NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The unaudited consolidated financial statements of Valley National Bancorp, a New Jersey corporation (Valley), include the accounts of its commercial bank subsidiary, Valley National Bank (the “Bank”), and all of Valley’s direct or indirect wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated. The accounting and reporting policies of Valley conform to U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities. Certain prior period amounts have been reclassified to conform to the current presentation.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations, changes in shareholders' equity and cash flows at March 31, 2020 and for all periods presented have been made. The results of operations for the three months ended on March 31, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year or any subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP and industry practice have been condensed or omitted pursuant to rules and regulations of the SEC. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2019.
Significant Estimates. In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that require application of management’s most difficult, subjective or complex judgment and are particularly susceptible to change include: the allowance for credit losses, the evaluation of goodwill and other intangible assets for impairment, and income taxes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual amounts as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date.
Impact of COVID-19. During 2020, economies throughout the world have been severely disrupted by the effects of the quarantines, business closures, and the reluctance of individuals to leave their homes as a result of the outbreak of the novel coronavirus (COVID-19). Our primary market areas of New York and New Jersey became part of several epicenters of the COVID-19 pandemic. The full impact of COVID-19 is unknown and evolving. The outbreak and any preventative or protective actions that Valley or its customers have taken or may take in respect of this virus may result in extended periods of disruption to Valley, its customers, service providers, and third parties. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect the business and Valley’s financial condition and results of operations. The extent to which COVID-19 impacts Valley’s results will depend on future developments, which are highly uncertain and cannot be predicted. Banking and financial services have been designated essential businesses; therefore, Valley’s operations are continuing, subject to certain modifications to business practices imposed to safeguard the health and wellness of Valley’s customers and employees, and to comply with applicable government directives.
Note 2. Business Combinations
On December 1, 2019, Valley completed its acquisition of Oritani Financial Corp. (Oritani) and its wholly-owned subsidiary, Oritani Bank. Oritani had approximately $4.3 billion in assets, $3.4 billion in net loans and $2.9 billion in deposits, after purchase accounting adjustments, and a branch network of 26 locations. The acquisition represents a significant addition to Valley's New Jersey franchise, and meaningfully enhanced its presence in the Bergen County market. The common shareholders of Oritani received 1.60 shares of Valley common stock for each Oritani share that they owned prior to merger. The total consideration for the acquisition was approximately $835.3 million, consisting of 71.1 million shares of Valley common stock and the outstanding Oritani stock-based awards.
Merger expenses totaled $1.3 million for the three months ended March 31, 2020, which primarily related to professional and legal expenses and other expenses included in non-interest expense on the consolidated statements of income.
During the first quarter 2020, Valley revised the estimated fair values of the acquired assets as of the acquisition date as the result of additional information obtained that existed as of December 1, 2019. The adjustments mostly related to the fair value of certain loans and deferred tax assets as of the acquisition date and resulted in a $1.8 million increase in goodwill (see Note 9 for amount of goodwill as allocated to Valley's business segments). If additional information (that existed as of the acquisition date) becomes available, the fair value estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date.
Note 3. Earnings Per Common Share
The following table shows the calculation of both basic and diluted earnings per common share for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands, except for share data)
|
|
Net income available to common shareholders
|
$
|
84,096
|
|
|
$
|
110,158
|
|
|
Basic weighted average number of common shares outstanding
|
403,519,088
|
|
|
331,601,260
|
|
|
Plus: Common stock equivalents
|
1,905,035
|
|
|
1,233,206
|
|
|
Diluted weighted average number of common shares outstanding
|
405,424,123
|
|
|
332,834,466
|
|
|
Earnings per common share:
|
|
|
|
|
Basic
|
$
|
0.21
|
|
|
$
|
0.33
|
|
|
Diluted
|
0.21
|
|
|
0.33
|
|
Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of restricted stock units, common stock options to purchase Valley’s common shares. Common stock options with exercise prices that exceed the average market price per share of Valley’s common stock during the periods presented have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from the diluted earnings per share calculation. Anti-dilutive common stock options equaled approximately 1.9 million shares and 1.3 million shares for the three months ended March 31, 2020 and March 31, 2019, respectively.
Note 4. Accumulated Other Comprehensive Loss
The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Accumulated Other Comprehensive Loss
|
|
Total
Accumulated
Other
Comprehensive
Loss
|
|
|
Unrealized Gains
and Losses on
Available for Sale
(AFS) Securities
|
|
Unrealized Gains
and Losses on
Derivatives
|
|
Defined
Benefit
Pension Plan
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2019
|
$
|
5,822
|
|
|
$
|
(3,729
|
)
|
|
$
|
(34,307
|
)
|
|
$
|
(32,214
|
)
|
|
Other comprehensive income (loss) before reclassification
|
26,068
|
|
|
(1,057
|
)
|
|
—
|
|
|
25,011
|
|
|
Amounts reclassified from other comprehensive income
|
27
|
|
|
438
|
|
|
172
|
|
|
637
|
|
|
Other comprehensive income (loss), net
|
26,095
|
|
|
(619
|
)
|
|
172
|
|
|
25,648
|
|
|
Balance at March 31, 2020
|
$
|
31,917
|
|
|
$
|
(4,348
|
)
|
|
$
|
(34,135
|
)
|
|
$
|
(6,566
|
)
|
The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Components of Accumulated Other Comprehensive Loss
|
|
2020
|
|
2019
|
|
Income Statement Line Item
|
|
|
|
(in thousands)
|
|
|
|
Unrealized losses on AFS securities before tax
|
|
$
|
(40
|
)
|
|
$
|
(32
|
)
|
|
Losses on securities transactions, net
|
|
Tax effect
|
|
13
|
|
|
6
|
|
|
|
|
Total net of tax
|
|
(27
|
)
|
|
(26
|
)
|
|
|
|
Unrealized losses on derivatives (cash flow hedges) before tax
|
|
(615
|
)
|
|
(290
|
)
|
|
Interest expense
|
|
Tax effect
|
|
177
|
|
|
82
|
|
|
|
|
Total net of tax
|
|
(438
|
)
|
|
(208
|
)
|
|
|
|
Defined benefit pension plan:
|
|
|
|
|
|
|
|
Amortization of actuarial net loss
|
|
(236
|
)
|
|
(78
|
)
|
|
*
|
|
Tax effect
|
|
64
|
|
|
23
|
|
|
|
|
Total net of tax
|
|
(172
|
)
|
|
(55
|
)
|
|
|
|
Total reclassifications, net of tax
|
|
$
|
(637
|
)
|
|
$
|
(289
|
)
|
|
|
|
|
|
|
|
|
*
|
Amortization of net loss is included in the computation of net periodic pension cost recognized within other non-interest expense.
|
Note 5. New Authoritative Accounting Guidance
New Accounting Guidance Adopted in the First Quarter 2020
Accounting Standards Update (ASU) No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" amends the accounting guidance on the impairment of financial instruments. The FASB issued an amendment to replace the incurred loss impairment methodology under prior accounting guidance with a new current expected credit loss (CECL) model. Under the new guidance, Valley is required to measure expected credit losses by utilizing forward-looking information to assess its allowance for credit losses. The guidance also requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. 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. The measurement of expected credit loss under the CECL methodology is applicable to financial assets measured at amortized cost, including loans, held to maturity investments and purchased financial assets with credit deterioration (PCD) assets. It also applies to certain off-balance sheet credit exposures. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses", which clarified that expected recoveries of amounts previously written off or expected to be written off should be included in the estimate of allowance for credit losses for purchased financial assets with credit deterioration, provides certain transition relief for TDR accounting when the discounted cash flow method is used to estimate credit losses, allows entities to elect to disclose separately the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements, and clarified that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing financial assets when electing a practical expedient to measure the estimate of expected credit losses by comparing the amortized cost basis of the financial asset and the fair value of collateral securing the financial asset as of the reporting date.
Valley adopted ASU No. 2016-13 on January 1, 2020 using the modified retrospective approach for all financial assets measured at amortized cost (except for PCD loans) and off-balance sheet credit exposures. Valley has established a governance structure to implement the CECL accounting guidance and has developed a methodology and set of models to be used. At adoption, Valley recorded an $100.4 million increase to its allowance for credit losses, including reserves of $92.5 million, $7.1 million and $793 thousand related to loans, unfunded credit commitments and held to maturity debt securities, respectively. Of the $92.5 million in loan reserves, $61.6 million represents PCD loan related reserves which were recognized through a gross-up that increases the amortized cost basis of loans with a corresponding increase to the allowance for credit losses, and therefore results in no impact to shareholders' equity. The remaining non-credit discount of $97.7 million related to PCD loans is accreted into interest income over the life of the loans at the effective interest rate effective January 1, 2020. The non-PCD loan related increase to the allowance for credit losses of $38.8 million, including the reserves for unfunded loan commitments and held to maturity debt securities, was offset in shareholders' equity and deferred tax assets.
For regulatory capital purposes, in connection with the Federal Reserve Board’s final interim rule as of April 3, 2020, 100 percent of the CECL Day 1 impact to shareholders' equity equaling $28.2 million after-tax will be deferred over a two-year period ending January 1, 2022, at which time it will be phased in on a pro-rata basis over a three-year period ending January 1, 2025. Additionally, 25 percent of the first quarter 2020 reserve build (i.e., provision for credit losses less net charge-offs) net of taxes will be phased in over the same time frame.
ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments" clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement. The most significant provisions of the ASU relate to how companies will estimate expected credit losses under Topic 326 by incorporating (1) expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) clarifying that contractual extensions or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Valley adopted ASU No. 2019-04 on January 1, 2020. See more details regarding our adoption of Topic 326 and ASU No. 2016-13 above.
ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test guidance) to measure a goodwill impairment charge. Instead, an entity will be required to record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the current guidance). In addition, ASU No. 2017-04 eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. However, an entity will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative
impairment test is necessary. ASU No. 2017-04 was effective for Valley on January 1, 2020 and Valley will apply this new guidance in its annual and, if applicable, interim goodwill impairment tests.
New Accounting Guidance issued in the First Quarter 2020
ASU No. 2020-04, "Reference Rate Reform (Topic 848)" provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued, subject to meeting certain criteria. Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of a contract affected by reference rate reform as a continuation of the existing contract, if certain conditions are met. In addition, the new guidance allows an entity to elect on a hedge-by-hedge basis to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain conditions are met. A one-time election to sell and/or transfer held-to-maturity debt securities that reference a rate affected by reference rate reform is also allowed. ASU No. 2020-04 became effective for all entities as of March 12, 2020 and will apply to all LIBOR reference rate modifications through December 31, 2022.
