

	December 31, 2019						December 31, 2018
	Non-PCI Loans		PCI Loans		Total		Non-PCI Loans		PCI Loans		Total
	(in thousands)
Loans:
Commercial and industrial	$	4,143,983	$	682,014	$	4,825,997	$	3,590,375	$	740,657	$	4,331,032
Commercial real estate:
Commercial real estate	10,902,893		5,093,848		15,996,741		9,912,309		2,494,966		12,407,275
Construction	1,495,717		151,301		1,647,018		1,122,348		365,784		1,488,132
Total commercial real estate loans	12,398,610		5,245,149		17,643,759		11,034,657		2,860,750		13,895,407
Residential mortgage	3,796,942		580,169		4,377,111		3,682,984		428,416		4,111,400
Consumer:
Home equity	376,020		111,252		487,272		371,340		145,749		517,089
Automobile	1,451,352		271		1,451,623		1,319,206		365		1,319,571
Other consumer	902,702		10,744		913,446		846,821		14,149		860,970
Total consumer loans	2,730,074		122,267		2,852,341		2,537,367		160,263		2,697,630
Total loans	$	23,069,609	$	6,629,599	$	29,699,208	$	20,845,383	$	4,190,086	$	25,035,469

Total loans include net unearned premiums and deferred loan costs totaling $12.6 million and $21.5 million at December 31, 2019 and 2018, respectively. The outstanding balances (representing contractual balances owed to Valley) for PCI loans totaled $6.8 billion and $4.4 billion at December 31, 2019 and 2018, respectively.

Valley transferred $436.5 million and $289.6 million of residential mortgage loans from the loan portfolio to loans held for sale in 2019 and 2018, respectively. Valley transferred $798 million of commercial real estate loans from the loan portfolio to loans held for sale in 2019. Excluding the loan transfers, there were no other sales or transfers of loans from the held for investment portfolio during 2019 and 2018.

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. See Note 1 for additional information.

The following table presents information regarding the estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the PCI loans acquired in the Oritani acquisition as of December 1, 2019 (See Note 2 for more details):



	December 1, 2019
	(in thousands)
Contractually required principal and interest	$	4,017,103
Contractual cash flows not expected to be collected (non-accretable difference)	(36,084		)
Expected cash flows to be collected	3,981,019
Interest component of expected cash flows (accretable yield)	(600,178		)
Fair value of acquired loans	$	3,380,841

The net (decrease) increase in expected cash flows for certain pools of loans (included in the table above) is recognized prospectively as an adjustment to the yield over the estimated remaining life of the individual pools. The net decrease in the expected cash flows totaling approximately $11.0 million for the year ended December 31, 2019 was largely due to the high volume of contractual principal prepayments caused by the low level of market interest rates. The net increase in the expected cash flows totaling $269.8 million for the year ended December 31, 2018 was largely due to higher interest rates and increased construction loan balances (mainly acquired from USAB) captured in the cash flow reforecast in the fourth quarter 2018.

In the ordinary course of business, Valley has granted loans to certain directors, executive officers and their affiliates (collectively referred to as “related parties”). These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated persons and do not involve more than normal risk of collectability. All loans to related parties are performing as of December 31, 2019.

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 appetite. Management reviews and approves these policies and procedures on a regular basis with subsequent approval by the Board of Directors annually. Credit authority relating to a significant dollar percentage of the overall portfolio is centralized and controlled by the Credit Risk Management Division and by the Credit Committee. A reporting system supplements the management review process by providing management with frequent reports concerning loan production, loan quality, internal loan classification, concentrations of credit, loan delinquencies, non-performing, and potential problem loans. Loan portfolio diversification is an important factor utilized by Valley to manage its risk across business sectors and through cyclical economic circumstances.

Commercial and industrial loans. A significant portion of Valley’s commercial and industrial loan portfolio is granted to long standing customers of proven ability, strong repayment performance, and high character. 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. Whenever possible, Valley 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 $606.1 million and $580.5 million at December 31, 2019 and 2018, respectively.

or doubtful loans. While most of the taxi medallion loans within the portfolio at December 31, 2019 are currently performing to their contractual terms, negative trends in the market valuations of the underlying taxi medallion collateral and a decline in borrower cash flows, among other factors, could impact the future performance of this portfolio.

Commercial real estate loans. Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans but generally they involve larger principal balances and longer repayment periods as compared to commercial and industrial loans. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real property. Repayment of most 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 presale 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 are 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 mostly located in northern and central New Jersey, the New York City metropolitan area, and Florida. 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, 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 80 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 the strength or weakness of 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 (mainly those secured by cash surrender value of life insurance), credit card loans and personal loans. Unsecured consumer loans totaled approximately $53.9 million and $58.1 million, including $8.2 million and $10.4 million of credit card loans, at December 31, 2019 and 2018, respectively. Valley believes the aggregate risk exposure to unsecured loans and lines of credit was not significant at December 31, 2019.



	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)
December 31, 2019
Commercial and industrial	$	11,700	$	2,227	$	3,986	$	68,636	$	86,549	$	4,057,434	$	4,143,983
Commercial real estate:
Commercial real estate	2,560		4,026		579		9,004		16,169		10,886,724		10,902,893
Construction	1,486		1,343		—		356		3,185		1,492,532		1,495,717
Total commercial real estate loans	4,046		5,369		579		9,360		19,354		12,379,256		12,398,610
Residential mortgage	17,143		4,192		2,042		12,858		36,235		3,760,707		3,796,942
Consumer loans:
Home equity	1,051		80		—		1,646		2,777		373,243		376,020
Automobile	11,482		1,581		681		334		14,078		1,437,274		1,451,352
Other consumer	1,171		866		30		224		2,291		900,411		902,702
Total consumer loans	13,704		2,527		711		2,204		19,146		2,710,928		2,730,074
Total	$	46,593	$	14,315	$	7,318	$	93,058	$	161,284	$	22,908,325	$	23,069,609



	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)
December 31, 2018
Commercial and industrial	$	13,085	$	3,768	$	6,156	$	70,096	$	93,105	$	3,497,270	$	3,590,375
Commercial real estate:
Commercial real estate	9,521		530		27		2,372		12,450		9,899,859		9,912,309
Construction	2,829		—		—		356		3,185		1,119,163		1,122,348
Total commercial real estate loans	12,350		530		27		2,728		15,635		11,019,022		11,034,657
Residential mortgage	16,576		2,458		1,288		12,917		33,239		3,649,745		3,682,984
Consumer loans:
Home equity	872		40		—		2,156		3,068		368,272		371,340
Automobile	7,973		1,299		308		80		9,660		1,309,546		1,319,206
Other consumer	895		47		33		419		1,394		845,427		846,821
Total consumer loans	9,740		1,386		341		2,655		14,122		2,523,245		2,537,367
Total	$	51,751	$	8,142	$	7,812	$	88,396	$	156,101	$	20,689,282	$	20,845,383

If interest on non-accrual loans had been accrued in accordance with the original contractual terms, such interest income would have amounted to approximately $2.5 million, $3.6 million, and $2.5 million for the years ended December 31, 2019, 2018 and 2017, respectively; none of these amounts were included in interest income during these periods.

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 restructurings, are individually evaluated for impairment. PCI loans are not classified as impaired loans because they are accounted for on a pool basis.



	Recorded Investment With No Related Allowance		Recorded Investment With Related Allowance		Total Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance
	(in thousands)
December 31, 2019
Commercial and industrial	$	14,617	$	86,243	$	100,860	$	114,875	$	36,662
Commercial real estate:
Commercial real estate	26,046		24,842		50,888		51,258		1,338
Construction	354		—		354		354		—
Total commercial real estate loans	26,400		24,842		51,242		51,612		1,338
Residential mortgage	5,836		4,853		10,689		11,800		518
Consumer loans:
Home equity	366		487		853		956		58
Total consumer loans	366		487		853		956		58
Total	$	47,219	$	116,425	$	163,644	$	179,243	$	38,576
December 31, 2018
Commercial and industrial	$	8,339	$	89,513	$	97,852	$	104,007	$	29,684
Commercial real estate:
Commercial real estate	16,732		25,606		42,338		44,337		2,615
Construction	803		457		1,260		1,260		13
Total commercial real estate loans	17,535		26,063		43,598		45,597		2,628
Residential mortgage	7,826		6,078		13,904		14,948		600
Consumer loans:
Home equity	125		1,146		1,271		1,366		113
Total consumer loans	125		1,146		1,271		1,366		113
Total	$	33,825	$	122,800	$	156,625	$	165,918	$	33,025



	2019				2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(in thousands)
Commercial and industrial	$	120,376	$	1,849	$	108,071	$	1,822	$	80,974	$	1,459
Commercial real estate:
Commercial real estate	52,191		2,246		44,838		2,289		54,799		1,908
Construction	354		—		1,517		69		3,258		86
Total commercial real estate loans	52,545		2,246		46,355		2,358		58,057		1,994
Residential mortgage	12,081		390		15,384		506		15,451		760
Consumer loans:
Home equity	576		11		865		21		4,295		160
Total consumer loans	576		11		865		21		4,295		160
Total	$	185,578	$	4,496	$	170,675	$	4,707	$	158,777	$	4,373

Troubled debt restructured loans. From time to time, Valley may extend, restructure, or otherwise modify the terms of existing loans, on a case-by-case basis, to remain competitive and retain certain customers, as well as assist other customers who may be experiencing financial difficulties. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a troubled debt restructured loan (TDR). Valley’s PCI loans are excluded from the TDR disclosures below because they are evaluated for impairment on a pool by pool basis. When an individual PCI loan within a pool is modified as a TDR, it is not removed from its pool. All TDRs are classified as impaired loans and are included in the impaired loan disclosures above.

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

The following table presents non-PCI loans by loan class modified as TDRs during the years ended December 31, 2019 and 2018. 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 December 31, 2019 and 2018, respectively.



Troubled Debt Restructurings	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
		($ in thousands)
December 31, 2019
Commercial and industrial	111	$	77,781	$	73,503
Commercial real estate:
Commercial real estate	2	3,143		3,098
Total commercial real estate	2	3,143		3,098
Residential mortgage	2	376		374
Consumer	2	215		207
Total	117	$	81,515	$	77,182
December 31, 2018
Commercial and industrial	25	$	16,251	$	15,105
Commercial real estate:
Commercial real estate	8	5,643		6,600
Construction	1	532		356
Total commercial real estate	9	6,175		6,956
Residential mortgage	8	1,500		1,461
Consumer	2	99		101
Total	44	$	24,025	$	23,623

The total TDRs presented in the table above had allocated specific reserves for loan losses that totaled $36.0 million and $6.5 million at December 31, 2019 and 2018, respectively. These specific reserves are included in the allowance for loan losses for loans individually evaluated for impairment disclosed in Note 6. There were $4.9 million in loan charge-offs related to loans modified as TDRs for the year ended December 31, 2019. However, there were no loan charge-offs related to loans modified as TDRs during 2018. At December 31, 2019, the commercial and industrial loan category in the above table largely consisted of non-performing and performing TDR taxi cab medallion loans classified as substandard and non-accrual doubtful loans.



	Years Ended December 31,
	2019			2018
Troubled Debt Restructurings Subsequently Defaulted	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	($ in thousands)
Commercial and industrial	43	$	31,782	10	$	8,829
Residential mortgage	1	154		3	490
Total	44	$	31,936	13	$	9,319

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



Credit exposure— by internally assigned risk rating			Special						Total Non-PCI
Credit exposure— by internally assigned risk rating	Pass		Mention		Substandard		Doubtful		Loans
	(in thousands)
December 31, 2019
Commercial and industrial	$	3,982,453	$	33,718	$	66,511	$	61,301	$	4,143,983
Commercial real estate	10,781,587		77,884		42,560		862		10,902,893
Construction	1,487,877		7,486		354		—		1,495,717
Total	$	16,251,917	$	119,088	$	109,425	$	62,163	$	16,542,593
December 31, 2018
Commercial and industrial	$	3,399,426	$	31,996	$	92,320	$	66,633	$	3,590,375
Commercial real estate	9,828,744		30,892		51,710		963		9,912,309
Construction	1,121,321		215		812		—		1,122,348
Total	$	14,349,491	$	63,103	$	144,842	$	67,596	$	14,625,032

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 December 31, 2019 and 2018:



Credit exposure— by payment activity	Performing Loans		Non-Performing Loans		Total Non-PCI Loans
	(in thousands)
December 31, 2019
Residential mortgage	$	3,784,084	$	12,858	$	3,796,942
Home equity	374,374		1,646		376,020
Automobile	1,451,018		334		1,451,352
Other consumer	902,478		224		902,702
Total	$	6,511,954	$	15,062	$	6,527,016
December 31, 2018
Residential mortgage	$	3,670,067	$	12,917	$	3,682,984
Home equity	369,184		2,156		371,340
Automobile	1,319,126		80		1,319,206
Other consumer	846,402		419		846,821
Total	$	6,204,779	$	15,572	$	6,220,351

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



Credit exposure—	Performing		Non-Performing		Total
by payment activity	Loans		Loans		PCI Loans
	(in thousands)
December 31, 2019
Commercial and industrial	$	653,997	$	28,017	$	682,014
Commercial real estate	5,065,388		28,460		5,093,848
Construction	148,692		2,609		151,301
Residential mortgage	571,006		9,163		580,169
Consumer	120,356		1,911		122,267
Total	$	6,559,439	$	70,160	$	6,629,599
December 31, 2018
Commercial and industrial	$	710,045	$	30,612	$	740,657
Commercial real estate	2,478,990		15,976		2,494,966
Construction	364,815		969		365,784
Residential mortgage	421,609		6,807		428,416
Consumer	158,502		1,761		160,263
Total	$	4,133,961	$	56,125	$	4,190,086