A Letter to Shareholders

Published on Apr 11, 2022

A Letter to Shareholders

When I became Valley’s CEO just over four years ago, I challenged my colleagues to embark on a journey with me – a journey of transformation to build upon Valley’s historic legacy to become the bank we want and need to be.

Transformation is necessary for any business to grow and succeed. Customers, whether they have a personal checking account or a $50 million commercial loan, all rely on us to evolve to meet their ever- changing needs. Over the past four years, transformation has been a key component of our growth strategy.

We’ve made tremendous strides in our evolution to establish our expertise in a highly competitive industry while redefining what community banking means. Historically, community banking was just as it sounded – banks and bankers embedded in local towns and cities providing a wide range of services. That hasn’t gone away entirely – but it has evolved. We no longer think of communities solely based on geography. We identify communities based on people’s needs, behaviors and interests. This mindset has enabled us to think beyond our traditional geographic footprint and position us on a national stage, where we can deliver relevant products and services directly to our customers – no matter where they are.

As a result, the Valley of today is a much stronger commercial bank with record financial performance and strong growth. We have expanded our delivery channels to meet the evolving needs of our clients. We have delved into unique service line niches, such as national deposits, tax credit investment advisory services and cannabis-related business banking. The acquisitions of The Westchester Bank in December 2021 and Bank Leumi USA in April 2022 have further expanded our footprint, diversified our niche commercial lending segments, and positioned us to be a premier full-service commercial bank with operations across the country.

As we move into the second quarter of 2022, I’m proud to report that we have evolved into a high-performing, change-driven growth organization. We are one of the largest regional banks in the country, with assets above $50 billion including the recently completed acquisition of Bank Leumi USA.

A year of exceptional performance 

We welcomed 2021 with a sense of hope that we were putting one of the hardest years of our lives behind us. But as we learned, COVID-19 was not finished with us and continued to provide challenges. While the lingering effects of a prolonged pandemic may have derailed other organizations, we accelerated our efforts to create a better banking experience and build deeper relationships with our customers.

In many ways our performance in 2021 showed how strong we are together. It was a year where we took a momentous step forward by rethinking the way we operate and embracing our way forward to remain relevant in a rapidly changing world. These results reflect the strength of the foundation we’ve built, the confidence we’ve placed in our strategy and the talents and abilities of our associates.

“As we move into the second quarter of 2022, I’m proud to report that we have evolved into a high-performing, change-driven growth organization.”

Premier Financial Performance

During the year, we generated significant organic loan growth, exhibited strong credit performance, and continued to enhance our core funding base. These efforts resulted in considerable growth in net income and diluted earnings per share, as well as a meaningful improvement in our profitability metrics. Total revenue of $1.4 billion and net income of $474 million represent new records for Valley. Our return on average assets improved to 1.14 percent from 0.96 percent in 2020. Book value per common share and tangible book value per common share increased by approximately 7 percent and 10 percent to $11.57 and $7.94, respectively, in 2021 as compared to 2020.

We continued to transform our funding base in 2021 with a key focus on low-cost core deposit generation, particularly from our commercial clients. Total deposits increased nearly 12 percent to

$35.6 billion during the year, inclusive of approximately $1.2 billion of deposits acquired from The Westchester Bank in December. This growth was driven by non-interest bearing and low-cost transaction accounts which comprised 33 percent and 57 percent of our deposit base at December 31, 2021, respectively, up from 29 percent and 50 percent a year ago. Strong growth in these core accounts was partially offset by a 45 percent reduction in CD balances. This transition largely contributed to our strong net interest margin performance during the year and helped fuel our strong results.

Total loans increased approximately 6 percent in 2021, with outstanding balances of $34.2 billion at year end, despite a $1.7 billion decline in SBA Paycheck Protection Program (PPP) loans caused by loan forgiveness throughout the year. This decline was only partially offset by $915 million in acquired loans from The Westchester Bank. Organic growth was primarily from commercial sources but was well-diversified across geographies.

Valley’s credit performance in 2021 continued to reflect its conservative underwriting standards . Non-accrual loans as a percentage of total loans were 0.70 percent at December 31, 2021. Since 2020, to help our customers navigate the COVID-19 pandemic, we have granted payment deferrals on approximately $4.6 billion of loans, including approximately $640 million to retail customers. As of December 31, 2021, loans in active deferral had declined to just $28 million. We feel very good about the outlook for continued organic loan growth and credit performance.

We increased our net interest income by more than 8 percent in 2021. This improvement was driven by strong loan growth, a continued reduction in interest expense, and the benefits of PPP income recognized throughout the year. Net interest margin on a tax- equivalent basis increased to 3.17 percent in 2021 as compared to

3.03 percent in 2020. This reflected a meaningful improvement in our funding costs resulting from the ongoing deposit transformation mentioned above.

For the year ended December 31, 2021, our efficiency ratio of 50.7 percent was an improvement of over 6 percent from the 56.8 percent reported two years ago and reflects the progress we have made at Valley. We remain focused on generating positive operating leverage by producing a meaningful balance sheet and revenue growth.

The various financial components described above added up to a very successful year for Valley. Our 2021 earnings per diluted common share of $1.12 were up over 20 percent from 2020. Our enhanced earnings power has contributed to strong growth in our capital ratios. At December 31, 2021, our total risk-based capital ratio was 13.10 percent, up from 12.64 percent a year ago. We continue to be well-capitalized and ready to execute on our strategic and growth initiatives going forward.

Taking a different approach to banking

We’ve been committed to fostering a customer-centric culture focused on designing a better banking experience. That means designing new digital channels that allow our customers to bank where and when they want.

