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.
In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations and cash flows at
March 31, 2016
and for all periods presented have been made. The results of operations for the
three
months ended
March 31, 2016
are not necessarily indicative of the results to be expected for the entire fiscal year.
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 are particularly susceptible to change are: the allowance for loan losses; the evaluation of goodwill and other intangible assets, and investment securities for impairment; fair value measurements of assets and liabilities; 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.
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, 2015
.
Note 2. Business Combinations
Acquisitions
O
n January 4, 2016, Masters Coverage Corp., an all-line insurance agency that is a wholly-owned subsidiary of the Bank, acquired certain assets of an independent insurance agency located in New York. The purchase price totaled approximately
$1.4 million
in cash and future cash consideration. The transaction generated goodwill and other intangible assets totaling
$701 thousand
and
$660 thousand
, respectively.
On December 1, 2015, Valley completed its acquisition of CNLBancshares, Inc. (CNL) and its wholly-owned subsidiary, CNLBank, headquartered in Orlando, Florida, a commercial bank with approximately
$1.6 billion
in assets,
$825 million
in loans and
$1.2 billion
in deposits and
16
branch offices on the date of its acquisition by Valley. The common shareholders of CNL received
0.705
of a share of Valley common stock for each CNL share they owned prior to the merger. The total consideration for the acquisition was approximately
$230 million
, consisting of
20.6 million
shares of Valley's common stock.
During the quarter ended
March 31, 2016
, Valley revised the estimated fair values of the acquired assets as of the acquisition date as the result of additional information obtained. The adjustments mostly related to the fair value of certain purchased credit-impaired (PCI) loans, core deposit intangibles and time deposits which, on a combined basis, resulted in a
$2.5 million
increase in goodwill (see Note 10 for amount of goodwill as allocated to Valley's business segments). If additional information (that existed at the date of close) becomes available, the fair value
estimates for acquired assets and assumed liabilities are subject to change for up to one year after the closing date of the CNL acquisition.
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, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands, except for share data)
|
Net income available to common shareholders
|
$
|
34,390
|
|
|
$
|
30,341
|
|
Basic weighted average number of common shares outstanding
|
254,075,349
|
|
|
232,338,775
|
|
Plus: Common stock equivalents
|
272,071
|
|
|
3,146
|
|
Diluted weighted average number of common shares outstanding
|
254,347,420
|
|
|
232,341,921
|
|
Earnings per common share:
|
|
|
|
Basic
|
$
|
0.14
|
|
|
$
|
0.13
|
|
Diluted
|
0.14
|
|
|
0.13
|
|
Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of performance-based restricted stock units, common stock options and warrants to purchase Valley’s common shares. Common stock options and warrants with exercise prices that exceed the average market price 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 and warrants equaled approximately
4.6 million
shares and
6.2 million
for the
three
months ended
March 31, 2016
and
2015
, 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, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Accumulated Other Comprehensive Loss
|
|
Total
Accumulated
Other
Comprehensive
Loss
|
|
Unrealized Gains
and Losses on
Available for Sale
(AFS) Securities
|
|
Non-credit
Impairment
Losses on
AFS Securities
|
|
Unrealized Gains
and (Losses) on
Derivatives
|
|
Defined
Benefit
Pension Plan
|
|
|
(in thousands)
|
Balance at December 31, 2015
|
$
|
(5,336
|
)
|
|
$
|
(520
|
)
|
|
$
|
(17,644
|
)
|
|
$
|
(22,195
|
)
|
|
$
|
(45,695
|
)
|
Other comprehensive income (loss) before reclassifications
|
8,283
|
|
|
(59
|
)
|
|
(6,552
|
)
|
|
—
|
|
|
1,672
|
|
Amounts reclassified from other comprehensive income (loss)
|
(170
|
)
|
|
(286
|
)
|
|
1,741
|
|
|
43
|
|
|
1,328
|
|
Other comprehensive income (loss), net
|
8,113
|
|
|
(345
|
)
|
|
(4,811
|
)
|
|
43
|
|
|
3,000
|
|
Balance at March 31, 2016
|
$
|
2,777
|
|
|
$
|
(865
|
)
|
|
$
|
(22,455
|
)
|
|
$
|
(22,152
|
)
|
|
$
|
(42,695
|
)
|
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, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from
Accumulated Other Comprehensive Loss
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
Components of Accumulated Other Comprehensive Loss
|
|
2016
|
|
2015
|
|
Income Statement
Line Item
|
|
|
(in thousands)
|
|
|
Unrealized gains on AFS securities before tax
|
|
$
|
271
|
|
|
$
|
2,416
|
|
|
Gains on securities transactions, net
|
Tax effect
|
|
(101
|
)
|
|
(1,007
|
)
|
|
|
Total net of tax
|
|
170
|
|
|
1,409
|
|
|
|
Non-credit impairment losses on AFS securities before tax:
|
|
|
|
|
|
|
Accretion of credit loss impairment due to an increase in expected cash flows
|
|
489
|
|
|
144
|
|
|
Interest and dividends on investment securities (taxable)
|
Tax effect
|
|
(203
|
)
|
|
(60
|
)
|
|
|
Total net of tax
|
|
286
|
|
|
84
|
|
|
|
Unrealized losses on derivatives (cash flow hedges) before tax
|
|
(2,971
|
)
|
|
(1,629
|
)
|
|
Interest expense
|
Tax effect
|
|
1,230
|
|
|
678
|
|
|
|
Total net of tax
|
|
(1,741
|
)
|
|
(951
|
)
|
|
|
Defined benefit pension plan:
|
|
|
|
|
|
|
Amortization of net loss
|
|
(72
|
)
|
|
(205
|
)
|
|
*
|
Tax effect
|
|
29
|
|
|
86
|
|
|
|
Total net of tax
|
|
(43
|
)
|
|
(119
|
)
|
|
|
Total reclassifications, net of tax
|
|
$
|
(1,328
|
)
|
|
$
|
423
|
|
|
|
|
|
|
*
|
Amortization of net loss is included in the computation of net periodic pension cost.
|
Note 5. New Authoritative Accounting Guidance
Accounting Standards Update (ASU) No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance. The amendments focus on income tax accounting upon vesting or exercise of share-based payments, award classification, liability classification exception for statutory tax withholding requirements, estimating forfeitures, and cash flow presentation. ASU No. 2016-09 is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018 with an early adoption permitted. ASU No. 2016-09 is not expected to have a significant impact on Valley's consolidated financial statements.
ASU No. 2016-02, “Leases (Topic 842)” requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current GAAP. Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842 will be effective for Valley for reporting periods beginning January 1, 2019, with an early adoption permitted. Valley must apply a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Management is currently evaluating the impact of Topic 842 on Valley’s consolidated financial statements.
ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities” requires that: (i) equity investments with readily determinable fair values must be measured at fair value with changes in fair value recognized in net income, (2) equity investments without readily determinable fair values must be measured at either fair value or at cost adjusted for changes in observable prices minus impairment. Changes in value under either of these methods would be recognized in net income, (3) entities that record financial liabilities at fair value due to a fair value option election must recognize changes in fair value in other comprehensive income if it is related to instrument-specific credit risk, and (4) entities must assess whether a valuation allowance is required for deferred tax assets related to available-for-sale debt securities. ASU No. 2016-01 is effective for Valley for reporting periods beginning January 1, 2018 and is not expected to have a material effect on Valley’s consolidated financial statements.
ASU No. 2015-07, "Fair Value Measurement (Topic 820) - Disclosure for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)", which removes the requirement to categorize within the fair value hierarchy all investments for which the fair value is measured using the net asset value per share practical expedient. ASU No. 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. ASU No. 2015-07 began effective for Valley for reporting periods after January 1, 2016 and did not have an impact on Valley's fair value measurement disclosures at Note 6.
Note 6. Fair Value Measurement of Assets and Liabilities
Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures,” 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, 2016
and
December 31, 2015
. The assets presented under “nonrecurring fair value measurements” in the table 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,
2016
|
|
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:
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
411,335
|
|
|
$
|
411,335
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government agency securities
|
26,922
|
|
|
—
|
|
|
26,922
|
|
|
—
|
|
Obligations of states and political subdivisions
|
126,222
|
|
|
—
|
|
|
126,222
|
|
|
—
|
|
Residential mortgage-backed securities
|
782,648
|
|
|
—
|
|
|
771,801
|
|
|
10,847
|
|
Trust preferred securities
|
8,259
|
|
|
—
|
|
|
6,157
|
|
|
2,102
|
|
Corporate and other debt securities
|
78,208
|
|
|
17,887
|
|
|
60,321
|
|
|
—
|
|
Equity securities
|
18,895
|
|
|
464
|
|
|
18,431
|
|
|
—
|
|
Total available for sale
|
1,452,489
|
|
|
429,686
|
|
|
1,009,854
|
|
|
12,949
|
|
Loans held for sale
(1)
|
15,347
|
|
|
—
|
|
|
15,347
|
|
|
—
|
|
Other assets
(2)
|
49,308
|
|
|
—
|
|
|
49,308
|
|
|
—
|
|
Total assets
|
$
|
1,517,144
|
|
|
$
|
429,686
|
|
|
$
|
1,074,509
|
|
|
$
|
12,949
|
|
Liabilities
|
|
|
|
|
|
|
|
Other liabilities
(2)
|
$
|
70,199
|
|
|
$
|
—
|
|
|
$
|
70,199
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
70,199
|
|
|
$
|
—
|
|
|
$
|
70,199
|
|
|
$
|
—
|
|
Non-recurring fair value measurements:
|
|
|
|
|
|
|
|
Collateral dependent impaired loans
(3)
|
$
|
6,209
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,209
|
|
Loan servicing rights
|
4,142
|
|
|
—
|
|
|
—
|
|
|
4,142
|
|
Foreclosed assets
(4)
|
2,604
|
|
|
—
|
|
|
—
|
|
|
2,604
|
|
Total
|
$
|
12,955
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
December 31,
2015
|
|
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:
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
549,473
|
|
|
$
|
549,473
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. government agency securities
|
29,963
|
|
|
—
|
|
|
29,963
|
|
|
—
|
|
Obligations of states and political subdivisions
|
124,966
|
|
|
—
|
|
|
124,966
|
|
|
—
|
|
Residential mortgage-backed securities
|
696,428
|
|
|
—
|
|
|
684,777
|
|
|
11,651
|
|
Trust preferred securities
|
8,404
|
|
|
—
|
|
|
6,262
|
|
|
2,142
|
|
Corporate and other debt securities
|
77,552
|
|
|
17,710
|
|
|
59,842
|
|
|
—
|
|
Equity securities
|
20,075
|
|
|
1,198
|
|
|
18,877
|
|
|
—
|
|
Total available for sale
|
1,506,861
|
|
|
568,381
|
|
|
924,687
|
|
|
13,793
|
|
Loans held for sale
(1)
|
16,382
|
|
|
—
|
|
|
16,382
|
|
|
—
|
|
Other assets
(2)
|
33,774
|
|
|
—
|
|
|
33,774
|
|
|
—
|
|
Total assets
|
$
|
1,557,017
|
|
|
$
|
568,381
|
|
|
$
|
974,843
|
|
|
$
|
13,793
|
|
Liabilities
|
|
|
|
|
|
|
|
Other liabilities
(2)
|
$
|
50,844
|
|
|
$
|
—
|
|
|
$
|
50,844
|
|
|
$
|
—
|
|
Total liabilities
|
$
|
50,844
|
|
|
$
|
—
|
|
|
$
|
50,844
|
|
|
$
|
—
|
|
Non-recurring fair value measurements:
|
|
|
|
|
|
|
|
Collateral dependent impaired loans
(3)
|
$
|
15,427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,427
|
|
Loan servicing rights
|
2,571
|
|
|
—
|
|
|
—
|
|
|
2,571
|
|
Foreclosed assets
(4)
|
16,672
|
|
|
—
|
|
|
—
|
|
|
16,672
|
|
Total
|
$
|
34,670
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34,670
|
|
|
|
(1)
|
Loans held for sale carried at fair value (which consist of residential mortgages) had contractual unpaid principal balances totaling approximately
$14.8 million
and
$16.1 million
at
March 31, 2016
and
December 31, 2015
, respectively.
