KBRA Releases Surveillance Report for Valley National Bancorp
5 Jun 2023 | New York
On May 11, 2023, KBRA affirmed 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 affirmed 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.
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 trended 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.
To access rating and relevant documents, click here.
Click here to view the report.