In 2021, we also focused on developing more diverse financial services that go far beyond the traditional offerings of a local community bank. We created a National Deposits Group to attract and service core deposit banking relationships across the entire country. This group partners with businesses to help them meet their short-term liquidity needs, specializing in sourcing deposits from select industries.

We also launched our Cannabis Related Banking Program, which provides much-needed, national financial services for cannabis businesses. As part of this program, we created Valley Pay – an innovative new digital payment platform designed specifically for cannabis-related businesses. This application will allow cannabis- related businesses to provide their customers access to a compliant, secure and streamlined mobile wallet payment system. This is one of the first payment systems of its kind serving this growing industry.

Expanding our franchise

We announced the acquisition of The Westchester Bank in June 2021 and completed the acquisition in December 2021. The Westchester Bank was the largest independent commercial bank headquartered in Westchester County, New York with total assets of $1.4 billion and filled a geographic gap within Valley’s metro New York franchise. We anticipate that the Westchester team will meaningfully enhance our presence and our growth opportunities within this densely populated, affluent, and commercially active market.

In September 2021, we announced the merger with Bank Leumi USA, an $8.3 billion premier commercial bank with diverse commercial capabilities. We closed this acquisition on April 1, 2022. As a result of the Bank Leumi USA acquisition, we now operate five commercial offices in New York, Los Angeles, Palo Alto, Chicago, and the Miami area and provide full-service relationship banking for middle-market commercial clients and private banking services for high net-worth individuals. We believe that Bank Leumi USA’s unique deposit verticals, including the technology and venture capital business, will continue to drive the significant funding improvement that we have generated during the last few years. On the lending side, the Bank Leumi USA acquisition will diversify our niche commercial lending segments. We are also eager to scale Bank Leumi USA’s private banking platform across Valley’s larger customer base and footprint. Leveraging these new and distinct platforms, geographies and business segments will allow us to embark on the next exciting phase of our evolution to become one of the premier full-service commercial banks in the country.

Our people make it possible

Our associates are the strength of our company. They are innovators and changemakers. And our performance speaks volumes about how our organization has changed over the past few years.

Our leaders and associates are committed to growing our culture of inclusion and championing engagement with our customers and stakeholders. Our Diversity, Equity and Inclusion (DEI) initiatives and programs center on providing greater access to the benefits Valley offers to associates, customers and to the communities we serve. This includes growing our six Associate Resource Groups (ARGs) and their signature programs, including the ARG Financial Empowerment Roundtable Series and ARG Mentorship Program, both of which were launched last year.

Our associates are the strength of our company. They are innovators and changemakers. And our performance speaks volumes about how our organization has changed over the past few years.

We will continue to increase the inclusion acumen of our associates through our three-pronged DEI education program, which includes weekly microlessons, live sessions and individual courses. Finally, we will continue to build out our DEI Governance Framework to enhance our ability to bring new ideas to the table, raise new questions, innovate our practices and products, and strengthen our connections with our communities. This structure includes the DEI Leadership Advisory Council, which I chair, and which benefits from the participation of other Valley executive leaders.

Our support for the community has never been more important

While giving back to the community has always been a priority at Valley, the events of the past few years have reminded us all how important our role is and demonstrated the impact a bank can have on the communities it serves. In everything we do, we’re helping our customers in the moments where their lives, work and passions intersect with their financial journeys.

Our associates are passionate about the causes we support and the impact we are making every day. In 2021, we reaffirmed our commitment to support our four Corporate Social Responsibility pillars:

We endeavor to contribute our time, talent and financial support in the hope of creating more opportunities for the people and communities we serve. That includes being more proactive in how we approach our environmental, social and governance (ESG) strategy. In 2020, we created our ESG Council to bring together different perspectives from all lines of business across the organization to strengthen and give direction to our ESG efforts going forward. An important goal of the ESG Council is to expand throughout our organization a recognition of the impact of climate change while collaborating on opportunities to mitigate its effects.

We were proud to release our first annual ESG Report in December 2021, which highlights our plans, progress and environmental impact. I encourage you to read all about how we are making an impact at www.valley.com/ESG. As we move forward as an organization, continuing to grow our ESG efforts will be a critical part of everything we do.

Our vision for the future

We have reached an inflection point in our journey. We are now a bank with over $50 billion in assets. This is a momentous milestone for our bank.

When I started my banking career nearly 25 years ago, there were more than 10,000 chartered banks in the United States. Today, less than half that number remain. Much of the contraction in our industry can be attributed directly to the inability and unwillingness of many banks to evolve their culture, technology and customer experience. They were complacent in the present while others had their eyes on the future. We cannot and will not make that same mistake.

That’s why we are accelerating our transformation to ensure that the Valley of tomorrow is a service-driven, high-performing premier commercial bank. We are evolving by harnessing the talents and expertise of our people and transforming our branch network into advisory hubs. We are leveraging scale for sustainable growth and differentiating ourselves from competitors through the value of our diversified business model.

By building on the foundational pillars we established four years ago, I believe that we are well positioned to determine our own future and thrive in this new era. While our strategy involves constant change, our mission, purpose, and values remain constant.

We are committed to giving people and businesses the power to succeed

The last few years have tested us. I’m proud to say that Valley has emerged from these challenges stronger than ever. And I couldn’t be more excited about our way forward.

On behalf of our Board of Directors, executive leadership team and all Valley associates, thank you for your continued trust and confidence in us.



Ira Robbins
CEO of Valley Bank



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