Edgar Filing: VALLEY NATIONAL BANCORP

10-Q

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, 2016



¨	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 254,383,833 shares were outstanding as of May 6, 2016

TABLE OF CONTENTS



		Page Number
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Financial Condition as of March 31, 2016 and December 31, 2015	2
	Consolidated Statements of Income for the Three Months Ended March 31, 2016 and 2015	3
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015	5
	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	78

Item 4.	Controls and Procedures	78

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	79

Item 1A.	Risk Factors	79

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79

Item 6.	Exhibits	80

SIGNATURES		80

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except for share data)



	March 31, 2016			December 31, 2015
Assets	(Unaudited)
Cash and due from banks	$	243,265		$	243,575
Interest bearing deposits with banks	233,228			170,225
Investment securities:
Held to maturity (fair value of $1,660,224 at March 31, 2016 and $1,621,039 at December 31, 2015)	1,618,466			1,596,385
Available for sale	1,452,489			1,506,861
Total investment securities	3,070,955			3,103,246
Loans held for sale, at fair value	15,347			16,382
Loans	16,135,987			16,043,107
Less: Allowance for loan losses	(105,415		)	(106,178		)
Net loans	16,030,572			15,936,929
Premises and equipment, net	300,072			298,943
Bank owned life insurance	389,500			387,542
Accrued interest receivable	62,973			63,554
Goodwill	689,589			686,339
Other intangible assets, net	46,155			48,882
Other assets	645,867			656,999
Total Assets	$	21,727,523		$	21,612,616
Liabilities
Deposits:
Non-interest bearing	$	5,053,478		$	4,914,285
Interest bearing:
Savings, NOW and money market	8,273,936			8,181,362
Time	3,081,012			3,157,904
Total deposits	16,408,426			16,253,551
Short-term borrowings	1,170,623			1,076,991
Long-term borrowings	1,660,284			1,810,728
Junior subordinated debentures issued to capital trusts	41,455			41,414
Accrued expenses and other liabilities	227,133			222,841
Total Liabilities	19,507,921			19,405,525
Shareholders’ Equity
Preferred stock (no par value, authorized 30,000,000 shares; issued 4,600,000 shares at March 31, 2016 and December 31, 2015)	111,590			111,590
Common stock (no par value, authorized 332,023,233 shares; issued 254,326,257 shares at March 31, 2016 and 253,787,561 shares at December 31, 2015)	88,735			88,626
Surplus	1,930,844			1,927,399
Retained earnings	131,494			125,171
Accumulated other comprehensive loss	(42,695		)	(45,695		)
Treasury stock, at cost (40,823 common shares at March 31, 2016)	(366		)	—
Total Shareholders’ Equity	2,219,602			2,207,091
Total Liabilities and Shareholders’ Equity	$	21,727,523		$	21,612,616

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,
	2016			2015
Interest Income
Interest and fees on loans	$	166,071		$	150,482
Interest and dividends on investment securities:
Taxable	13,999			14,932
Tax-exempt	3,690			3,612
Dividends	1,480			1,739
Interest on federal funds sold and other short-term investments	357			220
Total interest income	185,597			170,985
Interest Expense
Interest on deposits:
Savings, NOW and money market	9,243			5,995
Time	9,585			7,974
Interest on short-term borrowings	1,872			94
Interest on long-term borrowings and junior subordinated debentures	16,744			24,836
Total interest expense	37,444			38,899
Net Interest Income	148,153			132,086
Provision for credit losses	800			—
Net Interest Income After Provision for Credit Losses	147,353			132,086
Non-Interest Income
Trust and investment services	2,440			2,494
Insurance commissions	4,708			4,205
Service charges on deposit accounts	5,103			5,290
Gains on securities transactions, net	271			2,416
Fees from loan servicing	1,594			1,603
Gains on sales of loans, net	1,795			598
(Losses) gains on sales of assets, net	(10		)	281
Bank owned life insurance	1,963			1,764
Change in FDIC loss-share receivable	(560		)	(3,920		)
Other	4,144			3,914
Total non-interest income	21,448			18,645
Non-Interest Expense
Salary and employee benefits expense	60,259			56,712
Net occupancy and equipment expense	22,789			22,200
FDIC insurance assessment	5,099			3,792
Amortization of other intangible assets	2,849			2,393
Professional and legal fees	3,895			3,341
Amortization of tax credit investments	7,264			4,496
Telecommunication expense	2,386			2,006
Other	13,684			13,178
Total non-interest expense	118,225			108,118
Income Before Income Taxes	50,576			42,613
Income tax expense	14,389			12,272
Net Income	$	36,187		$	30,341
Dividends on preferred stock	1,797			—
Net Income Available to Common Shareholders	$	34,390		$	30,341
Earnings Per Common Share:
Basic	$	0.14		$	0.13
Diluted	0.14			0.13
Cash Dividends Declared per Common Share	0.11			0.11
Weighted Average Number of Common Shares Outstanding:
Basic	254,075,349			232,338,775
Diluted	254,347,420			232,341,921

