Ladies and gentlemen, thank you for standing by and welcome to the Valley National Bank Fourth Quarter Earnings 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). Also as a reminder this teleconference is being recorded. And at this time I will open the conference call over to your host Ms. Dianne Grenz. Please go ahead.

Thank you good morning. Welcome to Valley’s fourth quarter 2013 earnings conference call. If you’ve not read the earnings release we issued earlier this morning, you may access it along with the financial statements and schedules for the fourth quarter from our website at valleynationalbank.com. Comments made during this call may contain forward-looking statements related 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’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 fourth quarter earnings conference call. We are pleased with the Valley’s fourth quarter results as the financial performance and credit metrics continue to improve markedly from prior periods. During the quarter we originated over $700 million of new loans despite a considerable contraction in residential mortgage activity. Commercial lending was once again the bright spot generating over $500 million in new originations an increase of over 50% from the same quarter one year ago. Valley’s commercial mortgage portfolio comprised the bulk of the originations accounting for over 60% of the new commercial volumes recognized in the fourth quarter. For the year, Valley originated over $1.3 billion of new commercial mortgage loans representing nearly a 150% increase from the same period one year ago. Many of the originations in the commercial real-estate portfolio were 10 year adjustable rate loans with interest rate resets occurring after 36 and 72 months. For the fourth quarter the average rate on new commercial real estate originations was approximately 4%. To a great extent, a sizable amount of the new volume originated was within the New York City geography as both the New Jersey and Long Island markets continue to slowly rebound. Competition within the CRE marketplace remains pierce as large money center institutions, local community banks and even credit unions compete for the traditional middle market customer. At Valley, credit quality remains absolute and while we may modestly relax on pricing, we remain steadfast on credit churns and conventions. Although not as sizable as commercial real estate originations, C&I activity was brisk for the quarter as Valley originated over $200 million of new loans, nearly 25% more than the prior quarter. However, the portfolio contracted slightly as pay-offs within Valley’s purchased credit-impaired loan pools and legacy…

Thank you, Jerry. Net interest income in the fourth quarter expanded $4.5 million from the prior quarter to $116.1 million. The increase is largely attributable to growth in average loans outstanding, reduced premium amortization within the investment portfolio, combined with a reduction in interest expense on most interest bearing liabilities. Average loans outstanding grew over $500 million during the last six months, as Valley redeployed excess liquidity into higher yielding assets. The increase in average loan balances accounted for approximately $2.0 million or 45% of the total link quarter increase in net interest income. The improvement in loan interest income during the fourth quarter was partly mitigated by a contraction in portfolio yield as the average rate on Valley's loan portfolio declined 5 basis points from the third quarter of 2013. In the aggregate Valley originated over $700 million of new loans during the quarter, at an average yield of approximately 3.6%. While the loans are accretive to net interest income, the yield is less than the collective yield on total loans. Unless market level interest rates begin to rise beyond current levels, we anticipate continued pressure on the yield on average loans. In addition, fourth quarter interest income was positively impacted by $1.8 million due to a reduction in premium amortization on Valley's taxable investments as compared to the linked prior quarter. Principal pay downs on mortgage-backed securities declined nearly 35% from those realized in the third quarter and nearly 45% from the cash flows recognized in the same period one year ago. As of December 31st, the unamortized premiums on mortgage-backed securities were approximately $56 million of which we are scheduled to amortize approximately $14 million over the next 12 months, based on current projected prepayments fees. As a result of the reduced premium, amortization recognized during the…

Thank you very much. (Operator Instructions). We'll take our first question from Ken Zerbe with Morgan Stanley. Please go ahead.

Great, thanks. Hey Gerry, just want to follow up on the expense guidance that you're talking about. Obviously you’re selling your properties; you're investing in something smaller. Was -- are we supposed to -- did I hear right that expenses are going to stay flat on sort of a go forward basis as you're investing is offset by cost savings or are we actually looking at a material decline in expenses over the next x number of years?

It's kind of difficult to measure the long-term benefit. We don't expect -- at least at this point we do not expect any increase in expenses as a result of the steps we're taking. Now, if we can reduce some of the expenses along the way that will be terrific. And I want to make it clear that we’re not talking about a wholesale sale of all our facilities, this is really a rifle not a shotgun approach. We have a situation that appears to be we would be better off if we relocated the branch to a different location, so the branch moved into a smaller facility. That would make sense. As we've announced over the years that we've had this pent-up stored up value in our branch network, in the buildings that we own and where appropriate, we over the next whatever period of time it takes may decide to sell some of them.

