# Valley National Bancorp: Form 10-Q for the period ended Mar 31, 2023

- Company: [Valley National Bancorp](/companies/vly.md) (CIK 714310)
- Form: 10-Q
- Filed: 2023-05-08
- Accepted by EDGAR: May 5, 2023, 17:33 ET
- Period: 2023-03-31
- Accession: 0000714310-23-000103
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/714310/000071431023000103/vly-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/714310/000071431023000103/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $284.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $57.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $146.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $0.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 509,656,430 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$269.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $18.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-01-01 to 2023-03-31 | $57.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2023-01-01 to 2023-03-31 | $8.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2023-03-31 | $64.31bn | us-gaap:Assets |
| Total liabilities | at 2023-03-31 | $57.80bn | us-gaap:Liabilities |
| Short-term borrowings | at 2023-03-31 | $6.41bn | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-03-31 | $6.51bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 116,050 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 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 “intend,” “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. 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 impact of Federal Reserve actions impacting the level of market interest rates and increases in business failures, specifically among our clients, as well as on our business, our employees and our ability to provide services to our customers;
- the potential impact of recent and possible future bank failures on the business environment in which we operate, including potential customer deposit withdrawals from Valley National Bank or business disruptions or liquidity issues that may affect our customers;
- the impact of unfavorable macroeconomic conditions or downturns, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by and factors outside of our control, such as geopolitical instabilities or events; natural and other disasters (including severe weather events) and health emergencies, acts of terrorism or other external events;
- risks associated with our acquisition of Bank Leumi Le-Israel Corporation (Bank Leumi USA), including (i) the inability to realize expected cost savings and synergies from the acquisition in the amounts or timeframe anticipated and (ii) greater than expected costs or difficulties relating to integration matters;
- the loss of or decrease in lower-cost funding sources within our deposit base;
- the need to supplement debt or equity capital to maintain or exceed internal capital thresholds;
- the inability to attract new customer deposits to keep pace with loan growth strategies;
- 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;
- 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 risks related to the replacement of the London Interbank Offered Rate with Secured Overnight Financing Rate and other reference rates, including increased expenses, risk of litigation and the effectiveness of hedging strategies;
- 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;
- 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;
- changes to laws and regulations, including changes affecting oversight of the financial services industry; changes in the enforcement and interpretation of such laws and regulations; and changes in accounting and reporting standards;
- 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;
- results of examinations by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank (FRB), the Consumer Financial Protection Bureau (CFPB) and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
- our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings;
- 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; 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, 2022, and in Part II, Item 1A of this Form 10-Q.

We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in our expectations. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

### Critical Accounting Estimates

Valley’s accounting policies are fundamental to understanding management’s discussion and analysis of its financial condition and results of operations. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions in accordance with these policies that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. At March 31, 2023, we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed the application of these policies and estimates with the Audit Committee of Valley’s Board of Directors. Our critical accounting policies and estimates are described in detail in Part II, Item 7 in Valley’s Annual Report on Form 10-K for the year ended December 31, 2022, 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, 2023, Valley had consolidated total assets of approximately $64.3 billion, total net loans of $48.2 billion, total deposits of $47.6 billion and total shareholders’ equity of $6.5 billion. Valley operates many convenient branch office locations and commercial banking offices in northern and central New Jersey, the New York City Boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida, California, Alabama and Illinois. Of our current 230 branch network, 56 percent, 18 percent, and 18 percent of the branches are in New Jersey, New York and Florida, respectively, with the remaining 8 percent of the branches in Alabama, California, and Illinois combined. We have grown significantly both in asset size and locations over the past several years both through organic efforts and bank acquisitions, including our acquisition of Bank Leumi USA on April 1, 2022.

**Recent Industry Developments.** Recent events, including the bank failures in March and April 2023, the rising level of interest rates and recessionary pressures have heightened concerns in the bank sector. We have consistently operated the Bank with a focus on diversification to maintain stability through various cycles. During the first quarter of 2023, we continued to position our balance sheet to mitigate potential risks from the market turmoil affecting the banking industry in general and Valley, its clients and communities in particular.

- Total assets increased to $64.3 billion at March 31, 2023, an increase of 11.9 percent from December 31, 2022. Liquidity remained strong with total liquid assets of approximately $7.2 billion at March 31, 2023, representing 12.1 percent of earning assets. We continue to maintain the ability to access readily available, diverse funding sources to fulfill both short-term and long-term capital needs. See "Bank Liquidity" section for additional information.
- Total deposits were $47.6 billion at March 31, 2023 and remained relatively unchanged as compared to December 31, 2022. Our deposit base is highly diversified with 625 thousand commercial and retail deposit customers, an average account size of $58 thousand and an average customer relationship with Valley exceeding 10 years as of March 31, 2023. Approximately $32.0 billion of our $47.6 billion in deposits at March 31, 2023 are generated from our branch network. See the "Deposits and Other Borrowings" section for more details.
- Capital remained strong with ratios of both Valley and the Bank exceeding all capital adequacy requirements at March 31, 2023. Total shareholders' equity increased $110.8 million to $6.5 billion at March 31, 2023 as compared to December 31, 2022. See the "Capital Adequacy" section for additional details.
- Total loans increased $1.7 billion, or 14.9 percent on an annualized basis to $48.7 billion at March 31, 2023 from December 31, 2022 largely due to strong organic commercial loan volumes and slow prepayments. See "Loan Portfolio" section for more information.
- Asset quality continued to reflect our disciplined underwriting and lending practices during the first quarter 2023. Non-performing assets (NPAs) as a percentage of total loans and NPAs totaled 0.50 percent and 0.58 percent at March 31, 2023 and December 31, 2022, respectively. See the "Non-Performing Assets" section for additional information.
- Total investment securities were $5.2 billion, or 8.0 percent of total assets, at March 31, 2023 and remained relatively unchanged as compared to December 31, 2022. See the "Investment Securities Portfolio" section for more details.

**Quarterly Results.** Net income for the first quarter 2023 was $146.6 million, or $0.28 per diluted common share as compared to $116.7 million, or $0.27 per diluted common share, for the first quarter 2022. The $29.8 million increase in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:

- a $118.4 million increase in net interest income mainly due to higher average loan balances driven by both acquired and organic loan volumes and increased yields on new and adjustable-rate loans, partially offset by higher cost of deposits; and
- a $15.0 million increase in non-interest income primarily due to bank acquisition-driven growth in wealth management and trust fees, service charges on deposit accounts and other income, partially offset by a decline in swap fee income within capital markets fees;

These items were partially offset by:

- a $10.9 million increase in our provision for credit losses due, in part, to a $5 million provision for credit losses on available for sale investment securities;
- a $74.8 million increase in non-interest expense largely due to our expanded banking operations and higher FDIC insurance assessment expense; and
- a $17.9 million increase in income tax expense mostly due to higher pre-tax income in the first quarter 2023.

See the "Net Interest Income", "Non-Interest Income", "Non-Interest Expense" and "Income Taxes" sections below for more details on the impact of the items above on our first quarter 2023 results.

**U.S. Economic Conditions.** During the first quarter 2023, real gross domestic product (GDP) increased at an annual rate of 1.1 percent as compared to an increase of 2.6 percent during the fourth quarter 2022. The 1.1 percent increase in real GDP reflected higher consumer spending, exports, federal government spending, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in private inventory investment and residential fixed investment.

During the first quarter 2023, the Federal Reserve raised the target range for the federal funds rate by 75 basis points, bringing the target range to 4.75 to 5 percent at March 31, 2023, and by an additional 25 basis points in May 2023 to a current range of 5 to 5.25 percent. Consistent with its previously announced plan, these actions reflect the Federal Reserve’s strong commitment to returning inflation to its 2 percent objective. The Federal Open Market Committee has indicated it will continue to increase the federal funds rate, but at a slower pace, to stabilize pricing while remaining highly attentive toward the recent banking developments, and the delay in which the cumulative tightening of its monetary policy affects the economy.

The 10-year U.S. Treasury note yield ended the first quarter of 2023 at 3.48 percent, or 40 basis points lower as compared to the fourth quarter 2022, and the 2-year U.S. Treasury note yield ended the first quarter 2023 at 4.06 percent, or 35 basis points lower as compared to the fourth quarter 2022.

For all commercial banks in the U.S., commercial and industrial loans decreased approximately by 1.8 percent at March 31, 2023 as compared to December 31, 2022 largely due to decreased customer need for financing inventory and accounts receivables, investment in property or equipment and mergers or acquisitions. Many banks increased the cost of credit lines through widening the spreads of loan rates over the costs of funds to firms of all sizes and increasing premiums for riskier loans, while a significant portion of banks also tightened loan covenants and collateralization requirements for firms of all sizes. A majority of banks that reported tightening standards or terms on commercial and industrial loans cited a less favorable or more uncertain economic outlook and reduced risk tolerance.

Further increases in market interest rates, persistently high inflation, heightened recessionary concerns and the potential for additional fallout from the recent banking crisis, including bank regulatory actions, among other factors, have added a higher level of uncertainty to the future path of the U.S. economy and an elevated risk of a recession. Should economic conditions deteriorate, causing business activity, spending and investment to decline, it may adversely impact our financial results, as highlighted in this MD&A.

