The following MD&A should be read in conjunction with the consolidated financial statements and notes thereto appearing in Part 1, Item 1 of this report. The words "Valley," the "Company," "we," "our" and "us" refer toValley National Bancorp and its wholly owned subsidiaries, unless we indicate otherwise. Additionally, Valley's principal subsidiary,Valley National Bank , is commonly referred to as the "Bank" in this MD&A. The MD&A contains supplemental financial information, described in the sections that follow, which has been determined by methods other thanU.S. generally accepted accounting principles (U.S. GAAP) that management uses in its analysis of our performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance, our business and performance trends and facilitate comparisons with the performance of others in the financial services industry. These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to 46 --------------------------------------------------------------------------------
financial measures calculated in accordance with
This Quarterly Report on Form 10-Q, both in the MD&A and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management's confidence and strategies and management's expectations about our business, new and existing programs and products, acquisitions, relationships, opportunities, taxation, technology, market conditions and economic expectations, including the potential effects of the COVID-19 pandemic on our businesses and financial results and conditions. These statements may be identified by such forward-looking terminology as "should," "expect," "believe," "view," "will," "opportunity," "allow," "continues," "would," "could," "typically," "usually," "anticipate," "may," "estimate," or similar statements or variations of such terms. Such forward-looking statements involve certain risks and uncertainties and our actual results may differ materially from such forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, include, but are not limited to: •failure to obtain shareholder or regulatory approval for the acquisition ofBank Leumi USA (Bank Leumi ) on the anticipated terms and within the anticipated timeframe; •the inability to realize expected cost savings and synergies from theWestchester andBank Leumi acquisitions in amounts or in the timeframe anticipated; •costs or difficulties relating toWestchester andBank Leumi integration matters might be greater than expected; •the inability to retain customers and qualified employees of theWestchester andBank Leumi ; •changes in estimates of non-recurring charges related toWestchester andBank Leumi acquisitions; •the continued impact of COVID-19 on theU.S. and global economies, including business disruptions, reductions in employment and an increase in business failures, specifically among our clients; •the continued impact of COVID-19 on our employees and our ability to provide services to our customers and respond to their needs as more cases of COVID-19 may arise in our primary markets; •the impact of forbearances or deferrals we are required or agree to as a result of customer requests and/or government actions, including, but not limited to our potential inability to recover fully deferred payments from the borrower or the collateral; •the risks related to the discontinuation of the London Interbank Offered Rate and other reference rates, including increased expenses and litigation and the effectiveness of hedging strategies; •damage verdicts or settlements or restrictions related to existing or potential class action litigation or individual litigation arising from claims of violations of laws or regulations, contractual claims, breach of fiduciary responsibility, negligence, fraud, environmental laws, patent or trademark infringement, employment related claims, and other matters; •a prolonged downturn in the economy, mainly inNew Jersey ,New York ,Florida andAlabama , as well as an unexpected decline in commercial real estate values within our market areas; •higher or lower than expected income tax expense or tax rates, including increases or decreases resulting from changes in uncertain tax position liabilities, tax laws, regulations and case law; •the inability to grow customer deposits to keep pace with loan growth; •a material change in our allowance for credit losses under CECL due to forecasted economic conditions and/or unexpected credit deterioration in our loan and investment portfolios; •the need to supplement debt or equity capital to maintain or exceed internal capital thresholds; •greater than expected technology related costs due to, among other factors, prolonged or failed implementations, additional project staffing and obsolescence caused by continuous and rapid market innovations; 47 -------------------------------------------------------------------------------- •the loss of or decrease in lower-cost funding sources within our deposit base, including our inability to achieve deposit retention targets under Valley's branch transformation strategy; •cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems; •results of examinations by theOffice of the Comptroller of the Currency (OCC), theFederal Reserve Bank (FRB), theConsumer Financial Protection Bureau (CFPB) and other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for credit losses, write-down assets, reimburse customers, change the way we do business, or limit or eliminate certain other banking activities; •our inability or determination not to pay dividends at current levels, or at all, because of inadequate earnings, regulatory restrictions or limitations, changes in our capital requirements or a decision to increase capital by retaining more earnings; •unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, the COVID-19 pandemic or other external events; and •unexpected significant declines in the loan portfolio due to the lack of economic expansion, increased competition, large prepayments, changes in regulatory lending guidance or other factors. A detailed discussion of factors that could affect our results is included in ourSEC filings, including the "Risk Factors" section of our Annual Report on Form 10-K for the year endedDecember 31, 2020 and Part II, Item 1A of this Quarterly Report. Critical Accounting Policies and Estimates Valley's accounting policies are fundamental to understanding management's discussion and analysis of its financial condition and results of operations. AtSeptember 30, 2021 , we identified our policies on the allowance for credit losses, goodwill and other intangible assets, and income taxes to be critical accounting policies because management has to make subjective and/or complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Management has reviewed the application of these policies with the Audit Committee of Valley's Board of Directors. Our critical accounting policies are described in detail in Part II, Item 7 in Valley's Annual Report on Form 10-K for the year endedDecember 31, 2020 . New Authoritative Accounting Guidance See Note 5 to the consolidated financial statements for a description of new authoritative accounting guidance, including the respective dates of adoption and effects on results of operations and financial condition.
