Ladies and gentlemen, thank you for standing by. Welcome to the Valley National Banks’ second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference cal is being recorded. I would like to introduce your host for today’s conference Ms. Dianne Grenz. Madam, you may begin.

Good morning. Welcome to Valley's second quarter 2012 earnings conference call. If you have not read the earnings release we issued earlier this morning, you may access it along with the financial tables and schedules for the second quarter from our website at valleynationalbank.com. Comments made during this call may contain forward-looking statements relating to Valley National Bancorp and the banking industry. Valley encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-K and 10-Q for a complete discussion of forward-looking statements. And now I would like to turn the call over to Valley's Chairman, President and CEO, Gerald Lipkin.

Thank you, Diane. Good Morning and welcome to our second quarter earnings conference call. The banking industry continues to be besieged with a litany of external variables, ranging from additional regulatory expenses to the Federal Reserve’s direct intervention on market interest rates. Community Banks have historically been a catalyst to economic growth within the neighborhoods they operate. Banks and the communities they serve have a mutual interest in the prosperity of each other. In today’s difficult economic environment, the health and profitability of our industry will be closely tied to improving employment and economic conditions. New and additional regulatory guidance surrounding the increased amount and form of capital held at every financial institution stands as an impediment to that expansion. To further this disconnect, the new draft capital requirements, issued by the joint regulatory agencies, are inconsistent with the treatment of capital as outlined in the Collins amendment as they further limit the eligible forms of capital for many banks. On the other hand, the proposed regulatory adjustments to the measurement of risk weighted assets, for certain loan categories is an improvement, as we have always believed every borrower needs skin in the game. Specifically, the proposed Basel III guidance provides an advantage to those institutions, like Valley, which have emphasized larger borrower equity in their underwriting standards. Based on a recent third party review of Valley’s first lien conforming residential mortgage portfolio, the adjusted mark to market loan to value ratio was approximately 48%. As a result, under the proposed guidance, we anticipate a significant reduction in the calculation of risk weighted assets for that portfolio. Therefore, based upon our initial review of the proposed Basel Three capital requirements, we believe we currently meet the enhanced 2019 well capitalized definition for all regulatory capital ratios, as defined under the…

Thank you, Gary. For the second quarter, Valley reported net income available to common shareholders of $32.8 million or $0.17 per diluted share, compared to $34.5 million in the prior period. The sequential quarter decline in net income is largely attributable to a contraction in net interest income of approximately $5.4 million. During the same period, Valley’s net interest margin, on an FTE basis, declined from 3.70% to 3.52%. Approximately 11 basis points of the 18 basis points reduction in the margin is due to diminished accretion income attributable to Valley’s covered loan portfolio. The decline in accretion is in part due to a 41% annualized decline in the covered loan portfolio’s outstanding balance as compared to March 31, 2012. Due to the nature of the underlying loans within each loan pool and the specific accounting treatment applied to the covered loan portfolio, accretion income is sometimes volatile and largely subject to actual cash flows received, which are often difficult to predict in each reporting period. The decline in accretion during the second quarter is by no means attributable to additional deterioration in credit within the portfolio, but rather the timing of cash flows. Another variable negatively impacting Valley’s linked quarter margin is the absolute low level of market interest rates and the resulting pressure on both new and re-pricing loans. During the quarter, the average loan yield was 5.09% compared to 5.42%in the prior period. Approximately 14 basis points of the decline is attributable to the aforementioned change in accretion on covered loans. The balance is principally the result of market interest rates. During the quarter, the weighted average coupon of new loan originations held in portfolio was slightly less than 4.0%, which is consistent with the yield recognized in the first quarter. Loan yields for the first six…

[Operator Instructions] The first question comes from Ken Zerbe from Morgan Stanley. Your question please.

Gary, a question for you. On the whole push into mortgage banking, why is now the right time to get more aggressive and I ask that, I understand the pressure on NII, et cetera. It makes sense but if this is such a great business, and you could have been making a ton more money over the last six months or last two years, why not have started it a year ago and instead of waiting for today?

