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Executives

Dianne Grenz - IR

Gerald Lipkin - Chairman, President and CEO

Alan Eskow - Sr. EVP and CFO

Analysts

Steven Alexopoulos - JP Morgan

Craig Siegenthaler - Credit Suisse

Nancy Bush - NAB Research

Collyn Gilbert - Stifel Nicolaus

Ebrahim Poonawala - Morgan Keegan

David Darst - Guggenheim Securities

Josh Wheeler – Morgan Stanley

Valley National Bancorp, Inc. (CRY) Q2 2011 Earnings Call July 28, 2011 11:00 AM ET

Operator

Ladies and gentlemen, thank you very much for standing by, and welcome to the second quarter earnings conference 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 to you at that time. (Operator Instructions). Also as a reminder, today’s conference is being recorded.

I will now like to turn the call over to your host, Miss Dianne Grenz. Please go ahead.

Dianne Grenz

Thank you, Good morning. I would like to thank everyone for participating in Valley’s second quarter 2011 earnings conference call both by telephone and through the webcast. If you have not read the earnings release we issued early this morning, you may access it along with the financial tables and schedules for the second quarter from our website at valleynationalbank.com.

Also, before we start, I’d like to mention that comments made during this call may contain forward-looking statements relating to the banking industry, Valley National Bancorp and the recently proposed merger State Bank Corp. Valley encourages participants to refer to our SEC filings including those found in Form 8-K, 10-K and 10-Q for a complete discussion of forward-looking statements.

Now, I would like to turn the call over to Valley's Chairman, President and CEO, Gerald Lipkin.

Gerald Lipkin

Thank you, Dianne. Good morning and welcome to our second quarter earnings conference call. We are pleased to report strong operating results for the quarter as after-tax net income increase both on a linked quarter and in annual basis. Net interest income expanded during the quarter as loan growth generating in the first half of the year, positively impacted total revenues.

During the second quarter, loan origination held in portfolio declined from the prior quarter as Valley originated approximately $550 million of new loans versus approximately $680 million during the first quarter. Originations compared favorably to the second same period one year ago in which Valley originated and held in portfolio just over $300 million. The decline in linked quarter originations is imparted due to the current nature of commercial lending demand in our market place. Many of Valley's new commercial lending relationships are larger the result of borrowers migrating from other financial institutions as suppose to expanding existing lending relationships due to growth in the economy.

While long time, we remain optimistic, the persistent uncertainty in Washington has invariably negatively impacted the strategic focus of many businesses located within our market place and general consumer confidence. The absolute level of customers which during the first quarter initiated conversations about the potentially expanding operations has declined in both number and overall level of interest. The economic and fiscal policies bandied about in Washington should focus on encouraging entrepreneurs. Congress should offer stimulus to local businesses to make it worth taking risks. The use of fiscal stimulus as opposed to the government trying to spend, spend and spend much take place if our economy is to show genuine growth.

Regardless of the economic conditions in which Valley operates, we recognize it is incumbent upon management to preserve share holder value and capitalize on opportunities afforded us in our market place.

During the quarter, we emphasize our fixed price residential mortgage refinance program which allows the borrower to refinance their home for $499 including tile insurance. For the quarter, we process nearly 2000 applications and closed over $230 million in new residential mortgage loans. This program has the added benefit of generating significant cross sell opportunities as the proportion of non value refinances continues to escalate.

During the most recent period, approximately 85% of the applications approved or in process were to refinance non-Valley loans compared with roughly 65% last year. As a result of this program, residential mortgage loans grew nearly 20% on an annualized basis from the prior quarter.

Valley's decision to sell our portfolio each loan is based on many factors, primarily credit quality but also keep in mind Valley’s asset liability mix and the bank aggregate interest rate exposure. As part of the bank’s macro strategy to manage interest rates risk, the Valley at times utilizes derivatives to convert fixed rate loans to floating rate instruments. While the initial impact may negatively affect the portfolio yield, the long-term benefits should protect earnings when interest rates return to more historic levels.

