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Tax Credit Investments
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Tax Credit Investments
INCOME TAXES (Note 13)
Income tax expense for the years ended December 31, 2023, 2022 and 2021 consisted of the following:
202320222021
 (in thousands)
Current expense:
Federal$123,569 $132,060 $92,823 
State65,611 72,271 47,249 
189,180 204,331 140,072 
Deferred (benefit) expense:
Federal(8,035)7,263 19,709 
State(1,324)222 7,118 
(9,359)7,485 26,827 
Total income tax expense$179,821 $211,816 $166,899 
The tax effects of temporary differences that gave rise to the significant portions of the deferred tax assets and liabilities as of December 31, 2023 and 2022 were as follows:
20232022
 (in thousands)
Deferred tax assets:
Allowance for credit losses$128,717 $133,459 
Employee benefits41,190 39,917 
Investment securities42,361 48,598 
Net operating loss carryforwards11,037 13,904 
Purchase accounting53,980 66,487 
FDIC Special Assessment13,894 — 
Other24,362 12,995 
Total deferred tax assets315,541 315,360 
Deferred tax liabilities:
Pension plans37,194 30,474 
Depreciation20,963 16,625 
Other investments11,175 8,838 
Core deposit intangibles28,237 36,189 
Other22,319 27,235 
Total deferred tax liabilities119,888 119,361 
Valuation Allowance424 1,642 
Net deferred tax asset (included in other assets)$195,229 $194,357 
Valley's federal net operating loss carryforwards totaled approximately $39.8 million at December 31, 2023, and expire during the period from 2029 through 2034. State net operating loss carryforwards totaled approximately $61.6 million at December 31, 2023, and expire during the period from 2029 through 2038.
Valley's capital loss carryforwards totaled approximately $4.1 million, net of a valuation allowance of $424 thousand at December 31, 2023, and expire during 2028.
Based upon taxes paid and projections of future taxable income over the periods in which the net deferred tax assets are deductible, management believes that it is more likely than not that Valley will realize the benefits of these deductible differences and loss carryforwards.
Reconciliation between the reported income tax expense and the amount computed by multiplying consolidated income before taxes by the statutory federal income tax rate of 21 percent for the years ended December 31, 2023, 2022, and 2021 were as follows:
202320222021
AmountPercentAmountPercentAmountPercent
 (in thousands)
U.S. federal statutory tax rate$142,450 21.0 %$163,940 21.0 %$134,556 21.0 %
Increase (decrease) due to:
State income tax expense, net of federal tax effect *
50,787 7.5 %57,276 7.3 %42,950 6.7 %
Tax credits(23,008)(3.4)%(12,872)(1.6)%(9,942)(1.6)%
Nontaxable or non-deductible items6,659 1.0 %4,952 0.6 %431 0.1 %
Other adjustments2,933 0.4 %(1,480)(0.2)%(1,096)(0.2)%
 Income tax expense$179,821 26.5 %$211,816 27.1 %$166,899 26.0 %
*State taxes in New York, New York City, and New Jersey made up the majority (greater than 50 percent) of the tax effect in this category.
We invest in certain tax-advantaged investments that support qualified affordable housing projects, community development and renewable energy resources. Our investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods. Third parties perform diligence on these investments for us on which we rely both at inception and on an on-going basis. We are subject to the risk that previously recorded tax credits, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, may fail to meet certain government compliance requirements and may not be able to be realized.
Valley had $30.4 million in reserve for tax liability positions at December 31, 2023, 2022, and 2021 related to certain tax credits and other tax benefits previously recognized by Valley, where, subsequently, a third-party fraud was uncovered by the U.S. Department of Justice in 2018. While we believe that Valley was fully reserved for the tax positions related to this matter at December 31, 2023, we continue to evaluate all our existing tax positions each quarter under GAAP.
A reconciliation of Valley’s gross unrecognized tax benefits for 2023, 2022 and 2021 is presented in the table below:

202320222021
 (in thousands)
Beginning balance$30,359 $30,359 $31,918 
Settlements with taxing authorities— — (1,559)
Ending balance$30,359 $30,359 $30,359 
The entire balance of unrecognized tax benefits, if recognized, would favorably affect Valley's effective income tax rate. It is reasonably possible that the liability for unrecognized tax benefits could increase or decrease in the next twelve months due to completion of tax authorities’ exams or the expiration of statutes of limitations.
Valley’s policy is to report interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Valley accrued approximately $13.4 million, $10.5 million and $8.7 million of interest expense associated with Valley's uncertain tax positions at December 31, 2023, 2022 and 2021, respectively.
Valley monitors its tax positions for the underlying facts, circumstances, and information available including changes in tax laws, case law, and regulations that may necessitate subsequent de-recognition of previous tax benefits.