### Deposits and Other Borrowings

Overall, average deposits increased by $918.1 million to $47.2 billion for the first quarter 2023 as compared to the fourth quarter 2022, mostly due to higher time deposits driven by an increased utilization of fully insured brokered deposits, partially offset by a decrease in average non-interest bearing deposits. Average non-interest-bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 30 percent, 50 percent and 21 percent of total deposits as of March 31, 2023, respectively.

Actual ending balances for deposits decreased $46.0 million to approximately $47.6 billion at March 31, 2023 from December 31, 2022. Within the deposit categories, non-interest bearing deposits, and savings, NOW and money market deposits decreased $887.5 million and $713.4 million, respectively, and were mostly offset by an increase in time deposits. Time deposits increased $1.6 billion to $11.1 billion within our overall deposit mix at March 31, 2023 from December 31, 2022 largely due to higher fully FDIC-insured brokered CD balances at March 31, 2023. Total fully insured brokered deposits, consisting of time deposits and money market accounts, increased $1.2 billion to $7.1 billion at March 31, 2023 as compared to $5.9 billion at December 31, 2022. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 29 percent, 48 percent and 23 percent of total deposits as of March 31, 2023, respectively, as compared to 30 percent, 50 percent and 20 percent of total deposits as of December 31, 2022, respectively.

The following table lists, by maturity, uninsured certificates of deposit at March 31, 2023:

*(in thousands)*

|  |  |
| --- | ---: |
| Less than three months | $349,067 |
| Three to six months | 97,841 |
| Six to twelve months | 77,179 |
| More than twelve months | 1,208,902 |
| Total | $1,732,989 |

Total estimated uninsured deposits were approximately $14.9 billion, or 31 percent of total deposits, at March 31, 2023.

While our diversified commercial and consumer deposit base has remained stable during the early stages of the second quarter 2023, we believe deposit gathering initiatives may remain challenging due to market competition, attractive investment alternatives, such as U.S. Treasury securities, changes in customer behavior and other factors. As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at March 31, 2023.

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

*(in thousands)*

| Average short-term borrowings: | Three Months Ended March 31, 2023 | December 31, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: |
| FHLB advances | $2,513,983 | $429,529 | $434,444 |
| Securities sold under repurchase agreements | 99,546 | 118,263 | 148,575 |
| Federal funds purchased | 190,214 | 332,823 | 11,278 |
| Total | $2,803,743 | $880,615 | $594,297 |
| **Average long-term borrowings:** |  |  |  |
| FHLB advances | $875,053 | $788,496 | $788,956 |
| Subordinated debt | 754,972 | 753,165 | 631,056 |
| Junior subordinated debentures issued to capital trusts | 56,805 | 56,718 | 56,457 |
| Total | $1,686,830 | $1,598,379 | $1,476,469 |

Average short-term borrowings increased $2.2 billion during the first quarter 2023 as compared to the first quarter 2022 mostly due to the higher utilization of FHLB advances in March 2023 to prudently increase our excess liquidity position. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) increased $210.4 million as compared to the first quarter 2022 mainly due to the issuance of $150 million of subordinated notes during the third quarter 2022 and new FHLB advances issued during the first quarter 2023.

Actual ending balances for short-term borrowings increased $6.3 billion to $6.4 billion at March 31, 2023 as compared to December 31, 2022. In March 2023, we significantly increased our short-term borrowings, mostly consisting of FHLB advances, to bolster our liquidity position out of an abundance of caution in the wake of the two recent bank failures. Since March 31, 2023, many of our short-term FHLB advances have matured and been repaid, resulting in a more normal liquidity position. We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity. Long-term borrowings increased to approximately $2.2 billion at March 31, 2023 as compared to $1.5 billion at December 31, 2022 mainly due to new FHLB advances also issued during the first quarter 2023 as part of our overall funding and liquidity strategies.

See the "Bank Liquidity" section for more details on our available funding sources.

### Non-GAAP Financial Measures

The table below presents selected performance indicators, their comparative non-GAAP measures and the (non-GAAP) efficiency ratio for the periods indicated. Valley believes that the non-GAAP financial measures provide useful supplemental information to both management and investors in understanding its underlying operational performance, business, and performance trends, and may facilitate comparisons of current and prior performance with the performance of others in the financial services industry. Management utilizes these measures for internal planning, forecasting and analysis purposes. Management believes that Valley’s presentation and discussion of this supplemental information, together with the accompanying reconciliations to the GAAP financial measures, also allows investors to view performance in a manner similar to management. These non-GAAP financial measures should not be considered in isolation, 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 following table presents our annualize performance ratios:

*($ in thousands)*

| Selected Performance Indicators GAAP measures: | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income, as reported | $146,551 | $116,728 |
| Return on average assets | 0.98% | 1.07% |
| Return on average shareholders’ equity | 9.10 | 9.15 |
| **Non-GAAP measures:** |  |  |
| Net income, as adjusted | $154,530 | $120,313 |
| Return on average assets, as adjusted | 1.03% | 1.10% |
| Return on average shareholders' equity, as adjusted | 9.60 | 9.43 |
| Return on average tangible shareholders' equity (ROATE) | 13.39 | 13.09 |
| ROATE, as adjusted | 14.12 | 13.49 |
| Efficiency ratio | 53.79 | 53.18 |

| Common Equity Per Share Data: | March 31, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Book value per common share (GAAP) | $12.41 | $12.23 |
| Tangible book value per common share (non-GAAP) | 8.36 | 8.15 |

### Non-GAAP Reconciliations to GAAP Financial Measures

Adjusted net income is computed as follows:

*(in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income, as reported (GAAP) | $146,551 | $116,728 |
| Add: Losses on available for sale and held to maturity debt securities, net (net of tax) (a) | 17 | 6 |
| Add: Provision for credit losses for available for sale securities (b) | 5,000 | — |
| Add: Merger related expenses (net of tax) (c) | 2,962 | 3,579 |
| Net income, as adjusted (non-GAAP) | $154,530 | $120,313 |

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

(b) Provision relates to one security fully charged off with no resulting tax benefit during the three months ended March 31, 2023.

(c) Merger related expenses are primarily within salary and employee benefits expense for the three months ended March 31, 2023 and 2022.

In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans, wealth management fees, 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, brokerage fees, and commercial loan customer demand for certain products. See the “Non-Interest Income” section below for more details.

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

*($ in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income, as adjusted (non-GAAP) | $154,530 | $120,313 |
| Average assets | $59,867,002 | $43,570,251 |
| Annualized return on average assets, as adjusted (non-GAAP) | 1.03% | 1.10% |

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, 2023 | 2022 |
| --- | ---: | ---: |
| Net income, as adjusted (non-GAAP) | $154,530 | $120,313 |
| Average shareholders' equity | $6,440,215 | $5,104,709 |
| Annualized return on average shareholders' equity, as adjusted (non-GAAP) | 9.60% | 9.43% |

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, 2023 | 2022 |
| --- | ---: | ---: |
| Net income, as reported (GAAP) | $146,551 | $116,728 |
| Net income, as adjusted (non-GAAP) | 154,530 | 120,313 |
| Average shareholders’ equity | $6,440,215 | $5,104,709 |
| Less: Average goodwill and other intangible assets | 2,061,361 | 1,538,356 |
| Average tangible shareholders’ equity | $4,378,854 | $3,566,353 |
| Annualized ROATE (non-GAAP) | 13.39% | 13.09% |
| Annualized ROATE, as adjusted (non-GAAP) | 14.12% | 13.49% |

The efficiency ratio is computed as follows:

*($ in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Total non-interest expense, as reported (GAAP) | $272,166 | $197,340 |
| Less: Amortization of tax credit investments (pre-tax) | 4,253 | 2,896 |
| Less: Merger related expenses (pre-tax) (a) | 4,133 | 4,628 |
| Total non-interest expense, as adjusted (non-GAAP) | $263,780 | $189,816 |
| Net interest income, as reported (GAAP) | $436,020 | $317,669 |
| Total non-interest income, as reported (GAAP) | 54,299 | 39,270 |
| Add: Losses on available for sale and held to maturity debt securities, net (pre-tax) (b) | 24 | 9 |
| Total net interest income and non-interest income, as adjusted (non-GAAP) | $490,343 | $356,948 |
| Efficiency ratio (non-GAAP) | 53.79% | 53.18% |

55

(a) Merger related expenses are primarily within salary and employee benefits expense for the three months ended March 31, 2023 and 2022.

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

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

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

|  | March 31, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Common shares outstanding | 507,762,358 | 506,374,478 |
| Shareholders’ equity | $6,511,581 | $6,400,802 |
| Less: Preferred stock | 209,691 | 209,691 |
| Less: Goodwill and other intangible assets | 2,056,107 | 2,066,392 |
| Tangible common shareholders’ equity | $4,245,783 | $4,124,719 |
| Book value per common share (GAAP) | $12.41 | $12.23 |
| Tangible book value per common share (non-GAAP) | $8.36 | $8.15 |

### Net Interest Income

Net interest income on a tax equivalent basis totaling $437.5 million for the first quarter 2023 decreased $29.8 million as compared to the fourth quarter 2022 and increased $119.1 million as compared to the first quarter 2022. The decrease as compared to the fourth quarter 2022 was mainly due to (i) the negative impact of the significant increase in our excess cash liquidity and other borrowings resulting from prudent and cautionary measures taken by us during the market turmoil of March 2023, (ii) higher interest rates on our average interest bearing deposits and other borrowings, as well as (iii) fewer days in the first quarter 2023. Interest expense increased $103.5 million to $284.2 million for the first quarter 2023 as compared to the fourth quarter 2022 largely due to a $4.0 billion increase in average interest bearing liabilities, including increases of $2.1 billion and $1.9 billion in average time deposits and short-term borrowings, respectively. Interest income on a tax equivalent basis increased $73.7 million to $721.7 million in the first quarter 2023 as compared to the fourth quarter 2022. The increase was mostly due to higher average loan balances driven by our organic new loan volumes, slowing loan prepayments, and increased yields on both new originations and adjustable rate loans in our portfolio.