|
|
|
(2)
|
Derivative financial instruments are included in this category.
|
|
|
(4)
|
Includes covered (i.e., subject to loss-sharing agreements with the FDIC) other real estate owned totaling
$270 thousand
and
$4.2 million
at
March 31, 2016
and
December 31, 2015
, respectively.
|
The changes in Level 3 assets measured at fair value on a recurring basis for the
three
months ended
March 31, 2016
and
2015
are summarized below:
|
|
|
|
|
|
|
|
|
|
Available for Sale Securities
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Balance, beginning of the period
|
$
|
13,793
|
|
|
$
|
19,309
|
|
Total net losses included in other comprehensive income for the period
|
(585
|
)
|
|
(792
|
)
|
Sales
|
—
|
|
|
(2,675
|
)
|
Settlements
|
(259
|
)
|
|
(374
|
)
|
Balance, end of the period
|
$
|
12,949
|
|
|
$
|
15,468
|
|
No
changes in unrealized gains or losses on Level 3 securities were included in earnings during the three months ended
March 31, 2016
and
2015
. There were no transfers of assets into and out of Level 3, or between Level 1 and Level 2, during the
three
months ended
March 31, 2016
and
2015
.
There have been no material changes in the valuation methodologies used at
March 31, 2016
from
December 31, 2015
.
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.
Available for sale and trading securities.
All U.S. Treasury securities, certain corporate and other debt securities, and certain common and preferred equity securities (including certain trust preferred 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. For certain securities, the inputs used by either dealer market participants or an independent pricing service may be derived from unobservable market information (Level 3 inputs). In these instances, Valley evaluates the appropriateness and quality of the assumption and the resulting price. In addition, Valley reviews the volume and level of activity for all available for sale and trading securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value and this results in fair values based on Level 3 inputs. In determining fair value, Valley utilizes unobservable inputs which reflect Valley’s own assumptions about the inputs that market participants would use in pricing each security. In developing its assertion of market participant assumptions, Valley utilizes the best information that is both reasonable and available without undue cost and effort.
In calculating the fair value for the available for sale securities under Level 3, Valley prepared present value cash flow models for certain private label mortgage-backed securities. The cash flows for the residential mortgage-
backed securities incorporated the expected cash flow of each security adjusted for default rates, loss severities and prepayments of the individual loans collateralizing the security.
The following table presents quantitative information about Level 3 inputs used to measure the fair value of these securities at
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
Security Type
|
Valuation
Technique
|
|
Unobservable
Input
|
|
Range
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
Private label mortgage-backed securities
|
Discounted cash flow
|
|
Prepayment rate
|
|
0.1-22.2%
|
|
10.8
|
%
|
|
|
|
Default rate
|
|
3.7-20.6
|
|
8.4
|
|
|
|
|
Loss severity
|
|
41.4-64.6
|
|
59.5
|
|
Significant increases or decreases in any of the unobservable inputs in the table above in isolation would result in a significantly lower or higher fair value measurement of the securities. Generally, a change in the assumption used for the default rate is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.
For the Level 3 available for sale private label mortgage-backed securities (consisting of 4 securities), cash flow assumptions incorporated independent third party market participant data based on vintage year for each security. The discount rate utilized in determining the present value of cash flows for the mortgage-backed securities was arrived at by combining the yield on orderly transactions for similar maturity government sponsored mortgage-backed securities with (i) the historical average risk premium of similar structured private label securities, (ii) a risk premium reflecting current market conditions, including liquidity risk, and (iii) if applicable, a forecasted loss premium derived from the expected cash flows of each security. The estimated cash flows for each private label mortgage-backed security were then discounted at the aforementioned effective rate to determine the fair value. The quoted prices received from either market participants or independent pricing services are weighted with the internal price estimate to determine the fair value of each instrument.
For the Level 3 available for sale pooled trust preferred securities (consisting of 1 security), the resulting estimated future cash flow was discounted at a yield determined by reference to similarly structured securities for which observable orderly transactions occurred. The discount rate was applied using a pricing matrix based on credit, security type and maturity characteristics to determine the fair value. The fair value calculation is received from an independent valuation adviser. In validating the fair value calculation from an independent valuation adviser, Valley reviews the accuracy of the inputs and the appropriateness of the unobservable inputs utilized in the valuation to ensure the fair value calculation is reasonable from a market participant perspective.
Loans held for sale.
The conforming 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. To determine these fair values, the mortgages held for sale are put into multiple tranches, or pools, based on the coupon rate and maturity of each mortgage. The market prices for each tranche are obtained from both Fannie Mae and Freddie Mac. 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. The market prices received from Fannie Mae and Freddie Mac are then averaged and interpolated or extrapolated, where required, to calculate the fair value of each tranche. Depending upon the time elapsed since the origination of each loan held for sale, non-performance risk and changes therein were addressed in the estimate of fair value based upon the delinquency data provided to both Fannie Mae and Freddie Mac for market pricing and changes in market credit spreads. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at
March 31, 2016
and
December 31, 2015
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 value 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, 2016
and
December 31, 2015
), is determined based on the current market prices for similar instruments provided by Fannie Mae and Freddie Mac. 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, 2016
and
December 31, 2015
.
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 non-performing loans held for sale carried at estimated fair value (less selling costs) when less than the unamortized cost, impaired loans reported at the fair value of the underlying collateral, loan servicing rights, other real estate owned and other repossessed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.
Impaired loans
. Certain impaired 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 impaired loans.” Collateral values are estimated using Level 3 inputs, consisting of individual appraisals that are significantly adjusted based on certain discounting criteria. At
March 31, 2016
, appraisals are discounted based on specific market data by location and property type. During the quarter ended
March 31, 2016
, collateral dependent impaired loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses and/or a specific valuation allowance allocation based on the fair value of the underlying collateral. The collateral dependent loan charge-offs to the allowance for loan losses totaled
$479 thousand
and
$850 thousand
for the
three months ended March 31, 2016
and
2015
, respectively. At
March 31, 2016
, collateral dependent impaired loans with a total recorded investment of
$7.1 million
were reduced by specific valuation allowance allocations totaling
$872 thousand
to a reported total net carrying amount of
$6.2 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, 2016
, the fair value model used prepayment speeds (stated as constant prepayment rates) from
0 percent
up to
24 percent
and a discount rate of
8.0 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. Valley recorded net impairment charges on its loan servicing rights totaling
$192 thousand
and
$84 thousand
for the
three months ended March 31, 2016
and
2015
, 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. The appraisals of foreclosed assets were adjusted up to
3.7 percent
at
March 31, 2016
. At
March 31, 2016
, foreclosed assets included
$2.6 million
of assets that were measured at fair value upon initial recognition or subsequently re-measured during the quarter ended
March 31, 2016
. The foreclosed assets charge-offs to the allowance for loan losses totaled
$139 thousand
and
$457 thousand
for the
three months ended March 31, 2016
and
2015
, respectively. The re-measurement of foreclosed assets at fair value subsequent to their initial recognition resulted in net loss within non-interest expense of
$617 thousand
for the
three months ended March 31, 2016
and an immaterial net loss for the
three months ended March 31, 2015
,
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, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Hierarchy
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
|
|
(in thousands)
|
Financial assets
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
Level 1
|
|
$
|
243,265
|
|
|
$
|
243,265
|
|
|
$
|
243,575
|
|
|
$
|
243,575
|
|
Interest bearing deposits with banks
|
Level 1
|
|
233,228
|
|
|
233,228
|
|
|
170,225
|
|
|
170,225
|
|
Investment securities held to maturity:
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
Level 1
|
|
138,942
|
|
|
153,877
|
|
|
138,978
|
|
|
149,483
|
|
U.S. government agency securities
|
Level 2
|
|
12,225
|
|
|
12,738
|
|
|
12,859
|
|
|
13,130
|
|
Obligations of states and political subdivisions
|
Level 2
|
|
516,645
|
|
|
543,069
|
|
|
504,865
|
|
|
527,263
|
|
Residential mortgage-backed securities
|
Level 2
|
|
859,305
|
|
|
870,711
|
|
|
852,289
|
|
|
855,272
|
|
Trust preferred securities
|
Level 2
|
|
59,790
|
|
|
46,404
|
|
|
59,785
|
|
|
46,437
|
|
Corporate and other debt securities
|
Level 2
|
|
31,559
|
|
|
33,425
|
|
|
27,609
|
|
|
29,454
|
|
Total investment securities held to maturity
|
|
|
1,618,466
|
|
|
1,660,224
|
|
|
1,596,385
|
|
|
1,621,039
|
|
Net loans
|
Level 3
|
|
16,030,572
|
|
|
16,008,152
|
|
|
15,936,929
|
|
|
15,824,475
|
|
Accrued interest receivable
|
Level 1
|
|
62,973
|
|
|
62,973
|
|
|
63,554
|
|
|
63,554
|
|
Federal Reserve Bank and Federal Home Loan Bank stock
(1)
|
Level 1
|
|
145,699
|
|
|
145,699
|
|
|
145,068
|
|
|
145,068
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
Deposits without stated maturities
|
Level 1
|
|
13,327,414
|
|
|
13,327,414
|
|
|
13,095,647
|
|
|
13,095,647
|
|
Deposits with stated maturities
|
Level 2
|
|
3,081,012
|
|
|
3,122,098
|
|
|
3,157,904
|
|
|
3,203,389
|
|
Short-term borrowings
|
Level 1
|
|
1,170,623
|
|
|
1,170,623
|
|
|
1,076,991
|
|
|
1,076,991
|
|
Long-term borrowings
|
Level 2
|
|
1,660,284
|
|
|
1,823,824
|
|
|
1,810,728
|
|
|
1,945,741
|
|
Junior subordinated debentures issued to capital trusts
|
Level 2
|
|
41,455
|
|
|
43,797
|
|
|
41,414
|
|
|
44,127
|
|
Accrued interest payable
(2)
|
Level 1
|
|
11,789
|
|
|
11,789
|
|
|
13,110
|
|
|
13,110
|
|
|
|
(1)
|
Included in other assets.
|
|
|
(2)
|
Included in accrued expenses and other liabilities.
|
The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities in the table above:
Cash and due from banks and interest bearing deposits with banks.
