Loans and Allowance for Credit Losses for Loans

3 Months Ended

Mar. 31, 2022

Receivables [Abstract]

Loans and Allowance for Credit Losses for Loans

Loans and Allowance for Credit Losses for Loans

The detail of the loan portfolio as of March 31, 2022 and December 31, 2021 was as follows: 

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

*Represents SBA Paycheck Protection Program (PPP) loans, net of unearned fees totaling $5.9 million and $12.1 million at March 31, 2022 and December 31, 2021, respectively.

Total loans includes net unearned discounts and deferred loan fees of $62.0 million and $78.5 million at March 31, 2022 and December 31, 2021, respectively. Net unearned discounts and deferred loan fees include the non-credit discount on purchased credit deterioration (PCD) loans and net unearned fees related to PPP loans at March 31, 2022 and December 31, 2021.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $87.6 million and $83.7 million at March 31, 2022 and December 31, 2021, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.

There were no sales of loans from the held for investment portfolio during the three months ended March 31, 2022 and 2021.

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, 2021 for further details.

Credit Quality

The following table presents past due, current and non-accrual loans without an allowance for loan losses by loan portfolio class at March 31, 2022 and December 31, 2021:

	Past Due and Non-Accrual Loans
	30-59  Days  Past Due Loans		60-89  Days  Past Due Loans		90 Days or More Past Due Loans		Non-Accrual Loans		Total Past Due Loans		Current Loans		Total Loans		Non-Accrual Loans Without Allowance for Loan Losses
	(in thousands)
March 31, 2022
Commercial and industrial	$	6,723	$	14,461	$	9,261	$	96,631	$	127,076	$	5,664,314	$	5,791,390	$	8,341
Commercial real estate:
Commercial real estate	30,807		6,314		—		79,180		116,301		19,646,901		19,763,202		66,191
Construction	1,708		3,125		—		17,618		22,451		2,152,091		2,174,542		—
Total commercial real estate loans	32,515		9,439		—		96,798		138,752		21,798,992		21,937,744		66,191
Residential mortgage	9,266		2,560		1,746		33,275		46,847		4,645,088		4,691,935		19,227
Consumer loans:
Home equity	38		42		—		3,382		3,462		390,076		393,538		3
Automobile	4,687		458		4		273		5,422		1,547,506		1,552,928		—
Other consumer	1,137		54		396		99		1,686		995,184		996,870		—
Total consumer loans	5,862		554		400		3,754		10,570		2,932,766		2,943,336		3
Total	$	54,366	$	27,014	$	11,407	$	230,458	$	323,245	$	35,041,160	$	35,364,405	$	93,762

	Past Due and Non-Accrual Loans
	30-59 Days Past Due Loans		60-89  Days Past Due Loans		90 Days or More Past Due Loans		Non-Accrual Loans		Total Past Due Loans		Current Loans		Total Loans		Non-Accrual Loans Without Allowance for Loan Losses
	(in thousands)
December 31, 2021
Commercial and industrial	$	6,717	$	7,870	$	1,273	$	99,918	$	115,778	$	5,731,773	$	5,847,551	$	9,066
Commercial real estate:
Commercial real estate	14,421		—		32		83,592		98,045		18,837,441		18,935,486		70,719
Construction	1,941		—		—		17,641		19,582		1,834,998		1,854,580		—
Total commercial real estate loans	16,362		—		32		101,233		117,627		20,672,439		20,790,066		70,719
Residential mortgage	10,999		3,314		677		35,207		50,197		4,494,867		4,545,064		20,401
Consumer loans:
Home equity	242		98		—		3,517		3,857		396,922		400,779		4
Automobile	6,391		656		271		240		7,558		1,562,478		1,570,036		—
Other consumer	178		266		518		101		1,063		999,098		1,000,161		—
Total consumer loans	6,811		1,020		789		3,858		12,478		2,958,498		2,970,976		4
Total	$	40,889	$	12,204	$	2,771	$	240,216	$	296,080	$	33,857,577	$	34,153,657	$	100,190

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. Pass rated loans do not currently pose any identified risk and can range from the highest to average quality, depending on the degree of potential risk. Risk ratings are updated any time the situation warrants.