Executive Summary
Company Overview. AtSeptember 30, 2021 , Valley had consolidated total assets of approximately$41.3 billion , total net loans of$32.3 billion , total deposits of$33.6 billion and total shareholders' equity of$4.8 billion . Our commercial bank operations include branch office locations in northern and centralNew Jersey , the New York City Boroughs ofManhattan ,Brooklyn ,Queens , andLong Island ,Florida andAlabama . Of our current 226 branch network, 58 percent, 17 percent, 18 percent and 7 percent of the branches are inNew Jersey ,New York ,Florida andAlabama , respectively. Despite targeted branch consolidation activity, we have significantly grown both in asset size and locations over the past several years primarily through bank acquisitions.The Westchester Bank Holding Corporation . OnJune 29, 2021 , Valley announced that it will acquireThe Westchester Bank Holding Corporation ("Westchester") and its principal subsidiary,The Westchester Bank which is headquartered inWhite Plains, New York . As ofJune 30, 2021 ,Westchester had total assets of$1.3 billion , total loans of$908 million , and total deposits of$1.1 billion .Westchester maintains a seven branch network inWestchester County, New York . The common shareholders ofWestchester will receive 229.645 shares of Valley 48 -------------------------------------------------------------------------------- common stock for eachWestchester share they own. Based on Valley's closing stock price onJune 28, 2021 ,Westchester's stockholders will receive approximately$210 million in Valley common stock. ExistingWestchester options will be cashed out for approximately$10 million in cash. The acquisition is anticipated to close onDecember 1, 2021 , pending the satisfaction of customary closing conditions. Bank Leumi Le-Israel Corporation Merger. OnSeptember 23, 2021 , Valley announced a merger withBank Leumi Le-Israel Corporation (Leumi ) whereby Valley will acquireLeumi , theU.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company ofBank Leumi USA (Bank Leumi ). The merger will enable Valley to greatly expand its commercial banking and venture capital banking businesses, as well as help Valley increase its revenue diversity and expand into new geographies.Bank Leumi has its headquarters inNew York City and also operates commercial banking offices inChicago ,Los Angeles ,Palo Alto , andAventura, Fl. As ofJune 30, 2021 ,Bank Leumi had total assets of$8.4 billion , total deposits of$7.1 billion , and gross loans of$5.4 billion . The acquisition is expected to close in the first half of 2022, subject to standard regulatory approvals, approval of Valley shareholders, as well as other customary closing conditions. Dudley Ventures Acquisition. OnOctober 8, 2021 , Valley acquiredArizona -basedDudley Ventures (DV), an advisory firm specializing in the investment and management of tax credits. The transaction includes the acquisition of DV's community development entity,DV Community Investment , as well asDV Fund Advisors and DV Advisory Services. The transaction price included$11.3 million of cash at the closing date, fixed future stock consideration totaling$3.8 million , and contingent cash earn-out payments based upon revenue growth of the acquired entities over a five-year period. The acquisition ofDudley Ventures is expected to support our efforts to build differentiated sources of non-interest income. Impact of COVID-19. Economic activity and businesses continued to rebound in the third quarter 2021. However, theU.S. is experiencing significant global supply chain disruptions and labor shortages which have also increased inflation. We continue to monitor the impact of COVID-19 closely, including its impact on our employees, customers, communities and results of operations and other government stimulus orFederal