NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB+, subordinated debt rating of BBB, and short-term debt rating of K2 to Wayne, New Jersey based Valley National Bancorp (NASDAQ: VLY) (“the company”). Additionally, KBRA assigns deposit and senior unsecured debt ratings of A-, a subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 to lead subsidiary, Valley National Bank. The Outlook for all long-term ratings is Stable.
Ratings are underpinned by VLY’s sound operating model and strategy executed by an experienced management team, which benefits from a longstanding, consistently conservative credit culture. With respect to the latter, VLY’s impressive history of asset quality, including a peak annual NCO ratio of only 0.45% during the financial crisis – a measure that firmly outperformed the vast majority of its peers – is viewed quite favorably, particularly given the recent sharp downturn in economic conditions. Operating in the highly competitive greater NYC market has perpetuated an above average cost of deposits, which along with some appetite for relatively lower-risk, lower-yield loan classes has undoubtedly constrained VLY’s margins, leaving recent earnings below peer averages. Nevertheless, performance has remained rather steady (core ROA of 0.90% - 1.00% since 2018) reflecting a continuation of low credit costs. Somewhat counterbalancing VLY’s credit strengths is a recent history of running with somewhat lower core capital measures, including a TCE ratio of less than 7%. However, the capital accretive Oritani Financial Corp. transaction lifted ratios between 50-100 bps (with TCE rising to 7.6% at YE19); an adequate level considering VLY’s risk profile. While reported investor CRE concentration exists (426% of total RBC at 4Q19), it is driven by VLY’s exposure to historically lower-risk NYC multi-family lending. Additionally, VLY’s traditional CRE portfolio is well diversified by property type and geography. With rather modest exposure to “at-risk” industries related to the COVID-19 pandemic, including less than 3% of loans in hospitality and restaurant lending, we expect VLY to outperform on the credit front in this downturn. Though VLY’s revenues remain rather spread dependent – fees generally tracking at approximately 10% of total revenues – core pre-tax, pre-provision income increased 18% sequentially, demonstrating improving earnings power.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus disease (COVID-19) on the banking and other sectors. Please refer to our publication Coronavirus (COVID-19): U.S. Banks Stable Despite Uncertainties for more detail.
The ratings are based on KBRA’s Bank and Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
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Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. 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 and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.