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2016			2015
Net income	$	36,187		$	30,341
Other comprehensive income (loss), net of tax:
Unrealized gains and losses on available for sale securities
Net gains arising during the period	8,283			3,936
Less reclassification adjustment for net gains included in net income	(170		)	(1,409		)
Total	8,113			2,527
Non-credit impairment losses on available for sale securities
Net change in non-credit impairment losses on securities	(59		)	(421		)
Less reclassification adjustment for accretion of credit impairment losses included in net income	(286		)	(84		)
Total	(345		)	(505		)
Unrealized gains and losses on derivatives (cash flow hedges)
Net losses on derivatives arising during the period	(6,552		)	(5,259		)
Less reclassification adjustment for net losses included in net income	1,741			951
Total	(4,811		)	(4,308		)
Defined benefit pension plan
Amortization of net loss	43			119
Total other comprehensive income (loss)	3,000			(2,167		)
Total comprehensive income	$	39,187		$	28,174

See accompanying notes to consolidated financial statements.

VALLEY NATIONAL BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)



	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities:
Net income	$	36,187		$	30,341
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,417			5,078
Stock-based compensation	2,369			2,479
Provision for credit losses	800			—
Net amortization of premiums and accretion of discounts on securities and borrowings	4,198			8,371
Amortization of other intangible assets	2,849			2,393
Gains on securities transactions, net	(271		)	(2,416		)
Proceeds from sales of loans held for sale	54,907			38,568
Gains on sales of loans, net	(1,795		)	(598		)
Originations of loans held for sale	(52,749		)	(17,716		)
Losses (gains) on sales of assets, net	10			(281		)
FDIC loss-share receivable (excluding reimbursements)	560			3,920
Net change in:
Trading securities	—			14,233
Fair value of borrowings hedged by derivative transactions	4,719			2,781
Cash surrender value of bank owned life insurance	(1,963		)	(1,764		)
Accrued interest receivable	581			743
Other assets	(6,079		)	(40,365		)
Accrued expenses and other liabilities	3,993			8,104
Net cash provided by operating activities	54,733			53,871
Cash flows from investing activities:
Net loan repayments (originations)	95,706			(122,279		)
Loans purchased	(190,741		)	(139,935		)
Investment securities held to maturity:
Purchases	(83,955		)	(145,973		)
Sales	—			11,666
Maturities, calls and principal repayments	58,907			85,798
Investment securities available for sale:
Purchases	(302,321		)	(8,034		)
Sales	2,081			13,974
Maturities, calls and principal repayments	366,882			38,678
Proceeds from sales of real estate property and equipment	3,919			4,551
Purchases of real estate property and equipment	(7,578		)	(3,216		)
Reimbursements from the FDIC	370			1,954
Net cash used in investing activities	(56,730		)	(262,816		)
Cash flows from financing activities:
Net change in deposits	154,875			182,627
Net change in short-term borrowings	93,632			(12,915		)
Repayments of long-term borrowings	(155,000		)	—
Cash dividends paid to preferred shareholders	(1,797		)	—
Cash dividends paid to common shareholders	(27,916		)	(25,512		)
Purchase of common shares to treasury	(1,496		)	—
Common stock issued, net	2,392			(948		)
Net cash provided by financing activities	64,690			143,252
Net change in cash and cash equivalents	62,693			(65,693		)
Cash and cash equivalents at beginning of year	413,800			830,407
Cash and cash equivalents at end of period	$	476,493		$	764,714

