Ladies and gentlemen, thank you for standing by, and welcome to the Valley National Bancorp, Second Quarter 2008 Earnings Release Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today's call is being recorded. At this time then, I would like to turn the conference over to Mr. Gerald Lipkin. Please go ahead, sir.

Thank you. Good morning and welcome to our second quarter 2008 Earnings Call. Now I would like to turn the microphone over to Dianne Grenz to read our forward-looking statements.

Thank you, Gerry. Today's presentation may contain forward-looking statements regarding the financial condition, results of operation and business to Valley. Those statements are not historical facts, and may include expressions about Valley's confidence, strategies, and management's expectations about earnings. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from the results the forward-looking statements contemplate include but are not limited to: unanticipated changes in the financial markets and the resulting unanticipated effects on Valley's investment portfolio, unanticipated changes in the direction of interest rates, effective tax rate, new and existing programs and products, relationships, opportunities, technology, the economy, market conditions, the impact of managements adoption, interpretation and implementation of new or pre-existing accounting pronouncements and the ability to realize expected cost savings and synergies from the merger of Greater Community with Valley and the anticipated amounts and estimated timeframe. Written information concerning factors that could cause results to differ materially from the results the forward-looking statements contemplate can be found in Valley's press release for today's conference call, Valley's Form 10-K for the year ending December 31, 2007, as well as in Valley's other recent SEC filings. Valley assumes no obligation for updating these forward-looking statements.

Thank you, Dianne. Look, we are very pleased with our financial performance and remain optimistic about the short-term and long-term opportunities available to Valley and many other Community Banks, which have maintained a traditional and steadfast approach to managing their balance sheet. The [EDM] Bank is not generic terminology for all financial institutions. The composition of each company's balance sheet combined with a diverse product and services offered by each have a significant impact on the inherent risk within each institution. With the recent pessimism pervasive throughout the banking industry, investors and analysts alike should be mindful not to paint all companies with the same brush stroke. Along with Valley, there are many wonderful quality, well capitalized banks, which have witnessed erosion of shareholder value far in excess of what their individual financial results would dictate. Having analysts and investors performing an in-depth, bank specific, fundamental analysis is paramount to restoring stability throughout the financial markets. Merely ascribing doom and gloom for everyone only worsens the current market dislocation, steers capital away from many fine institutions and diminishes potential economic expansion opportunities throughout the country. Historically, Valley's performance has excelled during times when its competition's strategic focus shifts inward. For the last few years, the growth opportunities available to Valley were limited due to a multitude of economic and competitive pressures: the yield curve was negatively sloped, the level of interest rates were low, little concern for credit quality by many banks, risk based financial pricing for both deposits and loans was absent from the marketplace, to name a few. However, today's current environment provides tremendous opportunities. The yield curve has begun to normalize and irrational non-risk based pricing of loans and deposits have diminished, as evidenced by the 13 basis point expansion in Valley's linked quarter net interest margin.…

Thank you, Gerry. Before I begin, please note a slight change in the presentation of our financial statements from the prior period. The fair value mark-to-market adjustment on Valley's owned trust preferred security which was previously recorded in other expenses, has been moved to trading income within the non-interest income section of the statement of income. The reason for the classification is to remove any potential confusion that fair market value adjustments have on Valley's core operating earnings. All prior periods have been adjusted to reflect this change in our earnings release today. As indicated earlier in Gerry comments, we are extremely pleased with Valley's second quarter results. Many of the balance sheet's management strategies enacted during the preceding few years have begun to demonstrate their value and have positioned Valley to capitalize on current market conditions. Reported net income for the quarter of $41.5 million or $0.33 per share, included a number of non-core items. Exclusive of the differed tax valuation allowance adjustment of $6.5 million, net losses on security transactions, net of tax of $573,000 and net trading losses net of tax of $36,000, after-tax core operating income would have been approximately $35.6 million or $0.28 per share. Core-linked quarter operating leverage was a positive 7.24%, mainly attributable to increased net interest income coupled with the reduction in operating expenses. On a sequential quarter basis, the net interest margin expanded 13 basis points. The increase is mainly attributable to the reduction in the cost of deposits, combined with a reallocation of short-term trading assets, including Federal funds, the higher yielding lending opportunities. As I indicated during last quarter's conference call, over 80% of Valley's $3 billion certificate of deposit portfolio, reprises in a 12 month period. Due to Valley's asset sensitive balance sheet, the immediate decrease in short-term…

Thank you (Operator instructions). We are showing a question from the line of John Pancari with JPMorgan. Please go ahead.

