Business Combinations

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Business Combinations

BUSINESS COMBINATIONS (Note 2)

Acquisitions

The Westchester Bank Holding Corporation

On December 1, 2021, Valley completed its acquisition of The Westchester Bank Holding Corporation (Westchester) and its principal subsidiary, The Westchester Bank which was headquartered in White Plains, New York. As of December 1, 2021, Westchester had approximately $1.4 billion in assets, $915.0 million in loans, and $1.2 billion in deposits, after purchase accounting adjustments, and a branch network of seven locations in Westchester County, New York. The common shareholders of Westchester received 229.645 shares of Valley common stock for each Westchester share they owned prior to the merger. The total consideration for the merger was $211.1 million, consisting of approximately 15.7 million shares of Valley common stock.

The transaction was accounted for under the acquisition method of accounting and accordingly the results of Westchester's operations have been included in Valley's consolidated financial statements for the year ended December 31, 2021 from the date of acquisition.

The following table sets forth assets acquired, and liabilities assumed in the Westchester acquisition, at their estimated fair values as of the closing date of the transaction:

	December 1, 2021
	($ in thousands)
Assets acquired:
Cash and cash equivalents	$	332,221
Held to maturity debt securities	9,197
Loans, net	908,023
Premises and equipment	1,356
Right of use asset	5,873
Bank owned life insurance	28,756
Accrued interest receivable	2,179
Goodwill	63,469
Other intangible assets	8,130
Other assets	22,861
Total assets acquired	$	1,382,065
Liabilities assumed:
Deposits:
Non-interest bearing	$	434,780
Savings, NOW and money market	636,569
Time deposits	90,635
Total deposits	1,161,984
Lease liabilities	5,873
Accrued expense and other liabilities	3,074
Total liabilities assumed	$	1,170,931
Common stock issued in acquisition	$	211,134

The determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available.

Fair Value Measurement of Assets Acquired and Liabilities Assumed

Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in Westchester acquisition.

Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Investment securities. The investment securities acquired from Westchester were classified as held to maturity debt securities based on Valley's intent at the acquisition date. The estimated fair values of the investment securities were calculated utilizing Level 2 inputs similar to the valuation techniques used for Valley's investment portfolios detailed in Note 3.

Loans. The acquired loan portfolio was recorded at its estimated value based on a discounted cash flow methodology. The acquired loan portfolio was segregated into categories for valuation purposes primarily based on loan type (commercial and industrial, commercial real estate, multifamily, construction, home equity and other consumer) and credit risk rating. The estimated fair value incorporates adjustments related to market loss assumptions and prevailing market interest rates for comparable assets and other market factors such as liquidity from the perspective of a market participant. Management estimated the cash flows expected to be collected at the acquisition date by using valuation models that incorporated loan contractual characteristics (such as payment type, amortization type, and term to maturity) as well as estimates of key valuation assumptions (such as prepayment speeds, default rates, and loss severity rates). The expected cash flows from the acquired loan

portfolios were discounted to present value based on estimated market rates. The market rates were estimated using a buildup approach based on the following components: funding cost, servicing cost, and consideration of liquidity premium. In addition, coupon rates for recently originated loans and available market data regarding origination rates were also considered in the analysis. The methods used to estimate the Level 3 fair values of loans are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Also, acquired portfolio loans and leases were evaluated upon acquisition and classified as either PCD, which indicates that the loan has experienced a more-than-insignificant deterioration in credit quality since origination, or non-PCD. Valley considered a variety of factors in evaluating the acquired loans for a more-than-insignificant deterioration in credit quality, including but not limited to risk grades, delinquency, non-performing status, current or previous troubled debt restructurings, watch list credits and other qualitative factors that indicated a deterioration in credit quality since origination.

For PCD loans, an initial allowance was determined based on Valley’s CECL methodology and was added to the acquisition date fair value of each PCD loan to establish its initial amortized cost basis. The difference between the unpaid principal balance of loans and the calculated amortized cost basis resulted in a net non-credit discount totaling $8.5 million. The net discount is expected be accreted into interest income on a level-yield method over an average contractual life of the loans totaling 8 years.

