VALLEY NATIONAL BANCORP
For the period ended Mar 31, 2025. Filed May 8, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 8, 2025
VLY$14.08+0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0000714310-24-000164
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-08.
0000714310-25-000095
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 269 previous paragraphs and 233 current paragraphs.
96 unchanged; 95 reworded; 40 added; 74 removed; 4 previous and 2 current paragraphs rearranged.
Tables are not compared: 35 previous and 32 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (40)
Current report
•increased competitive challenges, including our ability to stay current with rapid technological changes in the financial services industry;
Current report
•Credit Quality: Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) decreased $47.5 million to $51.7 million, or 0.11 percent of total loans, at March 31, 2025 as compared to $99.2 million, or 0.20 of total loans, at December 31, 2024. Non-accrual loans totaled $346.5 million, or 0.71 percent of total loans, at March 31, 2025 as compared to $359.5 million, or 0.74 percent of total loans, at December 31, 2024. See the “Non-Performing Assets” section for additional information.
Current report
•Deposits: Non-interest bearing deposits increased $199.9 million to $11.6 billion at March 31, 2025 from December 31, 2024 largely due to higher inflows of commercial customer deposits during the first quarter 2025. Savings, NOW, and money market deposits increased $108.6 million to $26.4 billion at March 31, 2025 from December 31, 2024 mostly due to new deposits from our online savings deposit product offerings. Total actual deposit balances decreased $110.0 million to $50.0 billion at March 31, 2025 as compared to $50.1 billion at December 31, 2024 as the increases in our direct customer deposits were offset by a $726.5 million decrease in indirect customer deposits (consisting largely of brokered CDs) during the first quarter 2025. See the "Deposits" section below for more details.
Current report
•a $17.5 million increase in our provision for credit losses largely due to higher quantitative reserves allocated to commercial real estate loans, significant growth within the commercial and industrial loan category and the impact of loan charge-offs; and
Current report
Over the last four months of 2024 at its Federal Open Market Committee meetings, the Federal Reserve lowered the target range for the federal funds rate from 5.25 – 5.50 percent to 4.25 – 4.50 percent. The latest projections from the Committee’s last meeting in March indicate two rate cuts in 2025. With inflation remaining somewhat elevated in recent months, unpredictability regarding U.S. government tariff plans, and overall uncertainty around the economic outlook, the Committee held rates steady in March 2025. Additionally, the Committee indicated it will slow the pace of its securities runoff to $5 billion per month starting in April, down from its prior reductions of $25 billion per month.
Current report
Entering the first quarter of 2025, there was a general sense of an economic recovery and improving operating environment, and the Federal Reserve started to see modest progress in their efforts to combat inflation. However, more recent economic and political developments, such as new tariff policies, strict immigration enforcement, government spending cuts, a potentially weakening job market, continued elevated market interest rates, and ongoing geopolitical conflicts has weakened the current economic outlook. As a result of these factors, many market analysts have increased the likelihood of a recession in the coming year in their forecasts, and foresee an overall challenging bank operating environment. Should these conditions persist or further deteriorate, they may adversely impact our banking clients and our financial results, as highlighted elsewhere in this MD&A.
Current report
We define cumulative deposit beta as the change in our cost of total deposits relative to the change in the average Fed Funds (upper bound) rate. We differentiate between the cumulative deposit beta during the rate increase cycle, which began in the first quarter of 2022 and ended in the second quarter of 2024, and the cumulative deposit beta during the rate decrease cycle which started in the third quarter of 2024. Our cumulative deposit beta in the interest rate increase cycle (between December 31, 2021 and June 30, 2024) was approximately 58 percent. The Federal Reserve started an interest rate decrease cycle during the third quarter 2024. Our cumulative deposit beta in this current interest rate decrease cycle (between June 30, 2024 and March 31, 2025) was 53 percent as compared to 34 percent (between June 30, 2024 and December 31, 2024) one quarter ago. The continued increase of our cumulative deposit beta in the first quarter 2025 was mainly driven by a full quarter’s impact of the Federal Reserve's rate cuts in November and December 2024, and our ability to broadly reduce costs of interest bearing deposit products coupled with a reduction of higher cost indirect customer CDs. See the "Net Interest Income" section for additional details on the changes in our cost of deposits during the first quarter 2025.
Current report
The following table summarizes CDs included in time deposits in excess of the FDIC insurance limit by maturity at March 31, 2025:
Current report
Non-GAAP Reconciliations to GAAP Financial Measures
Current report
Net interest income on a tax equivalent basis of $421.4 million for the first quarter 2025 decreased $2.9 million compared to the fourth quarter 2024 and increased $26.5 million as compared to the first quarter 2024. Interest income on a tax equivalent basis decreased $50.1 million to $786.0 million for the first quarter 2025 as compared to the fourth quarter 2024. The decrease was mostly driven by the impact of (i) two less days in the first quarter 2025, (ii) the bulk sale of certain performing CRE loans during the fourth quarter 2024, and (iii) downward repricing on adjustable rate loans. Total interest expense decreased $47.2 million to $364.6 million for the first quarter 2025 as compared to the fourth quarter 2024 mainly due to (i) the aforementioned reduction in day count, (ii) a $2.0 billion decrease in average time deposit balances (primarily related to the maturity and repayment of higher cost indirect customer CDs) and (iii) lower interest rates on many interest bearing deposit products in the first quarter 2025.
Current report
Average interest earning assets increased $272.9 million to $56.9 billion for the first quarter 2025 as compared to the first quarter 2024 mainly due to a $2.0 billion increase in average taxable investments largely resulting from purchases of residential mortgage-backed securities classified as available for sale over the past 12 months, largely offset by lower average loan balances. Compared to the fourth quarter 2024, average interest earning assets decreased by $1.3 billion during the first quarter 2025. The decrease was mainly driven by decreases of$1.1 billion and $831.1 million in average loans and overnight interest bearing cash balances, respectively, partially offset by an increase of $596.9 million in average taxable investments. The decrease inaverage loan balances to$48.7 billion for thefirst quarter 2025 wasmostly due to the bulk sale of certain performing CRE loans during the fourth quarter 2024 and continued CRE loan repayment activity. The decline in average overnight interest bearing cash balances was largely the result of excess funds from both loan sales and issuance of common stock in the fourth quarter 2024 used, in part, to repay maturing indirect customer time deposits and purchase taxable investment securities in thefirst quarter 2025.
Current report
In Valley's Annual Report, we provided guidance that we anticipated net interest income growth of approximately 9 to 12 percent for the full year of 2025 as compared to $1.6 billion reported for 2024. Based upon our current projections, we now expect the growth of our net interest income for 2025 to fall within the low-end of the 9 to 12 percent range largely due to lower anticipated loan growth and continued lending spread compression. Our forecasts include additional assumptions and, therefore, we cannot provide any assurances that our future net interest income or margin will meet our current estimates or remain near the levels reported for the first quarter 2025. For a detailed discussion on the risks related to interest rates please refer to Part I, Item 1A. “Risk Factors” in Valley's Annual Report.
Current report
Non-interest income represented 12.2 percent and 13.5 percent of total net interest income plus non-interest income for the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025, non-interest income decreased $3.1 million as compared to the same quarter in 2024 mainly driven by lower gains on sales of assets and decreases in wealth management and trust fees and other income, partially offset by moderate increases in several other categories. See further details below.
Current report
Wealth management and trust fee income decreased $2.9 million for the three months ended March 31, 2025 as compared to the same quarter in 2024 mainly due to a decrease of $3.0 million in tax credit advisory service fees due to a lower volume of transactions.
Current report
Other non-interest income decreased $2.6 million for the three months ended March 31, 2025 as compared to the same period in 2024 partly due to a decrease in gains realized on the change in the fair value of equity securities.
Current report
Non-interest expense decreased $3.7 million for the three months ended March 31, 2025 as compared to the same quarter in 2024 mainly due to decreases in technology, furniture and equipment expense and FDIC insurance assessment fees, largely offset by higher amortization of tax credit investments and increased other expense. See further details below.