Good morning. Can you just give us a little bit more detail on what you are seeing in the New York economy? Particularly in your exposure to the jewelry industry and if you are seeing any downturn there, what your expectations are? Then, broadly, just your expectation for if you are seeing any indication of the slowing or slowdown in demand here in New York just as a result of the fallout in the financial industry and how that is going to impact credit? Thanks.

We really haven't seen much of the downturn -- who have most of our customers other than the fact that most of the builders that we do business with have pretty much backed away from the market and that backing away from the market is something that took place probably 18 months ago. So we see a downturn in construction loans, particularly in New Jersey where most of our construction lending takes place. The overall economy though seems to be holding up pretty well in the greater metropolitan area, particularly to the slice of the market that we do business with.

Bob Meyer speaking. The customers we are dealing with have not shown any ill effect at the moment, their cost have. Some of their product has gone up, but there has been active usage of their lines of credit and levels lower than in the past or similar to the past, so we've not seen any slowing down in their business. The recent visits with many of them have indicated that they continue to find good pockets in which to sell. We are not heavy in the retail jewelry trade and our client supply some major retailers, but they also supply individual products to custom jewelry houses.

Ironically, we were out visiting, I also concluded, recently with some of our larger accounts and they are telling us that their biggest problem is getting product, especially in the larger diamonds. However, again, as I say, while we are big in that business, we are in a slice of it that most people do not understand.

Our totals outstanding are less than 150 million in the return portfolio.

I am sorry. What is the total outstanding again?

It is less than a 150 million.

Spread on quite a number of returns.

Oh yes.

Okay. Then, in terms of the growth that you saw this quarter in C&I and what you have been seeing in recent quarters, can you discuss a little bit more granularity about what types of industries they are? Where are you still seeing the good demand on the pure commercial side?

A lot of these are customers that we've gone after for years and just not been successful because they tell us the conduits and some of the larger institutions who are making credit available to them at numbers that we just never understood. So we backed away, we would not compete by dropping our rates to those levels. It hurt us on our growth, now they are coming to us and they are saying that the institution is, "pushing them out" which they do not understand, but I do because, who can find another home but the best of your credits. We are still very selective. Obviously we do not approve every loan that walks though the doors, but we are seeing a lot of opportunities for businesses, and from apartment buildings. Bob?

Bob Meyer again. The growth has come across all broad lines of business except as Gerry indicated earlier in the construction side, where our, rather substantial client base has decided to hold off for the most part in this market. A lot of the growth is in the lower-end of the middle market that we've been after for a continued time period and we also have to attribute a substantial amount of the growth to the fact that we added probably 20%, 25% more lenders over the course of the past 15 to 18 months. So it is not just that we got lucky and it dropped into our lap. We've got a much larger group of people hitting the streets and that coupled with the fact that some of the competition has run into some road blocks has made it possible for us to broaden our base. We are not picking up a single particular industry and as I think I indicated a moment ago, something like the jewelry trade where there is clearly opportunity, we've not expanded rapidly. We are being very selective as to who we will take on to replace credits. We might let go ourselves.

We see some, its Gerry again. We've seen some opportunities that just are jaw dropping and we had some borrowers who are very, very substantial, have huge liquidity, who own apartment buildings in New York City for example where the loan to value is may be 30%, and they are being encouraged to find homes elsewhere. Obviously this is an easy loan for a borrower to move, which is some of what we were seeing.

Okay. Thank you.

You are welcome.

Thanks. Then we've a question then from the line of Ken Zerbe with Morgan Stanley. Please go ahead.

Thanks. My first question is just in terms of the fair value adjustments on your subordinated debt, can you just give us the dollar amount that you received in terms of the earnings benefit this quarter and how does that compare to your prior quarters?

Yes, Ken I think what is important is we did see a gain of almost $2 million on the subordinated debt, but that being said, we also had losses on other trading securities that more than offset that. So while there was a gain in that there were losses on other trading securities, so I think if you look at the P&L you will see that the net for the quarter was $1.02 million or almost $1.03 million in net loss position even though that was a gross number of $2 million positive.