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

	Three Months Ended March 31,
	2016		2015
Supplemental disclosures of cash flow information:
Cash payments for:
Interest on deposits and borrowings	$	38,766	$	41,978
Federal and state income taxes	67		29,550
Supplemental schedule of non-cash investing activities:
Transfer of loans to other real estate owned	$	663	$	1,944

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, 2016 and for all periods presented have been made. The results of operations for the three months ended March 31, 2016 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, 2015.

Note 2. Business Combinations

Acquisitions

On January 4, 2016, Masters Coverage Corp., an all-line insurance agency that is a wholly-owned subsidiary of the Bank, acquired certain assets of an independent insurance agency located in New York. The purchase price totaled approximately $1.4 million in cash and future cash consideration. The transaction generated goodwill and other intangible assets totaling $701 thousand and $660 thousand, respectively.

On December 1, 2015, Valley completed its acquisition of CNLBancshares, Inc. (CNL) and its wholly-owned subsidiary, CNLBank, headquartered in Orlando, Florida, a commercial bank with approximately $1.6 billion in assets, $825 million in loans and $1.2 billion in deposits and 16 branch offices on the date of its acquisition by Valley. The common shareholders of CNL received 0.705 of a share of Valley common stock for each CNL share they owned prior to the merger. The total consideration for the acquisition was approximately $230 million, consisting of 20.6 million shares of Valley's common stock.

During the quarter ended March 31, 2016, 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 time deposits which, on a combined basis, resulted in a $2.5 million increase in goodwill (see Note 10 for amount of goodwill as allocated to Valley's business segments). If additional information (that existed at the date of close) becomes available, 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 CNL acquisition.

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, 2016 and 2015.



	Three Months Ended March 31,
	2016		2015
	(in thousands, except for share data)
Net income available to common shareholders	$	34,390	$	30,341
Basic weighted average number of common shares outstanding	254,075,349		232,338,775
Plus: Common stock equivalents	272,071		3,146
Diluted weighted average number of common shares outstanding	254,347,420		232,341,921
Earnings per common share:
Basic	$	0.14	$	0.13
Diluted	0.14		0.13

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 the diluted earnings per share calculation. Anti-dilutive common stock options and warrants equaled approximately 4.6 million shares and 6.2 million for the three months ended March 31, 2016 and 2015, respectively.

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, 2016.



	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, 2015	$	(5,336	)	$	(520	)	$	(17,644	)	$	(22,195	)	$	(45,695	)
Other comprehensive income (loss) before reclassifications	8,283			(59		)	(6,552		)	—			1,672
Amounts reclassified from other comprehensive income (loss)	(170		)	(286		)	1,741			43			1,328
Other comprehensive income (loss), net	8,113			(345		)	(4,811		)	43			3,000
Balance at March 31, 2016	$	2,777		$	(865	)	$	(22,455	)	$	(22,152	)	$	(42,695	)

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, 2016 and 2015.



	Amounts Reclassified from Accumulated Other Comprehensive Loss
	Three Months Ended March 31,
Components of Accumulated Other Comprehensive Loss	2016			2015			Income Statement Line Item
	(in thousands)
Unrealized gains on AFS securities before tax	$	271		$	2,416		Gains on securities transactions, net
Tax effect	(101		)	(1,007		)
Total net of tax	170			1,409
Non-credit impairment losses on AFS securities before tax:
Accretion of credit loss impairment due to an increase in expected cash flows	489			144			Interest and dividends on investment securities (taxable)
Tax effect	(203		)	(60		)
Total net of tax	286			84
Unrealized losses on derivatives (cash flow hedges) before tax	(2,971		)	(1,629		)	Interest expense
Tax effect	1,230			678
Total net of tax	(1,741		)	(951		)
Defined benefit pension plan:
Amortization of net loss	(72		)	(205		)	*
Tax effect	29			86
Total net of tax	(43		)	(119		)
Total reclassifications, net of tax	$	(1,328	)	$	423



*	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. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance. The amendments focus on income tax accounting upon vesting or exercise of share-based payments, award classification, liability classification exception for statutory tax withholding requirements, estimating forfeitures, and cash flow presentation. ASU No. 2016-09 is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018 with an early adoption permitted. ASU No. 2016-09 is not expected to have a significant impact on Valley's consolidated financial statements.