Average interest earning assets increased $15.1 billion to $55.4 billion for the first quarter 2023 as compared to the first quarter 2022 mainly due to a $13.2 billion increase in average loan balances and higher average investment balances partly caused by the acquisition of Bank Leumi USA on April 1, 2022. Compared to the fourth quarter 2022, average interest earning assets increased by $3.0 billion during the first quarter 2023. The increase was primarily driven by a $1.8 billion increase in average loan balances due to organic loan growth mainly in the commercial loan categories and $1.1 billion increase in average interest bearing cash held mainly overnight with the Federal Reserve Bank of New York as part of our liquidity management.

Average interest bearing liabilities increased $11.5 billion to $37.6 billion for the first quarter 2023 as compared to the first quarter 2022 mainly due to increases of $9.1 billion and $2.2 billion in average time deposits and short-term borrowings, respectively. The increases in average time deposits and short-term borrowings were largely due to the liquidity management efforts during March 2023, and our increased usage of fully FDIC-insured brokered CD and successful retail CD initiatives as part of our funding sources for loan growth over the last 12 months. As compared to the fourth quarter 2022, average interest bearing liabilities increased by $4.0 billion in the first quarter 2023 largely due to a $2.1 billion increase in average time deposits mainly driven by the higher fully insured brokered CD balances and additional FHLB advances within short-term borrowings. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above.

Net interest margin on a tax equivalent basis of 3.16 percent for the first quarter 2023 decreased by 41 basis points from 3.57 percent for the fourth quarter 2022 and remained unchanged from the first quarter 2022. The decrease as compared to the fourth quarter was largely driven by (i) the net impact of the excess liquidity measures taken in March 2023 and (ii) two fewer days during the first quarter 2023, partially offset by higher yields on average interest earning assets. The yield on average interest earning assets increased by 26 basis points on a linked quarter basis mostly due to the aforementioned higher yields on new and adjustable rate loans in the first quarter 2023 as compared to the fourth quarter 2022. The yield on average loans increased by 28 basis points to 5.48 percent for the first quarter 2023 as compared to the fourth quarter 2022 largely due to the higher level of market interest rates. The yields on average taxable and non-taxable investments also increased 12 basis points and 9 basis points, respectively, from the fourth quarter 2022, largely due to investment maturities and repayments redeployed into new higher yielding securities, as well as lower premium amortization expense caused by a decline in prepayments on mortgage-backed securities during the first quarter 2023. Our cost of total average deposits increased to 1.96 percent for the first quarter 2023 from 1.36 percent for the fourth quarter 2022. The overall cost of average interest bearing liabilities also increased 87 basis points to 3.02 percent for the first quarter 2023 as compared to the fourth quarter 2022 largely due to a 148 basis point increase in cost of average short-term borrowings.

Based upon our revised estimates at March 31, 2023, we anticipate net interest income growth of approximately 10 to 12 percent for the full year of 2023, down from 16 to 18 percent previously estimated in the MD&A of Valley's Form 10-K for the year ended December 31, 2022. While our revised outlook for our net interest income is still positive, we cannot provide any assurances with respect to the future trajectory of market interest rates or that our net interest margin or income will remain at the levels reported for the first quarter 2023.

The following table reflects the components of net interest income for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022:

### 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, 2023 Average Balance | Interest | Average Rate | December 31, 2022 Average Balance | Interest | Average Rate | March 31, 2022 Average Balance | Interest | Average Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans (1)(2) | $47,859,371 | $655,250 | 5.48% | $46,086,363 | $599,040 | 5.20% | $34,623,402 | $317,390 | 3.67% |
| Taxable investments (3) | 5,033,134 | 37,474 | 2.98 | 4,934,084 | 35,278 | 2.86 | 3,838,468 | 20,115 | 2.10 |
| Tax-exempt investments (1)(3) | 623,145 | 6,739 | 4.33 | 623,322 | 6,608 | 4.24 | 401,742 | 3,186 | 3.17 |
| Interest bearing deposits with banks | 1,847,140 | 22,205 | 4.81 | 761,832 | 7,038 | 3.70 | 1,419,436 | 461 | 0.13 |
| Total interest earning assets | 55,362,790 | 721,668 | 5.21 | 52,405,601 | 647,964 | 4.95 | 40,283,048 | 341,152 | 3.39 |
| Allowance for credit losses | (466,837) |  |  | (483,580) |  |  | (367,989) |  |  |
| Cash and due from banks | 445,005 |  |  | 408,891 |  |  | 281,883 |  |  |
| Other assets | 4,702,376 |  |  | 4,775,113 |  |  | 3,361,185 |  |  |
| Unrealized gains on securities available for sale, net | (176,332) |  |  | (192,810) |  |  | 12,124 |  |  |
| **Total assets** | $59,867,002 |  |  | $56,913,215 |  |  | $43,570,251 |  |  |
| **Liabilities and shareholders’ equity** |  |  |  |  |  |  |  |  |  |
| **Interest bearing liabilities:** |  |  |  |  |  |  |  |  |  |
| Savings, NOW and money market deposits | $23,389,569 | $150,766 | 2.58% | $23,476,111 | $109,286 | 1.86% | $20,522,629 | $9,627 | 0.19% |
| Time deposits | 9,738,608 | 80,298 | 3.30 | 7,641,769 | 48,417 | 2.53 | 3,554,520 | 2,831 | 0.32 |
| Total interest bearing deposits | 33,128,177 | 231,064 | 2.79 | 31,117,880 | 157,703 | 2.03 | 24,077,149 | 12,458 | 0.21 |
| Short-term borrowings | 2,803,743 | 33,948 | 4.84 | 880,615 | 7,404 | 3.36 | 594,297 | 806 | 0.54 |
| Long-term borrowings (4) | 1,686,830 | 19,198 | 4.55 | 1,598,379 | 15,624 | 3.91 | 1,476,469 | 9,525 | 2.58 |
| Total interest bearing liabilities | 37,618,750 | 284,210 | 3.02 | 33,596,874 | 180,731 | 2.15 | 26,147,915 | 22,789 | 0.35 |
| Non-interest bearing deposits | 14,024,742 |  |  | 15,116,977 |  |  | 11,686,534 |  |  |
| Other liabilities | 1,783,295 |  |  | 1,871,394 |  |  | 631,093 |  |  |
| Shareholders’ equity | 6,440,215 |  |  | 6,327,970 |  |  | 5,104,709 |  |  |
| **Total liabilities and shareholders’ equity** | $59,867,002 |  |  | $56,913,215 |  |  | $43,570,251 |  |  |
| Net interest income/interest rate spread (5) |  | $437,458 | 2.19% |  | $467,233 | 2.80% |  | $318,363 | 3.04% |
| Tax equivalent adjustment |  | (1,438) |  |  | (1,414) |  |  | (694) |  |
| **Net interest income, as reported** |  | $436,020 |  |  | $465,819 |  |  | $317,669 |  |
| Net interest margin (6) |  |  | 3.15% |  |  | 3.56% |  |  | 3.15% |
| Tax equivalent effect |  |  | 0.01 |  |  | 0.01 |  |  | 0.01 |
| Net interest margin on a fully tax equivalent basis (6) |  |  | 3.16% |  |  | 3.57% |  |  | 3.16% |

58

(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, 2023 Compared to March 31, 2022 Change Due to Volume | Change Due to Rate | Total Change |
| --- | ---: | ---: | ---: |
| Loans\* | $147,471 | $190,389 | $337,860 |
| Taxable investments | 7,381 | 9,978 | 17,359 |
| Tax-exempt investments\* | 2,141 | 1,412 | 3,553 |
| Interest bearing deposits with banks | 180 | 21,564 | 21,744 |
| Total increase in interest income | 157,173 | 223,343 | 380,516 |
| **Interest Expense:** |  |  |  |
| Savings, NOW and money market deposits | 1,531 | 139,608 | 141,139 |
| Time deposits | 12,150 | 65,317 | 77,467 |
| Short-term borrowings | 10,580 | 22,562 | 33,142 |
| Long-term borrowings and junior subordinated debentures | 1,520 | 8,153 | 9,673 |
| Total increase in interest expense | 25,781 | 235,640 | 261,421 |
| Total increase (decrease) in net interest income | $131,392 | $(12,297) | $119,095 |

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

### Non-Interest Income

Non-interest income increased $15.0 million for the three months ended March 31, 2023 as compared to the same period of 2022. The following table presents the components of non-interest income for the three months ended March 31, 2023 and 2022:

*(in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Wealth management and trust fees | $9,587 | $5,131 |
| Insurance commissions | 2,420 | 1,859 |
| Capital markets | 10,892 | 14,360 |
| Service charges on deposit accounts | 10,476 | 6,212 |
| Gains (losses) on securities transactions, net | 378 | (1,072) |
| Fees from loan servicing | 2,671 | 2,781 |
| Gains on sales of loans, net | 489 | 986 |
| Bank owned life insurance | 2,584 | 2,046 |
| Other | 14,802 | 6,967 |
| Total non-interest income | $54,299 | $39,270 |

Wealth management and trust fees income increased $4.5 million for the three months ended March 31, 2023 as compared to the same period in 2022 primarily due to higher brokerage fees resulting from the acquisition of Bank Leumi USA and its wholly owned broker dealer subsidiary on April 1, 2022. Brokerage fees totaled $4.8 million for the three months ended March 31, 2023.