Okay.

That fluctuates around, obviously. It is a market driven number. So, each of them seem to move obviously with the market every single quarter.

Got that, and how does that $2 million gain though on to sub debt relate to, the gains or losses you have taken in prior periods. Are we seeing more volatility now than we've in the past?

Well, I think it is probably, at least at this moment, since June 30th, more volatility. I do not know that I saw more as of June 30th, but I think since then, there has been more, as there have been more capital raises and they have all been getting price from market, which is substantially higher than our original debt of 7.75. However, by the same token, I have other trading assets that are being mark-to-market at losses for the same reason. So, they are really offsetting one another almost dollar for dollar.

Understood. Then, the second question is on the Fannie and Freddie Securities. We all know that the value is declining substantially for those. If you were to mark those to market today, how much would that, what kind of write-down are we looking at? What would the impact be on your capital ratios?

I think we haven't really calculated anything on capital ratios. I think, first of all, there is a lot of, as you know dislocation going on in the market right now. There is a lot of volatility and we've a lot of issues that are thinly traded. I think it is very difficult to give you numbers today. The June 30, number that we indicated was about $3.5 million underwater, that number will grow, obviously, if things stay the way they are. However, us like anybody else that owns these securities are going to wait and see what happens with the marketplace, with Congress and so forth, and how this all plays out.

Understood. Alright, thank you very much.

Thank you. We've a question then from the line of Peyton Green with FTN Midwest Securities. Go ahead please.

Good morning. I was just wondering if you could comment a little bit on the opportunity to continue to pull share from others. How long do you think the belt tightening will go on for others?

Well, as I go back to the early 1990s, when we found ourselves in a very similar position, it continued for about a year and half, two years before the market stabilized, and the competition stopped pushing people out. This is just an opportunity for us that we see and it is hard to project far into the future, but I think it is going to continue at least through the foreseeable future.

Okay. In terms of your loan growth guidance, is that more in response to just the general economy factoring in that you are going to continue to pull people or you also being conservative on that?

We are being conservative. We looked at our growth has really come from new additional business more so than it has our existing clientele expanding their borrowing relationship with us. There are some of that obviously, of course, as always borrowers that are looking for more credits. However, we looked at our line usage and there is very little change from May to June. We looked back. It has been relatively consistent.

It is actually up about a $100,000.

Yes, but during the quarter which not a significant amount.

$100,000 on a - how many millions is it?

100 billion, excuse me, it is a 100 million over the quarter. You are talking about a 100 million on, maybe 400 million in commitment.

Okay. On the deposit side, is that piece a little slower to pull over?

Yes, and that is the opposite. In fact, those institutions that are having difficulties are the once that are out there offering the highest rates. When they want to show up their available funds, they are going to pay crazy rates. We see some of our competition are paying rates, point over the market. Does not that tell you something about their condition?

You know, that being said Peyton we've been increasing our rates, even though we do expect the pricing to come down overall on a quarter-to-quarter basis. We've been increasing our rates relative to market rates. We are comfortable that we will be reasonably competitive in the marketplace.

Okay. If you are thinking of repricing on the CDs, is there an outside benefit in 3Q or 4Q?

No benefit. Yes, I think we indicated that there will be a benefit continuing at this point if rates stay where they are. We will see some continued benefit.

Okay, great. Thank you very much.

You are welcome.

Thanks. Our next question comes from the line of Collyn Gilbert with Stifel Nicolaus. Please go ahead.

Thanks. Good morning guys.

Good morning, Collyn.

Good morning, Collyn.

I just want to say thank you for reporting a quarter like this. I know, many of us were desperate to find something like this and it made my Wednesday. So, thank you.

You are welcome.

You are welcome.

Thanks for doing it a week earlier too. That is good too. Anyway, just, most of my questions have been asked and I just wanted to get a little bit of clarity in terms of the rationale behind the reserve. I hear you, and I see how you have broken through the allocation and that type of saying, but given the market, given pending deterioration simply because of the slowdown in the economy, where do you see the maintenance of that reserve being? I know that, growth was very strong in this quarter, but on a longer-term view on what the strategy is there for reserves?