Note 6. Fair Value Measurement of Assets and Liabilities
ASC Topic 820, “Fair Value Measurements” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
|
|
|
|
•
|
Level 1 - Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date.
|
|
|
|
|
•
|
Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets) for substantially the full term of the asset or liability.
|
|
|
|
|
•
|
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
|
Assets and Liabilities Measured at Fair Value on a Recurring and Non-Recurring Basis
The following tables present the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at March 31, 2020 and December 31, 2019. The assets presented under “nonrecurring fair value measurements” in the tables below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(in thousands)
|
|
Recurring fair value measurements:
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Equity securities (1)
|
$
|
46,701
|
|
|
$
|
46,701
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
52,678
|
|
|
52,678
|
|
|
—
|
|
|
—
|
|
|
U.S. government agency securities
|
27,506
|
|
|
—
|
|
|
27,506
|
|
|
—
|
|
|
Obligations of states and political subdivisions
|
161,955
|
|
|
—
|
|
|
161,424
|
|
|
531
|
|
|
Residential mortgage-backed securities
|
1,447,637
|
|
|
—
|
|
|
1,447,637
|
|
|
—
|
|
|
Corporate and other debt securities
|
60,066
|
|
|
—
|
|
|
60,066
|
|
|
—
|
|
|
Total available for sale debt securities
|
1,749,842
|
|
|
52,678
|
|
|
1,696,633
|
|
|
531
|
|
|
Loans held for sale (2)
|
58,868
|
|
|
—
|
|
|
58,868
|
|
|
—
|
|
|
Other assets (3)
|
438,183
|
|
|
—
|
|
|
438,183
|
|
|
—
|
|
|
Total assets
|
$
|
2,293,594
|
|
|
$
|
99,379
|
|
|
$
|
2,193,684
|
|
|
$
|
531
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities (3)
|
$
|
163,370
|
|
|
$
|
—
|
|
|
$
|
163,370
|
|
|
$
|
—
|
|
|
Total liabilities
|
$
|
163,370
|
|
|
$
|
—
|
|
|
$
|
163,370
|
|
|
$
|
—
|
|
|
Non-recurring fair value measurements:
|
|
|
|
|
|
|
|
|
Collateral dependent loans
|
$
|
44,716
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44,716
|
|
|
Loan servicing rights
|
1,464
|
|
|
—
|
|
|
—
|
|
|
1,464
|
|
|
Foreclosed assets
|
6,446
|
|
|
—
|
|
|
—
|
|
|
6,446
|
|
|
Total
|
$
|
52,626
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
December 31,
2019
|
|
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(in thousands)
|
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Equity securities at fair value
|
$
|
41,410
|
|
|
$
|
41,410
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
50,943
|
|
|
$
|
50,943
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
U.S. government agency securities
|
29,243
|
|
|
—
|
|
|
29,243
|
|
|
—
|
|
|
Obligations of states and political subdivisions
|
170,051
|
|
|
—
|
|
|
169,371
|
|
|
680
|
|
|
Residential mortgage-backed securities
|
1,254,786
|
|
|
—
|
|
|
1,254,786
|
|
|
—
|
|
|
Corporate and other debt securities
|
61,778
|
|
|
—
|
|
|
61,778
|
|
|
—
|
|
|
Total available for sale
|
1,566,801
|
|
|
50,943
|
|
|
1,515,178
|
|
|
680
|
|
|
Loans held for sale (2)
|
76,113
|
|
|
—
|
|
|
76,113
|
|
|
—
|
|
|
Other assets (3)
|
158,532
|
|
|
—
|
|
|
158,532
|
|
|
—
|
|
|
Total assets
|
$
|
1,842,856
|
|
|
$
|
92,353
|
|
|
$
|
1,749,823
|
|
|
$
|
680
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities (3)
|
$
|
43,926
|
|
|
$
|
—
|
|
|
$
|
43,926
|
|
|
$
|
—
|
|
|
Total liabilities
|
$
|
43,926
|
|
|
$
|
—
|
|
|
$
|
43,926
|
|
|
$
|
—
|
|
|
Non-recurring fair value measurements:
|
|
|
|
|
|
|
|
|
Collateral dependent impaired loans (4)
|
$
|
39,075
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,075
|
|
|
Loan servicing rights
|
1,591
|
|
|
—
|
|
|
—
|
|
|
1,591
|
|
|
Foreclosed assets
|
10,807
|
|
|
—
|
|
|
—
|
|
|
10,807
|
|
|
Total
|
$
|
51,473
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51,473
|
|
|
|
|
|
(1)
|
Excludes equity securities measured at net asset value (NAV).
|
|
|
|
|
(2)
|
Represents residential mortgage loans originated for sale that are carried at fair value and had contractual unpaid principal balances totaling approximately $56.4 million and $74.5 million at March 31, 2020 and December 31, 2019, respectively.
|
|
|
|
|
(3)
|
Derivative financial instruments are included in this category.
|
|
|
|
|
(4)
|
Excludes purchased credit-impaired loans.
|
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All the valuation techniques described below apply to the unpaid principal balance, excluding any accrued interest or dividends at the measurement date. Interest income and expense are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.
Equity securities. The fair value of equity securities, primarily consist of one publicly traded mutual fund, are derived from quoted market prices in active markets. Equity securities also include Community Reinvestment Act (CRA) investment funds carried at quoted market prices if publicly traded, and at NAV if privately held.
Available for sale securities. U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data. In addition, Valley reviews the volume and level of activity for all available for securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume.
In calculating the fair value of one impaired special revenue bond (within obligations of states and political subdivisions in the table above) under Level 3, Valley prepared its best estimate of the present value of the cash flows to determine an internal price estimate. In determining the internal price, Valley utilized recent financial information and developments provided by the issuer, as well as other unobservable inputs which reflect Valley’s own assumptions about the inputs that market participants would use in pricing of the defaulted security. A quoted price received from an independent pricing service was weighted with the internal price estimate to determine the fair value of the instrument at March 31, 2020 and December 31, 2019.
Loans held for sale. Residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at March 31, 2020 and December 31, 2019 based on the short duration these assets were held, and the high credit quality of these loans.
Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair values of Valley’s derivatives are determined using third party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR and Overnight Index Swap rate curves. The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at March 31, 2020 and December 31, 2019), is determined based on the current market prices for similar instruments. The fair values of most of the derivatives incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance risk of Valley and its counterparties. The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at March 31, 2020 and December 31, 2019.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
The following valuation techniques were used for certain non-financial assets measured at fair value on a nonrecurring basis, including impaired loans reported at the fair value of the underlying collateral, loan servicing rights and foreclosed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.
Collateral Dependent Loans. Collateral dependent loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral and are commonly referred to as “collateral dependent loans.” Collateral values are estimated using Level 3 inputs, consisting of individual appraisals that may be adjusted based on certain discounting criteria. At March 31, 2020, certain appraisals were discounted based on specific market data by location and property type. During the quarter ended March 31, 2020, collateral dependent loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for credit loan losses and/or a specific valuation allowance allocation based on the fair value of the underlying collateral. There were $1.1 million in collateral dependent loan charge-offs to the allowance for loan losses for the three months
ended March 31, 2020. There were no collateral dependent loan charge-offs to the allowance for loan losses for the three months ended March 31, 2019. At March 31, 2020, collateral dependent loans with a total amortized cost of $101.7 million were reduced by specific valuation allowance allocations totaling $57.0 million to a reported total net carrying amount of $44.7 million.
Loan servicing rights. Fair values for each risk-stratified group of loan servicing rights are calculated using a fair value model from a third party vendor that requires inputs that are both significant to the fair value measurement and unobservable (Level 3). The fair value model is based on various assumptions, including but not limited to, prepayment speeds, internal rate of return (discount rate), servicing cost, ancillary income, float rate, tax rate, and inflation. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At March 31, 2020, the fair value model used a blended prepayment speed (stated as constant prepayment rates) of 13.9 percent and a discount rate of 9.6 percent for the valuation of the loan servicing rights. A significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate. Impairment charges are recognized on loan servicing rights when the amortized cost of a risk-stratified group of loan servicing rights exceeds the estimated fair value. At March 31, 2020, certain loan servicing rights were re-measured at fair value totaling $1.5 million. Valley recorded net impairment charges on its loan servicing rights totaling $109 thousand and $24 thousand for the three months ended March 31, 2020 and 2019, respectively.
Foreclosed assets. Certain foreclosed assets (consisting of other real estate owned and other repossessed assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed assets. The fair value of a foreclosed asset, upon initial recognition, is typically estimated using Level 3 inputs, consisting of an appraisal that is adjusted based on certain discounting criteria, similar to the criteria used for impaired loans described above. There were no discount adjustments of the appraisals of foreclosed assets at March 31, 2020. At March 31, 2020, foreclosed assets included $6.4 million of assets that were measured at fair value upon initial recognition or subsequently re-measured. The foreclosed assets charge-offs to the allowance for the loan losses totaled $926 thousand and $788 thousand for the three months ended March 31, 2020 and 2019, respectively. The re-measurement of foreclosed assets at fair value subsequent to their initial recognition resulted in immaterial net losses within non-interest expense for the three months ended March 31, 2020 and 2019.
Other Fair Value Disclosures
ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.
The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Hierarchy
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
|
(in thousands)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
Level 1
|
|
$
|
286,755
|
|
|
$
|
286,755
|
|
|
$
|
256,264
|
|
|
$
|
256,264
|
|
|
Interest bearing deposits with banks
|
Level 1
|
|
718,260
|
|
|
718,260
|
|
|
178,423
|
|
|
178,423
|
|
|
Equity securities (1)
|
N/A
|
|
3,000
|
|
|
3,000
|
|
|
—
|
|
|
—
|
|
|
Investment securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
Level 1
|
|
138,311
|
|
|
148,124
|
|
|
138,352
|
|
|
144,113
|
|
|
U.S. government agency securities
|
Level 2
|
|
6,794
|
|
|
6,920
|
|
|
7,345
|
|
|
7,362
|
|
|
Obligations of states and political subdivisions
|
Level 2
|
|
480,698
|
|
|
492,221
|
|
|
500,705
|
|
|
513,607
|
|
|
Residential mortgage-backed securities
|
Level 2
|
|
1,616,150
|
|
|
1,667,403
|
|
|
1,620,119
|
|
|
1,629,572
|
|
|
Trust preferred securities
|
Level 2
|
|
37,330
|
|
|
30,133
|
|
|
37,324
|
|
|
31,382
|
|
|
Corporate and other debt securities
|
Level 2
|
|
37,750
|
|
|
38,137
|
|
|
32,250
|
|
|
32,684
|
|
|
Total investment securities held to maturity
|
|
|
2,317,033
|
|
|
2,382,938
|
|
|
2,336,095
|
|
|
2,358,720
|
|
|
Net loans
|
Level 3
|
|
30,144,725
|
|
|
29,927,130
|
|
|
29,537,449
|
|
|
28,964,396
|
|
|
Accrued interest receivable
|
Level 1
|
|
107,353
|
|
|
107,353
|
|
|
105,637
|
|
|
105,637
|
|
|
Federal Reserve Bank and Federal Home Loan Bank stock (2)
|
Level 1
|
|
295,420
|
|
|
295,420
|
|
|
214,421
|
|
|
214,421
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
Deposits without stated maturities
|
Level 1
|
|
20,449,903
|
|
|
20,449,903
|
|
|
19,467,892
|
|
|
19,467,892
|
|
|
Deposits with stated maturities
|
Level 2
|
|
8,567,085
|
|
|
8,623,519
|
|
|
9,717,945
|
|
|
9,747,867
|
|
|
Short-term borrowings
|
Level 2
|
|
2,095,655
|
|
|
1,952,248
|
|
|
1,093,280
|
|
|
1,081,879
|
|
|
Long-term borrowings
|
Level 2
|
|
2,805,639
|
|
|
3,060,203
|
|
|
2,122,426
|
|
|
2,181,401
|
|
|
Junior subordinated debentures issued to capital trusts
|
Level 2
|
|
55,805
|
|
|
64,088
|
|
|
55,718
|
|
|
53,889
|
|
|
Accrued interest payable (3)
|
Level 1
|
|
26,724
|
|
|
26,724
|
|
|
33,066
|
|
|
33,066
|
|
|
|
|
|
(1)
|
Equity securities that are presented at NAV. Valley uses NAV as a practical expedient to record its investment in certain non-publicly traded funds since the shares do not have a readily determinable fair value.
|
|
|
|
|
(2)
|
Included in other assets.
|
|
|
|
|
(3)
|
Included in accrued expenses and other liabilities.
|
Note 7. Investment Securities
Equity Securities
Equity securities carried at fair value totaled $49.7 million and $41.4 million at March 31, 2020 and December 31, 2019, respectively. Valley's equity securities consist mainly of one publicly traded money market mutual fund totaling $41.7 million and $41.4 million at March 31, 2020 and December 31, 2019, respectively. The remainder of the balance at March 31, 2020 represents investments made for CRA purposes.
