Tax Equivalent Basis

*($ in thousands)*

| Assets Interest earning assets: | Three Months Ended March 31, 2022 Average Balance | Interest | Average Rate | December 31, 2021 Average Balance | Interest | Average Rate | March 31, 2021 Average Balance | Interest | Average Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans (1)(2) | $34,623,402 | $317,390 | 3.67% | $33,338,128 | $319,165 | 3.83% | $32,582,479 | $313,206 | 3.85% |
| Taxable investments (3) | 3,838,468 | 20,115 | 2.10 | 3,563,329 | 17,667 | 1.98 | 3,111,116 | 15,037 | 1.93 |
| Tax-exempt investments (1)(3) | 401,742 | 3,186 | 3.17 | 418,049 | 3,209 | 3.07 | 513,809 | 4,248 | 3.31 |
| Interest bearing deposits with banks | 1,419,436 | 461 | 0.13 | 1,873,508 | 636 | 0.14 | 1,178,815 | 224 | 0.08 |
| Total interest earning assets | 40,283,048 | 341,152 | 3.39 | 39,193,014 | 340,677 | 3.48 | 37,386,219 | 332,715 | 3.56 |
| Allowance for credit losses | (367,989) |  |  | (355,415) |  |  | (347,262) |  |  |
| Cash and due from banks | 281,883 |  |  | 326,074 |  |  | 312,882 |  |  |
| Other assets | 3,361,185 |  |  | 3,286,785 |  |  | 3,373,506 |  |  |
| Unrealized gains on securities available for sale, net | 12,124 |  |  | 23,370 |  |  | 45,386 |  |  |
| **Total assets** | $43,570,251 |  |  | $42,473,828 |  |  | $40,770,731 |  |  |
| **Liabilities and shareholders’ equity** |  |  |  |  |  |  |  |  |  |
| **Interest bearing liabilities:** |  |  |  |  |  |  |  |  |  |
| Savings, NOW and money market deposits | $20,522,629 | $9,627 | 0.19% | $19,685,730 | $9,983 | 0.20% | $16,617,762 | $11,125 | 0.27% |
| Time deposits | 3,554,520 | 2,831 | 0.32 | 3,744,792 | 3,328 | 0.36 | 5,844,524 | 11,093 | 0.76 |
| Total interest bearing deposits | 24,077,149 | 12,458 | 0.21 | 23,430,522 | 13,311 | 0.23 | 22,462,286 | 22,218 | 0.40 |
| Short-term borrowings | 594,297 | 806 | 0.54 | 670,433 | 983 | 0.59 | 1,168,617 | 1,758 | 0.60 |
| Long-term borrowings (4) | 1,476,469 | 9,525 | 2.58 | 1,482,001 | 10,383 | 2.80 | 2,323,279 | 15,155 | 2.61 |
| Total interest bearing liabilities | 26,147,915 | 22,789 | 0.35 | 25,582,956 | 24,677 | 0.39 | 25,954,182 | 39,131 | 0.60 |
| Non-interest bearing deposits | 11,686,534 |  |  | 11,316,264 |  |  | 9,373,000 |  |  |
| Other liabilities | 631,093 |  |  | 669,265 |  |  | 798,149 |  |  |
| Shareholders’ equity | 5,104,709 |  |  | 4,905,343 |  |  | 4,645,400 |  |  |
| **Total liabilities and shareholders’ equity** | $43,570,251 |  |  | $42,473,828 |  |  | $40,770,731 |  |  |
| Net interest income/interest rate spread (5) |  | $318,363 | 3.04% |  | $316,000 | 3.09% |  | $293,584 | 2.96% |
| Tax equivalent adjustment |  | (694) |  |  | (699) |  |  | (917) |  |
| **Net interest income, as reported** |  | $317,669 |  |  | $315,301 |  |  | $292,667 |  |
| Net interest margin (6) |  |  | 3.15% |  |  | 3.22% |  |  | 3.13% |
| Tax equivalent effect |  |  | 0.01 |  |  | 0.01 |  |  | 0.01 |
| Net interest margin on a fully tax equivalent basis (6) |  |  | 3.16% |  |  | 3.23% |  |  | 3.14% |

(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

*(in thousands)*

| Interest Income: | Three Months Ended March 31, 2022 Compared to March 31, 2021 Change Due to Volume | Change Due to Rate | Total Change |
| --- | ---: | ---: | ---: |
| Loans\* | $19,096 | $(14,912) | $4,184 |
| Taxable investments | 3,733 | 1,345 | 5,078 |
| Tax-exempt investments\* | (895) | (167) | (1,062) |
| Interest bearing deposits with banks | 53 | 184 | 237 |
| Total increase (decrease) in interest income | 21,987 | (13,550) | 8,437 |
| **Interest Expense:** |  |  |  |
| Savings, NOW and money market deposits | 2,270 | (3,768) | (1,498) |
| Time deposits | (3,330) | (4,932) | (8,262) |
| Short-term borrowings | (793) | (159) | (952) |
| Long-term borrowings and junior subordinated debentures | (5,465) | (165) | (5,630) |
| Total decrease in interest expense | (7,318) | (9,024) | (16,342) |
| Total increase (decrease) in net interest income | $29,305 | $(4,526) | $24,779 |

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

### Non-Interest Income

Non-interest income increased $8.0 million for the three months ended March 31, 2022 as compared to the same period of 2021. The following table presents the components of non-interest income for the three months ended March 31, 2022 and 2021:

*(in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Trust and investment services | $5,131 | $3,329 |
| Insurance commissions | 1,859 | 1,558 |
| Service charges on deposit accounts | 6,212 | 5,103 |
| (Losses) gains on securities transactions, net | (1,072) | 101 |
| Fees from loan servicing | 2,781 | 2,899 |
| Gains on sales of loans, net | 986 | 3,513 |
| Bank owned life insurance | 2,046 | 2,331 |
| Other | 21,327 | 12,399 |
| Total non-interest income | $39,270 | $31,233 |

50

Trust and investment services income increased by $1.8 million for the three months ended March 31, 2022 as compared to the same period in 2021 mostly due to additional revenues generated by our new advisory firm, Dudley Ventures, LLC, specializing in the investment and management of tax credit investments, which we acquired in October 2021.

Net losses on securities transactions of $1.1 million for the three months ended March 31, 2022 were mostly due to net trading losses (including the fair value mark at March 31, 2022) related to our trading municipal bond portfolio.

Net gains on sales of loans for each period are comprised of both gains on sales of residential mortgages and the net change in the mark to market gains and losses on our loans originated for sale and carried at fair value at each period end. Net gains on sales of loans decreased $2.5 million for the three months ended March 31, 2022 as compared to the same period of 2021 mostly due to lower loan sales volume and spreads (i.e., margin on individual loan sales). During the first quarter 2022, we sold approximately $201 million of residential mortgage loans as compared to $348 million during the first quarter 2021. In addition, the mark to market loss on loans held for sale carried at fair value resulted in net losses totaling $4.8 million and $9.5 million for the three months ended March 31, 2022 and 2021, respectively. Our ability to generate net gains on sales of loans could continue to be challenged by a number of factors, including increases in market interest rates, lower customer demand and our potential decision to change the mix of loans originated for investment in our loan portfolio rather than sale. See further discussion of our residential mortgage loan origination activity under the “Loan Portfolio” section of this MD&A below.

