Valley National Bancorp

The stable outlook reflects our view that Valley will continue to generate solid earnings, have strong asset quality, and maintain adequate capital, funding, and liquidity ratios over the next two years. We also expect the company will rebuild its capital ratios and successfully integrate BLUSA. Although we expect loan performance to deteriorate modestly amid a weakening economy, we expect any increases in loan losses to be consistent with industry trends. We could lower the ratings if the company's asset quality deteriorates meaningfully, its large CRE loan exposures increase as a percentage of total loans, or if its core funding ratios weaken. We could also lower the ratings if integration risks from the recent acquisition pose unforeseen business, financial, or regulatory

...Valley has historically had very strong loan performance and very low loan losses, however, loan concentrations are substantial. We think the company's conservative underwriting policies are largely responsible for its better-than-peer asset quality metrics. However, Valley's commercial real estate (CRE) loan exposures are over half of its loan portfolio and include a material proportion of construction loans, which could be vulnerable in an economic downturn. Valley's acquisition of Bank Leumi USA (BLUSA) modestly helped business and funding diversification, but it did little to improve loan diversification. Though adequate in our assessment, Valley's capital ratios are among the lowest of rated U.S. banks. Valley's capital ratios have declined substantially over the past year, primarily because of capital returns, strong loan growth, and the acquisition of BLUSA. We expect the company's capital ratios to rebound somewhat over the next two years but remain lower than most rated U.S. banks....

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