For one thing, we have been doing this, as I said, for 15 years. We just haven’t done it at the level we have been doing it at. With the low interest rates and particularly where they are currently, sub 4%, there is a huge demand for residential refinancing. That didn’t exist three years ago or four years ago, or even two years ago. It just stated picking up in the last two years and we have been growing with it modestly. We recognize that we now have the infrastructure in place to do a lot more. We started in the last 24 months, advertising on TV, something we have never done before, using me as the spokesperson and I don’t know that it’s me, I think it’s the rates, but it has brought in a huge volume of applications and an ever growing volume of applications. Enough so that we are convinced that we can do even a lot more by bringing that product aggressively on to Long Island and into New York City. Markets that we really never aggressively went after and it does produce the profits. Now, we are not looking to hold most of the loans that we put on and particularly going forward, as we get more aggressive, we are looking to expand materially the size of our outstanding residential mortgage portfolio. Although, I will point out that when you combine our mortgage backed securities held in our investment portfolio with those the mortgages that were originating and the performance tends to be very close together. On a combined basis, we are lower today than we were five years ago. So it looks like we are doing something more so of a change than we actually are when it comes to looking at the portfolio and we are generating good fees. We are originating at a price that we can sell and make the profits.

The only thing about that the loans that you are going to be writing going forward, third quarter, fourth quarter, should we be thinking about those as the amount of loans going on balance sheet is going to diminish because instead of holding we are going to selling them? Or are these new loans with different characteristics that you would not have written anyway?

We are not changing our underwriting criteria.

You are just holding less on balance sheet.

Well, we are maintaining our balance sheets. We want to hold that approximately our current level the number of mortgages that we have and we are seeing some prepayments on that portfolio taking place. So to the extent that we have prepayments taking place there, we will hold those into the portfolio. We are very strict though in what we underwrite and sell. We don’t underwrite or sell mortgages that are above, for example, 80% loan for bag. We generally try not to go much above. Under some circumstances we will go to 90 but basically we don’t go above 80 and for us to hold it in portfolio, our threshold if generally at 70% loan to value.

Okay, so that will make sense. All right, thank you very much.

Our next question is comes from Steven Alexopoulos from JPMorgan Chase.

Jerry, I want to start, we all know how conservatively you have run the bank, and with the dividend payout ratio now toward at or near 100%, how should we be thinking about the risk of a dividend cut?

It is a desire of our board to continue the dividend as long as practical. We are not under, because we meet our capital requirements, at the present time, regulatory pressured. That all being said, I can only speak of what has happened up until 11:29 this morning. Anything is possible to come down the pipe which would require action on our dividend in the future. I can’t say that we will never reduce our payout but we are going to strive to do whatever we can of course to raise our income. So that our payout ratio is low. So that everybody is happy.

Jerry, given the different tools you have to manage capital, how do you prioritize the dividend versus other items such as limiting balance sheet growth or raising common. Just curious how you stack.

It is way up there, okay. We just said, we would not like to have to reduce our dividend but we are of course always mindful of our needs for capital and the needs to grow, so it’s a balancing act and our board looks very closely at this. Literally, every quarter, when the dividend comes up, this is discussed in depth. Up until now, nobody as expressed a desire to lower that dividend but that could chance next quarter. I can’t go into the future. I don’t have a crystal ball as to the mindset of our board, the ones who actually sit there.

Alan, the reduction on margin from the accretion, is this the run rate or is there some type of one time reduction that will reverse next quarter?

So, as we said, the cash flow is healthy from that and its very difficult to be able to say for sure whether is in a one rate that will continue or not. The reduction was fairly substantial this quarter. Once again, I don’t know that I could tell you that next quarter it’s going to run the same way. I don’t know that that will happen again but it did this quarter.

Then just a final one, you guys talk about the significant improvements on loan sale. You talked about the first half maybe a little better than the third quarter. Are you thinking, does the $6 million, $7 million per quarter item or could it be even better than that.

Anything is possible right there. We are going to do, we have to do to make sure that we don’t take too much risk on our balance sheet. We don’t put things on there that we don’t want. So the volume is very strong and it could produce some large profits.

I did it my comments. The fact that we expect in the third quarter, at least as much as we generated in the first half.

Our next question is comes from Craig Siegenthaler from Credit Suisse. Your question please.

Just personal loan yield compression. These is a big three area it is coming from. One, the feeble yields, spread compression and then also a little bit of loan class mix shift. Maybe some swap, in fact. I am not sure, could you kind of go through those and it should be maybe roughly a third or half, where it is coming from?

Well, I think we said that for this particular quarter, 11 basis points came from the accretion issue. There is no doubt there is some thrust of swaps in there that also is impacting the margins. Not a large number but it is out there. Then of course, what we said, growing it to the actual loan rates that we are dealing with. I mean you are seeing new finances. Everyday of the week, people want to refinance. That being said, rates are at that 4% level give or take and the average is at 509. So I don’t know that I can give you a specific breakdown but I think what I can give is the 11 basis points and the 18.

Then, one other thing that could benefit you that was that actually if you were growing loans faster than earning asset, deposits and securities within the balance sheet allowing mix shift to take over and one other thing that isn’t prominent is your CNI loan growth, it is actually fairly low versus the industry competitors. Can you give us, maybe, some reasons in terms of why you are seeing your loan growth is lower than competition?