Available for Sale Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of debt securities available for sale at March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
50,946
|
|
|
$
|
1,732
|
|
|
$
|
—
|
|
|
$
|
52,678
|
|
|
U.S. government agency securities
|
26,994
|
|
|
545
|
|
|
(33
|
)
|
|
27,506
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
73,982
|
|
|
667
|
|
|
(194
|
)
|
|
74,455
|
|
|
Municipal bonds
|
86,532
|
|
|
1,052
|
|
|
(84
|
)
|
|
87,500
|
|
|
Total obligations of states and political subdivisions
|
160,514
|
|
|
1,719
|
|
|
(278
|
)
|
|
161,955
|
|
|
Residential mortgage-backed securities
|
1,406,084
|
|
|
42,390
|
|
|
(837
|
)
|
|
1,447,637
|
|
|
Corporate and other debt securities
|
61,243
|
|
|
740
|
|
|
(1,917
|
)
|
|
60,066
|
|
|
Total investment securities available for sale
|
$
|
1,705,781
|
|
|
$
|
47,126
|
|
|
$
|
(3,065
|
)
|
|
$
|
1,749,842
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
50,952
|
|
|
$
|
12
|
|
|
$
|
(21
|
)
|
|
$
|
50,943
|
|
|
U.S. government agency securities
|
28,982
|
|
|
280
|
|
|
(19
|
)
|
|
29,243
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
78,116
|
|
|
540
|
|
|
(83
|
)
|
|
78,573
|
|
|
Municipal bonds
|
90,662
|
|
|
902
|
|
|
(86
|
)
|
|
91,478
|
|
|
Total obligations of states and political subdivisions
|
168,778
|
|
|
1,442
|
|
|
(169
|
)
|
|
170,051
|
|
|
Residential mortgage-backed securities
|
1,248,814
|
|
|
11,234
|
|
|
(5,262
|
)
|
|
1,254,786
|
|
|
Corporate and other debt securities
|
61,261
|
|
|
628
|
|
|
(111
|
)
|
|
61,778
|
|
|
Total investment securities available for sale
|
$
|
1,558,787
|
|
|
$
|
13,596
|
|
|
$
|
(5,582
|
)
|
|
$
|
1,566,801
|
|
The age of unrealized losses and fair value of related securities available for sale at March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
Twelve Months
|
|
More than
Twelve Months
|
|
Total
|
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,682
|
|
|
$
|
(33
|
)
|
|
$
|
1,682
|
|
|
$
|
(33
|
)
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
3,582
|
|
|
(152
|
)
|
|
4,661
|
|
|
(42
|
)
|
|
8,243
|
|
|
(194
|
)
|
|
Municipal bonds
|
3,222
|
|
|
(13
|
)
|
|
8,616
|
|
|
(71
|
)
|
|
11,838
|
|
|
(84
|
)
|
|
Total obligations of states and political subdivisions
|
6,804
|
|
|
(165
|
)
|
|
13,277
|
|
|
(113
|
)
|
|
20,081
|
|
|
(278
|
)
|
|
Residential mortgage-backed securities
|
38,175
|
|
|
(243
|
)
|
|
59,573
|
|
|
(594
|
)
|
|
97,748
|
|
|
(837
|
)
|
|
Corporate and other debt securities
|
23,148
|
|
|
(1,917
|
)
|
|
—
|
|
|
—
|
|
|
23,148
|
|
|
(1,917
|
)
|
|
Total
|
$
|
68,127
|
|
|
$
|
(2,325
|
)
|
|
$
|
74,532
|
|
|
$
|
(740
|
)
|
|
$
|
142,659
|
|
|
$
|
(3,065
|
)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
25,019
|
|
|
$
|
(21
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,019
|
|
|
$
|
(21
|
)
|
|
U.S. government agency securities
|
—
|
|
|
—
|
|
|
1,783
|
|
|
(19
|
)
|
|
1,783
|
|
|
(19
|
)
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
18,540
|
|
|
(21
|
)
|
|
8,755
|
|
|
(62
|
)
|
|
27,295
|
|
|
(83
|
)
|
|
Municipal bonds
|
—
|
|
|
—
|
|
|
13,177
|
|
|
(86
|
)
|
|
13,177
|
|
|
(86
|
)
|
|
Total obligations of states and political subdivisions
|
18,540
|
|
|
(21
|
)
|
|
21,932
|
|
|
(148
|
)
|
|
40,472
|
|
|
(169
|
)
|
|
Residential mortgage-backed securities
|
240,412
|
|
|
(1,194
|
)
|
|
282,798
|
|
|
(4,068
|
)
|
|
523,210
|
|
|
(5,262
|
)
|
|
Corporate and other debt securities
|
5,139
|
|
|
(111
|
)
|
|
—
|
|
|
—
|
|
|
5,139
|
|
|
(111
|
)
|
|
Total
|
$
|
289,110
|
|
|
$
|
(1,347
|
)
|
|
$
|
306,513
|
|
|
$
|
(4,235
|
)
|
|
$
|
595,623
|
|
|
$
|
(5,582
|
)
|
The total number of security positions in the debt securities available for sale portfolio in an unrealized loss position at March 31, 2020 was 86 as compared to 182 at December 31, 2019.
As of March 31, 2020, the fair value of debt securities available for sale that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $970.0 million.
The contractual maturities of debt securities available for sale at March 31, 2020 are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
(in thousands)
|
|
Due in one year
|
$
|
19,711
|
|
|
$
|
19,754
|
|
|
Due after one year through five years
|
107,680
|
|
|
108,642
|
|
|
Due after five years through ten years
|
91,929
|
|
|
92,518
|
|
|
Due after ten years
|
80,377
|
|
|
81,291
|
|
|
Residential mortgage-backed securities
|
1,406,084
|
|
|
1,447,637
|
|
|
Total investment securities available for sale
|
$
|
1,705,781
|
|
|
$
|
1,749,842
|
|
Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted average remaining expected life for residential mortgage-backed securities available for sale was 4.8 years at March 31, 2020.
Impairment Analysis of Available For Sale Debt Securities
Valley's debt securities available for sale include corporate bonds and special revenue bonds, among other securities, which may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S. economy and its potential negative effect on the future performance of the security issuers, including due to the economic effects of COVID-19.
Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. In performing an assessment of whether any decline in fair value is due to a credit loss, Valley considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level such as credit deterioration of the issuer or collateral underlying the security. In assessing the impairment, Valley compares the present value of cash flows expected to be collected with the amortized cost basis of the security. If it is determined that the decline in fair value was due to credit losses, an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis. The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax. Valley also assesses the intent to sell the securities (as well as the likelihood of a near-term recovery). If Valley intends to sell an available for sale debt security or it is more likely than not that Valley will be required to sell the security before recovery of its amortized cost basis, the debt security is written down to its fair value and the write down is charged to the debt security’s fair value at the reporting date with any incremental impairment reported in earnings.
The obligations of states and political subdivisions classified as available for sale include special revenue bonds which had an aggregate amortized cost and fair value of $91.8 million and $92.4 million, respectively, at March 31, 2020. There were $234 thousand in gross unrealized losses associated with the special revenue bonds as of March 31, 2020. Approximately 50 percent of the special revenue bonds were issued by the states of (or municipalities within) Utah, Illinois, North Carolina and Florida. As part of Valley’s pre-purchase analysis and on-going quarterly assessment of impairment of the obligations of states and political subdivisions, our Credit Risk Management Department conducts a financial analysis and risk rating assessment of each security issuer based on the issuer’s most recently issued financial statements and other publicly available information. These investments are a mix of municipal bonds with investment grade ratings or non-rated revenue bonds paying in accordance with their contractual terms. The vast majority of the bonds not rated by the rating agencies are state housing finance agency revenue bonds secured by Ginnie Mae securities
that are commonly referred to as Tax Exempt Mortgage Securities (TEMS). Valley continues to monitor the special revenue bond portfolio as part of its quarterly impairment analysis.
Valley has evaluated available for sale debt securities that are in an unrealized loss position as of March 31, 2020 included in table above and has determined that the declines in fair value are mainly attributable to market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management recognized no impairment during the first quarter 2020 and, as a result, no allowance for credit losses for available for sale debt securities at March 31, 2020.
Held to Maturity Debt Securities
The amortized cost, gross unrealized gains and losses and fair value of debt securities held to maturity at March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
138,311
|
|
|
$
|
9,813
|
|
|
$
|
—
|
|
|
$
|
148,124
|
|
|
U.S. government agency securities
|
6,794
|
|
|
126
|
|
|
—
|
|
|
6,920
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
289,701
|
|
|
7,189
|
|
|
(577
|
)
|
|
296,313
|
|
|
Municipal bonds
|
190,997
|
|
|
4,914
|
|
|
(3
|
)
|
|
195,908
|
|
|
Total obligations of states and political subdivisions
|
480,698
|
|
|
12,103
|
|
|
(580
|
)
|
|
492,221
|
|
|
Residential mortgage-backed securities
|
1,616,150
|
|
|
51,333
|
|
|
(80
|
)
|
|
1,667,403
|
|
|
Trust preferred securities
|
37,330
|
|
|
26
|
|
|
(7,223
|
)
|
|
30,133
|
|
|
Corporate and other debt securities
|
37,750
|
|
|
388
|
|
|
(1
|
)
|
|
38,137
|
|
|
Total investment securities held to maturity
|
$
|
2,317,033
|
|
|
$
|
73,789
|
|
|
$
|
(7,884
|
)
|
|
$
|
2,382,938
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
138,352
|
|
|
$
|
5,761
|
|
|
$
|
—
|
|
|
$
|
144,113
|
|
|
U.S. government agency securities
|
7,345
|
|
|
58
|
|
|
(41
|
)
|
|
7,362
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
297,454
|
|
|
7,745
|
|
|
(529
|
)
|
|
304,670
|
|
|
Municipal bonds
|
203,251
|
|
|
5,696
|
|
|
(10
|
)
|
|
208,937
|
|
|
Total obligations of states and political subdivisions
|
500,705
|
|
|
13,441
|
|
|
(539
|
)
|
|
513,607
|
|
|
Residential mortgage-backed securities
|
1,620,119
|
|
|
14,803
|
|
|
(5,350
|
)
|
|
1,629,572
|
|
|
Trust preferred securities
|
37,324
|
|
|
39
|
|
|
(5,981
|
)
|
|
31,382
|
|
|
Corporate and other debt securities
|
32,250
|
|
|
454
|
|
|
(20
|
)
|
|
32,684
|
|
|
Total investment securities held to maturity
|
$
|
2,336,095
|
|
|
$
|
34,556
|
|
|
$
|
(11,931
|
)
|
|
$
|
2,358,720
|
|
The age of unrealized losses and fair value of related debt securities held to maturity at March 31, 2020 and December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
Twelve Months
|
|
More than
Twelve Months
|
|
Total
|
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
Fair Value
|
|
Unrealized
Losses
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
$
|
13,334
|
|
|
$
|
(312
|
)
|
|
$
|
23,323
|
|
|
$
|
(265
|
)
|
|
$
|
36,657
|
|
|
$
|
(577
|
)
|
|
Municipal bonds
|
814
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
814
|
|
|
(3
|
)
|
|
Total obligations of states and political subdivisions
|
14,148
|
|
|
(315
|
)
|
|
23,323
|
|
|
(265
|
)
|
|
37,471
|
|
|
(580
|
)
|
|
Residential mortgage-backed securities
|
14,010
|
|
|
(80
|
)
|
|
—
|
|
|
—
|
|
|
14,010
|
|
|
(80
|
)
|
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
28,753
|
|
|
(7,223
|
)
|
|
28,753
|
|
|
(7,223
|
)
|
|
Corporate and other debt securities
|
17,749
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
17,749
|
|
|
(1
|
)
|
|
Total
|
$
|
45,907
|
|
|
$
|
(396
|
)
|
|
$
|
52,076
|
|
|
$
|
(7,488
|
)
|
|
$
|
97,983
|
|
|
$
|
(7,884
|
)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
$
|
5,183
|
|
|
$
|
(41
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,183
|
|
|
$
|
(41
|
)
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
11,178
|
|
|
(55
|
)
|
|
32,397
|
|
|
(474
|
)
|
|
43,575
|
|
|
(529
|
)
|
|
Municipal bonds
|
—
|
|
|
—
|
|
|
798
|
|
|
(10
|
)
|
|
798
|
|
|
(10
|
)
|
|
Total obligations of states and political subdivisions
|
11,178
|
|
|
(55
|
)
|
|
33,195
|
|
|
(484
|
)
|
|
44,373
|
|
|
(539
|
)
|
|
Residential mortgage-backed securities
|
307,885
|
|
|
(1,387
|
)
|
|
254,915
|
|
|
(3,963
|
)
|
|
562,800
|
|
|
(5,350
|
)
|
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
29,990
|
|
|
(5,981
|
)
|
|
29,990
|
|
|
(5,981
|
)
|
|
Corporate and other debt securities
|
—
|
|
|
—
|
|
|
4,980
|
|
|
(20
|
)
|
|
4,980
|
|
|
(20
|
)
|
|
Total
|
$
|
324,246
|
|
|
$
|
(1,483
|
)
|
|
$
|
323,080
|
|
|
$
|
(10,448
|
)
|
|
$
|
647,326
|
|
|
$
|
(11,931
|
)
|
Within the held to maturity portfolio, the total number of security positions in an unrealized loss position was 24 at March 31, 2020 and 82 at December 31, 2019.