Got you. Just on that a little more specifically, because in your prepared remarks it sounded like out of the 100, this is going to be something that we could see fairly frequently. And just to get that magnitude, are we talking one per year or are we talking five per year?

I really couldn’t give you a number because it involves a lot of strategic issues. The sale of a building doesn’t mean necessarily that we don’t want to continue a bridge at approximately that location. So, we would first have to find another location that makes sense. In some cases, it may prove that wait a minute; we’re not going to sell the building, we’re going to lease out part of the building. There are number of alternatives and there hasn’t been anything definitively outlined about it. But surely over the next several years, we may see other opportunities coming up.

All right that helps. And then just last question on the non-interest bearing deposit growth you saw in the quarter; was there anything unusual with that? Because I remember before you talked about funding loan growth with securities, but it seems you don’t need to just given the strong deposit growth this quarter?

To some degree that’s correct.

All right. Thank you.

Thank you. Our next question in queue will come from the line of Steven Alexopoulos with JP Morgan. Please go ahead.

Hey, good morning guys.

Good morning.

Good morning.

Regarding, Gerry’s opening comments that commercial real-estate originations were up 150% year-over-year which was a great full year, but really made up no growth in the first half and then surge in growth in the second half of the year. Can you just talk about the market dynamic that’s causing such a jump to commercial real-estate originations in the back half of the year?

A lot of it’s coming as I said in my remarks, out of New York City. The real-estate market in New York City is very aggressive. It’s a very strong marketplace more so than we see in our Northern New Jersey footprint, although I am not ignoring our Northern New Jersey footprint, but this has really been the strongest part we have seen. And if you look at the demographics as we presented actually to our Board yesterday, the growth in greater New York City has outpaced both New Jersey, North New Jersey, Central New Jersey even Long Island for that matter. So we’re fortunate that we have grown our footprint so that we cover Manhattan, New York City and we are able to take advantage of that.

So Gerry, is that primarily being multi-family?

It’s -- a lot of it is underlying co-op loans. If you are familiar with that market, it’s a pretty secure market; you’re really only lending a small percentage of the appraised value. Usually on average it’s well under 10%. So, it makes us feel comfortable with that product. We have seen other types of real estate in New York City too that are very attractive.

Do you feel the market is growing this quick or you’re just taking quite a bit of market share here?

Well, to some degree we are taking market share, they are not building that many new buildings. So, there was an existing building, we are taking it from somebody else. But we’re fortunate we have a really strong commercial lending staff and they are well known in the community and they are taking advantage of the opportunities that are presenting themselves.

So do you think that what we saw in the back half of the year could be sustainable in 2014?

Yes.

Okay. And then just one final one regarding the ten year term loans that you talked about, there we said a 36 and 72 months both be resetting off of, what is the benchmark rate?

It’s a predetermined rate that we use the swap rate in setting the loan initially. So…

So you’re…

The first three years are little bit lower for the borrower, the next three years have just about had market for -- in the last four years are somewhat above what the current market would be, so that if rates do move up, we have some comfort that we’re protecting ourselves.

Yeah. We had heavy prepayments on those as well. So that we know that we’re going to get the benefit at the backend with the higher rate that we’re entitled to.

Okay. I appreciate the color. Thanks.

Sure.

Thank you. Our next question in the queue will come from Craig Siegenthaler with Credit Suisse. Please go ahead.

Good morning. It’s actually Nick Karzon for Craig.

Hey Nick.

I guess just following up on your comments on the investment securities portfolio, if we continue to see relatively strong loan growth, could that decline further? And then also in terms of the rate, wondering what that current rate is on the taxable investment securities and where that might ultimately migrate to with rates remaining relatively constant over the course of the year.

Yeah. That's the point. Nick, this is Gerry. As far as loan growth is concerned, the bank would certainly prefer to make loans as opposed to investments from an income standpoint. Obviously we need a certain amount of investments for liquidity purposes. But from an income standpoint, we’re far better off making loans. So I’d rather grow the portfolio by putting on more loans. Alan, do you want to speak to the...

Yeah. So the interest rates obviously have gone up mostly as a result of the premium amortization which I think we talked about in the release. But that being said, that was part of our strategy all along. For a number of years, we were buying high premium and high coupon securities. So, in the time of lower interest rates you were getting a much lower return, but we anticipated eventually as rates moved up, we would be able to see a shorter amortization period and interest rates would rise on those particular loans, we did this mostly on all kinds of mortgage backed. And so that’s what actually has happened in the last say six months or so where rates went up to say 3%, the prepayments slowed down, the amortization slowed down and then the yield on the portfolio went up.