The following table presents the internal loan classification risk by loan portfolio class by origination year based on the most recent analysis performed at March 31, 2022 and December 31, 2021:

	Term Loans
	Amortized Cost Basis by Origination Year
March 31, 2022	2022		2021		2020		2019		2018		Prior to 2018		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Commercial and industrial
Risk Rating:
Pass	$	337,060	$	1,224,531	$	705,495	$	414,559	$	327,590	$	443,359	$	2,094,405	$	208	$	5,547,207
Special Mention	197		4,469		716		3,087		13,566		9,848		97,834		11		129,728
Substandard	28		2,144		5,728		3,387		570		6,286		10,497		110		28,750
Doubtful	—		—		—		2,717		—		82,988		—		—		85,705
Total commercial and industrial	$	337,285	$	1,231,144	$	711,939	$	423,750	$	341,726	$	542,481	$	2,202,736	$	329	$	5,791,390
Commercial real estate
Risk Rating:
Pass	$	1,301,030	$	4,505,671	$	3,074,999	$	2,564,818	$	1,654,197	$	5,685,062	$	203,527	$	13,286	$	19,002,590
Special Mention	3,890		22,188		69,992		32,837		84,259		176,080		9,684		—		398,930
Substandard	—		10,193		39,207		36,344		42,625		224,972		8,160		—		361,501
Doubtful	—		—		—		—		—		181		—		—		181
Total commercial real estate	$	1,304,920	$	4,538,052	$	3,184,198	$	2,633,999	$	1,781,081	$	6,086,295	$	221,371	$	13,286	$	19,763,202
Construction
Risk Rating:
Pass	$	31,645	$	313,251	$	88,262	$	44,544	$	13,381	$	17,718	$	1,623,723	$	—	$	2,132,524
Special Mention	—		—		—		1,001		—		—		21,467		—		22,468
Substandard	—		—		—		1		—		17,841		1,708		—		19,550
Total construction	$	31,645	$	313,251	$	88,262	$	45,546	$	13,381	$	35,559	$	1,646,898	$	—	$	2,174,542

	Term Loans
	Amortized Cost Basis by Origination Year
December 31, 2021	2021		2020		2019		2018		2017		Prior to 2017		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Commercial and industrial
Risk Rating:
Pass	$	1,563,050	$	743,165	$	461,022	$	362,748	$	143,753	$	337,713	$	1,968,513	$	247	$	5,580,211
Special Mention	4,182		1,195		3,217		14,143		1,726		9,869		102,145		40		136,517
Substandard	8,248		4,823		3,139		7,077		910		408		19,642		109		44,356
Doubtful	—		—		2,733		—		16,355		67,379		—		—		86,467
Total commercial and industrial	$	1,575,480	$	749,183	$	470,111	$	383,968	$	162,744	$	415,369	$	2,090,300	$	396	$	5,847,551
Commercial real estate
Risk Rating:
Pass	$	4,517,917	$	2,983,140	$	2,702,580	$	1,734,922	$	1,474,770	$	4,557,011	$	195,851	$	13,380	$	18,179,571
Special Mention	7,700		50,019		46,911		44,187		65,623		143,540		50,168		—		408,148
Substandard	735		34,655		29,029		41,231		70,941		169,041		1,949		—		347,581
Doubtful	—		—		—		—		—		186		—		—		186
Total commercial real estate	$	4,526,352	$	3,067,814	$	2,778,520	$	1,820,340	$	1,611,334	$	4,869,778	$	247,968	$	13,380	$	18,935,486
Construction
Risk Rating:
Pass	$	274,097	$	98,609	$	48,555	$	32,781	$	6,061	$	28,419	$	1,313,555	$	—	$	1,802,077
Special Mention	4,131		—		1,009		—		—		—		18,449		—		23,589
Substandard	199		19		6		246		—		17,842		10,602		—		28,914
Total construction	$	278,427	$	98,628	$	49,570	$	33,027	$	6,061	$	46,261	$	1,342,606	$	—	$	1,854,580

For residential mortgages, automobile, home equity and other consumer loan portfolio classes, Valley also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in those loan classes based on payment activity by origination year as of March 31, 2022 and December 31, 2021.

	Term Loans
	Amortized Cost Basis by Origination Year
March 31, 2022	2022		2021		2020		2019		2018		Prior to 2018		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Residential mortgage
Performing	$	394,913	$	1,487,234	$	603,092	$	563,634	$	345,807	$	1,220,733	$	69,458	$	—	$	4,684,871
90 days or more past due	—		—		542		1,663		4,094		765		—		—		7,064
Total residential mortgage	$	394,913	$	1,487,234	$	603,634	$	565,297	$	349,901	$	1,221,498	$	69,458	$	—	$	4,691,935
Consumer loans
Home equity
Performing	$	5,735	$	13,431	$	5,258	$	6,173	$	6,486	$	16,775	$	298,122	$	40,566	$	392,546
90 days or more past due	—		—		—		—		—		2		400		590		992
Total home equity	5,735		13,431		5,258		6,173		6,486		16,777		298,522		41,156		393,538
Automobile
Performing	142,530		678,425		279,849		245,235		134,274		71,935		—		—		1,552,248
90 days or more past due	—		134		103		154		159		130		—		—		680
Total automobile	142,530		678,559		279,952		245,389		134,433		72,065		—		—		1,552,928
Other consumer
Performing	7,033		4,215		6,368		6,419		6,836		9,527		956,468		—		996,866
90 days or more past due	—		—		—		—		—		—		4		—		4
Total other consumer	7,033		4,215		6,368		6,419		6,836		9,527		956,472		—		996,870
Total consumer	$	155,298	$	696,205	$	291,578	$	257,981	$	147,755	$	98,369	$	1,254,994	$	41,156	$	2,943,336