As of March 31, 2020, the fair value of debt securities held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $1.5 billion.
The contractual maturities of investments in debt securities held to maturity at March 31, 2020 are set forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
(in thousands)
|
|
Due in one year
|
$
|
94,100
|
|
|
$
|
95,561
|
|
|
Due after one year through five years
|
169,651
|
|
|
176,406
|
|
|
Due after five years through ten years
|
213,801
|
|
|
224,212
|
|
|
Due after ten years
|
223,331
|
|
|
219,356
|
|
|
Residential mortgage-backed securities
|
1,616,150
|
|
|
1,667,403
|
|
|
Total investment securities held to maturity
|
$
|
2,317,033
|
|
|
$
|
2,382,938
|
|
Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.
The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 6.5 years at March 31, 2020.
Credit Quality Indicators
Valley monitors the credit quality of the held to maturity debt securities through the use of the most current credit ratings from external rating agencies. The following table summarizes the amortized cost of held to maturity debt securities by external credit rating at March 31, 2020 and December 31, 2019. There were no securities with non-investment grade ratings for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA/AA/A Rated
|
|
BBB rated
|
|
Non-rated
|
|
Total
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
138,311
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
138,311
|
|
|
U.S. government agency securities
|
6,794
|
|
|
—
|
|
|
—
|
|
|
6,794
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
244,894
|
|
|
5,704
|
|
|
39,103
|
|
|
289,701
|
|
|
Municipal bonds
|
190,388
|
|
|
—
|
|
|
609
|
|
|
190,997
|
|
|
Total obligations of states and political subdivisions
|
435,282
|
|
|
5,704
|
|
|
39,712
|
|
|
480,698
|
|
|
Residential mortgage-backed securities
|
1,616,150
|
|
|
—
|
|
|
—
|
|
|
1,616,150
|
|
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
37,330
|
|
|
37,330
|
|
|
Corporate and other debt securities
|
—
|
|
|
5,000
|
|
|
32,750
|
|
|
37,750
|
|
|
Total investment securities held to maturity
|
$
|
2,196,537
|
|
|
$
|
10,704
|
|
|
$
|
109,792
|
|
|
$
|
2,317,033
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
138,352
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
138,352
|
|
|
U.S. government agency securities
|
7,345
|
|
|
—
|
|
|
—
|
|
|
7,345
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
248,533
|
|
|
5,722
|
|
|
43,199
|
|
|
297,454
|
|
|
Municipal bonds
|
202,642
|
|
|
—
|
|
|
609
|
|
|
203,251
|
|
|
Total obligations of states and political subdivisions
|
451,175
|
|
|
5,722
|
|
|
43,808
|
|
|
500,705
|
|
|
Residential mortgage-backed securities
|
1,620,119
|
|
|
—
|
|
|
—
|
|
|
1,620,119
|
|
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
37,324
|
|
|
37,324
|
|
|
Corporate and other debt securities
|
—
|
|
|
5,000
|
|
|
27,250
|
|
|
32,250
|
|
|
Total investment securities held to maturity
|
$
|
2,216,991
|
|
|
$
|
10,722
|
|
|
$
|
108,382
|
|
|
$
|
2,336,095
|
|
Obligations of states and political subdivisions include municipal bonds and revenue bonds issued by various municipal corporations. At March 31, 2020, most of the obligations of states and political subdivisions were rated investment grade and the "non-rated" category included mostly state housing finance agency revenue bonds secured by Ginnie Mae securities that are commonly referred to as Tax Exempt Mortgage Securities (TEMS). Trust preferred securities consist of non-rated single-issuer securities, issued by bank holding companies. Corporate bonds consist of debt primarily issued by banks.
Allowance for Credit Losses for Held to Maturity Debt Securities
Valley has a zero loss expectation for certain securities within the held to maturity portfolio, and therefore it is not required to estimate an allowance for credit losses related to these securities under the CECL standard. After evaluation of qualitative factors, Valley identified the following securities types which it believes qualify for this exclusion: U.S. Treasury securities, U.S. agency securities, residential mortgage-backed issued by Ginnie Mae, Fannie Mae and Freddie Mac, and collateralized municipal bonds called TEMS.
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. The model is adjusted for a probability weighted multi-scenario economic forecast to estimate future credit losses. Valley uses 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 investment security. The economic forecast methodology and governance for debt securities is aligned with Valley's economic forecast for the loan portfolio discussed in more detail in Note 8.
The following table presents the activity in the allowance for credit losses for held to maturity debit securities for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended
March 31, 2020
|
|
|
Allowance for credit losses:
|
|
|
Beginning balance
|
$
|
—
|
|
|
Impact of ASU 2016-13 adoption
|
793
|
|
|
Provision for credit losses
|
759
|
|
|
Ending balance
|
$
|
1,552
|
|
Note 8. Loans and Allowance for Credit Losses for Loans
The detail of the loan portfolio as of March 31, 2020 and December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
|
Loans:
|
|
|
|
|
Commercial and industrial
|
$
|
4,998,731
|
|
|
$
|
4,825,997
|
|
|
Commercial real estate:
|
|
|
|
|
Commercial real estate
|
16,390,236
|
|
|
15,996,741
|
|
|
Construction
|
1,727,046
|
|
|
1,647,018
|
|
|
Total commercial real estate loans
|
18,117,282
|
|
|
17,643,759
|
|
|
Residential mortgage
|
4,478,982
|
|
|
4,377,111
|
|
|
Consumer:
|
|
|
|
|
Home equity
|
481,751
|
|
|
487,272
|
|
|
Automobile
|
1,436,734
|
|
|
1,451,623
|
|
|
Other consumer
|
914,587
|
|
|
913,446
|
|
|
Total consumer loans
|
2,833,072
|
|
|
2,852,341
|
|
|
Total loans
|
$
|
30,428,067
|
|
|
$
|
29,699,208
|
|
Total loans include net unearned discounts and deferred loan fees of $76.4 million at March 31, 2020 and net unearned premiums and deferred loan costs of $12.6 million at December 31, 2019. Net unearned discounts and deferred loan fees at March 31, 2020 include the non-credit discount on PCD loans.
Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $87.3 million and $86.3 million at March 31, 2020 and December 31, 2019, respectively, and is presented separately in the consolidated statements of financial condition.
Valley transferred and sold approximately $30.0 million and $100.0 million of residential mortgage loans from the loan portfolio to loans held for sale during the three months ended March 31, 2020 and 2019, respectively. Excluding the loan transfers, there were no sales of loans from the held for investment portfolio during the three months ended March 31, 2020 and 2019.
Credit Risk Management
For all of its loan types, Valley adheres to a credit policy designed to minimize credit risk while generating the maximum income given the level of risk appetite. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of Directors annually. Credit authority relating to a significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification, concentrations of credit, loan delinquencies, non-performing, and potential problem loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through cyclical economic circumstances. See Valley’s Annual Report on Form 10-K for the year ended December 31, 2019 for further details.
Credit Quality
Loans are deemed to be past due when the contractually required principal and interest payments have not been received as they become due. Loans are placed on non-accrual status generally, when they become 90 days past due and the full and timely collection of principal and interest becomes uncertain. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Cash collections from non-accrual loans are generally applied against principal, and no interest income is recognized on these loans until the principal balance has been determined to be fully collectible.
A loan in which the borrowers’ obligation has not been released in bankruptcy courts may be restored to an accruing basis when it becomes well secured and is in the process of collection, or all past due amounts become current under the loan agreement and collectability is no longer doubtful.
The following table presents past due, current and non-accrual loans without an allowance of for credit losses by loan portfolio class (including PCD loans) at March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Non-Accrual Loans
|
|
|
|
|
|
|
|
|
30-59 Days or More
Past Due Loans
|
|
60-89 Days or More
Past Due Loans
|
|
90 Days or More
Past Due Loans
|
|
Non-Accrual Loans
|
|
Total Past Due Loans
|
|
Current Loans
|
|
Total Loans
|
|
Non-Accrual Loans Without Allowance for Credit Losses
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
9,780
|
|
|
$
|
7,624
|
|
|
$
|
4,049
|
|
|
$
|
132,622
|
|
|
$
|
154,075
|
|
|
$
|
4,844,656
|
|
|
$
|
4,998,731
|
|
|
$
|
17,149
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
41,664
|
|
|
15,963
|
|
|
161
|
|
|
41,616
|
|
|
99,404
|
|
|
16,290,832
|
|
|
16,390,236
|
|
|
37,865
|
|
|
Construction
|
7,119
|
|
|
49
|
|
|
—
|
|
|
2,972
|
|
|
10,140
|
|
|
1,716,906
|
|
|
1,727,046
|
|
|
2,839
|
|
|
Total commercial real estate loans
|
48,783
|
|
|
16,012
|
|
|
161
|
|
|
44,588
|
|
|
109,544
|
|
|
18,007,738
|
|
|
18,117,282
|
|
|
40,704
|
|
|
Residential mortgage
|
38,965
|
|
|
9,307
|
|
|
1,798
|
|
|
24,625
|
|
|
74,695
|
|
|
4,404,287
|
|
|
4,478,982
|
|
|
9,834
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
2,625
|
|
|
509
|
|
|
—
|
|
|
3,845
|
|
|
6,979
|
|
|
474,772
|
|
|
481,751
|
|
|
131
|
|
|
Automobile
|
13,447
|
|
|
1,756
|
|
|
626
|
|
|
250
|
|
|
16,079
|
|
|
1,420,655
|
|
|
1,436,734
|
|
|
—
|
|
|
Other consumer
|
3,436
|
|
|
44
|
|
|
466
|
|
|
—
|
|
|
3,946
|
|
|
910,641
|
|
|
914,587
|
|
|
—
|
|
|
Total consumer loans
|
19,508
|
|
|
2,309
|
|
|
1,092
|
|
|
4,095
|
|
|
27,004
|
|
|
2,806,068
|
|
|
2,833,072
|
|
|
131
|
|
|
Total
|
$
|
117,036
|
|
|
$
|
35,252
|
|
|
$
|
7,100
|
|
|
$
|
205,930
|
|
|
$
|
365,318
|
|
|
$
|
30,062,749
|
|
|
$
|
30,428,067
|
|
|
$
|
67,818
|
|
The following table presents past due, non-accrual and current loans by loan portfolio class at December 31, 2019. At December 31, 2019, purchased credit-impaired (PCI) loans were excluded from past due and non-accrual loans reported because they continued to earn interest income from the accretable yield at the pool level. The PCI loan pools are accounted for as PCD loans (on a loan level basis with a related allowance for credit losses) under the CECL standard adopted at January 1, 2020 and reported in the past due loans and non-accrual loans in the tables above at March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due and Non-Accrual Loans
|
|
|
|
|
|
|
30-59
Days
Past Due Loans
|
|
60-89
Days or More
Past Due Loans
|
|
90 Days or More
Past Due Loans
|
|
Non-Accrual Loans
|
|
Total Past Due Loans
|
|
Current Non-PCI Loans
|
|
PCI Loans
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
11,700
|
|
|
$
|
2,227
|
|
|
$
|
3,986
|
|
|
$
|
68,636
|
|
|
$
|
86,549
|
|
|
$
|
4,057,434
|
|
|
$
|
682,014
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
2,560
|
|
|
4,026
|
|
|
579
|
|
|
9,004
|
|
|
16,169
|
|
|
10,886,724
|
|
|
5,093,848
|
|
|
Construction
|
1,486
|
|
|
1,343
|
|
|
—
|
|
|
356
|
|
|
3,185
|
|
|
1,492,532
|
|
|
151,301
|
|
|
Total commercial real estate loans
|
4,046
|
|
|
5,369
|
|
|
579
|
|
|
9,360
|
|
|
19,354
|
|
|
12,379,256
|
|
|
5,245,149
|
|
|
Residential mortgage
|
17,143
|
|
|
4,192
|
|
|
2,042
|
|
|
12,858
|
|
|
36,235
|
|
|
3,760,707
|
|
|
580,169
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
1,051
|
|
|
80
|
|
|
—
|
|
|
1,646
|
|
|
2,777
|
|
|
373,243
|
|
|
111,252
|
|
|
Automobile
|
11,482
|
|
|
1,581
|
|
|
681
|
|
|
334
|
|
|
14,078
|
|
|
1,437,274
|
|
|
271
|
|
|
Other consumer
|
1,171
|
|
|
866
|
|
|
30
|
|
|
224
|
|
|
2,291
|
|
|
900,411
|
|
|
10,744
|
|
|
Total consumer loans
|
13,704
|
|
|
2,527
|
|
|
711
|
|
|
2,204
|
|
|
19,146
|
|
|
2,710,928
|
|
|
122,267
|
|
|
Total
|
$
|
46,593
|
|
|
$
|
14,315
|
|
|
$
|
7,318
|
|
|
$
|
93,058
|
|
|
$
|
161,284
|
|
|
$
|
22,908,325
|
|
|
$
|
6,629,599
|
|
Credit quality indicators. Valley utilizes an internal loan classification system as a means of reporting problem loans within commercial and industrial, commercial real estate, and construction loan portfolio classes. Under Valley’s internal risk rating system, loan relationships could be classified as "Pass," "Special Mention," "Substandard," "Doubtful," and "Loss." Substandard loans include loans that exhibit well-defined weakness and are characterized by the distinct possibility that Valley will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses, and, therefore, not presented in the table below. Loans that do not currently pose a sufficient risk to warrant classification in one of the aforementioned categories but pose weaknesses that deserve management’s close attention are deemed Special Mention. Loans rated as Pass do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants.