Got it. That’s helpful. And then the second question on the interest-bearing deposit accounts it looks like the rate that you are paying ticked up a little bit quarter-over-quarter. I was wondering if that’s largely driven by mix shift or if there are any changes in pricing in the quarter?

I think it’s a mix shift kind of a thing more than anything.

Thanks for taking my questions this morning.

Thank you.

Your next question in queue comes from Dan Werner with Morningstar. Please go ahead.

Good morning. Thanks for taking my questions.

Good morning Dan.

Given that you had such significant auto loan growth, could you remind us how much is that from indirect versus direct? And on the indirect side the dealer network has that been expanding, contracting, used versus new, just kind of give me how that business is going?

Our loan auto volume is predominantly almost entirely indirect. We have grown our network of auto dealers, but I think which is right now is approximately 300 different dealers that we buy paper from, mostly located in our [footprint] Northern New Jersey, Long Island. We try not to just trade too far from that. We do a little bit in Pennsylvania. It's a mixture of both new and used. Ironically our performance -- I’m being told variety of (inaudible) 60% note. So, it's a business that Valley has been in for many decades. We actually got into the business in the mid 50s and we've never left the business. The sale of automobiles drop dramatically in the 2008, 2009, 2010 period, as a result our volume went down, but it seems to be coming back again to levels that are not quite where they were at the high, but much, much better than we had seen at the low points.

Great. And then second question, could you reconcile for me the modernization program with the branch, as you said that you want about a third of them to be modernize. Can you kind of reconcile that with the sale leasebacks that you're going to be doing going forward?

Let me talk a little bit about the modernization so we all understand it. That's bringing in equipment that enables the customer to have a different experience in the bank. They don't have to use a live teller; they can if they want to or they can also use various automated approaches. This ties into some with my remark that people are using remote deposit capture to a much greater extent. And that people are using mobile banking to a much greater extent. We want to make sure that our branches are designed in such a way to accommodate those clients that would like to have their banking experience handle in that manner. As a result of that, the size of the footprint of the branch is not required to be as large as it was 15 years ago when many of the branches were acquired. And as a result, we’re always looking to see if we can reduce the size of any specific branch. This is not a shotgun approach though, as I mentioned before, it’s more of a rightful approach. We look at each individual branch, can we move that branch to another location that start the customer flow, the traffic patterns, could we divide the branch and since we all know lot of the branches in some cases that’s the another alternative. We don’t necessarily have to sell it, we may be able to subdivide part of it or sublet part of the branch, generate some revenue from the portion that we’re subletting. So, there are different approaches that we can take, all of which helps generate additional revenues for the bank in the future.

Okay. Thank you.

Sure.

Thank you. Our next question in queue will come from David Darst with the Guggenheim. Please go ahead.

Hey good morning.

Good morning David.

Gerry, I think in the last slot that perhaps gave the dollar amount of your roles stated the unrealized gain; I know this has done a couple of years, but that’s about $200 million?

In gross it’s about $200 million, yes. This is very hard, because you’re not looking to aggressively sell it and you’re not putting it on in the market, it becomes more of a guesstimate. But in the case of the location that we sold, it actually was sold for more than our initial guesstimate was. So it’s kind of hard to tell. Some may not tell for as much as our guesstimate. But I think your number is probably a good ballpark.

Okay. And then could you comment on C&I pay-offs versus the origination volumes in earlier [appoint], but some of the things that have been cleaned up and criticized in clogged spots that we might see more of that C&I production stick in 2014?

Yeah, the whole lot of pay-offs that came from some of the acquired institution. So you know that probably had some impact on this and probably larger than what might be normal. We have seen those portfolios, remember they are run down portfolios, meaning they’re run off portfolios. And so they are going down and they are not getting added, and a lot of that was C&I business.

Okay. And then Alan, if you just have to think about when you margin might stabilize, do you think it’s mid-year or end of the year or any idea?

Well, I know it’s something (inaudible) and where the competition is going to be pricing loans, I mean that has awful lot to do with everything, the matter what we think if the competition is 50 basis points less than us, we get a price near or at that number just to put the loans out of our books. So it’s a combination of a level of rates and the competition. It’s little hard to tell you when it’s going to stabilize.

Okay. And then just on the caps and swaps and number of other things you’ve done to manage your core position, I think you’ve done that to buy more assets into the -- if some of those are having a negative impact -- any changes with that strategy or when things might roll off?

I think some of that also have the value, should we issue now, say in ‘15 some of that rolls off.

No, no this has been…

There is this box that we put on. Well, some of them may, but basically the ones I think you saw that are negatively impacting us I believe here in 2015.

Okay, got it. Thank you.