Other non-interest income increased $8.9 million for the three months ended March 31, 2022 as compared to the same period in 2021 primarily due to higher fee income from derivative interest rate swaps executed with commercial lending customers caused by a greater volume of transactions. Swap fee income totaled $14.0 million and $6.2 million for the three months ended March 31, 2022 and 2021, respectively. While we believe our commercial loan swap based product will remain attractive to borrowers in the current interest rate environment, we can provide no assurance that our swap fees will remain at the level reported for the first quarter 2022.

### Non-Interest Expense

Non-interest expense increased $37.1 million to $197.3 million for the three months ended March 31, 2022 as compared to the same period in 2021. The following table presents the components of non-interest expense for the three months ended March 31, 2022 and 2021:

*(in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Salary and employee benefits expense | $107,733 | $88,103 |
| Net occupancy and equipment expense | 36,806 | 32,259 |
| FDIC insurance assessment | 4,158 | 3,276 |
| Amortization of other intangible assets | 4,437 | 6,006 |
| Professional and legal fees | 14,749 | 6,272 |
| Amortization of tax credit investments | 2,896 | 2,744 |
| Telecommunications expense | 3,271 | 3,160 |
| Other | 23,290 | 18,393 |
| Total non-interest expense | $197,340 | $160,213 |

Salary and employee benefits expense increased $19.6 million for the three months ended March 31, 2022 as compared to the same period of 2021 primarily due to strategic increases in our headcount to enhance lending and operations (including additions to staff due to the Westchester acquisition), increases in our branch compensation to preserve staffing and service levels, and to keep pace with the increases in wage demand across the industry. In addition, salary and employee benefits expense included approximately $2.8 million in merger expense, primarily consisting of severance, during the first quarter 2022.

Net occupancy and equipment expense increased $4.5 million for the three months ended March 31, 2022 as compared to the same period of 2021 mainly due to higher technology related expense and repair and maintenance costs.

Amortization of other intangible assets decreased $1.6 million for the three months ended March 31, 2022 as compared to the same period of 2021 mostly due to lower amortization expense on mortgage servicing rights. During the first quarter 2021, the higher level of amortization expense was partly caused by the acceleration of loan prepayments from customer refinance activity, partially offset by $791 thousand of net recoveries of impairment charges on certain loan servicing rights. See Note 9 to the consolidated financial statements for additional information.

Professional and legal fees increased $8.5 million for the three months ended March 31, 2022 as compared to the same period of 2021. The increase was largely attributable to higher third party managed services expense, increased consulting expense mainly related to technology transformation and new product initiatives, and, to a lesser extent, merger related expenses of $770 thousand during the three months ended March 31, 2022.

Other non-interest expense increased $4.9 million for the three months ended March 31, 2022 as compared to the same period of 2021. The increase was largely due to higher data processing costs, OREO expense, meals and entertainment, advertising and other incrementally higher operating expenses due to the expansion of our operations, including the acquisition of Westchester on December 1, 2021. The first quarter 2022 also included $1.1 million of merger related expenses.

### 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 merger related expenses.

The following table presents our efficiency ratio and a reconciliation of the efficiency ratio adjusted for certain items during the three months ended March 31, 2022 and 2021:

*($ in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Total non-interest expense | $197,340 | $160,213 |
| Less: Amortization of tax credit investments (pre-tax) | 2,896 | 2,744 |
| Less: Merger related expenses (pre-tax) (a) | 4,628 | — |
| Total non-interest expense, adjusted | $189,816 | $157,469 |
| Net interest income | $317,669 | $292,667 |
| Total non-interest income | 39,270 | 31,233 |
| Add: Losses on available for sale and held to maturity securities transactions, net (pre-tax) (b) | 9 | 118 |
| Total net interest income and non-interest income | $356,948 | $324,018 |
| Efficiency ratio | 55.29% | 49.46% |
| Efficiency ratio, adjusted | 53.18% | 48.60% |

(a) Included primarily within salary and employee benefits expense, professional and legal fees and other expense.

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

### Income Taxes

Income tax expense totaled $39.3 million for the first quarter 2022 as compared to $42.3 million and $39.3 million for the fourth quarter 2021 and first quarter 2021, respectively. Our effective tax rate was 25.2 percent, 26.9 percent and 25.4 percent for the first quarter 2022, fourth quarter 2021 and first quarter 2021, respectively. The decrease in the effective tax rate in the first quarter 2022 as compared to the fourth quarter 2021 was mainly due to an increase in excess stock compensation benefit recognized within income tax expense for the 2022 period.

U.S. GAAP requires that any change in judgment or change in measurement of a tax position taken in a prior annual period be recognized as a discrete event in the quarter in which it occurs, rather than being recognized as a change in effective tax rate for the current year. Our adherence to these tax guidelines may result in volatile effective income tax rates in future quarterly and annual periods. Factors that could impact management’s judgment include changes in income, tax laws and regulations, and tax planning strategies. Based on the current information available, we anticipate that our effective tax rate will range from 26 percent to 28 percent for 2022.

### 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 March 31, 2022 and 2021:

*($ in thousands)*

|  | Three Months Ended March 31, 2022 Consumer Lending | Commercial Lending | Investment Management | Corporate and Other Adjustments | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Average interest earning assets | $7,638,942 | $26,984,460 | $5,659,646 | $— | $40,283,048 |
| Income (loss) before income taxes | 22,981 | 136,831 | 5,530 | (9,300) | 156,042 |
| Annualized return on average interest earning assets (before tax) | 1.20% | 2.03% | 0.39% | N/A | 1.55% |

53

*($ in thousands)*

|  | Three Months Ended March 31, 2021 Consumer Lending | Commercial Lending | Investment Management | Corporate and Other Adjustments | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Average interest earning assets | $7,049,252 | $25,533,227 | $4,803,740 | $— | $37,386,219 |
| Income (loss) before income taxes | 31,399 | 129,052 | 2,800 | (8,220) | 155,031 |
| Annualized return on average interest earning assets (before tax) | 1.78% | 2.02% | 0.23% | N/A | 1.66% |

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

### Consumer Lending

This consumer lending segment represented 21.6 percent of our loan portfolio at March 31, 2022, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans). The duration of the residential mortgage loan portfolio (which represented 13.3 percent of our loan portfolio at March 31, 2022) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (representing 4.4 percent of total loans at March 31, 2022) is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. The consumer lending segment also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, insurance and tax credit advisory services.

Average interest earning assets in this segment increased $589.7 million to $7.6 billion for the three months ended March 31, 2022 as compared to the first quarter 2021. The increase was largely due to solid new and refinanced residential mortgage loan volumes over the last 12-month period, as well as growth in automobile loans and secured personal lines of credit. Loans acquired from Westchester on December 1, 2021 did not materially impact this business segment.

Income before income taxes generated by the consumer lending segment decreased $8.4 million to $23.0 million for the first quarter 2022 as compared to the first quarter 2021 largely due to a $4.5 million increase in the provision for loan losses and a $9.1 million increase in the internal transfer expense. The negative impact of these items was partially offset by a $3.3 million decrease in non-interest expense. The increase in the provision for loan losses was mainly due to reserves related to residential loan growth and deterioration in our economic forecast in the first quarter 2022 from December 31, 2021, and a negative (credit) provision in the first quarter 2021 caused by improvement in the economic forecast component of the reserves at March 31, 2021. The higher internal transfer expense was mostly driven by general increases related to organic growth in our business. Non-interest expense was higher in the 2021 period partly due to the mark to market impact of mortgage banking derivatives. See Note 11 to the consolidated financial statements for additional information on our mortgage bank derivative activities.