The carrying amount is considered to be a reasonable estimate of fair value because of the short maturity of these items.
Investment securities held to maturity
. Fair values are based on prices 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 (Level 2 inputs). Additionally, Valley reviews the volume and level of activity for all classes of held to maturity securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary. If applicable, the adjustment to fair value is derived based on present value cash flow model projections prepared by Valley utilizing assumptions similar to those incorporated by market participants.
Loans
. Fair values of loans are estimated by discounting the projected future
cash flows using market discount rates that reflect the credit and interest-rate risk inherent in the loan. The discount rate is a product of both the applicable index and credit spread, subject to the estimated current new loan interest rates. The credit spread component is static for all maturities and may not necessarily reflect the value of estimating all actual cash flows re-pricing. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Fair values estimated in this manner do not fully incorporate an exit-price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.
Accrued interest receivable and payable.
The carrying amounts of accrued interest approximate their fair value due to the short-term nature of these items.
Federal Reserve Bank and Federal Home Loan Bank stock.
Federal Reserve Bank and FHLB stock are non-marketable equity securities and are reported at their redeemable carrying amounts, which approximate fair value.
Deposits.
The carrying amounts of deposits without stated maturities (i.e., non-interest bearing, savings, NOW, and money market deposits) approximate their estimated fair value. The fair value of time deposits is based on the discounted value of contractual cash flows using estimated rates currently offered for alternative funding sources of similar remaining maturity.
Short-term and long-term borrowings.
The carrying amounts of certain short-term borrowings, including securities sold under agreements to repurchase (and from time to time, federal funds purchased and FHLB borrowings) approximate their fair values because they frequently re-price to a market rate. The fair values of other short-term and long-term borrowings are estimated by obtaining quoted market prices of the identical or similar financial instruments when available. When quoted prices are unavailable, the fair values of the borrowings are estimated by discounting the estimated future cash flows using current market discount rates of financial instruments with similar characteristics, terms and remaining maturity.
Junior subordinated debentures issued to capital trusts.
The fair value of debentures issued to capital trusts is estimated utilizing the income approach, whereby the expected cash flows, over the remaining estimated life of the security, are discounted using Valley’s credit spread over the current yield on a similar maturity of U.S. Treasury security or the three-month LIBOR for the variable rate indexed debentures (Level 2 inputs). The credit spread used to discount the expected cash flows was calculated based on the median current spreads for all fixed and variable publicly traded trust preferred securities issued by banks.
Note 7. Investment Securities
Held to Maturity
The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at
March 31, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
138,942
|
|
|
$
|
14,935
|
|
|
$
|
—
|
|
|
$
|
153,877
|
|
U.S. government agency securities
|
12,225
|
|
|
513
|
|
|
—
|
|
|
12,738
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
193,947
|
|
|
12,776
|
|
|
—
|
|
|
206,723
|
|
Municipal bonds
|
322,698
|
|
|
13,648
|
|
|
—
|
|
|
336,346
|
|
Total obligations of states and political subdivisions
|
516,645
|
|
|
26,424
|
|
|
—
|
|
|
543,069
|
|
Residential mortgage-backed securities
|
859,305
|
|
|
15,068
|
|
|
(3,662
|
)
|
|
870,711
|
|
Trust preferred securities
|
59,790
|
|
|
48
|
|
|
(13,434
|
)
|
|
46,404
|
|
Corporate and other debt securities
|
31,559
|
|
|
1,866
|
|
|
—
|
|
|
33,425
|
|
Total investment securities held to maturity
|
$
|
1,618,466
|
|
|
$
|
58,854
|
|
|
$
|
(17,096
|
)
|
|
$
|
1,660,224
|
|
December 31, 2015
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
138,978
|
|
|
$
|
10,505
|
|
|
$
|
—
|
|
|
$
|
149,483
|
|
U.S. government agency securities
|
12,859
|
|
|
271
|
|
|
—
|
|
|
13,130
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
194,547
|
|
|
10,538
|
|
|
(10
|
)
|
|
205,075
|
|
Municipal bonds
|
310,318
|
|
|
11,955
|
|
|
(85
|
)
|
|
322,188
|
|
Total obligations of states and political subdivisions
|
504,865
|
|
|
22,493
|
|
|
(95
|
)
|
|
527,263
|
|
Residential mortgage-backed securities
|
852,289
|
|
|
11,018
|
|
|
(8,035
|
)
|
|
855,272
|
|
Trust preferred securities
|
59,785
|
|
|
36
|
|
|
(13,384
|
)
|
|
46,437
|
|
Corporate and other debt securities
|
27,609
|
|
|
1,894
|
|
|
(49
|
)
|
|
29,454
|
|
Total investment securities held to maturity
|
$
|
1,596,385
|
|
|
$
|
46,217
|
|
|
$
|
(21,563
|
)
|
|
$
|
1,621,039
|
|
The age of unrealized losses and fair value of related securities held to maturity at
March 31, 2016
and
December 31, 2015
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, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
$
|
174,784
|
|
|
$
|
(1,010
|
)
|
|
$
|
218,383
|
|
|
$
|
(2,652
|
)
|
|
$
|
393,167
|
|
|
$
|
(3,662
|
)
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
45,002
|
|
|
(13,434
|
)
|
|
45,002
|
|
|
(13,434
|
)
|
Total
|
$
|
174,784
|
|
|
$
|
(1,010
|
)
|
|
$
|
263,385
|
|
|
$
|
(16,086
|
)
|
|
$
|
438,169
|
|
|
$
|
(17,096
|
)
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
$
|
6,837
|
|
|
$
|
(5
|
)
|
|
$
|
1,965
|
|
|
$
|
(5
|
)
|
|
$
|
8,802
|
|
|
$
|
(10
|
)
|
Municipal bonds
|
8,814
|
|
|
(72
|
)
|
|
10,198
|
|
|
(13
|
)
|
|
19,012
|
|
|
(85
|
)
|
Total obligations of states and political subdivisions
|
15,651
|
|
|
(77
|
)
|
|
12,163
|
|
|
(18
|
)
|
|
27,814
|
|
|
(95
|
)
|
Residential mortgage-backed securities
|
244,440
|
|
|
(2,916
|
)
|
|
162,756
|
|
|
(5,119
|
)
|
|
407,196
|
|
|
(8,035
|
)
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
45,047
|
|
|
(13,384
|
)
|
|
45,047
|
|
|
(13,384
|
)
|
Corporate and other debt securities
|
2,951
|
|
|
(49
|
)
|
|
—
|
|
|
—
|
|
|
2,951
|
|
|
(49
|
)
|
Total
|
$
|
263,042
|
|
|
$
|
(3,042
|
)
|
|
$
|
219,966
|
|
|
$
|
(18,521
|
)
|
|
$
|
483,008
|
|
|
$
|
(21,563
|
)
|
The unrealized losses on investment securities held to maturity are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security positions in the securities held to maturity portfolio in an unrealized loss position at
March 31, 2016
was
96
as compared to
74
at
December 31, 2015
.
The unrealized losses within the residential mortgage-backed securities category of the available for sale portfolio at
March 31, 2016
mainly related to certain investment grade securities issued by Fannie Mae.
The unrealized losses existing for more than twelve months for trust preferred securities at
March 31, 2016
primarily related to
four
non-rated single-issuer trust preferred securities issued by bank holding companies. All single-issuer trust preferred securities classified as held to maturity are paying in accordance with their terms, have no deferrals of interest or defaults and, if applicable, the issuers meet the regulatory capital requirements to be considered “well-capitalized institutions” at
March 31, 2016
.
Management does not believe that any individual unrealized loss as of
March 31, 2016
included in the table above represents other-than-temporary impairment as management mainly attributes the declines in fair value to changes in interest rates and 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 believes there are no credit losses on these securities. Valley does not have the intent to sell, nor is it more likely than not that Valley will be required to sell, the securities contained in the table above before the recovery of their amortized cost basis or maturity.
As of
March 31, 2016
, the fair value of investments held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was
$937.2 million
.
The contractual maturities of investments in debt securities held to maturity at
March 31, 2016
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, 2016
|
|
Amortized
Cost
|
|
Fair
Value
|
|
(in thousands)
|
Due in one year
|
$
|
91,330
|
|
|
$
|
91,344
|
|
Due after one year through five years
|
159,946
|
|
|
171,623
|
|
Due after five years through ten years
|
302,843
|
|
|
325,292
|
|
Due after ten years
|
205,042
|
|
|
201,254
|
|
Residential mortgage-backed securities
|
859,305
|
|
|
870,711
|
|
Total investment securities held to maturity
|
$
|
1,618,466
|
|
|
$
|
1,660,224
|
|
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
6.6 years
at
March 31, 2016
.
Available for Sale
The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at
March 31, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
411,059
|
|
|
$
|
295
|
|
|
$
|
(19
|
)
|
|
$
|
411,335
|
|
U.S. government agency securities
|
26,290
|
|
|
645
|
|
|
(13
|
)
|
|
26,922
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
43,704
|
|
|
839
|
|
|
(6
|
)
|
|
44,537
|
|
Municipal bonds
|
80,610
|
|
|
1,389
|
|
|
(314
|
)
|
|
81,685
|
|
Total obligations of states and political subdivisions
|
124,314
|
|
|
2,228
|
|
|
(320
|
)
|
|
126,222
|
|
Residential mortgage-backed securities
|
778,775
|
|
|
7,852
|
|
|
(3,979
|
)
|
|
782,648
|
|
Trust preferred securities*
|
10,401
|
|
|
—
|
|
|
(2,142
|
)
|
|
8,259
|
|
Corporate and other debt securities
|
77,852
|
|
|
1,628
|
|
|
(1,272
|
)
|
|
78,208
|
|
Equity securities
|
20,522
|
|
|
384
|
|
|
(2,011
|
)
|
|
18,895
|
|
Total investment securities available for sale
|
$
|
1,449,213
|
|
|
$
|
13,032
|
|
|
$
|
(9,756
|
)
|
|
$
|
1,452,489
|
|
December 31, 2015
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
551,173
|
|
|
$
|
4
|
|
|
$
|
(1,704
|
)
|
|
$
|
549,473
|
|
U.S. government agency securities
|
29,316
|
|
|
665
|
|
|
(18
|
)
|
|
29,963
|
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
44,285
|
|
|
196
|
|
|
(67
|
)
|
|
44,414
|
|
Municipal bonds
|
80,717
|
|
|
209
|
|
|
(374
|
)
|
|
80,552
|
|
Total obligations of states and political subdivisions
|
125,002
|
|
|
405
|
|
|
(441
|
)
|
|
124,966
|
|
Residential mortgage-backed securities
|
701,764
|
|
|
3,348
|
|
|
(8,684
|
)
|
|
696,428
|
|
Trust preferred securities*
|
10,458
|
|
|
—
|
|
|
(2,054
|
)
|
|
8,404
|
|
Corporate and other debt securities
|
78,202
|
|
|
1,239
|
|
|
(1,889
|
)
|
|
77,552
|
|
Equity securities
|
21,022
|
|
|
575
|
|
|
(1,522
|
)
|
|
20,075
|
|
Total investment securities available for sale
|
$
|
1,516,937
|
|
|
$
|
6,236
|
|
|
$
|
(16,312
|
)
|
|
$
|
1,506,861
|
|
|
|
|
*
|
Includes two pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies, at March 31, 2016 and December 31, 2015.
