Ladies and gentlemen thank you for standing by. And welcome to the Valley National Bank Second Quarter Earnings Call. At this time all participants are in a listen-only mode, later there will be an opportunity for questions. (Operator Instructions) As a remainder this conference is being recorded. I would now like to turn the conference over to your host Ms. Dianne Grenz. Please go ahead.

Thank you. Good morning. Welcome to Valley’s second quarter 2013 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 first 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 Form 10-K, 8-K and 10-Q for complete discussion of forward-looking statements. And now, I’d like to turn the call over to Valley’s Chairman, President and CEO, Gerald Lipkin.

Thank you, Dianne. Good morning and welcome to our second quarter earnings conference call. We are pleased with the second quarter results as the earnings total past due loans, non-accrual loans, non-performing assets and credit side assets of the bank all show signs of improvement. Furthermore, we anticipate continued core net interest income expansion as we move into the second half of 2013. Although the economy and regulatory environment remain challenging, we are beginning to witness the opportunity that provide for growth in both the balance sheet and net income. Loan prepayments continue to slow and Valley’s portfolio of non-covered loans expanded on a linked-quarter basis for the first time in a year, as we’ve also experienced broad-based growth in both Valley’s commercial and consumer lending portfolios. For the quarter, we originated over $970 million of loans which represented one of the best quarters of originations in the bank’s history. Originations in the consumer lending portfolio were largely driven by activity in Valley’s residential mortgage department, although consumer lending largely in direct auto activity was also brisk with new originations increasing 10% above the first quarter. During the second quarter, we closed over $480 million of residential mortgage loans approximately 81% of which we either sold or targeted for sale. The recent increase in market interest rates have negatively impacted application volume. However, we have also enhanced the bank’s future profitability by beginning to retain a larger amount of originations in the portfolio, now that we are closing loans at interest rates where they are holding in portfolio. In response to the increase in market rates, we have modified our marketing strategies to highlight Valley’s $1899 fixed cost purchase program, which similar to Valley’s $499 refinance program covers the course of title insurance and all bank fees. We anticipate significant…

Thank you, Gerry. The tax equivalent net interest margin declined slightly from 3.18% in the first quarter to 3.15% in the second quarter. The linked quarter 3 basis point decline albeit negative is a significant improvement from the prior quarter linked period declined in the margin of 23 basis points. Net interest income for the quarter was a $109.9 million relatively in line with the results reported in the first quarter. Earning asset yields contracted 6 basis points on a sequential quarter basis to 4.34% as the 6 basis point increase in loan yield was more than mitigated by a contraction in investment yields coupled with the continued increase in average excess liquidity for the quarter. The decline in investment yield is largely attributable to new investment purchases during the quarter of approximately $385 million with a weighted average yield of 2.22%. Many of the new purchases were mortgage-backed securities with higher coupons and to a lesser degree corporate securities with short to intermediate stated final maturities. During the quarter Valley recognized nearly $8 million of premium amortization expense related to investment securities which negatively impacted our investment yield and net interest income. We have historically purchased securities with higher coupons and larger premiums. As of June 30th the unamortized premiums on mortgage-backed securities was approximately $64 million of which we are scheduled to amortize approximately $32 million over the next 12 months based on prepayments fees recognized in the second quarter. If market rates remain at or close to the increase current levels we anticipate a decline in future amortization which would positively impact a portfolio’s yield and net interest income. The increase in loan yields of 6 basis points is largely the result of additional accretion on purchase credit impaired loans. We anticipate additional accretion in future periods…

(Operator Instructions) And your first question comes from the line of Ken Zerbe of Morgan Stanley. Please go ahead.

Hey thanks. First question I had just on the FDIC, the higher accretion in the non net interest income, want to make sure that, because obviously you’re talking very positively about this does add to NII, but just want to make sure that we’re thinking about this right that this has a, I’m going to say 80% offset in fees such that you’re fees actually go down by 80% of the increase in NII. So it is right to think that, the net impact of the higher, the better accretion is largely offset to your lower fees?

Not to lower fees it’s an income offset.

Well that’s, yes I mean lower accretion from the FDIC and little fixed asset?

It’s a non-interest income offset.

Got, okay, but that is the right way of thinking about that the vast majority really doesn’t hedge.

Yes, right that’s correct.

Okay, okay I understood. Thanks. And then I guess, can you be little more specific in terms of - you’re talking about the pricing improving, I think we’ve gone mixed messages I guess from, why that the different banks this quarter where exactly are you seeing the better pricing, which products how maybe how much of improvement you are seeing versus where we were say a couple of months ago.