Reserve actions. The extent to which the COVID-19 pandemic will impact our operations and financial results during the fourth quarter 2021 and beyond is highly uncertain. We continue to closely monitor local conditions in the areas we serve and will take actions as circumstances warrant and will follow proper protocols designed to ensure safety of our employees and customers. See the "Operating Environment" section of MD&A for more details. The Coronavirus Aid, Relief, and Economic Security (CARES) Act and additional legislation that followed including the Consolidated Appropriations Act and the American Rescue Plan Act of 2021 provided funding for the SBA's Paycheck Protection Program (PPP) and established rules for qualifying borrowers to receive loan forgiveness by the SBA under this program. Valley extended a total of$3.2 billion PPP loans under the program, of which$2.3 billion of these loans have received forgiveness from the SBA, including$476.7 million during the third quarter 2021. As ofSeptember 30, 2021 , we had$874.0 million of PPP loans still outstanding. In response to the COVID-19 pandemic and its economic impact on certain customers and in accordance with provisions set forth by the CARES Act, Valley implemented short-term loan modifications, such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant, when requested by customers. As ofSeptember 30, 2021 , Valley had$98.6 million of outstanding loans remaining in their payment deferral period under short-term modifications representing approximately 0.3 percent of our total loan portfolio atSeptember 30, 2021 as compared to$361 million , or 1.1 percent of total loans atDecember 31, 2020 . Quarterly Results. Net income for the third quarter 2021 was$122.6 million , or$0.29 per diluted common share, compared to$102.4 million , or$0.25 per diluted common share, for the third quarter 2020. The$20.2 million increase in quarterly net income as compared to the same quarter one year ago was largely due to: •a$17.9 million increase in net interest income mainly due to (i) lower rates on our deposit products combined with a continued customer shift to deposits without stated maturities, (ii) run-off of higher cost time deposits, (iii) lower average other borrowings and related costs driven by normal maturities of FHLB 49 --------------------------------------------------------------------------------
advances and long-term repos, as well as our prepayments of
•a$27.4 million decrease in our provision for credit losses mainly due to the improved economic forecast component of the reserve as compared toSeptember 30, 2020 , partially offset by: •a$6.8 million decrease in non-interest income mainly due to the combination of lower gains on sales of residential mortgage loans and lower fee income related to derivative interest rate swaps executed with commercial lending customers, partially offset by moderate increases in other fee categories; •a$14.7 million increase in non-interest expense primarily due to higher salary and employee benefits expenses, and increased professional and legal fees, including an accrual of$2.1 million for general litigation reserves, partially offset by a$2.4 million decrease in the loss on the early extinguishment as compared to the third quarter 2020; and
•a
See the "Net Interest Income", "Non-Interest Income", "Non-Interest Expense", and "Income Taxes" sections below for more details on the items above impacting our third quarter 2021 results.
Operating Environment. During the third quarter 2021, real gross domestic product expanded 0.5 percent, compared to 6.7 percent growth in the second quarter 2021. The deceleration in growth was driven by personal consumption and business fixed investment as inflation remained elevated, partly offset by inventory restocking and government spending.