|
The age of unrealized losses and fair value of related securities available for sale at
March 31, 2016
and
December 31, 2015
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, 2016
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
360,004
|
|
|
$
|
(19
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
360,004
|
|
|
$
|
(19
|
)
|
U.S. government agency securities
|
—
|
|
|
—
|
|
|
4,517
|
|
|
(13
|
)
|
|
4,517
|
|
|
(13
|
)
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
1,576
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
1,576
|
|
|
(6
|
)
|
Municipal bonds
|
—
|
|
|
—
|
|
|
12,513
|
|
|
(314
|
)
|
|
12,513
|
|
|
(314
|
)
|
Total obligations of states and political subdivisions
|
1,576
|
|
|
(6
|
)
|
|
12,513
|
|
|
(314
|
)
|
|
14,089
|
|
|
(320
|
)
|
Residential mortgage-backed securities
|
141,851
|
|
|
(804
|
)
|
|
172,436
|
|
|
(3,175
|
)
|
|
314,287
|
|
|
(3,979
|
)
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
8,259
|
|
|
(2,142
|
)
|
|
8,259
|
|
|
(2,142
|
)
|
Corporate and other debt securities
|
14,207
|
|
|
(319
|
)
|
|
31,566
|
|
|
(953
|
)
|
|
45,773
|
|
|
(1,272
|
)
|
Equity securities
|
—
|
|
|
—
|
|
|
13,784
|
|
|
(2,011
|
)
|
|
13,784
|
|
|
(2,011
|
)
|
Total
|
$
|
517,638
|
|
|
$
|
(1,148
|
)
|
|
$
|
243,075
|
|
|
$
|
(8,608
|
)
|
|
$
|
760,713
|
|
|
$
|
(9,756
|
)
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
$
|
548,538
|
|
|
$
|
(1,704
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
548,538
|
|
|
$
|
(1,704
|
)
|
U.S. government agency securities
|
3,489
|
|
|
(5
|
)
|
|
4,736
|
|
|
(13
|
)
|
|
8,225
|
|
|
(18
|
)
|
Obligations of states and political subdivisions:
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of states and state agencies
|
24,359
|
|
|
(67
|
)
|
|
—
|
|
|
—
|
|
|
24,359
|
|
|
(67
|
)
|
Municipal bonds
|
38,207
|
|
|
(128
|
)
|
|
13,551
|
|
|
(246
|
)
|
|
51,758
|
|
|
(374
|
)
|
Total obligations of states and political subdivisions
|
62,566
|
|
|
(195
|
)
|
|
13,551
|
|
|
(246
|
)
|
|
76,117
|
|
|
(441
|
)
|
Residential mortgage-backed securities
|
293,615
|
|
|
(4,147
|
)
|
|
164,010
|
|
|
(4,537
|
)
|
|
457,625
|
|
|
(8,684
|
)
|
Trust preferred securities
|
—
|
|
|
—
|
|
|
8,404
|
|
|
(2,054
|
)
|
|
8,404
|
|
|
(2,054
|
)
|
Corporate and other debt securities
|
21,203
|
|
|
(471
|
)
|
|
36,137
|
|
|
(1,418
|
)
|
|
57,340
|
|
|
(1,889
|
)
|
Equity securities
|
—
|
|
|
—
|
|
|
14,273
|
|
|
(1,522
|
)
|
|
14,273
|
|
|
(1,522
|
)
|
Total
|
$
|
929,411
|
|
|
$
|
(6,522
|
)
|
|
$
|
241,111
|
|
|
$
|
(9,790
|
)
|
|
$
|
1,170,522
|
|
|
$
|
(16,312
|
)
|
The unrealized losses on investment securities available for sale are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security positions in the securities available for sale portfolio in an unrealized loss position at
March 31, 2016
was
120
as compared to
291
at
December 31, 2015
. At
December 31, 2015
the unrealized losses included larger number of small loss position as compared to
March 31, 2016
.
The unrealized losses within the residential mortgage-backed securities category of the available for sale portfolio at
March 31, 2016
largely related to several investment grade residential mortgage-backed securities mainly issued by Ginnie Mae.
The unrealized losses for trust preferred securities at
March 31, 2016
for more than twelve months in the table above largely relate to
1
pooled trust preferred security with an amortized cost of
$7.6 million
and a fair value of
$6.1 million
. This pooled trust preferred security had unrealized loss of
$1.5 million
and an investment grade rating at
March 31, 2016
.
As of
March 31, 2016
, the fair value of securities available for sale that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was
$497.6 million
.
The contractual maturities of investment securities available for sale at
March 31, 2016
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, 2016
|
|
Amortized
Cost
|
|
Fair
Value
|
|
(in thousands)
|
Due in one year
|
$
|
361,613
|
|
|
$
|
361,604
|
|
Due after one year through five years
|
91,097
|
|
|
92,129
|
|
Due after five years through ten years
|
118,340
|
|
|
119,037
|
|
Due after ten years
|
78,866
|
|
|
78,176
|
|
Residential mortgage-backed securities
|
778,775
|
|
|
782,648
|
|
Equity securities
|
20,522
|
|
|
18,895
|
|
Total investment securities available for sale
|
$
|
1,449,213
|
|
|
$
|
1,452,489
|
|
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 at
March 31, 2016
was
9.4 years
.
Other-Than-Temporary Impairment Analysis
Valley records impairment charges on its investment securities when the decline in fair value is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities; decline in the creditworthiness of the issuer; absence of reliable pricing information for investment securities; adverse changes in business climate; adverse actions by regulators; prolonged decline in value of equity investments; or unanticipated changes in the competitive environment could have a negative effect on Valley’s investment portfolio and may result in other-than-temporary impairment on certain investment securities in future periods. Valley’s investment portfolios include private label mortgage-backed securities, trust preferred securities principally issued by bank holding companies (including two pooled trust preferred securities), corporate bonds, and perpetual preferred and common equity securities issued by banks. These investments 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 and, if applicable, the underlying mortgage loan collateral of the security.
There were no other-than-temporary impairment losses on securities recognized in earnings for the
three months ended March 31, 2016
and
2015
. At
March 31, 2016
, four previously impaired private label mortgage-backed securities (prior to December 31, 2012) had a combined amortized cost and fair value of
$11.7 million
and
$10.8 million
, respectively, while one previously impaired pooled trust preferred security had an amortized cost and fair value of
$2.8 million
and
$2.1 million
, respectively. The previously impaired pooled trust preferred security was not accruing interest during the
three
months ended
March 31, 2016
and
2015
. Additionally, one previously impaired pooled trust preferred security was sold during the first quarter of 2015 for an immaterial gain. See the table and discussion below for additional information.
The following table presents the changes in the credit loss component of cumulative other-than-temporary impairment losses on debt securities classified as either held to maturity or available for sale that Valley has previously recognized in earnings, for which a portion of the impairment loss (non-credit factors) was recognized in other comprehensive income for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Balance, beginning of period
|
$
|
5,837
|
|
|
$
|
8,947
|
|
Accretion of credit loss impairment due to an increase in expected cash flows
|
(489
|
)
|
|
(144
|
)
|
Sales
|
—
|
|
|
(2,382
|
)
|
Balance, end of period
|
$
|
5,348
|
|
|
$
|
6,421
|
|
The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the security prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which other-than-temporary impairment occurred prior to each period presented. Other-than-temporary impairments recognized in earnings for credit impaired debt securities are presented as additions in two components based upon whether the current period is the first time the debt security was credit impaired (initial credit impairment) or is not the first time the debt security was credit impaired (subsequent credit impairment). The credit loss component is reduced if Valley sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) Valley receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures, or (iii) the security is fully written down.
Realized Gains and Losses
Gross gains (losses) realized on sales, maturities and other securities transactions related to investment securities included in earnings for the
three months ended March 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Sales transactions:
|
|
|
|
Gross gains
|
$
|
271
|
|
|
$
|
3,274
|
|
Gross losses
|
—
|
|
|
(947
|
)
|
|
$
|
271
|
|
|
$
|
2,327
|
|
Maturities and other securities transactions:
|
|
|
|
Gross gains
|
$
|
—
|
|
|
$
|
89
|
|
Total gains on securities transactions, net
|
$
|
271
|
|
|
$
|
2,416
|
|
Valley recognized gross gains from sales transactions of investment securities totaling
$3.3 million
for the
three months ended March 31, 2015
due to the sale of corporate debt securities and trust preferred securities with amortized cost totaling
$25.9 million
. These transactions included a corporate debt security classified as held to maturity and a previously impaired pooled trust preferred security with amortized costs of
$9.8 million
and
$2.6 million
, respectively. Additionally, Valley recognized
$947 thousand
of gross losses during the
three months ended March 31, 2015
due to the sale of mostly trust preferred securities with a total amortized cost of
$8.3 million
. The vast majority of the sales of investment securities were due to an investment portfolio re-balancing during the
first quarter of 2015
due to changes in our regulatory capital calculation under the new Basel III regulatory capital reform (effective for Valley on January 1, 2015). Under ASC Topic 320, “Investments - Debt and Equity Securities,” the sale of held to maturity securities based upon the change in capital requirements is permitted without tainting the remaining held to maturity investment portfolio.