This is Gerry Lipkin. I think we are seeing it in our commercial real estate, I think the spike up in interest rates the 100 - approximately 100 basis point increase has been reflected in underlying co-op loans, we’re seeing higher pricing in those loans, we’re seeing higher pricing in some of our garden apartment type multi-family loans. I think that’s, its starting to settle in of course the board was starting to see higher pricing in the residential mortgage area for sure. We were down pricing a 30-year fixed somewhere around 3.5% and right now that number is about 4.25% to 4.5% so that’s a significant change. We don’t want to keep loans on our books at 3.5% or 3.25%, if you’re putting them on the books 3.25% you’re certainly not going to help your net interest margin. If you’re putting them on your books at 4.25%, 4.5% you are helping your net interest margin that’s one of the reasons why we wouldn’t hold that one level, we would hold that at a different level.

Hey Ken just going back to your other question for a minute, not all of our PCI loans are covered by the FDIC, a lot of those are loans that we acquired from state for example and another outward purchase. And so therefore if there is an adjustment and accretion adjustment it’s not necessary that doesn’t necessarily get offset all, by non-interest income. So that’s a gain, to the net - to the bottom-line pre-tax.

Got it, great. Okay thank you very much.

Okay, thank you. And the next question is from the line of Steven Alexopoulos of JPMorgan. Please go ahead.

Hey good morning guys.

Hey good morning.

Good morning.

I want to start with the new originating hold model for the resi mortgage, are you going to essentially hold all of your production?

We never hold all of our production. We will be holding a much larger percentage that we did in the past.

You know we always look at it in terms of our needs, in terms of asset liability management, we look at credit quality and so there are always going to be loans that are going to be originated that are going to be available to be sold it just maybe a lot lesser number than we’ve done in the last couple of quarters.

30-year fixed rate mortgage that will start adding to portfolio as well?

We hope so and could be, yeah. We’ve always looked at our entire composition of the balance sheet, you can’t take out one category and look at that, this is an entire asset liability strategy if you will, and it changes with the interest rate levels and, what kinds of products we can do.

The long-term historically we found that the duration on a 30-year fixed and the duration on a 15-year fixed were very close. But when the interest rates on a 30-year fixed cut down below 3.5% in some cases, some banks were offering in below 3% that loans duration certainly is going to go out a lot longer than the historic 7, 8 years that we see on a fixed rate mortgage. That’s one reason we did not want to hold those in portfolio. But as rates gravitating north of 4.25%, 4.5% maybe close to that, if they keep moving in this direction they could hit 5%, if that be the case, the duration will go back more closely aligning itself to our historic numbers that’s the reason we’ve made the change.

So given this new model maybe Alan do you have an estimate of where like sell revenue could go to I mean because that get cut in half what do you think about third quarter?

Sure. Could easily be that.

Okay. And then on the margin guidance which I think I get it but I’m looking at the loan portfolio yields I guess around $4.5 this quarter you are adding you said 43.5. Are you added a $3.5 in 2Q securities yield $2.6 I think you said you are adding $2.2. How are you thinking about reinvestment rates? Does this all basically just cash going from securities book into longer term mortgages that’s going to drive higher NIM and NII or are you assuming reinvestment rates actually improve above?

A lot of this is going to be going into commercial loans as well and the duration on those is a lot different.

But you are assuming that core earning asset yields continue to decline it’s just a mix shift phenomenon essentially? Right.

You know Steve I think the way you really have to look at this is a number of factors one is we had this accretion. So we theoretically if you look at it been penalized to some extent and you can only recognize it over a longer period of time as the credit quality in the pools do better. So that’s part of what we are seeing here, the second thing is we’ll be seeing as Gerry indicated larger revenue coming out of things like commercial real estate that we are putting on at higher levels. We are also going to be using we are sitting with the still a fair amount of liquidity 25 basis points. If I go from 25 to 4 or 4.5 or whatever that number is it automatically increases my net interest income line.

Okay. Maybe just one final one.

And also Alan pointed out the amortization of the premiums we pay on higher coupon investments as rates move up that amortization slows down the yield on that portfolio goes up.

You know one of the things we’ve already seen and of course we are not through the month yet but we started to see a decline of prepayments running around 20%. Now that holds you can do the calculation yourself as the work we are having.

