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Business Combinations | 12 Months Ended
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Dec. 31, 2025
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract] |
Business Combinations | Business Combinations Lakeland Bancorp, Inc. Merger Agreement On May 16, 2024, the Company completed its merger with Lakeland Bancorp, Inc. ("Lakeland"), which added $10.59 billion to total assets, $7.91 billion to total loans, $8.62 billion to total deposits and 68 full-service banking offices in New Jersey and New York. The Company closed 13 of the acquired Lakeland banking offices and nine legacy Bank branches in the third quarter of 2024 due to geographic overlap. Under the merger agreement, each share of Lakeland common stock was converted into the right to receive 0.8319 shares of the Company's common stock, a total of 54,356,954 shares converted, plus cash in lieu of fractional shares. The total consideration paid for the acquisition of Lakeland was $876.8 million. In connection with the acquisition, Lakeland Bank, a wholly owned subsidiary of Lakeland, was merged with and into the Bank. The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired initially totaled $190.9 million and was recorded as goodwill. In accordance with ASC 805, the Company recorded a measurement period adjustment and decreased goodwill by $10.5 million related to finalizing the valuation. After this adjustment, goodwill totaled $180.4 million. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the merger date, net of cash consideration paid (in thousands):
|  | As of May 16, 2024
Assets acquired: |  |
Cash and cash equivalents, net |  | $ | 194,548 |
Available for sale debt securities |  | 1,585,993 |
Federal Home Loan Bank stock |  | 46,113 |
Loans held for sale |  | 1,494 |
Loans held for investment |  | 7,906,326 |
Allowance for credit losses on PCD loans |  | (17,188) |
Loans, net |  | 7,889,138 |
Bank-owned life insurance |  | 160,646 |
Banking premises and equipment |  | 60,578 |
Accrued interest receivable |  | 27,241 |
Goodwill |  | 180,446 |
Other intangibles assets |  | 209,915 |
Other assets |  | 236,481 |
Total assets acquired |  | $ | 10,592,593 |
Liabilities assumed: |  |
Deposits |  | $ | 8,622,924 |
Mortgage escrow deposits |  | 5,532 |
Borrowed funds |  | 785,927 |
Subordinated debentures |  | 166,366 |
Other liabilities |  | 135,066 |
Total liabilities assumed |  | $ | 9,715,815 |
Net assets acquired |  | $ | 876,779 |
The Company finalized its review of the acquired assets and liabilities, as a result of which certain adjustments to the recorded carrying values and goodwill were made. Fair Value Measurement of Assets Assumed and Liabilities Assumed The methods used to determine the fair value of the assets acquired and liabilities assumed in the Lakeland acquisition were as follows: Securities Available for Sale The estimated fair values of the available for sale debt securities, primarily comprised of U.S. government agency mortgage-backed securities and U.S. government agency and municipal bonds carried on Lakeland's balance sheet was confirmed using open market pricing provided by multiple independent securities brokers. Management reviewed trade prices and open market quotes used in pricing the securities and a fair value discount of $249.7 million was recorded on the investments. Loans Loans acquired from Lakeland were recorded at fair value, and there was no carryover related allowance for loan and lease losses. The fair values of loans acquired from Lakeland were estimated using the discounted cash flow method based on the remaining maturity and repricing terms. Monthly principal and interest cash flows, adjusted for prepayments, were then discounted to present value using a discount rate based on the relative risk of the cash flows. A qualitative adjustment for expected credit losses was also applied to these discounted cash flows to arrive at the calculated fair value of the loans. The fair value of the acquired loans, not including allowance for credit losses on PCD loans, totaled $7.91 billion. For loans acquired without evidence of more-than-insignificant deterioration in credit quality since origination ("Non-PCD" loans), the Company recorded interest rate loan fair value and credit fair value adjustments. Loans were grouped into pools based on similar characteristics, such as loan type, fixed or adjustable interest rates, payment type, index rate and caps/floors, and non-accrual status. The loans were valued at the sub-pool level and were pooled at the summary level based on loan type. Market rates for similar loans were obtained from various internal and external data sources and reviewed by management for reasonableness. The average of these market rates was used as the fair value interest rate that a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value discount of $297.2 million. The Company used historical annual average charge-off percentages for banking institutions identified as peers of the Company and Lakeland combined as a market-participant proxy to develop the life-of-loan loss rates per loan type for the Non-PCD loans. The loss rates were then applied to the principal balance to arrive at the projected credit losses for each period, which resulted in a credit fair value discount of $82.4 million. Loans acquired that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans. The Company evaluated acquired loans for deterioration in credit quality based on any of, but not limited to, the following: (1) non-accrual status; (2) modifications for borrowers experiencing financial difficulty; (3) risk ratings of watch, special mention, substandard or doubtful; and (4) loans greater than 59 days past due. At the acquisition date, an estimate of expected credit losses was made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This estimate of credit losses was calculated using management's best estimate of projected losses over the remaining life of the loans. This represents the portion of the loan balances that has been deemed uncollectible based on the Company’s expectations of future cash flows for each respective PCD loan pool. The expected lifetime losses were calculated using historical losses observed at the Bank, Lakeland and peer banks. A $17.2 million allowance for credit losses was recorded on PCD loans. The interest rate fair value adjustment related to PCD loans will be substantially recognized as interest income on a level yield amortization or straight line method over the expected life of the loans. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present the fair value of the loans acquired (in thousands):