ASU No. 2016-02, “Leases (Topic 842)” requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current GAAP. Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842 will be effective for Valley for reporting periods beginning January 1, 2019, with an early adoption permitted. Valley must apply a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Management is currently evaluating the impact of Topic 842 on Valley’s consolidated financial statements.

ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities” requires that: (i) equity investments with readily determinable fair values must be measured at fair value with changes in fair value recognized in net income, (2) equity investments without readily determinable fair values must be measured at either fair value or at cost adjusted for changes in observable prices minus impairment. Changes in value under either of these methods would be recognized in net income, (3) entities that record financial liabilities at fair value due to a fair value option election must recognize changes in fair value in other comprehensive income if it is related to instrument-specific credit risk, and (4) entities must assess whether a valuation allowance is required for deferred tax assets related to available-for-sale debt securities. ASU No. 2016-01 is effective for Valley for reporting periods beginning January 1, 2018 and is not expected to have a material effect on Valley’s consolidated financial statements.

ASU No. 2015-07, "Fair Value Measurement (Topic 820) - Disclosure for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)", which removes the requirement to categorize within the fair value hierarchy all investments for which the fair value is measured using the net asset value per share practical expedient. ASU No. 2015-07 also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. ASU No. 2015-07 began effective for Valley for reporting periods after January 1, 2016 and did not have an impact on Valley's fair value measurement disclosures at Note 6.

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, 2016 and December 31, 2015. 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, 2016		Fair Value Measurements at Reporting Date Using:
	March 31, 2016		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	$	411,335	$	411,335	$	—	$	—
U.S. government agency securities	26,922		—		26,922		—
Obligations of states and political subdivisions	126,222		—		126,222		—
Residential mortgage-backed securities	782,648		—		771,801		10,847
Trust preferred securities	8,259		—		6,157		2,102
Corporate and other debt securities	78,208		17,887		60,321		—
Equity securities	18,895		464		18,431		—
Total available for sale	1,452,489		429,686		1,009,854		12,949
Loans held for sale ⁽¹⁾	15,347		—		15,347		—
Other assets ⁽²⁾	49,308		—		49,308		—
Total assets	$	1,517,144	$	429,686	$	1,074,509	$	12,949
Liabilities
Other liabilities ⁽²⁾	$	70,199	$	—	$	70,199	$	—
Total liabilities	$	70,199	$	—	$	70,199	$	—
Non-recurring fair value measurements:
Collateral dependent impaired loans ⁽³⁾	$	6,209	$	—	$	—	$	6,209
Loan servicing rights	4,142		—		—		4,142
Foreclosed assets ⁽⁴⁾	2,604		—		—		2,604
Total	$	12,955	$	—	$	—	$	12,955



			Fair Value Measurements at Reporting Date Using:
	December 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	$	549,473	$	549,473	$	—	$	—
U.S. government agency securities	29,963		—		29,963		—
Obligations of states and political subdivisions	124,966		—		124,966		—
Residential mortgage-backed securities	696,428		—		684,777		11,651
Trust preferred securities	8,404		—		6,262		2,142
Corporate and other debt securities	77,552		17,710		59,842		—
Equity securities	20,075		1,198		18,877		—
Total available for sale	1,506,861		568,381		924,687		13,793
Loans held for sale ⁽¹⁾	16,382		—		16,382		—
Other assets ⁽²⁾	33,774		—		33,774		—
Total assets	$	1,557,017	$	568,381	$	974,843	$	13,793
Liabilities
Other liabilities ⁽²⁾	$	50,844	$	—	$	50,844	$	—
Total liabilities	$	50,844	$	—	$	50,844	$	—
Non-recurring fair value measurements:
Collateral dependent impaired loans ⁽³⁾	$	15,427	$	—	$	—	$	15,427
Loan servicing rights	2,571		—		—		2,571
Foreclosed assets ⁽⁴⁾	16,672		—		—		16,672
Total	$	34,670	$	—	$	—	$	34,670


(1)	Loans held for sale carried at fair value (which consist of residential mortgages) had contractual unpaid principal balances totaling approximately $14.8 million and $16.1 million at March 31, 2016 and December 31, 2015, respectively.