The net interest margin on the consumer lending portfolio decreased 15 basis points to 2.94 percent for the first quarter 2022 as compared to the first quarter 2021 mainly due to a 34 basis point decrease in the yield on average loans, partially offset by a 19 basis point decrease in the costs associated with our funding sources. The 34 basis point decrease in loan yield was largely due to lower yielding new loan volumes and normal loan repayments over the last 12-month period. The decrease in our funding costs was mainly due to continued runoff of higher cost time deposits, greater mix of non-interest bearing deposits and our ability to reprice most deposit products at lower interest rates. 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 $5.8 billion and represented 16.4 percent of the total loan portfolio at March 31, 2022. Commercial real estate loans and construction loans totaled $21.9 billion and represented 62.0 percent of the total loan portfolio at March 31, 2022.

Average interest earning assets in this segment increased approximately $1.5 billion to $27.0 billion for the three months ended March 31, 2022 as compared to the first quarter 2021 mostly due to strong new organic loan originations primarily concentrated in the commercial real estate loan portfolio and acquired loans from Westchester, partially offset by run-off of commercial and industrial PPP loans due to SBA loan forgiveness.

For the three months ended March 31, 2022, income before income taxes for the commercial lending segment increased $7.8 million to $136.8 million as compared to the first quarter 2021 mainly driven by increases in both net interest income and non-interest income, as well as a lower provision for loan losses, partially offset by higher internal transfer expense. Net interest income for this segment increased $17.5 million to $246.6 million for the first quarter 2022 as compared to the same period in 2021 primarily due to additional income generated on higher average loans and lower funding costs. Non-interest income increased $9.2 million to $16.9 million for the three months ended March 31, 2022 as compared to the first quarter 2021 mainly due to a $7.8 million increase in swap fee income from derivative interest rate swaps executed with commercial loan customers. The provision for loan losses decreased by $10.0 million mainly due to lower reserves in the commercial real estate loan category attributed primarily to lower loss rates as compared to March 31, 2021. Internal transfer expense increased $29.4 million for the first quarter 2022 as compared to the first quarter 2021 due to general increases related to both organic and acquired growth in our business.

The net interest margin for this segment increased 4 basis points to 3.65 percent for the first quarter 2022 as compared to the first quarter 2021 due to a 17 basis point decrease in the cost of our funding sources, which was largely offset by a 13 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 increased $855.9 million during the first quarter 2022 as compared to the first quarter 2021 mainly due to increases in average investment securities and interest bearing deposits with banks totaling $615.3 million and $240.6 million, respectively. The higher average investment securities balance was mainly driven by purchases of residential mortgage backed securities classified as held to maturity funded largely funded by deposit growth over the last 12-month period. The increase in overnight investments and deposits with other banks was mostly due to fluctuations in the timing of loan and investment activity and excess cash liquidity resulting from the solid growth in commercial and retail customer deposits.

During the first quarter 2022, income before income taxes for the investment management segment increased $2.7 million to $5.5 million as compared to $2.8 million for the first quarter 2021. The increase was mainly due to higher net interest income, largely offset by an increase in internal transfer expense. The increase in net interest income totaled $6.3 million and was mostly driven by higher yields and average investment balances, as well as lower cost of funding. Internal transfer expense increased $3.8 million for the first quarter 2022 as compared to the first quarter 2021.

The net interest margin for this segment increased 25 basis points to 1.51 percent for the first quarter 2022 as compared to the same quarter in 2021 largely due to a 19 basis point decrease in our cost of funding coupled with a 6 basis point increase in the yield on average investments. The increase in the yield on average investments as compared to the first quarter 2021 was largely driven by the higher amortization expense in the prior year caused, in part, by acceleration of principal repayments in the low interest rate environment.

### 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 gains and losses on available for sale and held to maturity securities transactions, not reported in the investment management segment above, interest expense related to subordinated notes, amortization and impairment of tax credit investments, as well as non-core items, including merger expenses.

The corporate and other adjustments segment recognized pre-tax losses of $9.3 million and $8.2 million for the three months ended March 31, 2022 and 2021, respectively. The $1.1 million increase in the pre-tax loss during the 2022 period was mainly driven by an increase in non-interest expense and, to a much lesser extent, lower non-interest income, mostly offset by an increase in internal transfer income. Non-interest expense increased $41.8 million to $154.9 million during the three months ended March 31, 2022 as compared to the same period a year ago largely due to increases in salaries and employee benefits expense and professional and legal fees for the three months ended March 31, 2022. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A. The internal transfer income increased by $42.3 million to $145.6 million for the three months ended March 31, 2022 as compared to the same period year ago mostly due to general increases related to our growth.

### 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 March 31, 2022. The model assumes immediate changes in interest rates without any proactive change in the composition or size of the balance sheet, or other future actions that management might undertake to mitigate this risk. In the model, the forecasted shape of the yield curve remains static as of March 31, 2022. The impact of interest rate derivatives, such as interest rate swaps, is also included in the model.

Our simulation model is based on market interest rates and prepayment speeds prevalent in the market as of March 31, 2022. Although the size of Valley’s balance sheet is forecasted to remain static as of March 31, 2022 in our model, the composition is adjusted to reflect new interest earning assets and funding originations coupled with rate spreads utilizing our actual originations during the first quarter 2022. The model also utilizes an immediate parallel shift in market interest rates at March 31, 2022.

The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the table below due to the frequency and timing of changes in interest rates and changes in spreads between maturity and re-pricing categories. Overall, our net interest income is affected by changes in interest rates and cash flows from our loan and investment portfolios. We actively manage these cash flows in conjunction with our liability mix, duration and interest rates to optimize the net interest income, while structuring the balance sheet in response to actual or potential changes in interest rates. Additionally, our net interest income is impacted by the level of competition within our marketplace. Competition can negatively impact the level of interest rates attainable on loans and increase the cost of deposits, which may result in downward pressure on our net interest margin in future periods. Other factors, including, but not limited to, the slope of the yield curve and projected cash flows will impact our net interest income results and may increase or decrease the level of asset sensitivity of our balance sheet.

Convexity is a measure of how the duration of a financial instrument changes as market interest rates change. Potential movements in the convexity of bonds held in our investment portfolio, as well as the duration of the loan portfolio may have a positive or negative impact on our net interest income in varying interest rate environments. As a result, the increase or decrease in forecasted net interest income may not have a linear relationship to the results reflected in the table below. Management cannot provide any assurance about the actual effect of changes in interest rates on our net interest income.

The following table reflects management’s expectations of the change in our net interest income over the next 12- month period considering the aforementioned assumptions. While an instantaneous and severe shift in interest rates was used in this simulation model, we believe that any actual shift in interest rates would likely be more gradual and would therefore have a more modest impact than shown in the table below.