Note 8. Loans
The detail of the loan portfolio as of
March 31, 2016
and
December 31, 2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Non-PCI
Loans
|
|
PCI Loans*
|
|
Total
|
|
Non-PCI
Loans
|
|
PCI Loans*
|
|
Total
|
|
(in thousands)
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
2,176,942
|
|
|
$
|
360,603
|
|
|
$
|
2,537,545
|
|
|
$
|
2,156,549
|
|
|
$
|
383,942
|
|
|
$
|
2,540,491
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
6,304,974
|
|
|
1,280,165
|
|
|
7,585,139
|
|
|
6,069,532
|
|
|
1,355,104
|
|
|
7,424,636
|
|
Construction
|
633,559
|
|
|
142,498
|
|
|
776,057
|
|
|
607,694
|
|
|
147,253
|
|
|
754,947
|
|
Total commercial real estate loans
|
6,938,533
|
|
|
1,422,663
|
|
|
8,361,196
|
|
|
6,677,226
|
|
|
1,502,357
|
|
|
8,179,583
|
|
Residential mortgage
|
2,892,643
|
|
|
209,171
|
|
|
3,101,814
|
|
|
2,912,079
|
|
|
218,462
|
|
|
3,130,541
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
380,459
|
|
|
111,096
|
|
|
491,555
|
|
|
391,809
|
|
|
119,394
|
|
|
511,203
|
|
Automobile
|
1,187,742
|
|
|
321
|
|
|
1,188,063
|
|
|
1,238,826
|
|
|
487
|
|
|
1,239,313
|
|
Other consumer
|
444,247
|
|
|
11,567
|
|
|
455,814
|
|
|
426,147
|
|
|
15,829
|
|
|
441,976
|
|
Total consumer loans
|
2,012,448
|
|
|
122,984
|
|
|
2,135,432
|
|
|
2,056,782
|
|
|
135,710
|
|
|
2,192,492
|
|
Total loans
|
$
|
14,020,566
|
|
|
$
|
2,115,421
|
|
|
$
|
16,135,987
|
|
|
$
|
13,802,636
|
|
|
$
|
2,240,471
|
|
|
$
|
16,043,107
|
|
____
|
|
*
|
PCI loans include covered loans (mostly consisting of residential mortgage and commercial real estate loans) totaling
$86.8 million
and
$122.3 million
at
March 31, 2016
and
December 31, 2015
, respectively.
|
Total non-covered loans include net unearned premiums and deferred loan costs of
$5.6 million
and
$3.5 million
at
March 31, 2016
and
December 31, 2015
, respectively. The outstanding balances (representing contractual balances owed to Valley) for PCI loans totaled
$2.3 billion
and
$2.4 billion
at
March 31, 2016
and
December 31, 2015
, respectively.
There were
no
sales of loans from the held for investment portfolio during the
three
months ended
March 31, 2016
and
2015
.
Purchased Credit-Impaired Loans (Including Covered 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. Valley's PCI loan portfolio included covered loans (i.e., loans in which the Bank will share losses with the FDIC under loss-sharing agreements) totaling
$86.8 million
and
$122.3 million
at
March 31, 2016
and
December 31, 2015
, respectively.
The following table presents changes in the accretable yield for PCI loans during the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Balance, beginning of period
|
$
|
415,179
|
|
|
$
|
336,208
|
|
Accretion
|
(28,059
|
)
|
|
(26,350
|
)
|
Balance, end of period
|
$
|
387,120
|
|
|
$
|
309,858
|
|
FDIC Loss-Share Receivable
The receivable arising from the loss-sharing agreements with the FDIC is measured separately from the covered loan portfolio because the agreements are not contractually part of the covered loans and are not transferable should the Bank choose to dispose of the covered loans. The FDIC loss share receivable (which is included in other assets on Valley's consolidated statements of financial condition) totaled
$7.3 million
and
$8.3 million
at
March 31, 2016
and
December 31, 2015
, respectively. The aggregate effect of changes in the FDIC loss-share receivable was a net reduction in non-interest income of
$560 thousand
and
$3.9 million
for the
three months ended March 31, 2016
and
2015
, respectively. The larger reduction during the first quarter of 2015 was mainly caused by the prospective recognition of the effect of additional cash flows from certain loan pools which were covered by commercial loan loss-sharing agreements that expired in March 2015.
Loan Portfolio Risk Elements and Credit Risk Management
Credit risk management.
For all of its loan types discussed below, 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, 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.
Commercial and industrial loans.
A significant proportion of Valley’s commercial and industrial loan portfolio is granted to long-standing customers of proven ability and strong repayment performance. Underwriting standards are designed to assess the borrower’s ability to generate recurring cash flow sufficient to meet the debt service requirements of loans granted. While such recurring cash flow serves as the primary source of repayment, a significant number of the loans are collateralized by borrower assets intended to serve as a secondary source of repayment should the need arise. Anticipated cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value, or in the case of loans secured by accounts receivable, the ability of the borrower to collect all amounts due from its customers. Short-term loans may be made on an unsecured basis based on a borrower’s financial strength and past performance. Valley, in most cases, will obtain the personal guarantee of the borrower’s principals to mitigate the risk. Unsecured loans, when made, are generally granted to the Bank’s most credit worthy borrowers. Unsecured commercial and industrial loans totaled
$402.7 million
and
$386.6 million
at
March 31, 2016
and
December 31, 2015
, respectively.
Commercial real estate loans.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans. Both Valley originated and purchased commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real property. Commercial real estate loans generally involve larger principal balances and longer repayment periods as compared to commercial and industrial loans. Repayment of most commercial real estate loans is dependent upon the cash flow generated from the property securing the loan or the business that occupies the property. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy and accordingly conservative loan to value ratios are
required at origination, as well as stress tested to evaluate the impact of market changes relating to key underwriting elements. The properties securing the commercial real estate portfolio represent diverse types, with most properties located within Valley’s primary markets.
Construction loans
. With respect to loans to developers and builders, Valley originates and manages construction loans structured on either a revolving or non-revolving basis, depending on the nature of the underlying development project. These loans are generally secured by the real estate to be developed and may also be secured by additional real estate to mitigate the risk. Non-revolving construction loans often involve the disbursement of substantially all committed funds with repayment substantially dependent on the successful completion and sale, or lease, of the project. Sources of repayment for these types of loans may be from pre-committed permanent loans from other lenders, sales of developed property, or an interim loan commitment from Valley until permanent financing is obtained elsewhere. Revolving construction loans (generally relating to single-family residential construction) are controlled with loan advances dependent upon the pre-sale of housing units financed. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
Residential mortgages.
Valley originates residential, first mortgage loans based on underwriting standards that generally comply with Fannie Mae and/or Freddie Mac requirements. Appraisals and valuations of real estate collateral are contracted directly with independent appraisers or from valuation services and not through appraisal management companies. The Bank’s appraisal management policy and procedure is in accordance with regulatory requirements and guidance issued by the Bank’s primary regulator. Credit scoring, using FICO® and other proprietary credit scoring models, is employed in the ultimate, judgmental credit decision by Valley’s underwriting staff. Valley does not use third party contract underwriting services. Residential mortgage loans include fixed and variable interest rate loans secured by one to four family homes generally located in northern and central New Jersey, the New York City metropolitan area, Florida, and eastern Pennsylvania. Valley’s ability to be repaid on such loans is closely linked to the economic and real estate market conditions in these regions. In deciding whether to originate each residential mortgage loan, Valley considers the qualifications of the borrower as well as the value of the underlying property.
Home equity loans
. Home equity lending consists of both fixed and variable interest rate products. Valley mainly provides home equity loans to its residential mortgage customers within the footprint of its primary lending territory. Valley generally will not exceed a combined (i.e., first and second mortgage) loan-to-value ratio of
75 percent
when originating a home equity loan.
Automobile loans.
Valley uses both judgmental and scoring systems in the credit decision process for automobile loans. Automobile originations (including light truck and sport utility vehicles) are largely produced via indirect channels, originated through approved automobile dealers. Automotive collateral is generally a depreciating asset and there are times in the life of an automobile loan where the amount owed on a vehicle may exceed its collateral value. Additionally, automobile charge-offs will vary based on strength or weakness in the used vehicle market, original advance rate, when in the life cycle of a loan a default occurs and the condition of the collateral being liquidated. Where permitted by law, and subject to the limitations of the bankruptcy code, deficiency judgments are sought and acted upon to ultimately collect all money owed, even when a default resulted in a loss at collateral liquidation. Valley uses a third party to actively track collision and comprehensive risk insurance required of the borrower on the automobile and this third party provides coverage to Valley in the event of an uninsured collateral loss.
Other consumer loans
. Valley’s other consumer loan portfolio includes direct consumer term loans, both secured and unsecured. The other consumer loan portfolio includes exposures in personal lines of credit (including those secured by cash surrender value of life insurance), credit card loans and personal loans. Valley believes the aggregate risk exposure of these lines of credit and loans was not significant at
March 31, 2016
. Unsecured consumer loans totaled approximately
$20.4 million
and
$18.8 million
, including
$6.6 million
and
$7.1 million
of credit card loans, at
March 31, 2016
and
December 31, 2015
, respectively.