TheFederal Reserve continued to maintain an accommodative stance on monetary policy to keep interest rates low and promote liquidity. At their meeting inSeptember 2021 , theFederal Open Market Committee (the "Committee") maintained the target range for the federal funds rate between 0.00 and 0.25 percent. Additionally, the Committee decided to maintain several programs, including purchasingU.S. Treasury and mortgage backed securities to support the flow of credit to households and businesses in order to promote its maximum employment and price stability goals. Notwithstanding this, the Committee indicated that a moderation in the pace of asset purchases may soon be warranted. The 10-yearU.S. Treasury note yield ended the third quarter at 1.52 percent, 7 basis points higher, as compared withJune 30, 2021 . The spread between the 2- and 10-yearU.S. Treasury note yields ended the third quarter 2021 at 1.24 percent, 4 basis points higher, as compared to the end of the second quarter 2021 and 68 basis points higher, as compared toJune 30, 2020 . For all commercial banks in theU.S. , loans and leases increased approximately 0.9 percent in the third quarter 2021, as compared to the previous quarter. For the industry, banks reported more relaxed credit standards for most loan types. Additionally, banks reported that demand had firmed or increased during the third quarter which finally translated into stronger loan growth. In the third quarter 2021, Valley continued to see strong organic growth demand for commercial real estate loans and several other loan types across its geographic footprint. Inflation has been elevated, which could adversely impact companies if they cannot pass along higher input costs to their customers. Should inflation pressures persist, this dynamic, among other external factors, could challenge our business operations as highlighted throughout the remaining MD&A discussion below. Loans. Total loans increased$149.4 million to$32.6 billion atSeptember 30, 2021 fromJune 30, 2021 in spite of a$476.7 million decrease in PPP loans within the commercial and industrial loan category. Our non-PPP loan portfolio increased$626.0 million , or 8.0 percent on an annualized basis, to$31.7 billion atSeptember 30, 2021 from$31.1 billion atJune 30, 2021 . The increase in non-PPP loans was largely driven by increases of$399.9 million ,$51.7 million and$105.4 million in the commercial real estate, construction and residential mortgage categories, respectively. Additionally, our third quarter 2021 new and refinanced loan originations included 50 -------------------------------------------------------------------------------- approximately$233 million of residential mortgage loans originated for sale. Net gains on sales of residential loans were$6.4 million and$10.1 million in the third quarter 2021 and second quarter 2021, respectively. See further details on our loan activities under the "Loan Portfolio" section below. Asset Quality. Total non-performing assets (NPAs), consisting of non-accrual loans, other real estate owned (OREO), and other repossessed assets increased$31.1 million to$257.7 million atSeptember 30, 2021 as compared toJune 30, 2021 . Non-accrual loans increased$31.8 million to$251.8 million atSeptember 30, 2021 as compared toJune 30, 2021 mainly due to the$33.1 million increase in non-accrual commercial real estate loans from three loan relationships which have$3.7 million of related allowance reserves as ofSeptember 30, 2021 . Non-accrual loans represented 0.77 percent of total loans atSeptember 30, 2021 , as compared to 0.68 percent atJune 30, 2021 . Total accruing past due loans (i.e., loans past due 30 days or more and still accruing interest) decreased$25.0 million to$55.2 million , or 0.17 percent of total loans, atSeptember 30, 2021 as compared to$80.2 million , or 0.25 percent of total loans, atJune 30, 2021 . The decrease was driven by the transition of the aforementioned three commercial real estate loan delinquencies from accruing past due loans to non-accrual loan status. See further details in the "Non-performing Assets" section below. Deposits and Other Borrowings. Overall, average deposits increased by$876.6 million to$33.6 billion for the third quarter 2021 as compared to the second quarter 2021 due to continued growth in both commercial and retail customer balances. Average non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 32 percent, 56 percent and 12 percent of total deposits as ofSeptember 30, 2021 , respectively. Our mix of average deposits for the third quarter 2021 also continued to shift away from time deposits into the non-maturity deposit categories as compared to the second quarter 2021, as some funding from maturing retail CDs migrate to the more liquid deposit products and normal growth in such categories. Actual ending balances for deposits increased$437.8 million to approximately$33.6 billion atSeptember 30, 2021 fromJune 30, 2021 largely due to increases of$524.8 million and$260.3 million in the non-maturity interest bearing deposit and non-interest bearing deposit categories, respectively, partially offset by a$347.3 million decrease in time deposits. The decrease of$347.3 million in time deposits was driven by normal run-off of maturing retail CDs with the aforementioned migration of some retail balances to more liquid, lower cost deposit product categories. Total brokered deposits (within money market deposit accounts) decreased approximately$315 million to$1.7 billion atSeptember 30, 2021 as compared to$2.0 billion atJune 30, 2021 , as our funding profile has benefited from the surge in commercial and retail deposit balances. Non-interest bearing deposits; savings, NOW and money market deposits; and time deposits represented approximately 32 percent, 56 percent and 12 percent of total deposits as ofSeptember 30, 2021 , respectively. While we believe the current operating environment will likely continue to be favorable for Valley's deposit gathering