Current report
FDIC insurance assessment expense decreased $5.4 million for the three months ended March 31, 2025 as compared to the same quarter of 2024 primarily due to FDIC special assessment expenses of $7.4 million recorded in the first quarter of 2024.
Current report
Amortization of other intangibles decreased $1.4 million for the three months ended March 31, 2025 as compared to the same quarter of 2024 mainly due to a decline in amortization expense related to core deposits and loan servicing rights.
Current report
Amortization of tax credit investments increased $3.8 million for the three months ended March 31, 2025 as compared to the same quarter of 2024 mainly due to large purchases of tax-advantaged investments over the last twelve months. See Note 14 for more details regarding our tax credit investments.
Current report
Income before income taxes generated by the Consumer Banking segment increased $25.7 million to $37.3 million for the first quarter 2025 as compared to the first quarter 2024. The increase was mainly driven by a combination of an increase in net interest income and a lower provision for loan losses, partially offset by an increase in non- interest expense. Net interest income for this segment increased $18.5 million mainly due to the aforementioned growth in average loans coupled with lower funding costs. The provision for loan losses decreased $11.8 million for thefirst quarter 2025 as compared to the first quarter 2024 mainly due to lower quantitative reserves within the residential mortgage loan portfolio based on continued high levels of credit performance. Non-interest expense increased $5.8 million for the first quarter 2025 mainly due to higher salary and employee benefits expense.
Current report
Average interest earning assets in Commercial Banking segment decreased$2.0 billion to $38.4 billion for thefirst quarter 2025 as compared to the first quarter 2024. Thedecreasewas mostly due to the bulk sales of certain performing CRE loans during both late March 2024 and the fourth quarter 2024, as well as continued CRE loan repayment activity.
Current report
Treasury and Corporate Other's average interest earning assets increased $1.9 billion to $8.2 billion for thefirst quarter 2025 primarily due to increase in average taxable investments largely resulting from additional purchases of residential mortgage-backed securities classified as AFS over the last 12-month period.
Current report
Treasury and Corporate Other's net interest margin increased 93 basis points to 1.44 percent for the first quarter 2025 as compared to the first quarter 2024 due to a 42 basis point increase in the yield on average investments due to the higher yielding new investment securities purchased over the last 12 months coupled with a 51 basis point decrease in the cost of our funding sources.
Current report
Rated using external rating agencies. Ratings categories include entire range. For example, “A Rated” includes A+, A, and A-. Split rated securities with two ratings are categorized at the higher of the rating levels.
Current report
Commercial and industrial loans grew by $218.8 million, or 8.8 percent on an annualized basis, to $10.2 billion at March 31, 2025 from December 31, 2024 largely due to our continued strategic focus on growth within this category. New loan volumes continue to be a diverse range of relationship-driven middle market businesses largely located in our primary markets, as well as some nationwide businesses.
Current report
Construction loans decreased $87.8 million to $3.0 billion at March 31, 2025 from December 31, 2024 mainly due to the migration of completed projects to permanent financing within the multifamily loan category during the first quarter 2025, partially offset by new advances. Additionally, a non-performing loan totaling $10.2 million, net of $638 thousand of charge-offs, was transferred to loans held for sale at March 31, 2025.
Current report
Residential mortgage loans totaled $5.6 billion at March 31, 2025 and increased only $3.9 million from December 31, 2024 as new volumes of loans held for investment were mostly offset by normal repayment activity. New and refinanced residential mortgage loan originations totaled $132.8 million for the first quarter 2025 as compared to $182.0 million and $115.0 million for the fourth quarter 2024 and first quarter 2024, respectively. We retained approximately 71.8 percent and 71.3 percent of the total residential mortgage originations in our held for investment loan portfolio during the first quarter 2025 and the fourth quarter 2024, respectively.
Current report
We continue to proactively diversify our loan portfolio by reducing new originations of certain types of commercial real estate lending, such as non-owner occupied and multifamily loans through highly selective new loan origination. We also remain significantly focused on the growth of our commercial and industrial loan portfolio. In Valley's Annual Report, we provided guidance that we anticipated loan growth for 2025, net of continued runoff from scheduled maturities of commercial real estate non-owner occupied and multifamily loans, in the range of 3 to
Current report
5 percent as compared to total loans of $48.8 billion at December 31, 2024. Based upon our current projections, we now expect total loan growth for 2025 to fall within the low-end of the 3 to 5 percent range due to the current level of competition for high quality commercial loans, an expected decline in business investment due to the impact of tariffs and any retaliatory actions, as well as other factors. However, there can be no assurance that we will achieve such growth levels given the potential for unforeseen changes in the market and other conditions detailed in our risk factors set forth under Item 1A. Risk Factors of Valley's Annual Report.
Current report
Loans 30 to 59 days past due decreased $23.7 million to $33.4 million at March 31, 2025 as compared to December 31, 2024 largely due to a previously reported delinquent commercial real estate loan totaling $15.1 million that was current to its contractual payments at March 31, 2025, a $2.4 million commercial real estate loan that was reclassified to the non-accrual category during the first quarter 2025, as well as a general improvement in residential mortgage loan delinquencies in this category.
Current report
Loans 60 to 89 days past due decreased $25.6 million to $10.5 million at March 31, 2025 as compared to December 31, 2024 mostly due to the renewal of an $18.6 million matured performing commercial real estate loan reported in this delinquency category at December 31, 2024 and a $4.5 million commercial real estate loan that was reclassified to the non-accrual category during the first quarter 2025.
Current report
Non-accrual loans decreased $13.0 million to $346.5 million at March 31, 2025 as compared to $359.5 million at December 31, 2024, largely driven by partial charge-offs of two non-performing commercial and industrial loan relationships during the first quarter 2025, partially offset by a moderate increase in non-performing commercial real estate loans at March 31, 2025. Non-accrual commercial and industrial loans decreased $26.5 million at March 31, 2025 as compared to December 31, 2024 largely driven by a $24.1 million of partial and full charge-offs during the first quarter 2025 related to two non-performing loan relationships with combined allocated reserves of $16.0 million at December 31, 2024. Non-accrual commercial real estate loans increased $14.8 million at March 31, 2025 as compared to December 31, 2024 mostly driven by additional non-performing loan relationships, including two loan relationships totaling $6.9 million that were reclassified from the aforementioned past due categories during the first quarter 2025.
Current report
OREO decreased $4.4 million to$7.7 million at March 31, 2025 from December 31, 2024, mostly due to the sale of onecommercial real estate property, which resulted in a $2.9 million loss for thefirst quarter 2025. See Note 7 to the consolidated financial statements for additional information.
Current report
•GDP expansion by about 1.7 percent in the second quarter 2025;
Current report
•The target federal funds rate range of 4.25 - 4.50 percent was unchanged from December 31, 2024 with two possible 25 basis point cuts in 2025;
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•Inflation was at 2.4 percent in the March 31, 2025 driven by elevated shelter inflation. The inflation rate is expected to continue to grow at a slow rate during the year and to reach 2.7 percent by the end of 2025 and is projected to be around 2.3 percent in 2027; and
Current report
•A decline in business investment due to deceleration in GDP and the potential negative impact of tariffs and other uncertainty related to ongoing trade wars.
Current report
•net income of $106.1 million,
Current report
•other comprehensive income of $27.1 million,
Current report
•repurchases of $2.2 million of our common stock held in treasury stock.
Removed paragraphs (74)
Previous report
Impacts of Hurricanes Helene and Milton. In the early stages of the fourth quarter 2024, the credit quality of our Florida loan portfolio has remained resilient in the aftermath of Hurricane Helene, which hit Florida in late September 2024, and Hurricane Milton, which made landfall on October 9, 2024. At this time, there have been relatively few loan concessions (mostly in the form of loan payment deferrals up to 90 days) for distressed borrowers impacted by the hurricanes. However, we continue to assess the impact of the hurricanes on our Florida client base and, where appropriate, we will work constructively with individual borrowers. At September 30, 2024, our allowance for loan losses included an $8.0 million qualitative reserve for estimated losses resulting from Hurricane Helene. While not anticipated based on information currently available, Hurricane Milton and greater than expected losses from Hurricane Helene at September 30, 2024 could result in a significant increase to the current hurricane related reserves within the allowance, loan charge-offs and our provision for the fourth quarter 2024.
