Edgar Filing: VALLEY NATIONAL BANCORP

VLY-3.31.2015-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)



x	Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2015



¨	Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 1-11277

VALLEY NATIONAL BANCORP

(Exact name of registrant as specified in its charter)



New Jersey		22-2477875
(State or other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

1455 Valley Road Wayne, NJ		07470
(Address of principal executive office)		(Zip code)

973-305-8800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock (no par value), of which 232,525,119 shares were outstanding as of May 6, 2015.

TABLE OF CONTENTS



		Page Number
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition as of March 31, 2015 and December 31, 2014	2
	Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014	3
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014	5
	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	79

Item 4.	Controls and Procedures	79

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	80

Item 1A.	Risk Factors	80

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81

Item 6.	Exhibits	81

SIGNATURES		82

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except for share data)



	March 31, 2015			December 31, 2014
Assets	(Unaudited)
Cash and due from banks	$	394,002		$	462,569
Interest bearing deposits with banks	370,712			367,838
Investment securities:
Held to maturity (fair value of $1,868,625 at March 31, 2015 and $1,815,976 at December 31, 2014)	1,825,819			1,778,316
Available for sale	843,518			886,970
Trading securities	—			14,233
Total investment securities	2,669,337			2,679,519
Loans held for sale, at fair value	3,648			24,295
Non-covered loans	13,550,735			13,262,022
Covered loans	183,726			211,891
Less: Allowance for loan losses	(102,631		)	(102,353		)
Net loans	13,631,830			13,371,560
Premises and equipment, net	281,236			282,997
Bank owned life insurance	377,404			375,640
Accrued interest receivable	56,590			57,333
Due from customers on acceptances outstanding	2,881			4,197
FDIC loss-share receivable	7,608			13,848
Goodwill	577,534			575,892
Other intangible assets, net	35,024			38,775
Other assets	572,204			539,392
Total Assets	$	18,980,010		$	18,793,855
Liabilities
Deposits:
Non-interest bearing	$	4,329,265		$	4,235,515
Interest bearing:
Savings, NOW and money market	7,115,243			7,056,133
Time	2,772,235			2,742,468
Total deposits	14,216,743			14,034,116
Short-term borrowings	133,866			146,781
Long-term borrowings	2,529,073			2,526,408
Junior subordinated debentures issued to capital trusts	41,292			41,252
Bank acceptances outstanding	2,881			4,197
Accrued expenses and other liabilities	189,002			178,084
Total Liabilities	17,112,857			16,930,838
Shareholders’ Equity
Preferred stock, (no par value, authorized 30,000,000 shares; none issued)	—			—
Common stock, (no par value, authorized 332,023,233 shares; issued 232,616,426 shares at March 31, 2015 and 232,127,098 shares at December 31, 2014)	81,170			81,072
Surplus	1,696,834			1,693,752
Retained earnings	135,571			130,845
Accumulated other comprehensive loss	(44,662		)	(42,495		)
Treasury stock, at cost (188,318 common shares at March 31, 2015 and 16,123 common shares at December 31, 2014)	(1,760		)	(157		)
Total Shareholders’ Equity	1,867,153			1,863,017
Total Liabilities and Shareholders’ Equity	$	18,980,010		$	18,793,855

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except for share data)



	Three Months Ended March 31,
	2015			2014
Interest Income
Interest and fees on loans	$	150,482		$	131,079
Interest and dividends on investment securities:
Taxable	14,932			16,456
Tax-exempt	3,612			3,686
Dividends	1,739			1,790
Interest on federal funds sold and other short-term investments	220			27
Total interest income	170,985			153,038
Interest Expense
Interest on deposits:
Savings, NOW and money market	5,995			4,281
Time	7,974			6,532
Interest on short-term borrowings	94			318
Interest on long-term borrowings and junior subordinated debentures	24,836			27,883
Total interest expense	38,899			39,014
Net Interest Income	132,086			114,024
Provision for credit losses	—			3,998
Net Interest Income After Provision for Credit Losses	132,086			110,026
Non-Interest Income
Trust and investment services	2,494			2,442
Insurance commissions	4,205			4,498
Service charges on deposit accounts	5,290			5,751
Gains (losses) on securities transactions, net	2,416			(8		)
Fees from loan servicing	1,603			1,670
Gains on sales of loans, net	598			913
Gains (losses) on sales of assets, net	281			(148		)
Bank owned life insurance	1,764			1,408
Change in FDIC loss-share receivable	(3,920		)	(76		)
Other	3,914			4,288
Total non-interest income	18,645			20,738
Non-Interest Expense
Salary and employee benefits expense	56,712			48,088
Net occupancy and equipment expense	22,200			20,724
FDIC insurance assessment	3,792			3,287
Amortization of other intangible assets	2,393			2,351
Professional and legal fees	3,341			3,678
Amortization of tax credit investments	4,496			3,716
Advertising	1,729			617
Other	13,455			13,638
Total non-interest expense	108,118			96,099
Income Before Income Taxes	42,613			34,665
Income tax expense	12,272			830
Net Income	$	30,341		$	33,835
Earnings Per Common Share:
Basic	$	0.13		$	0.17
Diluted	0.13			0.17
Cash Dividends Declared per Common Share	0.11			0.11
Weighted Average Number of Common Shares Outstanding:
Basic	232,338,775			200,128,384
Diluted	232,341,921			200,128,384

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2015			2014
Net income	$	30,341		$	33,835
Other comprehensive income, net of tax:
Unrealized gains and losses on available for sale securities
Net gains arising during the period	3,936			7,216
Less reclassification adjustment for net (gains) losses included in net income	(1,409		)	5
Total	2,527			7,221
Non-credit impairment losses on available for sale securities
Net change in non-credit impairment losses on securities	(421		)	142
Less reclassification adjustment for accretion of credit impairment losses included in net income	(84		)	(115		)
Total	(505		)	27
Unrealized gains and losses on derivatives (cash flow hedges)
Net losses on derivatives arising during the period	(5,259		)	(3,662		)
Less reclassification adjustment for net losses included in net income	951			965
Total	(4,308		)	(2,697		)
Defined benefit pension plan
Amortization of net loss	119			37
Total other comprehensive (loss) income	(2,167		)	4,588
Total comprehensive income	$	28,174		$	38,423