Well, I do not think it is any different than what we said to you before Collyn. We look very closely at delinquencies, we look at trends, we look at the economy, we look at growth. All of those things were factored into our methodology for the reserve, and we actually had a fairly large review of our construction portfolio during the past quarter and our credit people were very comfortable with where that reserve was. So that being the case we are telling you that we look at it all the time, we do not see a reason to just expand it to expand it. That being said, if there are factors out there that warrant us expanding the reserve then we will expand it to some percent.

We monitored very closely and we get comfort and the board gets comfort from our loan review area, which monitors it. We get comfort from a review that is done by our risk management area. So, it is reviewed. We've to substantiate it internally to the board as well as for the rest of our shareholders. Our board is very concerned about making sure that that reserve remains adequate. So, even if its looks like our loans continue to grow, obviously we are going to be adding more reserves to cover the growth. If unfortunately delinquencies were to rise, we would add more for that reason. We want to make sure that the reserve is adequate.

Okay. So that is your stand today, as you look at the coverage in terms of reserves to NPA. Is that indicating that the migration of those NPA is turning to loss is not a huge threat?

Yes that is correct. I mean the assumption is correct.

Yes. When I indicated before, we had a number of items move into the area of non-performing. A lot of those that before they moved in losses, if they were anywhere recorded, now there maybe some additional but we do not expect that be substantial at all. So as we move through these, we've already recorded these losses.

Okay. That is helpful. Then just quickly when you spoke of the delinquency trends in the auto portfolio I think you said 115 for 30 days past due?

Correct.

You said 94% are originated in New Jersey and New York of the overall portfolio, but of the delinquency, how much of that, what percentage of those loans are in-market versus out of market?

It is pretty consistent. There is not enough of a variation to really identify anything of a material nature. We do all the underwriting. Again as I said few minutes ago, we do all the underwriting here in New Jersey. We look at all the credits with the same magnifying glass that we look at no matter where they are located. Everybody is worried about cars, and I heard this repeatedly. People are going to stop paying on their cars, because of the rising price of gasoline. If they are driving an SUV they are going to stop paying. I know an awful lot of my neighbors and friends drive SUV's, none of them are planning to stop paying on their car, I ask everybody who is listening on the call, you have got an SUV, are you planning on stopping making the payments? Probably not. There are people who obviously are affected by the price of gasoline, and are going to have do things. Some of them may not be able to make their payments, but that is always been the case.

Okay, which takes me one step further. So the repossessed assets that you are seeing are repossessed cars, are you seeing a trend, a change in trend there for the used cars?

You need to be careful Alan pointed that the…

No, right you, I know you said 700,000 in autos, right?

You are right.

Okay

Okay. However, you have to remember the portfolio is larger too.

Right. However, I am just wondering if there is any deciphering trend among the autos that are getting repossessed?

No. It is very difficult, Alan?

Clearly this is our angle, clearly the impact of gas and a shifting desirability of vehicles from trucks and SUVs, which for the last five to 10 years have been the darlings of the suburban homeowner. They are focusing more on cars, and when we do repossess a truck or SUV, that shift in desirability is being reflected in the auction prices we can realize when we do liquidate that collateral. So our losses, when we do repossess a vehicle are skewed more to trucks and SUVs than they have been. This is just a function of the economy and something that we will work through.

Okay. That was all I had. Thanks.

Okay. Thank you.

Thank you. We've a question then from the line of Gerard Cassidy with RBC Capital Markets. Please go ahead.

Hi. How are you?

Good morning, Gerard.

Following up on the auto stuff, on the SUVs and trucks, and I apologize if you already said this, what percentage of the portfolio is in those, I hate to say, higher risk vehicles?

Well, they are not really higher risk. They are maybe half of the portfolio.

Okay.

However, you have to look around your neighborhood, look in the parking lot of the bank. What are the cars? Our portfolio pretty much mirrors what you see on the street.

Right.

It is not a surprise, I do not think, to anybody. While people may moan and groan about how much it costs them to fill up the gas tank, I think they will drive less, but they still are going to make the payment. They still need the car to get back and forth to work.

This is how they look at it. People bought those vehicles for a reason, either to transport their kids, their soccer equipment or other recreational activity that they had a need for. They are still going to have to do that. Each morning when they go to work, maybe they will elect to take the four-cylinder car rather than the SUV now, but they still need that vehicle.