Previous report
In an effort to support our associates who have been directly impacted by Hurricane Helene, we are offering various disaster assistance, including low interest rate personal and automobile loans with terms ranging from 12 to 60 months.
Previous report
Subsequent Event. On November 12, 2024, Valley issued and sold 49,197,860 shares of its common stock in a registered public offering, including 6,417,112 shares purchased under an over-allotment option exercised in full by the underwriters at the public offering price of $9.35 per share. The net proceeds of the offering, after deducting underwriting discounts and commissions and offering expenses payable by Valley, were $448.9 million and are expected to be used for general corporate purposes and investments in the Bank as regulatory capital.
Previous report
•Regulatory Capital and Shareholders' Equity: Total shareholders' equity increased $234.6 million to $7.0 billion at September 30, 2024 as compared to June 30, 2024 largely due to net proceeds of $144.7 million from the issuance of our Series C preferred stock in August 2024 and net income and net other comprehensive income for the third quarter 2024. Valley's total risk-based capital, common equity Tier 1 capital, Tier 1 capital and Tier 1 leverage capital ratios were 12.56 percent, 9.57 percent, 10.29 percent, and
Previous report
•Credit Quality: Non-performing assets (NPAs) as a percentage of total loans and NPAs decreased to 0.61 percent at September 30, 2024 as compared to 0.62 percent at June 30, 2024. Total net loan charge-offs to average loans were 0.34 percent for the third quarter 2024 as compared with 0.29 percent for the second quarter 2024. See the “Non-Performing Assets” section for additional information.
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•Deposits: Total deposits increased $283.8 million to $50.4 billion at September 30, 2024 as compared to $50.1 billion at June 30, 2024 mainly due to higher direct commercial customer money market and non-interest bearing deposits, partially offset by a decline in time deposits. During the third quarter 2024, we added roughly 25 thousand new deposit accounts, including nearly 11 thousand accounts that are non-interest bearing deposits. Total indirect customer deposits (including both brokered money market and time deposits) totaled $9.1 billion at September 30, 2024 and remained relatively unchanged compared to June 30, 2024. We intend to use a significant portion of the net proceeds from the expected sale of commercial real estate loans held for sale to repay maturing indirect customer deposits in the fourth quarter 2024. See the “Deposits and Other Borrowings” section for more details.
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•a $65.9 million increase in our provision for credit losses mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and the additional qualitative reserve related to the estimated impact of Hurricane Helene at September 30, 2024;
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•a $24.7 million decrease in income tax expense mostly due to lower pre-tax income in the third quarter 2024 and a higher level of investment in tax credits as compared to one year ago; and
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At its Federal Open Market Committee meeting in September, the Federal Reserve implemented a 0.50 percent rate cut resulting in a federal funds target rate range of 4.75 percent to 5.00 percent. The rate cut represented the first interest rate change in a year and the first rate cut in more than four years. On November 7, 2024, the Federal Reserve cut the federal funds target rate another 0.25 percent to a current range of 4.50 percent to 4.75 percent. The Federal Reserve's projections released in September 2024 signal that they may cut the federal funds target rate by another 0.25 percent at their next meeting in mid-December 2024.
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Although Federal Reserve efforts to combat inflation are showing continued, but modest progress, several factors, including, but not limited to, new and proposed bank regulatory actions, potential weakening of the labor market, elevated inflation and interest rates, future policies and legislation under the new U.S. presidential administrationand geopolitical conflicts have contributed to uncertainty to the future path of the U.S. economy and created a challenging bank operating environment. Should these conditions persist or further deteriorate, they may adversely impact our banking clients and our financial results, as highlighted in this MD&A.
Previous report
Our cumulative deposit beta remained generally stable at 60 percent as of September 30, 2024 from 58 percent at June 30, 2024 and 57 percent at December 31, 2023. The slight uptick from each comparable period was driven by a modestly higher cost of interest-bearing customer deposits and mix-shift from non-interest to interest-bearing deposit products. We define cumulative deposit beta as the change in our cost of total deposits relative to the change in the Fed Funds rate during the current rising interest rate cycle which began in the first quarter of 2022. See the "Net Interest Income" section for additional details on the changes in our cost of deposits during the third quarter 2024.
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The following table lists, by maturity, uninsured CDs at September 30, 2024:
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Net interest income on a tax equivalent basis of$411.8 million for the third quarter 2024 increased $8.8 million compared to the second quarter 2024 anddecreased $1.8 million as compared to the third quarter 2023. Interest income on a tax equivalent basis increased $27.1 million to $861.9 million for the third quarter 2024 as compared to the second quarter 2024. The increase was mostly due to higher yields on both new loan originations and adjustable rate loans, as well as higher yields and additional interest income from targeted purchases of taxable investments within the available for sale securities portfolio during the second and third quarter 2024. Total interest expense increased $18.3 million to $450.1 million for the third quarter 2024 as compared to the second quarter 2024 mainly due to an increase in average time deposit balances coupled with higher costs on most interest bearing deposit products. See the "Deposits" and "Other Borrowings" sections below for more details.
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Average interest earning assets increased $849.1 million to $57.7 billion for the third quarter 2024 as compared to the third quarter 2023 mainly due to a $1.1 billion increase inaverage taxable investments largely resulting from purchases of residential mortgage-backed securities classified as available for sale during the nine months ended September 30, 2024. Compared to the second quarter 2024, average interest earning assets increased by $878.7 million. The increase was mainly driven by increases of $598.1 million and $176.7 million in average taxable investments and average overnight interest bearing cash balances, respectively, as compared to the prior linked quarter. Theaverage loan balances also increased by $106.1 million to$50.1 billion for thethird quarter 2024 mostly due to organic loan growth in the latter half of thesecond quarter 2024.
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Based upon our latest model estimates, we anticipate net interest income to decline approximately one percent for the fourth quarter 2024 as compared to the third quarter 2024. The projected decline is largely due to lower forecasted interest income resulting from the expected sale of the commercial real estate loans transferred to loans held for sale during the third quarter 2024. Exclusive of this, we would have forecasted net interest income for the fourth quarter 2024 to be slightly higher relative to the third quarter 2024 as a result of modest loan growth and lower funding costs in the wake of the 50 basis point reduction to the federal funds target rate in September 2024. Our forecasts include several other uncertain assumptions, including changes in the level of market interest rates and the interest sensitivity of our balance sheet. As such, we cannot provide any assurances that our future net interest income or margin will meet our current estimates or remain near the levels reported for the third quarter 2024. For a detailed discussion on the risks related to interest rates please refer to Part I, Item 1A. “Risk Factors” in our Annual Report.
Previous report
Non-interest income represented 6.6 percent and 6.7 percent of total interest income plus non-interest income for the three months ended September 30, 2024 and 2023, respectively and 6.4 percent and 6.9 percent of total interest income plus non-interest income for the nine months ended September 30, 2024 and 2023, respectively. For the three and nine months ended September 30, 2024, non-interest income increased $2.0 million and $261.0 thousand as compared to the same periods in 2023.
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Wealth management and trust fees income increased $3.7 million and $14.0 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. Increases in both periods as compared to the same periods in 2023 were mainly driven by stronger fee production from tax credit advisory services. Brokerage fees also increased $2.7 million to $17.5 million for the nine months ended September 30, 2024 as compared to the same period in 2023 due to stronger customer trading volume at our broker dealer subsidiary during the first half of 2024.
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Net gains on sales of loans decreased $5.7 million and $4.9 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 mainly due to a $5.8 million mark-to- market loss recognized on the transfer of performing commercial real estate loans to loans held for sale at September 30, 2024 reported within this line item. Overall, our ability to generate net gains on sales of residential mortgage loans originated for sale continues to be challenged by several factors, including the historically higher level of mortgage interest rates, lower customer demand for conforming loan products, and our decision to not originate certain residential mortgage loans for sale. This decision can be influenced by many factors, including our current goal to reduce our commercial real estate loan concentration and further diversify our loan portfolio.