Well, one of the reasons is our credit quality. Its one thing to run out, systematically grow the portfolio, it’s another to grow it under the lending criteria that we employ it badly. We are very tough. Listen, our loan growth in the residential mortgage area was a laagered in 2004, 2005, 2006, and 2007. That’s because we would do sub prime lending, okay. Same thing applies here. If we can’t enough of a rate to cover the risk that we are taking in the loan for one thing, we are just not going to make it. It’s easy to do at the face lending at 100 basis points below prime and think you are going money on that but are not factoring in your loan losses. One of the things in the credit card industry they learn, as long as they can charge 20% interest they can absorb a 5% loss but if they try to take put on credit cards at 6% or 7%, they are out of business. Same thing here.

Got it, and Jerry, give some point. So your commentary is kind of like, CNI loans are actually getting underpriced relative to risk. I think many would argue it’s potentially underpriced relative to the NIM and the ROE that it translates to. There is just not a lot of (inaudible) there relative to funding cost but you actually saying there is actually some credit risk in the CNI that’s getting price to that. Is that fair?

That’s correct.

Got it, thanks for taking my questions.

Our next question is comes from Dan Werner from Morningstar. Your question please.

In looking at the balance sheet and the long term borrowing book beyond five years as well as the your own trust on the balance sheet, since those are not longer be counted as Tier 1 starting next year. Does is make any sense to do a perpetual preferred on cumulative or common issuance to replace the trust as well as absorb the prepayment laws that you would do on refinancing of those long term borrowings.

Well, first of all our trust preferred doesn’t go away next year. It goes down by 10%, so its capital each year starting next year. So it doesn’t go away overnight. The long term, obviously, are not going to have the value that they do. They track their call (inaudible), we can call on that anytime and as we have seen in the past in (inaudible) deal, our board is looking at all capital venues on a regular basis. We have a very comprehensive capital plan and we discuss in depth our capital needs with the board on a regular basis. One of the topics that we have discussed is this perpetual preferred stock. There has been no decision made regarding any of these but our board is well aware of the scenarios, as I say and we discuss them all the time. We have to make a change we will make a change.

I guess, I was just commenting that it would make sense from a margin standpoint if you could refinance those long term borrowings and kill two birds with one stone. I guess that’s what I was, but that’s my comment.

Our next question is comes from Travis Lan from Stifel Nicolaus. Your question please.

Most of my questions have been answered but just quickly, to be clear, the reduced accretion from the PCI loans was due to accelerated prepayments from the Park Avenue and Liberty Point.

Yes. Part of it was definitely that.

Do you have sense of any of those borrowers refinanced back into the bank?

Very few, if anybody, I don’t think there are any of this.

Alan, do you happen to blend in on yield for the covered portfolio?

For the covered portfolio? At 7%.

Our next question is comes from David Darst from Guggenheim Securities. Your question please.

So you said that the loan pool from the climb in the accrete able yield was primarily those FDIC deals, nothing from stat yet or are you seeing faster prepayments in that portfolio as well?

No, not at this point.

Should we treat as any kind of adjustment or should we think about the margin going forward at this 350 levels of starting off point?

Yes, I think that’s the way you would look at it.

Okay, and Alan, do you have the expected increase in risk related assets under Basel III?

That’s actually going to be somewhat of a decrease. I think Jerry said that before the fact that our residential loans have such a low, low value relative to the way the bucket is full. We do expect that as likely to ramp.

Do you have the pro forma capital ratios?

Not off the top of my head but we expect to meet the low capital rise certainly by, today, for 2019, but we have already been through rough estimates at this point, so I am not about release those ratios. You should just expect that we meet the reports.

Okay, and then I guess that also falls under your point on the perpetual preferred, another types of capital that you can include in that? It might not be dilutive.

Exactly, right.

Our next question is comes from Brian Kleinhanzl from KBW. Your question please.

On the mortgage banking, can you give some color on what you are seeing on the gain on sale margins? That went up or down from the prior quarter?

Went up a little bit.

Then also you mentioned that the theory on accruals that you have met a relatively low carrying cost. Can you remind us what that carrying cost is and what that inflows and outflows were out of those buckets this quarter?

No, I don’t think we disclosed anything on that. Carrying forces, there is not a huge carrying force to those other than obviously taxes and a bunch of other items but I don’t have that.

So I mean, like we are at the mark relative to the original balance.

How many did we write down the property sale?

