Loans

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

Loans

Loans

The detail of the loan portfolio as of March 31, 2019 and December 31, 2018 was as follows: 

	March 31, 2019						December 31, 2018
	Non-PCI Loans		PCI Loans		Total		Non-PCI Loans		PCI Loans		Total
	(in thousands)
Loans:
Commercial and industrial	$	3,786,742	$	718,185	$	4,504,927	$	3,590,375	$	740,657	$	4,331,032
Commercial real estate:
Commercial real estate	10,189,388		2,476,037		12,665,425		9,912,309		2,494,966		12,407,275
Construction	1,199,741		254,458		1,454,199		1,122,348		365,784		1,488,132
Total commercial real estate loans	11,389,129		2,730,495		14,119,624		11,034,657		2,860,750		13,895,407
Residential mortgage	3,660,983		410,254		4,071,237		3,682,984		428,416		4,111,400
Consumer:
Home equity	381,217		131,849		513,066		371,340		145,749		517,089
Automobile	1,347,405		354		1,347,759		1,319,206		365		1,319,571
Other consumer	853,302		13,203		866,505		846,821		14,149		860,970
Total consumer loans	2,581,924		145,406		2,727,330		2,537,367		160,263		2,697,630
Total loans	$	21,418,778	$	4,004,340	$	25,423,118	$	20,845,383	$	4,190,086	$	25,035,469

Total loans (excluding PCI covered loans) include net unearned premiums and deferred loan costs of $20.5 million and $21.5 million at March 31, 2019 and December 31, 2018, respectively. The outstanding balances (representing contractual balances owed to Valley) for PCI loans totaled $4.2 billion and $4.4 billion at March 31, 2019 and December 31, 2018, respectively.

Valley transferred $100.0 million and $150.5 million of residential mortgage loans from the loan portfolio to loans held for sale during the three months ended March 31, 2019 and 2018, respectively. There were no other sales of loans from the held for investment portfolio during the three months ended March 31, 2019 and 2018.

Purchased Credit-Impaired Loans

PCI loans are accounted for in accordance with ASC Subtopic 310-30 and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses), and aggregated and accounted for as pools of loans based on common risk characteristics. The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance. Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loan pools.

The following table presents changes in the accretable yield for PCI loans during the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
	(in thousands)
Balance, beginning of period	$	875,958		$	282,009
Acquisition	—			559,907
Accretion	(53,492		)	(65,131		)
Net increase in expected cash flows	68,305			—
Balance, end of period	$	890,771		$	776,785

The net increase in expected cash flows for certain pools of loans (included in the table above) is recognized prospectively as an adjustment to the yield over the estimated remaining life of the individual pools. Based upon the most recent reforecasted cash flows during the first quarter of 2019, the net increase in accretable yield for the three months ended March 31, 2019 was largely driven by the impact of current interest rate environment on the adjustable portion of the PCI loan portfolio, changes in the expected duration of certain loan pools and additional advances on lines of credit.

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. 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.

Credit Quality

The following table presents past due, non-accrual and current loans (excluding PCI loans, which are accounted for on a pool basis) by loan portfolio class at March 31, 2019 and December 31, 2018: 

	Past Due and Non-Accrual Loans
	30-59 Days Past Due Loans		60-89 Days Past Due Loans		Accruing Loans 90 Days or More Past Due		Non-Accrual Loans		Total Past Due Loans		Current Non-PCI Loans		Total Non-PCI Loans
	(in thousands)
March 31, 2019
Commercial and industrial	$	5,120	$	1,756	$	2,670	$	76,270	$	85,816	$	3,700,926	$	3,786,742
Commercial real estate:
Commercial real estate	39,362		2,156		—		2,663		44,181		10,145,207		10,189,388
Construction	1,911		—		—		378		2,289		1,197,452		1,199,741
Total commercial real estate loans	41,273		2,156		—		3,041		46,470		11,342,659		11,389,129
Residential mortgage	15,856		3,635		1,402		11,921		32,814		3,628,169		3,660,983
Consumer loans:
Home equity	797		19		—		1,806		2,622		378,595		381,217
Automobile	5,024		917		513		148		6,602		1,340,803		1,347,405
Other consumer	826		54		10		224		1,114		852,188		853,302
Total consumer loans	6,647		990		523		2,178		10,338		2,571,586		2,581,924
Total	$	68,896	$	8,537	$	4,595	$	93,410	$	175,438	$	21,243,340	$	21,418,778
December 31, 2018
Commercial and industrial	$	13,085	$	3,768	$	6,156	$	70,096	$	93,105	$	3,497,270	$	3,590,375
Commercial real estate:
Commercial real estate	9,521		530		27		2,372		12,450		9,899,859		9,912,309
Construction	2,829		—		—		356		3,185		1,119,163		1,122,348
Total commercial real estate loans	12,350		530		27		2,728		15,635		11,019,022		11,034,657
Residential mortgage	16,576		2,458		1,288		12,917		33,239		3,649,745		3,682,984
Consumer loans:
Home equity	872		40		—		2,156		3,068		368,272		371,340
Automobile	7,973		1,299		308		80		9,660		1,309,546		1,319,206
Other consumer	895		47		33		419		1,394		845,427		846,821
Total consumer loans	9,740		1,386		341		2,655		14,122		2,523,245		2,537,367
Total	$	51,751	$	8,142	$	7,812	$	88,396	$	156,101	$	20,689,282	$	20,845,383