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Net gains on sales of assets decreased $6.6 million and$3.2 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The decrease as compared to the
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Other non-interest income increased $5.1 million for the three months ended September 30, 2024 as compared to the same period in 2023 largely due to income from litigation settlements totaling $7.3 million for the third quarter 2024.
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Non-interest expense increased $2.3 million and $5.0 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023.
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Salary and employee benefits expense decreased $10.4 million for thenine months ended September 30, 2024 compared to the same period in 2023 largely due to restructuring severance charges of $10.5 million and merger related costs, primarily consisting of severance and retention compensation, totaling $4.1 million for thenine months ended September 30, 2023. These items were partially offset by normal increases in labor costsfor thenine months ended September 30, 2024.
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FDIC insurance assessment expense increased $6.8 million and $19.9 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods of 2023 partly due to the overall growth of our balance sheet as well as an increase in internally classified loans (see the "Credit Quality Indicators" section under Note 7 to the consolidated financial statements for more details). The increase for the nine months ended September 30, 2024 was also dueto $8.8 million expense related to the FDIC special assessment accruals recorded during the first six months of 2024.
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Professional and legal fees decreased $3.0 million and $6.8 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 largely due to lower technology managed services and consulting expenses.
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Income before income taxes generated by the Consumer Banking segment decreased $1.8 million to $13.3 million for the third quarter 2024 as compared to the third quarter 2023 and was mainly driven by a combination of higher provision for loan losses and an increase in non-interest expense, partially offset by increases in net interest income and non-interest income. The provision for loan losses increased $10.6 million for thethird quarter 2024 as compared to the third quarter 2023 mainly due to additional qualitative reserves related to the estimated impact of Hurricane Helene, as well as the level of residential mortgage and automobile loan growth in the 2024 period. See further details in the“Allowance for Credit Losses” section of this MD&A. Non-interest expense increased$3.4 million for thethird quarter 2024 mainly due to additional costs related to our automobile loan credit risk transfer transaction, consisting of a credit default swap, executed in June 2024. Net interest income for this segment increased $6.6 million mainly due to higher interest rates on new and adjustable loans, partially offset by an increase in funding costs driven by higher interest rates. The non-interest income increased $5.2 million mainly due to a higher volume of transaction and other related fees generated by ourtax credit advisory subsidiary. See further details in the “Non-Interest Income” section of this MD&A.
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The return on average interest earning assets before income taxes for the Consumer Banking segment was 0.54 percent for the third quarter 2024 compared to 0.62 percent for the third quarter 2023.
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Average interest earning assets in Commercial Banking segment decreased $140.8 million to $40.2 billion for the three months ended September 30, 2024 as compared to the third quarter 2023 mainlydue to our strategic initiatives in 2024, including loan sales and low new loan volumes outpaced by repayment activity, to reduce our commercial real estate loan concentration as a percentage of regulatory capital.
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The return on average interest earning assets before income taxes for the commercial banking segment was 1.33 percent for the three months ended September 30, 2024 compared to 2.08 percent for the same period in 2023.
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Treasury and Corporate Other's average interest earning assets increased $741.5 million to $7.5 billion for the three months ended September 30, 2024 primarily due to higher average AFS investment securities balances. The increase in securities was partially offset by a $272.5 million decline in average interest bearing cash held overnight as our excess liquidity returned to more normalized levels in 2024 after being elevated in response to the bank failures in most of 2023.
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Treasury and Corporate Other's net interest margin increased 27 basis points to 0.23 percent for the third quarter 2024 as compared to the third quarter 2023 due to a 43 basis point increase in the yield on average investments, partly offset by a 16 basis point increase in cost of our funding sources. The increased investment yield was largely due to growth within our AFS portfolio due to purchases of higher yielding residential mortgage-backed securities during the nine months ended September 30, 2024.
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Consumer Banking Segment
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The Consumer Banking segment's average interest earning assets increased $255.7 million to $9.9 billion for the nine months ended September 30, 2024 as compared to the same period in 2023. The increase was primarily due to a higher level of new residential mortgage loans originated for investment rather than sale over the last 12-month period, as well as strong automobile loan application volumes from our indirect auto dealer network.
Previous report
Income before income taxes generated by Consumer Banking increased $6.1 million to $37.3 million for the nine months ended September 30, 2024 as compared to the same period in 2023 and was mainly driven by an increase in non-interest income, partially offset by higher provision for loan losses. Non-interest income increased $17.9 million mainly due to a higher volume of transaction and other related fees generated by our tax credit advisory subsidiary, as well as brokerage fees generated from our private banking clients. See further details in the “Non-Interest Income” section of this MD&A. The provision for loan losses increased $8.5 million for the nine months ended September 30, 2024 largely due to loan growth and additional qualitative reserves related to the estimated impact of Hurricane Helene. See further details in the “Allowance for Credit Losses” section of this MD&A.
Previous report
Non-interest expense also increased largely due to $4.7 million of premium fees associated with credit risk transfer swaps executed in June 2024 for a portion of our auto portfolio.
Previous report
Net interest margin on the Consumer Banking portfolio decreased 4 basis points to 1.81 percent for thenine months ended September 30, 2024 as compared to the same period in 2023 mainly due to a 60 basis point increase in the costs associated with our funding sources, mostly offset by a 56 basis point increase in the yield on average loans. The increase in our funding costs was mainly driven by higher interest rates on most of our interest bearing deposit products and indirect customer deposits, as well as the mix of our adjustable rate and other borrowings during the nine months ended September 30, 2024. The 56 basis point increase in loan yield was largely due to higher yielding new loan volumes and adjustable rate loans in our portfolio. See details in the “Executive Summary” and the “Net Interest Income” sections above for more details on our net interest margin and funding sources.
Previous report
The return on average interest earning assets before income taxes for the Consumer Banking segment was 0.50 percent for the nine months ended September 30, 2024 compared to 0.43 percentfor the same period in 2023.
Previous report
Commercial Banking Segment
Previous report
Average interest earning assets in the Commercial Banking segment increased $755.6 million to $40.3 billion for the nine months ended September 30, 2024 as compared to the same period in 2023. This increase wasprimarily due to organic loan growth over the last 12 month period, largely within the commercial and industrial loan portfolio.
Previous report
For the nine months ended September 30, 2024, income before income taxes for Commercial Banking decreased $225.1 million to $408.2 million as compared to the same period in 2023 mainly driven by higher provision for credit losses, a decrease in net interest income and an increase in non-interest expense. The provision for credit losses increased $169.0 million to $188.5 million during the nine months ended September 30, 2024 as compared to the same period in 2023 mainly due to higher quantitative reserves allocated to commercial real estate loans, commercial and industrial loan growth, and additional specific reserves and charge-offs associated with the revaluation of collateral dependent commercial loans during the 2024 period. See details in the “Allowance for Credit Losses for Loans” section of this MD&A. Netinterest income for this segment decreased $39.8 million to$1.1 billion for the nine months ended September 30, 2024 as compared to the same period in 2023 primarily due to the higher cost of funding. Non-interest expense increased $8.8 million to $136.7 million fornine months ended September 30, 2024 as compared to the same period in 2023 mainly due to higher FDIC insurance assessment expense resulting from both special assessments and the impact of changes in our internal risk classification of certain commercial real estate loans. See further details in the “Non-Interest Income” and “Non-Interest Expense” sections of this MD&A, as well as under the "Credit Quality Indicators" section of Note 7 to the consolidated financial statements.
Previous report
The net interest margin for this segment decreased 20 basis points to 3.55 percent for the nine months ended September 30, 2024 as compared to the same period in 2023, as a 60 basis point increase in the cost of our funding sources was partially offset by a 40 basis point increase in yield on average loans.