I am sorry, I didn’t understand your question. It’s hard. It’s all over the place and part of the problem comes in on the appraisals. What does carry that is what it now appraises that although some of the appraisals in my mind come in kind of crazy low today. Seems like the appraisers were all trying to cover their backside. So they are hiding those writing downs more than I understand but fortunately we don’t have a big part of it so it’s not material. Just on that whole issue. Legal did pretty good with the analysis of every single loan that’s in care and whether it’s a new loan in this quarter or it’s a file loan that’s we continue to look at every quarter. We take into account whatever the current appraisals are, whatever the discounted cash flow are relative to cash flow loans and I think we made sure that we are covered as of this point in time and that’s why when you look at the reserve as an example, the reserve is reflective of everything. So its not a matter of somebody might say leading reserve, I think its more a matter of what does our reserve need to be relative to what we already charged down, what we have already taken impairment on or any kind of other reserve we set up on those.

Our next question is comes from Nancy Bush – Research, LLC. Your question please. Nancy Bush – Research, LLC: Obviously, a response to one response if you, the headwinds that you are hitting which are pretty considerable with, if you cut cost more aggressively. Has there been any sort of new initiative spread in motion this quarter and I realize it will be tough given that you are trying to expand in some areas, but what is your ability to go to other side and start cutting that a bit more?

We're always looking at where we can take cut course. Nancy you know the bank. We look at every expense on a regular basis. We have been hammered, as I said, repeatedly by the regulators with additional cost that seem to offset our core cities. Fortunately, we come up with enough core states till the end of the day that we look pretty flat, but you have things like the (Inaudible) Valley for $1 million and where you got to come up the clip phase to offset that $4 million. The FDIC insurance today is high. It's closer to roughly $14 million, $15 million a year. If you looked back ten years ago, that number was zero. So pretty close to zero. So we have been able to cut other expenses to make up for to that. Health, of course, as Alan mentioned are reflecting a significant increase, so we are looking at those areas, where we can best deliver something to our staff without killing the bottom line.

Nancy, I think you will see some more, not huge, but some more additional sales based on the State acquisition, but that being said, we are in a mode now where we have increased our volume on loans. Loans are coming in across the board in each of our major areas. So we just wanted to reduce a lot of those types of course relative to putting on new norms when that's going on.

We try o gamble, we tried to manage the dispatch in our branches by using as many Park Avenue employees as we can. Throughout the whole log and envision we look at those things. Nancy Bush – Research, LLC: So there would not be any kind of information though to delay or whatever, any kind of expansion plans that you may have as a result of this.

Well, we're looking a little bit harder at some new branch expansion right now, because that would create a course, then we have closed several of our branches in the last six months. We were looking at several others to make sure that they carry themselves.

Thank you. Our final question comes from Matthew Breese from Sterne Agee. Question, please?

Just to be clear, today let's call it another region 18 months the builds in the residential loan portfolio has been from booking excess from the mortgage origination platform. Is that correct?

Right.

Okay. Then you guys said that going forward, you are going to be booking more gain on sale, and so that portfolio should be flat?

Relatively, yes.

Okay. Then my last question is, there was some recent guidance from the FDIC, about ourselves and stress test. You guys are covered by the OCC. Has there been any further information on that, and any color or implications from it?

No, but I'd tell you Valley has been stress testing its portfolio for years. It's not something new. So whatever they want us to do, we're going to do.

Yes. We had to do stress test for a number of times whether it was to get out of TARP, or acquisition related stress test. Obviously, this will change but I think based on what the results were those days, we are obviously passed some of the stress test, so we don't anticipate an issue there. I think as we said before, when you look at things like our residential loan portfolio, which has a loan LTV. When you look at our commercial real estate portfolio, there also probably has an LTV in the 15% range. We think that we'll be just fine.

You think you have the infrastructure in place to keep expense as it is?

Yes. Operator Thank you. We have one more that just came in. Ross Haberman, Haberman Management. Your question please. Ross Haberman – Haberman Management: A quick question. I think it was BB&T issue to new trust preferred in the last or going to the last day or two five and change. Have you reconsidered your trust preferred and possibly issuing a new type soon?

You must have missed. That question was raised before. We are looking at everything all the time. There has been no decision made on anything. It's interesting to note the interest rates there it's a perpetual preferred stock has been issued have been coming down rather dramatically over the last 18 months. I guess that if interest rates fall, people are realizing that it's a good investment. So seem the longer we wait, maybe the cheaper it will be. Ross Haberman – Haberman Management: Okay. At some point it might be virtual.

We look at that all the time. Ross Haberman – Haberman Management: Okay. Thanks, guys.

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Okay. Thank you for joining our conference call. Have a nice day.