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	30,341		$	33,835
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,078			4,972
Stock-based compensation	2,479			2,178
Provision for credit losses	—			3,998
Net amortization of premiums and accretion of discounts on securities and borrowings	8,371			6,715
Amortization of other intangible assets	2,393			2,351
(Gains) losses on securities transactions, net	(2,416		)	8
Proceeds from sales of loans held for sale	38,568			32,771
Gains on sales of loans, net	(598		)	(913		)
Originations of loans held for sale	(17,716		)	(26,984		)
(Gains) losses on sales of assets, net	(281		)	148
FDIC loss-share receivable (excluding reimbursements)	3,920			76
Net change in:
Trading securities	14,233			9
Cash surrender value of bank owned life insurance	(1,764		)	(1,408		)
Accrued interest receivable	743			(322		)
Other assets	(37,584		)	15,010
Accrued expenses and other liabilities	8,104			(37,242		)
Net cash provided by operating activities	53,871			35,202
Cash flows from investing activities:
Net loan originations	(122,279		)	(150,592		)
Loans purchased	(139,935		)	(19,084		)
Investment securities held to maturity:
Purchases	(145,973		)	(177,462		)
Sales	11,666			—
Maturities, calls and principal repayments	85,798			93,818
Investment securities available for sale:
Purchases	(8,034		)	(5,964		)
Sales	13,974			—
Maturities, calls and principal repayments	38,678			50,081
Proceeds from sales of real estate property and equipment	4,551			5,977
Purchases of real estate property and equipment	(3,216		)	(5,673		)
Reimbursements from the FDIC	1,954			1,424
Net cash used in investing activities	(262,816		)	(207,475		)
Cash flows from financing activities:
Net change in deposits	182,627			(51,277		)
Net change in short-term borrowings	(12,915		)	255,655
Cash dividends paid to common shareholders	(25,512		)	(21,957		)
Common stock (purchased) issued, net	(948		)	286
Net cash provided by financing activities	143,252			182,707
Net change in cash and cash equivalents	(65,693		)	10,434
Cash and cash equivalents at beginning of year	830,407			369,168
Cash and cash equivalents at end of period	$	764,714		$	379,602

VALLEY NATIONAL BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands)

	Three Months Ended March 31,
	2015		2014
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on deposits and borrowings	$	41,978	$	42,133
Federal and state income taxes	29,550		11,368
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned	$	1,944	$	3,508
Transfer of loans to loans held for sale	—		27,329

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The unaudited consolidated financial statements of Valley National Bancorp, a New Jersey Corporation (Valley), include the accounts of its commercial bank subsidiary, Valley National Bank (the “Bank”), and all of Valley’s direct or indirect wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated. The accounting and reporting policies of Valley conform to U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the financial services industry. In accordance with applicable accounting standards, Valley does not consolidate statutory trusts established for the sole purpose of issuing trust preferred securities and related trust common securities.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly Valley’s financial position, results of operations and cash flows at March 31, 2015 and for all periods presented have been made. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year.

In preparing the unaudited consolidated financial statements in conformity with U.S. GAAP, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that are particularly susceptible to change are: the allowance for loan losses; the evaluation of goodwill and other intangible assets, and investment securities for impairment; fair value measurements of assets and liabilities; and income taxes. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP and industry practice have been condensed or omitted pursuant to rules and regulations of the SEC. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Valley’s Annual Report on Form 10-K for the year ended December 31, 2014.

Note 2. Business Combinations

On November 1, 2014, Valley acquired 1st United Bancorp, Inc. (1st United) and its wholly-owned subsidiary, 1st United Bank, a commercial bank with approximately $1.7 billion in assets, $1.2 billion in loans, and $1.4 billion in deposits, after purchase accounting adjustments. The 1st United acquisition brings to Valley a 20 branch network covering some of the most attractive urban banking markets in Florida, including locations throughout southeast Florida, the Treasure Coast, central Florida and central Gulf Coast regions. The common shareholders of 1st United received 0.89 of a share of Valley common stock for each 1st United share they owned prior to the merger. The total consideration for the acquisition was approximately $300 million, consisting of 30.7 million shares of Valley common stock and $8.9 million of cash consideration paid to 1st United stock option holders.

During the quarter ended March 31, 2015, Valley revised the estimated fair values of the acquired assets as of the acquisition date as the result of additional information obtained. The adjustments mostly related to the fair value of certain purchased credit-impaired (PCI) loans, core deposit intangibles and deferred tax assets which, on a combined basis, resulted in a $1.6 million increase in goodwill (see Note 10 for amount of goodwill as allocated to Valley's business segments). The fair value estimates for acquired assets and assumed liabilities are subject to change for up to one year after the closing date of the 1st United acquisition, as additional information becomes available.

Note 3. Earnings Per Common Share

The following table shows the calculation of both basic and diluted earnings per common share for the three months ended March 31, 2015 and 2014.



	Three Months Ended March 31,
	2015		2014
	(in thousands, except for share data)
Net income	$	30,341	$	33,835
Basic weighted average number of common shares outstanding	232,338,775		200,128,384
Plus: Common stock equivalents	3,146		—
Diluted weighted average number of common shares outstanding	232,341,921		200,128,384
Earnings per common share:
Basic	$	0.13	$	0.17
Diluted	0.13		0.17

Common stock equivalents represent the dilutive effect of additional common shares issuable upon the assumed vesting or exercise, if applicable, of performance-based restricted stock units, common stock options and warrants to purchase Valley’s common shares. Common stock options and warrants with exercise prices that exceed the average market price of Valley’s common stock during the periods presented have an anti-dilutive effect on the diluted earnings per common share calculation and therefore are excluded from diluted earnings per share calculation. Anti-dilutive common stock options and warrants totaled approximately 6.2 million shares and 6.6 million shares for the three months ended March 31, 2015 and 2014, respectively. Restricted stock units not included in common stock equivalents at March 31, 2015 and 2014 were immaterial.

Note 4. Accumulated Other Comprehensive Loss

The following table presents the after-tax changes in the balances of each component of accumulated other comprehensive loss for the three months ended March 31, 2015.