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Previous wording
The following MD&A should be read in conjunction with the consolidated financial statements and notes thereto appearing in Part I, Item 1 of this report. The MD&A contains supplemental financial information, described in the sections that follow, which has been determined by methods other than GAAP that management uses in its analysis of our performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance, our business and performance trends and facilitate comparisons with the performance of others in the financial services industry. These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance with GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
Current wording
The following MD&A should be read in conjunction with the consolidated financial statements and notes thereto appearing in Part I, Item 1 of this report. The MD&A contains supplemental financial information, described in the sections that follow, which has been determined by methods other than GAAP that management uses in its analysis of our performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance, our business and performance trends and facilitate comparisons with the performance of others in the financial services industry. These non-GAAP financial measures should not be considered in isolation, as a substitute for or superior to financial measures calculated in accordance with GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies.
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•the impact of market interest rates and monetary and fiscal policies of the U.S. federal government and its agencies in connection with the prolonged inflationary pressures, which could have a material adverse effect on our clients, our business, our employees, and our ability to provide services to our customers;
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•the impact of market interest rates and monetary and fiscal policies of the U.S. federal government and its agencies in connection with prolonged inflationary pressures, which could have a material adverse effect on our clients, our business, our employees, and our ability to provide services to our customers;
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•the impact of unfavorable macroeconomic conditions or downturns, including an actual or threatened U.S. government shutdown, debt default or rating downgrade, instability or volatility in financial markets, unanticipated loan delinquencies, loss of collateral, decreased service revenues, increased business disruptions or failures, reductions in employment, and other potential negative effects on our business, employees or clients caused by factors outside of our control, such as future policies and legislation under the new U.S. presidential administration, geopolitical instabilities or events (including the Israel-Hamas war and the escalation and regional expansion thereof); natural and other disasters (including severe weather events, such as Hurricanes Helene and Milton in late September and early October 2024, respectively); health emergencies; acts of terrorism; or other external events;
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•the impact of unfavorable macroeconomic conditions or downturns, including instability or volatility in financial markets resulting from the impact of tariffs, any retaliatory actions, related market uncertainty, or other factors; debt default or rating downgrade; unanticipated loan delinquencies; loss of collateral; decreased service revenues; increased business disruptions or failures; reductions in employment; and other potential negative effects on our business, employees or clients caused by factors outside of our control, such as legislation and policy changes under the new U.S. presidential administration, geopolitical instabilities or events, natural and other disasters, including severe weather events, health emergencies, acts of terrorism, or other external events;
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•the impact of potential instability within the U.S. financial sector in the aftermath of the banking failures in 2023 and continued volatility thereafter, including the possibility of a run on deposits by a coordinated deposit base, and the impact of the actual or perceived soundness, or concerns about the creditworthiness of other financial institutions, including any resulting disruption within the financial markets, increased expenses, including FDIC insurance assessments, or adverse impact on our stock price, deposits or our ability to borrow or raise capital;
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•the impact of any potential instability within the U.S. financial sector or future bank failures, including the possibility of a run on deposits by a coordinated deposit base, and the impact of the actual or perceived soundness, or concerns about the creditworthiness, of other financial institutions, including any resulting disruption within the financial markets, increased expenses, including FDIC insurance assessments, or adverse impact on our stock price, deposits or our ability to borrow or raise capital;
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•changes in the statutes, regulations, policy, or enforcement priorities of the federal bank regulatory agencies;
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•changes in the statutes, regulations, policies, or enforcement priorities of the federal bank regulatory agencies;
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•the inability to grow customer deposits to keep pace with loan growth;
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•the inability to grow customer deposits to keep pace with the level of loan growth;
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•cyberattacks, ransomware attacks, computer viruses, malware or other cybersecurity incidents that may breach the security of our websites or other systems or networks to obtain unauthorized access to personal, confidential, proprietary or sensitive information, destroy data, disable or degrade service, or sabotage our systems or networks;
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•cyberattacks, ransomware attacks, computer viruses, malware or other cybersecurity incidents that may breach the security of our websites or other systems or networks to obtain unauthorized access to personal, confidential, proprietary or sensitive information, destroy data, disable or degrade service, or sabotage our systems or networks, and the increasing sophistication of such attacks;
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•results of examinations by the Office of the OCC, the FRB, the CFPB and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
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•results of examinations by the OCC, the FRB, the CFPB and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities;
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•our ability to successfully execute our business plan and strategic initiatives, including our goals to reduce the commercial real estate loan concentration on our balance sheet and expand other areas of commercial lending activity; and
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•our ability to successfully execute our business plan and strategic initiatives; and
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Company Overview. At September 30, 2024, Valley had consolidated total assets of approximately $62.1 billion, total net loans of $48.8 billion, total deposits of $50.4 billion and total shareholders’ equity of $7.0 billion. Valley operates many convenient branch office locations and commercial banking offices in northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida, California, Alabama and Illinois. Of our current 228 branch network, 56 percent, 18 percent, and 18 percent of the branches are located in New Jersey, New York and Florida, respectively, with the remaining 8 percent of the branches in Alabama, California, and Illinois combined.
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Company Overview. At March 31, 2025, Valley had consolidated total assets of approximately $61.9 billion, total net loans of $48.1 billion, total deposits of $50.0 billion and total shareholders’ equity of $7.5 billion. Valley operates many convenient branch office locations and commercial banking offices in northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn and Queens, Long Island, Westchester County, New York, Florida, California, Alabama, and Illinois. Of our current 229 branch network, 55 percent, 18 percent, and 18 percent of the branches are located in New Jersey, New York, and Florida, respectively, with the remaining 9 percent of the branches in Alabama, California, and Illinois combined.
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Financial Condition. During the third quarter 2024, we continued to strengthen the position of our balance sheet to best perform in the current economic environment, while also prudently managing and reducing the overall risk of our loan portfolio. The following items, including key balance sheet initiatives, are highlights at September 30, 2024.
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Financial Condition. During the first quarter 2025, we continued to strengthen our balance sheet to best perform in the current uncertain economic environment, while also prudently managing and reducing the overall risk of our loan portfolio. The following items, including key balance sheet initiatives, are highlights at March 31, 2025.
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•Commercial Real Estate Loan Concentration: Total commercial real estate loans (including construction loans) totaled $30.4 billion, or 61.6 percent of total loans at September 30, 2024 as compared to $31.8 billion, or 63.2 percent of total loans at June 30, 2024. While commercial real estate lending remains a key pillar of the success of our relationship banking model and our lending expertise, we continue to proactively diversify our loan portfolio by reducing new originations of certain types of commercial real estate lending, such as non-owner occupied and multifamily loans. We remain focused on growing our commercial and industrial, owner occupied commercial real estate, and consumer loan portfolios. As a result, we currently have a strategic balance sheet goal to reduce our CRE loan concentration ratio (defined as total commercial real estate loans held for investment and held for sale, excluding owner occupied loans, as a percentage of total risk-based capital) to approximately 400 percent and 375 percent by December 31, 2024 and 2025, respectively. At September 30, 2024, our CRE loan concentration ratio declined to 421 percent as compared to 442 percent and 474 percent at June 30, 2024 and December 31, 2023, respectively. The decline in the ratio from June 30, 2024 was largely due to repayment activity during the third quarter 2024, which outpaced new and refinanced loan volumes due to the planned lower production within the non-owner occupied and multifamily loan categories. During the third quarter 2024, we also transferred performing commercial real estate loans totaling $823.1 million, net of unearned fees, to loans held for sale at September 30, 2024. These loans are currently under an agreement to sell to an unrelated third-party in the fourth quarter 2024. The combined impact of this pending loan sale and the aforementioned common stock issuance on November 12, 2024 would have reduced our CRE concentration ratio of 421 percent at September 30, 2024 to 380 percent on an as adjusted basis. See further details of our loan activities under the “Loan Portfolio” section below.
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•Commercial Real Estate Loan Concentration: Total commercial real estate loans (including construction loans) totaled $29.1 billion, or 59.8 percent of total loans at March 31, 2025 as compared to $29.6 billion, or 60.7 percent of total loans at December 31, 2024. The decrease was mostly due to normal repayment activity and selective originations as we continue to proactively diversify our loan portfolio by reducing new originations of certain types of transactional commercial real estate lending, such as non-owner occupied and multifamily loans to single-product borrowers. As a result, our CRE loan concentration ratio declined to approximately 353 percent at March 31, 2025 from 362 percent at December 31, 2024. Our current balance sheet goal is to reduce CRE concentration ratio to below 350 percent by December 31, 2025. See further details of our loan activities under the “Loan Portfolio” section below.