The following table presents the internal loan classification risk by loan portfolio class by origination year (including PCD loans) based on the most recent analysis performed at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans
|
|
|
|
|
|
|
|
|
|
Amortized Cost Basis by Origination Year
|
|
|
|
|
|
|
|
March 31, 2020
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior to 2016
|
|
Revolving Loans Amortized Cost Basis
|
|
Revolving Loans Converted to Term Loans
|
|
Total
|
|
|
|
(in thousands)
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
251,561
|
|
|
$
|
800,674
|
|
|
$
|
677,111
|
|
|
$
|
331,265
|
|
|
$
|
220,022
|
|
|
$
|
490,587
|
|
|
$
|
1,955,270
|
|
|
$
|
515
|
|
|
$
|
4,727,005
|
|
|
Special Mention
|
|
—
|
|
|
11,167
|
|
|
1,614
|
|
|
11,201
|
|
|
11,587
|
|
|
15,016
|
|
|
59,157
|
|
|
102
|
|
|
109,844
|
|
|
Substandard
|
|
3,320
|
|
|
10,870
|
|
|
3,325
|
|
|
1,786
|
|
|
4,832
|
|
|
6,252
|
|
|
18,684
|
|
|
87
|
|
|
49,156
|
|
|
Doubtful
|
|
—
|
|
|
5,219
|
|
|
705
|
|
|
17,953
|
|
|
2,637
|
|
|
86,212
|
|
|
—
|
|
|
—
|
|
|
112,726
|
|
|
Total commercial and industrial
|
|
$
|
254,881
|
|
|
$
|
827,930
|
|
|
$
|
682,755
|
|
|
$
|
362,205
|
|
|
$
|
239,078
|
|
|
$
|
598,067
|
|
|
$
|
2,033,111
|
|
|
$
|
704
|
|
|
$
|
4,998,731
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,037,404
|
|
|
$
|
3,269,940
|
|
|
$
|
2,611,108
|
|
|
$
|
2,133,369
|
|
|
$
|
2,041,513
|
|
|
$
|
4,794,614
|
|
|
$
|
217,403
|
|
|
$
|
12,237
|
|
|
$
|
16,117,588
|
|
|
Special Mention
|
|
872
|
|
|
22,694
|
|
|
1,748
|
|
|
25,324
|
|
|
23,603
|
|
|
75,769
|
|
|
3,250
|
|
|
—
|
|
|
153,260
|
|
|
Substandard
|
|
3,855
|
|
|
4,909
|
|
|
12,473
|
|
|
12,288
|
|
|
10,947
|
|
|
73,855
|
|
|
—
|
|
|
—
|
|
|
118,327
|
|
|
Doubtful
|
|
—
|
|
|
—
|
|
|
—
|
|
|
838
|
|
|
—
|
|
|
223
|
|
|
—
|
|
|
—
|
|
|
1,061
|
|
|
Total commercial real estate
|
|
$
|
1,042,131
|
|
|
$
|
3,297,543
|
|
|
$
|
2,625,329
|
|
|
$
|
2,171,819
|
|
|
$
|
2,076,063
|
|
|
$
|
4,944,461
|
|
|
$
|
220,653
|
|
|
$
|
12,237
|
|
|
$
|
16,390,236
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
49,866
|
|
|
$
|
157,375
|
|
|
$
|
179,300
|
|
|
$
|
52,820
|
|
|
$
|
66,550
|
|
|
$
|
57,236
|
|
|
$
|
1,144,877
|
|
|
$
|
—
|
|
|
$
|
1,708,024
|
|
|
Special Mention
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,740
|
|
|
96
|
|
|
—
|
|
|
—
|
|
|
7,836
|
|
|
Substandard
|
|
—
|
|
|
42
|
|
|
—
|
|
|
8,359
|
|
|
2,422
|
|
|
363
|
|
|
—
|
|
|
—
|
|
|
11,186
|
|
|
Total construction
|
|
$
|
49,866
|
|
|
$
|
157,417
|
|
|
$
|
179,300
|
|
|
$
|
61,179
|
|
|
$
|
76,712
|
|
|
$
|
57,695
|
|
|
$
|
1,144,877
|
|
|
$
|
—
|
|
|
$
|
1,727,046
|
|
For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in those loan classes (including PCD loans) based on payment activity by origination year as of March 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans
|
|
|
|
|
|
|
|
|
|
Amortized Cost Basis by Origination Year
|
|
|
|
|
|
|
|
March 31, 2020
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior to 2016
|
|
Revolving Loans Amortized Cost Basis
|
|
Revolving Loans Converted to Term Loans
|
|
Total
|
|
|
|
(in thousands)
|
|
Residential mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
233,209
|
|
|
$
|
877,519
|
|
|
$
|
942,127
|
|
|
$
|
752,209
|
|
|
$
|
450,980
|
|
|
$
|
1,160,244
|
|
|
$
|
46,312
|
|
|
$
|
—
|
|
|
$
|
4,462,600
|
|
|
90 days or more past due
|
|
—
|
|
|
519
|
|
|
201
|
|
|
2,612
|
|
|
3,908
|
|
|
9,142
|
|
|
—
|
|
|
—
|
|
|
16,382
|
|
|
Total residential mortgage
|
|
$
|
233,209
|
|
|
$
|
878,038
|
|
|
$
|
942,328
|
|
|
$
|
754,821
|
|
|
$
|
454,888
|
|
|
$
|
1,169,386
|
|
|
$
|
46,312
|
|
|
$
|
—
|
|
|
$
|
4,478,982
|
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
$
|
1,017
|
|
|
$
|
1,851
|
|
|
$
|
3,621
|
|
|
$
|
9,999
|
|
|
$
|
2,492
|
|
|
$
|
21,668
|
|
|
$
|
384,208
|
|
|
$
|
55,710
|
|
|
$
|
480,566
|
|
|
90 days or more past due
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
297
|
|
|
816
|
|
|
1,185
|
|
|
Total home equity
|
|
1,017
|
|
|
1,851
|
|
|
3,621
|
|
|
9,999
|
|
|
2,492
|
|
|
21,740
|
|
|
384,505
|
|
|
56,526
|
|
|
481,751
|
|
|
Automobile
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
120,779
|
|
|
556,072
|
|
|
363,005
|
|
|
220,424
|
|
|
86,715
|
|
|
88,776
|
|
|
—
|
|
|
—
|
|
|
1,435,771
|
|
|
90 days or more past due
|
|
—
|
|
|
170
|
|
|
320
|
|
|
275
|
|
|
79
|
|
|
119
|
|
|
—
|
|
|
—
|
|
|
963
|
|
|
Total automobile
|
|
120,779
|
|
|
556,242
|
|
|
363,325
|
|
|
220,699
|
|
|
86,794
|
|
|
88,895
|
|
|
—
|
|
|
—
|
|
|
1,436,734
|
|
|
Other Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing
|
|
7,549
|
|
|
6,845
|
|
|
14,415
|
|
|
1,332
|
|
|
1,382
|
|
|
3,663
|
|
|
878,495
|
|
|
—
|
|
|
913,681
|
|
|
90 days or more past due
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
906
|
|
|
—
|
|
|
906
|
|
|
Total other consumer
|
|
7,549
|
|
|
6,845
|
|
|
14,415
|
|
|
1,332
|
|
|
1,382
|
|
|
3,663
|
|
|
879,401
|
|
|
—
|
|
|
914,587
|
|
|
Total Consumer
|
|
$
|
129,345
|
|
|
$
|
564,938
|
|
|
$
|
381,361
|
|
|
$
|
232,030
|
|
|
$
|
90,668
|
|
|
$
|
114,298
|
|
|
$
|
1,263,906
|
|
|
$
|
56,526
|
|
|
$
|
2,833,072
|
|
The following table presents the credit exposure by internally assigned risk rating by class of loans (excluding PCI loans) based on the most recent analysis performed at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure—
by internally assigned risk rating
|
|
|
|
Special
|
|
|
|
|
|
Total Non-PCI
|
|
|
Pass
|
|
Mention
|
|
Substandard
|
|
Doubtful
|
|
Loans
|
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
3,982,453
|
|
|
$
|
33,718
|
|
|
$
|
66,511
|
|
|
$
|
61,301
|
|
|
$
|
4,143,983
|
|
|
Commercial real estate
|
|
10,781,587
|
|
|
77,884
|
|
|
42,560
|
|
|
862
|
|
|
10,902,893
|
|
|
Construction
|
|
1,487,877
|
|
|
7,486
|
|
|
354
|
|
|
—
|
|
|
1,495,717
|
|
|
Total
|
|
$
|
16,251,917
|
|
|
$
|
119,088
|
|
|
$
|
109,425
|
|
|
$
|
62,163
|
|
|
$
|
16,542,593
|
|
For residential mortgages, automobile, home equity and other consumer loan portfolio classes (excluding PCI loans), Valley also evaluates credit quality based on the aging status of the loan, which is presented above, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure—
by payment activity
|
|
Performing
Loans
|
|
Non-Performing
Loans
|
|
Total Non-PCI
Loans
|
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Residential mortgage
|
|
$
|
3,784,084
|
|
|
$
|
12,858
|
|
|
$
|
3,796,942
|
|
|
Home equity
|
|
374,374
|
|
|
$
|
1,646
|
|
|
376,020
|
|
|
Automobile
|
|
1,451,018
|
|
|
$
|
334
|
|
|
1,451,352
|
|
|
Other consumer
|
|
902,478
|
|
|
$
|
224
|
|
|
902,702
|
|
|
Total
|
|
$
|
6,511,954
|
|
|
$
|
15,062
|
|
|
$
|
6,527,016
|
|
The following table summarizes information pertaining to loans that were identified as PCI loans by class based on individual loan payment activity as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure—
|
|
Performing
|
|
Non-Performing
|
|
Total
|
|
by payment activity
|
|
Loans
|
|
Loans
|
|
PCI Loans
|
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
653,997
|
|
|
$
|
28,017
|
|
|
$
|
682,014
|
|
|
Commercial real estate
|
|
5,065,388
|
|
|
28,460
|
|
|
5,093,848
|
|
|
Construction
|
|
148,692
|
|
|
2,609
|
|
|
151,301
|
|
|
Residential mortgage
|
|
571,006
|
|
|
9,163
|
|
|
580,169
|
|
|
Consumer
|
|
120,356
|
|
|
1,911
|
|
|
122,267
|
|
|
Total
|
|
$
|
6,559,439
|
|
|
$
|
70,160
|
|
|
$
|
6,629,599
|
|
Troubled debt restructured loans. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (TDR). At the adoption of ASU 2016-13, Valley was not required to reassess whether modifications to individual PCI loans prior to January 1, 2020 met the TDR loan criteria.
