VALLEY NATIONAL BANCORPVLY
VALLEY NATIONAL BANCORP Commitments Disclosure
COMMITMENTS AND CONTINGENCIES (Note 14)
Financial Instruments with Off-balance Sheet Risk
In the ordinary course of business, meeting the financial needs of its customers, Valley, through its subsidiary Valley National Bank, is a party to various financial instruments, which are not reflected in the consolidated financial statements. These financial instruments include standby and commercial letters of credit, unused portions of lines of credit and commitments to extend various types of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated financial statements. The commitment or contract amount of these instruments is an indicator of the Bank’s level of involvement in each type of instrument as well as the exposure to credit loss in the event of non-performance by the other party to the financial instrument. The Bank seeks to limit any exposure of credit loss by applying the same credit policies in making commitments as it does for on-balance sheet lending facilities.
The following table provides a summary of financial instruments with off-balance sheet risk at December 31, 2025 and 2024:
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Commitments under commercial loans and lines of credit | $ | 10,740,227 | $ | 10,303,607 | |||||||
| Home equity and other revolving lines of credit | 2,145,350 | 1,913,626 | |||||||||
| Standby letters of credit | 575,325 | 524,108 | |||||||||
| Outstanding residential mortgage loan commitments | 143,285 | 111,696 | |||||||||
Commitments under unused lines of credit - credit card | 154,953 | 146,832 | |||||||||
| Commitments to sell loans | 13,020 | 28,561 | |||||||||
| Commercial letters of credit | 11,408 | 26,639 | |||||||||
| Total | $ | 13,783,568 | $ | 13,055,069 | |||||||
Obligations to advance funds under commitments to extend credit, including commitments under unused lines of credit, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have specified expiration dates, which may be extended upon request, or other termination clauses and generally require payment of a fee. These commitments do not necessarily represent future cash requirements, as it is anticipated that many of these commitments will expire without being fully drawn upon. The Bank’s lending activity for outstanding loan commitments is primarily to customers within the states of New York, Florida and New Jersey.
Standby letters of credit represent the guarantee by the Bank of the obligations or performance of the bank customer in the event of the default of payment or nonperformance to a third-party beneficiary.
Loan sale commitments represent contracts for the sale of residential mortgage loans to third parties in the ordinary course of the Bank’s business. These commitments require the Bank to deliver loans within a specific period to the third party. The risk to the Bank is its non-delivery of loans required by the commitment, which could lead to financial penalties. The Bank has not defaulted on its loan sale commitments.
Legal Proceedings
In the ordinary course of business, Valley is or may be subject to various pending and threatened lawsuits, claims and proceedings. Any determination or estimate relating to the future resolution of such matters is inherently uncertain and involves significant judgment. This is especially true in the early stages of a legal matter, where the claimants seek large or indeterminate damages, present novel legal theories, involve a large number of parties, or where additional claims or other actions involving similar factual or legal issues may be possible. Accordingly, Valley may not be able to determine whether a favorable or unfavorable outcome is remote, reasonably possible, or probable, or to estimate the amount or range of a probable or reasonably possible loss, until relatively late in the course of a legal matter, sometimes not until a number of years have elapsed. Valley’s judgments and estimates relating to claims may also change over time in light of developments, and actual outcomes will differ, and may differ materially, from estimates. Based on Valley’s current knowledge and advice of counsel, management presently does not believe that the liabilities arising from legal and regulatory matters will be material to Valley’s consolidated financial position.
Derivative Instruments and Hedging Activities
Valley is exposed to certain risks arising from both its business operations and economic conditions. Valley principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. Valley manages economic risks, including interest rate and liquidity risks, primarily by managing the amount, sources, and duration of its assets and liabilities and, from time to time, the use of derivative financial instruments. Specifically, Valley enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Valley’s derivative financial instruments are used to manage differences in the amount, timing, and duration of Valley’s known or expected cash receipts and its known or expected cash payments related to assets and liabilities as outlined below.
Cash Flow Hedges of Interest Rate Risk. Valley’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, Valley has used interest rate swaps, from time to time, as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the payment of either fixed or variable-rate amounts in exchange for the receipt of variable or fixed-rate amounts from a counterparty, respectively.
During 2023, Valley terminated six interest rate swaps with a total notional amount of $600 million. The terminated swaps, originally maturing from November 2024 to November 2026, were used to hedge the changes in cash flows associated with certain variable rate loans. The transaction resulted in an initial pre-tax gain totaling $3.6 million reported in accumulated other comprehensive income (loss) within shareholders' equity that is amortized to interest income over the life of the previously hedged loans through November 2026.
Fair Value Hedges of Fixed Rate Assets and Liabilities. Valley is exposed to changes in the fair value of certain fixed-rate assets and liabilities due to changes in interest rates and uses interest rate swaps to manage the exposure to changes in fair value. For derivatives that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the loss or gain on the hedged item attributable to the hedged risk are recognized in earnings.