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8.40 percent, respectively, at September 30, 2024 as compared to 12.17 percent, 9.55 percent, 9.98 percent and 8.19 percent, respectively, at June 30, 2024. Currently, we have a strategic goal to increase Valley's common equity Tier 1 capital to 9.8 percent and 10 percent (or higher) by December 31, 2024 and 2025, respectively, largely through growth in our retained earnings and continuous management of the overall regulatory risk weighted asset profile of our balance sheet, including the goal to reduce our commercial real estate loan concentration. We expect our regulatory capital ratios to benefit by approximately 100 basis points as a result of the combined impact of the commercial real estate loan sale expected to close during the fourth quarter 2024 and the common stock issuance in November 2024. See the "Capital Adequacy" section below for more information.
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•Regulatory Capital and Shareholders' Equity: Total shareholders' equity increased $64.8 million to $7.5 billion at March 31, 2025 as compared to December 31, 2024. Valley's total risk-based capital, common equity Tier 1 capital, Tier 1 capital and Tier 1 leverage capital ratios were 13.91 percent, 10.80 percent, 11.53 percent, and 9.41 percent, respectively, at March 31, 2025 as compared to 13.87 percent, 10.82 percent, 11.55 percent and 9.16 percent, respectively, at December 31, 2024. Currently, we expect that Valley's common equity Tier 1 capital will gradually increase to approximately 11 percent by December 31, 2025 largely through projected growth in our retained earnings and continuous management of the overall regulatory risk weighted asset profile of our balance sheet, including the goal to reduce our commercial real estate loan concentration. See the "Capital Adequacy" section below for more information.
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•Allowance for Credit Losses: The ACL for loans totaled $564.7 million and $532.5 million at September 30, 2024 and June 30, 2024, respectively, representing 1.14 percent and 1.06 percent of total loans at each respective date. The increase reflects, among other factors, the aforementioned qualitative reserve of $8.0 million related to the estimated impact of Hurricane Helene at September 30, 2024. Given our current projections for continued growth in our commercial and industrial loan portfolio and credit trends within our loan portfolio, including the expected impact of Hurricane Milton, we anticipate a future reserve build in the ACL to approximately 1.20 percent and 1.25 percent of total loans at December 31, 2024 and 2025, respectively. However, we can provide no assurance that our actual future ACL for loans required under our CECL methodology will not exceed these current projections at each of the respective reporting dates. See the “Allowance for Credit Losses" section for additional information.
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•Allowance for Credit Losses for Loans: The ACL for loans totaled $594.1 million and $573.3 million at March 31, 2025 and December 31, 2024, respectively, representing 1.22 percent and 1.17 percent of total loans at each respective date. The increase reflects, among other factors, an increase in quantitative reserves and continued growth in the commercial and industrial loan portfolio. Given our current projections for continued growth in our commercial and industrial loan portfolio and credit trends within our loan portfolio, we anticipate the ACL could continue to migrate towards approximately 1.25 percent of total loans by December 31, 2025. See the “Allowance for Credit Losses" section for additional information.
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•Liquid Assets: Our liquid assets totaled $4.7 billion at September 30, 2024, representing 8.2 percent of interest earning assets as compared with $3.4 billion, or 6.1 percent of interest earning assets at June 30, 2024. We continue to maintain significant access to readily available, diverse funding sources to fulfill both short-term and long-term funding needs. See the “Bank Liquidity” section for additional information.
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•Liquid Assets: Our liquid assets totaled $5.1 billion at March 31, 2025, representing 9.1 percent of interest earning assets as compared with $5.5 billion, or 9.6 percent of interest earning assets at December 31, 2024. We continue to maintain significant access to readily available, diverse funding sources to fulfill both short-term and long-term funding needs. See the “Bank Liquidity” section for additional information.
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•Investment Securities: Total investment securities increased $317.7 million to $6.3 billion, or 10.1 percent of total assets, at September 30, 2024 as compared to June 30, 2024 mainly due to targeted purchases of residential mortgage backed securities primarily issued by Ginnie Mae (with a risk-weighting of zero for regulatory capital purposes) that were classified as available for sale. See the “Investment Securities Portfolio” section for more details.
Current wording
•Investment Securities: Total investment securities increased $305.6 million to $7.3 billion, or 11.8 percent of total assets, at March 31, 2025 as compared to December 31, 2024 mainly due to targeted purchases of residential mortgage backed securities primarily issued by Ginnie Mae (with a risk-weighting of zero for regulatory capital purposes) that were classified as AFS. See the “Investment Securities Portfolio” section for more details.
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Quarterly Results. Net income for the third quarter 2024 was $97.9 million, or $0.18 per diluted common share, as compared to $141.3 million, or $0.27 per diluted common share, for the third quarter 2023. The $43.5 million decrease in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:
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Quarterly Results. Net income for the first quarter 2025 was $106.1 million, or $0.18 per diluted common share, as compared to $96.3 million, or $0.18 per diluted common share, for the first quarter 2024. The $9.8 million increase in quarterly net income as compared to the same quarter one year ago was mainly due to the following changes:
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•a $1.9 million decrease in net interest income as higher yields on both new and adjustable-rate loans and additional interest income from investment security purchases were more than offset by an increase in the overall cost of average interest bearing liabilities.
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•a $26.6 million increase in net interest income mainly driven bylower interest rates on most interest bearing deposit products in the first quarter 2025 and additional interest income from investment security purchases, partially offset by lower yields on adjustable-rate loans; and
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•a $2.3 million increase in non-interest expense mainly due to higher FDIC assessment fees, largely offset by lower technology and consulting related expenses; and
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•a $3.7 million decrease in non-interest expense primarily due to decreases in technology, furniture and equipment expense and FDIC assessment fees, largely offset by higher amortization of tax credit investments and other expense;
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•a $2.0 million increase in non-interest income that was mainly driven by increases in other income, tax advisory fees (within wealth management and trust fees) and bank owned life insurance income, partially offset by a mark-to-market loss on loans transferred to loans held for sale in the third quarter 2024 and a decline in net gains on the sales of assets.
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•a $3.1 million decrease in non-interest income that was mainly driven by lower gains on sales of assets and decreases in tax advisory fees (within wealth management and trust fees) and other income, partially offset by moderate increases in several other categories.
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See the “Net Interest Income,” “Non-Interest Income,” “Non-Interest Expense” and “Income Taxes” sections below for more details on the impact of the items aboveand other infrequent non-core items impactingour third quarter 2024 results.
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See the “Net Interest Income,” “Non-Interest Income,” “Non-Interest Expense” and “Income Taxes” sections below for more details on the impact of the items aboveand other infrequent non-core items impactingour first quarter 2025 results.
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U.S. Economic Conditions. During the third quarter 2024, real gross GDP increased at an annual rate of 2.8 percent as compared to an increase of 3.0 percent during the second quarter 2024. The increase was driven by government spending, residential & nonresidential fixed investment and net exports. In addition, most measures of inflation continued to reflect a moderation in price pressures during the third quarter 2024. The rate of inflation declined to 2.4 percent in the third quarter 2024 as compared to 3.0 percent for thesecond quarter 2024.
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U.S. Economic Conditions. During the first quarter 2025, real gross GDP decreased at an estimated annual rate of 0.3 percent as compared to an increase of 2.5 percent during the fourth quarter 2024. The contraction in GDP was primarily driven by a significant increase in imports likely caused by businesses and consumers stockpiling goods before potential tariffs take effect, as well as a reduction in government spending. These movements were partially offset by increases in investment, consumer spending and net exports. In addition, most measures of inflation continued to reflect a moderation in price pressures during the first quarter 2025. The rate of inflation declined to 2.4 percent in the first quarter 2025 as compared to 2.9 percent for the fourth quarter 2024.
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The 10-year U.S. Treasury note yield ended the third quarter 2024 at 3.81 percent, or 55 basis points lower as compared to thesecond quarter 2024, and the 2-year U.S. Treasury note yield ended the third quarter 2024 at 3.66 percent, or 105 basis points lower as compared to the second quarter 2024.