initiatives, we cannot guarantee that we will be able to maintain deposit levels at or near those reported atSeptember 30, 2021 . Average short-term borrowings decreased$13.5 million to$860.5 million for the third quarter 2021 as compared to the second quarter 2021 due to normal debt maturities funded with excess cash liquidity. Average long-term borrowings (including junior subordinated debentures issued to capital trusts which are presented separately on the consolidated statements of financial condition) decreased by$605.0 million to$1.6 billion for the third quarter 2021 as compared to the second quarter 2021 largely due to combination of (i) the$248 million of FHLB advances which were prepaid in lateJune 2021 , (ii) repayments upon maturities of FHLB advances and (iii)$300 million of long-term repurchase agreements which matured during the third quarter 2021, with these decreases partially offset by (iv) the$300 million subordinated notes issued in lateMay 2021 which were outstanding for the full quarter in third quarter 2021. Actual ending balances for short-term borrowings decreased by$71.0 million to$783.3 million atSeptember 30, 2021 as compared toJune 30, 2021 largely due to repayments of FHLB advances. Long-term borrowings decreased by$458.2 million to$1.4 billion atSeptember 30, 2021 as compared toJune 30, 2021 mainly due to the maturity of$300 million of long-term repurchase agreements and$158 million of FHLB advances which were repaid with excess liquidity during the third quarter 2021. See Note 10 to the consolidated financial statements for additional information. 51 --------------------------------------------------------------------------------
Selected Performance Indicators. The following table presents our annualized performance ratios for the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Return on average assets 1.18 % 0.99 % 1.16 % 0.94 % Return on average assets, as adjusted 1.20 1.01 1.19 0.95 Return on average shareholders' equity 10.23 9.04 10.14 8.50
Return on average shareholders' equity, as adjusted 10.41
9.20 10.37 8.59 Return on average tangible shareholders' equity (ROATE) 14.64 13.30 14.63 12.61 ROATE, as adjusted 14.90 13.53 14.97 12.75 Adjusted return on average assets, adjusted return on average shareholders' equity, ROATE and adjusted ROATE included in the table above are non-GAAP measures. Management believes these measures provide information useful to management and investors in understanding our underlying operational performance, business and performance trends, and the measures facilitate comparisons of our prior performance with the performance of others in the financial services industry. These non-GAAP financial measures should not be considered in isolation or as a substitute for or superior to financial measures calculated in accordance withU.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies. The non-GAAP measure reconciliations are presented below.
Adjusted net income is computed as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 (in thousands) Net income, as reported$ 122,580 $ 102,374 $ 358,802 $ 285,243 Add: Loss on extinguishment of debt (net of tax) - 1,691 6,024 1,691 Add: (Gains) losses on available for sale and held to maturity securities transactions (net of tax) (a) (565) 33 (399) 91 Add: Merger related expenses (net of tax) (b) 1,207 76 1,207 1,275 Add: Litigation reserves (net of tax) (b) 1,505 - 1,505 - Net income, as adjusted$ 124,727 $ 104,174 $ 367,139 $ 288,300 (a) Included in gains on securities transactions, net. (b) Included in professional and legal fees. In addition to the items used to calculate net income, as adjusted, in the table above, our net income is, from time to time, impacted by fluctuations in the level of net gains on sales of loans and swap fees recognized from commercial loan customer transactions. These amounts can vary widely from period to period due to, among other factors, the amount of residential mortgage loans originated for sale, loan portfolio sales and commercial loan customer demand for certain products. See the "Non-Interest Income" section below for more details. 52
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Adjusted annualized return on average assets is computed by dividing adjusted net income by average assets, as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 ($ in thousands) Net income, as adjusted $ 124,727$ 104,174 $ 367,139$ 288,300 Average assets $ 41,543,930$ 41,356,737 $ 41,144,375$ 40,304,956 Annualized return on average assets, as adjusted 1.20 % 1.01 % 1.19 % 0.95 %
Adjusted annualized return on average shareholders' equity is computed by dividing adjusted net income by average shareholders' equity, as follows:
Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 ($ in thousands) Net income, as adjusted$ 124,727 $ 104,174 $ 367,139$ 288,300 Average shareholders' equity$ 4,794,843 $ 4,530,671 $ 4,718,960$ 4,472,447 Annualized return on average shareholders' equity, as adjusted 10.41 % 9.20 % 10.37 % 8.59 % ROATE and adjusted ROATE are computed by dividing net income and adjusted net income, respectively, by average shareholders' equity less average goodwill and average other intangible assets, as follows: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 ($ in thousands) Net income$ 122,580 $ 102,374 $ 358,802$ 285,243 Net income, as adjusted 124,727 104,174 $ 367,139$ 288,300 Average shareholders' equity$ 4,794,843 $ 4,530,671 $ 4,718,960$ 4,472,447
Less: Average goodwill and other intangible assets 1,446,760
1,451,889 1,449,285 1,456,536 Average tangible shareholders' equity$ 3,348,083 $ 3,078,782 $ 3,269,675$ 3,015,911 Annualized ROATE 14.64 % 13.30 % 14.63 % 12.61 % Annualized ROATE, as adjusted 14.90 % 13.53 % 14.97 % 12.75 % Net Interest Income
Net interest income consists of interest income and dividends earned on interest earning assets, less interest expense on interest bearing liabilities, and represents the main source of income for Valley.