	Components of Accumulated Other Comprehensive Loss												Total Accumulated Other Comprehensive Loss
	Unrealized Gains and (Losses) on Available for Sale (AFS) Securities			Non-credit Impairment Losses on AFS Securities			Unrealized Gains and (Losses) on Derivatives			Defined Benefit Pension Plan			Total Accumulated Other Comprehensive Loss
	(in thousands)
Balance at December 31, 2014	$	(1,890	)	$	145		$	(14,532	)	$	(26,218	)	$	(42,495	)
Other comprehensive income (loss) before reclassifications	3,936			(421		)	(5,259		)	—			(1,744		)
Amounts reclassified from other comprehensive income (loss)	(1,409		)	(84		)	951			119			(423		)
Other comprehensive income (loss), net	2,527			(505		)	(4,308		)	119			(2,167		)
Balance at March 31, 2015	$	637		$	(360	)	$	(18,840	)	$	(26,099	)	$	(44,662	)

The following table presents amounts reclassified from each component of accumulated other comprehensive loss on a gross and net of tax basis for the three months ended March 31, 2015 and 2014.



	Amounts Reclassified from Accumulated Other Comprehensive Loss
	Three Months Ended March 31,
Components of Accumulated Other Comprehensive Loss	2015			2014			Income Statement Line Item
	(in thousands)
Unrealized gains (losses) on AFS securities before tax	$	2,416		$	(8	)	Gains (losses) on securities transactions, net
Tax effect	(1,007		)	3
Total net of tax	1,409			(5		)
Non-credit impairment losses on AFS securities before tax:
Accretion of credit loss impairment due to an increase in expected cash flows	144			198			Interest and dividends on investment securities (taxable)
Tax effect	(60		)	(83		)
Total net of tax	84			115
Unrealized losses on derivatives (cash flow hedges) before tax	(1,629		)	(1,648		)	Interest expense
Tax effect	678			683
Total net of tax	(951		)	(965		)
Defined benefit pension plan:
Amortization of net loss	(205		)	(62		)	*
Tax effect	86			25
Total net of tax	(119		)	(37		)
Total reclassifications, net of tax	$	423		$	(892	)



*	Amortization of net loss is included in the computation of net periodic pension cost.

Note 5. New Authoritative Accounting Guidance

Accounting Standards Update (ASU) No. 2015-03, "Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs" requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in the ASU No. 2015-03. ASU No. 2015-03 will be effective for reporting periods (including interim periods) beginning after December 15, 2015. ASU No. 2015-03 became effective for Valley on January 1, 2015 and did not have a significant impact on its consolidated financial statements.

ASU No. 2014-14, "Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure" requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. ASU No. 2014-14 became effective for Valley on January 1, 2015 and did not have a significant impact on its consolidated financial statements.

ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period" requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU No. 2014-12 became effective for Valley on January 1, 2015 and did not have a significant impact on its consolidated financial statements.

ASU No. 2014-11, "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures" requires entities to account for repurchase-to-maturity transactions as secured borrowings rather than as sales with forward repurchase agreements and expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. The accounting-related changes became effective for the first interim or annual period beginning after December 15, 2014. The disclosures for certain transactions accounted for as sales are required for interim and annual periods beginning after December 15, 2014. The disclosures for repos, securities lending transactions, and repos-to-maturity accounted for as secured borrowings are required for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. As of March 31, 2015, all of Valley's repurchase agreements were typical in nature (i.e., not repurchase-to-maturity transactions or repurchase agreements executed as a repurchase financing) and are accounted for as secured borrowings. As such, Valley's adoption of ASU No. 2014-11 did not have a significant impact on its consolidated financial statements.

ASU No. 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, this ASU requires interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 became effective for Valley on January 1, 2015 and did not to have a significant impact on its consolidated financial statements. See Note 8 for related disclosures.

ASU No. 2014-01, “Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects,” amends existing guidance to permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense or benefit. For those investments in qualified affordable housing projects not accounted for using the proportional amortization method, the investment should be accounted for as an equity method investment or a cost method investment in accordance with Subtopic 970-323. ASU No. 2014-01 became effective for Valley on January 1, 2015 and did not have a significant impact on its consolidated financial statements. See Note 15 for the related disclosures.

Note 6. Fair Value Measurement of Assets and Liabilities

Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:



	Level 1	Unadjusted exchange quoted prices in active markets for identical assets or liabilities, or identical liabilities traded as assets that the reporting entity has the ability to access at the measurement date.



	Level 2	Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly (i.e., quoted prices on similar assets), for substantially the full term of the asset or liability.



	Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Assets and Liabilities Measured at Fair Value on a Recurring and Non-recurring Basis

The following tables present the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis by level within the fair value hierarchy as reported on the consolidated statements of financial condition at March 31, 2015 and December 31, 2014. The assets presented under “nonrecurring fair value measurements” in the table below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized).



	March 31, 2015		Fair Value Measurements at Reporting Date Using:
	March 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Recurring fair value measurements:
Assets
Investment securities:
Available for sale:
U.S. Treasury securities	$	50,473	$	50,473	$	—	$	—
U.S. government agency securities	27,339		—		27,339		—
Obligations of states and political subdivisions	44,207		—		44,207		—
Residential mortgage-backed securities	617,715		—		604,277		13,438
Trust preferred securities	8,538		—		6,508		2,030
Corporate and other debt securities	74,502		18,272		56,230		—
Equity securities	20,744		1,473		19,271		—
Total available for sale	843,518		70,218		757,832		15,468
Loans held for sale ⁽¹⁾⁽²⁾	3,648		—		3,648		—
Other assets ⁽³⁾	29,770		—		29,770		—
Total assets	$	876,936	$	70,218	$	791,250	$	15,468
Liabilities
Other liabilities ⁽³⁾	$	47,120	$	—	$	47,120	$	—
Total liabilities	$	47,120	$	—	$	47,120	$	—
Non-recurring fair value measurements:
Collateral dependent impaired loans ⁽⁴⁾	$	9,963	$	—	$	—	$	9,963
Loan servicing rights	5,657		—		—		5,657
Foreclosed assets ⁽⁵⁾	2,379		—		—		2,379
Total	$	17,999	$	—	$	—	$	17,999