The majority of the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. The concessions rarely result in the forgiveness of principal or accrued interest. In addition, Valley frequently obtains additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms of the loan and Valley’s underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.
Performing TDRs (not reported as non-accrual loans) totaled $48.0 million and $73.0 million as of March 31, 2020 and December 31, 2019, respectively. Non-performing TDRs totaled $89.1 million and $65.1 million as of March 31, 2020 and December 31, 2019, respectively.
The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs (excluding PCI loans prior to the adoption of ASU 2016-13) during the three months ended March 31, 2020 and 2019. Post-modification amounts are presented as of March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
|
Troubled Debt Restructurings
|
|
Number
of
Contracts
|
|
Pre-Modification
Amortized Carrying Amount
|
|
Post-Modification
Amortized Carrying Amount
|
|
Number
of
Contracts
|
|
Pre-Modification
Amortized Carrying Amount
|
|
Post-Modification
Amortized Carrying Amount
|
|
|
|
($ in thousands)
|
|
Commercial and industrial
|
|
16
|
|
|
$
|
13,144
|
|
|
$
|
12,630
|
|
|
36
|
|
|
$
|
23,553
|
|
|
$
|
23,241
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
1
|
|
|
3,863
|
|
|
3,855
|
|
|
1
|
|
|
1,597
|
|
|
1,597
|
|
|
Total commercial real estate
|
|
1
|
|
|
3,863
|
|
|
3,855
|
|
|
1
|
|
|
1,597
|
|
|
1,597
|
|
|
Total
|
|
17
|
|
|
$
|
17,007
|
|
|
$
|
16,485
|
|
|
37
|
|
|
$
|
25,150
|
|
|
$
|
24,838
|
|
The total TDRs presented in the above table had allocated reserves for loan losses of $7.9 million and $7.9 million at March 31, 2020 and 2019, respectively. There were $791 thousand and $913 thousand of partial charge-offs related to TDRs for the three months ended March 31, 2020 and 2019, respectively. Valley did not extend any commitments to lend additional funds to borrowers whose loans have been modified as TDRs during the three months ended March 31, 2020 and 2019.
Loans modified as TDRs (excluding PCI loan modifications prior to the adoption of ASU 2016-13) within the previous 12 months and for which there was a payment default (90 or more days past due) for the three months ended March 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
|
Troubled Debt Restructurings Subsequently Defaulted
|
|
Number of
Contracts
|
|
Amortized Cost
|
|
Number of
Contracts
|
|
Recorded
Investment
|
|
|
|
($ in thousands)
|
|
Commercial and industrial
|
|
—
|
|
|
$
|
—
|
|
|
10
|
|
|
$
|
8,626
|
|
|
Residential mortgage
|
|
1
|
|
|
154
|
|
|
5
|
|
|
702
|
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
1
|
|
|
18
|
|
|
Total
|
|
1
|
|
|
$
|
154
|
|
|
16
|
|
|
$
|
9,346
|
|
In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant, when requested by customers. These modifications complied with the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. Generally, the modification terms allow for a deferral of payments for 90 days, which Valley may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. As of March 31, 2020, Valley granted temporary modifications on approximately 2,100 loans, resulting in an immaterial amount of deferred interest payments for the first quarter 2020. Under the applicable guidance, none of these loans were considered TDRs as of March 31, 2020.
Loans in Process of Foreclosure. Other real estate owned (OREO) totaled $10.2 million and $9.4 million at March 31, 2020 and December 31, 2019, respectively. OREO included foreclosed residential real estate properties totaling $2.6 million and $2.1 million at March 31, 2020 and December 31, 2019, respectively. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $1.8 million and $2.8 million at March 31, 2020 and December 31, 2019, respectively.
Allowance for Credit Losses for Loans
At March 31, 2020, the allowance for credit losses for loans consisted of (1) the allowance for loan losses and (2) the allowance for unfunded credit commitments under the new CECL standard adopted on January 1, 2020. Prior periods reflect the allowance for credit losses for loans under the incurred loss model.
The following table summarizes the allowance for credit losses for loans at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
(in thousands)
|
|
Components of allowance for credit losses for loans:
|
|
|
|
|
Allowance for loan losses
|
$
|
283,342
|
|
|
$
|
161,759
|
|
|
Allowance for unfunded credit commitments
|
10,019
|
|
|
2,845
|
|
|
Total allowance for credit losses for loans
|
$
|
293,361
|
|
|
$
|
164,604
|
|
The following table summarizes the provision for credit losses for loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Components of provision for credit losses for loans:
|
|
|
|
|
Provision for loan losses
|
$
|
33,851
|
|
|
$
|
7,856
|
|
|
Provision for unfunded credit commitments
|
73
|
|
|
144
|
|
|
Total provision for credit losses for loans
|
$
|
33,924
|
|
|
$
|
8,000
|
|
Allowance for Loan Losses
The allowance for loan losses is a valuation account that is deducted from loans' amortized cost basis to present the net amount expected to be collected on loans. Valley's methodology to establish the allowance for loan losses has two basic components: (1) a collective (pooled) reserve component for estimated lifetime expected credit losses for pools of loans that share similar risk characteristics and (2) an individual reserve component for loans that do not share risk characteristics.
Reserves for loans that share common risk characteristics. In estimating the component of the allowance on a collective basis, Valley uses a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by generating probability of default and loss given default metrics. The metrics are based on the migration of loans from performing to loss by credit quality rating or delinquency categories using historical life-of-loan analysis periods for each loan portfolio pool, and the severity of loss, based on the aggregate net lifetime losses incurred. 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) lending policies and procedures, (ii) current business conditions and economic developments that affect the loan collectability, (iii) concentration risks by size, type, and geography, new markets, (iv) the volume and migration of loans to non-performing status, and (v) the effect of external factors such as legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.
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. The forecasts consist of a multi-scenario economic forecast model to estimate future credit losses that 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. Valley has 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.
Reserves for loans that that do not share risk characteristics. Valley measures specific reserves for individual loan that do not share common risk characteristics with other loans, consisting of collateral dependent, TDR, and expected TDR loans, based on the amount of lifetime expected credit losses calculated on those loans and charge-offs of those amounts determined to be uncollectible. Factors considered by Valley in measuring the extent of expected credit loss include payment status, collateral value, borrower financial condition, guarantor support and the probability of collecting scheduled principal and interest payments when due. If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan’s original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as the allowance for credit losses. The effective interest rate used to discount expected cash flows is adjusted to incorporate expected prepayments, if applicable.
When Valley determines that foreclosure is probable, collateral dependent loan balances are written down to the estimated current fair value (less estimated selling costs) of each loan’s underlying collateral resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process. Valley elected a practical expedient to use the estimated current fair value (less estimated selling costs) of the collateral to measure expected credit losses on collateral dependent loans when foreclosure is not probable.
The following table presents collateral dependent loans by class as of March 31, 2020:
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
|
(in thousands)
|
|
Commercial and industrial
|
$
|
118,988
|
|
|
Commercial real estate:
|
|
|
Commercial real estate
|
49,225
|
|
|
Construction
|
2,839
|
|
|
Total commercial real estate loans
|
52,064
|
|
|
Residential mortgage
|
9,941
|
|
|
Home equity
|
1,013
|
|
|
Total
|
$
|
182,006
|
|
Commercial and industrial loans are primarily collateralized by taxi medallions in the table above. Commercial real estate loans are collateralized by real estate and construction loans are generally secured by the real estate to be developed and may also be secured by additional real estate to mitigate the risk. Residential and home equity loans are collateralized by residential real estate.
Allowance for Unfunded Credit Commitments
The allowance for unfunded credit commitments generally consists of undisbursed non-cancellable lines of credit, new loan commitments and commercial letters of credit valued using a similar methodology as used for loans. Management's estimate of expected losses inherent in these off-balance sheet credit exposures also incorporates estimated usage factors over the commitment's contractual period or an expected pull-through rate for new loan commitments. The allowance for unfunded credit commitments totaling $10.0 million at March 31, 2020 is included in accrued expenses and other liabilities on the consolidated statements of financial condition.
The following table details the activity in the allowance for loan losses by loan portfolio segment for three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and Industrial
|
|
Commercial
Real Estate
|
|
Residential
Mortgage
|
|
Consumer
|
|
Total
|
|
|
(in thousands)
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
104,059
|
|
|
$
|
45,673
|
|
|
$
|
5,060
|
|
|
$
|
6,967
|
|
|
$
|
161,759
|
|
|
Impact of ASU 2016-13 adoption*
|
15,169
|
|
|
49,797
|
|
|
20,575
|
|
|
6,990
|
|
|
92,531
|
|
|
Loans charged-off
|
(3,360
|
)
|
|
(44
|
)
|
|
(336
|
)
|
|
(2,565
|
)
|
|
(6,305
|
)
|
|
Charged-off loans recovered
|
569
|
|
|
93
|
|
|
50
|
|
|
794
|
|
|
1,506
|
|
|
Net (charge-offs) recoveries
|
(2,791
|
)
|
|
49
|
|
|
(286
|
)
|
|
(1,771
|
)
|
|
(4,799
|
)
|
|
Provision for loan losses
|
11,000
|
|
|
16,066
|
|
|
4,107
|
|
|
2,678
|
|
|
33,851
|
|
|
Ending balance
|
$
|
127,437
|
|
|
$
|
111,585
|
|
|
$
|
29,456
|
|
|
$
|
14,864
|
|
|
$
|
283,342
|
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Allowance for losses:
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
90,956
|
|
|
$
|
49,650
|
|
|
$
|
5,041
|
|
|
$
|
6,212
|
|
|
$
|
151,859
|
|
|
Loans charged-off
|
(4,282
|
)
|
|
—
|
|
|
(2,028
|
)
|
|
(15
|
)
|
|
(6,325
|
)
|
|
Charged-off loans recovered
|
483
|
|
|
21
|
|
|
1
|
|
|
486
|
|
|
991
|
|
|
Net (charge-offs) recoveries
|
(3,799
|
)
|
|
21
|
|
|
(2,027
|
)
|
|
471
|
|
|
(5,334
|
)
|
|
Provision for loan losses
|
7,473
|
|
|
(1,909
|
)
|
|
2,125
|
|
|
167
|
|
|
7,856
|
|
|
Ending balance
|
$
|
94,630
|
|
|
$
|
47,762
|
|
|
$
|
5,139
|
|
|
$
|
6,850
|
|
|
$
|
154,381
|
|
|
|
|
|
*
|
Includes a $61.6 million reclassification adjustment representing the estimated expected credit losses for PCD loans.
|
The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the allowance measurement methodology at March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and Industrial
|
|
Commercial
Real Estate
|
|
Residential
Mortgage
|
|
Consumer
|
|
Total
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for credit losses
|
$
|
58,209
|
|
|
$
|
1,383
|
|
|
$
|
427
|
|
|
$
|
413
|
|
|
$
|
60,432
|
|
|
Collectively evaluated for credit losses
|
69,228
|
|
|
110,202
|
|
|
29,029
|
|
|
14,451
|
|
|
222,910
|
|
|
Total
|
$
|
127,437
|
|
|
$
|
111,585
|
|
|
$
|
29,456
|
|
|
$
|
14,864
|
|
|
$
|
283,342
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for credit losses
|
$
|
127,776
|
|
|
$
|
76,239
|
|
|
$
|
16,798
|
|
|
$
|
3,315
|
|
|
$
|
224,128
|
|
|
Collectively evaluated for credit losses
|
4,870,955
|
|
|
18,041,043
|
|
|
4,462,184
|
|
|
2,829,757
|
|
|
30,203,939
|
|
|
Total
|
$
|
4,998,731
|
|
|
$
|
18,117,282
|
|
|
$
|
4,478,982
|
|
|
$
|
2,833,072
|
|
|
$
|
30,428,067
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for credit losses
|
$
|
36,662
|
|
|
$
|
1,338
|
|
|
$
|
518
|
|
|
$
|
58
|
|
|
$
|
38,576
|
|
|
Collectively evaluated for credit losses
|
67,397
|
|
|
44,335
|
|
|
4,542
|
|
|
6,909
|
|
|
123,183
|
|
|
Total
|
$
|
104,059
|
|
|
$
|
45,673
|
|
|
$
|
5,060
|
|
|
$
|
6,967
|
|
|
$
|
161,759
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for credit losses
|
$
|
100,860
|
|
|
$
|
51,242
|
|
|
$
|
10,689
|
|
|
$
|
853
|
|
|
$
|
163,644
|
|
|
Collectively evaluated for credit losses
|
4,043,123
|
|
|
12,347,368
|
|
|
3,786,253
|
|
|
2,729,221
|
|
|
22,905,965
|
|
|
Loans acquired with discounts related to credit quality
|
682,014
|
|
|
5,245,149
|
|
|
580,169
|
|
|
122,267
|
|
|
6,629,599
|
|
|
Total
|
$
|
4,825,997
|
|
|
$
|
17,643,759
|
|
|
$
|
4,377,111
|
|
|
$
|
2,852,341
|
|
|
$
|
29,699,208
|
|
Impaired loans. Impaired loans disclosures presented below as of December 31, 2019 represent requirements prior to the adoption of ASU No. 2016-13 on January 1, 2020. Impaired loans, consisting of non-accrual commercial and industrial loans, commercial real estate loans over $250 thousand and all loans which were modified in troubled debt restructurings, were individually evaluated for impairment. PCI loans were not classified as impaired loans because they are accounted for on a pool basis.
The following table presents information about impaired loans by loan portfolio class at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
With No
Related
Allowance
|
|
Recorded
Investment
With
Related
Allowance
|
|
Total
Recorded
Investment
|
|
Unpaid
Contractual
Principal
Balance
|
|
Related
Allowance
|
|
|
(in thousands)
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
14,617
|
|
|
$
|
86,243
|
|
|
$
|
100,860
|
|
|
$
|
114,875
|
|
|
$
|
36,662
|
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
26,046
|
|
|
24,842
|
|
|
50,888
|
|
|
51,258
|
|
|
1,338
|
|
|
Construction
|
354
|
|
|
—
|
|
|
354
|
|
|
354
|
|
|
—
|
|
|
Total commercial real estate loans
|
26,400
|
|
|
24,842
|
|
|
51,242
|
|
|
51,612
|
|
|
1,338
|
|
|
Residential mortgage
|
5,836
|
|
|
4,853
|
|
|
10,689
|
|
|
11,800
|
|
|
518
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
366
|
|
|
487
|
|
|
853
|
|
|
956
|
|
|
58
|
|
|
Total consumer loans
|
366
|
|
|
487
|
|
|
853
|
|
|
956
|
|
|
58
|
|
|
Total
|
$
|
47,219
|
|
|
$
|
116,425
|
|
|
$
|
163,644
|
|
|
$
|
179,243
|
|
|
$
|
38,576
|
|
Purchased Credit-Impaired Loans
The table below includes disclosure requirements prior to the adoption of ASU No. 2016-13 on January 1, 2020, and presents the changes in the accretable yield for PCI loans during the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
(in thousands)
|
|
Balance, beginning of period
|
$
|
875,958
|
|
|
Accretion
|
(53,492
|
)
|
|
Net increase in expected cash flows
|
68,305
|
|
|
Balance, end of period
|
$
|
890,771
|
|
Note 9. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill as allocated to our business segments, or reporting units thereof, for goodwill impairment analysis were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segment / Reporting Unit*
|
|
|
Wealth
Management
|
|
Consumer
Lending
|
|
Commercial
Lending
|
|
Investment
Management
|
|
Total
|
|
|
(in thousands)
|
|
Balance at December 31, 2019
|
$
|
21,218
|
|
|
$
|
306,572
|
|
|
$
|
825,767
|
|
|
$
|
220,068
|
|
|
$
|
1,373,625
|
|
|
Goodwill from business combinations
|
—
|
|
|
121
|
|
|
1,654
|
|
|
9
|
|
|
1,784
|
|
|
Balance at March 31, 2020
|
$
|
21,218
|
|
|
$
|
306,693
|
|
|
$
|
827,421
|
|
|
$
|
220,077
|
|
|
$
|
1,375,409
|
|
|
|
|
|
*
|
Valley’s Wealth Management Division is comprised of trust, asset management and insurance services. This reporting unit is included in the Consumer Lending segment for financial reporting purposes.
|
At December 31, 2019 goodwill set forth in the table above relates to the Oritani acquisition during the fourth quarter of 2019. During the three months ended March 31, 2020, Valley recorded additional goodwill related to Oritani, reflecting the effect of the combined adjustments to the fair value of certain loans and deferred tax assets as of the acquisition date. Certain estimates for acquired assets and assumed liabilities are subject to change for up to one year after the acquisition date. See Note 2 for details.
During the three months ended March 31, 2020, there were no triggering events that would more likely than not reduce the fair value of any reporting unit below its carrying amount. There was no impairment of goodwill during the three months ended March 31, 2020 and 2019.
The following table summarizes other intangible assets as of March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Intangible
Assets
|
|
Accumulated
Amortization
|
|
Valuation
Allowance
|
|
Net
Intangible
Assets
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
Loan servicing rights
|
$
|
96,211
|
|
|
$
|
(72,021
|
)
|
|
$
|
(156
|
)
|
|
$
|
24,034
|
|
|
Core deposits
|
101,160
|
|
|
(43,764
|
)
|
|
—
|
|
|
57,396
|
|
|
Other
|
3,945
|
|
|
(2,689
|
)
|
|
—
|
|
|
1,256
|
|
|
Total other intangible assets
|
$
|
201,316
|
|
|
$
|
(118,474
|
)
|
|
$
|
(156
|
)
|
|
$
|
82,686
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Loan servicing rights
|
$
|
94,827
|
|
|
$
|
(70,095
|
)
|
|
$
|
(47
|
)
|
|
$
|
24,685
|
|
|
Core deposits
|
101,160
|
|
|
(40,384
|
)
|
|
—
|
|
|
60,776
|
|
|
Other
|
3,945
|
|
|
(2,634
|
)
|
|
—
|
|
|
1,311
|
|
|
Total other intangible assets
|
$
|
199,932
|
|
|
$
|
(113,113
|
)
|
|
$
|
(47
|
)
|
|
$
|
86,772
|
|
Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets over the period of the economic life of the assets arising from estimated net servicing revenues. On a quarterly basis, Valley stratifies its loan servicing assets into groupings based on risk characteristics and assesses each group for impairment based on fair value. Impairment charges on loan servicing rights are recognized in earnings when the book value of a stratified group of loan servicing rights exceeds its estimated fair value. See the “Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis” section of Note 6 for additional information regarding the fair valuation and impairment of loan servicing rights.
Core deposits are amortized using an accelerated method and have a weighted average amortization period of 8.9 years. The line item labeled “Other” included in the table above primarily consists of customer lists and covenants not to compete, which are amortized over their expected lives generally using a straight-line method and have a weighted average amortization period of approximately 7.6 years. Valley evaluates core deposits and other intangibles for impairment when an indication of impairment exists. No impairment was recognized during the three months ended March 31, 2020 and 2019.
The following table presents the estimated future amortization expense of other intangible assets for the remainder of 2020 through 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Servicing
Rights
|
|
Core
Deposits
|
|
Other
|
|
|
(in thousands)
|
|
2020
|
$
|
3,558
|
|
|
$
|
9,983
|
|
|
$
|
165
|
|
|
2021
|
3,935
|
|
|
11,607
|
|
|
206
|
|
|
2022
|
3,180
|
|
|
9,876
|
|
|
191
|
|
|
2023
|
2,575
|
|
|
8,146
|
|
|
131
|
|
|
2024
|
2,083
|
|
|
6,537
|
|
|
117
|
|
Valley recognized amortization expense on other intangible assets, including net impairment (or recovery of impairment) charges on loan servicing rights, totaling approximately $5.5 million and $4.3 million for the three months ended March 31, 2020 and 2019, respectively.
Note 10. Borrowed Funds
Short-Term Borrowings
Short-term borrowings at March 31, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
(in thousands)
|
|
FHLB advances
|
$
|
1,510,000
|
|
|
$
|
940,000
|
|
|
Federal funds purchased
|
457,000
|
|
|
—
|
|
|
Securities sold under agreements to repurchase
|
128,655
|
|
|
153,280
|
|
|
Total short-term borrowings
|
$
|
2,095,655
|
|
|
$
|
1,093,280
|
|
The contractual weighted average interest rate for short-term borrowings was 0.53 percent and 1.68 percent at March 31, 2020 and December 31, 2019, respectively. At March 31, 2020, short-term FHLB advances totaling $600 million were hedged with cash flow interest rate swaps during the first quarter 2020. See Note 12 for additional details.
Long-Term Borrowings
Long-term borrowings at March 31, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
(in thousands)
|
|
FHLB advances, net (1)
|
$
|
2,163,754
|
|
|
$
|
1,480,012
|
|
|
Securities sold under agreements to repurchase
|
350,000
|
|
|
350,000
|
|
|
Subordinated debt, net (2)
|
291,857
|
|
|
292,414
|
|
|
Other
|
28
|
|
|
—
|
|
|
Total long-term borrowings
|
$
|
2,805,639
|
|
|
$
|
2,122,426
|
|
|
|
|
|
|
|
(1)
|
FHLB advances are presented net of unamortized prepayment penalties and other purchase accounting adjustments totaling $2.0 million and $2.8 million at March 31, 2020 and December 31, 2019, respectively.
|
|
(2)
|
Subordinated debt is presented net of unamortized debt issuance costs totaling $1.1 million and $1.2 million at March 31, 2020 and December 31, 2019, respectively.
|
During the three months ended March 31, 2020, Valley obtained $723 million of new long-term FHLB advances with maturities between three and five years at a combined weighted average rate of approximately 1.89 percent.
The long-term FHLB advances had a weighted average interest rate of 2.13 percent and 2.23 percent at March 31, 2020 and December 31, 2019, respectively.
FHLB advances are secured by pledges of certain eligible collateral, including but not limited to, U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgage and commercial real estate loans.
The long-term FHLB advances at March 31, 2020 are scheduled for contractual balance repayments as follows:
|
|
|
|
|
|
|
|
|
Year
|
|
Amount
|
|
|
|
(in thousands)
|
|
2020
|
|
$
|
41,290
|
|
|
2021
|
|
994,769
|
|
|
2022
|
|
121,420
|
|
|
2023
|
|
428,164
|
|
|
2024
|
|
300,000
|
|
|
Thereafter
|
|
280,078
|
|
|
Total long-term FHLB advances
|
|
$
|
2,165,721
|
|
There are no FHLB advances with scheduled repayments in years 2020 and thereafter, reported in the table above, which are callable for early redemption by the FHLB during 2020.
Note 11. Stock–Based Compensation
Valley currently has one active employee stock plan, the 2016 Long-Term Stock Incentive Plan (the “2016 Stock Plan”), adopted by Valley’s Board of Directors on January 29, 2016 and approved by its shareholders on April 28, 2016. The 2016 Stock Plan is administered by the Compensation and Human Resources Committee (the "Committee") appointed by Valley's Board of Directors. The Committee can grant awards to officers and key employees of Valley. The primary purpose of the 2016 Stock Plan is to provide additional incentive to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain competent and dedicated officers and other key employees whose efforts will result in the continued and long-term growth of Valley’s business.
Under the 2016 Stock Plan, Valley may award shares of common stock in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs) to its employees and non-employee directors (for acting in their roles as board members). As of March 31, 2020, 2.5 million shares of common stock were available for issuance under the 2016 Stock Plan. The essential features of each award are described in the award agreement relating to that award. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair value of Valley’s common stock on the last sale price reported for Valley’s common stock on such date or the last sale price reported preceding such date, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third party specialist using a Monte Carlo valuation model.
Restricted Stock Units (RSUs). Valley granted 1.0 million and 734 thousand of time-based RSUs during the three months ended March 31, 2020 and 2019, respectively. Generally, time-based RSUs vest ratably one-third each year over a three-year vesting period. The average grant date fair value of the RSUs granted during the three months ended March 31, 2020 and 2019 was $10.79 per share and $10.42 per share, respectively.
Valley granted 589 thousand and 532 thousand of performance-based RSUs to certain executive officers for the three months ended March 31, 2020 and 2019, respectively. The performance-based RSU awards include RSUs with vesting conditions based upon certain levels of growth in Valley's tangible book value per share plus dividends and RSUs with vesting conditions based upon Valley's total shareholder return as compared to our peer group. The RSUs “cliff” vest after three years based on the cumulative performance of Valley during that time period. The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common stock) over the applicable performance period. Dividend equivalents are accumulated and paid to the grantee at the vesting date or forfeited if the performance conditions are not met. The grant date fair value of the RSUs granted during the three months ended March 31, 2020 and 2019 was $10.82 per share and $10.43 per share, respectively.
Valley recorded total stock-based compensation expense of $4.0 million and $4.1 million for the three months ended March 31, 2020 and 2019, respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period. As of March 31, 2020, the unrecognized amortization expense for all stock-based
employee compensation totaled approximately $29.1 million and will be recognized over an average remaining vesting period of 2.19 years.
Note 12. Derivative Instruments and Hedging Activities
Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
Cash Flow Hedges of Interest Rate Risk. Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively.
During the three months ended March 31, 2020, Valley entered into new interest rate swap agreements designated as cash flow hedges with a total notional amount of $600 million. The swaps are intended to hedge the changes in cash flows associated with certain FHLB advances. Valley is required to pay fixed-rates of interest ranging from 0.46 percent to 0.63 percent and receives variable rates of interest that reset quarterly based on three-month LIBOR. Expiration dates for the swaps range from September 2021 to March 2022.
Fair Value Hedges of Fixed Rate Assets and Liabilities. Valley is exposed to changes in the fair value of certain of its fixed rate assets or liabilities due to changes in benchmark interest rates based on one-month LIBOR. From time to time, Valley has used interest rate swaps to manage its exposure to changes in fair value. Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. Valley includes the gain or loss on the hedged items in the same income statement line item as the loss or gain on the related derivatives.
Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes.
Under a program, Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that Valley minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the participation type. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At March 31, 2020, Valley had 24 credit swaps with an aggregate notional amount of $151.4 million related to risk participation agreements.
At March 31, 2020, Valley had two “steepener” swaps, each with a current notional amount of $10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve. Although these types of instruments do not meet the hedge accounting
requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month LIBOR rate and therefore provide an effective economic hedge.
Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rate on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.
Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
|
|
Other Assets
|
|
Other Liabilities
|
|
Notional Amount
|
|
Other Assets
|
|
Other Liabilities
|
|
Notional Amount
|
|
|
(in thousands)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge interest rate swaps
|
$
|
—
|
|
|
$
|
2,493
|
|
|
$
|
730,000
|
|
|
$
|
—
|
|
|
$
|
1,484
|
|
|
$
|
180,000
|
|
|
Fair value hedge interest rate swaps
|
—
|
|
|
218
|
|
|
7,215
|
|
|
—
|
|
|
229
|
|
|
7,281
|
|
|
Total derivatives designated as hedging instruments
|
$
|
—
|
|
|
$
|
2,711
|
|
|
$
|
737,215
|
|
|
$
|
—
|
|
|
$
|
1,713
|
|
|
$
|
187,281
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and embedded derivatives
|
$
|
436,497
|
|
|
$
|
157,683
|
|
|
$
|
5,226,704
|
|
|
$
|
158,382
|
|
|
$
|
42,020
|
|
|
$
|
4,113,106
|
|
|
Mortgage banking derivatives
|
1,686
|
|
|
2,976
|
|
|
380,116
|
|
|
150
|
|
|
193
|
|
|
142,760
|
|
|
Total derivatives not designated as hedging instruments
|
$
|
438,183
|
|
|
$
|
160,659
|
|
|
$
|
5,606,820
|
|
|
$
|
158,532
|
|
|
$
|
42,213
|
|
|
$
|
4,255,866
|
|
The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account with the fair value of certain cash flow and non-designated derivative instruments. As a result, the fair value of the designated cash flow interest rate swaps assets and designated and non-designated interest rate swaps liabilities were offset by variation margins posted by (with) the applicable counterparties and reported in the table above on a net basis at March 31, 2020 and December 31, 2019.
Losses included in the consolidated statements of income and other comprehensive income, on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Amount of loss reclassified from accumulated other comprehensive loss to interest expense
|
$
|
(615
|
)
|
|
$
|
(290
|
)
|
|
Amount of loss recognized in other comprehensive income
|
(1,480
|
)
|
|
(550
|
)
|
The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $4.3 million and $3.7 million at March 31, 2020 and December 31, 2019, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest expense as interest payments are made on the hedged variable interest rate liabilities. Valley estimates that $2.2 million will be reclassified as an increase to interest expense over the next 12 months.
Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Derivative - interest rate swaps:
|
|
|
|
|
Interest income
|
$
|
11
|
|
|
$
|
24
|
|
|
Hedged item - loans:
|
|
|
|
|
Interest income
|
$
|
(11
|
)
|
|
$
|
(24
|
)
|
The following table presents the hedged items related to interest rate derivatives designated as hedges of fair value and the cumulative basis fair value adjustment included in the net carrying amount of the hedged items at March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line Item in the Statement of Financial Condition in Which the Hedged Item is Included
|
|
Carrying Amount of the Hedged Asset
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
(in thousands)
|
|
Loans
|
|
$
|
7,433
|
|
|
$
|
7,510
|
|
|
$
|
218
|
|
|
$
|
229
|
|
The net losses included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Non-designated hedge interest rate swaps and credit derivatives
|
|
|
|
|
Other non-interest expense
|
$
|
89
|
|
|
$
|
410
|
|
Fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaled $14.2 million and $4.1 million for the three months ended March 31, 2020 and 2019, respectively, and was included in other non-interest income.
Credit Risk Related Contingent Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board of Directors.
Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of March 31, 2020, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of March 31, 2020, the fair value of derivatives in a net liability position, which includes accrued
interest but excludes any adjustment for nonperformance risk related to these agreements, was $43.1 million. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.
Note 13. Balance Sheet Offsetting
Certain financial instruments, including interest rate swap derivatives and repurchase agreements (accounted for as secured long-term borrowings), may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. Valley is party to master netting arrangements with its financial institution counterparties; however, Valley does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of cash or marketable investment securities, is posted by the counterparty with net liability positions in accordance with contract thresholds. Master repurchase agreements which include “right of set-off” provisions generally have a legally enforceable right to offset recognized amounts. In such cases, the collateral would be used to settle the fair value of the repurchase agreement should Valley be in default. The table below presents information about Valley’s financial instruments that are eligible for offset in the consolidated statements of financial condition as of March 31, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset
|
|
|
|
|
Gross Amounts
Recognized
|
|
Gross Amounts
Offset
|
|
Net Amounts
Presented
|
|
Financial
Instruments
|
|
Cash
Collateral
|
|
Net
Amount
|
|
|
(in thousands)
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
436,497
|
|
|
$
|
—
|
|
|
$
|
436,497
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
436,497
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
160,394
|
|
|
$
|
—
|
|
|
$
|
160,394
|
|
|
$
|
—
|
|
|
$
|
(42,831
|
)
|
|
$
|
117,563
|
|
|
Repurchase agreements
|
350,000
|
|
|
—
|
|
|
350,000
|
|
|
—
|
|
|
(350,000
|
)
|
*
|
—
|
|
|
Total
|
$
|
510,394
|
|
|
$
|
—
|
|
|
$
|
510,394
|
|
|
$
|
—
|
|
|
$
|
(392,831
|
)
|
|
$
|
117,563
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
158,382
|
|
|
$
|
—
|
|
|
$
|
158,382
|
|
|
$
|
(118
|
)
|
|
$
|
—
|
|
|
$
|
158,264
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
43,733
|
|
|
$
|
—
|
|
|
$
|
43,733
|
|
|
$
|
(118
|
)
|
|
$
|
(16,881
|
)
|
|
$
|
26,734
|
|
|
Repurchase agreements
|
350,000
|
|
|
—
|
|
|
350,000
|
|
|
—
|
|
|
(350,000
|
)
|
*
|
—
|
|
|
Total
|
$
|
393,733
|
|
|
$
|
—
|
|
|
$
|
393,733
|
|
|
$
|
(118
|
)
|
|
$
|
(366,881
|
)
|
|
$
|
26,734
|
|
|
|
|
|
*
|
Represents the fair value of non-cash pledged investment securities.
|
Note 14. Tax Credit Investments
Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the Community Reinvestment Act (CRA). Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense.
Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued
expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable.
The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at March 31, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
(in thousands)
|
|
Other Assets:
|
|
|
|
|
Affordable housing tax credit investments, net
|
$
|
24,077
|
|
|
$
|
25,049
|
|
|
Other tax credit investments, net
|
53,912
|
|
|
59,081
|
|
|
Total tax credit investments, net
|
$
|
77,989
|
|
|
$
|
84,130
|
|
|
Other Liabilities:
|
|
|
|
|
Unfunded affordable housing tax credit commitments
|
$
|
1,440
|
|
|
$
|
1,539
|
|
|
Unfunded other tax credit commitments
|
1,139
|
|
|
1,139
|
|
|
Total unfunded tax credit commitments
|
$
|
2,579
|
|
|
$
|
2,678
|
|
The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the three months ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Components of Income Tax Expense:
|
|
|
|
|
Affordable housing tax credits and other tax benefits
|
$
|
1,234
|
|
|
$
|
1,713
|
|
|
Other tax credit investment credits and tax benefits
|
1,300
|
|
|
2,803
|
|
|
Total reduction in income tax expense
|
$
|
2,534
|
|
|
$
|
4,516
|
|
|
Amortization of Tax Credit Investments:
|
|
|
|
|
Affordable housing tax credit investment losses
|
$
|
554
|
|
|
$
|
673
|
|
|
Affordable housing tax credit investment impairment losses
|
418
|
|
|
730
|
|
|
Other tax credit investment losses
|
544
|
|
|
987
|
|
|
Other tax credit investment impairment losses
|
1,712
|
|
|
4,783
|
|
|
Total amortization of tax credit investments recorded in non-interest expense
|
$
|
3,228
|
|
|
$
|
7,173
|
|
Note 15. Business Segments
The information under the caption “Business Segments” in Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.