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The 10-year U.S. Treasury note yield ended the first quarter 2025 at 4.23 percent, or 35 basis points lower as compared to thefourth quarter 2024, and the 2-year U.S. Treasury note yield ended the first quarter 2025 at 3.89 percent, or 36 basis points lower as compared to thefourth quarter 2024.
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For all commercial banks in the U.S., total loans and leases grew 0.4 percent from June 30, 2024 to September 30, 2024. Commercial and industrial lending and commercial real estate lending increased 0.2 percent and 0.3 percent, respectively, during the same period. For the third quarter of 2024, banks reported continued easing of underwriting standards for most commercial and industrial loan products to large and middle-market companies. Banks reported stronger demand for commercial and industrial loans as the majority of customer demand transitioned from commercial real estate loans.
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For all commercial banks in the U.S., total loans and leases grew 1.0 percent from December 31, 2024 to March 31, 2025. Commercial and industrial lending decreased 0.3 percent and commercial real estate lending increased 0.4 percent during the same period. For the first quarter of 2025, banks reported continued easing of underwriting standards for most commercial and industrial loan products, as well as commercial real estate loans. Banks reported a continued increase in demand for commercial and industrial loans and a modest increase in demand for commercial real estate loans, as investor activity picked up in the first quarter 2025 due to the decline in market interest rates.
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Total average deposits increased by $1.0 billion to $50.4 billion for the third quarter 2024 as compared to the second quarter 2024. Average time deposits balances increased $921.8 million primarily due to our increased use of indirect customer (i.e., brokered) CDs as an alternate and attractively priced funding source (mainly compared to similar term FHLB borrowings) starting in the second quarter 2024. Average non-interest-bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 22 percent, 50 percent and 28 percent of total deposits for the third quarter 2024, respectively as compared to 23 percent, 50 percent and 27 percent of total deposits for the second quarter 2024, respectively.
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Total average deposits decreased by $1.6 billion to $49.1 billion for the first quarter 2025 as compared to the fourth quarter 2024. Average time deposits balances decreased $2.0 billion from the fourth quarter 2024 largely due tothe maturity and repayment of higher cost indirect customer(i.e., brokered)CDs, partially offset by new direct retail customer CDs during the first quarter 2025. Average savings, NOW and money market deposits increased $417.8 million to $26.3 billion for the first quarter 2025 as compared to the fourth quarter 2024. Average non-interest-bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 23 percent, 54 percent, and 24 percent of total deposits for the first quarter 2025, respectively, as compared to 22 percent, 51 percent, and 27 percent of total deposits for the fourth quarter 2024, respectively.
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Actual ending balances for deposits increased $283.8 million to $50.4 billion at September 30, 2024 from June 30, 2024 mainly due to an increase of $358.3 million in savings, NOW and money market deposits and an increase of $36.0 million in non-interest bearing deposits, partially offset by a decrease of $110.5 million in time deposits. Non-interest bearing deposit and savings, NOW and money market deposit balances increased at September 30, 2024 from June 30, 2024 mostly due to increases in national specialized deposits and higher direct commercial customer deposit accounts. Total indirect customer deposits (including both brokered money market and time deposits) totaled $9.1 billion in both September 30, 2024 and June 30, 2024. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 22 percent, 50 percent and 28 percent of total deposits as of September 30, 2024, respectively, as compared to 22 percent, 49 percent and 29 percent of total deposits as of June 30, 2024, respectively.
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Actual ending balances for deposits decreased $110.0 million to $50.0 billion at March 31, 2025 from December 31, 2024 mainly due to a $418.5 million decrease in time deposits, partially offset by increases of $199.9 million and $108.6 million in non-interest bearing deposits and savings, NOW and money market deposits, respectively. The decrease in time deposit balances was mainly driven by a decline of approximately $661 million in indirect customer CDs, partially offset by deposit inflows from new retail CD offerings during the first quarter 2025. The increase in non-interest bearing was mostly due to higher commercial customer deposit inflows late in the first quarter 2025. Savings, NOW and money market deposit balances increased at March 31, 2025 from December 31, 2024 largely due to new deposits from our online savings deposit product offerings, partially offset by lower governmental deposits account balances. Total indirect customer deposits (including both brokered money market and time deposits) totaled $6.3 billion and $7.0 billion in March 31, 2025 and December 31, 2024, respectively. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 23 percent, 53 percent, and 24 percent of total deposits as of March 31, 2025, respectively, as compared to 23 percent, 52 percent, and 25 percent of total deposits as of December 31, 2024, respectively.
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Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $11.6 billion, or 23 percent of total deposits, at September 30, 2024 as compared to $11.0 billion, or 22 percent of total deposits, at June 30, 2024.
Current wording
Total estimated uninsured deposits, excluding collateralized government deposits and intercompany deposits (i.e., deposits eliminated in consolidation), totaled approximately $13.0 billion, or 26 percent of total deposits, at March 31, 2025 as compared to $12.6 billion, or 25 percent of total deposits, at December 31, 2024.
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While we maintained a diversified commercial and consumer deposit base at September 30, 2024, deposit gathering initiatives and our current deposit base could remain challenged due to market competition, attractive non-deposit investment alternatives in the financial markets and other factors. As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at September 30, 2024. Management continuously monitors liquidity and all available funding sources including non-deposit borrowings discussed below. See the “Liquidity and Cash Requirements” section of this MD&A for additional information.
Current wording
While we maintained a diversified commercial and consumer deposit base at March 31, 2025, deposit gathering initiatives and our current direct customer deposit base could be challenged due to market competition, attractive non-deposit investment alternatives in the financial markets and other factors. As a result, we cannot guarantee that we will be able to maintain deposit levels at or near those reported at March 31, 2025. Management continuously monitors liquidity and all available funding sources including non-deposit borrowings discussed below. See the “Liquidity and Cash Requirements” section of this MD&A for additional information.
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Average short-term borrowings decreased by $16.3 million and $355.3 million during the third quarter 2024 as compared to the second quarter 2024 and third quarter 2023, respectively, mostly due to a shift from the use of short-term FHLB advances to primarily indirect customer money market and time deposits in our average mix of funding sources.
Current wording
Average short-term borrowings increased by $235.1 million and decreased $1.2 billion during the first quarter 2025 as compared to the fourth quarter 2024 and first quarter 2024, respectively. The decrease from the first quarter 2024 was mostly driven by a shift from the use of short-term FHLB advances to primarily indirect customer deposits in our average mix of funding sources since the second quarter 2024.
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Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) increased $5.8 million and $829.5 million as compared to the second quarter 2024 and third quarter 2023, respectively. The increase as compared to the third quarter 2023 was mainly due to new FHLB advances totaling $1.0 billion issued in early March 2024. The new long-term FHLB borrowings have a weighted average rate of 4.54 percent and a weighted average remaining contractual term of 3.1 years at September 30, 2024.
Current wording
Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased $227.9 million as compared to the fourth quarter 2024 and increased $380.5 million as compared to the first quarter 2024. The increase as compared to the first quarter 2024 was partly due to new FHLB advances totaling $1.0 billion issued in early March 2024, partially offset by the maturity and repayment of $273 million of FHLB advances in January 2025.
Previous wording
Actual ending balances for short-term borrowings decreased $5.5 million to $58.3 million at September 30, 2024 as compared to June 30, 2024 mainly due to a moderate decline in securities sold under repurchase agreements. Long-term borrowings totaled $3.3 billion at September 30, 2024 and remained relatively unchanged as compared to June 30, 2024.
Current wording
Actual ending balances for short-term borrowings, consisting of securities sold under agreements to repurchase, decreased $13.7 million to $59.0 million at March 31, 2025 from December 31, 2024. Long-term borrowings totaled $2.9 billion at March 31, 2025 and decreased $269.6 million as compared to December 31, 2024 due to the aforementioned repayment of FHLB advances in January 2025.
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In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans, wealth management and trust fees, and capital markets fees. These amounts can vary widely from period to period due to, among other factors, the amount and timing of residential mortgage loans originated for sale, brokerage and tax credit investment advisory activities and commercial loan customer demand for certain interest rate swap products. See the “Non-Interest Income” section below for more details.