Due to the success with this and Valley’s fixed one price residential mortgage refinance program, this month Valley introduced a one price all inclusive residential mortgage purchase program in New Jersey costing the customer just $1,899. Our study show that this is approximately one third the course of a typical mortgage closing. The $1,899 program includes title insurance and all bank fee. While the purchase market in New Jersey remains sluggish and currently represents only around 12% of our residential mortgage activity, we anticipate more consumer interest and expect Valley's share of purchase origination in New Jersey to expand.

Commercial lending with Valley's New York and New Jersey market place reflect a dichotomy of results although consumers of both geographies remain guarded. In New York, line usage continues to expand as many customers begin to grow inventory levels and seek expansion opportunity. Conversely in New Jersey, borrower sentiment remains more concerned about the long term prospects of the economy and as such see more reluctant to expand operations.

In total, C&I balances during the quarter contracted approximately $33 million largely the result of seasonal activity combined with a significant volume of prepayment. As we have previously noted, Valley enjoys the benefit of many strong borrowers with significant liquidity who are faced with the current interest environment choose to utilize some of their liquidity to prepay loans rather than allow the funds earn nominal interest. Although line balances outstanding during the quarter contracted from the prior quarter, total commitment increased approximately 3% annualized and we anticipate growth in outstandings during the second half of the year as a result of that.

Commercial real estate lending expanded during the quarter as our lenders continue to remain very active in pursuing new business. During the quarter, we originated over a $120 million of new volume much of which was generated in our New York footprint as the bank expanded its emphasis on co-op and multi-family loans in that market. The competition for high quality low loan to value projects remains intense in our market place. Growth in the CRE portfolio will be somewhat tempered as a result, yet we anticipate Valley’s increased emphasis on both the co-op and multi-family marketplaces to revive future loan growth.

Consumer lending remains challenging in our market place as many consumers are reluctant to borrow and Valley’s stringing credit criteria coupled with our focus on receiving a reasonable return further limits growth opportunity the automobile portfolio contracted $20 million from the prior quarter although activity was excellent on a relative basis and we booked over 3,700 new auto loans representing a 34% increase from the same period one year ago.

Automobile sales in the US while improved still remain at only 60% of their peak earlier this decade. While application volume was strong at nearly 20,000 during the quarter many of the applicants failed to meet our credit thresholds. We rejected over $250 million of auto loan applications during this quarter a significant portion of which were due to unacceptable loan to value request. It is our philosophy that all borrowers must have skin in the game in order for us to maintain the historical strength of our portfolio and long term returns to our shareholders.

At quarter end, 30 day plus automobile loan delinquencies were only 1.0% and automobile net charge was fell as 0.17% for the first six months of the year returning Valley to its historical performance level. We continue to witness an attempt to build market share by some of the larger auto lenders within our market place as some competitors borrow rates for new automobile loans have dipped below 2%, a level that which we do not believe the business can be profitable. We like the automobile lending business. Nevertheless, when the competition sometimes creates an environment where we are unable to generate a reasonable return our volume will remain constrained.

During the quarter, we announced our intend to expand into Long Island via our merger with State Bancorp and its principal subsidiaries of Bank of Long Island. In State Bank we have chosen a strong platform from which to extend our organization. At present State Bank operates 17 branch locations of which 13 are located in Nassau and Suffolk County.

Within the next five years, we intend to double the number of locations on Long Island by means of de novo branch expansion or future whole bank acquisition. We are excited about the prospects of growing the Valley franchise on Long Island. The demographics are similar to Valley’s core New Jersey market and we believe our consistent and common sense approach to traditional banking will serve the marketplace well.

State Bank’s loan portfolio is heavily skewed towards traditional commercial loans which is very attractive to Valley. Also, the fact that they do not focus on residential mortgage lending or consumer loans, areas in which Valley has been very successful should present significant opportunities once the transaction closes. Since the announcement of the transaction we have met with State lenders and branch staff all whom appear enthusiastic and excited about the forthcoming opportunity.