	Term Loans
	Amortized Cost Basis by Origination Year
December 31, 2021	2021		2020		2019		2018		2017		Prior to 2017		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans		Total
	(in thousands)
Residential mortgage
Performing	$	1,448,602	$	635,531	$	572,911	$	425,152	$	368,164	$	1,014,190	$	70,342	$	—	$	4,534,892
90 days or more past due	—		357		2,627		2,056		2,794		2,338		—		—		10,172
Total residential mortgage	$	1,448,602	$	635,888	$	575,538	$	427,208	$	370,958	$	1,016,528	$	70,342	$	—	$	4,545,064
Consumer loans
Home equity
Performing	$	13,847	$	5,723	$	6,994	$	7,384	$	5,359	$	13,597	$	303,888	$	42,822	$	399,614
90 days or more past due	—		—		—		—		—		35		536		594		1,165
Total home equity	13,847		5,723		6,994		7,384		5,359		13,632		304,424		43,416		400,779
Automobile
Performing	735,446		309,856		278,828		157,450		72,753		15,171		—		—		1,569,504
90 days or more past due	129		—		78		163		81		81		—		—		532
Total automobile	735,575		309,856		278,906		157,613		72,834		15,252		—		—		1,570,036
Other consumer
Performing	2,949		6,717		6,468		7,017		1,009		14,483		961,027		—		999,670
90 days or more past due	—		—		—		—		—		—		491		—		491
Total other consumer	2,949		6,717		6,468		7,017		1,009		14,483		961,518		—		1,000,161
Total consumer	$	752,371	$	322,296	$	292,368	$	172,014	$	79,202	$	43,367	$	1,265,942	$	43,416	$	2,970,976

Troubled debt restructured loans. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (TDR).

Generally, the concessions made for TDRs involve lowering the monthly payments on loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. The concessions may also involve payment deferrals but rarely result in the forgiveness of principal or accrued interest. In addition, Valley frequently obtains additional collateral or guarantor support when modifying such loans. If the borrower has demonstrated performance under the previous terms of the loan and Valley’s underwriting process shows the borrower has the capacity to continue to perform under the restructured terms, the loan will continue to accrue interest. Non-accruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible.

Performing TDRs (not reported as non-accrual loans) totaled $56.5 million and $71.3 million as of March 31, 2022 and December 31, 2021, respectively. Non-performing TDRs totaled $104.7 million and $117.2 million as of March 31, 2022 and December 31, 2021, respectively.

The following table presents the pre- and post-modification amortized cost of loans by loan class modified as TDRs during the three months ended March 31, 2022 and 2021. Post-modification amounts are presented as of March 31, 2022 and 2021.

	Three Months Ended March 31,
	2022					2021
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	11	$	9,684	$	9,662	5	$	13,744	$	13,307
Commercial real estate	2	5,260		5,251		2	4,197		4,185
Residential mortgage	1	121		117		6	1,528		1,518
Consumer	—	—		—		1	170		168
Total	14	$	15,065	$	15,030	14	$	19,639	$	19,178

The total TDRs presented in the above table had allocated allowance for loan losses of $7.8 million and $3.4 million at March 31, 2022 and 2021, respectively. There were no charge-offs related to TDRs for the three months ended March 31, 2022. There were charge-offs of $5.1 million related to TDRs for the three months ended March 31, 2021. 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, 2022 and 2021.

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, 2022 and 2021 were as follows:

	Three Months Ended March 31,
	2022			2021
Troubled Debt Restructurings Subsequently Defaulted	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	($ in thousands)
Commercial and industrial	2	$	1,850	16	$	12,384
Construction	2	17,599		—	—
Residential mortgage	—	—		3	655
Total	4	$	19,449	19	$	13,039

Forbearance. In response to the COVID-19 pandemic and its economic impact to certain customers, Valley implemented short-term loan modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment, when requested by customers. As of March 31, 2022, Valley had $23.0 million of outstanding loans remaining in their payment deferral period under short-term modifications as compared to $27.9 million of loans in deferral at December 31, 2021. Under the applicable accounting and regulatory guidance, none of these loans were classified as TDRs at March 31, 2022 and December 31, 2021.