Thank you very much. Our next question in queue will come from Collyn Gilbert with KBW. Please go ahead.

Thanks. Good morning guys.

Good morning.

I just want to make sure, Gerry I heard you correctly. I think in your opening comments you had made the point that the residential mortgage volume will be consistent in 2014 with what we saw in the fourth quarter, is that right?

Yes.

Okay. So you are not anticipating any growth, net growth in that portfolio?

Not right now. It depends; a lot of it depends on interest rate. If the fed decides they’ve got to juice up the economy again and they are going to drop interest rates, we might see resurgence in some of the refi market. If the economy continues to show signs of improvement, there may be more in the purchase market.

Okay.

(Inaudible) is another issue that qualified mortgage could have a very negative or very positive impact depending on how it’s interpreted.

Okay.

Hey Collyn I think one of the things also is the fact, in the fourth quarter wasn’t that the volume itself was as low as maybe you seem to be considering, but it’s also the fact that we sold over 50% of loans in our portfolio that came on that quarter. So you didn’t see any real retainage, I think the number we were down is about $35 million. So I’m not so sure we will be down if we retain, if we continue to do the same new volume coming in, but rather it’s a matter of what we decide to hold, and if we hold the larger amount of portfolio, we’ll not continue to go down.

Okay. And do we assume that the portion you sold this quarter was just because there was more fixed rate production that was coming through versus variable rate?

We see mostly fixed rate I think it’s more credit quality. We see LTVs that we are a little concerned with we sell the product to.

Got it, okay. That’s helpful. And then just to tie back to the NIM question a little bit, I guess given the dynamics that’s going on, I would have thought that the loan yield would have compressed more this quarter than it did. Can you just talk a little bit about that? Was that just timing of when the loans were from the balance sheet or are you seeing better pricing?

I think we you are seeing a mix of loans coming on the books. The auto loans are obviously coming on substantially lowering yield, however the commercial real estate loans and some other consumer loans are coming in at 4% plus. So even though you are seeing this 360 blended rate, there are still plenty of loans coming on that are at higher rates.

Okay, okay. That’s helpful. And then just one last question, we’ve heard from a number of your peers this quarter it seems like there has just been sort of some heightened regulatory pressure demand or whatever that is coming to the market, I would say maybe even in just this past quarter. Are you guys seeing anything on that regard, have you seen any…

No.

No, so in terms of your…

Let’s say we are running the type of the loan loss percentage that we were they wouldn’t be running into some…

No, well I think part of it is getting ready for deafest. So I just didn’t know if there is any change in what you guys have seen in the last month or two in preparation for that?

No, more on top of what they want us to do. We try to stay one step ahead of them. We try to anticipate what the regulators want. We try to get it them so they are happy with our performance.

Okay. That was all I had. Thanks guys.

Alright.

Thank you very much. (Operator Instructions). And next in queue is Matthew Kelley with Sterne Agee. Please go ahead. Hey Mr. Kelley your line is open. Please check your mute key. Okay. Mr. Kelley, can we start? There we go. Thank you.

Thank you. On the loan yield and in the margin during the quarter, were there any impacts from accredible yields or transactions that might have benefited the margin?

Nothing that wasn't in the quarter before.

Okay, got it. And then on the expenses, bunch of one-time items, mark-to-market gains, amortization of tax credits, rental expense, can you just reconcile those again where we should be starting the first quarter from a base level of expenses?

Yeah, I think we kind of gave you a little bit of guidance there, but we had about $7.1 million of those varying items netting out that were additional expenses during the course of the quarter. We only expect about $2 million of that to repeat itself in the first quarter of ‘14.

Okay, got it. So $5 million?

So, approximately $5 million will be there, right.

Okay, got it. I want to make sure in that. And then as you transition this first-third of your branches into the new model more technology pushing people towards the self service offering that and staffing goes down. On this block of one-third of your branches, is there a net savings on total expenses?

Many of the time, yes, yes. Yeah, I mean I think initially you start to see for example with the cost of the modernization if you will, you got equipment, you got to buy, you've got to put it into place, you have depreciation on that. And it's going to take time to work through the system. And so you start to see staffing changes et cetera, et cetera.

All right. Then last question, I want to be clear to the [securities] book ended at $2.6 billion was up about 6% in ‘13. Where do you see that at year-end ‘14, how is that going to progress?

Maybe up slightly, but it’s only a little bit [depends] on loan growth. I think as Gerry pointed out before, if loan volume comes in the way we hope it will come in then we don’t have a need to increase the portfolio.

Thank you.

We remind you, at this time there are no additional questions in queue. Please continue.

Thank you for attending our fourth quarter conference call and have a nice day.