Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter Earnings Release Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Senior Vice President, Public Relations, Mr. Marc Piro. Please go ahead.

Good morning. Welcome to Valley’s second quarter 2017 conference call. Today’s call will include coverage of the Investor presentation materials which include highlights of the merger, second quarter 2017 earnings, and the results of project LIFT. These investor decks are meant to accompany the presentation made by management during this call and can be found on our website at valleynationalbank.com. If you have not read the second quarter 2017 earnings release, or merger release, or the associated Form 8-Ks that we issued earlier this morning, you may access it from our website at valleynationalbank.com or at the SEC website. Comments made during this call may contain forward-looking statements relating to Valley National Bancorp and the banking industry. Valley encourages participants to refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements. Now, I would like to turn the call over to Valley’s Chairman, and CEO, Gerald Lipkin.

Thank you. And welcome and thank you for attending our second quarter earnings call. This has been a very exciting period for Valley. The second quarter grew today in paying the completion or start of several important steps to enhance the Valley franchise and achieve our producing long-term, superior returns for our shareholders. During the quarter, our company produced favorable income and operating results both in line with our internal projections and many analysts’ earnings expectations. At this time I will touch upon some of the highlights of the quarter and then Alan will go further into the details. Net income increased to $50.1 million, up from $46.1 million in the first quarter of 2017 and $39 million in the second quarter of 2016. This represents increases of 8.6% and 28.3% respectively over those periods. Diluted earnings per share increased from $0.18 – increased to $0.18 from $0.17 in the first quarter of 2017 and $0.15 in the second quarter of 2016. Net interest margin increased to 3.20% from 3.14% in both first quarter 2017 and to the second quarter 2016. Return on average assets increased to 0.86% increasing from 0.80% in the first quarter of 2017 and 0.72% in the second quarter of 2016. Return on average tangible equity increased to 11.88% for the second quarter and compared to 11.09% and 10.38% in the first quarter of 2017 and the second quarter of 2016. The efficiency ratio, excluding tax credit investment amortization for all periods was 57.6%, compared to 61.6% in the first quarter of 2017 and 63.8% in the second quarter of 2016. Our annualized growth was 6% for all loan portfolios during the quarter and that’s after $122 million of residential mortgage loans were transferred to loans held for sale at June 30, 2017. And credit quality…

Thank you Gerry. Good morning. I’d like to start by reiterating some of Jerry’s comments. We had a very successful quarter, we were very pleased with the results that we had and all of this, as Jerry also indicated, is before the acquisition and before the LIFT program, which Rudy and Ira will talk about a little later on. So let me start by talking about net interest income in the margin. And we’re on Page 5 actually of the deck that we’ve sent out to you. So as we said the margin increased six basis points from 314 to 320 and there’s a number of things that obviously contributed to that during the quarter. First of all, we had very solid increases in net interest income both quarter-over-quarter and year-over-year. The average loans increased $389 million over the quarter and we’ve seen on all new originations coming in the door that rates have increased across the Board. During the course of the quarter, as you will probably know, we saw a Fed rate hike on March 15 and then the second one that occurred on June 15. So we have approximately $5 billion of loans that are impacted by the movement in that rate hike. So that helped a lot in this quarter to see the increase and obviously the June increase will help us as we move into the to the next quarter. We did record during the quarter, as we indicated, about $3.5 million of net swap fee income quarter-over-quarter, which helped to increase the margin. We did slow some of our investment purchases down. We are trying to make a little room for higher loan level growth and at higher rate. You’ve also noticed that our deposit rates have begun to increase, although not as dramatically…

Okay, thanks Alan. So on Slide 9 we want to remind the audience we talked about this on the road quite a bit that we have really three crisp, major, strategic initiatives for Valley and they include enhancing our non-interest income, growing our customer base, simply grow good growth and improving our operating efficiency. And so when we look at not-interest income we have a series of engines that we’ve engaged to produce what we think of as sustainable income sources at the 15% to 20% level. We’re well on our way, we’re excited about it, we’re going to come back to that theme in a moment. With respect to growth, we seek to be a growth bank. We want you to think of us as a growth bank at the 8% to 10% loan growth level organically. And we would punctuate that occasionally by – perhaps by acquisition. And when we think about efficiency we’ve made great strides. I think back to 2014 and 2015 and I look at it today you saw the announcement Alan reviewed we make great, great strides again. All of our goals are about sustainable statistical conclusions to our goal. If we toggle to Page 10, first, let’s review the non-interest income revenue goal. Resi mortgages are our single largest engine for creating a sustainable gain on sale model. It’s in our DNA, Valley has been in the residential mortgage business for many decades. Our challenge here candidly was that we’ve been imbalanced historically with a refi program, but not really in the purchase mortgage business and not with a purchase mortgage engine, that’s no longer. If you see our mix change already from 9% purchased to 62% purchased, again under the tutelage. I can’t spell tutelage, but I know its Kevin Chittenden’s tutelage.…