Loans in Process of Foreclosure. Other real estate owned (OREO) totaled $1.0 million and $2.3 million at March 31, 2022 and December 31, 2021, respectively. There were no foreclosed residential real estate properties included in OREO at March 31, 2022 and at December 31, 2021. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $2.8 million and $2.5 million at March 31, 2022 and December 31, 2021, respectively.

Collateral dependent loans. Loans are collateral-dependent when the debtor is experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. When Valley determines that foreclosure is probable, the collateral dependent loan balances are written down to the estimated

current fair value (less estimated selling costs) resulting in an immediate charge-off to the allowance, excluding any consideration for personal guarantees that may be pursued in the Bank’s collection process.

The following table presents collateral dependent loans by class as of March 31, 2022 and December 31, 2021:

	March 31, 2022		December 31, 2021
	(in thousands)
Collateral dependent loans:
Commercial and industrial *	$	93,389	$	95,335
Commercial real estate:
Commercial real estate	92,402		110,174
Construction	19,307		—
Total commercial real estate loans	111,709		110,174
Residential mortgage	25,704		35,745
Home equity	3		4
Total	$	230,805	$	241,258

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

Allowance for Credit Losses for Loans

The following table summarizes the allowance for credit losses for loans at March 31, 2022 and December 31, 2021: 

	March 31, 2022		December 31, 2021
	(in thousands)
Components of allowance for credit losses for loans:
Allowance for loan losses	$	362,510	$	359,202
Allowance for unfunded credit commitments	16,742		16,500
Total allowance for credit losses for loans	$	379,252	$	375,702

The following table summarizes the provision for credit losses for loans for the periods indicated:

	Three Months Ended March 31,
	2022		2021
	(in thousands)
Components of provision for credit losses for loans:
Provision for loan losses	$	3,258	$	8,692
Provision for unfunded credit commitments	242		322
Total provision for credit losses for loans	$	3,500	$	9,014

The following table details the activity in the allowance for loan losses by loan portfolio segment for the three months ended March 31, 2022 and 2021: 

	Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
	(in thousands)
Three Months Ended March 31, 2022
Allowance for loan losses:
Beginning balance	$	103,090	$	217,490	$	25,120	$	13,502	$	359,202
Loans charged-off	(1,571)		(173)		(26)		(825)		(2,595)
Charged-off loans recovered	824		107		457		1,257		2,645
Net (charge-offs) recoveries	(747)		(66)		431		432		50
(Credit) provision for loan losses	(1,140)		2,525		2,638		(765)		3,258
Ending balance	$	101,203	$	219,949	$	28,189	$	13,169	$	362,510
Three Months Ended March 31, 2021
Allowance for losses:
Beginning balance	$	131,070	$	164,113	$	28,873	$	16,187	$	340,243
Loans charged-off	(7,142)		(382)		(138)		(1,138)		(8,800)
Charged-off loans recovered	1,589		69		157		930		2,745
Net (charge-offs) recoveries	(5,553)		(313)		19		(208)		(6,055)
Provision (credit) for loan losses	891		10,436		(1,720)		(915)		8,692
Ending balance	$	126,408	$	174,236	$	27,172	$	15,064	$	342,880

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, 2022 and December 31, 2021.

	Commercial and Industrial		Commercial Real Estate		Residential Mortgage		Consumer		Total
	(in thousands)
March 31, 2022
Allowance for loan losses:
Individually evaluated for credit losses	$	62,500	$	6,303	$	641	$	179	$	69,623
Collectively evaluated for credit losses	38,703		213,646		27,548		12,990		292,887
Total	$	101,203	$	219,949	$	28,189	$	13,169	$	362,510
Loans:
Individually evaluated for credit losses	$	103,534	$	128,583	$	34,696	$	1,553	$	268,366
Collectively evaluated for credit losses	5,687,856		21,809,161		4,657,239		2,941,783		35,096,039
Total	$	5,791,390	$	21,937,744	$	4,691,935	$	2,943,336	$	35,364,405
December 31, 2021
Allowance for loan losses:
Individually evaluated for credit losses	$	64,359	$	6,277	$	470	$	390	$	71,496
Collectively evaluated for credit losses	38,731		211,213		24,650		13,112		287,706
Total	$	103,090	$	217,490	$	25,120	$	13,502	$	359,202
Loans:
Individually evaluated for credit losses	$	119,760	$	134,135	$	42,469	$	2,431	$	298,795
Collectively evaluated for credit losses	5,727,791		20,655,931		4,502,595		2,968,545		33,854,862
Total	$	5,847,551	$	20,790,066	$	4,545,064	$	2,970,976	$	34,153,657