*($ in thousands)*

| Changes in Interest Rates (in basis points) | Estimated Change in Future Net Interest Income Dollar Change | Percentage Change |
| --- | ---: | ---: |
| +200 | $117,882 | 8.76% |
| +100 | 58,392 | 4.34 |
| –100 | (67,571) | (5.02) |
| –200 | (136,954) | (10.18) |

As noted in the table above, a 100 basis point immediate increase in interest rates combined with a static balance sheet where the size, mix, and proportions of assets and liabilities remain unchanged is projected to increase net interest income over the next 12 month period by 4.34 percent. Management believes the interest rate sensitivity remains within an acceptable tolerance range at March 31, 2022. However, the level of net interest income sensitivity may increase or decrease in the future as a result of several factors, including potential changes in our balance sheet strategies, the slope of the yield curve and projected cash flows.

### Liquidity and Cash Requirements

### Bank Liquidity

Liquidity measures the ability to satisfy current and future cash flow needs as they become due. A bank’s liquidity reflects its ability to meet loan demand, to accommodate possible outflows in deposits and to take advantage of interest rate opportunities in the marketplace. Liquidity management is carefully performed and routinely reported by our Treasury Department to two board committees. Among other actions, Treasury reviews historical funding requirements, our current liquidity position, sources and stability of funding, marketability of assets, options for attracting additional funds, and anticipated future funding needs, including the level of unfunded commitments. Our goal is to maintain sufficient liquidity to cover current and potential funding requirements.

The Bank has no required regulatory liquidity ratios to maintain; however, it adheres to an internal liquidity policy. The current policy maintains that we may not have a ratio of loans to deposits in excess of 110 percent or reliance on wholesale funding greater than 25 percent of total funding. The Bank was in compliance with the foregoing policies at March 31, 2022.

Valley's short and long-term cash requirements include contractual obligations under borrowings, deposits, payment related to leases, capital expenditures and other purchase commitments. In the ordinary course of operations, the Bank also enters into various financial obligations, including contractual obligations that may require future cash payments. Management believes the Bank has the ability to generate and obtain adequate amounts of cash to meet its short-term and long-term obligations as they come due by utilizing various cash resources described below.

On the asset side of the balance sheet, the Bank has numerous sources of liquid funds in the form of cash and due from banks, interest bearing deposits with banks (including the Federal Reserve Bank of New York), investment securities held to maturity that are maturing within 90 days or would otherwise qualify as maturities if sold (i.e., 85 percent of original cost basis has been repaid), investment securities classified as trading and available for sale, loans held for sale, and from time to time, federal funds sold and receivables related to unsettled securities transactions. Total liquid assets were approximately $2.0 billion, representing 5.0 percent of earning assets at March 31, 2022 and $3.5 billion, representing 8.7 percent of earning assets at December 31, 2021. Of the $2.0 billion of liquid assets at March 31, 2022, approximately $488.5 million of various investment securities were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of approximately $644.5 million in principal payments from securities in the total investment portfolio at March 31, 2022 over the next 12 month period due to normally scheduled principal repayments and expected prepayments of certain securities, primarily residential mortgage-backed securities.

Additional liquidity is derived from scheduled loan payments of principal and interest, as well as prepayments received. Loan principal payments from total loans and loans held for sale at March 31, 2022 are projected in accordance with their scheduled contractual terms to be approximately $10.1 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 $33.8 billion and $29.4 billion for the three months ended March 31, 2022 and for the year ended December 31, 2021, respectively, representing 84.1 percent and 78.3 percent of average earning assets for the respective periods. The level of interest bearing deposits is affected by interest rates offered, which is often influenced by our need for funds and the need to match the maturities of assets and liabilities.

Additional funding may be provided through deposit gathering networks and in the form of federal funds purchased through our well established relationships with numerous banks. While these lending lines are uncommitted, management believes that the Bank could borrow approximately $1.7 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 March 31, 2022, Valley had $1.5 billion of MULOCs outstanding for this purpose. Furthermore, we can obtain overnight borrowings from the Federal Reserve Bank of New York via the discount window as a contingency for additional liquidity. At March 31, 2022, our borrowing capacity under the Federal Reserve Bank's discount window was $2.0 billion.

We also have access to other short-term and long-term borrowing sources to support our asset base, such as repos (i.e., securities sold under agreements to repurchase). Short-term borrowings (consisting of FHLB advances, repos, and from time to time, federal funds purchased) decreased approximately $171.5 million to $484.2 million at March 31, 2022 as compared to December 31, 2021 largely due to normal repayments of FHLB advances, partially offset by $125 million of federal funds purchased at March 31, 2022.

### Corporation Liquidity

Valley’s recurring cash requirements primarily consist of dividends to preferred and common shareholders and interest expense on subordinated notes and junior subordinated debentures issued to capital trusts. As part of our on-going asset/liability management strategies, Valley could also use cash to repurchase shares of its outstanding common stock under its share repurchase program or redeem its callable junior subordinated debentures and subordinated notes. Valley's cash needs are routinely satisfied by dividends collected from the Bank. Projected cash flows from the Bank are expected to be adequate to pay preferred and common dividends, if declared, and interest expense payable to subordinated note holders and capital trusts, given the current capital levels and current profitable operations of the Bank. In addition to dividends received from the Bank, Valley can satisfy its cash requirements by utilizing its own cash and potential new funds borrowed from outside sources or capital issuances. Valley also has the right to defer interest payments on the junior subordinated debentures, and therefore distributions on its trust preferred securities for consecutive quarterly periods up to five years, but not beyond the stated maturity dates, and subject to other conditions.

### Investment Securities Portfolio

As of March 31, 2022, we had $36.0 million, $11.7 million, $1.0 billion and $3.1 billion in equity, trading debt, available for sale and held to maturity debt securities, respectively. The equity securities consisted of one publicly traded mutual fund, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in a partnership that invests in such companies. Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities. Our trading debt securities portfolio wholly consists of investment grade municipal bonds. The available for sale and held to maturity debt securities portfolios, which comprise the majority of the securities we own, include U.S. Treasury securities, U.S. government agency securities, tax-exempt and taxable issuances of states and political subdivisions, residential mortgage-backed securities, single-issuer trust preferred securities principally issued by bank holding companies, and high quality corporate bonds. Among other securities, our available for sale debt securities include securities such as bank issued and other corporate bonds, as well as municipal special revenue bonds, that may pose a higher risk of future impairment charges to us as a result of the uncertain economic environment and its potential negative effect on the future performance of the security issuers.

### 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 March 31, 2022 and December 31, 2021 and determined that the declines in fair value were mainly attributable to changes in market volatility, due to factors such as interest rates and spread factors, but not attributable to credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment charges during the three months ended March 31, 2022 and the year ended December 31, 2021, as a result, there was no allowance for credit losses for available for sale debt securities at March 31, 2022 and December 31, 2021.

**Held to maturity debt securities.** Valley estimates the expected credit losses on held to maturity debt securities that have loss expectations using a discounted cash flow model developed by a third party. Valley has a zero loss expectation for certain securities within the held to maturity portfolio, including U.S. Treasury securities, U.S. agency securities, residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds. To measure the expected credit losses on held to maturity debt securities that have loss expectations, Valley estimates the expected credit losses using a discounted cash flow model developed by a third party. Assumptions used in the model for pools of securities with common risk characteristics include the historical lifetime probability of default and severity of loss in the event of default, with the model incorporating several economic cycles of loss history data to calculate expected credit losses given default at the individual security level. Held to maturity debt securities were carried net of an allowance for credit losses totaling approximately $1.2 million at both March 31, 2022 and December 31, 2021. There were no net charge-offs of held to maturity debt securities for the three months ended March 31, 2022 and 2021.