No, no. I agree, and I am with you. Unemployment drives the numbers then. What we are seeing is, should these things go into repossession, because of higher unemployment, that is when it becomes an issue, because the values of these things have plummeted, as you know than I in the after market, because nobody is buying the new ones and so, on so forth. More importantly though Gerry, in terms of growth through consolidation, can you share with us, have you seen any increase interest of smaller community banks in your footprint that might be interested in not sticking it down and deciding to sell, and if so, have they lowered their price expectations at all?

Well, all you who deal with them, they would be happy to do some acquisitions. We just finished, as you know, in record time, the acquisition of Greater Community Bank. So far, as I mentioned, the integration went wonderfully. We've very high expectations as to what that is going to do for our franchise. That being said now, we are ready to look for something else. I would be happy to find somebody who would be interested in getting together with us. If they are listening in, give me a call.

Have there been any opportunities for you with Commerce now being takeover by TD. I thought they were going to change the signage and everything, so on and so forth. Have you seen any fallout from that, where customers are just not happy with that and they are coming over to you?

Not particularly. They were never a major lender, so you would not see wholesale movement of their borrowing base. We might see an occasional loan here or there, but not on a massive base, because they did not have that many. I just think that there is going to be some dislocation, as you pointed out, in the marketplace. I think there is going be some frustration on the part of some of the smaller institutions and that it may create an opportunity for us. We certainly would like to expand the franchise that way.

Sure, sure. Then finally on the deposit side, you mentioned that some of these weaker institutions are paying up for deposit rates. What are some of the six months or 12 months CD rates that you are seeing in your footprint there and you roll your eyes that makes it a little more challenging?

Yes. The biggest one I think, we are probably seeing without mentioning names is probably in the 4% to 4.5% range right now between six months and 12 months.

Great.

When someone is paying clearly 0.5 over the market for a 12 month CD, you know a bit scrambling.

Sure. Then finally, and there has been some talk this week with Bernanke and other officials and we had the PPI come out today, PPI yesterday. It seems like conventional wisdom is moving towards that inflation and it could be a problem for this economic in the next 12 months. If it is an after the election or now in 2009, they start raising short-term interest rates. How can you position yourselves or how will that effect you for '09, if the fed funds rate goes from where it is today about 2%, 3% by the end of '09?

You just saw a lot of smiles around the faces of my lending officers. We are our detectives, so we would have a positive effect upon us.

Yes. Initially, we see our primary go up when that occurs and that just helps the bottom line initially.

Because our deposits do not move as fast as our funding sources, do not move as fast as our actives move. However, that raises rates, interest rates on our assets all of our prime based loans, they go up on day one. However, in the reverses what hurts us over the last couple of years is that they kept lowering rates. However, this is the reverse. This is happy time.

Great. Thank you.

All right. Thank you.

Thank you. AND our next question will come from the line of Bob Hughes with KBW. Please go ahead.

Hey, good morning.

Hey, good morning.

Good morning, Bob.

Good morning, Bob.

Hey may be a couple of quick follow-up questions on auto, and I apologize if I am reading anything. If I did pick up a few details, I think the truck/SUV exposure does generally marry that of the industry. What is the breakdown between new and used?

Hey may be a couple of quick follow-up questions on auto, and I apologize if I am reading anything. If I did pick up a few details, I think the truck/SUV exposure does generally marry that of the industry. What is the breakdown between new and used?

About half and half.

Half and half.

Yes.

Okay and then

Although we think those numbers have not changed going back as far as our records can tell us.

Okay.

Now we've been in this auto business since the 50s. Our performance on new and used is almost identical. It is the amount of people that have new cars versus the amount of people also have used cars. They are almost identical.

Is this severity on new, typically higher than used?

No.

Given that once you title a vehicle and drive it off a lot.

What [inaudible] are angling at, one of the ways we get the new in competition with the captives, is generally when the captive is offering an incentive rate to move the vehicle. They offer the customers the alternatives of a cash rebate; call that equity in the vehicle in lieu of this incentive rate. We then take that deal as a market rate financed transaction, applying that rebate to what would normally be a loan balance. So we are getting that loan at a discounted price in that new car market, so that helps us when and if we ever get into a liquidation situation.

Okay.