Thank you Rudy. The third pillar of our initiatives really is to improve the operating efficiency of the organization. This really was a multifaceted effort that we started in 2015, is to have a sustainable manner that we are able to facilitate a change in culture that we have perpetual improvement throughout the organization. In 2015 we announced a branch rationalization program that was about $18 million at the time and included closure of about 30 branches which was 30% of our overall footprint. We executed on that transaction within 12 months and we did about 1.5 million greater than what we originally announced and a quarter ahead of our original schedule. Before this branch rationalization program, we had an efficiency ratio that was close to 70%. In the last 18 months we brought that down 10% to right around 60% today. Next we’ll talk about LIFT the goal is to get that in the mid to low 50% range as we continue to move forward. If you turn to Slide 14, we want to talk a bit about what project LIFT was to us the process we went through and then we’ll get the results of what we’ve done here. I think as we mentioned in the last couple quarters we identified a bottoms-up approach in implementing project LIFT, where we own the results, the business line leaders own the implementation of it and we engaged a third-party EHS to come in more than advise your role to help us facilitate the process. It is important to us not to have an advisor come in to own the process but an advisor to come in to help us facilitate the process that we as an organization owned. We staffed the Group with 20 people internally here, high trajectory people…

So if you look back at us in the last couple of years, and we both together our $19.5 million that was largely branch rationalization with the $22 million which is not really branch rationalization. That equates to cost saves that we’ve harvested, the World Harvest to say 10% of our operating costs in the aggregate for the company, which is incredibly powerful. In fact, if we reduce our total operating debt which is controllable, as my friend says impressionable, it’s an even higher statistic. So that’s why we’re so thrilled. And I think to punctuate the LIFT program, we’ve truly created now a culture of continuous quality improvement inside the company with a group of young, high trajectory people who are going to help us year in, year out, looked at the company’s self-examination so we can be better stewards of our cost for doing this, so we’re thrilled about that, we hope you are too. So now we’re going to transition to talk about the highlight of the day, which is the proposed acquisition of USAmeriBank. This will be a major driver coupled with our organic growth initiative which is again the acquisition of USAmeriBank. Joining us today we have Joe Chillura here again as our CEO – USAmeriBank’s CEO, Al Rogers, Chief Funder, Amanda Stephens, Chief Financial and Greg Olivier, who is Chief Credit and Chief Risk Officer. And I’ll tell you it’s been an absolute pleasure to work with these four leaders. They are really something else and they’re going to make a difference. So this is a people business, front to back and these are some kind of people we’re excited for you to meet them. Let’s talk about the deal a bit. If you look on Slide 4 in the acquisition deck, we just highlight the growth initiative because USAmeriBank announcement points to and feeds our customer base growth call. And it also shifts a large segment of our balance sheet to the very, very high growth Florida market for Valley. I’m going to kick it to Ira, so you can talk about the components of USAmeriBank.

Thank you Rudy. As Gerry mentioned earlier USAmeriBank is evenly split in its branch distribution network. Fifteen branches located in Florida, another 15 located in Alabama. That being said approximately 70% of the deposits are actually located in Florida, compared to 86% of the loans that are located in Florida. USAB was led by a strong management team consisting of Joe, Al, Amanda, Rick, Becky and Tina built a tremendous franchise and you can look at the financial highlights on the right hand side and look at the ROA number that was generated just in the second quarter of 1.19%. The loan book is comprised largely of CRE, similar to what Valley is, about 54%. When combined Valley’s 52%, there really isn’t much change going to about 53% of overall loan book on an aggregate basis. They were a little slightly higher on the construction, 12% with Valley’s 5% they’re really only increases the combined organization to 6%. And the deposit franchise was a very strong franchise as well. 25% of the deposits are comprised of non-interest bearing deposits largely of a commercial nature of compensating balance requirement. And overall, I think, maybe a little different from Valley they would haven’t really relied on the wholesale funds to the same degree that Valley has. About 90% of their total funding base comes from deposits which is a pretty strong measure. If we turn to next slide we can talk about the historical performance of USAB and what’s really driven a lot of that ROA number. If you look at the total asset growth of the organization, about a 50% CAGR over the last four years. When we look at the loan growth 17% in 2015, 15% in 2016 and 13% on the year-to-date annualized number. When you couple that with the contraction and the efficiency ratio from 58% in 2014 down to 52.2% where they are today, easy to understand why the net income has accelerated at 29% and is sitting with that 1.19% efficient return on asset number, which was obviously very attractive to us. Rudy give a little bit overview about the markets and we’ll get back into the transaction details.

Thanks Ira. On Page 7, if you look at that, clearly this acquisition substantially increased as an expanse Valley’s Florida franchise. We look at the right, the biggest boost in the Tampa Bay area. This first cell called Tamp uses Valley Florida’s region – Tampa region numbers if you will with those of USAmeriBank’s. So you can see here they’ll be 18 offices, a powerful loan book of $3.1 billion, deposits $2.5 billion and our market share approximating 3.6%. If we look at South East Florida and Orlando for Valley Florida, I do want you to understand that this does not include a very significant consumer loan book mortgage and direct auto and so it’s purely commercial purpose loans. You see the statistics for those markets. If you flip over to the bottom left, you see that for the State of Florida, post acquisition, we’re looking at a 46 – 46 office footprint, our distribution system and $4.8 billion in loans, $4.9 billion in deposits, plus we would add Valley’s consumer book also. If you look at the map, I think, you see here a distribution system in the high population areas, the high growth areas of the State of Florida. So we are incredibly excited about this merger. Our Chairman, when he bought Myobank, 1st United late 2014 had an aspirational goal that he expressed to you and that was to see that the free state would be perhaps approximate a third, of our business, with the combination with USAmeriBank plus organic growth that we will have achieved that goal. So we’re really very, very excited about it. If we turn to Page 8, we see that USAmeriBank is a dominant bank in the Greater Tampa Bay area. Indeed, in deposits share terms USAB is ranked eight with only…

Thank you Rudy. So as we talked earlier about the three significant pillars for Valley to improve our overall performance, we mentioned earlier about what we’re doing on the efficiency side, Rudy gave a little bit of an overview on the non-interest income fees and the residential mortgage component. And once again just to highlight why is this a strategic fit for us, it could place more of our assets in a larger growth, in a higher growth market is what’s important to us to make sure we can deliver the growth that we think is necessary from a performance perspective. What this transaction does is it puts us, as Rudy said about 30% of the franchise being in the higher growth Florida market. The other piece why it was a strategic fit for us, was the leadership team and culture of the organization, far too often were provided with maps from an investment banker that would show us we should be buying this bank, we should be buying that bank, irrespective of the culture of the employees and the customers that are associated with it. Having sat down with the leadership team of USAmeriBank, it became quite evident that the culture fit, the customer fit and we think that’s something we can really lever to really grow the organization. Financially compelling to us, the accretion to EBS, which we’ll talk about in a little bit is really attractive. And we think the dilution to tangible book of 4.7 years is very reasonable based on where the market is today. We’re very proactive, I think, in how we structured this specific merger making sure that there was an appropriate credit mark and retention of key personnel throughout the transaction to make sure that there is a positive outcome. If you…

Thank you Ira. As I said earlier, all of us at Valley are very excited about this expansion of the southern portion of our franchise. USAmeriBank will represent the 29th bank acquisition in Valley’s history. We are very confident, based upon our past experience and the strong additions to our management team coming from USAmeriBank, that the integration of this bank will be swift and successful. When Valley acquired 1st United, we stated that we were very excited about entering the fast growing Florida marketplace. Again at that time we indicated it was our long-term goal to develop Valley’s franchise into what I called the three-legged stool, a third of it in New Jersey, a third in New York and a third in Florida. With this acquisition, we will have approximately as was stated before, 30% of our assets in Florida. I thank you all for listening and we’ll now open up for questions.

[Operator Instructions] We do have a question from the line of Steven Alexopoulos from JPMorgan. Please go ahead.

Hey good morning everyone.

Good morning Steven.

How are you?

I just want to start on the acquisition at a question. I had a question on the tangible book or in back calculation on the 4.7 years. If I look at the tangible book dilution and the 6% accretion in 2019, I’m calculating 6.5-year earn back. Could you walk through how you get to 4.7 years?

I mean based on what you’re using for the out years and what the EPS is outside of the – just the 2019 numbers. Yes obviously the growth that we have or that we’re forecasting in USAB around 13.5% which is greater than where Valley is. So EPS contribution that will come from USAB is greater than where Valley’s numbers are, which gets us down to 4.7-year number.

Okay. So you would be using more than say $0.05 for the earnings from the acquisition?

We definitely think so yes.

Okay, got you. Then on the LIFT….

Steven just let me add here.

Yes.

And I think that’s really part of the overall philosophy right is to generate more of our assets in that higher growth market. And that’s something that we strategically have been focusing on.

Right, great, okay. And just to follow-up actually on that Ira, what’s the strategy to move towards the 8% to 10% long-term target for loan growth?

I think we’re getting close to really be in there as it is right now. With the organic growth we had this quarter when you back in the loans held for sale from the residential we were sitting at 8%. And there was I don’t know if there were any loans actually overrated it was 8.8%, when you factor that back in. So again knowing that we’re going to be involved in selling resi loans to some extent you may be looking at it and saying well we didn’t hit that number, but I think we are hitting it.

Got you. And then the $3 million revenue improvement associated with LIFT, seems to me on the life side given how senior manager was so focused on this initiative. If you guys look at ideas generated for improvement, were you surprised you didn’t come up with more on the revenue front?

I think we tried to be conservative as to how we look at everything. I think the time line associated with it making sure everything is executable within that 2-year timeline and trying to accelerate as best as possible. I think for us what we did on the branch rationalization having a higher number than what we produced and then making sure that it was delivered within an appropriate timeline, is really important to us.

Yes, and we’re going to – Steven we’re going to chase those other ideas, but we set a threshold both as to time and dollars Ira said. And so if they didn’t make that threshold, we didn’t include it. But we’re very pleased, we certainly exceeded what Ira’s most expectations were. That is in the aggregate.

And if I could squeeze one and for Alan the $3.5 million you called out on the derivative swap income, is that one-time, is that you are calling that out?

No, no, no, no, not at all. Now we have been producing swap income for a couple of years now. The issue is, is that it’s – I’m not really pulling it out, is I’m telling you it’s not necessarily recurring every quarter with the same amount, it’s really dependent on interest rates and customers and their appetite for putting on for them fixed rate loans. So to the extent rates stay low, they will continue to probably want to put on swaps. We actually had for the quarter $4 million of swap income, as compared to $600,000 in the prior quarter. So my whole point was to really indicate that that’s a little bit of a moving number. It’s not like in the interest rate number that you know you’re getting x percent every single quarter.

Got you.

And Steven that number was about $2 million in second quarter of 2016. So a little bit of an uptick from where one year ago but nothing that was that significant.

Got you. Okay, thanks for all the color.

Yes.

We do have a question from the line of Matthew Breese from Piper Jaffray. Please go ahead.

Good morning everybody.

Good morning Matt.

Good morning Matt.

Maybe just going to the outlook for loan growth and realizing that we’re pretty close but in the 8% to 10% range there is a bit of a pickup. And I just want you to pick your brand a little bit. Given where we are in the economic cycle, what stage we’re in, can you just give me comfortable what’s accelerating loan growth given where we are?

Matt it’s a great question. We’re staying inside a policy and we’ll not stretch outside of existing credit policy, assuming that even the soft items underwrite for us. Having said that, we also have very powerful mortgage bank that’s being built, that is in the order of its ultimate size. So it’s a big driver. And as mentioned it’s skewed toward purchase and inside purchase is really skewed toward Freddie Fannie qualifying loans. So we feel comfortable at this stage with what we’re booking. But we’re the first, we’ve been through multiple recession cycles [indiscernible] as bankers. And so when we feel the market is right we innately start to refrain. So far we’ve decided not to play in certain of our markets and we feel that’s indicative of how we think both analytically and subjectively about where we want to grow loans.

So the acceleration is on the mortgage side.

No, actually, this last quarter we had good growth in CRE and C&I. We had a wonderful quarter for resi mortgage and indirect auto contributed as well. So we kind of like all the engines that we have participating in that application – in that area. Now, resi mortgage had application volume year-to-date of $622 million. If you look back for resi mortgage, we’re pretty dead in recent period. So the total fundings year-to-date were $345 million and again skewed toward purchase. So, yes, that’s a heck of a contributor to pipe right now it’s almost a quarter of a billion in resi at this stage. So, we’re also excited about that and ARMs represent 90% of the pipeline. So, average size I think Alan spoke to and we’re actually growing the business development teams. So the lines are crossing pretty well in that business. But again I think what we saw this quarter is what we want to see the changing contributed to for the aggregate growth of the company.

Understood and then just sticking with the mortgage on your longer-term outlook looking at to 15% to 20% non-interest income. Should we expect more of what’s going to happen next quarter where we see a bulk sale of 30 year fixed rate mortgages maybe a bit more sporadic, but on an annualized basis gets you into that range. Is that the way – good way to think about it?

I think the sustainable way to think about it is that we’re going to harvest put into available for sale and sell recent production versus harvesting from the – if you will from the pre-existing portfolio. I think the Q4 is a quarter that we’re thinking an awful lot about. As we look at the development that Kevin underway with for the mortgage, we see it becoming a big contributor in 2018 candidly. So it’s hard to answer that question other than we expect to see production driven.

Okay. And then thinking about the core margin outlook, Alan, excluding the swap income, could you just give me some idea of the trajectory from here if the yield curve maintained its current shape and the Fed does not lift for the remainder of the year?

We’ll probably – and first of all I don’t think you want to eliminate the swap income. I mean, I think, we’ve had a quarter after quarter after quarter. It really becomes a matter of how much of that do we see. There’s going to be some continued pressure on the margin. There’s no doubt about it. You know even though we’ve seen some rate increases on the loan side, we have to be able to continue to increase on the deposit side as well in order to maintain our deposit levels. So I expect that you’re not going to see any major – any expansion so to speak. You’ll probably see some decline going forward.

Okay.

And Matt something else just to say that I think our commercial purpose pipe is about $1.3 billion at the moment and there’s $570 million or so comp – to be close – yeah, approved pending closing. So, yes, we’re pretty, pretty excited about – the economy is serving up to us and what we’re able to bring home.

Right, right, okay. And then I understand with USAB the Tampa element to it. What’s interesting is the Alabama effort and that was something that I hadn’t really considered. Can you just talk to me about their exposure to Alabama and Birmingham and why that market is something that you want to be in and is that going to be a longer-term growth engine for Valley?

See maybe say something and then ask Joe if you might make some remarks, so you get it right from the source. As we looked at Alabama, some of us had a basic level of fluency in the market, but had not been bankers in the market. So we did a lot of offsite kind of work. You should know that indulgence of our Chief Credit officer and the team looked at 75% to 78% of the book of business at USAB, which would include the near half billion of loans derived from Alabama. And we were comfortable that that was inside of our credit policies. For example, the underwriting stress you try to cover and you can understand the loan scenario. And so as we started looking at Alabama, you could take one view and say well it’s a net deposit provider and in a world where betas may change and deposit acquisition may gets tougher if not more expensive, we think gosh you know Alabama is attractive. And then as we looked at the loan book, small business pretty benign consumer business we thought gosh you know if we introduced our consumer products on top of what the team has built in Alabama, this could be a growth market for us. We will acknowledge that Alabama doesn’t grow at the level that our other three markets do, but that doesn’t make it a market that we can in a fact claim good growth. So maybe take it to Joe just for a moment to make a comment or two.

Okay, this is Joe Chillura. Alabama is really the base of the bank, is a 100 year old bank that was started by the Russell family. And so they have a very stable deposit base, great branch network and some real distinct markets, but we see the opportunity there to grow really in small business and SBA lending. And SBA is a unique way to generate fee income, which is an initiative of Valley’s as well. We have a real strong management team there with Karen Hughes and Marks and Spencer both 30 year plus bankers, very intertwined in their communities and we feel like with the right support, the right consumer products that Valley has, you really can see some not only loan growth, but also big deposit growth in the future.

Understood. That’s very helpful. Just one last one, Ira, you’d mentioned all things included the deal and the lift initiative get you pretty closer to that 1% ROA target. Could you just give me an idea of timing on when you think we get closer to that? Or when we achieve that in 2018 or 2019 event?

I think it’s a really important metric for us, right. So you look where we were about 2 to 2.5 years ago when we were in the mid 60s. And what we’ve accomplished Steven to get there [ph] 86 basis point number in such a short timeline is really the focus that we’ve all been internally working on here. I think when you just look at the actual lift numbers outlined in $17 million of expense sales in 2018 and $19 million in 2019 and just really focus on that 2018 number as well as the revenue enhancements that come from that. And USAB was earning 1.19% on ROA. So when you really just aggregate those together, you get really close to about 1% number without us really expanding on the mortgage piece that we’re trying to do internally. So this isn’t a number that we think we should be waiting to 2020 to get to by any means. It’s something that’s really important to us.

That’s great. Very helpful. Thank you everybody.

Thanks, Scott.

We have no further questions in the question queue.

Thank you for joining us on our second quarter conference call. Have a good day.

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