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


(3)	Excludes PCI loans.


(4)	Includes covered (i.e., subject to loss-sharing agreements with the FDIC) other real estate owned totaling $270 thousand and $4.2 million at March 31, 2016 and December 31, 2015, respectively.

The changes in Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2016 and 2015 are summarized below:



	Available for Sale Securities
	Three Months Ended March 31,
	2016			2015
	(in thousands)
Balance, beginning of the period	$	13,793		$	19,309
Total net losses included in other comprehensive income for the period	(585		)	(792		)
Sales	—			(2,675		)
Settlements	(259		)	(374		)
Balance, end of the period	$	12,949		$	15,468

No changes in unrealized gains or losses on Level 3 securities were included in earnings during the three months ended March 31, 2016 and 2015. 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, 2016 and 2015.

There have been no material changes in the valuation methodologies used at March 31, 2016 from December 31, 2015.

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, 2016:



Security Type	Valuation Technique	Unobservable Input	Range	Weighted Average

Private label mortgage-backed securities	Discounted cash flow	Prepayment rate	0.1-22.2%	10.8	%
		Default rate	3.7-20.6	8.4
		Loss severity	41.4-64.6	59.5

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), the resulting estimated future cash flow was discounted at a yield determined by reference to similarly structured securities for which observable orderly transactions occurred. The discount rate 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, 2016 and December 31, 2015 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, 2016 and December 31, 2015), is determined based on the current market prices for similar instruments provided by Fannie Mae and Freddie Mac. 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, 2016 and December 31, 2015.

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.

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, 2016, appraisals are discounted based on specific market data by location and property type. During the quarter ended March 31, 2016, 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 $479 thousand and $850 thousand for the three months ended March 31, 2016 and 2015, respectively. At March 31, 2016, collateral dependent impaired loans with a total recorded investment of $7.1 million were reduced by specific valuation allowance allocations totaling $872 thousand to a reported total net carrying amount of $6.2 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, 2016, the fair value model used prepayment speeds (stated as constant prepayment rates) from 0 percent up to 24 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 recorded net impairment charges on its loan servicing rights totaling $192 thousand and $84 thousand for the three months ended March 31, 2016 and 2015, respectively.

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 adjusted up to 3.7 percent at March 31, 2016. At March 31, 2016, foreclosed assets included $2.6 million of assets that were measured at fair value upon initial recognition or subsequently re-measured during the quarter ended March 31, 2016. The foreclosed assets charge-offs to the allowance for loan losses totaled $139 thousand and $457 thousand for the three months ended March 31, 2016 and 2015, respectively. The re-measurement of foreclosed assets at fair value subsequent to their initial recognition resulted in net loss within non-interest expense of $617 thousand for the three months ended March 31, 2016 and an immaterial net loss for the three months ended March 31, 2015,

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, 2016 and December 31, 2015 were as follows:



	Fair Value Hierarchy	March 31, 2016				December 31, 2015
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
		(in thousands)
Financial assets
Cash and due from banks	Level 1	$	243,265	$	243,265	$	243,575	$	243,575
Interest bearing deposits with banks	Level 1	233,228		233,228		170,225		170,225
Investment securities held to maturity:
U.S. Treasury securities	Level 1	138,942		153,877		138,978		149,483
U.S. government agency securities	Level 2	12,225		12,738		12,859		13,130
Obligations of states and political subdivisions	Level 2	516,645		543,069		504,865		527,263
Residential mortgage-backed securities	Level 2	859,305		870,711		852,289		855,272
Trust preferred securities	Level 2	59,790		46,404		59,785		46,437
Corporate and other debt securities	Level 2	31,559		33,425		27,609		29,454
Total investment securities held to maturity		1,618,466		1,660,224		1,596,385		1,621,039
Net loans	Level 3	16,030,572		16,008,152		15,936,929		15,824,475
Accrued interest receivable	Level 1	62,973		62,973		63,554		63,554
Federal Reserve Bank and Federal Home Loan Bank stock⁽¹⁾	Level 1	145,699		145,699		145,068		145,068
Financial liabilities
Deposits without stated maturities	Level 1	13,327,414		13,327,414		13,095,647		13,095,647
Deposits with stated maturities	Level 2	3,081,012		3,122,098		3,157,904		3,203,389
Short-term borrowings	Level 1	1,170,623		1,170,623		1,076,991		1,076,991
Long-term borrowings	Level 2	1,660,284		1,823,824		1,810,728		1,945,741
Junior subordinated debentures issued to capital trusts	Level 2	41,455		43,797		41,414		44,127
Accrued interest payable ⁽²⁾	Level 1	11,789		11,789		13,110		13,110


(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 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, 2016 and December 31, 2015 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2016
U.S. Treasury securities	$	138,942	$	14,935	$	—		$	153,877
U.S. government agency securities	12,225		513		—			12,738
Obligations of states and political subdivisions:
Obligations of states and state agencies	193,947		12,776		—			206,723
Municipal bonds	322,698		13,648		—			336,346
Total obligations of states and political subdivisions	516,645		26,424		—			543,069
Residential mortgage-backed securities	859,305		15,068		(3,662		)	870,711
Trust preferred securities	59,790		48		(13,434		)	46,404
Corporate and other debt securities	31,559		1,866		—			33,425
Total investment securities held to maturity	$	1,618,466	$	58,854	$	(17,096	)	$	1,660,224
December 31, 2015
U.S. Treasury securities	$	138,978	$	10,505	$	—		$	149,483
U.S. government agency securities	12,859		271		—			13,130
Obligations of states and political subdivisions:
Obligations of states and state agencies	194,547		10,538		(10		)	205,075
Municipal bonds	310,318		11,955		(85		)	322,188
Total obligations of states and political subdivisions	504,865		22,493		(95		)	527,263
Residential mortgage-backed securities	852,289		11,018		(8,035		)	855,272
Trust preferred securities	59,785		36		(13,384		)	46,437
Corporate and other debt securities	27,609		1,894		(49		)	29,454
Total investment securities held to maturity	$	1,596,385	$	46,217	$	(21,563	)	$	1,621,039

The age of unrealized losses and fair value of related securities held to maturity at March 31, 2016 and December 31, 2015 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, 2016
Residential mortgage-backed securities	$	174,784	$	(1,010	)	$	218,383	$	(2,652	)	$	393,167	$	(3,662	)
Trust preferred securities	—		—			45,002		(13,434		)	45,002		(13,434		)
Total	$	174,784	$	(1,010	)	$	263,385	$	(16,086	)	$	438,169	$	(17,096	)
December 31, 2015
Obligations of states and political subdivisions:
Obligations of states and state agencies	$	6,837	$	(5	)	$	1,965	$	(5	)	$	8,802	$	(10	)
Municipal bonds	8,814		(72		)	10,198		(13		)	19,012		(85		)
Total obligations of states and political subdivisions	15,651		(77		)	12,163		(18		)	27,814		(95		)
Residential mortgage-backed securities	244,440		(2,916		)	162,756		(5,119		)	407,196		(8,035		)
Trust preferred securities	—		—			45,047		(13,384		)	45,047		(13,384		)
Corporate and other debt securities	2,951		(49		)	—		—			2,951		(49		)
Total	$	263,042	$	(3,042	)	$	219,966	$	(18,521	)	$	483,008	$	(21,563	)

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, 2016 was 96 as compared to 74 at December 31, 2015.

The unrealized losses within the residential mortgage-backed securities category of the available for sale portfolio at March 31, 2016 mainly related to certain investment grade securities issued by Fannie Mae.