Also in response to the rising price of fuel over the last six to nine months as tight, as our standards have always been, we continue to tighten our lending standards, requiring more money down on the vehicle, looking for even higher FICO levels. So we haven't sat here waiting doing nothing, saying that okay if the price of gas goes up, we are just going wait until it affects us. So we've been responsive in a positive fashion for sometime now.

The percentage of our portfolio with FICO scores on the high side of the scale has improved over the past two years as Gerry said. We were constantly adjusting two market conditions our risk profile, and our adjustment has been for the vendor.

Okay. In your Q I know you made mention of expanding the geographic presence. Have you talked about the breakdown of your indirect portfolio geographically or how important is Florida to the overall franchise?

Very small.

Yes originations are running about 6% of the overall, so it is pretty small and we are also in some of the better markets, we are not in some of the markets that are really seeing huge problems in the housing side and unemployment.

Okay. Let me see a follow on your favorite subject Alan, reserving methodology. If we could just take a look at the June allocations for consumer loans versus March, I am surprised to see that it is dramatic, that the allocation of the reserve. In general I think the dollar terms, well the dollar terms did not change too much, but the allocation seem to go down a little bit to consumer loans. To me even if you are not seeing any increase in frequency and your delinquency matters remain incredibly tight, but if you are not even seeing increase in frequency, I think are we seeing increases in severity across auto and home equity by the day here.

We are not seeing anything in home equity, as a matter of fact, as we indicated in the release. You may have seen it, Bob, S&O has ranked us within the top ten institutions in the United States on credit losses in home equities as having zero credit losses. So from the standpoint of home equity, I am not sure why we should be increasing it. We are seeing almost no delinquencies. Then in terms of credit losses, we have zero. So I am not sure why I should be increasing the home equity portfolio. The fact that others across the country did some 125% loan-to-value lending or purchased portfolios or things like that, we are only lending in our own market. Based on that lending and our underwriting, and the fact that we are not sitting out there exposed in what I will call unsecured positions, but I think a lot of other guys are doing, we are comfortable with where we are.

Yes.

We haven't seen losses in the home equity at all. In fact, we do some things that I am sure a lot of other institutions do not. We actually monitor the checks that come in on the home equity and watch where the money is going. We will call the customer. We've the right to freeze the line if we see that the checks seem to be going to fail to make their credit card payment every month. We will just freeze the line. We will cut the line off. So we monitor a lot closer than most people realize.

Bob, just on the other consumer, which obviously includes the auto side. On a real dollar basis, that reserve has been increasing as the portfolio is going up. If you look across the spectrum from '07 into the first quarter of '08 and '09, into the second quarter of '08, as a percentage basis for the moment, it is relatively flat, it has not done much. However, we are watching it very closely as we move through the cycle. So, we will have to just continue to monitor that is what I am gong to tell you at this point.

Okay. Maybe one final question I let you get back to happy time. Auto losses in the quarter, generally, where do you see the level of auto losses running, this quarter or past few quarters?

They were running up a little bit from we had been. However, again, it is higher because we've got a bigger portfolio. Now, as that starts to settle in over a period of time, you are going to see some additional losses. However, we think it is still well controlled and we are comfortable with it. Obviously, we do not want to see any higher losses, but that being said, its I think as we've said before, in this environment and with what is going on in the world of autos and gasoline and so forth, it would be foolish of us to think we are not going to see losses, but I think we have a companion.

I understand. I mean, I know you underwrite prime paper and all that. The level of losses generally in the 70-80 basis points range or?

No, substantially lower than that.

Yes.

Yes, we are probably running around 50 basis points.

Okay, very good. Thanks.

Okay.

Queue in the next question will come from the line of Matt Kelly with Sterne Agee. Please go ahead. Matthew Kelly - Sterne Agee & Leach: Yes, I was wondering if you can give us an update on any trust preferred pools, or bank assured pools that you have in the portfolio?

We really have almost none of those in our portfolio. We are pretty much immune to what we may have a couple of small pools but I mean a couple, less than a handful. Matthew Kelly - Sterne Agee & Leach: What was the dollar amount of those handful there?

20 million or less. Matthew Kelly - Sterne Agee & Leach: Okay.

