KBRA assigns a preferred stock rating of BBB-, as well as affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Morristown, New Jersey based Valley National Bancorp (NASDAQ: VLY) (“the company”). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for lead subsidiary, Valley National Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by VLY’s long term track record with regard to credit quality performance. While KBRA recognizes certain risks within the company's current loan portfolio, more specifically, an elevated concentration in CRE (+440% of risk-based capital), VLY has historically outperformed the industry through various credit cycles, including the GFC when VLY’s NCO ratio peaked at 0.5% in 2011. With regards to VLY's CRE concentration, the company’s exposure to NYC rent regulated multi-family was moderate as of 1Q24, with around $600 million (~1% of total loans) in loans for properties that had more than 50% in rent regulated units, while office exposure was rather manageable at 7% of total loans. While VLY has experienced some credit migration within the loan portfolio with total criticized/classified loans increasing to over 5% of total loans at 2Q24, this is partially due to recent changes in the company's views towards certain risk mitigation factors that resulted in credit downgrades in 2Q24. Furthermore, KBRA has a favorable view of the company’s regional diversification with its meaningful presence in the Southeast (VLY had nearly $10 billion in deposits from its Florida and Alabama markets), complementing its legacy markets in the New York/New Jersey region.

Earnings have consistently tracked below rated peer averages, including an operating ROA that has fallen to 0.6% in 1H24, driven by NIM compression related to funding pressures, modestly higher credit costs (0.4% of average assets in 1H24) and limited fee-based revenues (~0.4% of average assets). However, while deposit costs were elevated (3.18% total cost of deposits for 2Q24), in part, due to the competitive dynamics in regions where the company operates in (namely New York/New Jersey), VLY maintained a rather robust retail deposit operation, complemented by various specialty deposit business lines that have proven to be comparatively durable with no material deposit runoff incurred following the highly publicized bank failures in 1Q23. VLY has consistently maintained below peer capital levels, including a CET1 ratio that has recently tracked between 9% - 9.5%. That said, the company has committed to management of higher capital ratios, including a CET1 ratio near 10% by YE24 (VLY reported a CET1 ratio of 9.6% at 2Q24). Moreover, the company has de-emphasized CRE loan growth, which, coupled with management of higher capital, is intended to reduce its CRE concentration levels to below 400% over the next 1 – 2 years.

Rating Sensitivities

The Stable Outlook reflects KBRA's view that a rating change is unlikely in the medium term. However, deterioration in asset quality with credit costs tracking above expectations, coupled with continued earnings headwinds that lead to diminished profitability, or a measurable increase in wholesale funding usage brought on by unexpected deposit runoff could result in negative rating action.

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Methodologies

• Financial Institutions: Bank & Bank Holding Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1005280

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