KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Wayne, 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 rat- ings is Stable.

Key Credit Considerations

The ratings are supported by VLY’s durable and robust retail deposit franchise. While the company has experienced elevated funding pressures that have pushed deposit costs above peer averages (VLY reported total cost of deposits of 1.96% for 1Q23), its core retail deposit base is rather granular in nature and comprised roughly 67% of total deposits at 1Q23, limiting the risk to measurable, short-term deposit runoff. Furthermore, VLY had total primary and secondary liquidity sources of $20.2 billion at 1Q23, giving the company sufficient coverage (1.4x) of its rather moderate level of uninsured deposits ($14.9 billion, or 31% of total deposits). The ratings are further supported by the company’s long-term track record of sound credit, including largely outperforming industry standards through the Global Financial Crisis. More recently, credit costs have been sustained at or below peer levels with provisions for loan losses tracking below 10 bps of average assets over a multi-year period.

Somewhat counterbalancing ratings strengths is the company’s below rated peer average earnings stemming from its greater reliance on spread-based revenues (noninterest income has generally totaled 0.4% of average assets, or 10% - 15% of total revenues) and a NIM under pressure from the previously noted higher cost funding profile. Additionally, VLY has consistently operated with lower capital ratios, particularly risk-based measures that have trend- ed roughly +200 bps below rated peer averages. That said, given the company’s larger concentration in lower-risk multi-family loans and its historical track record with credit, KBRA considers VLY’s capital position to be adequate.

Rating Sensitivities

The Stable Outlook indicates KBRA's view that a change to VLY's ratings is unlikely over the medium term. However, should capital ratios deteriorate any further from current levels, or funding pressures coupled with materially higher credit costs threaten the profitability of the company, a negative rating action would likely occur.

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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.

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