KBRA Affirms Ratings for Valley National Bancorp

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, the preferred stock 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 broad retail branch network (over 200 branches spread across four primary states) which includes a well-established presence in the Southeast (namely Florida), as well as its legacy markets in the New York/New Jersey region, providing the company with meaningful regional diversification, complementing its various commercial banking segments. While deposit costs remained comparatively elevated (2.67% for 2Q25), in part, due to the competitive markets the company operates, VLY’s robust retail deposit operation has proven to be rather durable. The company’s funding profile is further supported by its specialty deposit segments which have experienced significant growth in recent quarters (9% through 1H25). The company's earnings, which remain rather spread reliant (generally 85% - 90% of total revenues are spread based), markedly improved throughout 1H25, driven by favorable NIM trends and lower credit costs (provisions for credit losses were at 0.33% of average assets through 1H25 as compared to 0.50% in 2024).

VLY reported deterioration in credit quality throughout 2024, with its NCO ratio increasing to an above-peer average 0.4% in 2024, with the bulk of stress coming from its CRE portfolio. With that said, credit trends have largely stabilized with the company reporting more limited negative credit migration through 1H25, with its NCO ratio falling to 0.3% for 1H25. Moreover, VLY has a long-term track record of credit outperformance, including through the GFC when its NCO ratio peaked at 0.5% in 2011. Furthermore, KBRA recognizes VLY’s efforts to meaningfully reduce its CRE concentration (~350% at 2Q25 as compared to 474% at YE23). The CRE portfolio is rather well-diversified geographically, with nearly 50% of CRE loans outside the NY/NJ region, including 28% in Florida. VLY's exposure to rent regulated multifamily in the NYC market is considered to be moderate, totaling approximately $0.6 billion, or 1% of total loans at 2Q25 (includes loans to properties with greater than 50% of units rent regulated). Finally, VLY made the strategic decision to strengthen the balance sheet to ensure long-term profitability that included operating with more peer-like capital ratios. As such, VLY has reported a more than 150 bp increase to its risk-based capital measures, including a 10.9% CET1 ratio at 2Q25, in part, buoyed by a common equity raise completed in 4Q24 (net proceeds totaled approximately $449 million).

Rating Sensitivities

The Stable Outlook reflects KBRA's view that a rating change is unlikely in the medium term. However, further 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