Current wording
In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the overall level of net gains on sales of loans, wealth management and trust fees, and capital markets fees. These amounts can vary widely from period to period due to, among other factors, the amount and timing of residential mortgage loans originated for sale, brokerage and tax credit investment advisory activities and commercial loan customer demand for certain interest rate swap products. See the “Non-Interest Income” section below for more details.
Previous wording
Average interest bearing liabilities increased $1.8 billion to $42.7 billion for the third quarter 2024 as compared to the third quarter 2023 primarily due to increases of $1.4 billion and $829.5 million in average interest bearing deposits and long-term borrowings, respectively, partially offset by a decrease of $355.3 million in average short-term borrowings. The increase in average interest bearing deposits was largely due to increased NOW deposit balances, while average long-term borrowings increased mostly due to several new FHLB advances totaling $1.0 billion in early March 2024. The $355.3 million decrease in average short-term borrowings was mostly the result of a shift from the use of short-term FHLB advances to indirect customer time deposits in our mix of liquidity funding sources. As compared to the second quarter 2024, average interest bearing liabilities increased by $1.1 billion for the third quarter 2024 largely due to an increase in average indirect customer time deposit balances. See additional information under“Deposits and Other Borrowings” in the Executive Summary section above.
Current wording
Average interest bearing liabilities decreased $325.9 million to $41.2 billion for the first quarter 2025 as compared to the first quarter 2024 primarily due to a decrease of$1.2 billion in average short-term borrowings, partially offset by increases of $523.9 million and $380.5 million in average interest bearing deposits and long-term borrowings, respectively. The $1.2 billion decrease in average short-term borrowings was mostly the result of a shift from the use of short-term FHLB advances to indirect customer time deposits in our mix of liquidity funding sources starting in the second quarter 2024. As compared to the fourth quarter 2024, average interest bearing liabilities decreased by $1.5 billion for the first quarter 2025 largely due to a decrease in average time deposit balances caused by the aforementioned repayment of maturing indirect customer time deposits. See additional information under“Deposits and Other Borrowings” in the Executive Summary section above.
Previous wording
Net interest margin on a tax equivalent basis of 2.86 percent for the third quarter 2024 increased by 2 basis points from 2.84 percent for the second quarter 2024 and decreased 5 basis points from 2.91 percent for the third quarter 2023. The increase as compared to the second quarter 2024 was largely driven by higher yield on average interest earning assets largely offset by an increase in the cost of average interest bearing liabilities. The yield on average interest earning assets increased by 10 basis points to 5.98 percent on a linked quarter basis largely due to higher yielding investment purchases and new loan originations during the second and third quarter 2024. The overall cost of average interest bearing liabilities increased 7 basis points to 4.22 percent for the third quarter 2024 as compared to the second quarter 2024 largely due to higher interest rates on deposits. Our cost of total average deposits was 3.25 percent for the third quarter 2024 as compared to 3.18 percent and 2.94 percent for the second quarter 2024 and the third quarter 2023, respectively.
Current wording
Net interest margin on a tax equivalent basis of 2.96 percent for the first quarter 2025 increased by 4 basis points from 2.92 percent for the fourth quarter 2024 andincreased 17 basis points from 2.79 percent for the first quarter 2024. Theincreaseas compared to the fourth quarter 2024 was mostly due to the 29 basis point decline in our cost of total average deposits, largely offset by the lower yield on average interest earning assets. The yield onaverage interest earning assets decreased by 22 basis points to 5.53 percent on a linked quarter basis largely due to downward repricing of our adjustable rate loans and two less days in the first quarter 2025, partially offset by higher yielding investment purchases. The overall cost of average interest bearing liabilities decreased 31 basis points to 3.54 percent for the first quarter 2025 as compared to the fourth quarter 2024 largely due to a decrease in higher cost time deposits and lower interest rates on most deposit products. Our cost of total average deposits was 2.65 percent for the first quarter 2025 as compared to 2.94 percent and 3.16 percent for the fourth quarter 2024 and the first quarter 2024, respectively.
Previous wording
The following table demonstrates the relative impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by us on such assets and liabilities. Variances resulting from a combination of changes in volume and rates are allocated to the categories in proportion to the absolute dollar amounts of the change in each category.
Current wording
The following table demonstrates the relative impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by Valley on such assets and liabilities. Variances resulting from a combination of changes in volume and rates are allocated to the categories in proportion to the absolute dollar amounts of the change in each category.
Previous wording
The following table presents the components of non-interest income for the three and nine months ended September 30, 2024 and 2023:
Current wording
The following table presents the components of non-interest income for the three months ended March 31, 2025 and 2024:
Previous wording
Capital markets income decreased $15.2 million for the nine months ended September 30, 2024 as compared to the same period in 2023 mainly due to a decline in the volume of interest rate swap transac tions, and resulting fees related to commercial loan customers.
Current wording
Capital markets income increased $1.3 million for the three months ended March 31, 2025 as compared to the same quarter in 2024 mostly due to an increase in the volume of interest rate swap transactions related to commercial lending activities.
Previous wording
Service charges on deposit accounts income increased $1.9 million and $3.3 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 mainly due to additional treasury service related fees for commercial deposit accounts.
Current wording
Service charges on deposit accounts increased $1.5 million for the three months ended March 31, 2025 as compared to the same quarter in 2024 mainly due to additional treasury service related fees for commercial deposit accounts.
Previous wording
third quarter 2023 was mainly attributable to a $6.7 million net gain on the sale of non-branch offices located in Wayne, New Jersey in the third quarter 2023. The decrease for the nine months ended September 30, 2024 was net of a $3.6 million net gain realized on the sale of our commercial premium finance lending business in the first quarter 2024.
Current wording
Net gains on sales of assets decreased $3.7 million for the three months ended March 31, 2025 as compared to the same quarter in 2024 primarily as a result of a $3.6 million net gain realized on the sale of our commercial premium finance lending business during the first quarter 2024.
Previous wording
Bank owned life insurance income increased $2.7 million and $5.4 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023 due to improved performance of the underlying investment securities.
Current wording
Bank owned life insurance income increased $1.5 million for the three months ended March 31, 2025 as compared to the same quarter in 2024 due to higher returns on the underlying investment securities.
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
$11.2 million, respectively. The unrealized losses within non-rated AFS debt securities mostly related to several large corporate bonds negatively impacted by rising interest rates and not changes in underlying credit. The unrealized losses within non-rated HTM debt securities mainly related to four single-issuer bank trust preferred issuances with a combined amortized cost of $36.1 million with $6.6 million gross unrealized losses and several corporate debt securities that were negatively impacted by rising interest rates, and not changes in their underlying credit.
Current report — wording carried from elsewhere
Valley estimates the collective ACL using a current expected credit losses methodology which is based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the loan balances. In estimating the component of the allowance on a collective basis, we use a transition matrix model which calculates an expected life of loan loss percentage for each loan pool by using probability of default and loss given default metrics. The probability of default and loss given default metrics are adjusted using a scaling factor to incorporate a full economic cycle.
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
Valley manages its business operations under operating segments consisting of Consumer Banking and Commercial Banking. Activities not assigned to the operating segments are included in Treasury and Corporate Other. Each operating segment is reviewed routinely for its asset growth, contribution to income before income taxes, return on average interest earning assets and impairment (if events or circumstances indicate a possible inability to realize the carrying amount). Valley regularly assesses its strategic plans, operations, and reporting structures to identify its operating segments and no changes to the operating segments were determined necessary during the nine months ended September 30, 2024. Certain prior period amounts have been reclassified to conform to the current presentation for each operating segment and Treasury and Corporate Other.
Previous report — wording carried elsewhere
See Note 15 to the consolidated financial statements for additional details.
Previous report — wording carried elsewhere
The following tables present the financial data for Valley's operating segments and Treasury and Corporate Other for the nine months ended September 30, 2024 and 2023:
Previous report — wording carried elsewhere
The following table summarizes Valley's sources of liquid assets: