Ladies and gentlemen, thank you for standing by, and welcome to the Valley National Bancorp Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now turn the conference over to our host, Ms. Dianne Grenz. Please go ahead.

Thank you, Josh. Good morning, welcome to Valley's Fourth Quarter 2014 Earnings Conference Call. If you have not read the fourth quarter 2014 earnings release that we issued earlier this morning, you may access it 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 the SEC filings, including those found in Forms 8-K, 10-Q and 10-K 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, and welcome to our fourth quarter earnings conference call. For the quarter, Valley reported net income of $25.1 million or $0.11 per diluted common share. The quarter included many infrequent items, most of which Alan will provide more detail on during his remarks. For the full year of 2014, the bank produced net income of $116.2 million or $0.56 per diluted common share. With the close of 2014, Valley continued its history of generating positive earnings and creating long-term sustainable growth in equity for its shareholders. As with most commercial banks, Valley's revenues remain under pressure as the result of the continued record low interest rate environment. The good news, however, is that our relatively high-cost borrowings are beginning to mature, and if rates remain low over the next few years, our cost of funds should decline significantly. Also, the amortization expense attributable with our FDIC loss share receivable will drop by several million dollars a quarter beginning at the end of March. During 2014, Valley embarked on multiple significant strategic initiatives to address technological changes affecting the entire banking industry, as well as the demographic and economic changes unique to Valley. A little over a year ago, we announced our branch modernization initiative to incorporate new delivery channels and self-service banking platforms designed to meet the changing needs of our customer base and to remain competitive with the leaders in the banking industry. Our plan incorporated introducing new technologies to enhance the customer experience, while modifying the branch network to rightsize our branches to meet the change in customer foot traffic and services required at each branch. During the past 12 months, we have introduced and enhanced mobile banking platform, providing our customers the capability to deposit checks from their smartphones, and in the next few…

Thank you, Gerry. The fourth quarter financial results included the November 1 acquisition of 1st United Bank, as well as other infrequent items, which significantly impacted the reported net income and associated performance metrics. In direct association with the 1st United transaction, Valley incurred merger expenses during the fourth quarter, totaling approximately $1.5 million of professional and legal fees, and also, $7.6 million of aftertax valuation adjustments to Valley's deferred tax asset. The combined negative impact of these 2 items on Valley's diluted earnings per share for the quarter was $0.04. While the merger charges reflect customary transaction fees synonymous with an acquisition, the adjustment to the valuation of Valley's deferred tax asset is unique and is largely attributable to the difference in state income tax rates and income allocations between New Jersey, New York and Florida. On a prospective basis, Florida's lower effective state business tax rate will be a benefit to the bank. However, the value of the previously recorded deferred tax assets is immediately reduced as a result of the difference in tax rates between the states, and therefore, a direct result of the merger. Other infrequent expenses recognized during the quarter consisted of $15.5 million in noninterest expense, including $10.1 million attributable to the extinguishment of $275 million of long-term debt and a $5.4 million increase in the amortization of tax credits due to new credits immediately recognized as a tax benefit in the fourth quarter. The aftertax impact of these items on Valley's fourth quarter diluted earnings per share was approximately $0.04. Partly mitigating the combined negative impact of the aforementioned infrequent items was a gain of $17.8 million related to the sale of a Manhattan branch location, as discussed in today's press release. The aftertax increase to diluted earnings per share related to this…

[Operator Instructions] And our first question comes from the line of Collyn Gilbert with KBW.

Alan, could you just give a little bit more color as to the increase on the tax credit investments during the quarter and kind of what your outlook is from here on that?

Yes. I mean, I think the way you really need to look at it, Collyn, is that we're going to run a 27% to 29% effective tax rate. That rate will incorporate the tax credits that we may invest in during the course of the year, as well as everything else that comes into play. So there's not anything specific. I mean, we do have tax credits that we put on all the time. It obviously causes some increase, as we talked about of -- this particular quarter of $5.4 million of amortization of those credits. But that $5.4 million is not going to carry forward quarter-to-quarter. It's almost like a onetime amount offsetting some of those credits.

Okay. Okay, that's helpful. And then just in general, but let me back up for a minute, did I hear you correctly in your comments on what 1st United did in loan originations during the fourth quarter? Did I hear you when you said $980 million of non-covered loan growth?

No, no, no. That was the amount of loans we acquired.

Why is that non-covered then?

Because those are not covered by the FDIC. So...

Oh, you're just talking about...

I think there was about $180 million of loans that were covered by the FDIC transactions that they had participated in, and those that were not part of that were the $900-plus million.

Oh, okay. Okay. Okay, got it. And then...

We would have been very happy with $984 million...

Well, I was like, "Wow, they've really turned on the origination engine," if that were the case. Okay. And then just, obviously, some movement here on the expense side in the quarter. Can you just give us a little bit of color as to what you're kind of thinking once it settles out what a normalized expense run rate is going to be in the coming quarters?

Yes. I mean, obviously, it's going to be a lot less than we're talking about here. I think we gave you, first of all, a lot of the, what I'll call, infrequent or onetime kind of charges, we think those numbers are going to head down south from where they are, obviously. They should run in the area of about $105 million, beginning in the first quarter, and then we think they'll trend down somewhat from there. I don't want to pinpoint anything specific other than saying that that's a ballpark of where we think the numbers will run. They're going run down from there because, as you know, first quarter generally sees things like snowplow costs and high FICA costs, so tax costs are higher. Plus the fact that the reduction in cost from 1st United, as we said, as we get off of their platform of computer systems and some people, will tend to trend those expenses down as we get into the second quarter.

Okay, okay. And then just, do you have the amount of what the amount of accretable income came in through the margin this quarter?

No. That number -- hold on 1 second. Yes, 1st United was about $10 million. So again, because of the fact that we had the 1st United loans, as well as our own loans, all of that impacted the accretion during the course of the quarter. And on the case of 1st United, we only saw 2 months of that. So we'll see an additional month coming in next quarter. So that number actually should go up a little bit.

Okay. So that $10 million that you're talking about, that is accretable income versus just interest income that's been generated on the additional loans coming on to the balance sheet? That's up and above that number, is that right?

Well, we account for everything, so that's accounting for the whole thing. So all of it is accounted for as accretable income, the 1st United as well as what we have coming through Valley's PCI loans or covered loans.

Okay, okay. And I know you guys don't like to give NIM guidance. But just kind of thinking big picture here, is the messaging, the fact that the loan origination yields coming out of Florida are obviously a lot higher than your current portfolio and that should drive the NIM higher throughout the year?

You know what, I don't think, Collyn. Remember, we acquired them and they did have some FDIC loans again, we indicated about $180 million. So part of that is driving their yields higher, plus the fact that they are getting slightly higher yields than us. But remember, their numbers are not 100% of Valley's numbers up north. So we don't expect necessarily that we're going to see a large increase. But we do expect some increase, first of all, because the borrowings went away. So the NIM should be positively affected for the balance of the year. And -- but we don't expect that the loan origination volume coming out of Florida is necessarily going to largely offset the loans coming on in New Jersey at an average of, say, $355 million, which I think we indicated -- which we indicated. I'm sorry, I'm losing my voice.

[Operator Instructions] And our next question comes from the line of Ken Zerbe with Morgan Stanley.

Gerry, you mentioned -- you were talking about the unrealized gains that you have on the 100-plus branches that you guys actually own. Can you quantify that? What -- I mean...

We, in the past, indicated that we felt we have a gain of between $150 million and $200 million. I know that's a wide range, but they are significant, what we hold in the branches. And they change depending upon market conditions. New York City got very hot, and I think a lot of the gains that we've seen coming out of the offices that we've sold in Manhattan are a reflection of that. They're probably higher than what we thought they would be worth several years ago. As to some of the other real estate, we don't do a daily reevaluation on it. So -- but it is significant, obviously.

Understood. Okay. And then just you talked a lot about the ATM network and the mobile -- your mobile initiatives. But when you think about the timeframe that it takes to bring down headcount, obviously, shrink your branches, can you just help us give a better sense of, are we talking over the next 1 year, 5 years? Is it -- I'm trying just to put some numbers around the benefit.

Well, in 1 year, we shrank the expense by 10%.

But is that sustainable, that 10% a year? That's what I'm asking.

Yes, I think so. We're focused on wherever we can save money. Obviously, as I made in the remarks I made, the entire industry is being squeezed because of the prolonged low interest rate environment. So we have to look every place to where we can cut back on expenses to help offset that. The drop in interest income isn't only experienced by Valley, it's every bank that makes loans.

And our next question comes from the line of Frank Schiraldi with Sandler O'Neill.

Just on the -- sorry if I missed this, but the long-term borrowings that are paid off, how is that getting? Is that just getting laddered back out into FHLB borrowings? And what's sort of the pickup there?

No. No, we use cash on hand.

Okay. So it's just a shrinking of that, of the FHLB advance book. And as now, we're sort of approaching additional high-cost borrowing maturities. Is it reasonable to think there's a good chance we'll see additional prepayments even ahead of maturities here?

Yes. I think that that's going to be a little opportunistic, so to speak. We have not a lot remaining. We have about $100 million this year coming due, which is some sub debt, that'll probably wait until it actually matures. In '16, we have a fair amount coming due in the first quarter. It'll obviously be reviewed, and if it makes sense to do that, then we'll prepay it. But that being said, we don't want to take large charges that are going to offset our -- or reduce our capital position in advance.

Yes. As we pointed -- I pointed out in my remarks, this is Gerry, we reduced the debt without hitting our capital, in essence, because we had excess funds when we sold the building. They were -- those funds were never counted in our capital by anybody to begin with. So we were able to extinguish the debt without hitting capital.

Yes. And I think, as Gerry said and as he talked about before, we have 100 other buildings. We are looking to rightsize our branches. We're looking to take advantage where it makes sense. If in fact we were to possibly sell another building and there was a gain there, then as he just pointed out, we wouldn't be invading capital if I had a gain, and we might be using that to prepay some additional borrowings.

Josh, are there any further questions?

We have no further questions at this moment.

Okay. Thank you for joining us on our fourth quarter conference call, and have a great day.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.