Gross amortized cost basis as of May 16, 2024 |  | $ | 8,323,589 |
Interest rate fair value adjustment on all loans |  | (330,540) |
Credit fair value adjustment on non-PCD loans |  | (82,359) |
Charge-offs on PCD Loans at acquisition |  | (4,364) |
Allowance for credit losses on PCD loans |  | (17,188) |
Fair value of acquired loans, net, as of May 16, 2024 |  | $ | 7,889,138 |
The table below is a summary of the PCD loans that were acquired from Lakeland as of the closing date (in thousands):
Gross amortized cost basis as of May 16, 2024 |  | $ | 564,147 |
Charge-offs on PCD Loans at acquisition |  | (4,364) |
Interest component of expected cash flows (accretable difference) |  | (33,365) |
Allowance for credit losses on PCD loans |  | (17,188) |
Net PCD loans |  | $ | 509,230 |
Banking Premises and Equipment The Company acquired 68 branches from Lakeland, 29 of which were owned premises. The Company closed 13 of the acquired banking offices in the third quarter of 2024. The fair value of Lakeland’s premises was determined based upon independent third-party appraisals performed by licensed appraisers in the market in which the premises are located. Core Deposit Intangible The fair value of the core deposit intangible was measured using a discounted cash flow approach by comparing the all-in cost of less rate sensitive deposits against an alternative funding source. The discounted cash flow approach is used because there is no reliable market participant data to support a market approach nor is there an effective measure to utilize the cost approach. To calculate the value of core deposits, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources by using an average of FHLBNY advance rates and brokered CD rates as disclosed by market sources. The projected cash flows were developed using projected deposit attrition rates. The discount rate was calculated using the Capital Assets Pricing Model. The core deposit intangible totaled $209.2 million and is being amortized over its estimated life of approximately 10 years based on dollar weighted deposit runoff on an annualized basis. The core deposit intangible is evaluated annually for impairment. Goodwill As noted above, the acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired was recorded as goodwill, and initially totaled $190.9 million. ASC 805 provides for a period of time during which the acquirer may adjust provisional amounts recognized at the acquisition date to their subsequently determined acquisition-date fair values, referred to as the "measurement period." Adjustments during the measurement period are not limited to just those relating to assets acquired and liabilities assumed but apply to all aspects of business combination accounting (e.g., the consideration transferred). Measurement-period adjustments are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. Prior period information is not revised, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. In accordance with ASC 805, the Company recorded a measurement period adjustment which decreased goodwill by $10.5 million to $180.4 million related to finalizing the valuation of subordinated debentures and taxes. Goodwill is not deductible for tax purposes and will be evaluated annually for impairment. Bank Owned Life Insurance ("BOLI") Lakeland's BOLI cash surrender value was $160.6 million with no fair value adjustment required. Time Deposits The fair value adjustment for time deposits represents a discount from the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit discount of approximately $1.2 million is being amortized into income on a straight-line method over the contractual life of the deposits. Borrowings The fair value of FHLBNY advances was determined based on a discounted cash flow analysis using a discount rate derived from FHLBNY rates as of May 16, 2024. The cash flows of the advances were projected based on the scheduled payments of each advance. The borrowings discount of approximately $5.1 million is being amortized into income on a straight-line method over the contractual life of the borrowings. Subordinated Debentures At the valuation date, Lakeland had three outstanding trust preferred issuances and a subordinated debt issuance with an initial aggregate balance of $180.2 million, all of which was assumed by the Company on May 16, 2024. The fair value of trust preferred and subordinated debt issuances was determined based on a discounted cash flow analysis using a discount rate commensurate with yields and terms of comparable issuances. The valuation was based on the probability of paying cash flows through the remaining contractual term of the trust preferred issuance and the cash flows through the exercise of the call option date. In accordance with ASC 805, the Company recorded a measurement period adjustment which decreased subordinated debt by $13.8 million to $166.4 million, related to finalizing the valuation. related to finalizing the valuation of subordinated debentures. Merger-Related Expenses While there were no transaction costs related to our merger with Lakeland for the 2025 period, these costs totaled $56.9 million for the respective 2024 period. Merger-related expense is a separate line in non-interest expense on the Consolidated Statements of Income. Additionally, an initial CECL provision for credit losses of $60.1 million was recorded as part of the Lakeland merger, for the year ended December 31, 2024.

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