Capital markets income decreased $3.5 million for the three months ended March 31, 2023 as compared to the same quarter in 2022. This decrease was largely driven by lower fee income from transactions executed for commercial customer related interest rate swaps, partially offset by an increase in foreign exchange fees. Swap fees income totaled $7.8 million and $14.0 million for the three months ended March 31, 2023 and 2022, respectively. Foreign exchange fees totaled $2.0 million and $369 thousand for the three months ended March 31, 2023 and 2022, respectively.

Service charges on deposit accounts increased $4.3 million for the three months ended March 31, 2023 as compared to the same period in 2022 largely related to higher checking account revenues resulting from additional deposit accounts acquired from Bank Leumi USA.

Net gains and losses on securities transactions for the three months ended March 31, 2023 and 2022 were almost entirely due to net trading gains and losses related to our municipal bond trading portfolio.

Other non-interest income increased $7.8 million for the three months ended March 31, 2023 as compared to the same quarter in 2022 mostly due to incremental increases in several operating non-interest income categories caused by the acquisition of Bank Leumi USA and organic growth of our business operations over the last 12 months.

### Non-Interest Expense

Non-interest expense increased $74.8 million for the three months ended March 31, 2023 as compared to the same period in 2022. The following table presents the components of non-interest expense for the three months ended March 31, 2023 and 2022:

*(in thousands)*

|  | Three Months Ended March 31, 2023 | 2022 |
| --- | ---: | ---: |
| Salary and employee benefits expense | $144,986 | $107,733 |
| Net occupancy expense | 23,256 | 21,991 |
| Technology, furniture and equipment expense | 36,508 | 26,015 |
| FDIC insurance assessment | 9,155 | 4,158 |
| Amortization of other intangible assets | 10,519 | 4,437 |
| Professional and legal fees | 16,814 | 14,749 |
| Amortization of tax credit investments | 4,253 | 2,896 |
| Other | 26,675 | 15,361 |
| Total non-interest expense | $272,166 | $197,340 |

Salary and employee benefits expense increased $37.3 million for the three months ended March 31, 2023 as compared to the same period of 2022. The increase was primarily due to increases in our headcount to support our expansion of operations resulting from the Bank Leumi USA acquisition, significant organic growth in our operations, as well as inflationary pressures in the labor market. Salary and employee benefits expense also included $4.1 million of merger related expenses primarily consisting of severance and retention compensation for the three months ended March 31, 2023.

Net occupancy expense increased $1.3 million for the three months ended March 31, 2023 as compared to the same period of 2022 mainly due to higher rent and depreciation expense, partially offset by lower repair and maintenance costs in the first quarter 2023.

Technology, furniture and equipment expense increased $10.5 million for the three months ended March 31, 2023 as compared to the same periods of 2022. The increase was largely driven by additional investments in technology and equipment and higher depreciation expense in the first quarter 2023.

FDIC insurance assessment expense increased $5.0 million for the three months ended March 31, 2023 as compared to the same period of 2022 mainly due to growth in our balance sheet, as well as a two basis point increase in the initial base rate effective for the first quarter 2023.

Amortization of other intangible assets increased $6.1 million for the three months ended March 31, 2023 as compared to the same period of 2022 mainly due to higher amortization expense of core deposits and other intangible assets resulting from Bank Leumi USA acquisition. See Note 9 to the consolidated financial statements for additional information.

Professional and legal fees increased $2.1 million for the three months ended March 31, 2023 as compared to the same period of 2022. The increase was primarily due to higher consulting expense mainly related to technology transformation and new product initiatives, partially offset by lower managed services expense in the first quarter 2023.

Other non-interest expense increased $11.3 million for the three months ended March 31, 2023 as compared to the same period of 2022 largely due to general increases related to the Bank Leumi acquisition, advertising and charges related to collateral liabilities in connection with derivative transactions.

### Income Taxes

Income tax expense totaled $57.2 million and $39.3 million for the three months ended March 31, 2023 and 2022, respectively. Our effective tax rate was 28.1 percent and 25.2 percent for the three months ended March 31, 2023 and 2022, respectively. The increase in the effective tax rate in the first quarter 2023 as compared to the same period of 2022 was mainly due to a smaller benefit in excess stock compensation and a newly established valuation allowance against a loss provision on available for sale debt securities.

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.

### Operating Segments

At March 31, 2023 and December 31, 2022, Valley managed its business operations under reportable segments consisting of Consumer Banking, Commercial Banking and Treasury and Corporate Other. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes and return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations and reporting structures to identify its reportable segments and no changes to the reportable segments were determined necessary during the first quarter 2023.

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 balances presented for three months ended March 31, 2022 in the tables below reflect reclassifications to conform with the presentation of the current operating segment structure implemented in the second quarter 2022. These reclassifications did not impact Valley's consolidated results. See Valley's Form 10-K for the year ended December 31, 2022 for additional information.

The following tables present the financial data for Valley's operating segments for the three months ended March 31, 2023 and 2022:

*($ in thousands)*

|  | Three Months Ended March 31, 2023 Consumer Banking | Commercial Banking | Treasury and Corporate Other | Total |
| --- | ---: | ---: | ---: | ---: |
| Average interest earning assets | $8,768,482 | $39,090,889 | $7,503,419 | $55,362,790 |
| Income (loss) before income taxes | 1,024 | 223,610 | (20,918) | 203,716 |
| Annualized return on average interest earning assets (before tax) | 0.05% | 2.29% | (1.12)% | 1.47% |

*($ in thousands)*

|  | Three Months Ended March 31, 2022 Consumer Banking | Commercial Banking | Treasury and Corporate Other | 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 | (3,770) | 156,042 |
| Annualized return on average interest earning assets (before tax) | 1.20% | 2.03% | (0.27)% | 1.55% |

See Note 16 to the consolidated financial statements for additional details.

### Consumer Banking

Consumer Banking represented 18.2 percent of our loan portfolio at March 31, 2023, and was mainly comprised of residential mortgage loans and automobile loans, and to a lesser extent, home equity loans, secured personal lines of credit and other consumer loans (including credit card loans). The duration of the residential mortgage loan portfolio (which represented 11.3 percent of our loan portfolio at March 31, 2023) is subject to movements in the market level of interest rates and forecasted prepayment speeds. The weighted average life of the automobile loans (which represented 3.5 percent of total loans at March 31, 2023) is relatively unaffected by movements in the market level of interest rates. However, the average life may be impacted by new loans as a result of the availability of credit within the automobile marketplace and consumer demand for purchasing new or used automobiles. Consumer Banking also includes the Wealth Management and Insurance Services Division, comprised of trust, asset management, brokerage, insurance and tax credit advisory services.

Average interest earning assets within Consumer Banking increased $1.1 billion to $8.8 billion for the three months ended March 31, 2023 as compared to the same period of 2022. The increase was largely due to new residential mortgage loan volumes originated for investment rather than sale over the last 12-month period, and, to a lesser extent, growth in automobile, home equity and secured personal lines of credit.

Income before income taxes for Consumer Banking decreased $22.0 million to $1.0 million for the first quarter 2023 as compared to the first quarter 2022 mainly driven by lower net interest income, and, to a lesser extent, increases in the provision for loan losses and internal transfer expense. Net interest income decreased $13.9 million in the first quarter 2023 as compared to the same period of 2022 due to additional interest expense generated from higher average deposit and other borrowing balances, as well as an increase in interest rates. The provision for loan losses increased $4.6 million for the three months ended March 31, 2023 due to additional reserves related to residential loan growth, as well as deterioration in our economic forecast component within our CECL model as compared to one year ago. See further details in the “Allowance for Credit Losses” section of this MD&A. Internal transfer expense increased $2.2 million for the first quarter 2023 as compared to the first quarter 2022.

Net interest margin on the Consumer Banking portfolio decreased 101 basis points to 1.93 percent for the first quarter 2023 as compared to the first quarter 2022 mainly due to a 179 basis point increase in the costs associated with our funding sources, partially offset by a 78 basis point increase in the yield on average loans. The increase in our funding costs was mainly driven by higher interest rates on most of our interest bearing commercial and retail deposit products, increased utilization of fully FDIC-insured brokered deposits and higher cost of other borrowings held during the first quarter 2023. The 78 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio. See the "Executive Summary" and the "Net Interest Income" sections above for more details on our net interest margin and funding sources.

The return on average interest earning assets before income taxes for the consumer banking segment was 0.05 percent for the first quarter 2023 compared to 1.20 percent for the first quarter 2022.

### Commercial Banking

Commercial Banking is comprised of floating rate and adjustable rate commercial and industrial loans and construction loans, as well as fixed rate owner occupied and commercial real estate loans. Due to the portfolio’s interest rate characteristics, Commercial Banking is Valley’s business segment that is most sensitive to movements in market interest rates. Commercial and industrial loans totaled approximately $9.0 billion and represented 18.6 percent of the total loan portfolio at March 31, 2023. Commercial real estate loans and construction loans totaled $30.8 billion and represented 63.2 percent of the total loan portfolio at March 31, 2023.