			Fair Value Measurements at Reporting Date Using:
	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Recurring fair value measurements:
Assets
Investment securities:
Available for sale:
U.S. Treasury securities	$	49,443	$	49,443	$	—	$	—
U.S. government agency securities	33,825		—		33,825		—
Obligations of states and political subdivisions	44,051		—		44,051		—
Residential mortgage-backed securities	644,276		—		629,696		14,580
Trust preferred securities	20,537		—		15,808		4,729
Corporate and other debt securities	74,012		18,241		55,771		—
Equity securities	20,826		1,337		19,489		—
Total available for sale	886,970		69,021		798,640		19,309
Trading securities	14,233		—		14,233		—
Loans held for sale ⁽¹⁾	17,165		—		17,165		—
Other assets ⁽³⁾	20,987		—		20,987		—
Total assets	$	939,355	$	69,021	$	851,025	$	19,309
Liabilities
Other liabilities ⁽³⁾	$	33,330	$	—	$	33,330	$	—
Total liabilities	$	33,330	$	—	$	33,330	$	—
Non-recurring fair value measurements:
Non-performing loans held for sale	$	7,130	$	—	$	—	$	7,130
Collateral dependent impaired loans ⁽⁴⁾	13,985		—		—		13,985
Loan servicing rights	3,987		—		—		3,987
Foreclosed assets ⁽⁵⁾	18,098		—		—		18,098
Total	$	43,200	$	—	$	—	$	43,200


(1)	Loans held for sale carried at fair value (which consist of residential mortgages) had contractual unpaid principal balances totaling approximately $3.5 million and $16.9 million at March 31, 2015 and December 31, 2014, respectively.


(2)	Gains and losses related to the change in the fair value of loans held for sale is included in net gains on sales of loans within the non-interest income category of our consolidated statements of income and totaled a net gain of $100 thousand and $121 thousand for the three months ended March 31, 2015 and 2014, respectively.


(3)	Derivative financial instruments are included in this category.


(4)	Excludes PCI loans.


(5)	Includes covered real estate owned totaling $3.2 million at December 31, 2014. There were no covered loan transfers into the real estate owned during the three months ended March 31, 2015.

The changes in Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2015 and 2014 are summarized below:



	Available for Sale Securities
	Three Months Ended March 31,
	2015			2014
	(in thousands)
Balance, beginning of the period	$	19,309		$	28,523
Total net (losses) gains included in other comprehensive income for the period	(792		)	48
Sales	(2,675		)	—
Settlements	(374		)	(1,660		)
Balance, end of the period	$	15,468		$	26,911

No changes in unrealized gains or losses on Level 3 securities held at March 31, 2015 and 2014 were included in earnings during the three months ended March 31, 2015 and 2014. There were no transfers of assets into and out of Level 3, or between Level 1 and Level 2, during the three months ended March 31, 2015 and 2014.

There have been no material changes in the valuation methodologies used at March 31, 2015 from December 31, 2014.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following valuation techniques were used for financial instruments measured at fair value on a recurring basis. All the valuation techniques described below apply to the unpaid principal balance excluding any accrued interest or dividends at the measurement date. Interest income and expense are recorded within the consolidated statements of income depending on the nature of the instrument using the effective interest method based on acquired discount or premium.

Available for sale and trading securities. All U.S. Treasury securities, certain corporate and other debt securities, and certain common and preferred equity securities (including certain trust preferred securities) are reported at fair value utilizing Level 1 inputs. The majority of other investment securities are reported at fair value utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the data and assumptions used in pricing the securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data. For certain securities, the inputs used by either dealer market participants or an independent pricing service may be derived from unobservable market information (Level 3 inputs). In these instances, Valley evaluates the appropriateness and quality of the assumption and the resulting price. In addition, Valley reviews the volume and level of activity for all available for sale and trading securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary, to estimate fair value and this results in fair values based on Level 3 inputs. In determining fair value, Valley utilizes unobservable inputs which reflect Valley’s own assumptions about the inputs that market participants would use in pricing each security. In developing its assertion of market participant assumptions, Valley utilizes the best information that is both reasonable and available without undue cost and effort.

In calculating the fair value for the available for sale securities under Level 3, Valley prepared present value cash flow models for certain private label mortgage-backed securities. The cash flows for the residential mortgage-backed securities incorporated the expected cash flow of each security adjusted for default rates, loss severities and prepayments of the individual loans collateralizing the security.

The following table presents quantitative information about Level 3 inputs used to measure the fair value of these securities at March 31, 2015:



Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average

Private label mortgage-backed securities	Discounted cash flow	Prepayment rate	0.0 - 18.2%	11.1	%
		Default rate	3.0 - 24.9	10.1
		Loss severity	40.0 - 62.9	57.1

Significant increases or decreases in any of the unobservable inputs in the table above in isolation would result in a significantly lower or higher fair value measurement of the securities. Generally, a change in the assumption used for the default rate is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

For the Level 3 available for sale private label mortgage-backed securities (consisting of 4 securities), cash flow assumptions incorporated independent third party market participant data based on vintage year for each security. The discount rate utilized in determining the present value of cash flows for the mortgage-backed securities was arrived at by combining the yield on orderly transactions for similar maturity government sponsored mortgage-backed securities with (i) the historical average risk premium of similar structured private label securities, (ii) a risk premium reflecting current market conditions, including liquidity risk and (iii) if applicable, a forecasted loss premium derived from the expected cash flows of each security. The estimated cash flows for each private label mortgage-backed security were then discounted at the aforementioned effective rate to determine the fair value. The quoted prices received from either market participants or independent pricing services are weighted with the internal price estimate to determine the fair value of each instrument.

For the Level 3 available for sale pooled trust preferred securities (consisting of 1 security at March 31, 2015 and 2 securities at December 31, 2014), the resulting estimated future cash flows were discounted at a yield determined by reference to similarly structured securities for which observable orderly transactions occurred. The discount rate for each security was applied using a pricing matrix based on credit, security type and maturity characteristics to determine the fair value. The fair value calculation is received from an independent valuation adviser. In validating the fair value calculation from an independent valuation adviser, Valley reviews the accuracy of the inputs and the appropriateness of the unobservable inputs utilized in the valuation to ensure the fair value calculation is reasonable from a market participant perspective.

Loans held for sale. The conforming residential mortgage loans originated for sale are reported at fair value using Level 2 inputs. The fair values were calculated utilizing quoted prices for similar assets in active markets. To determine these fair values, the mortgages held for sale are put into multiple tranches, or pools, based on the coupon rate and maturity of each mortgage. The market prices for each tranche are obtained from both Fannie Mae and Freddie Mac. The market prices represent a delivery price, which reflects the underlying price each institution would pay Valley for an immediate sale of an aggregate pool of mortgages. The market prices received from Fannie Mae and Freddie Mac are then averaged and interpolated or extrapolated, where required, to calculate the fair value of each tranche. Depending upon the time elapsed since the origination of each loan held for sale, non-performance risk and changes therein were addressed in the estimate of fair value based upon the delinquency data provided to both Fannie Mae and Freddie Mac for market pricing and changes in market credit spreads. Non-performance risk did not materially impact the fair value of mortgage loans held for sale at March 31, 2015 and December 31, 2014 based on the short duration these assets were held, and the high credit quality of these loans.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The fair value of Valley’s derivatives are determined using third party prices that are based on discounted cash flow analysis using observed market inputs, such as the LIBOR and Overnight Index Swap rate curves. The fair value of mortgage banking derivatives, consisting of interest rate lock commitments to fund residential mortgage loans and forward commitments for the future delivery of such loans (including certain loans held for sale at March 31, 2015), is determined based on the current market prices for similar instruments provided by Freddie Mac and Fannie Mae. The fair values of most of the derivatives incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to account for potential nonperformance risk of Valley and its counterparties. The credit valuation adjustments were not significant to the overall valuation of Valley’s derivatives at March 31, 2015 and December 31, 2014.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

The following valuation techniques were used for certain non-financial assets measured at fair value on a nonrecurring basis, including non-performing loans held for sale carried at estimated fair value (less selling costs) when less than the unamortized cost, impaired loans reported at the fair value of the underlying collateral, loan servicing rights, other real estate owned and other repossessed assets, which are reported at fair value upon initial recognition or subsequent impairment as described below.

Non-performing loans held for sale. At December 31, 2014, non-performing loans held for sale consisted of one commercial real estate loan that was transferred to the loans held for sale account during the first quarter of 2014. At December 31, 2014, the loan was re-measured and reported at fair value of $7.1 million based upon a non-binding sale agreement. This sale transaction was completed during the first quarter of 2015.

Impaired loans. Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral and are commonly referred to as “collateral dependent impaired loans.” Collateral values are estimated using Level 3 inputs, consisting of individual appraisals that are significantly adjusted based on certain discounting criteria. At March 31, 2015, appraisals were discounted up to 38.2 percent based on specific market data by location and property type. During the quarter ended March 31, 2015, collateral dependent impaired loans were individually re-measured and reported at fair value through direct loan charge-offs to the allowance for loan losses and/or a specific valuation allowance allocation based on the fair value of the underlying collateral. The collateral dependent loan charge-offs to the allowance for loan losses totaled $850 thousand and $1.0 million for the three months ended March 31, 2015 and 2014, respectively. At March 31, 2015, collateral dependent impaired loans with a total recorded investment of $11.9 million were reduced by specific valuation allowance allocations totaling $1.9 million to a reported total net carrying amount of $10.0 million.

Loan servicing rights. Fair values for each risk-stratified group of loan servicing rights are calculated using a fair value model from a third party vendor that requires inputs that are both significant to the fair value measurement and unobservable (Level 3). The fair value model is based on various assumptions, including but not limited to, prepayment speeds, internal rate of return (“discount rate”), servicing cost, ancillary income, float rate, tax rate, and inflation. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. At March 31, 2015, the fair value model used prepayment speeds (stated as constant prepayment rates) from 0 percent up to 25 percent and a discount rate of 8.0 percent for the valuation of the loan servicing rights. A significant degree of judgment is involved in valuing the loan servicing rights using Level 3 inputs. The use of different assumptions could have a significant positive or negative effect on the fair value estimate. Impairment charges are recognized on loan servicing rights when the amortized cost of a risk-stratified group of loan servicing rights exceeds the estimated fair value. Valley recognized net impairment charges totaling $84 thousand for the three months ended March 31, 2015 as compared to approximately $100 thousand of net recoveries of impairment charges for three months ended March 31, 2014.

Foreclosed assets. Certain foreclosed assets (consisting of other real estate owned and other repossessed assets), upon initial recognition and transfer from loans, are re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed assets. The fair value of a foreclosed asset,

upon initial recognition, is typically estimated using Level 3 inputs, consisting of an appraisal that is adjusted based on certain discounting criteria, similar to the criteria used for impaired loans described above. The appraisals of foreclosed assets were discounted up to 4.8 percent at March 31, 2015. At March 31, 2015, foreclosed assets included $2.4 million of assets that were measured at fair value upon initial recognition or subsequently re-measured during the quarter ended March 31, 2015. The foreclosed assets charge-offs to the allowance for loan losses totaled $457 thousand and $1.5 million for the three months ended March 31, 2015 and 2014, respectively. The re-measurement of foreclosed assets at fair value subsequent to their initial recognition resulted in an immaterial net loss for the three months ended March 31, 2015 and a net loss of $1.8 million within non-interest expense for the three months ended March 31, 2014.

Other Fair Value Disclosures

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

The fair value estimates presented in the following table were based on pertinent market data and relevant information on the financial instruments available as of the valuation date. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire portfolio of financial instruments. Because no market exists for a portion of the financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For instance, Valley has certain fee-generating business lines (e.g., its mortgage servicing operation, trust and investment management departments) that were not considered in these estimates since these activities are not financial instruments. In addition, the tax implications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

The carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated statements of financial condition at March 31, 2015 and December 31, 2014 were as follows:



	Fair Value Hierarchy	March 31, 2015				December 31, 2014
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
		(in thousands)
Financial assets
Cash and due from banks	Level 1	$	394,002	$	394,002	$	462,569	$	462,569
Interest bearing deposits with banks	Level 1	370,712		370,712		367,838		367,838
Investment securities held to maturity:
U.S. Treasury securities	Level 1	139,087		153,676		139,121		151,300
U.S. government agency securities	Level 2	13,630		14,040		14,081		14,385
Obligations of states and political subdivisions	Level 2	490,757		512,916		500,018		519,693
Residential mortgage-backed securities	Level 2	1,059,278		1,074,679		986,992		998,981
Trust preferred securities	Level 2	98,458		86,080		98,456		86,243
Corporate and other debt securities	Level 2	24,609		27,234		39,648		45,374
Total investment securities held to maturity		1,825,819		1,868,625		1,778,316		1,815,976
Net loans	Level 3	13,631,830		13,419,880		13,371,560		13,085,830
Accrued interest receivable	Level 1	56,590		56,590		57,333		57,333
Federal Reserve Bank and Federal Home Loan Bank stock⁽¹⁾	Level 1	135,032		135,032		133,117		133,117
Financial liabilities
Deposits without stated maturities	Level 1	11,444,508		11,444,508		11,291,648		11,291,648
Deposits with stated maturities	Level 2	2,772,235		2,837,408		2,742,468		2,807,522
Short-term borrowings	Level 1	133,866		133,866		146,781		146,781
Long-term borrowings	Level 2	2,529,073		2,751,489		2,526,408		2,738,122
Junior subordinated debentures issued to capital trusts	Level 2	41,292		43,824		41,252		44,584
Accrued interest payable ⁽²⁾	Level 1	12,448		12,448		15,526		15,526


(1)	Included in other assets.


(2)	Included in accrued expenses and other liabilities.

The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities in the table above:

Cash and due from banks and interest bearing deposits with banks. The carrying amount is considered to be a reasonable estimate of fair value because of the short maturity of these items.

Investment securities held to maturity. Fair values are based on prices obtained through an independent pricing service or dealer market participants with whom Valley has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things (Level 2 inputs). Additionally, Valley reviews the volume and level of activity for all classes of held to maturity securities and attempts to identify transactions which may not be orderly or reflective of a significant level of activity and volume. For securities meeting these criteria, the quoted prices received from either market participants or an independent pricing service may be adjusted, as necessary. If applicable, the adjustment to fair value is derived based on present value cash flow model projections prepared by Valley utilizing assumptions similar to those incorporated by market participants.

Loans. Fair values of loans are estimated by discounting the projected future cash flows using market discount rates that reflect the credit and interest-rate risk inherent in the loan. The discount rate is a product of both the applicable index and credit spread, subject to the estimated current new loan interest rates. The credit spread component is static for all maturities and may not necessarily reflect the value of estimating all actual cash flows re-pricing. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Fair values estimated in this manner do not fully incorporate an exit-price approach to fair value, but instead are based on a comparison to current market rates for comparable loans.

Accrued interest receivable and payable. The carrying amounts of accrued interest approximate their fair value due to the short-term nature of these items.

Federal Reserve Bank and Federal Home Loan Bank stock. Federal Reserve Bank and FHLB stock are non-marketable equity securities and are reported at their redeemable carrying amounts, which approximate the fair value.

Deposits. The carrying amounts of deposits without stated maturities (i.e., non-interest bearing, savings, NOW, and money market deposits) approximate their estimated fair value. The fair value of time deposits is based on the discounted value of contractual cash flows using estimated rates currently offered for alternative funding sources of similar remaining maturity.

Short-term and long-term borrowings. The carrying amounts of certain short-term borrowings, including securities sold under agreements to repurchase (and from time to time, federal funds purchased and FHLB borrowings) approximate their fair values because they frequently re-price to a market rate. The fair values of other short-term and long-term borrowings are estimated by obtaining quoted market prices of the identical or similar financial instruments when available. When quoted prices are unavailable, the fair values of the borrowings are estimated by discounting the estimated future cash flows using current market discount rates of financial instruments with similar characteristics, terms and remaining maturity.

Junior subordinated debentures issued to capital trusts. The fair value of debentures issued to capital trusts is estimated utilizing the income approach, whereby the expected cash flows, over the remaining estimated life of the security, are discounted using Valley’s credit spread over the current yield on a similar maturity of U.S. Treasury security or the three-month LIBOR for the variable rate indexed debentures (Level 2 inputs). The credit spread used to discount the expected cash flows was calculated based on the median current spreads for all fixed and variable publicly traded trust preferred securities issued by banks.

Note 7. Investment Securities

Held to Maturity

The amortized cost, gross unrealized gains and losses and fair value of securities held to maturity at March 31, 2015 and December 31, 2014 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2015
U.S. Treasury securities	$	139,087	$	14,589	$	—		$	153,676
U.S. government agency securities	13,630		410		—			14,040
Obligations of states and political subdivisions:
Obligations of states and state agencies	196,849		10,245		(152		)	206,942
Municipal bonds	293,908		12,152		(86		)	305,974
Total obligations of states and political subdivisions	490,757		22,397		(238		)	512,916
Residential mortgage-backed securities	1,059,278		19,205		(3,804		)	1,074,679
Trust preferred securities	98,458		104		(12,482		)	86,080
Corporate and other debt securities	24,609		2,625		—			27,234
Total investment securities held to maturity	$	1,825,819	$	59,330	$	(16,524	)	$	1,868,625
December 31, 2014
U.S. Treasury securities	$	139,121	$	12,179	$	—		$	151,300
U.S. government agency securities	14,081		304		—			14,385
Obligations of states and political subdivisions:
Obligations of states and state agencies	197,440		9,410		(412		)	206,438
Municipal bonds	302,578		10,955		(278		)	313,255
Total obligations of states and political subdivisions	500,018		20,365		(690		)	519,693
Residential mortgage-backed securities	986,992		18,233		(6,244		)	998,981
Trust preferred securities	98,456		167		(12,380		)	86,243
Corporate and other debt securities	39,648		5,726		—			45,374
Total investment securities held to maturity	$	1,778,316	$	56,974	$	(19,314	)	$	1,815,976

The age of unrealized losses and fair value of related securities held to maturity at March 31, 2015 and December 31, 2014 were as follows:



	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
March 31, 2015
Obligations of states and political subdivisions:
Obligations of states and state agencies	$	22,194	$	(145	)	$	1,961	$	(7	)	$	24,155	$	(152	)
Municipal bonds	11,876		(79		)	10,253		(7		)	22,129		(86		)
Total obligations of states and political subdivisions	34,070		(224		)	12,214		(14		)	46,284		(238		)
Residential mortgage-backed securities	211,113		(1,178		)	177,774		(2,626		)	388,887		(3,804		)
Trust preferred securities	4,825		(16		)	66,111		(12,466		)	70,936		(12,482		)
Total	$	250,008	$	(1,418	)	$	256,099	$	(15,106	)	$	506,107	$	(16,524	)
December 31, 2014
Obligations of states and political subdivisions:
Obligations of states and state agencies	$	4,927	$	(50	)	$	19,050	$	(362	)	$	23,977	$	(412	)
Municipal bonds	—		—			28,815		(278		)	28,815		(278		)
Total obligations of states and political subdivisions	4,927		(50		)	47,865		(640		)	52,792		(690		)
Residential mortgage-backed securities	107,357		(563		)	276,580		(5,681		)	383,937		(6,244		)
Trust preferred securities	—		—			66,194		(12,380		)	66,194		(12,380		)
Total	$	112,284	$	(613	)	$	390,639	$	(18,701	)	$	502,923	$	(19,314	)

The unrealized losses on investment securities held to maturity are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security positions in the securities held to maturity portfolio in an unrealized loss position at March 31, 2015 was 72 as compared to 57 at December 31, 2014.

The unrealized losses within the residential mortgage-backed securities category of the available for sale portfolio at March 31, 2015 largely related to several investment grade securities mainly issued by Ginnie Mae.

The unrealized losses existing for more than twelve months for trust preferred securities at March 31, 2015 primarily related to four non-rated single-issuer trust preferred securities issued by bank holding companies. All single-issuer trust preferred securities classified as held to maturity are paying in accordance with their terms, have no deferrals of interest or defaults and, if applicable, the issuers meet the regulatory capital requirements to be considered “well-capitalized institutions” at March 31, 2015.

Management does not believe that any individual unrealized loss as of March 31, 2015 included in the table above represents other-than-temporary impairment as management mainly attributes the declines in fair value to changes in interest rates and market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management believes there are no credit losses on these securities. Valley does not have the intent to sell, nor is it more likely than not that Valley will be required to sell, the securities contained in the table above before the recovery of their amortized cost basis or maturity.

During the quarter ended March 31, 2015, Valley sold one corporate debt security classified as held to maturity with amortized costs of $9.8 million. See "Realized Gains and Losses" section below for further details regarding this transaction.

As of March 31, 2015, the fair value of investments held to maturity that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $902.0 million.

The contractual maturities of investments in debt securities held to maturity at March 31, 2015 are set forth in the table below. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.



	March 31, 2015
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	55,838	$	55,861
Due after one year through five years	63,369		67,976
Due after five years through ten years	330,116		352,827
Due after ten years	317,218		317,282
Residential mortgage-backed securities	1,059,278		1,074,679
Total investment securities held to maturity	$	1,825,819	$	1,868,625

Actual maturities of debt securities may differ from those presented above since certain obligations provide the issuer the right to call or prepay the obligation prior to scheduled maturity without penalty.

The weighted-average remaining expected life for residential mortgage-backed securities held to maturity was 6.7 years at March 31, 2015.

Available for Sale

The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at March 31, 2015 and December 31, 2014 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2015
U.S. Treasury securities	$	51,058	$	17	$	(602	)	$	50,473
U.S. government agency securities	26,721		712		(94		)	27,339
Obligations of states and political subdivisions:
Obligations of states and state agencies	11,101		118		—			11,219
Municipal bonds	33,331		97		(440		)	32,988
Total obligations of states and political subdivisions	44,432		215		(440		)	44,207
Residential mortgage-backed securities	615,880		6,081		(4,246		)	617,715
Trust preferred securities*	10,641		—		(2,103		)	8,538
Corporate and other debt securities	73,241		1,712		(451		)	74,502
Equity securities	21,071		784		(1,111		)	20,744
Total investment securities available for sale	$	843,044	$	9,521	$	(9,047	)	$	843,518
December 31, 2014
U.S. Treasury securities	$	51,063	$	2	$	(1,622	)	$	49,443
U.S. government agency securities	33,163		748		(86		)	33,825
Obligations of states and political subdivisions:
Obligations of states and state agencies	11,160		—		(24		)	11,136
Municipal bonds	33,340		127		(552		)	32,915
Total obligations of states and political subdivisions	44,500		127		(576		)	44,051
Residential mortgage-backed securities	643,382		5,854		(4,960		)	644,276
Trust preferred securities*	23,194		296		(2,953		)	20,537
Corporate and other debt securities	73,585		1,645		(1,218		)	74,012
Equity securities	21,071		671		(916		)	20,826
Total investment securities available for sale	$	889,958	$	9,343	$	(12,331	)	$	886,970



*	Includes two and three pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies, at March 31, 2015 and December 31, 2014, respectively.

The age of unrealized losses and fair value of related securities available for sale at March 31, 2015 and December 31, 2014 were as follows:



	Less than Twelve Months					More than Twelve Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
March 31, 2015
U.S. Treasury securities	$	49,520	$	(602	)	$	—	$	—		$	49,520	$	(602	)
U.S. government agency securities	—		—			5,293		(94		)	5,293		(94		)
Obligations of states and political subdivisions:
Municipal bonds	19,072		(204		)	11,044		(236		)	30,116		(440		)
Total obligations of states and political subdivisions	19,072		(204		)	11,044		(236		)	30,116		(440		)
Residential mortgage-backed securities	32,256		(518		)	216,266		(3,728		)	248,522		(4,246		)
Trust preferred securities	—		—			8,538		(2,103		)	8,538		(2,103		)
Corporate and other debt securities	18,987		(43		)	27,622		(408		)	46,609		(451		)
Equity securities	46		(3		)	14,533		(1,108		)	14,579		(1,111		)
Total	$	119,881	$	(1,370	)	$	283,296	$	(7,677	)	$	403,177	$	(9,047	)
December 31, 2014
U.S. Treasury securities	$	—	$	—		$	48,504	$	(1,622	)	$	48,504	$	(1,622	)
U.S. government agency securities	—		—			5,442		(86		)	5,442		(86		)
Obligations of states and political subdivisions:
Obligations of states and state agencies	—		—			11,136		(24		)	11,136		(24		)
Municipal bonds	13,337		(426		)	14,637		(126		)	27,974		(552		)
Total obligations of states and political subdivisions	13,337		(426		)	25,773		(150		)	39,110		(576		)
Residential mortgage-backed securities	57,543		(121		)	244,910		(4,839		)	302,453		(4,960		)
Trust preferred securities	2,210		(117		)	12,085		(2,836		)	14,295		(2,953		)
Corporate and other debt securities	27,500		(294		)	28,269		(924		)	55,769		(1,218		)
Equity securities	158		(41		)	14,769		(875		)	14,927		(916		)
Total	$	100,748	$	(999	)	$	379,752	$	(11,332	)	$	480,500	$	(12,331	)

The unrealized losses on investment securities available for sale are primarily due to changes in interest rates (including, in certain cases, changes in credit spreads) and, in some cases, lack of liquidity in the marketplace. The total number of security positions in the securities available for sale portfolio in an unrealized loss position at March 31, 2015 was 83 as compared to 96 at December 31, 2014.

The unrealized losses for trust preferred securities at March 31, 2015 for more than twelve months in the table above largely relate to 2 pooled trust preferred securities with an amortized cost of $10.6 million and a fair value of $8.5 million. One of the one pooled trust preferred securities had a unrealized loss of $1.4 million and an investment grade rating at March 31, 2015. The second pooled trust preferred security had a non-investment grade rating and was initially other-than-temporarily impaired in 2008 with additional estimated credit losses recognized in 2009 and 2011, and is not accruing interest. All of the single-issuer trust preferred securities are paying in accordance with their terms and have

no deferrals of interest or defaults and, if applicable, meet the regulatory capital requirements to be considered “well-capitalized institutions” at March 31, 2015.

Management does not believe that any individual unrealized loss as of March 31, 2015 represents an other-than-temporary impairment, as management mainly attributes the declines in value to changes in interest rates and market volatility, not credit quality or other factors. Based on a comparison of the present value of expected cash flows to the amortized cost, management believes there are no credit losses on these securities. Valley has no intent to sell, nor is it more likely than not that Valley will be required to sell, the securities contained in the table above before the recovery of their amortized cost basis or, if necessary, maturity.

As of March 31, 2015, the fair value of securities available for sale that were pledged to secure public deposits, repurchase agreements, lines of credit, and for other purposes required by law, was $396.7 million.

The contractual maturities of investment securities available for sale at March 31, 2015 are set forth in the following table. Maturities may differ from contractual maturities in residential mortgage-backed securities because the mortgages underlying the securities may be prepaid without any penalties. Therefore, residential mortgage-backed securities are not included in the maturity categories in the following summary.



	March 31, 2015
	Amortized Cost		Fair Value
	(in thousands)
Due after one year through five years	$	65,316	$	66,915
Due after five years through ten years	79,110		78,201
Due after ten years	61,667		59,943
Residential mortgage-backed securities	615,880		617,715
Equity securities	21,071		20,744
Total investment securities available for sale	$	843,044	$	843,518

The weighted average remaining expected life for residential mortgage-backed securities available for sale at March 31, 2015 was 5.2 years.

Other-Than-Temporary Impairment Analysis

Valley records impairment charges on its investment securities when the decline in fair value is considered other-than-temporary. Numerous factors, including lack of liquidity for re-sales of certain investment securities; decline in the creditworthiness of the issuer; absence of reliable pricing information for investment securities; adverse changes in business climate; adverse actions by regulators; prolonged decline in value of equity investments; or unanticipated changes in the competitive environment could have a negative effect on Valley’s investment portfolio and may result in other-than-temporary impairment on certain investment securities in future periods. Valley’s investment portfolios include private label mortgage-backed securities, trust preferred securities principally issued by bank holding companies (including two pooled trust preferred securities), corporate bonds primarily issued by banks, and perpetual preferred and common equity securities issued by banks. These investments may pose a higher risk of future impairment charges by Valley as a result of the unpredictable nature of the U.S. economy and its potential negative effect on the future performance of the security issuers and, if applicable, the underlying mortgage loan collateral of the security.

There were no other-than-temporary impairment losses on securities recognized in earnings for the three months ended March 31, 2015 and 2014. At March 31, 2015, four previously impaired private label mortgage-backed securities (prior to December 31, 2012) had a combined amortized cost and fair value of $13.3 million and $13.4 million, respectively, while one previously impaired pooled trust preferred security had a combined amortized cost and fair value of $2.8 million and $2.0 million, respectively. The previously impaired pooled trust preferred security was not accruing interest

during the three months ended March 31, 2015 and 2014. Additionally, one previously impaired pooled trust preferred security was sold during the first quarter of 2015 for an immaterial gain. See the table and discussion below for additional information.

The following table presents the changes in the credit loss component of cumulative other-than-temporary impairment losses on debt securities classified as either held to maturity or available for sale that Valley has previously recognized in earnings, for which a portion of the impairment loss (non-credit factors) was recognized in other comprehensive income for the three months ended March 31, 2015 and 2014:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Balance, beginning of period	$	8,947		$	9,990
Accretion of credit loss impairment due to an increase in expected cash flows	(144		)	(198		)
Sales	(2,382		)	—
Balance, end of period	$	6,421		$	9,792

The credit loss component of the impairment loss represents the difference between the present value of expected future cash flows and the amortized cost basis of the security prior to considering credit losses. The beginning balance represents the credit loss component for debt securities for which other-than-temporary impairment occurred prior to each period presented. Other-than-temporary impairments recognized in earnings for credit impaired debt securities are presented as additions in two components based upon whether the current period is the first time the debt security was credit impaired (initial credit impairment) or is not the first time the debt security was credit impaired (subsequent credit impairment). The credit loss component is reduced if Valley sells, intends to sell or believes it will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if (i) Valley receives cash flows in excess of what it expected to receive over the remaining life of the credit impaired debt security, (ii) the security matures or (iii) the security is fully written down.

Realized Gains and Losses

Gross gains (losses) realized on sales, maturities and other securities transactions related to investment securities included in earnings for the three months ended March 31, 2015 and 2014 were as follows:



	Three Months Ended March 31,
	2015			2014
	(in thousands)
Sales transactions:
Gross gains	$	3,274		$	—
Gross losses	(947		)	—
	$	2,327		$