**Investment grades.** The investment grades in the table below reflect the most current independent analysis performed by third parties of each security as of the date presented and not necessarily the investment grades at the date of our purchase of the securities. For many securities, the rating agencies may not have performed an independent analysis of the tranches owned by us, but rather an analysis of the entire investment pool. For this and other reasons, we believe the assigned investment grades may not accurately reflect the actual credit quality of each security and should not be viewed in isolation as a measure of the quality of our investment portfolio.

The following table presents the held to maturity and available for sale debt securities portfolios by investment grades at March 31, 2022:

*(in thousands)*

| Available for sale investment grades: \* | March 31, 2022 Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| --- | ---: | ---: | ---: | ---: |
| AAA Rated | $872,466 | $1,049 | $(35,760) | $837,755 |
| AA Rated | 55,058 | 40 | (5,192) | 49,906 |
| A Rated | 4,992 | 15 | — | 5,007 |
| BBB Rated | 19,000 | 105 | (262) | 18,843 |
| Non-investment grade | 4,997 | — | (17) | 4,980 |
| Not rated | 99,251 | 915 | (1,623) | 98,543 |
| Total | $1,055,764 | $2,124 | $(42,854) | $1,015,034 |
| **Held to maturity investment grades: \*** |  |  |  |  |
| AAA Rated | $2,770,369 | $4,154 | $(156,629) | $2,617,894 |
| AA Rated | 134,261 | 808 | (1,133) | 133,936 |
| A Rated | 10,811 | 100 | — | 10,911 |
| BBB Rated | 6,000 | 135 | (88) | 6,047 |
| Non-investment grade | 5,556 | — | (240) | 5,316 |
| Not rated | 146,208 | 31 | (6,492) | 139,747 |
| Total | $3,073,205 | $5,228 | $(164,582) | $2,913,851 |
| Allowance for credit losses | 1,222 | — | — | — |
| Total, net of allowance for credit losses | $3,071,983 | $5,228 | $(164,582) | $2,913,851 |

60

\* 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, Fannie Mae and Freddie Mac. The investment securities held to maturity portfolio included $146.2 million of investments not rated by the rating agencies with aggregate unrealized losses of $6.5 million at March 31, 2022 mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million.

See Note 7 to the consolidated financial statements for additional information regarding our investment securities portfolio.

### Loan Portfolio

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

*($ in thousands)*

| Loans Commercial and industrial: | March 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Commercial and industrial | $5,587,781 | $5,411,601 |
| Commercial and industrial PPP loans | 203,609 | 435,950 |
| Total commercial and industrial \* | 5,791,390 | 5,847,551 |
| Commercial real estate: |  |  |
| Commercial real estate | 19,763,202 | 18,935,486 |
| Construction | 2,174,542 | 1,854,580 |
| Total commercial real estate | 21,937,744 | 20,790,066 |
| Residential mortgage | 4,691,935 | 4,545,064 |
| Consumer: |  |  |
| Home equity | 393,538 | 400,779 |
| Automobile | 1,552,928 | 1,570,036 |
| Other consumer | 996,870 | 1,000,161 |
| Total consumer loans | 2,943,336 | 2,970,976 |
| Total loans\* | $35,364,405 | $34,153,657 |
| As a percent of total loans: |  |  |
| Commercial and industrial | 16.4% | 17.1% |
| Commercial real estate | 62.0 | 60.9 |
| Residential mortgage | 13.3 | 13.3 |
| Consumer loans | 8.3 | 8.7 |
| Total | 100.0% | 100.0% |

\* Includes net unearned discount and deferred loan fees of $62.0 million and $78.5 million at March 31, 2022 and December 31, 2021, respectively. Net unearned discounts and deferred loan fees included include the non-credit discount on purchased credit deteriorated (PCD) loans, and $5.9 million and $12.1 million of net unearned fees related to PPP loans at March 31, 2022 and December 31, 2021, respectively.

Commercial and industrial loans decreased $56.2 million, or 3.8 percent on an annualized basis, to $5.8 billion at March 31, 2022 as compared to December 31, 2021 mostly due to $232.3 million of PPP loans that were forgiven (i.e., repaid) during the first quarter 2022. PPP loan forgiveness will likely continue to negatively impact our ability to grow total commercial and industrial loans during the second quarter 2022. Non-PPP commercial and industrial loans increased by $176.2 million at March 31, 2022, or 13.0 percent on an annualized basis, as compared to December 31, 2021 mainly resulting from the solid new loan pipeline in most of our markets driven by several factors, including direct calling efforts of our growing commercial lending team.

Commercial real estate loans (excluding construction loans) increased $827.7 million, or 17.5 percent on an annualized basis, to $19.8 billion at March 31, 2022 from December 31, 2021 reflecting solid organic growth across most of our geographic footprints. Construction loans increased $320.0 million, or 69.0 percent on an annualized basis, to $2.2 billion at March 31, 2022 from December 31, 2021 largely due to a higher volume of advances on pre-existing loan projects during the first quarter 2022.

Residential mortgage loans increased $146.9 million, or 12.9 percent on an annualized basis, during the first quarter 2022 mainly due to new loan activity in the purchased home market, and, to a lesser extent, refinance loan volumes. New and refinanced residential mortgage loans totaled $552.6 million for the first quarter 2022 as compared to $632.8 million and $550.6 million for the fourth quarter 2021 and first quarter 2021, respectively. Florida originations totaled approximately $183.1 million and represented 33 percent of total originations. Of the total originations in the first quarter 2022, $144.5 million of residential mortgage loans were originated for sale rather than held for investment as compared to $287.8 million during the first quarter 2021. During the first quarter 2022, we retained over 74 percent of the total residential mortgages originations in our held for investment loan portfolio. We sold approximately $201.2 million of residential mortgage loans held for sale during the first quarter 2022. While we retained a higher percentage of new loan volumes during the first quarter 2022, we may continue to sell a large portion of our loan originations during the second quarter 2022 based upon normal management of the interest rate risk and mix of the interest earning assets on our balance sheet. Additionally, refinanced loan applications have decreased significantly in the early stages of the second quarter 2022 due to the recent increase in mortgage interest rates and may challenge our ability to grow this loan category.

Home equity loans decreased by $7.2 million to $393.5 million at March 31, 2022 compared to December 31, 2021. New home equity loan volumes and customer usage of existing home equity lines of credit continue to be modest, and may be further challenged by a less favorable rising interest rate environment.

Automobile loans decreased by $17.1 million, or 4.4 percent on an annualized basis, to $1.6 billion at March 31, 2022 as compared to December 31, 2021 as loan repayments outpaced origination volumes in the first quarter 2022. Car manufacturers have continued to struggle with low inventories of new vehicles caused by supply chain disruptions which have slowed auto production. We originated $148.1 million in auto loans through our dealership network during the first quarter 2022 as compared to $177.1 million in the fourth quarter 2021. Of the total originations, our Florida dealership network contributed $24.5 million in auto loan originations, representing approximately 17 percent of new loans, during the first quarter 2022. The current low levels of new and used automobile inventories may continue to negatively impact our auto loan growth during the second quarter 2022.