Credit Quality
The following table presents past due, non-accrual and current loans (excluding PCI loans, which are accounted for on a pool basis, and non-performing loans held for sale) by loan portfolio class at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
8,395
|
|
|
$
|
613
|
|
|
$
|
221
|
|
|
$
|
11,484
|
|
|
$
|
20,713
|
|
|
$
|
2,156,229
|
|
|
$
|
2,176,942
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
1,389
|
|
|
120
|
|
|
131
|
|
|
26,604
|
|
|
28,244
|
|
|
6,276,730
|
|
|
6,304,974
|
|
Construction
|
1,326
|
|
|
—
|
|
|
—
|
|
|
5,978
|
|
|
7,304
|
|
|
626,255
|
|
|
633,559
|
|
Total commercial real estate loans
|
2,715
|
|
|
120
|
|
|
131
|
|
|
32,582
|
|
|
35,548
|
|
|
6,902,985
|
|
|
6,938,533
|
|
Residential mortgage
|
14,628
|
|
|
3,056
|
|
|
2,613
|
|
|
16,747
|
|
|
37,044
|
|
|
2,855,599
|
|
|
2,892,643
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
1,262
|
|
|
300
|
|
|
—
|
|
|
1,685
|
|
|
3,247
|
|
|
377,212
|
|
|
380,459
|
|
Automobile
|
1,336
|
|
|
374
|
|
|
65
|
|
|
122
|
|
|
1,897
|
|
|
1,185,845
|
|
|
1,187,742
|
|
Other consumer
|
602
|
|
|
57
|
|
|
1
|
|
|
—
|
|
|
660
|
|
|
443,587
|
|
|
444,247
|
|
Total consumer loans
|
3,200
|
|
|
731
|
|
|
66
|
|
|
1,807
|
|
|
5,804
|
|
|
2,006,644
|
|
|
2,012,448
|
|
Total
|
$
|
28,938
|
|
|
$
|
4,520
|
|
|
$
|
3,031
|
|
|
$
|
62,620
|
|
|
$
|
99,109
|
|
|
$
|
13,921,457
|
|
|
$
|
14,020,566
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
3,920
|
|
|
$
|
524
|
|
|
$
|
213
|
|
|
$
|
10,913
|
|
|
$
|
15,570
|
|
|
$
|
2,140,979
|
|
|
$
|
2,156,549
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
2,684
|
|
|
—
|
|
|
131
|
|
|
24,888
|
|
|
27,703
|
|
|
6,041,829
|
|
|
6,069,532
|
|
Construction
|
1,876
|
|
|
2,799
|
|
|
—
|
|
|
6,163
|
|
|
10,838
|
|
|
596,856
|
|
|
607,694
|
|
Total commercial real estate loans
|
4,560
|
|
|
2,799
|
|
|
131
|
|
|
31,051
|
|
|
38,541
|
|
|
6,638,685
|
|
|
6,677,226
|
|
Residential mortgage
|
6,681
|
|
|
1,626
|
|
|
1,504
|
|
|
17,930
|
|
|
27,741
|
|
|
2,884,338
|
|
|
2,912,079
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
1,308
|
|
|
111
|
|
|
—
|
|
|
2,088
|
|
|
3,507
|
|
|
388,302
|
|
|
391,809
|
|
Automobile
|
1,969
|
|
|
491
|
|
|
164
|
|
|
118
|
|
|
2,742
|
|
|
1,236,084
|
|
|
1,238,826
|
|
Other consumer
|
71
|
|
|
24
|
|
|
44
|
|
|
—
|
|
|
139
|
|
|
426,008
|
|
|
426,147
|
|
Total consumer loans
|
3,348
|
|
|
626
|
|
|
208
|
|
|
2,206
|
|
|
6,388
|
|
|
2,050,394
|
|
|
2,056,782
|
|
Total
|
$
|
18,509
|
|
|
$
|
5,575
|
|
|
$
|
2,056
|
|
|
$
|
62,100
|
|
|
$
|
88,240
|
|
|
$
|
13,714,396
|
|
|
$
|
13,802,636
|
|
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 the information about impaired loans by loan portfolio class at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Investment
With No Related
Allowance
|
|
Recorded
Investment
With Related
Allowance
|
|
Total
Recorded
Investment
|
|
Unpaid
Contractual
Principal
Balance
|
|
Related
Allowance
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
7,758
|
|
|
$
|
19,838
|
|
|
$
|
27,596
|
|
|
$
|
33,913
|
|
|
$
|
3,578
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
32,587
|
|
|
42,816
|
|
|
75,403
|
|
|
79,295
|
|
|
4,088
|
|
Construction
|
8,685
|
|
|
1,257
|
|
|
9,942
|
|
|
9,952
|
|
|
37
|
|
Total commercial real estate loans
|
41,272
|
|
|
44,073
|
|
|
85,345
|
|
|
89,247
|
|
|
4,125
|
|
Residential mortgage
|
7,356
|
|
|
14,624
|
|
|
21,980
|
|
|
23,907
|
|
|
1,267
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
Home equity
|
204
|
|
|
2,454
|
|
|
2,658
|
|
|
2,750
|
|
|
407
|
|
Total consumer loans
|
204
|
|
|
2,454
|
|
|
2,658
|
|
|
2,750
|
|
|
407
|
|
Total
|
$
|
56,590
|
|
|
$
|
80,989
|
|
|
$
|
137,579
|
|
|
$
|
149,817
|
|
|
$
|
9,377
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
7,863
|
|
|
$
|
17,851
|
|
|
$
|
25,714
|
|
|
$
|
33,071
|
|
|
$
|
3,439
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
30,113
|
|
|
37,440
|
|
|
67,553
|
|
|
71,263
|
|
|
3,354
|
|
Construction
|
8,847
|
|
|
5,530
|
|
|
14,377
|
|
|
14,387
|
|
|
317
|
|
Total commercial real estate loans
|
38,960
|
|
|
42,970
|
|
|
81,930
|
|
|
85,650
|
|
|
3,671
|
|
Residential mortgage
|
7,842
|
|
|
14,770
|
|
|
22,612
|
|
|
24,528
|
|
|
1,377
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
Home equity
|
263
|
|
|
1,869
|
|
|
2,132
|
|
|
2,224
|
|
|
295
|
|
Total consumer loans
|
263
|
|
|
1,869
|
|
|
2,132
|
|
|
2,224
|
|
|
295
|
|
Total
|
$
|
54,928
|
|
|
$
|
77,460
|
|
|
$
|
132,388
|
|
|
$
|
145,473
|
|
|
$
|
8,782
|
|
The following table present by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
Average
Recorded
Investment
|
|
Interest
Income
Recognized
|
|
(in thousands)
|
Commercial and industrial
|
$
|
28,331
|
|
|
$
|
240
|
|
|
$
|
28,282
|
|
|
$
|
246
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
Commercial real estate
|
72,398
|
|
|
639
|
|
|
78,523
|
|
|
486
|
|
Construction
|
9,802
|
|
|
48
|
|
|
16,670
|
|
|
150
|
|
Total commercial real estate loans
|
82,200
|
|
|
687
|
|
|
95,193
|
|
|
636
|
|
Residential mortgage
|
23,603
|
|
|
202
|
|
|
21,843
|
|
|
250
|
|
Consumer loans:
|
|
|
|
|
|
|
|
Home equity
|
2,359
|
|
|
23
|
|
|
3,485
|
|
|
30
|
|
Total consumer loans
|
2,359
|
|
|
23
|
|
|
3,485
|
|
|
30
|
|
Total
|
$
|
136,493
|
|
|
$
|
1,152
|
|
|
$
|
148,803
|
|
|
$
|
1,162
|
|
Interest income recognized on a cash basis (included in the table above) was immaterial for the
three
months ended
March 31, 2016
and
2015
.
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 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
$80.5 million
and
$77.6 million
as of
March 31, 2016
and
December 31, 2015
, respectively. Non-performing TDRs totaled
$19.4 million
and
$21.0 million
as of
March 31, 2016
and
December 31, 2015
, respectively.
The following tables present loans by loan portfolio class modified as TDRs during the
three
months ended
March 31, 2016
and
2015
. The pre-modification and post-modification outstanding recorded investments disclosed in the table below represent the loan carrying amounts immediately prior to the modification and the carrying amounts at
March 31, 2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Three Months Ended March 31, 2015
|
Troubled Debt Restructurings
|
Number
of
Contracts
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
Number
of
Contracts
|
|
Pre-Modification
Outstanding
Recorded
Investment
|
|
Post-Modification
Outstanding
Recorded
Investment
|
|
($ in thousands)
|
Commercial and industrial
|
4
|
|
|
$
|
4,961
|
|
|
$
|
4,887
|
|
|
6
|
|
|
$
|
1,584
|
|
|
$
|
1,534
|
|
Commercial real estate
|
2
|
|
|
658
|
|
|
404
|
|
|
1
|
|
|
5,000
|
|
|
5,000
|
|
Residential mortgage
|
2
|
|
|
392
|
|
|
381
|
|
|
1
|
|
|
280
|
|
|
278
|
|
Consumer
|
1
|
|
|
54
|
|
|
53
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
9
|
|
|
$
|
6,065
|
|
|
$
|
5,725
|
|
|
8
|
|
|
$
|
6,864
|
|
|
$
|
6,812
|
|
The majority of the TDR concessions made during the
three
months ended
March 31, 2016
and
2015
involved an extension of the loan term. The total TDRs presented in the above table had allocated specific reserves for loan losses totaling
$1.6 million
and
$759 thousand
at
March 31, 2016
and
2015
, respectively.
These specific reserves are included in the allowance for loan losses for loans individually evaluated for impairment disclosed in Note 9. One commercial and industrial TDR loan totaling
$209 thousand
was fully charged-off during the
three
months ended
March 31, 2016
. There were
no
charge-offs related to TDR modifications during the
first quarter
of
2015
.
The following table presents non-PCI loans modified as TDRs within the previous 12 months for which there was a payment default (
90
days or more past due) during the
three
months ended
March 31, 2016
.
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2016
|
Troubled Debt Restructurings Subsequently Defaulted
|
Number of
Contracts
|
|
Recorded
Investment
|
|
($ in thousands)
|
Commercial and industrial
|
2
|
|
|
$
|
372
|
|
Commercial real estate
|
1
|
|
|
81
|
|
Residential mortgage
|
2
|
|
|
267
|
|
Consumer
|
1
|
|
|
30
|
|
Total
|
6
|
|
|
$
|
750
|
|
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 risk category of loans (excluding PCI loans) by class of loans at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure - by internally assigned risk rating
|
Pass
|
|
Special
Mention
|
|
Substandard
|
|
Doubtful
|
|
Total Non-PCI Loans
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
2,075,347
|
|
|
$
|
57,283
|
|
|
$
|
44,312
|
|
|
$
|
—
|
|
|
$
|
2,176,942
|
|
Commercial real estate
|
6,136,061
|
|
|
71,897
|
|
|
97,016
|
|
|
—
|
|
|
6,304,974
|
|
Construction
|
622,460
|
|
|
857
|
|
|
10,242
|
|
|
—
|
|
|
633,559
|
|
Total
|
$
|
8,833,868
|
|
|
$
|
130,037
|
|
|
$
|
151,570
|
|
|
$
|
—
|
|
|
$
|
9,115,475
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
|
2,049,752
|
|
|
$
|
68,243
|
|
|
$
|
36,254
|
|
|
$
|
2,300
|
|
|
$
|
2,156,549
|
|
Commercial real estate
|
5,893,354
|
|
|
79,279
|
|
|
96,899
|
|
|
—
|
|
|
6,069,532
|
|
Construction
|
596,530
|
|
|
1,102
|
|
|
10,062
|
|
|
—
|
|
|
607,694
|
|
Total
|
$
|
8,539,636
|
|
|
$
|
148,624
|
|
|
$
|
143,215
|
|
|
$
|
2,300
|
|
|
$
|
8,833,775
|
|
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, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure - by payment activity
|
Performing
Loans
|
|
Non-Performing
Loans
|
|
Total Non-PCI
Loans
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
Residential mortgage
|
$
|
2,875,896
|
|
|
$
|
16,747
|
|
|
$
|
2,892,643
|
|
Home equity
|
378,774
|
|
|
1,685
|
|
|
380,459
|
|
Automobile
|
1,187,620
|
|
|
122
|
|
|
1,187,742
|
|
Other consumer
|
444,247
|
|
|
—
|
|
|
444,247
|
|
Total
|
$
|
4,886,537
|
|
|
$
|
18,554
|
|
|
$
|
4,905,091
|
|
December 31, 2015
|
|
|
|
|
|
Residential mortgage
|
$
|
2,894,149
|
|
|
$
|
17,930
|
|
|
$
|
2,912,079
|
|
Home equity
|
389,721
|
|
|
2,088
|
|
|
391,809
|
|
Automobile
|
1,238,708
|
|
|
118
|
|
|
1,238,826
|
|
Other consumer
|
426,147
|
|
|
—
|
|
|
426,147
|
|
Total
|
$
|
4,948,725
|
|
|
$
|
20,136
|
|
|
$
|
4,968,861
|
|
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, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure - by payment activity
|
Performing
Loans
|
|
Non-Performing
Loans
|
|
Total
PCI Loans
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
Commercial and industrial
|
$
|
351,442
|
|
|
$
|
9,161
|
|
|
$
|
360,603
|
|
Commercial real estate
|
1,266,695
|
|
|
13,470
|
|
|
1,280,165
|
|
Construction
|
141,319
|
|
|
1,179
|
|
|
142,498
|
|
Residential mortgage
|
205,928
|
|
|
3,243
|
|
|
209,171
|
|
Consumer
|
117,050
|
|
|
5,934
|
|
|
122,984
|
|
Total
|
$
|
2,082,434
|
|
|
$
|
32,987
|
|
|
$
|
2,115,421
|
|
December 31, 2015
|
|
|
|
|
|
Commercial and industrial
|
$
|
373,665
|
|
|
$
|
10,277
|
|
|
$
|
383,942
|
|
Commercial real estate
|
1,342,030
|
|
|
13,074
|
|
|
1,355,104
|
|
Construction
|
141,547
|
|
|
5,706
|
|
|
147,253
|
|
Residential mortgage
|
214,713
|
|
|
3,749
|
|
|
218,462
|
|
Consumer
|
129,891
|
|
|
5,819
|
|
|
135,710
|
|
Total
|
$
|
2,201,846
|
|
|
$
|
38,625
|
|
|
$
|
2,240,471
|
|
Other real estate owned (OREO) totaled
$14.7 million
and
$19.0 million
(including
$2.4 million
and
$5.0 million
of OREO properties which are subject to loss-sharing agreements with the FDIC) at
March 31, 2016
and
December 31, 2015
, respectively. OREO included foreclosed residential real estate properties totaling
$7.2 million
and
$7.0 million
at
March 31, 2016
and
December 31, 2015
, respectively. Residential mortgage and consumer loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled
$13.3 million
and
$12.3 million
at
March 31, 2016
and
December 31, 2015
, respectively.