Impaired loans. Impaired loans, consisting of non-accrual commercial and industrial loans and commercial real estate loans over $250 thousand and all loans which were modified in troubled debt restructuring, are individually evaluated for impairment. PCI loans are 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 March 31, 2019 and December 31, 2018:

	Recorded Investment With No Related Allowance		Recorded Investment With Related Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance
	(in thousands)
March 31, 2019
Commercial and industrial	$	12,658	$	93,412	$	106,070	$	116,256	$	31,508
Commercial real estate:
Commercial real estate	17,046		26,395		43,441		45,473		2,615
Construction	414		—		414		416		—
Total commercial real estate loans	17,460		26,395		43,855		45,889		2,615
Residential mortgage	6,181		6,512		12,693		13,769		676
Consumer loans:
Home equity	324		574		898		997		51
Total consumer loans	324		574		898		997		51
Total	$	36,623	$	126,893	$	163,516	$	176,911	$	34,850
December 31, 2018
Commercial and industrial	$	8,339	$	89,513	$	97,852	$	104,007	$	29,684
Commercial real estate:
Commercial real estate	16,732		25,606		42,338		44,337		2,615
Construction	803		457		1,260		1,260		13
Total commercial real estate loans	17,535		26,063		43,598		45,597		2,628
Residential mortgage	7,826		6,078		13,904		14,948		600
Consumer loans:
Home equity	125		1,146		1,271		1,366		113
Total consumer loans	125		1,146		1,271		1,366		113
Total	$	33,825	$	122,800	$	156,625	$	165,918	$	33,025

The following table presents, by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2019 and 2018: 

	Three Months Ended March 31,
	2019				2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
Commercial and industrial	$	117,089	$	571	$	90,069	$	714
Commercial real estate:
Commercial real estate	44,789		719		55,493		616
Construction	822		1		2,217		23
Total commercial real estate loans	45,611		720		57,710		639
Residential mortgage	13,898		143		14,098		165
Consumer loans:
Home equity	1,136		11		2,026		33
Total consumer loans	1,136		11		2,026		33
Total	$	177,734	$	1,445	$	163,903	$	1,551

Interest income recognized on a cash basis (included in the table above) was immaterial for the three months ended March 31, 2019 and 2018.

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). Valley’s PCI loans are excluded from the TDR disclosures below because they are evaluated for impairment on a pool by pool basis. When an individual PCI loan within a pool is modified as a TDR, it is not removed from its pool. All TDRs are classified as impaired loans and are included in the impaired loan disclosures above.

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 $73.1 million and $77.2 million as of March 31, 2019 and December 31, 2018, respectively. Non-performing TDRs totaled $64.9 million and $55.0 million as of March 31, 2019 and December 31, 2018, respectively.

The following table presents non-PCI loans by loan class modified as TDRs during the three months ended March 31, 2019 and 2018. The pre-modification and post-modification outstanding recorded investments disclosed in the tables below represent the loan carrying amounts immediately prior to the modification and the carrying amounts at March 31, 2019 and 2018, respectively. 

	Three Months Ended March 31,
	2019					2018
Troubled Debt Restructurings	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
Commercial and industrial	36	$	23,553	$	23,241	6	$	3,908	$	3,777
Commercial real estate:
Commercial real estate	1	1,597		1,597		1	196		195
Construction	—	—		—		1	32		23
Total commercial real estate	1	1,597		1,597		2	228		218
Residential mortgage	—	—		—		3	587		581
Consumer	—	—		—		1	88		86
Total	37	$	25,150	$	24,838	12	$	4,811	$	4,662

The total TDRs presented in the above table had allocated specific reserves for loan losses of approximately $7.9 million and $1.0 million for March 31, 2019 and 2018. These specific reserves are included in the allowance for loan losses for loans individually evaluated for impairment disclosed in the "Impaired Loans" section above. There were $913 thousand of partial charge-offs related to TDR modifications during the three months ended March 31, 2019 and no charge-offs for such loans during the three months ended March 31, 2018.