Other consumer loans decreased $3.3 million to $996.9 million at March 31, 2022 as compared to $1.0 billion at December 31, 2021.

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 2022, we anticipate strong organic commercial and industrial non-PPP and commercial real estate loan growth. In the early stages of the second quarter 2022, we are encouraged that our commercial loan origination pipelines remain robust and overall loan growth should remain well-diversified across our markets in our commercial loan categories. Due to the exceptional growth generated in the first quarter, and an improved outlook for the rest of the year, we currently project that our organic loan growth will range from 10 to 12 percent for the full year of 2022, excluding the impact of our recent acquisition of Bank Leumi USA on April 1, 2022. However, there can be no assurance that those positive trends will continue, or balances will not decline from March 31, 2022 given the uncertainty in the U.S. economy due to several factors, including the Russia-Ukraine war, persistently high inflation, and the impact of the Federal Reserve's monetary policy actions.

### 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 March 31, 2022. Loans are generally placed on non-accrual status when they become past due in excess of 90 days as to payment of principal or interest. Exceptions to the non-accrual policy may be permitted if the loan is sufficiently collateralized and in the process of 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 decreased $12.7 million to $232.7 million at March 31, 2022 as compared to December 31, 2021 largely due to loan payoffs net of new non-accrual loans in several categories during the first quarter. NPAs as a percentage of total loans and NPAs totaled 0.65 percent and 0.71 percent at March 31, 2022 and December 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 and the level of NPAs is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased from third parties. For additional details, see the "Credit quality indicators" section in Note 8 to the consolidated financial statements.

Our lending strategy is based on underwriting standards designed to maintain high credit quality and we remain

optimistic regarding the overall future performance of our loan portfolio. During 2021 and the first quarter 2022, our overall credit trends remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the continuing challenges of the COVID-19 pandemic. However, management cannot provide assurance that the non-performing assets will not increase substantially from the levels reported at March 31, 2022 due to the continuing economic uncertainty and potential for credit deterioration. In addition, a few borrowers are still performing under forbearance agreements at March 31, 2022 as discussed under the "Loan Forbearance" section below.

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:

*($ in thousands)*

| Accruing past due loans: 30 to 59 days past due: | March 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Commercial and industrial | $6,723 | $6,717 |
| Commercial real estate | 30,807 | 14,421 |
| Construction | 1,708 | 1,941 |
| Residential mortgage | 9,266 | 10,999 |
| Total consumer | 5,862 | 6,811 |
| Total 30 to 59 days past due | 54,366 | 40,889 |
| 60 to 89 days past due: |  |  |
| Commercial and industrial | 14,461 | 7,870 |
| Commercial real estate | 6,314 | — |
| Construction | 3,125 | — |
| Residential mortgage | 2,560 | 3,314 |
| Total consumer | 554 | 1,020 |
| Total 60 to 89 days past due | 27,014 | 12,204 |
| 90 or more days past due: |  |  |
| Commercial and industrial | 9,261 | 1,273 |
| Commercial real estate | — | 32 |
| Residential mortgage | 1,746 | 677 |
| Total consumer | 400 | 789 |
| Total 90 or more days past due | 11,407 | 2,771 |
| Total accruing past due loans | $92,787 | $55,864 |
| **Non-accrual loans:** |  |  |
| Commercial and industrial | $96,631 | $99,918 |
| Commercial real estate | 79,180 | 83,592 |
| Construction | 17,618 | 17,641 |
| Residential mortgage | 33,275 | 35,207 |
| Total consumer | 3,754 | 3,858 |
| Total non-accrual loans | 230,458 | 240,216 |
| Other real estate owned (OREO) | 1,024 | 2,259 |
| Other repossessed assets | 1,176 | 2,931 |
| Total non-performing assets (NPAs) | $232,658 | $245,406 |
| Performing troubled debt restructured loans | $56,538 | $71,330 |
| Total non-accrual loans as a % of loans | 0.65% | 0.70% |
| Total NPAs as a % of loans and NPAs | 0.65 | 0.71 |
| Total accruing past due and non-accrual loans as a % of loans | 0.91 | 0.87 |
| Allowance for loan losses as a % of non-accrual loans | 157.30 | 149.53 |

Loans past due 30 to 59 days increased $13.5 million to $54.4 million at March 31, 2022 as compared to December 31, 2021. Commercial real estate loans past due 30 to 59 days increased $16.4 million to $30.8 million at March 31, 2022 as compared to December 31, 2021 mainly due to a $13.2 million loan included in this delinquency category at March 31, 2022.

Loans past due 60 to 89 days increased $14.8 million to $27.0 million at March 31, 2022 as compared to December 31, 2021. Commercial and industrial and commercial real estate loans within this delinquency category increased $6.6 million and $6.3 million, respectively, at March 31, 2022 mainly due to a few additional loans that are considered well-secured and in the process of collection reported at March 31, 2022.

Loans past due 90 days or more and still accruing interest increased $8.6 million to $11.4 million at March 31, 2022 as compared to December 31, 2021. The increase was mainly driven by a $8.0 million increase in commercial and industrial loans category, as well as a moderate increase in residential mortgage delinquencies. All of the loans past due 90 days or more and still accruing interest reported at March 31, 2022 are considered to be well-secured and in the process of collection.

Non-accrual loans decreased $9.8 million to $230.5 million at March 31, 2022 as compared to $240.2 million at December 31, 2021 mostly due to decreases of $4.4 million and $3.3 million in commercial real estate and commercial and industrial loans, respectively. The decrease in commercial real estate loans delinquencies was due, in part, to the full repayment of a $12.0 million loan during the first quarter 2022, partly offset by two new non-accrual loans at March 31, 2022. The decrease in non-accrual commercial and industrial loans was also partly due to loan payoffs during the first quarter 2022.

Non-accrual commercial and industrial loans totaled $96.6 million at March 31, 2022 and largely consist of non-performing New York City and Chicago taxi medallion loans totaling $84.7 million and $574 thousand, respectively. At March 31, 2022, the taxi medallion loans had related reserves of $58.2 million, or 68.2 percent of such loans. The tax medallion loans and related reserves remained relatively unchanged from December 31, 2021. Potential declines in the market valuation of taxi medallions and the stressed operating environment mainly within New York City due to the COVID-19 pandemic could negatively impact the future performance of this portfolio. For example, a 25 percent decline in our current estimated market value of the taxi medallions would require additional allocated reserves of $5.6 million within the allowance for loan losses based upon the taxi medallion loan balances at March 31, 2022. See the "Allowance for Credit Losses" section below for further details on our reserves.

OREO properties totaled $1.0 million at March 31, 2022 and declined $1.2 million as compared to December 31, 2021. Net gains and losses from sales of OREO were immaterial for the three months ended March 31, 2022 and 2021. The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $2.8 million and $2.5 million at March 31, 2022 and December 31, 2021, respectively.

TDRs represent loan modifications for customers experiencing financial difficulties where a concession has been granted. Performing TDRs (i.e., TDRs not reported as loans 90 days or more past due and still accruing interest or as non-accrual loans) totaled $56.5 million at March 31, 2022 as compared to $71.3 million at December 31, 2021. Performing TDRs consisted of 89 loans at March 31, 2022. On an aggregate basis, the $56.5 million in performing TDRs at March 31, 2022 had a modified weighted average interest rate of approximately 4.12 percent as compared to a pre-modification weighted average interest rate of 4.27 percent.