The following table provides a reconciliation of the difference between the purchase price and the par value of the PCD loans acquired from Westchester:

	December 1, 2021
	($ in thousands)
Purchase price of PCD loans	$	346,883
Allowance for credit losses at acquisition	6,542
Non-credit discount at acquisition	8,457
Par value of acquired PCD loans	$	361,882

Other intangible assets. Other intangible assets consisting of core deposit intangibles (CDI) are measures of the value of non-maturity checking, savings, NOW and money market customer deposits that are acquired in a business combination. The fair value for CDI was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the interest costs associated with the customer deposits. The CDI is amortized over an estimated useful life of 10 years to approximate the existing deposit relationships acquired.

Deposits. The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing accounts and savings, NOW and money market accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities.

Dudley Ventures

On October 8, 2021, Valley acquired certain subsidiaries of Arizona-based Dudley Ventures (DV), an advisory firm specializing in the investment and management of tax credits. The transaction included the acquisition of DV Fund Advisors and DV Advisory Services which were both subsequently merged and renamed Dudley Ventures, as well as DV's community development entity, DV Community Investment. The transaction price included $11.3 million of cash at the closing date and fixed future stock consideration totaling $3.8 million. On November 16, 2021, Valley also acquired DV Financial Services, a registered broker-dealer regulated by FINRA, which is largely inactive. Goodwill and other intangible assets related to the acquired DV entities totaled $13.1 million and $2.1 million, respectively. See Note 8 for further details.

Oritani Financial Corp.

On December 1, 2019, Valley completed its acquisition of Oritani Financial Corp. (Oritani) and its wholly-owned subsidiary, Oritani Bank. Oritani had approximately $4.3 billion in assets, $3.4 billion in net loans and $2.9 billion in deposits, after purchase accounting adjustments, and a branch network of 26 locations. The common shareholders of Oritani received 1.60 shares of Valley common stock for each Oritani share that they owned prior to the merger. The total consideration for the acquisition was approximately $835.3 million, consisting of 71.1 million shares of Valley common stock and the outstanding Oritani stock-based awards.

During 2020, Valley revised the estimated fair values of the acquired assets as of the Oritani acquisition date due to additional information obtained that existed as of December 1, 2019. The adjustments mostly related to the fair value of certain loans, current taxes payable and the valuation of deferred tax assets as of the acquisition date. These adjustments resulted in an $8.8 million increase in goodwill (see Note 8 for amount of goodwill as allocated to Valley's business segments).

Had the acquisition of Oritani taken place in the beginning of 2019. Valley’s revenues (defined as the sum of net interest income and non-interest income), net income, basic earnings per share, and diluted earnings per share would have equaled the amounts indicated in the following table for the year ended December 31, 2019:

	2019
(in thousands, except per share data)	Unaudited
Revenues	$	1,219,887
Net income	361,079
Basic earnings per share	0.86
Diluted earnings per share	0.85

Pending Acquisition (Unaudited)

Bank Leumi Le-Israel Corporation

On September 23, 2021, Valley announced that it will acquire Bank Leumi Le-Israel Corporation, the U.S. subsidiary of Bank Leumi Le-Israel B.M., and parent company of Bank Leumi USA, and collectively referred to as "Bank Leumi USA". Bank Leumi USA maintains its headquarters in New York City and also has commercial banking offices in Chicago, Los Angeles, Palo Alto, and Aventura, Florida. As of December 31, 2021, Bank Leumi USA had total assets of $8.3 billion, total deposits of $7.1 billion, and gross loans of $5.7 billion. The common stockholders of Bank Leumi USA will receive 3.8025 shares of Valley common stock and $5.08 in cash (subject to specified adjustments) for each Bank Leumi USA common share they own. Based on Valley’s closing stock price on December 31, 2021, the transaction is valued at an estimated $1.2 billion, inclusive of the value of options and upon completion of the acquisition, Bank Leumi Le-Israel B.M. will own approximately 14 percent of Valley's common stock. Valley has received regulatory approval from the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency, as well as Valley shareholder approval of the issuance of Valley common stock in connection with the acquisition. The acquisition remains subject to regulatory approval by the New York State Department of Financial Services, as well as other customary closing conditions. The acquisition is anticipated to close in the second quarter 2022.

Merger expenses for all Valley acquisition related activities totaled $8.9 million, $1.9 million and $16.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. The merger expenses mainly consisted of salary and employee benefits, as well as professional and legal, net occupancy and equipment, and other expenses included in non-interest expense on the consolidated statements of income.