Note 9. Allowance for Credit Losses
The allowance for credit losses consists of the allowance for loan losses and the allowance for unfunded letters of credit. Management maintains the allowance for credit losses at a level estimated to absorb probable loan losses of the loan portfolio and unfunded letter of credit commitments at the balance sheet date. The allowance for loan losses is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio, including unexpected additional credit impairment of PCI loan pools subsequent to acquisition.
The following table summarizes the allowance for credit losses at
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
(in thousands)
|
Components of allowance for credit losses:
|
|
|
|
Allowance for loan losses
|
$
|
105,415
|
|
|
$
|
106,178
|
|
Allowance for unfunded letters of credit
|
2,260
|
|
|
2,189
|
|
Total allowance for credit losses
|
$
|
107,675
|
|
|
$
|
108,367
|
|
The following table summarizes the provision for credit losses for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Components of provision for credit losses:
|
|
|
|
Provision for loan losses
|
$
|
729
|
|
|
$
|
—
|
|
Provision for unfunded letters of credit
|
71
|
|
|
—
|
|
Total provision for credit losses
|
$
|
800
|
|
|
$
|
—
|
|
The following table details activity in the allowance for loan losses by portfolio segment for the
three months ended March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and Industrial
|
|
Commercial
Real Estate
|
|
Residential
Mortgage
|
|
Consumer
|
|
Unallocated
|
|
Total
|
|
(in thousands)
|
Three Months Ended
March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
48,767
|
|
|
$
|
48,006
|
|
|
$
|
4,625
|
|
|
$
|
4,780
|
|
|
$
|
—
|
|
|
$
|
106,178
|
|
Loans charged-off
|
(1,251
|
)
|
|
(105
|
)
|
|
(81
|
)
|
|
(1,074
|
)
|
|
—
|
|
|
(2,511
|
)
|
Charged-off loans recovered
|
526
|
|
|
89
|
|
|
15
|
|
|
389
|
|
|
—
|
|
|
1,019
|
|
Net (charge-offs) recoveries
|
(725
|
)
|
|
(16
|
)
|
|
(66
|
)
|
|
(685
|
)
|
|
—
|
|
|
(1,492
|
)
|
Provision for loan losses
|
375
|
|
|
464
|
|
|
(350
|
)
|
|
240
|
|
|
—
|
|
|
729
|
|
Ending balance
|
$
|
48,417
|
|
|
$
|
48,454
|
|
|
$
|
4,209
|
|
|
$
|
4,335
|
|
|
$
|
—
|
|
|
$
|
105,415
|
|
Three Months Ended
March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
43,676
|
|
|
$
|
42,840
|
|
|
$
|
5,093
|
|
|
$
|
5,179
|
|
|
$
|
5,565
|
|
|
$
|
102,353
|
|
Loans charged-off
|
(753
|
)
|
|
(150
|
)
|
|
(49
|
)
|
|
(714
|
)
|
|
—
|
|
|
(1,666
|
)
|
Charged-off loans recovered
|
1,051
|
|
|
460
|
|
|
114
|
|
|
319
|
|
|
—
|
|
|
1,944
|
|
Net recoveries (charge-offs)
|
298
|
|
|
310
|
|
|
65
|
|
|
(395
|
)
|
|
—
|
|
|
278
|
|
Provision for loan losses
|
919
|
|
|
(1,494
|
)
|
|
(1,066
|
)
|
|
188
|
|
|
1,453
|
|
|
—
|
|
Ending balance
|
$
|
44,893
|
|
|
$
|
41,656
|
|
|
$
|
4,092
|
|
|
$
|
4,972
|
|
|
$
|
7,018
|
|
|
$
|
102,631
|
|
At
December 31, 2015
, Valley refined and enhanced its assessment of the adequacy of the allowance for loan losses, including both changes to look-back periods for certain portfolios, as well as enhancements to its qualitative factor framework. The enhancements were meant to increase the level of precision in the allowance for credit losses. As a result, Valley no longer has an “unallocated” segment in its allowance for credit losses, as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative framework for the respective loan portfolio segment (reported in the table above) at
March 31, 2016
. As such, the unallocated allowance has in essence been reallocated to the applicable portfolios based on the risks and uncertainties it was meant to capture.
The following table represents the allocation of the allowance for loan losses and the related loans by loan portfolio segment disaggregated based on the impairment methodology at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and Industrial
|
|
Commercial
Real Estate
|
|
Residential
Mortgage
|
|
Consumer
|
|
Total
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
3,578
|
|
|
$
|
4,125
|
|
|
$
|
1,267
|
|
|
$
|
407
|
|
|
$
|
9,377
|
|
Collectively evaluated for impairment
|
44,839
|
|
|
44,329
|
|
|
2,942
|
|
|
3,928
|
|
|
96,038
|
|
Total
|
$
|
48,417
|
|
|
$
|
48,454
|
|
|
$
|
4,209
|
|
|
$
|
4,335
|
|
|
$
|
105,415
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
27,596
|
|
|
$
|
85,345
|
|
|
$
|
21,980
|
|
|
$
|
2,658
|
|
|
$
|
137,579
|
|
Collectively evaluated for impairment
|
2,149,346
|
|
|
6,853,188
|
|
|
2,870,663
|
|
|
2,009,790
|
|
|
13,882,987
|
|
Loans acquired with discounts related to credit quality
|
360,603
|
|
|
1,422,663
|
|
|
209,171
|
|
|
122,984
|
|
|
2,115,421
|
|
Total
|
$
|
2,537,545
|
|
|
$
|
8,361,196
|
|
|
$
|
3,101,814
|
|
|
$
|
2,135,432
|
|
|
$
|
16,135,987
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
3,439
|
|
|
$
|
3,671
|
|
|
$
|
1,377
|
|
|
$
|
295
|
|
|
$
|
8,782
|
|
Collectively evaluated for impairment
|
45,328
|
|
|
44,335
|
|
|
3,248
|
|
|
4,485
|
|
|
97,396
|
|
Total
|
$
|
48,767
|
|
|
$
|
48,006
|
|
|
$
|
4,625
|
|
|
$
|
4,780
|
|
|
$
|
106,178
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
25,714
|
|
|
$
|
81,930
|
|
|
$
|
22,612
|
|
|
$
|
2,132
|
|
|
$
|
132,388
|
|
Collectively evaluated for impairment
|
2,130,835
|
|
|
6,595,296
|
|
|
2,889,467
|
|
|
2,054,650
|
|
|
13,670,248
|
|
Loans acquired with discounts related to credit quality
|
383,942
|
|
|
1,502,357
|
|
|
218,462
|
|
|
135,710
|
|
|
2,240,471
|
|
Total
|
$
|
2,540,491
|
|
|
$
|
8,179,583
|
|
|
$
|
3,130,541
|
|
|
$
|
2,192,492
|
|
|
$
|
16,043,107
|
|
Note 10. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill as allocated to Valley's 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, 2015
|
$
|
20,517
|
|
|
$
|
199,119
|
|
|
$
|
314,260
|
|
|
$
|
152,443
|
|
|
$
|
686,339
|
|
Goodwill from business combinations
|
701
|
|
|
697
|
|
|
1,416
|
|
|
436
|
|
|
3,250
|
|
Balance at March 31, 2016
|
$
|
21,218
|
|
|
$
|
199,816
|
|
|
$
|
315,676
|
|
|
$
|
152,879
|
|
|
$
|
689,589
|
|
|
|
*
|
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.
|
Goodwill from business combinations, in the table above, includes the effect of the combined adjustments to the estimated fair values of the acquired assets (including core deposits presented in the table below) and liabilities as of the acquisition date of CNL, and goodwill related to the acquisition of certain assets from an independent insurance agency during the
first quarter of 2016
(see Note 2 for further details). There was
no
impairment of goodwill during the
three
months ended
March 31, 2016
and
2015
.
The following table summarizes other intangible assets as of
March 31, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Intangible
Assets
|
|
Accumulated
Amortization
|
|
Valuation
Allowance
|
|
Net
Intangible
Assets
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
Loan servicing rights
|
$
|
65,176
|
|
|
$
|
(48,934
|
)
|
|
$
|
(481
|
)
|
|
$
|
15,761
|
|
Core deposits
|
61,504
|
|
|
(33,406
|
)
|
|
—
|
|
|
28,098
|
|
Other
|
4,087
|
|
|
(1,791
|
)
|
|
—
|
|
|
2,296
|
|
Total other intangible assets
|
$
|
130,767
|
|
|
$
|
(84,131
|
)
|
|
$
|
(481
|
)
|
|
$
|
46,155
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Loan servicing rights
|
$
|
75,932
|
|
|
$
|
(59,251
|
)
|
|
$
|
(289
|
)
|
|
$
|
16,392
|
|
Core deposits
|
62,714
|
|
|
(31,934
|
)
|
|
—
|
|
|
30,780
|
|
Other
|
4,374
|
|
|
(2,664
|
)
|
|
—
|
|
|
1,710
|
|
Total other intangible assets
|
$
|
143,020
|
|
|
$
|
(93,849
|
)
|
|
$
|
(289
|
)
|
|
$
|
48,882
|
|
Loan servicing rights are accounted for using the amortization method. Under this method, Valley amortizes the loan servicing assets in proportion to, and over the period of 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
11 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
20 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, 2016
and
2015
.
The following table presents the estimated future amortization expense of other intangible assets for the remainder of
2016
through
2020
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Servicing
Rights
|
|
Core
Deposits
|
|
Other
|
|
(in thousands)
|
2016
|
$
|
3,430
|
|
|
$
|
4,156
|
|
|
$
|
222
|
|
2017
|
3,624
|
|
|
4,842
|
|
|
280
|
|
2018
|
2,793
|
|
|
4,215
|
|
|
249
|
|
2019
|
2,075
|
|
|
3,671
|
|
|
235
|
|
2020
|
1,555
|
|
|
3,127
|
|
|
220
|
|
Valley recognized amortization expense on other intangible assets, including net impairment charges on loan servicing rights, totaling approximately $
2.8 million
and $
2.4 million
for the
three months ended March 31, 2016
and
2015
, respectively.