**Loan Forbearance**. In response to the COVID-19 pandemic and its economic impact on 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. Generally, the modification terms allow for a deferral of payments for up to 90 days, which Valley could extend for an additional 90 days. Any extensions beyond this period were provided in accordance with applicable regulatory guidance. Under the applicable accounting and regulatory guidance, none of these loans were classified as TDRs at March 31, 2022 and December 31, 2021. Valley had $23.0 million of outstanding loans remaining in their payment deferral periods under short-term modifications at March 31, 2022 as compared to $27.9 million at December 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 standby 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 first quarter 2022, we incorporated a probability weighted three-scenario economic forecast, including Moody's Baseline, S-3 and S-4 scenarios. At March 31, 2022, Valley maintained the majority of its probability weighting to the Moody’s Baseline scenario with less emphasis on the S-3 downside and S-4 (most adverse) scenarios. The Baseline weighting reflects a positive economic outlook including higher GDP growth and lower unemployment levels that are expected to improve labor market conditions and promote stronger economic growth during 2022. During the first quarter 2022, we removed our modest weighting to the Moody's S-1 upside scenario used at December 31, 2021 and added weighting to the S-4 adverse scenario due to the greater uncertainty caused by recent developments, including, but not limited to persistently high inflation, the Federal Reserve's monetary policy actions, the Russia-Ukraine war and the unknown impact of economic sanctions on Russia that may further negatively impact the supply chain in the US and abroad.

At March 31, 2022, the Moody's Baseline forecast included the following specific assumptions:

- GDP expansion by over 4.8 percent in the second quarter 2022;
- Unemployment of 3.7 percent in the second quarter 2022 and improving to 3.4 percent over the remainder of the forecast period ending in the first quarter 2024; and
- Strong U.S. economic growth driven by continued consumer spending.

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

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

*($ in thousands)*

|  | Three Months Ended March 31, 2022 | December 31, 2021 | March 31, 2021 |
| --- | ---: | ---: | ---: |
| Average loans outstanding | $34,623,402 | $33,338,128 | $32,582,479 |
| **Allowance for credit losses for loans** |  |  |  |
| Beginning balance | 375,702 | 356,927 | 351,354 |
| Allowance for purchased credit deteriorated (PCD) loans | — | 6,542 | — |
| Loans charged-off: |  |  |  |
| Commercial and industrial | (1,571) | (2,224) | (7,142) |
| Commercial real estate | (173) | — | (382) |
| Residential mortgage | (26) | (1) | (138) |
| Total consumer | (825) | (914) | (1,138) |
| Total charge-offs | (2,595) | (3,139) | (8,800) |
| Charged-off loans recovered: |  |  |  |
| Commercial and industrial | 824 | 1,153 | 1,589 |
| Commercial real estate | 107 | 1,794 | 65 |
| Construction | — | — | 4 |
| Residential mortgage | 457 | 100 | 157 |
| Total consumer | 1,257 | 716 | 930 |
| Total recoveries | 2,645 | 3,763 | 2,745 |
| Net loan recoveries (charge-offs) | 50 | 624 | (6,055) |
| Provision charged for credit losses | 3,500 | 11,609 | 9,014 |
| Ending balance | $379,252 | $375,702 | $354,313 |
| **Components of allowance for credit losses for loans:** |  |  |  |
| Allowance for loan losses | $362,510 | $359,202 | $342,880 |
| Allowance for unfunded credit commitments | 16,742 | 16,500 | 11,433 |
| Allowance for credit losses for loans | $379,252 | $375,702 | $354,313 |
| **Components of provision for credit losses for loans:** |  |  |  |
| Provision for credit losses for loans | $3,258 | $9,509 | $8,692 |
| Provision for unfunded credit commitments | 242 | 2,100 | 322 |
| Total provision for credit losses for loans | $3,500 | $11,609 | $9,014 |
| Annualized ratio of net (recoveries) charge-offs to average loans outstanding | 0.00% | (0.01)% | 0.07% |

67

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

*($ in thousands)*

| Net loan recoveries (charge-offs) | Three Months Ended March 31, 2022 | December 31, 2021 | March 31, 2021 |
| --- | ---: | ---: | ---: |
| Commercial and industrial | $(747) | $(1,071) | $(5,553) |
| Commercial real estate | (66) | 1,794 | (317) |
| Construction | — | — | 4 |
| Residential mortgage | 431 | 99 | 19 |
| Total consumer | 432 | (198) | (208) |
| Total | $50 | $624 | $(6,055) |
| Average loans outstanding |  |  |  |
| Commercial and industrial | $5,727,350 | $5,659,831 | $6,891,366 |
| Commercial real estate | 19,342,697 | 18,353,345 | 16,913,773 |
| Construction | 1,914,413 | 1,857,590 | 1,728,088 |
| Residential mortgage | 4,681,417 | 4,516,379 | 4,435,252 |
| Total consumer | 2,957,525 | 2,950,983 | 2,614,000 |
| Total | $34,623,402 | $33,338,128 | $32,582,479 |
| Net loan charge-offs (recoveries) to average loans outstanding |  |  |  |
| Commercial and industrial | 0.01% | 0.02% | 0.08% |
| Commercial real estate | 0.00 | (0.01) | 0.00 |
| Construction | 0.00 | 0.00 | 0.00 |
| Residential mortgage | (0.01) | 0.00 | 0.00 |
| Total consumer | (0.01) | 0.01 | 0.01 |

Net loan loss recoveries totaled $50 thousand and $624 thousand for the first quarter 2022 and fourth quarter 2021, respectively, as compared to $6.1 million in net loan charge-offs for the first quarter 2021. There were partial charge-offs of taxi medallion loans of $206 thousand within the commercial and industrial loan category during the first quarter 2022 as compared to $3.3 million for the first quarter 2021. There were no charge-offs of taxi medallion loans in the fourth quarter 2021. The overall level of loan charge-offs (as presented in the above table) continued to remain very low and trend well within management's expectations for the credit quality of the loan portfolio for the first quarter 2022.

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:

*($ in thousands)*

| Loan Category: | March 31, 2022 Allowance Allocation | Allocation as a % of Loan Category | December 31, 2021 Allowance Allocation | Allocation as a % of Loan Category | March 31, 2021 Allowance Allocation | Allocation as a % of Loan Category |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial loans | $101,203 | 1.75% | $103,090 | 1.76% | $126,408 | 1.77% |
| Commercial real estate loans: |  |  |  |  |  |  |
| Commercial real estate | 189,927 | 0.96 | 193,258 | 1.02 | 153,680 | 0.91 |
| Construction | 30,022 | 1.38 | 24,232 | 1.31 | 20,556 | 1.15 |
| Total commercial real estate loans | 219,949 | 1.00 | 217,490 | 1.05 | 174,236 | 0.93 |
| Residential mortgage loans | 28,189 | 0.60 | 25,120 | 0.55 | 27,172 | 0.67 |
| Consumer loans: |  |  |  |  |  |  |
| Home equity | 3,656 | 0.93 | 3,889 | 0.97 | 4,199 | 1.03 |
| Auto and other consumer | 9,513 | 0.37 | 9,613 | 0.37 | 10,865 | 0.46 |
| Total consumer loans | 13,169 | 0.45 | 13,502 | 0.45 | 15,064 | 0.54 |
| Allowance for loan losses | 362,510 | 1.03 | 359,202 | 1.05 | 342,880 | 1.05 |
| Allowance for unfunded credit commitments | 16,742 |  | 16,500 |  | 11,433 |  |
| Total allowance for credit losses for loans | $379,252 |  | $375,702 |  | $354,313 |  |
| Allowance for credit losses for loans as a % total loans |  | 1.07% |  | 1.10% |  | 1.08% |

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 1.07 percent, 1.10 percent and 1.08 percent at March 31, 2022, December 31, 2021 and March 31, 2021, respectively. During the first quarter 2022, we recorded a $3.5 million provision for credit losses as compared to $11.6 million and $9.0 million for the fourth quarter 2021 and the first quarter 2021, respectively. The first quarter 2022 provision and increase in our allowance at March 31, 2022 largely reflects additional reserves required due to loan growth during the first quarter 2022.