Average interest earning assets in Commercial Banking increased $12.1 billion to $39.1 billion for the three months ended March 31, 2023 as compared to the first quarter 2022. This increase was primarily due to strong organic loan growth concentrated in the commercial real estate loan portfolio as well as commercial loans acquired from Bank Leumi USA.

Income before income taxes for Commercial Banking increased $86.8 million to $223.6 million for the three months ended March 31, 2023 as compared to the same period of 2022 mainly due to an increase in net interest income, partially offset by higher internal transfer expense and non-interest expense. Net interest income for this segment increased $131.6 million to $378.2 million for the first quarter 2023 as compared to the same period in 2022 primarily due to higher average commercial loan balances and higher interest rates on new and adjustable loans. Internal transfer expense increased $31.7 million to $131.6 million for the three months ended March 31, 2023 as compared to the first quarter 2022 largely due to general increases related to both organic and acquired growth in our business operations over the last 12-month period. Non-interest expense also increased $10.6 million to $35.7 million for the three months ended March 31, 2023 as compared to the first quarter 2022. The provision for credit losses increased $1.4 million to $3.0 million as compared to the same period in 2022 mainly due to a moderate increase in certain qualitative reserves. See details in the "Allowance for Credit Losses for Loans" section of this MD&A.

The net interest margin for this segment increased 22 basis points to 3.87 percent for the first quarter 2023 as compared to the first quarter 2022 due to a 201 basis point increase in the yield on average loans, partially offset by a 179 basis point increase in the cost of our funding sources.

The return on average interest earning assets before income taxes for the consumer banking segment was 2.29 percent for the three months ended March 31, 2023 compared to 2.03 percent to the same period in 2022.

### Treasury and Corporate Other

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

Average interest earning assets within Treasury and Corporate Other increased $1.8 billion to $7.5 billion for the three months ended March 31, 2023 mainly due to investment securities acquired from Bank Leumi USA, as well as other select investment securities purchases largely classified as held to maturity over the last 12-month period. Average interest bearing deposits with banks increased $427.7 million as compared to the same period in 2022 due to additional cash held as a cautionary liquidity management measure in March 2023.

For the three months ended March 31, 2023, loss before income taxes in this segment totaled $20.9 million compared to $3.8 million for the same period in 2022. The $17.1 million increase in the pre-tax loss during the first quarter 2023 period was mainly due to higher non-interest expense, partially offset by increases in internal transfer income and non-interest income. Non-interest expense increased $62.5 million to $218.2 million during the three months ended March 31, 2023 as compared to the same period in 2022 largely due to expenses related to our expanded banking operations and organic business growth including higher salary and employee benefits expense, net occupancy, technology, furniture and equipment, professional and legal fees and other. See further details in the "Non-Interest Income" and "Non-Interest Expense" sections of this MD&A. The internal transfer income increased $33.9 million to $162.5 million for the three months ended March 31, 2023 as compared to the same period a year ago due to the higher allocation of non-interest expense over the same period. Non-interest income increased $15.7 million during the three months ended March 31, 2023 as compared to the same period in 2022 mostly due to incremental increases in several operating non-interest income categories caused by the acquisition of Bank Leumi

USA and organic growth of our business operations over the last 12-month period. Provision for credit losses increased $4.9 million mainly due to a corporate bond issued by Signature Bank within our AFS debt securities portfolio that was fully charged-off during the first quarter 2023.

The net interest margin for this segment increased 5 basis points to 1.51 percent for the first quarter 2023 as compared to the first quarter 2022 due to a 184 basis point increase in the yield on average investments, partially offset by a 179 basis point increase in cost of our funding sources. The increase in the yield on average investments as compared to the same period a year ago was largely driven by new higher yielding investments and a reduction in premium amortization expense mostly caused by slower principal repayments in the rising interest rate environment.

### ASSET/LIABILITY MANAGEMENT

### Interest Rate Risk

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, 2023. 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, 2023. 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, 2023. Although the size of Valley’s balance sheet is forecasted to remain static as of March 31, 2023 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 2023. The model also utilizes an immediate parallel shift in market interest rates at March 31, 2023.

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 |
| --- | ---: | ---: |
| +300 | $148,153 | 8.19% |
| +200 | 98,911 | 5.47 |
| +100 | 49,316 | 2.73 |
| –100 | (33,830) | (1.87) |
| –200 | (75,645) | (4.18) |
| –300 | (131,350) | (7.26) |

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 2.73 percent. Management believes the interest rate sensitivity of our balance sheet remains within an acceptable tolerance range at March 31, 2023. 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 adheres to certain internal liquidity guidelines including ratios of loans to deposits below 110 percent and wholesale funding to total funding below 25 percent. Management maintains flexibility to temporarily exceed these limits in certain operating environments. Our loan to deposits and wholesale funding to total funding ratios were approximately 102.2 percent and 26.9 percent at March 31, 2023, respectively. The level of wholesale funding and resulting excess cash on our balance sheet at March 31, 2023 was mostly due to the cautionary liquidity actions taken in March 2023.

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 $7.2 billion, representing 12.1 percent of earning assets at March 31, 2023 and $2.4 billion, representing 4.6 percent of earning assets at December 31, 2022. Of the $7.2 billion of liquid assets at March 31, 2023, approximately $870 million of various investment securities were pledged to counterparties to support our earning asset funding strategies. We anticipate the receipt of approximately $521.1 million in principal payments from securities in the total investment portfolio at March 31, 2023 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, 2023 are projected to be approximately $16.8 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, fully FDIC-insured brokered and municipal deposits, and short-term and long-term borrowings. Our core deposit base, which generally excludes all fully insured brokered deposits, as well as retail certificates of deposit over $250 thousand, represents the largest of these sources. Average core deposits totaled approximately $44.9 billion and $38.1 billion for the three months ended March 31, 2023 and for the year ended December 31, 2022, respectively, representing 81.2 percent and 79.2 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.

In addition to direct customer deposits, the Bank has ample access to readily available, diverse funding sources to fulfill its current and projected capital needs. The Bank is 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. At March 31, 2023, available borrowing potential, above and beyond amounts already utilized, at these institutions totaled $11.8 billion, including borrowing capacity under the Federal Reserve Bank's discount window totaling $4.3 billion. 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. The Bank has access to approximately $1.5 billion of uncommitted lines for the purchase of federal funds from these banks on a collective basis. 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, 2023, Valley had $1.0 billion of MULOCs outstanding for this purpose.

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 increased $6.3 billion to $6.4 billion at March 31, 2023 as compared to December 31, 2022. In March 2023, we increased our short-term borrowings out of an abundance of caution to prudently bolster our liquidity position in the wake of the two recent bank failures. Since March 31, 2023, short-term FHLB advances have been allowed to mature resulting in a more normal liquidity position. We continue to closely monitor changes in the current banking environment and have substantial access to additional liquidity as highlighted above.

Additionally, the Federal Reserve established the Bank Term Funding Program on March 12, 2023 as funding source for eligible depository institutions. The Program can provide short-term liquidity (up to one year) against the par value of certain high-quality collateral, such as U.S. Treasury securities, and eliminate the potential need for an institution to sell those securities in times of stress. Advances under the Program can be requested until March 11, 2024. As of March 31, 2023, Valley did not participate in this Program, but currently has this option as an available short-term liquidity source.

### 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 ongoing 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 of up to five years, but not beyond the stated maturity dates, and subject to other conditions.

### Investment Securities Portfolio

As of March 31, 2023, we had $50.2 million, $1.3 billion, and $3.8 billion in equity, available for sale debt securities and held to maturity debt securities, respectively. 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, which may pose a higher risk of future impairment charges to us as a result of the uncertain economic environment and its potential negative effect on the future performance of the security issuers. The equity securities consisted of two publicly traded mutual funds, CRA investments and several other equity investments we have made in companies that develop new financial technologies and in partnerships that invest in such companies. Our CRA and other equity investments are a mix of both publicly traded entities and privately held entities. We also had $6.9 million of trading debt securities at March 31, 2023 consisting of investment grade municipal bonds and U.S. Treasury securities.

We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which we are exposed to. These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments primarily made into the available for sale and held to maturity debt securities portfolios.

### 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 that the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive loss, net of applicable taxes.

We have evaluated all available for sale debt securities that are in an unrealized loss position as of March 31, 2023 and December 31, 2022 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, Valley recognized a credit related impairment of one corporate bond issued by Signature Bank resulting in both a provision for credit losses and full charge-off of the security totaling $5.0 million during the three months ended March 31, 2023. There was no other impairment recognized within the available for sale debt securities portfolio during the three months ended March 31, 2023.

Valley does not intend to sell any of its available for sale debt securities in an unrealized loss position prior to

recovery of our amortized cost basis, and it is more likely than not that Valley will not be required to sell any of its securities prior to recovery of our amortized cost basis. None of the available for sale debt securities were past due as of March 31, 2023 and there was no allowance for credit losses for available for sale debt securities at March 31, 2023 and December 31, 2022.

