Morningstar DBRS Confirms Valley National Bancorp's Long-Term Issuer Rating at A (low); Trend Stable

DBRS, Inc. (Morningstar DBRS) confirmed the credit ratings of Valley National Bancorp (Valley or the Company), including the Company's Long-Term Issuer Rating of A (low). At the same time, Morningstar DBRS confirmed the credit ratings of Valley's banking subsidiary, Valley National Bank (the Bank). The trends for all credit ratings remain Stable. The Intrinsic Assessment (IA) for the Bank is `A,' while its Support Assessment remains SA1, meaning internal support is expected. The Company's Support Assessment is SA3, meaning that timely systemic support is not expected. The Company's Long-Term Issuer Rating is positioned one notch below the Bank's IA.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of Valley's credit ratings and the Stable trend consider the Company's solid relationship-focused banking franchise, including a sizable and entrenched commercial banking business along with a more moderately sized consumer business. Earnings generation is good, spurred by resilient net interest income (NII) contributions and more modest fee-based revenues. Despite its large commercial real estate (CRE) concentration, Valley's risk profile has historically been sound, benefiting from its conservative credit culture. The Company's funding position reflects a solid deposit franchise, while its liquidity profile is ample. Lastly, capitalization is good, reflecting an improved CET1 ratio.

The Company's Intrinsic Assessment of "A" has been assigned at the midpoint of the Intrinsic Assessment Range. Morningstar DBRS views Valley's credit fundamentals and performance as commensurate with those of similarly rated peers.

CREDIT RATING DRIVERS
Over the longer term, sustained improvement in profitability metrics, including a lower reliance on NII while improving the funding profile by attracting lower cost core deposits, would result in a credit ratings upgrade. Conversely, a credit ratings downgrade would result from sustained below-peer profitability levels, a significant deterioration in credit quality, or an inability to maintain funding at a reasonable cost.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Good/Moderate
Established in 1927, Valley is a relationship-focused banking franchise with a strategic geographic footprint within the markets of northern and central New Jersey; Manhattan, Brooklyn, Queens, and Long Island, New York; Florida; California; Illinois; and Alabama. The Company maintains a good-sized commercial banking business along with a more moderately sized consumer business. With assets totalling $61.9 billion (March 31, 2025), the Company has grown through both organic means and acquisitions.

Earnings Combined Building Block Assessment: Good/Moderate
Earnings generation capacity is solid, driven by sound earning asset growth and manageable credit costs. In 2024, loan growth was pressured by the sale of $925 million of performing CRE loans to an unrelated party as well as the sale of Valley's commercial premium finance lending division, which included approximately $300 million of commercial and industrial (C&I) loans. Overall, revenues reflect sound contributions of NII and to a lesser extent, fee-based revenues (12% of total revenues) including revenues generated from wealth management, foreign exchange, and its trust and investment services businesses. In Q1 2025, Valley reported net income of $106.1 million, up 10.2% year-over-year (YOY) from $96.3 million for Q1 2024. Improved quarterly results were driven by solidly higher YOY NII and modestly lower noninterest expense, partially offset by a materially higher but manageable level of provisions for loan losses. These results followed full-year 2024 net income of $380.3 million, down 23.7% YOY, primarily because of an increase in provisions for loan losses. Full-year results reflected a return on average assets of 0.61% (0.82% in 2023) and a return on average equity of 5.51% (7.60%).

Risk Combined Building Block Assessment: Good
Valley's risk position is sound, underpinned by the Company's conservative risk culture. Despite maintaining a substantial CRE loan portfolio, the Company's credit metrics have historically been sound. Importantly, the Company remains focused on de-emphasizing its CRE portfolio (which totaled 59.8% of total loans at March 31, 2025, as compared with 60.8% at December 31, 2024) and emphasizing growth within its C&I loans (up 2.2% in Q1 2025 and up 7.6% in full-year 2024) and high quality automobile financings (up 7.4% in Q1 2025 and up 17.3% in full-year 2024). Within the CRE loan portfolio, Morningstar DBRS views several key attributes as being supportive of the portfolio's historically sound credit profile, including diverse property types and geographies, granularity of exposures, significant equity from borrowers, and sound debt service coverage ratios. On an annualized basis, Valley's net charge-offs (NCOs) represented a very manageable 0.34% of average loans in Q1 2025 and 0.40% in full-year 2024 as compared with 0.13% for full-year 2023. The increase in NCOs in Q1 2025, YOY, primarily reflected higher levels of C&I loans and, to a lesser extent, CRE loans. Levels of Valley's nonperforming assets (NPA) remain manageable, totaling 0.73% of loans on March 31, 2025, as compared with 0.76% at December 31, 2024, and 0.58% on March 31, 2024. Lastly, the Company's allowance for credit losses for loans totaled $594.1 million on March 31, 2025, representing a solid 1.22% of total loans.

Funding and Liquidity Combined Building Block Assessment: Good
Valley's funding profile is sound, reflecting a solid deposit franchise and a loan/deposit ratio of just under 100%. The Company continues to manage down its higher-cost brokered time deposits, while growing its commercial and consumer deposits. As of March 31, 2025, Valley had $23.6 billion of liquidity, including interest-bearing deposits with banks, and available capacity at the Federal Home Loan Bank, the Federal Reserve Bank of New York Discount Window, uncommitted Fed Fund lines, and unencumbered investment securities.

Capitalization Combined Building Block Assessment: Good
Capitalization is acceptable, given the Company's manageable credit costs and resilient earnings generation capacity. At the end of Q1 2025, Valley's CET1 ratio totaled 10.80%, up from 9.34% at the end of Q1 2024. In 2024, Valley augmented its capital position with issuances of both common stock and preferred stock. Going forward, Morningstar DBRS anticipates that Valley will maintain sound capital levels.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/455584.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (May 23, 2025) https://dbrs.morningstar.com/research/454637. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for these credit ratings include Morningstar Inc. and Company documents. Other sources include Morningstar Inc. and Company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

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