The allocated reserves as a percentage of commercial real estate loans decreased 6 basis points to 0.96 percent at March 31, 2022 from December 31, 2021 mainly due to lower quantitative reserves for non-owner occupied loans caused by the improvement in the expected loss rates at March 31, 2022. The allowance for credit losses as a percentage of total non-PPP loans was 1.08 percent, 1.11 percent and 1.17 percent for the first quarter 2022, fourth quarter 2021 and first quarter 2021, respectively.

### Capital Adequacy

A significant measure of the strength of a financial institution is its shareholders’ equity. At March 31, 2022 and December 31, 2021, shareholders’ equity totaled approximately $5.1 billion, which represented 11.7 percent of total assets. During the three months ended March 31, 2022, total shareholders’ equity increased by $12.3 million primarily due to net income of $116.7 million, partially offset by cash dividends declared on common and preferred stock totaling a combined $50.0 million, an increase in other comprehensive loss of $38.2 million, repurchases of $13.5 million of our common stock with these shares held as treasury stock and a $2.7 million decrease attributable to the effect of our stock incentive plan.

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 March 31, 2022 and December 31, 2021, Valley and Valley National Bank exceeded all capital adequacy requirements (see table below).

For regulatory capital purposes, in accordance with the Federal Reserve Board’s final interim rule as of April 3, 2020, we deferred 100 percent of the CECL Day 1 impact to shareholders' equity plus 25 percent of the reserve build (i.e. provision for credit losses less net charge-offs) for a two-year period ending January 1, 2022. Starting January 1, 2022, the deferral amount totaling $47.3 million after-tax will be phased-in 25 percent per year until fully phased-in on January 1, 2025. As of March 31, 2022, approximately $11.8 million of the $47.3 million deferral amount was recognized as a reduction to regulatory capital and, as a result, decreased our risk based capital ratios by approximately 4 basis points.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under Basel III risk-based capital guidelines at March 31, 2022 and December 31, 2021:

*($ in thousands)*

| As of March 31, 2022 Total Risk-based Capital | Actual Amount | Ratio | Minimum Capital Requirements Amount | Ratio | To Be Well Capitalized Under Prompt Corrective Action Provision Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Valley | $4,499,638 | 12.65% | $3,735,425 | 10.50% | N/A | N/A |
| Valley National Bank | 4,576,857 | 12.88 | 3,730,491 | 10.50 | $3,552,849 | 10.00% |
| Common Equity Tier 1 Capital |  |  |  |  |  |  |
| Valley | 3,439,249 | 9.67 | 2,490,283 | 7.00 | N/A | N/A |
| Valley National Bank | 4,290,309 | 12.08 | 2,486,994 | 7.00 | 2,309,352 | 6.50 |
| Tier 1 Risk-based Capital |  |  |  |  |  |  |
| Valley | 3,654,090 | 10.27 | 3,023,915 | 8.50 | N/A | N/A |
| Valley National Bank | 4,290,309 | 12.08 | 3,019,922 | 8.50 | 2,842,279 | 8.00 |
| Tier 1 Leverage Capital |  |  |  |  |  |  |
| Valley | 3,654,090 | 8.70 | 1,679,775 | 4.00 | N/A | N/A |
| Valley National Bank | 4,290,309 | 10.22 | 1,679,314 | 4.00 | 2,099,143 | 5.00 |
| **As of December 31, 2021** |  |  |  |  |  |  |
| Total Risk-based Capital |  |  |  |  |  |  |
| Valley | $4,454,485 | 13.10% | $3,569,144 | 10.50% | N/A | N/A |
| Valley National Bank | 4,571,448 | 13.45 | 3,567,618 | 10.50 | $3,397,732 | 10.00% |
| Common Equity Tier 1 Capital |  |  |  |  |  |  |
| Valley | 3,417,930 | 10.06 | 2,379,429 | 7.00 | N/A | N/A |
| Valley National Bank | 4,308,734 | 12.68 | 2,378,412 | 7.00 | 2,208,526 | 6.50 |
| Tier 1 Risk-based Capital |  |  |  |  |  |  |
| Valley | 3,632,771 | 10.69 | 2,889,307 | 8.50 | N/A | N/A |
| Valley National Bank | 4,308,734 | 12.68 | 2,888,072 | 8.50 | 2,718,185 | 8.00 |
| Tier 1 Leverage Capital |  |  |  |  |  |  |
| Valley | 3,632,771 | 8.88 | 1,635,508 | 4.00 | N/A | N/A |
| Valley National Bank | 4,307,734 | 10.53 | 1,636,097 | 4.00 | 2,045,121 | 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:

*($ in thousands, except for share data)*

|  | March 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Common shares outstanding | 421,394,277 | 421,437,068 |
| Shareholders’ equity | $5,096,384 | $5,084,066 |
| Less: Preferred stock | 209,691 | 209,691 |
| Less: Goodwill and other intangible assets | 1,543,238 | 1,529,394 |
| Tangible common shareholders’ equity | $3,343,455 | $3,344,981 |
| Tangible book value per common share | $7.93 | $7.94 |
| Book value per common share | $11.60 | $11.57 |

71

Management believes the tangible book value per common share ratio, a non-GAAP financial measure, 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 59.3 percent for the three months ended March 31, 2022 as compared to 60.7 percent for the year ended December 31, 2021.

Cash dividends declared amounted to $0.11 per common share for each of the three months ended March 31, 2022 and 2021. The Board is committed to examining and weighing relevant facts and considerations, including its commitment to shareholder value, each time it makes a cash dividend decision.

### Off-Balance Sheet Arrangements, Contractual Obligations and Other Matters

For a discussion of Valley’s off-balance sheet arrangements and contractual obligations see information included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2021 in the MD&A section - “Liquidity and Cash Requirements” and Notes 11 and 12 to the consolidated financial statements included in this report.

## Market risk

As filed, 264 characters.

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

## Controls and procedures

As filed, 3,211 characters.

(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 March 31, 2022 that have materially affected, or are reasonably likely to materially affect, Valley’s internal control over financial reporting.

Valley’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all errors and all fraud. A system of internal control, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the system of internal control are met. The design of a system of internal control reflects resource constraints and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Valley have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of a simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of internal control is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

## Risk factors

As filed, 209 characters.

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

Filed May 9, 2022.
Source: SEC EDGAR, the filing index for accession 0000714310-22-000085. Last ingested by Listed: Nov 5, 2026, 17:26 ET. No prices; not investment advice.