Note 11. Stock–Based Compensation
On April 28, 2016, Valley’s shareholders approved the new 2016 Long-Term Stock Incentive Plan (the "2016 Stock Plan") administered by the Compensation and Human Resources Committee (the “Committee”) appointed by Valley’s Board of Directors. The purpose of the 2016 Stock Plan is to provide incentives to attract, retain and motivate officers and other key employees by providing a direct financial interest in Valley's continued success, and provide the flexibility to grant equity awards to non-employee directors as part of their compensation. The 2016 Stock Plan will also ensure that Valley has sufficient shares to meet its anticipated long-term equity compensation needs. Effective January 1, 2016, the
2.2 million
of common shares remaining under Valley's 2009 Long-Term Stock Incentive Plan (the "2009 Stock Plan") became available for future grants under the 2016 Stock Plan. Accordingly, Valley will no longer grant new awards under the 2009 Stock Plan.
Under the 2016 Stock Plan Valley may award shares to its employees and non-employee directors up to
9.4 million
shares of common stock (less one share for every share granted under the 2009 Stock Plan since December 31, 2015 and inclusive of shares available under the 2009 Stock Plan as of December 31, 2015) in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs). 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.
Valley awarded time-based restricted stock totaling
494 thousand
shares and
459 thousand
shares during the
three months ended March 31, 2016
and
2015
, respectively, to both executive officers and key employees of Valley. Valley also awarded
431 thousand
shares of performance-based RSUs under the 2016 Stock Plan and
313 thousand
shares of performance-based restricted stock during the
three months ended March 31, 2016
and
2015
, respectively, to certain executive officers (subject to shareholder approval of the 2016 Stock Plan). The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common share) over the applicable performance period. Dividend equivalents and accrued interest, per the terms of the agreements, are accumulated and paid to the grantee at the vesting date, or forfeited if the performance conditions are not met.
The performance-based awards vest based on (i) growth in tangible book value per share plus dividends (
75 percent
of performance shares) and (ii) total shareholder return as compared to our peer group (
25 percent
of performance shares). The majority of the performance-based awards "cliff" vest after
three
years based on the cumulative performance of Valley during that time period. The non-performance based awards have vesting periods ranging from
three
to
six years
. Generally, the restrictions on such awards lapse at an annual or bi-annual rate of
one-third
of the total award commencing with the first or second anniversary of the date of grant, respectively. The average
grant date fair value of non-performance and performance-based restricted stock awarded during the
three months ended March 31, 2016
was
$8.72
.
Valley recorded stock-based compensation expense of
$2.4 million
and
$2.5 million
for the
three months ended March 31, 2016
and
2015
, respectively. The fair values of stock awards are expensed over the shorter of the vesting or required service period.
As of March 31, 2016
, the unrecognized amortization expense for all stock-based employee compensation totaled approximately
$18.7 million
and will be recognized over an average remaining vesting period of approximately
3
years.
Note 12. Guarantees
Guarantees that have been entered into by Valley include standby letters of credit of
$205.2 million
as of
March 31, 2016
. Standby letters of credit represent the guarantee by Valley of the obligations or performance of a customer in the event the customer is unable to meet or perform its obligations to a third party. Of the total standby letters of credit,
$134.0 million
, or
65.3 percent
, are secured and, in the event of non-performance by the customer, Valley has rights to the underlying collateral, which include commercial real estate, business assets (physical plant or property, inventory or receivables), marketable securities and cash in the form of bank savings accounts and certificates of deposit. As of
March 31, 2016
, Valley had a
$735 thousand
liability related to the standby letters of credit.
Note 13. 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 and caps 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. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
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 uses 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.
During the second quarter of 2014, Valley issued
$25 million
of market linked certificates of deposit through a broker dealer. The rate paid on these hybrid instruments is based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve. This type of instrument is referred to as a "steepener" since it derives its value from the slope of the CMS curve. Valley has determined that these hybrid instruments contain an embedded swap contract which has been bifurcated from the host contract. Valley entered into a swap (with a total notional amount of
$25 million
) almost simultaneously with the deposit issuance where the receive rate on the swap mirrors the pay rate on the brokered deposits. The bifurcated derivative and the stand alone swap are both marked to market through other non-interest expense. Although these 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 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 rates 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, 2016
|
|
December 31, 2015
|
|
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 caps and swaps
|
$
|
732
|
|
|
$
|
32,423
|
|
|
$
|
907,000
|
|
|
$
|
1,284
|
|
|
$
|
24,823
|
|
|
$
|
907,000
|
|
Fair value hedge interest rate swaps
|
12,385
|
|
|
1,404
|
|
|
133,158
|
|
|
7,658
|
|
|
1,306
|
|
|
133,209
|
|
Total derivatives designated as hedging instruments
|
$
|
13,117
|
|
|
$
|
33,827
|
|
|
$
|
1,040,158
|
|
|
$
|
8,942
|
|
|
$
|
26,129
|
|
|
$
|
1,040,209
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and embedded derivatives
|
$
|
35,903
|
|
|
$
|
35,900
|
|
|
$
|
715,043
|
|
|
$
|
24,628
|
|
|
$
|
24,623
|
|
|
$
|
654,134
|
|
Mortgage banking derivatives
|
288
|
|
|
472
|
|
|
198,918
|
|
|
204
|
|
|
92
|
|
|
73,438
|
|
Total derivatives not designated as hedging instruments
|
$
|
36,191
|
|
|
$
|
36,372
|
|
|
$
|
913,961
|
|
|
$
|
24,832
|
|
|
$
|
24,715
|
|
|
$
|
727,572
|
|
Losses included in the consolidated statements of income and in 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,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Amount of loss reclassified from accumulated other comprehensive loss to interest expense
|
$
|
(2,971
|
)
|
|
$
|
(1,629
|
)
|
Amount of loss recognized in other comprehensive income
|
(11,032
|
)
|
|
(8,911
|
)
|
The net gains or losses related to cash flow hedge ineffectiveness were immaterial during the
three months ended March 31, 2016
and
2015
. The accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were
$22.5 million
and
$17.6 million
at
March 31, 2016
and
December 31, 2015
, 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
$12.8 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,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Derivative - interest rate swaps:
|
|
|
|
Interest income
|
$
|
(99
|
)
|
|
$
|
(54
|
)
|
Interest expense
|
4,728
|
|
|
2,741
|
|
Hedged item - loans and long-term borrowings:
|
|
|
|
Interest income
|
$
|
99
|
|
|
$
|
54
|
|
Interest expense
|
(4,719
|
)
|
|
(2,781
|
)
|
The amounts recognized in non-interest expense related to ineffectiveness of fair value hedges were immaterial for the
three months ended March 31, 2016
and
2015
.
The net (losses) gains included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Non-designated hedge interest rate derivatives
|
|
|
|
Other non-interest expense
|
$
|
(297
|
)
|
|
$
|
38
|
|
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, 2016
, Valley was in compliance with all of the provisions of its derivative counterparty agreements.
As of March 31, 2016
, 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
$54.2 million
. Valley
has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties. At
March 31, 2016
, Valley had
$65.0 million
in collateral posted with its counterparties.
Note 14. Balance Sheet Offsetting
Certain financial instruments, including derivatives (consisting of interest rate caps and swaps) 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, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset
|
|
|
|
Gross Amounts
Recognized
|
|
Gross Amounts
Offset
|
|
Net Amounts
Presented
|
|
Financial
Instruments
|
|
Cash
Collateral
|
|
Net
Amount
|
|
(in thousands)
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps and swaps
|
$
|
49,020
|
|
|
$
|
—
|
|
|
$
|
49,020
|
|
|
$
|
(13,117
|
)
|
|
$
|
—
|
|
|
$
|
35,903
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps and swaps
|
$
|
69,727
|
|
|
$
|
—
|
|
|
$
|
69,727
|
|
|
$
|
(13,117
|
)
|
|
$
|
(56,610
|
)
|
|
$
|
—
|
|
Repurchase agreements
|
475,000
|
|
|
—
|
|
|
475,000
|
|
|
—
|
|
|
(475,000
|
)
|
*
|
—
|
|
Total
|
$
|
544,727
|
|
|
$
|
—
|
|
|
$
|
544,727
|
|
|
$
|
(13,117
|
)
|
|
$
|
(531,610
|
)
|
|
$
|
—
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps and swaps
|
$
|
33,570
|
|
|
$
|
—
|
|
|
$
|
33,570
|
|
|
$
|
(8,942
|
)
|
|
$
|
—
|
|
|
$
|
24,628
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps and swaps
|
$
|
50,752
|
|
|
$
|
—
|
|
|
$
|
50,752
|
|
|
$
|
(8,942
|
)
|
|
$
|
(41,810
|
)
|
|
$
|
—
|
|
Repurchase agreements
|
475,000
|
|
|
—
|
|
|
475,000
|
|
|
—
|
|
|
(475,000
|
)
|
*
|
—
|
|
Total
|
$
|
525,752
|
|
|
$
|
—
|
|
|
$
|
525,752
|
|
|
$
|
(8,942
|
)
|
|
$
|
(516,810
|
)
|
|
$
|
—
|
|
|
|
|
*
|
Represents fair value of non-cash pledged investment securities.
|
Note 15. 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 of the consolidated statements of income using the equity method of accounting. An impairment loss is recognized when the fair value of the tax credit investment is less than its carrying value.
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, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
(in thousands)
|
Other Assets:
|
|
|
|
Affordable housing tax credit investments, net
|
$
|
31,370
|
|
|
$
|
32,094
|
|
Other tax credit investments, net
|
64,141
|
|
|
70,681
|
|
Total tax credit investments, net
|
$
|
95,511
|
|
|
$
|
102,775
|
|
Other Liabilities:
|
|
|
|
Unfunded affordable housing tax credit commitments
|
$
|
7,330
|
|
|
$
|
7,330
|
|
Unfunded other tax credit commitments
|
6,165
|
|
|
12,545
|
|
Total unfunded tax credit commitments
|
$
|
13,495
|
|
|
$
|
19,875
|
|
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, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2016
|
|
2015
|
|
(in thousands)
|
Components of Income Tax Expense:
|
|
|
|
Affordable housing tax credits and other tax benefits
|
$
|
1,065
|
|
|
$
|
1,731
|
|
Other tax credit investment credits and tax benefits
|
3,268
|
|
|
3,618
|
|
Total reduction in income tax expense
|
$
|
4,333
|
|
|
$
|
5,349
|
|
Amortization of Tax Credit Investments:
|
|
|
|
Affordable housing tax credit investment losses
|
$
|
584
|
|
|
$
|
677
|
|
Affordable housing tax credit investment impairment losses
|
140
|
|
|
488
|
|
Other tax credit investment losses
|
74
|
|
|
297
|
|
Other tax credit investment impairment losses
|
6,466
|
|
|
3,034
|
|
Total amortization of tax credit investments recorded in non-interest expense
|
$
|
7,264
|
|
|
$
|
4,496
|
|
Note 16. 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.