Okay. That’s helpful maybe just one final one. Alan the $92 million run rate you spoke off on expenses I guess the way to think about that is some of these pension benefits kick in at 2014 that will step down further.

Right.

Could you give us a sense of where that could step down to?

I’d rather not tell you that number at this point I mean it could be let’s say it could be in the $5 million to $8 million number.

For the full year benefit?

Yes.

Yes.

Yep. Okay. Thanks guys.

Thank you. Next question from the line of Nancy Bush of NAB Research. Please go ahead.

Good morning guys. How are you?

Good morning.

Fine. Thanks.

Gerry I guess this is the most optimistic I have heard you be and I guess a long time and can you just tell me if there is any particular catalyst here I mean in listening you today it’s sounds like some switch has been flipped somewhere and I’m trying to figure out where because it hasn’t quite made it out here at the (indiscernible) County yet.

Well I have seen and we’ve all seen interest rates you just how you watch the 10-year U.S Treasury as an indication of all interest rates. The 10-year is gone up 100 plus basis points from its low level 45 days ago. We’ve seen as a result of that though a general rise in interest rates. We are seeing a slow down in our prepayments both in the investment portfolio and mortgage-backed securities and in our own residential mortgage portfolio which means that some of the higher yielding loans that we are prepaying are suddenly slowing down that prepayment. We are putting on new credits at a little bit higher rate. We’ve had some of our commercial borrowers who sat on the side lines because they had another year or two years before their prepayment and penalty expired alone sitting there waiting to refinance some of their projects not necessarily loans with us is back which is the good news come to the table and say well maybe we’ll pay that prepayment penalty because we want to lock into the lower interest rate that we can get now even though it’s not as low as what we could have gotten a month ago. So we are starting to see some activity that we hadn’t seen in a while which makes us that much more guardedly optimistic.

But it’s not I mean this is a function of what’s going on in rates.

Right.

Are you seeing sort of a corresponding better feeling about what’s going on in the economy.

No, no.

Okay. The second.

But it’s still being us because they are helping us to absorb the large unused liquidity position that we have been sitting on for the past 18 months.

Fine.

If we are taking this 25 basis points in loans that are sitting at the Federal Reserve the money the funds and we are putting out in four in a quarter 4.5% credits it’s going to have a marked impact on our net interest margin.

Alright. My other question would be I think there was an article on the times couple of weeks ago about the foreclosure down finally beginning to break in New Jersey. Are you saying that?

Yeah a little bit we are starting to see some progress in getting through the foreclosure process. We have a relatively small number of loans in foreclosure at the present time and we really throughout this entire cycle it’s really been in a less than 80 the number of loans in foreclosure in our banks against a residential mortgage portfolio of roughly 20,000 loans.

Right.

So it really well it may started delinquencies look higher than they normally would be. It’s still a relatively low number.

Right. Okay. Thank you.

Thank you. Next question from the line of Collyn Gilbert of KBW. Please go ahead.

Great thanks. Good morning guys.

Good morning Collyn.

Good morning.

So Gerry maybe I wanted to follow up a little bit on Nancy’s question on sort of a change here in your appetite I guess for loan growth and pricing and how it feel through. I guess I’m trying to reconcile well yes rates have moved here in the short-term but there is still much lower levels than they would have been you know a year ago two years ago when you still were sort of resisting growth. So is it and with the outlook on the economy necessarily better I guess I’m trying to understand what you are seeing today when you were that it wasn’t the returns weren’t sufficient enough say two years ago to sort of put these assets on?

I don’t believe that rates are going to go up and I could be wrong but I don’t personally believe rates are going to go up materially from the levels that they reached at this point but there are a lot better than the rates where the levels that they were sitting at six months ago or nine months ago. If I we were going to hold for example residential mortgages that three in a quarter percent right that certainly wouldn’t be helping our net interest margin. But if I’m going to hold residential mortgages at four in a quarter 4.5% that does help our net interest margin. So that part of what’s way is it as I said prepayments are slowing down so that helps us we don’t have to put as many loans on to have the portfolio grow today as we would have a year ago when we were experiencing very, very heavy prepayment. So some of the higher yielding loans is speaking with us a little longer. It will make me feel a lot better.

Okay. So, what would your outlook be do you think for loan growth I mean you know CRE you are feeling confident about it that it wasn’t 2% you think the momentum carried from therein.

Yeah.

The appetite for resi mortgage what is it there because at the end of the day whether your portfolio that are sell it the volumes are dropping. So how are you sort of thinking about that?