During 2024, Valley terminated interest rate swaps with a total notional amount of $500 million used to hedge the fair value of certain fixed rate residential loans. The terminated swaps had original maturity dates in the fourth quarter 2025. The carrying amount of the hedged assets included an immaterial cumulative loss adjustment at the date of termination that was amortized to earnings during the year ended December 31, 2025.
During 2024, Valley entered into 11 forward-starting interest rate swap agreements with notional amounts totaling $480.3 million to hedge the changes in fair value of certain fixed rate brokered time deposits. Under the swap agreement, beginning in January 2025,Valley receives fixed rate amounts ranging from approximately 4.12 percent to 4.65 percent, in exchange for variable-rate payments based on the Floating SOFR Overnight Indexed Swap compound rate. The swaps have expiration dates ranging from April 2026 to June 2027.
During 2021, Valley entered into a $300 million forward-starting interest rate swap agreement with a notional amount of $300 million, maturing in June 2026, to hedge the change in the fair value of the 3.00 percent subordinated debt issued on May 28, 2021. Under the swap agreement, beginning in January 2022, Valley receives fixed rate payments and pays variable rate amounts based on SOFR plus 2.187 percent.
Non-designated Hedges. Derivatives not designated as hedges may be used to manage Valley’s exposure to interest rate movements or to provide a service to customers but do not meet the requirements for hedge accounting under GAAP.
Derivatives not designated as hedges are not entered into for speculative purposes. Valley executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Valley executes with a third-party, such that Valley minimizes its net risk exposure resulting from such transactions. As these interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
Valley sometimes enters into risk participation agreements with external lenders where the banks are sharing their risk of default on the interest rate swaps on participated loans. Valley either pays or receives a fee depending on the type of participation. Risk participation agreements are credit derivatives not designated as hedges. Credit derivatives are not speculative and are not used to manage interest rate risk in assets or liabilities. Changes in the fair value in credit derivatives are recognized directly in earnings. At December 31, 2025, Valley had 65 credit swaps with an aggregate notional amount of $959.9 million related to risk participation agreements.
At December 31, 2025, Valley had two “steepener” swaps, each with a current notional amount of $10.4 million where the receive rate on the swap mirrors the pay rate on the brokered deposits and the rates paid on these types of hybrid instruments are based on a formula derived from the spread between the long and short ends of the Constant Maturity Swap rate curve. Although these types of instruments do not meet the hedge accounting requirements, the change in fair value of both the bifurcated derivative and the stand alone swap tend to move in opposite directions with changes in the three-month Term SOFR rate and, therefore, provide an effective economic hedge.
Valley regularly enters into mortgage banking derivatives which are non-designated hedges. These derivatives include interest rate lock commitments provided to customers to fund certain residential mortgage loans to be sold into the secondary market and forward commitments for the future delivery of such loans. Valley enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future changes in interest rates on Valley's commitments to fund the loans as well as on its portfolio of mortgage loans held for sale.
Valley enters into foreign currency forward and option contracts, primarily to accommodate our customers, that are not designated as hedging instruments. Upon the origination of certain foreign currency denominated transactions (including foreign currency holdings and non-U.S. dollar denominated loans) with a client, we enter into a respective hedging contract with a third-party financial institution to mitigate the economic impact of foreign currency exchange rate fluctuation.
During 2024, Valley entered into a credit default swap related to $1.5 billion in automobile loans primarily to enhance the risk profile of these assets for regulatory capital purposes. The covered loans have a total remaining balance of approximately $653.5 million within Valley's $2.2 billion automobile loan portfolio at December 31, 2025. The credit default swap is a freestanding contract measured at fair value with resulting gains or losses recognized in non-interest expense. The premium amortization expense and other transaction costs associated with the credit protection totaling $6.9 million and $6.8 million for the years ended December 31, 2025 and 2024, respectively, were recorded in other expense reported in non-interest expense.
Amounts included in the consolidated statements of financial condition related to the fair value of Valley’s derivative financial instruments were as follows at December 31, 2025 and 2024:
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Fair Value | Fair Value | ||||||||||||||||||||||||||||||||||
| Other Assets | Other Liabilities | Notional Amount | Other Assets | Other Liabilities | Notional Amount | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
| Fair value hedge interest rate swaps | $ | 1,319 | $ | 4,088 | $ | 780,322 | $ | 2,419 | $ | 13,993 | $ | 780,322 | |||||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 1,319 | $ | 4,088 | $ | 780,322 | $ | 2,419 | $ | 13,993 | $ | 780,322 | |||||||||||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
Interest rate swaps and other contracts * | $ | 162,191 | $ | 161,911 | $ | 18,685,777 | $ | 423,683 | $ | 423,492 | $ | 16,209,499 | |||||||||||||||||||||||
| Foreign currency derivatives | 19,140 | 18,031 | 2,343,733 | 18,011 | 16,488 | 1,688,338 | |||||||||||||||||||||||||||||
| Mortgage banking derivatives | 23 | 78 | 25,718 | 150 | 192 | 45,752 | |||||||||||||||||||||||||||||
| Credit default swap | — | 54 | 653,459 | — | 35 | 1,142,026 | |||||||||||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 181,354 | $ | 180,074 | $ | 21,708,687 | $ | 441,844 | $ | 440,207 | $ | 19,085,615 | |||||||||||||||||||||||
| Total derivative financial instruments | $ | 182,673 | $ | 184,162 | $ | 22,489,009 | $ | 444,263 | $ | 454,200 | $ | 19,865,937 | |||||||||||||||||||||||
* Other derivative contracts include risk participation agreements.
