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 to Valley 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 than U.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

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financial measures calculated in accordance with U.S. GAAP. These non-GAAP financial measures may also be calculated differently from similar measures disclosed by other companies. Cautionary Statement Concerning Forward-Looking Statements



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 of
Bank Leumi USA (Bank Leumi) on the anticipated terms and within the anticipated
timeframe;
•the inability to realize expected cost savings and synergies from the
Westchester and Bank Leumi acquisitions in amounts or in the timeframe
anticipated;
•costs or difficulties relating to Westchester and Bank Leumi integration
matters might be greater than expected;
•the inability to retain customers and qualified employees of the Westchester
and Bank Leumi;
•changes in estimates of non-recurring charges related to Westchester and Bank
Leumi acquisitions;
•the continued impact of COVID-19 on the U.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 in New Jersey, New York, Florida
and Alabama, 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;
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•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 the Office of the Comptroller of the Currency (OCC),
the Federal Reserve Bank (FRB), the Consumer 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
our SEC filings, including the "Risk Factors" section of our Annual Report on
Form 10-K for the year ended December 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. At
September 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 ended December 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. At September 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 central New
Jersey, the New York City Boroughs of Manhattan, Brooklyn, Queens, and Long
Island, Florida and Alabama. Of our current 226 branch network, 58 percent, 17
percent, 18 percent and 7 percent of the branches are in New Jersey, New York,
Florida and Alabama, 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. On June 29, 2021, Valley announced
that it will acquire The Westchester Bank Holding Corporation ("Westchester")
and its principal subsidiary, The Westchester Bank which is headquartered in
White Plains, New York. As of June 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 in Westchester County, New York.
The common shareholders of Westchester will receive 229.645 shares of Valley
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common stock for each Westchester share they own. Based on Valley's closing
stock price on June 28, 2021, Westchester's stockholders will receive
approximately $210 million in Valley common stock. Existing Westchester options
will be cashed out for approximately $10 million in cash. The acquisition is
anticipated to close on December 1, 2021, pending the satisfaction of customary
closing conditions.

Bank Leumi Le-Israel Corporation Merger. On September 23, 2021, Valley announced
a merger with Bank Leumi Le-Israel Corporation (Leumi) whereby Valley will
acquire Leumi, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent
company of Bank 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 in New York City and also operates commercial banking
offices in Chicago, Los Angeles, Palo Alto, and Aventura, Fl. As of June 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. On October 8, 2021, Valley acquired Arizona-based
Dudley 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 as DV 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 of Dudley 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, the U.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 or Federal 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 of September 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 of September 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 at September 30, 2021 as compared to $361 million, or 1.1
percent of total loans at December 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
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advances and long-term repos, as well as our prepayments of $534 million and $248 million of long-term FHLB borrowings in December 2020 and June 2021, respectively; and



•a $27.4 million decrease in our provision for credit losses mainly due to the
improved economic forecast component of the reserve as compared to September 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 $3.5 million increase in income tax expense mainly due to higher income before income taxes.



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.



The Federal Reserve continued to maintain an accommodative stance on monetary
policy to keep interest rates low and promote liquidity. At their meeting in
September 2021, the Federal 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
purchasing U.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-year U.S. Treasury note yield ended the third quarter at 1.52 percent, 7
basis points higher, as compared with June 30, 2021. The spread between the 2-
and 10-year U.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 to June 30, 2020.

For all commercial banks in the U.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 at September 30,
2021 from June 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 at September 30, 2021 from $31.1 billion at June 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
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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 at September 30, 2021 as compared to June 30,
2021. Non-accrual loans increased $31.8 million to $251.8 million at
September 30, 2021 as compared to June 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 of
September 30, 2021. Non-accrual loans represented 0.77 percent of total loans at
September 30, 2021, as compared to 0.68 percent at June 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, at September 30, 2021 as compared to $80.2 million, or 0.25 percent
of total loans, at June 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 of September 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 at September 30, 2021 from June 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 at
September 30, 2021 as compared to $2.0 billion at June 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 of September 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 at September 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 late June 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 late May
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 at September 30, 2021 as compared to June 30, 2021 largely due to
repayments of FHLB advances. Long-term borrowings decreased by $458.2 million to
$1.4 billion at September 30, 2021 as compared to June 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.
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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 with U.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.




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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.

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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 in June 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.
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The following table reflects the components of net interest income for the three months ended September 30, 2021, June 30, 2021 and September 30, 2020:

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