When you hold it as oppose to when you sell it you get an immediate gains. When you hold it you get the gain but it takes a longer period of time. So by holding the loans we are not going to see the bottom line and the bank jump in 30 days. But it will gradually continue to grow and that increase income over a period of a couple of years brings back what we would have made in the short run.

Okay. So do you think you’ll you can migrate up to 3%, 5% loan growth I mean I was trying to.

Oh, yeah. Okay.

I mean in totality the whole the total portfolio you think could grow 3% to 5%?

Yes.

Okay. And then just a question kind of on your asset sensitivity, how are you looking at that now maybe what percent I know you’ve talked in the past that the floors that you have in your loans could minimize that. It maybe what percent of your loans currently set the floors and then how does the asset sensitivity picture change with putting on some of these longer duration assets with the resi mortgages?

Well we are not really putting on a lot more in then way of longer duration remember a lot of the loans that are not prepay and help us with our loan growth if I’m having 2% of the - if I’m having 5% of the portfolio pay itself off in a quarter or six months and all of a sudden that drops to 2% or 1% that that helps our loan growth. I don’t have to plan that many more loans. A lot of the loans we put on simply were to keep ourselves even with the portfolio.

Is that what you have been saying about 5% payoffs a quarter?

In resi, well I don’t have. We’ll figure it out. We’ll figure that out.

Okay.

I don’t think its 5%.

You can - you can hop back on.

We’ll get back.

Okay, okay.

We’ll get back.

So but just so then back to just to the asset sensitivity, how are you guys thinking about that?

Well you know what Collyn what and I think I mentioned it before. You got to look a little bit on the funding side of the balance sheet and what could happen with that or can happen within it at the moment I think as we indicated, we’ve a substantial amount of funding that’s very, very stable in terms of interest rate so even with the rise. And also 45% of it is probably not very much locked. In addition, we’re always looking at derivatives and using some derivatives to protect ourselves in the case of a rising rate environment. We all know, we’ve a lot of borrowings and we’re watching out for that as they get closer and closer to being restructure and redone that restructure but paying down and redoing them and we look at derivatives so that we can, we can protect ourselves.

Okay. And just one final question sorry (indiscernible) much time but Alan just your point on the accretion so it was $2 million this quarter can double next quarter.

Yes.

So, we shouldn’t be thinking about that $4 million only on that $142 of covered loans that $4 million you are earning is on…

That was my point it can’t be $4 million. It’s the balance.

Okay. What’s the balance of your acquired so in totality how should we be thinking about the portfolio that was generating up?

We had about $800 million of loans other than the FDIC loans so.

Okay. So, that $4 million is FDIC and that $800 million?

The $2 million that we had now were really the FDIC loans.

Okay.

The balance $2 million we’re talking about really come from the other PCI loans, which has no FDIC coverage. So, there is no offset to that.

Got it. Okay. All right thanks guys.

Thank you. Next question is from the line of Matt Schultheis of Boenning & Scattergood. Please go ahead. Matt Schultheis - Boenning & Scattergood: Good morning gentlemen.

Good morning, Matt. Matt Schultheis - Boenning & Scattergood: Actually all of my questions have been answered. Thank you.

Good.

Okay. Thank you. (Operator Instructions) You have a question from the line of Craig Siegenthaler of Credit Suisse. Please go ahead.

Good morning. This is actually Nick Karzon standing in for Craig today.

And good morning, Nick.

And I guess, just first on the tax rate with the updated and the restructuring I just wonder if you give us the dollar amount of fixed tax credits and tax credits related to tax exempt investments? And then kind of what the statutory rate is that we should be thinking about?

I think what I mentioned before is there is about $2.6million of expenses that are related to those credits. So, beyond that I’m not going to break it down any further. I mean, obviously it helps. There is a positive benefit to that to our tax rate. I mean, the obvious federal tax rate is 35% and the state tax rate runs on a statutory basis around 9%. So, it’s bringing it down from that rate down to what we just showed you.

Okay, thanks. And then the second on the service charges on deposit accounts, you have seen that declined year-over-year for the last two quarters and I was wondering if that’s due to changes in customer activity or behavior or if there has been a change in your fees or product lineup?

I think if anything its customer behavior.

Thanks for taking my questions this morning.

Sure.

Okay. Thank you. And there are no further questions in queue.

Okay. Thanks everyone for joining us on our second quarter conference call and have a good day.