About 20 million. Matthew Kelly - Sterne Agee & Leach: Okay. Then, on the Fannie and Freddie preferred issue, I mean, how are the auditors going to treat that overtime? I mean, you are looking at some of those trading down 50% or 60% from issue price for both of the agencies and how long they are going to left that disconnect between carrying at a 5%, 10% and 15% discount at June 30th versus those things trading in the market down 50%, 60%?

Well, I think I answered that already. However, let me just go back to say that we did take the fairy large write down back in December of about $80 million. We took a small write down at the end of the most recent quarter. As I said, we are continuing to monitor it. We are going to do everything we've to do in accordance with generally accepted accounting principals, and if it requires impairment we will do that. The question becomes whether it is an other than temporary impairment or whether it is just temporary. I think for the moment, while the government is trying to work through the situation to determine, what will happen going forward, we are viewing this as a temporary impairment and we will wait to monitor it through the quarter. Matthew Kelly - Sterne Agee & Leach: Okay. Then, just to clarify something. I was looking through the call report in other domestic debt securities, I mean, in available health maturities like 300 million and available sales of 160 million. What is in there?

We own some trust-preferred in individual institutions. Matthew Kelly - Sterne Agee & Leach: Okay.

Not all, but generally individual or investment grade rated. We are all where we are pretty comfortable. Matthew Kelly - Sterne Agee & Leach: What is the dollar amount of single issuer trust-preferred?

Almost to all. Matthew Kelly - Sterne Agee & Leach: Okay. So it is about 460 million then?

Yes, I would say it is in the 400 plus range. Matthew Kelly - Sterne Agee & Leach: How you are approaching the valuation of those? I mean, those are seems to be pretty big hits as well.

Well, I think the issue varies is that those are securities with maturities number one, and I have been stated maturities are handled very different then perpetual preferred. So, at the moment, while they are below market, they are below market more on an interest rate basis and not the credit rate basis. We are comfortable they are being mark-to-market if at all through OCI, and at the moment unless the accounting rules changes. That is how we will continue to handle them. Matthew Kelly - Sterne Agee & Leach: You mean they are both being valued and the cash flows that they are continuing to split off and making payments not on whether actually traded?

It is not cash flows. These are all actively traded securities. Matthew Kelly - Sterne Agee & Leach: Okay.

So they are not based on cash flows, they are based upon market price. Matthew Kelly - Sterne Agee & Leach: Okay. All right thank you.

Next question will come from the line of Peyton Green of FTN Securities. Please go ahead.

I was just wondering, if you could comment a little bit on the growth in residential year-over-year, and then how much more opportunity there is, and then also the decrease in home equity, is there anything in particular going on there?

Al right, I will answer that. Okay, this is Alan again. Residential grew nicely for our year-over-year, largely as a result of mortgage bankers, mortgage brokers being taken out of the gain, mortgage bankers and mortgage brokers who had originated and sold to conduits, no longer have those takeout capabilities. Their warehouse lines are being curtailed. So we are seeing a nice increase in that business. Quite a bit of resale home transaction still occurs in our marketplace and this is good. One of the things that we did do, we did exit the Florida market for residential home originations back in February. We had a small loan production office in Jacksonville, Florida. We became concerned with some of the metrics we were seeing down there, and we decided to close that operation which we did, and subsequently we've sold any of the conforming loans that were originated out of that facility into the secondary market. So we've no credit exposure lingering from the effort that we put in for that loan production office. On the home equity side as Gerry alluded to, or specifically stated on the deposit end of the balance sheet, with a lot of rational pricing going on in deposit side, we've tended to set, take a back seat on our home equity originations as we've seen a lot of competition at prime minus 1.01%. We just do not see 4% assets, as a good thing to have on our balance sheet right now, especially with concerns over people's equity positions. That coupled with our underwriting philosophy of staying away from high combined loan to value ratios on of our home equity portfolios, has not allowed us to be an aggressive participant in that market. Consequently, we've allowed our outstanding to run down a little bit in that sector.

Okay. Then, just in terms of the overall production on the residential side, what are those loans look like, loan to value, average loan side, something like that?

Our average loan-to-value values typically run 64% to 72% loan to value ratio. Our credit scores are generally averaging north of 750. They are excellent loans.

Okay. Would those be jumbo or conforming or combination.

Both.

Great, Thank you

(Operator Instructions). At this time, there are no further questions.

Thank you. See you next quarter.

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