New York-based Valley National Bancorp will diversify its business mix and add low-cost deposits with its deal for Bank Leumi Le-Israel Corp. and its operating unit Bank Leumi USA, executives said on a call to discuss the transaction.

The Israeli-owned bank will provide venture capital and private banking platforms that can reduce Valley's concentration on commercial real estate. In an investor presentation, Valley said the target's technology and venture capital banking business includes $1.9 billion of deposits at a cost of 3 basis points, and its private banking business will deliver another $1.8 billion of low-cost deposits, with both operations generating significant fee revenue. Leumi USA operates five branches in major business hubs around the U.S., with its New York office accounting for $4.1 billion of its $7.1 billion of deposits.

Bank Leumi le- Israel B.M., the Israeli parent, will own about 14% of Valley's stock after completion, and Valley CFO Michael Hagedorn said the two firms "will remain close partners for some time," including an agreement under which Valley will be able to originate larger loans and sell participations to the Israeli company. "We also expect to be the bank of choice for Leumi's Israeli clients in the U.S.," Hagedorn added.

Valley Chairman, President and CEO Ira Robbins said the Israeli parent has a 50% share of the tech banking market in its home country and that the "pipeline of Israeli technology companies migrating to the U.S. has provided a differentiated opportunity set for" the U.S. operation.

In a news release, Hanan Friedman, the CEO of the Israeli parent, said the deal would "deepen and expand" his company's exposure in the U.S., providing it with "unprecedented presence and market access for an Israeli bank."

"This acquisition is focused on business capabilities as opposed to geographic expansion," Robbins said. Thomas Iadanza, Valley's chief banking officer, also said that the deal will help lift the banks's average deposits per branch to 30% above the peer median, and that Valley "will continue to identify opportunities to improve these metrics and remain ahead of the pack."

Valley, which has among the highest CRE concentrations in the country, said the combination will reduce the representation of CRE loans in its loan portfolio a bit to 37% from 38%. The deal will make it "a less CRE-dependent ... bank on day one," Hagedorn said. "That's an important part of our strategy that we've been talking about for some time."

Valley had reportedly been the leading candidate to buy Leumi USA, and investors seemed to welcome the deal's announcement, with Valley's shares up more than 5% at 12:20 p.m. ET.

Robbins said that he has known Avner Mendelson, president and CEO of Leumi USA, for a long time, and that the two had multiple conversations about a combination. Valley said it expects Mendelson to join its board as vice chairman.

Valley said it agreed to pay about $1.15 billion, or 1.3x tangible book, for the acquisition. That compares with a valuation for Leumi USA of about $1 billion when two private equity firms bought a 15% stake in it in 2018.

Valley projected earnings accretion of 7% and a tangible book value dilution earn-back of about one year.

Valley has bought a string of banks over the last 15 years, including a pending deal for Westchester Bank Holding Corp.

Robbins said that Valley has assembled a platform capable of producing strong organic growth, but that "M&A will likely always be a component of who we are."

"The world is changing. The external environment is shifting dramatically," he said. "If we're not at the forefront as to how we think about creating and diversifying business lines to really capitalize on that growth, then I think we're doing our shareholders a disservice."