Gains (losses) included in the consolidated statements of income and in other comprehensive income (loss), on a pre-tax basis, related to interest rate derivatives designated as hedges of cash flows for the years ended December 31, 2025, 2024, and 2023 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Amount of gain (loss) reclassified from accumulated other comprehensive loss to interest expense | $ | 1,136 | $ | 1,204 | $ | (891) | |||||||||||
| Amount of loss recognized in other comprehensive income (loss) | — | — | (1,093) | ||||||||||||||
The accumulated net after-tax gains and losses related to effective cash flow hedges included in accumulated other comprehensive loss were $420 thousand and $1.2 million at December 31, 2025 and 2024, respectively.
Amounts reported in accumulated other comprehensive loss related to cash flow interest rate derivatives are reclassified to interest income and expense as interest payments are received and paid on the hedged variable interest rate assets and liabilities. The reclassification amounts for the years ended December 31, 2025 and 2024 represent amortization of the gain recognized from the termination of interest rate swaps during 2023. The entire after-tax gain of $420 thousand will be reclassified as a $581 thousand (before tax) increase to interest income during 2026.
Gains (losses) included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value for the years ended December 31, 2025, 2024, and 2023 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Derivative - interest rate swaps: | |||||||||||||||||
| Interest income | $ | — | $ | 3,170 | $ | (3,877) | |||||||||||
| Interest expense | 10,569 | 9,765 | 8,473 | ||||||||||||||
| Hedged items - loans, time deposits and subordinated debt: | |||||||||||||||||
| Interest income | $ | (482) | $ | (3,396) | $ | 3,877 | |||||||||||
| Interest expense | (10,692) | (10,005) | (8,687) | ||||||||||||||
The changes in the fair value of the hedged item designated as a qualifying hedge are captured as an adjustment to the carrying amount of the hedged item (basis adjustment). The following table presents the hedged items related to interest rate derivatives designated as fair value hedges and the cumulative basis fair value adjustment included in the net carrying amount of the hedged items at December 31, 2025 and 2024:
| Line Item in the Statement of Financial Condition in Which the Hedged Item is Included | Net Carrying Amount of the Hedged Asset/Liability | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Asset/Liability | ||||||||||||
| (in thousands) | ||||||||||||||
| December 31, 2025 | ||||||||||||||
| Time deposits | $ | 483,348 | $ | 3,044 | ||||||||||
| Long-term borrowings * | 295,842 | (3,790) | ||||||||||||
| December 31, 2024 | ||||||||||||||
| Time deposits | $ | 482,723 | $ | 2,419 | ||||||||||
| Long-term borrowings * | 284,966 | (13,859) | ||||||||||||
* Net carrying amount includes unamortized debt issuance costs of $368 thousand and $1.2 million at December 31, 2025 and 2024, respectively.
The net losses included in the consolidated statements of income related to derivative instruments not designated as hedging instruments for the years ended December 31, 2025, 2024 and 2023 were as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Non-designated hedge interest rate and credit derivatives | |||||||||||||||||
| $ | (7,214) | $ | (4,796) | $ | (1,590) | ||||||||||||
Capital markets income reported in non-interest income included fee income related to non-designated hedge derivative interest rate swaps executed with commercial loan customers and foreign exchange contracts (not designated as hedging instruments) with a combined total of $33.8 million, $23.5 million and $35.7 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Collateral Requirements and Credit Risk Related Contingency Features. By using derivatives, Valley is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. Management attempts to minimize counterparty credit risk through credit approvals, limits, monitoring procedures and obtaining collateral where appropriate. Credit risk exposure associated with derivative contracts is managed at Valley in conjunction with Valley’s consolidated counterparty risk management process. Valley’s counterparties and the risk limits monitored by management are periodically reviewed and approved by the Board.
Valley has agreements with its derivative counterparties providing that if Valley defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then Valley could also be declared in default on its derivative counterparty agreements. Additionally, Valley has an agreement with several of its derivative counterparties that contains provisions that require Valley’s debt to maintain an investment grade credit rating from each of the major credit rating agencies from which it receives a credit rating. If Valley’s credit rating is reduced below investment grade, or such rating is withdrawn or suspended, then the counterparties could terminate the derivative positions, and Valley would be required to settle its obligations under the agreements. As of December 31, 2025, Valley was in compliance with all of the provisions of its derivative counterparty agreements. The total combined fair value of all derivative financial instruments with credit risk-related contingent features was in a net asset position at December 31, 2025. Valley has derivative counterparty agreements that require minimum collateral posting thresholds for certain counterparties.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Mar 10, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 29, 2016 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.