The unrealized losses existing for more than twelve months for trust preferred securities at March 31, 2016 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, 2016.

Management does not believe that any individual unrealized loss as of March 31, 2016 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.

As of March 31, 2016, 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 $937.2 million.

The contractual maturities of investments in debt securities held to maturity at March 31, 2016 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, 2016
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	91,330	$	91,344
Due after one year through five years	159,946		171,623
Due after five years through ten years	302,843		325,292
Due after ten years	205,042		201,254
Residential mortgage-backed securities	859,305		870,711
Total investment securities held to maturity	$	1,618,466	$	1,660,224

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 6.6 years at March 31, 2016.

Available for Sale

The amortized cost, gross unrealized gains and losses and fair value of securities available for sale at March 31, 2016 and December 31, 2015 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
March 31, 2016
U.S. Treasury securities	$	411,059	$	295	$	(19	)	$	411,335
U.S. government agency securities	26,290		645		(13		)	26,922
Obligations of states and political subdivisions:
Obligations of states and state agencies	43,704		839		(6		)	44,537
Municipal bonds	80,610		1,389		(314		)	81,685
Total obligations of states and political subdivisions	124,314		2,228		(320		)	126,222
Residential mortgage-backed securities	778,775		7,852		(3,979		)	782,648
Trust preferred securities*	10,401		—		(2,142		)	8,259
Corporate and other debt securities	77,852		1,628		(1,272		)	78,208
Equity securities	20,522		384		(2,011		)	18,895
Total investment securities available for sale	$	1,449,213	$	13,032	$	(9,756	)	$	1,452,489
December 31, 2015
U.S. Treasury securities	$	551,173	$	4	$	(1,704	)	$	549,473
U.S. government agency securities	29,316		665		(18		)	29,963
Obligations of states and political subdivisions:
Obligations of states and state agencies	44,285		196		(67		)	44,414
Municipal bonds	80,717		209		(374		)	80,552
Total obligations of states and political subdivisions	125,002		405		(441		)	124,966
Residential mortgage-backed securities	701,764		3,348		(8,684		)	696,428
Trust preferred securities*	10,458		—		(2,054		)	8,404
Corporate and other debt securities	78,202		1,239		(1,889		)	77,552
Equity securities	21,022		575		(1,522		)	20,075
Total investment securities available for sale	$	1,516,937	$	6,236	$	(16,312	)	$	1,506,861



*	Includes two pooled trust preferred securities, principally collateralized by securities issued by banks and insurance companies, at March 31, 2016 and December 31, 2015.

The age of unrealized losses and fair value of related securities available for sale at March 31, 2016 and December 31, 2015 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, 2016
U.S. Treasury securities	$	360,004	$	(19	)	$	—	$	—		$	360,004	$	(19	)
U.S. government agency securities	—		—			4,517		(13		)	4,517		(13		)
Obligations of states and political subdivisions:
Obligations of states and state agencies	1,576		(6		)	—		—			1,576		(6		)
Municipal bonds	—		—			12,513		(314		)	12,513		(314		)
Total obligations of states and political subdivisions	1,576		(6		)	12,513		(314		)	14,089		(320		)
Residential mortgage-backed securities	141,851		(804		)	172,436		(3,175		)	314,287		(3,979		)
Trust preferred securities	—		—			8,259		(2,142		)	8,259		(2,142		)
Corporate and other debt securities	14,207		(319		)	31,566		(953		)	45,773		(1,272		)
Equity securities	—		—			13,784		(2,011		)	13,784		(2,011		)
Total	$	517,638	$	(1,148	)	$	243,075	$	(8,608	)	$	760,713	$	(9,756	)
December 31, 2015
U.S. Treasury securities	$	548,538	$	(1,704	)	$	—	$	—		$	548,538	$	(1,704	)
U.S. government agency securities	3,489		(5		)	4,736		(13		)	8,225		(18		)
Obligations of states and political subdivisions:
Obligations of states and state agencies	24,359		(67		)	—		—			24,359		(67		)
Municipal bonds	38,207		(128		)	13,551		(246		)	51,758		(374		)
Total obligations of states and political subdivisions	62,566		(195		)	13,551		(246		)	76,117		(441		)
Residential mortgage-backed securities	293,615		(4,147		)	164,010		(4,537		)	457,625		(8,684		)
Trust preferred securities	—		—			8,404		(2,054		)	8,404		(2,054		)
Corporate and other debt securities	21,203		(471		)	36,137		(1,418		)	57,340		(1,889		)
Equity securities	—		—			14,273		(1,522		)	14,273		(1,522		)
Total	$	929,411	$	(6,522	)	$	241,111	$	(9,790	)	$	1,170,522	$	(16,312	)