Net interest income on a tax equivalent basis totaling$301.7 million for the third quarter 2021 decreased$43 thousand as compared to the second quarter 2021 and increased$17.6 million from the third quarter 2020. Interest expense of$27.8 million for the third quarter 2021 decreased$5.0 million as compared to the second quarter 2021 as we continue to reduce our cost of funding from both deposits and our repayment of other borrowings, primarily FHLB advances. Interest income on a tax equivalent basis in the third quarter 2021 decreased by$5.0 million to$329.5 million as compared to the second quarter 2021 largely due to a$9.4 million decline in PPP loan related interest and fees caused by lower levels of loan forgiveness (prepayments) in the third quarter 2021 and lower yields on non-PPP new and renewed loans. 53 -------------------------------------------------------------------------------- Average interest earning assets increased$565.2 million to$38.3 billion for the third quarter 2021 as compared to the third quarter 2020 primarily due to higher levels of excess liquidity held in overnight investments with banks caused by the surge in customer deposit balances and fluctuations in the timing of loan and investment funding. As compared to the second quarter 2021, average interest earning assets increased by$425.5 million from$37.9 billion , mostly driven by higher levels of excess overnight liquidity and purchases of new taxable investments, partially offset by principal repayments in both the taxable and non-taxable investment portfolios. Average interest bearing liabilities decreased$1.7 billion to$25.4 billion for the third quarter 2021 as compared to the third quarter 2020 primarily due to the repayment of borrowings with excess cash liquidity over the last 12-month period. As compared to the second quarter 2021, average interest bearing liabilities decreased by$115.4 million in the third quarter 2021 mainly due to repayments of short-term and long-term borrowings, which were largely offset by the surge in both commercial and retail customer deposits. Total average deposits increased$876.6 million to$33.6 billion for the third quarter 2021 as compared to the second quarter 2021. See additional information under "Deposits and Other Borrowings" in the Executive Summary section above. Our net interest margin on a tax equivalent basis of 3.15 percent for the third quarter 2021 decreased by 3 basis points and increased by 14 basis points from 3.18 percent and 3.01 percent for the second quarter 2021 and third quarter 2020, respectively. The yield on average interest earning assets decreased by 9 basis points on a linked quarter basis mostly due to the lower yield on new and renewed loans, partially offset by one additional day in the third quarter 2021 as compared to the second quarter 2021. The yield on average loans decreased by 8 basis points to 3.79 percent for the third quarter 2021 as compared to the second quarter 2021. The overall cost of average interest bearing liabilities decreased 7 basis points to 0.44 percent for the third quarter 2021 as compared to the second quarter 2021. The decrease was mainly due to: (i) the continued run-off of maturing higher cost time deposits, (ii) repayment of maturing FHLB advances and other borrowings during the third quarter 2021, (iii) the prepayment of$248 million of long-term FHLB advances inJune 2021 and (iv) the overall lower cost of deposits. Our cost of total average deposits was 0.18 percent for the third quarter 2021 as compared to 0.21 percent for the second quarter 2021. Looking forward, we expect moderate ongoing interest rate pressures on our net interest margin for the fourth quarter 2021 and beyond due to the low level of market rates and the potential negative impact on the overall yield on new and refinanced loan originations. However, we are also encouraged by the continued potential opportunity to selectively redeploy low yielding excess cash liquidity into new loans and investments during the fourth quarter 2021, as well as repay or reprice (at low costs) stated maturity deposits totaling approximately$3.3 billion with an average cost of 31 basis points scheduled to mature over the next 12-month period. 54 --------------------------------------------------------------------------------
The following table reflects the components of net interest income for the three
months ended
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