**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 $1.6 million at both March 31, 2023 and December 31, 2022.

**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 available for sale and held to maturity debt investment securities portfolios by investment grades at March 31, 2023:

*(in thousands)*

| Available for sale investment grades: \* | March 31, 2023 Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| --- | ---: | ---: | ---: | ---: |
| AAA Rated | $1,072,166 | $106 | $(109,683) | $962,589 |
| AA Rated | 150,571 | — | (24,559) | 126,012 |
| A Rated | 10,111 | — | (1,196) | 8,915 |
| BBB Rated | 69,826 | — | (6,072) | 63,754 |
| Not rated | 104,333 | — | (10,765) | 93,568 |
| Total | $1,412,007 | $106 | $(152,877) | $1,259,236 |
| **Held to maturity investment grades: \*** |  |  |  |  |
| AAA Rated | $3,406,081 | $2,844 | $(422,459) | $2,986,466 |
| AA Rated | 249,672 | 384 | (12,288) | 237,768 |
| A Rated | 6,593 | 2 | (134) | 6,461 |
| BBB Rated | 6,000 | — | (647) | 5,353 |
| Non-investment grade | 5,437 | — | (833) | 4,604 |
| Not rated | 173,429 | 1 | (13,598) | 159,832 |
| Total | $3,847,212 | $3,231 | $(449,959) | $3,400,484 |
| Allowance for credit losses | 1,633 | — | — | 1,633 |
| Total, net of allowance for credit losses | $3,845,579 | $3,231 | $(449,959) | $3,398,851 |

\* Rated using external rating agencies. Ratings categories include the entire range. For example, “A rated” includes A+, A, and A-. Split rated securities with two ratings are categorized at the higher of the rating levels.

The unrealized losses in the AAA and AA rated categories of both the available for sale and held to maturity debt securities portfolios (in the above table) were largely related to residential mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac and continued to be driven by the rising interest rate environment during the last 12 months. The investment securities available for sale and held to maturity portfolio included $104.3 million and $173.4 million, respectively, of investments not rated by the rating agencies with aggregate unrealized losses of $10.8 million and $13.6 million, respectively, at March 31, 2023. The unrealized losses within non-rated available for sale debt securities was mostly related to several large corporate bonds negatively impacted by rising interest rates, and not changes in underlying credit. The unrealized losses within non-rated held to maturity debt securities mostly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.0 million and several corporate and other debt securities.

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 | March 31, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Commercial and industrial | $9,043,946 | $8,804,830 |
| Commercial real estate: |  |  |
| Commercial real estate | 27,051,111 | 25,732,033 |
| Construction | 3,725,967 | 3,700,835 |
| Total commercial real estate | 30,777,078 | 29,432,868 |
| Residential mortgage | 5,486,280 | 5,364,550 |
| Consumer: |  |  |
| Home equity | 516,592 | 503,884 |
| Automobile | 1,717,141 | 1,746,225 |
| Other consumer | 1,118,929 | 1,064,843 |
| Total consumer loans | 3,352,662 | 3,314,952 |
| Total loans\* | $48,659,966 | $46,917,200 |
| As a percent of total loans: |  |  |
| Commercial and industrial | 18.6% | 18.8% |
| Commercial real estate | 63.2 | 62.7 |
| Residential mortgage | 11.3 | 11.4 |
| Consumer loans | 6.9 | 7.1 |
| Total | 100.0% | 100.0% |

\* Includes net unearned discount and deferred loan fees of $125.4 million and $120.5 million at March 31, 2023 and December 31, 2022, respectively.

Total loans increased $1.7 billion, or 14.9 percent on an annualized basis to $48.7 billion at March 31, 2023 from December 31, 2022 mainly due to continued strong organic loan growth in commercial loan categories and a slower loan prepayment activity within the loan portfolio during the first quarter 2023. Total commercial real estate (including construction) and commercial and industrial loans increased 18.3 percent and 10.9 percent, respectively, on an annualized basis during the first quarter 2023. Residential mortgage loans held for sale at fair value totaled $17.2 million and $18.1 million at March 31, 2023 and December 31, 2022, respectively.

Commercial and industrial loans increased $239.1 million to $9.0 billion at March 31, 2023 as compared to December 31, 2022. The organic growth was mainly a result of the solid new loan volumes from our pre-existing long-term customer base across most of our geographic footprints, as well as the continued efforts of our commercial banking relationship teams.

Commercial real estate loans (excluding construction loans) increased $1.3 billion to $27.1 billion at March 31, 2023 from December 31, 2022 reflecting solid organic growth mainly due to demand for non-owner occupied loans across our geographic footprint. Our organic approach of loan production is primarily the expansion of lending with our existing clients while also establishing new relationships in our primary and new market areas. We continue to grow our commercial lending activities from out of market expansion efforts in states such as Pennsylvania, Georgia and Tennessee, as well as our relatively new markets in California and Illinois. In addition, our commercial real estate production remained strong in loans secured by multi-family dwellings, warehouses and healthcare facilities. At March 31, 2023, commercial real estate loans collateralized by office buildings were approximately $3.1 billion of the $27.1 billion portfolio. These loans are geographically disbursed largely across Florida, Alabama, New Jersey, New York, and Manhattan with a combined weighted average loan to value ratio of 54 percent and debt service coverage ratio of 1.90.

Construction loans increased only $25.1 million to $3.7 billion at March 31, 2023 from December 31, 2022 mainly driven by advances on pre-exiting construction loan projects in New Jersey, New York and Florida. The growth in new construction loans was partially offset by the run-off of completed existing projects, and, to a lesser extent, migration of such completed projects to permanent financing.

Residential mortgage loans increased $121.7 million, or 9.1 percent on an annualized basis, during the first quarter 2023 as we largely originated new loans for the held for investment portfolio rather than for sale. New and refinanced residential mortgage loan originations totaled $194.4 million for the first quarter 2023 as compared to $309.1 million and $552.6 million for the fourth quarter 2022 and first quarter 2022, respectively. Florida originations totaled $53.6 million and represented 27.6 percent of total residential mortgage loan originations in the quarter. During the first quarter 2023, we retained approximately 86.3 percent of the total residential mortgage originations in our held for investment loan portfolio. Of the total originations in the first quarter 2023, only $26.6 million of residential mortgage loans were originated for sale rather than held for investment as compared to $144.5 million during the first quarter 2022. We may continue to retain a higher percentage of new loan volumes during the second quarter 2023 mainly due to our management of the interest rate risk and the mix of the interest earning assets on our balance sheet. Additionally, the volume of both new and refinanced loan applications has remained relatively low in the early stages of the second quarter 2023 due to the high level of mortgage interest rates and tight housing inventories and may challenge our ability to grow this loan category.

Home equity loans increased by $12.7 million to $516.6 million at March 31, 2023 compared to December 31, 2022 as a result of modest growth in new originations that continues to be challenged by the unfavorable high interest rate environment.

Automobile loans decreased by $29.1 million, or 6.7 percent on an annualized basis, to $1.7 billion at March 31, 2023 as compared to December 31, 2022 largely due to lower consumer demand for new and used vehicle financing because of the higher interest rate environment. During the first quarter 2023, the interest rates on new car loans reached the highest level since 2008. We originated $31.5 million in auto loans through our dealership network during the first quarter 2023 as compared to $73.1 million in the fourth quarter 2022. Of the total originations, our Florida dealership network represented approximately 18 percent of new loans, during the first quarter 2023. Despite increased new automobile inventories available to consumers, we anticipate that the impact of inflation on average new vehicle prices coupled with rising interest rates could continue to have a negative impact on our ability to grow this loan category during the second quarter 2023.

Other consumer loans increased $54.1 million to $1.1 billion at March 31, 2023 as compared to December 31, 2022 mainly due to moderate growth in our collateralized personal lines of credit portfolio.

A significant part of our lending is in northern and central New Jersey, New York City, Long Island and Florida. To mitigate our geographic risks, we make efforts to maintain a diversified portfolio as to type of borrower and loan to guard against a potential downward turn in any one economic sector.

While confident in our commercial loan pipelines and diverse residential and consumer loan offerings, there can be no assurance that the growth trends experienced in most loan categories during the first quarter 2023 will continue, or loan balances will not decline from March 31, 2023. We expect a more challenging overall loan origination environment moving forward, especially in the residential mortgage and consumer loan portfolios, due to the impact of higher market interest rates on customer demand and selective tightening of certain underwriting standards by Valley.

### Non-performing Assets

Non-performing assets (NPA) include non-accrual loans, other real estate owned (OREO), and other repossessed assets (which primarily consist of automobiles and taxi medallions) at March 31, 2023. 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 lower of cost or fair value, less estimated cost to sell.

Our NPAs decreased $27.0 million to $244.9 million at March 31, 2023 as compared to December 31, 2022 mainly due to two large charge-offs within non-accrual commercial and industrial and construction loans during the first quarter 2023. NPAs as a percentage of total loans and NPAs totaled 0.50 percent and 0.58 percent at March 31, 2023 and December 31, 2022, respectively (as shown in the table below). Our total NPAs has remained relatively low as a percentage of the total loan portfolio and the level of NPAs, which is reflective of our consistent approach to the loan underwriting criteria for both Valley originated loans and loans purchased from third parties. For additional details, see the "Credit quality indicators" section in Note 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 the three months ended March 31, 2023, our overall credit trends have remained stable, and our business and borrowers continued to demonstrate resilience and growth despite the unexpected challenges across the banking system, slower economic growth, persistently elevated inflation and the overall uncertain economy. However, management cannot provide assurance that the non-performing assets will not materially increase from the levels reported at March 31, 2023 due to the aforementioned or other factors potentially impacting our lending customers.

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

*($ in thousands)*

| Accruing past due loans: 30 to 59 days past due: | March 31, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Commercial and industrial | $20,716 | $11,664 |
| Commercial real estate | 13,580 | 6,638 |
| Residential mortgage | 12,599 | 16,146 |
| Total consumer | 7,845 | 9,087 |
| Total 30 to 59 days past due | 54,740 | 43,535 |
| 60 to 89 days past due: |  |  |
| Commercial and industrial | 24,118 | 12,705 |
| Commercial real estate | — | 3,167 |
| Residential mortgage | 2,133 | 3,315 |
| Total consumer | 1,519 | 1,579 |
| Total 60 to 89 days past due | 27,770 | 20,766 |
| 90 or more days past due: |  |  |
| Commercial and industrial | 8,927 | 18,392 |
| Commercial real estate | — | 2,292 |
| Construction | 6,450 | 3,990 |
| Residential mortgage | 1,668 | 1,866 |
| Total consumer | 747 | 47 |
| Total 90 or more days past due | 17,792 | 26,587 |
| Total accruing past due loans | $100,302 | $90,888 |
| **Non-accrual loans:** |  |  |
| Commercial and industrial | $78,606 | $98,881 |
| Commercial real estate | 67,938 | 68,316 |
| Construction | 68,649 | 74,230 |
| Residential mortgage | 23,483 | 25,160 |
| Total consumer | 3,318 | 3,174 |
| Total non-accrual loans | 241,994 | 269,761 |
| Other real estate owned (OREO) | 1,189 | 286 |
| Other repossessed assets | 1,752 | 1,937 |
| Total non-performing assets (NPAs) | $244,935 | $271,984 |
| Total non-accrual loans as a % of loans | 0.50% | 0.57% |
| Total NPAs as a % of loans and NPAs | 0.50 | 0.58 |
| Total accruing past due and non-accrual loans as a % of loans | 0.70 | 0.77 |
| Allowance for loan losses as a % of non-accrual loans | 180.54 | 170.02 |

Loans past due 30 to 59 days increased $11.2 million to $54.7 million at March 31, 2023 as compared to December 31, 2022 mostly due to several large commercial and industrial loans and one matured commercial real estate loan in the process of renewal included in this delinquency category at March 31, 2023. These increases were partially offset by improved performance within the residential mortgage and consumer loan categories.

Loans past due 60 to 89 days increased $7.0 million to $27.8 million at March 31, 2023 as compared to December 31, 2022 primarily due to higher commercial and industrial loans largely driven by a few large loans included in this delinquency category at March 31, 2023.

Loans 90 days or more past due and still accruing interest decreased $8.8 million to $17.8 million at March 31, 2023 as compared to December 31, 2022 mainly due to the renewals in the normal course of two matured loans during the first quarter 2023 that were previously included in this delinquency category at December 31, 2022. All loans 90 days or more past due and still accruing interest are well-secured and in the process of collection.

Non-accrual loans decreased $27.8 million to $242.0 million at March 31, 2023 as compared to $269.8 million at December 31, 2022 mainly driven by decreases in commercial and industrial loans and construction loans. Non-accrual commercial and industrial loans decreased $20.3 million primarily due to the charge-off of one loan participation that was fully reserved for in our allowance for loan losses at December 31, 2022. The decrease of $5.6 million in construction loans is mostly related to the partial charge-off of one loan relationship during the first quarter 2023 that had related allowance reserves totaling $4.3 million at December 31, 2022.

Although the timing of collection is uncertain, management believes that the majority of the non-accrual loans at March 31, 2023, are well secured and largely collectible based in part, on our quarterly review of collateral dependent loans and the valuation of the underlying collateral, if applicable. Any estimated shortfall in each collateral valuation results in an allocation of specific reserves within our allowance for credit losses for loans.

Non-performing taxi medallion loans totaled $66.0 million of the $78.6 million non-accrual commercial and industrial loans at March 31, 2023. At March 31, 2023, all taxi medallion loans in the loan portfolio were on non-accrual status and had related reserves of $41.9 million, or 64.0 percent of such loans, within the allowance for loan losses. Potential further declines in the market valuation of taxi medallions and the current operating environment mainly within New York City may negatively impact the performance of this portfolio.

OREO properties totaled $1.2 million at March 31, 2023 and increased $903 thousand as compared to December 31, 2022. There were no sales of OREO properties in the first quarter 2023 and net gains on sales of OREO in the first quarter 2022 were not material. The residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $1.5 million and $2.6 million at March 31, 2023 and December 31, 2022, respectively.

### Allowance for Credit Losses for Loans

The allowance for credit losses (ACL) for loans includes the allowance for loan losses and the reserve for unfunded credit commitments. Under CECL, our methodology to establish the allowance for loan losses has two basic components: (i) a collective reserve component for estimated expected credit losses for pools of loans that share common risk characteristics and (ii) an individual reserve component for loans that do not share risk characteristics, consisting of collateral dependent 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 within the commercial and industrial loan categories 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 that 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.

At March 31, 2023, the probability weightings used in our economic forecast, inclusive of the Moody's Baseline, S-3 downside and S-4 adverse scenarios, remained unchanged from December 31, 2022. The standalone Moody's Baseline scenario reflects a slightly more optimistic outlook as compared to December 31, 2022 in terms of GDP growth and unemployment levels, but the overall outlook remained relatively weak. The updated Moody's forecasts were not materially impacted by the recent bank failures, as they noted the failures did not appear to be symptomatic of serious broad-based issues in the financial system.

At March 31, 2023, the Moody's Baseline forecast included the following specific assumptions:

- GDP expansion approximately 1 percent in the second quarter 2023;
- Unemployment of 3.5 percent in the second quarter 2023 and 3.7 to 4.0 percent over the remainder of the forecast period ending in the first quarter 2025;
- Continued concerns about increased federal debt burden pushed by rising interest rates, high inflation, elevated house prices and lower consumer spending;
- The Federal Reserve continues its tightening monetary policy, including an increase of 25 basis points at its May 2023 meeting but intends to keep rates steady through 2023 with no reductions until 2024; and
- Inflation remains elevated but continues to trend downward, while reporting at approximately 5 percent in March 2023.

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)*

| Allowance for credit losses for loans | Three Months Ended March 31, 2023 | December 31, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: |
| Beginning balance | $483,255 | $498,408 | $375,702 |
| Impact of the adoption of ASU No. 2022-02 (1) | (1,368) | — | — |
| Beginning balance, adjusted | 481,887 | 498,408 | 375,702 |
| Loans charged-off: |  |  |  |
| Commercial and industrial | (26,047) | (22,106) | (1,571) |
| Commercial real estate | — | (388) | (173) |
| Construction | (5,698) | — | — |
| Residential mortgage | — | (1) | (26) |
| Total consumer | (828) | (1,544) | (825) |
| Total charge-offs | (32,573) | (24,039) | (2,595) |
| Charged-off loans recovered: |  |  |  |
| Commercial and industrial | 1,399 | 1,069 | 824 |
| Commercial real estate | 24 | 13 | 107 |
| Residential mortgage | 21 | 17 | 457 |
| Total consumer | 761 | 498 | 1,257 |
| Total recoveries | 2,205 | 1,597 | 2,645 |
| Total net loan (charge-offs) recoveries | (30,368) | (22,442) | 50 |
| Provision charged for credit losses | 9,450 | 7,289 | 3,500 |
| Ending balance | $460,969 | $483,255 | $379,252 |
| **Components of allowance for credit losses for loans:** |  |  |  |
| Allowance for loan losses | $436,898 | $458,655 | $362,510 |
| Allowance for unfunded credit commitments | 24,071 | 24,600 | 16,742 |
| Allowance for credit losses for loans | $460,969 | $483,255 | $379,252 |
| **Components of provision for credit losses for loans:** |  |  |  |
| Provision for credit losses for loans | $9,979 | $5,353 | $3,258 |
| Provision for unfunded credit commitments | (529) | 1,936 | 242 |
| Total provision for credit losses for loans | $9,450 | $7,289 | $3,500 |
| Allowance for credit losses for loans as a % of total loans | 0.95% | 1.03% | 1.07% |

(1) Represents the opening adjustment for the adoption of ASU No. 2022-02 effective January 1, 2023.

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

*($ in thousands)*

| Net loan (charge-offs) recoveries | Three Months Ended March 31, 2023 | December 31, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: |
| Commercial and industrial | $(24,648) | $(21,037) | $(747) |
| Commercial real estate | 24 | (375) | (66) |
| Construction | (5,698) | — | — |
| Residential mortgage | 21 | 16 | 431 |
| Total consumer | (67) | (1,046) | 432 |
| Total | $(30,368) | $(22,442) | $50 |
| Average loans outstanding |  |  |  |
| Commercial and industrial | $8,754,853 | $8,688,005 | $5,727,350 |
| Commercial real estate | 26,555,421 | 25,233,650 | 19,342,697 |
| Construction | 3,780,615 | 3,753,155 | 1,914,413 |
| Residential mortgage | 5,363,421 | 5,158,615 | 4,681,417 |
| Total consumer | 3,405,061 | 3,252,938 | 2,957,525 |
| Total | $47,859,371 | $46,086,363 | $34,623,402 |
| Annualized net loan charge-offs (recoveries) to average loans outstanding |  |  |  |
| Commercial and industrial | 1.13% | 0.97% | 0.05% |
| Commercial real estate | 0.00 | 0.01 | 0.00 |
| Construction | 0.60 | 0.00 | 0.00 |
| Residential mortgage | 0.00 | 0.00 | (0.04) |
| Total consumer | 0.01 | 0.13 | (0.06) |
| Total loans | 0.25 | 0.19 | 0.00 |

Net loan charge-offs totaled $30.4 million for the first quarter 2023 as compared to $22.4 million for the fourth quarter 2022 and net recoveries of loan charge-offs $50 thousand for the first quarter 2022. The first quarter 2023 net loan charge-offs largely related to one commercial and industrial loan participation charged-off. This loan was fully reserved for in our allowance for loan losses as of December 31, 2022 and its remaining balance, net of charge-offs, was immaterial at March 31, 2023. The amount of net loan charge-offs (as presented in the above table) and the low level of individual loan charge-offs for the first quarter 2023 continued to trend within management's expectations for the credit quality of the loan portfolio at March 31, 2023.

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, 2023 Allowance Allocation | Allocation as a % of Loan Category | December 31, 2022 Allowance Allocation | Allocation as a % of Loan Category | March 31, 2022 Allowance Allocation | Allocation as a % of Loan Category |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial loans | $127,992 | 1.42% | $140,008 | 1.59% | $101,203 | 1.75% |
| Commercial real estate loans: |  |  |  |  |  |  |
| Commercial real estate | 190,420 | 0.70 | 200,248 | 0.78 | 189,927 | 0.96 |
| Construction | 52,912 | 1.42 | 58,987 | 1.59 | 30,022 | 1.38 |
| Total commercial real estate loans | 243,332 | 0.79 | 259,235 | 0.88 | 219,949 | 1.00 |
| Residential mortgage loans | 41,708 | 0.76 | 39,020 | 0.73 | 28,189 | 0.60 |
| Consumer loans: |  |  |  |  |  |  |
| Home equity | 4,417 | 0.86 | 4,332 | 0.86 | 3,656 | 0.93 |
| Auto and other consumer | 19,449 | 0.69 | 16,060 | 0.57 | 9,513 | 0.37 |
| Total consumer loans | 23,866 | 0.71 | 20,392 | 0.62 | 13,169 | 0.45 |
| Allowance for loan losses | 436,898 | 0.90 | 458,655 | 0.98 | 362,510 | 1.03 |
| Allowance for unfunded credit commitments | 24,071 |  | 24,600 |  | 16,742 |  |
| Total allowance for credit losses for loans | $460,969 |  | $483,255 |  | $379,252 |  |
| Allowance for credit losses for loans as a % total loans |  | 0.95% |  | 1.03% |  | 1.07% |

The allowance for credit losses for loans, comprised of our allowance for loan losses and unfunded credit commitments, as a percentage of total loans was 0.95 percent at March 31, 2023 as compared to 1.03 percent and 1.07 percent at December 31, 2022 and March 31, 2022, respectively. During the first quarter 2023, the provision for credit losses for loans totaled $9.5 million as compared to $7.3 million and $3.5 million for the fourth quarter 2022 and first quarter 2022, respectively. At March 31, 2023, our allowance for credit losses for loans as a percentage of total loans decreased as compared to December 31, 2022 largely due to the impact of the first quarter 2023 loan charge-offs with prior allocated reserves. The reduction in allocated reserves for specific loans was partially offset by a moderate uptick in non-economic qualitative reserves for commercial and industrial loans within our CECL model at March 31, 2023. The economic component of our current CECL model was relatively stable as compared to December 31, 2022.

### Capital Adequacy

A significant measure of the strength of a financial institution is its shareholders’ equity. At March 31, 2023 and December 31, 2022, shareholders’ equity totaled approximately $6.5 billion and $6.4 billion, which represented 10.1 percent and 11.1 percent of total assets, respectively.

During the three months ended March 31, 2023, total shareholders’ equity increased by approximately $110.8 million primarily due to:

- net income of $146.6 million,
- other comprehensive income of $20.4 million,
- additional capital issued totaling $3.8 million,
- a $990 thousand net cumulative effect adjustment to retained earnings for the adoption of ASU 2022-02, partially offset by
- cash dividends declared on common and preferred stock totaling a combined $60.4 million and
- a $505 thousand 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 a minimum leverage ratio of 4.0 percent, plus a 2.5 percent capital conservation buffer added to the minimum requirements for capital adequacy purposes. As of March 31, 2023 and December 31, 2022, 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. On January 1, 2022, the deferral amount totaling $47.3 million after-tax started to be phased-in by 25 percent and will increase 25 percent per year until fully phased-in on January 1, 2025. As of March 31, 2023, approximately $23.6 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 6 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, 2023 and December 31, 2022:

*($ in thousands)*

| As of March 31, 2023 Total Risk-based Capital | Actual Amount | Ratio | Minimum Capital Requirements Amount | Ratio | To Be Well Capitalized Under Prompt Corrective Action Provision Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Valley | $5,656,193 | 11.58% | $5,126,496 | 10.50% | N/A | N/A |
| Valley National Bank | 5,736,909 | 11.75 | 5,125,168 | 10.50 | $4,881,112 | 10.00% |
| Common Equity Tier 1 Capital |  |  |  |  |  |  |
| Valley | 4,402,540 | 9.02 | 3,417,664 | 7.00 | N/A | N/A |
| Valley National Bank | 5,362,097 | 10.99 | 3,416,778 | 7.00 | 3,172,723 | 6.50 |
| Tier 1 Risk-based Capital |  |  |  |  |  |  |
| Valley | 4,617,381 | 9.46 | 4,150,021 | 8.50 | N/A | N/A |
| Valley National Bank | 5,362,097 | 10.99 | 4,148,945 | 8.50 | 3,904,890 | 8.00 |
| Tier 1 Leverage Capital |  |  |  |  |  |  |
| Valley | 4,617,381 | 7.96 | 2,319,296 | 4.00 | N/A | N/A |
| Valley National Bank | 5,362,097 | 9.25 | 2,319,185 | 4.00 | 2,898,982 | 5.00 |
| **As of December 31, 2022** |  |  |  |  |  |  |
| Total Risk-based Capital |  |  |  |  |  |  |
| Valley | $5,569,639 | 11.63% | $5,026,621 | 10.50% | N/A | N/A |
| Valley National Bank | 5,659,511 | 11.84 | 5,018,129 | 10.50 | $4,779,170 | 10.00% |
| Common Equity Tier 1 Capital |  |  |  |  |  |  |
| Valley | 4,315,659 | 9.01 | 3,351,080 | 7.00 | N/A | N/A |
| Valley National Bank | 5,284,372 | 11.06 | 3,345,419 | 7.00 | 3,106,461 | 6.50 |
| Tier 1 Risk-based Capital |  |  |  |  |  |  |
| Valley | 4,530,500 | 9.46 | 4,069,169 | 8.50 | N/A | N/A |
| Valley National Bank | 5,284,372 | 11.06 | 4,062,295 | 8.50 | 3,823,336 | 8.00 |
| Tier 1 Leverage Capital |  |  |  |  |  |  |
| Valley | 4,530,500 | 8.23 | 2,200,822 | 4.00 | N/A | N/A |
| Valley National Bank | 5,284,372 | 9.60 | 2,200,891 | 4.00 | 2,751,114 | 5.00 |

Typically, our primary source of capital growth is through retention of earnings. Our rate of earnings retention is derived by dividing undistributed earnings per common share by earnings (or net income available to common shareholders) per common share. Our retention ratio was approximately 60.7 percent for the three months ended March 31, 2023 as compared to 61.4 percent for the year ended December 31, 2022.

Cash dividends declared amounted to $0.11 per common share for each of the three months ended March 31, 2023 and 2022. 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, 2022 in the MD&A section - “Liquidity and Cash Requirements” and Notes 13 and 14 to the consolidated financial statements included in this report.

## Market risk

As filed, 257 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 65 for a discussion of interest rate risk.

## 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, 2023 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, 2,243 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, 2022, except as described below:

***Our financial results and condition may be adversely impacted by recent events in the banking industry or any future similar events.***

Recent events impacting the banking industry, including the bank failures in March and April 2023, have resulted in significant disruption and volatility in the capital markets, reduced current valuations of bank securities, and decreased confidence in banks among depositors and other counterparties as well as investors. These events occurred in the context of rapidly rising interest rates which, among other things, have resulted in unrealized losses in longer duration debt securities and loans held by banks, increased competition for deposits and potentially increased the risk of recession. These events have had, and may continue to have, an adverse impact on the market price of our common stock.

While the Department of the Treasury, the Federal Reserve, and the FDIC took steps to ensure that depositors of recently failed banks would have access to their insured and uninsured deposits, and to facilitate sales of certain failed banks, there is no assurance that these or similar actions will restore customer confidence in the banking system, and we may be further impacted by concerns regarding the soundness of other financial institutions, or other future bank failures or disruptions. Any loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. The cost of resolving the recent bank failures may also prompt the FDIC to increase its premiums above current levels or to issue additional special assessments.

These recent events and any future similar events may also result in changes to laws or regulations governing bank holding companies and banks, including higher capital requirements, or the imposition of restrictions through supervisory or enforcement activities, which could materially impact our business.

Filed May 8, 2023.
Source: SEC EDGAR, the filing index for accession 0000714310-23-000103. Last ingested by Listed: Nov 5, 2026, 17:26 ET. No prices; not investment advice.