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, 2016 was 120 as compared to 291 at December 31, 2015. At December 31, 2015 the unrealized losses included larger number of small loss position as compared to March 31, 2016.

The unrealized losses within the residential mortgage-backed securities category of the available for sale portfolio at March 31, 2016 largely related to several investment grade residential mortgage-backed securities mainly issued by Ginnie Mae.

The unrealized losses for trust preferred securities at March 31, 2016 for more than twelve months in the table above largely relate to 1 pooled trust preferred security with an amortized cost of $7.6 million and a fair value of $6.1 million. This pooled trust preferred security had unrealized loss of $1.5 million and an investment grade rating at March 31, 2016.

As of March 31, 2016, 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 $497.6 million.

The contractual maturities of investment securities available for sale at March 31, 2016 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, 2016
	Amortized Cost		Fair Value
	(in thousands)
Due in one year	$	361,613	$	361,604
Due after one year through five years	91,097		92,129
Due after five years through ten years	118,340		119,037
Due after ten years	78,866		78,176
Residential mortgage-backed securities	778,775		782,648
Equity securities	20,522		18,895
Total investment securities available for sale	$	1,449,213	$	1,452,489

The weighted average remaining expected life for residential mortgage-backed securities available for sale at March 31, 2016 was 9.4 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, 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, 2016 and 2015. At March 31, 2016, four previously impaired private label mortgage-backed securities (prior to December 31, 2012) had a combined amortized cost and fair value of $11.7 million and $10.8 million, respectively, while one previously impaired pooled trust preferred security had an amortized cost and fair value of $2.8 million and $2.1 million, respectively. The previously impaired pooled trust preferred security was not accruing interest during the three months ended March 31, 2016 and 2015. 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, 2016 and 2015:



	Three Months Ended March 31,
	2016			2015
	(in thousands)
Balance, beginning of period	$	5,837		$	8,947
Accretion of credit loss impairment due to an increase in expected cash flows	(489		)	(144		)
Sales	—			(2,382		)
Balance, end of period	$	5,348		$	6,421

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, 2016 and 2015 were as follows:



	Three Months Ended March 31,
	2016		2015
	(in thousands)
Sales transactions:
Gross gains	$	271	$	3,274
Gross losses	—		(947		)
	$	271	$	2,327
Maturities and other securities transactions:
Gross gains	$	—	$	89
Total gains on securities transactions, net	$	271	$	2,416

Valley recognized gross gains from sales transactions of investment securities totaling $3.3 million for the three months ended March 31, 2015 due to the sale of corporate debt securities and trust preferred securities with amortized cost totaling $25.9 million. These transactions included a corporate debt security classified as held to maturity and a previously impaired pooled trust preferred security with amortized costs of $9.8 million and $2.6 million, respectively. Additionally, Valley recognized $947 thousand of gross losses during the three months ended March 31, 2015 due to the sale of mostly trust preferred securities with a total amortized cost of $8.3 million. The vast majority of the sales of investment securities were due to an investment portfolio re-balancing during the first quarter of 2015 due to changes in our regulatory capital calculation under the new Basel III regulatory capital reform (effective for Valley on January 1, 2015). Under ASC Topic 320, “Investments - Debt and Equity Securities,” the sale of held to maturity securities based upon the change in capital requirements is permitted without tainting the remaining held to maturity investment portfolio.

Note 8. Loans

The detail of the loan portfolio as of March 31, 2016 and December 31, 2015 was as follows: