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Derivative Instruments and Hedging Activities
 6 Months Ended
Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Derivative Instruments and Hedging Activities
Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest and currency rates.

Fair Value Hedges of Fixed Rate Assets and Liabilities. Valley is exposed to changes in the fair value of fixed-rate subordinated debt due to changes in interest rates. Valley uses interest rate swaps to manage its exposure to changes in fair value on fixed rate debt instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of variable rate payments from a counterparty in exchange for Valley making fixed rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings.

Cash Flow Hedges of Interest Rate Risk. Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, Valley uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively.

Valley had five interest rate swaps with a total notional amount of $500 million that matured during the six months ended June 30, 2022. These swaps were used to hedge the changes in cash flows associated with certain short-term Federal Home Loan Bank of New York (FHLB) advances.

Non-designated Hedges. Derivatives not designated as hedges are used to manage Valley’s exposure to interest rate movements, foreign currency risk, credit risk, and to provide services to customers or for other purposes. These derivatives do not meet the requirements for hedge accounting under U.S. GAAP. Derivatives not designated as hedges are not entered into for speculative purposes.

Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third party, such that Valley minimizes its net risk exposure resulting from such transactions. As these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the participation type. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At June 30, 2022, Valley had 26 credit swaps with an aggregate notional amount of $243.9 million related to risk participation agreements. 

At June 30, 2022, Valley had two “steepener” swaps, each with a current notional amount of $10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the constant maturity swap (CMS) rate curve. Although these types of instruments do not meet the hedge accounting
requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month LIBOR rate and therefore provide an effective economic hedge.

Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rate on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.

Valley enters foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments. Upon the origination of a certain foreign currency denominated transactions (including foreign currency holdings and non-U.S. dollar denominated loans) with a client, we enter into a respective hedging contract with a third party financial institution to mitigate the economic impact of foreign currency exchange rate fluctuation.

Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows: 
 June 30, 2022December 31, 2021
 Fair ValueFair Value
Other AssetsOther LiabilitiesNotional AmountOther AssetsOther LiabilitiesNotional Amount
 (in thousands)
Derivatives designated as hedging instruments:
Cash flow hedge interest rate swaps
$490 $— $200,000 $— $310 $700,000 
Fair value hedge interest rate swaps — 22,056 300,000 — 3,335 300,000 
Total derivatives designated as hedging instruments$490 $22,056 $500,000 $— $3,645 $1,000,000 
Derivatives not designated as hedging instruments:
Interest rate swaps and other contracts*
$318,521 $318,277 $12,523,601 $180,701 $47,044 $10,179,294 
Foreign currency derivatives24,489 23,481 1,590,130 311 233 122,166 
Mortgage banking derivatives689 452 86,421 488 1,454 312,428 
Total derivatives not designated as hedging instruments
$343,699 $342,210 $14,200,152 $181,500 $48,731 $10,613,888 
*    Other derivatives include risk participation agreements.
The Chicago Mercantile Exchange and London Clearing House variation margins are classified as a single-unit of account as settlements of the cash flow hedges and other non-designated derivative instruments. As a result, the fair value of the applicable derivative assets and liabilities are reported net of variation margin at June 30, 2022 and December 31, 2021 in the table above.
Gains (losses) included in the consolidated statements of income and other comprehensive loss, on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows were as follows: 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands)
Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense$116 $(749)$(426)$(1,664)
Amount of gain (loss) recognized in other comprehensive loss121 (158)441 19 
The accumulated after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss were $831 thousand and $1.3 million at June 30, 2022 and December 31, 2021, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest expense as interest payments are made on the hedged variable interest rate liabilities. Valley estimates that $730 thousand will be reclassified as an increase to interest expense over the next 12 months.

Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows: 
Three Months Ended
June 30,		Six Months Ended
June 30,
2022202120222021
 (in thousands)
Derivative - interest rate swap:
Interest expense$76 $80 $606 $80 
Hedged item - subordinated debt
Interest expense$(147)$(83)$(477)$(83)
The changes in the fair value of the hedged item designated as a qualifying hedge are captured as an
adjustment to the carrying amount of the hedged item (basis adjustment). The following table presents the hedged item related to interest rate derivatives designated as fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged item at June 30, 2022.
Line Item in the Statement of Financial Position in Which the Hedged Item is IncludedCarrying Amount of the Hedged LiabilityCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
(in thousands)
Long-term borrowings$277,486 $(22,514)
The net losses (gains) included in the consolidated statements of income related to derivative instruments not designated as hedging instruments were as follows: 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
 (in thousands)
Non-designated hedge interest rate swaps and credit derivatives
Other non-interest expense$1,143 $(2,210)$(1,654)$(425)

Other non-interest income included fee income related to non-designated hedge derivative interest rate swaps (not designated as hedging instruments) executed with commercial loan customers totaling $11.1 million and $7.6 million for the three months ended June 30, 2022 and 2021, respectively, and $25.1 million and $13.8 million for the six months ended June 30, 2022 and 2021, respectively.
Credit Risk Related Contingent Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board of Directors.Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparty could terminate the derivative positions and Valley would be required to settle its obligations under the agreements. As of June 30, 2022, Valley was in compliance with all of the provisions of its derivative counterparty agreements. As of June 30, 2022, there were no derivatives in an aggregate net liability position. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.