The non-PCI loans modified as TDRs within the previous 12 months and for which there was a payment default (90 or more days past due) for the three months ended March 31, 2019 and 2018 were as follows:

	Three Months Ended March 31,
	2019			2018
Troubled Debt Restructurings Subsequently Defaulted	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	($ in thousands)
Commercial and industrial	10	$	8,626	—	$	—
Commercial real estate	—	—		1	165
Residential mortgage	5	702		—	—
Consumer	1	18		—	—
Total	16	$	9,346	1	$	165

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 credit exposure by internally assigned risk rating by class of loans (excluding PCI loans) at March 31, 2019 and December 31, 2018 based on the most recent analysis performed:

Credit exposure - by internally assigned risk rating	Pass		Special Mention		Substandard		Doubtful		Total Non-PCI Loans
	(in thousands)
March 31, 2019
Commercial and industrial	$	3,595,459	$	37,340	$	80,011	$	73,932	$	3,786,742
Commercial real estate	10,098,803		45,373		44,279		933		10,189,388
Construction	1,197,680		1,684		377		—		1,199,741
Total	$	14,891,942	$	84,397	$	124,667	$	74,865	$	15,175,871
December 31, 2018
Commercial and industrial	$	3,399,426	$	31,996	$	92,320	$	66,633	$	3,590,375
Commercial real estate	9,828,744		30,892		51,710		963		9,912,309
Construction	1,121,321		215		812		—		1,122,348
Total	$	14,349,491	$	63,103	$	144,842	$	67,596	$	14,625,032

At March 31, 2019 and December 31, 2018, the commercial and industrial loans rated substandard and doubtful in the above table included performing TDR taxi medallion loans and non-accrual (but mostly performing to their contractual terms) taxi medallion loans, respectively.

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 was previously presented, and by payment activity. The following table presents the recorded investment in those loan classes based on payment activity as of March 31, 2019 and December 31, 2018: 

Credit exposure - by payment activity	Performing Loans		Non-Performing Loans		Total Non-PCI Loans
	(in thousands)
March 31, 2019
Residential mortgage	$	3,649,062	$	11,921	$	3,660,983
Home equity	379,411		1,806		381,217
Automobile	1,347,257		148		1,347,405
Other consumer	853,078		224		853,302
Total	$	6,228,808	$	14,099	$	6,242,907
December 31, 2018
Residential mortgage	$	3,670,067	$	12,917	$	3,682,984
Home equity	369,184		2,156		371,340
Automobile	1,319,126		80		1,319,206
Other consumer	846,402		419		846,821
Total	$	6,204,779	$	15,572	$	6,220,351

Valley evaluates the credit quality of its PCI loan pools based on the expectation of the underlying cash flows of each pool, derived from the aging status and by payment activity of individual loans within the pool. The following table presents the recorded investment in PCI loans by class based on individual loan payment activity as of March 31, 2019 and December 31, 2018:

Credit exposure - by payment activity	Performing Loans		Non-Performing Loans		Total PCI Loans
	(in thousands)
March 31, 2019
Commercial and industrial	$	690,301	$	27,884	$	718,185
Commercial real estate	2,455,693		20,344		2,476,037
Construction	253,476		982		254,458
Residential mortgage	405,111		5,143		410,254
Consumer	143,577		1,829		145,406
Total	$	3,948,158	$	56,182	$	4,004,340
December 31, 2018
Commercial and industrial	$	710,045	$	30,612	$	740,657
Commercial real estate	2,478,990		15,976		2,494,966
Construction	364,815		969		365,784
Residential mortgage	421,609		6,807		428,416
Consumer	158,502		1,761		160,263
Total	$	4,133,961	$	56,125	$	4,190,086

Other real estate owned (OREO) totaled $7.3 million and $9.5 million at March 31, 2019 and December 31, 2018, respectively. OREO included foreclosed residential real estate properties totaling $1.5 million and $852 thousand at March 31, 2019 and December 31, 2018, respectively. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $1.2 million and $1.8 million at March 31, 2019 and December 31, 2018, respectively.