The following table presents income taxes paid for the years ended December 31, 2023, 2022 and 2021:
202320222021
 (in thousands)
Federal taxes paid$162,502 $121,000 $100,000 
State and city taxes paid:
New York 25,718 18,626 14,430 
New Jersey19,006 12,010 23,510 
New York City13,307 12,141 16,933 
Other15,970 8,325 8,497 
Total state and city taxes paid74,001 51,102 63,370 
Total income taxes paid$236,503 $172,102 $163,370 
Valley files income tax returns in the U.S. federal and various state jurisdictions. With few exceptions, Valley is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2018. Valley is under examination by the IRS and also under routine examination by various state jurisdictions, and we expect the examinations to be completed within the next 12 months. Valley has considered, for all open audits, any potential adjustments in establishing our reserve for unrecognized tax benefits as of December 31, 2023.
TAX CREDIT INVESTMENTS (Note 14)
Valley’s tax credit investments are primarily related to investments promoting qualified affordable housing projects, and other investments related to community development and renewable energy sources. Some of these tax-advantaged investments support Valley’s regulatory compliance with the CRA. Valley’s investments in these entities generate a return primarily through the realization of federal income tax credits, and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction of income tax expense.
Valley’s tax credit investments are carried in other assets on the consolidated statements of financial condition. Valley’s unfunded capital and other commitments related to the tax credit investments are carried in accrued expenses and other liabilities on the consolidated statements of financial condition. Valley recognizes amortization of tax credit investments, including impairment losses, within non-interest expense in the consolidated statements of income using the equity method of accounting. After initial measurement, the carrying amounts of tax credit investments with non-readily determinable fair values are increased to reflect Valley's share of income of the investee and are reduced to reflect its share of losses of the investee, dividends received and impairments, if applicable. See the “Impairment Analysis” section below.
The following table presents the balances of Valley’s affordable housing tax credit investments, other tax credit investments, and related unfunded commitments at December 31, 2023 and 2022:
December 31,
20232022
(in thousands)
Other Assets:
Affordable housing tax credit investments, net$22,158 $24,198 
Other tax credit investments, net117,659 56,551 
Total tax credit investments, net
$139,817 $80,749 
Other Liabilities:
Unfunded affordable housing tax credit commitments$1,305 $1,338 
    Total unfunded tax credit commitments$1,305 $1,338 

The following table presents other information relating to Valley’s affordable housing tax credit investments and other tax credit investments for the years ended December 31, 2023, 2022 and 2021:
202320222021
(in thousands)
Components of Income Tax Expense:
Affordable housing tax credits and other tax benefits$5,872 $4,748 $3,525 
Other tax credit investment credits and tax benefits20,069 11,617 9,320 
Total reduction in income tax expense
$25,941 $16,365 $12,845 
Amortization of Tax Credit Investments:
Affordable housing tax credit investment losses$3,198 $2,311 $1,895 
Affordable housing tax credit investment impairment losses2,466 1,187 1,416 
Other tax credit investment losses1,266 1,254 811 
Other tax credit investment impairment losses11,079 7,655 6,788 
Total amortization of tax credit investments recorded in non-interest expense
$18,009 $12,407 $10,910 
Impairment Analysis
An impairment loss is recognized when the fair value of the tax credit investment is less than its carrying value. The determination of whether a decline in value of a tax credit investment is other-than-temporary requires significant judgment and is performed separately for each investment. The tax credit investments are reviewed for impairment quarterly, or whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. These circumstances can include, but are not limited to, the following factors:
•Evidence that Valley does not have the ability to recover the carrying amount of the investment;
•The inability of the investee to sustain earnings;
•A current fair value of the investment based upon cash flow projections that is less than the carrying amount; and
•Change in the economic or technological environment that could adversely affect the investee’s operations.
On a periodic basis, Valley obtains financial reporting on its underlying tax credit investment assets for each fund. The financial reporting is reviewed for deterioration in the financial condition of the fund, the level of cash flows and any significant losses or impairment charges. Valley also regularly reviews the condition and continuing prospects of the underlying operations of the investment with the fund manager, including any observations from site visits and communications with the Fund Sponsor, if available. Annually, Valley obtains the audited financial statements prepared by an independent accounting firm for each investment, as well as the annual tax returns. Generally, none of the aforementioned review factors are individually conclusive and the relative importance of each factor will vary based on facts and circumstances. However, the longer the expected period of recovery, the stronger and more objective the positive evidence needs to be in order to overcome the presumption that the impairment is other than temporary. If management determines that a decline in value is other than temporary per its quarterly and annual reviews, including current probable cash flow projections, the applicable tax credit investment is written down to its estimated fair value through an impairment charge to earnings, which establishes the new cost basis of the investment.