We have began the process of systems integration and other logistical hurdles customary with integrating institutions. It is our intention to have state customers on Valley's data systems within a few months of the closing.

Earlier this month, we received all necessary regulatory approval for the transaction. We intend to pay the transaction closing in the fourth quarter subject to shareholder approval from State Bancorp and other routine conditions.

In summary, we are pleased with our operating results for the quarter. Although the economy continues to show signs of distress the bank is well positioned to provide positive returns in 2011 and beyond.

Alan Eskow will now provide some more insight into the financial results.

Alan Eskow

Thank you, Gerry. For the second quarter, Valley reported net income available to common shareholders of $36.9 million or $0.22 per share. The results included a few infrequently occurring items which I will detail shortly. Valley's net interest margin remained unchanged that 3.71% compared to the prior quarter of 2011 and represented a decline of 1 basis point from the same period one year ago. Valley's ability to maintain a relatively stable margin in this volatile period is testament to our steady and sizable core deposit funding base coupled with asset liability management decisions which focus on the long term sustainability of earnings as suppose to maximizing shot term current period results.

The linked quarter decline of three basis points in earning asset yields was mitigated by a slight shift in the composition of funds from borrowings to deposits. The increased emphasis on deposits leads to a decline in total cost of funds from 1.59% in the first quarter to 1.55% in the second quarter. Valley's current cost of deposit including non-interest bearing equals 0.72%.

For the remainder of 2011, we anticipate slight margin compression as earning asset yields remain under pressure due to the low level of market interest rate. Much of the cash flow generated from both the investment and loan portfolio is reinvested in new assets at yields lower than those running off. Partly mitigating the decline would be the reinvestment of both investments in excess liquidity in loans. Further exasperating the margin is Valley's inability to derive significant additional declines in the cost of funds through the core deposit funding base as the absolute rates being paid are already quite low.

In addition, Valley liquidated approximately $215 million of investments during the latter half of the quarter reinvesting much of the proceeds and financial instruments which yield approximately 75 basis points less than the security sold. Although the sale was slightly negatively impact both net interest income in the margin on a go forward basis, the pure economics of the transaction from a total return perspective were very desirable.

During the quarter, value recognized $16.5 million or $0.06 per common share of income on the security sold. The gain on the sale of securities were nearly nine times the lost annual interest income net of reinvestment returns which we believe would likely never materialize due to the prepayments and amortization had we held on the securities.

In addition, the majority of the proceeds from the transaction were reinvested in an asset class which from a regulatory perspective does not require the bank to maintain capital. The securities liquidated were largely both Fannie Mae and Freddie Mac securities, which will though only required a 20% regulatory capital requirement do not represent an asset class in which value is currently comfortable maintaining. In addition to the financial merits of the liquidation the transaction enabled Valley to significantly reduce the bank’s exposure to both quasi-guaranteed entities. In fact, we have not purchased any Fannie or Freddie mortgage-backed securities since mid 2009 and have only seen our outstandings in the securities decline substantially.

Other infrequently occurring items which impacted the financial results for the quarter included a $1 million trading loss mainly attributable to a non-cash mark-to-market losses on the change in fair value of Valley's own trust preferred debentures carried at fair value. The trading loss negatively impacted current period earnings by approximately $0.01 per common share.

During the quarter, Valley recognized an incremental tax provision of $8.5 million related to a change in state tax case law during the second quarter of 2011. Under Generally Accepted Accounting Principles reporting, we are required to record tax law changes in the quarter in which the law was enacted for all current and prior years. The total extra provision represents the aggregate tax for all tax periods. The negative impact earnings per share as a result of the charge is $0.05 per share.

Mainly as a result of this provision values affected cash rate increased to 40.6% from 31.9% in the prior period. Our current expectation is for the effective rate to approximately 29% for the remainder of 2011 taking into account both the immaterial future cause of the tax law change and our increased and planned investment in additional federal tax credits.

The three or four mentioned items, the security gains, the trading loss and the tax provision on an aggregate earnings per common share basis largely litigate each other resulting in the reported earnings per common share of $0.22 to be essentially the operating results for the period.

The credit quality metrics reported with our press release and for which I am about to discuss, do not reflect the loans reported as covered loans on our financial statement as we vented it for low sharing agreements with the FDIC on both transactions.

Credit quality for the quarter remains relatively in line with the prior few quarters. As from the macro perspective, credit appears to have stabilized.

Total non-accrual loans and early stage delinquencies, those past due and still accruing where a $159.4 million as of June 30, declines of approximately $2.5 million from the prior quarter and $1.7 million form the same period one year ago. Over a $120 million or approximately 76% of the non-accrual and early stage delinquency loans are comprised of residential mortgages, construction loans, and commercial real estate loans, all categories, in which Valley has historically had very low loss rates.

From January 1, 2010 through June 30 of this year, Valley has recognized $12.4 million in net charges within these categories of loans. The resulting annualized net charge off ratios for these loans has only averaged roughly 15 basis points during this period. The diminutive losses are largely a result of Valley’s robust credit due diligence process at underwriting combined with Valley’s requirement that all borrowers maintain a sizable equity position in each loan.

During the quarter, Valley classified approximately $12.1 million of new loans as accruing TDRs. As a result, net of pay downs on existing TDR loans, the aggregate balance increased approximately $10 million. In conjunction with Valley’s quarterly impairment analysis, the reserve for TDRs was increased $1.9 million as a result of the new loans classified as TDRs during the quarter Once again, our TDR generally have substantial equity from the borrower and our impairment analysis shows that losses for these loans, if any, should follow Valley’s low loss history. The aggregate reserve for loan and credit losses decreased slightly from the prior quarter from $141.7 million to $140.9 million. However, the reserve for non covered loans and un-funded letters of credit actually increased slightly from the first quarter of 2011.

Valley’s capital ratio for the quarter remains strong for the period our tier-1 common capital ratio was 9.40%, an increase of 8 basis points from the prior quarter and 35 basis points from the same period one year ago. We are comfortable with our capital ratios and believe they provide a solid basis with which to grow the organization.

This concludes my prepared remarks and we will now open the conference call to questions.

Question and Answer Session

Operator

(Operator Instructions). And our first question comes from the line of Steven Alexopoulos with JP Morgan, please go ahead.

Steven Alexopoulos - JP Morgan

You start looking at residential mortgage loan growth the roughly $100 million, how much of that would be fixed rate mortgages, and are you swapping on the cash flows on all those?

Alan Eskow

Its 100% fixed rate.

Gerald Lipkin

They are all fixed rate and they vary between 15 and 30 year mortgages. And we don’t necessarily swap every bit of the cash flows but we do swap a percentage of that as we deal our model that postponed[ph].

Steven Alexopoulos - JP Morgan

I’m curious given you comments around the consumer in competitive environment, do you expect auto and home equity balances to continue drifting lower in coming quarters?

Gerald Lipkin

I think they can be relatively flat to a slight decrease. I don’t see a major increase in them not unless, the consumer confidence level increase substantially and the consumer gets more aggressive and going out buying new cars. As I pointed out on my remarks, we are at 60% level of between what the high was the manufacturers were selling cars in the middle of the decade to where they are now. They went from over 20 million units to 12 million units.

Steven Alexopoulos - JP Morgan

And just one follow on. Alan, is there any opportunity to refinance or retire some of the long term debt, seems pretty expensive relative to current rates?

Alan Eskow

You basically hit it on the head, it is expensive.

Gerald Lipkin

The prepayment penalties would be extremely substantial.

Operator

Thank you. And the next question comes from the line of Craig Siegenthaler with Credit Suisse. Please go ahead.

Craig Siegenthaler - Credit Suisse

First, just want to touch this on liquidity. I noticed your cash levels were higher and also some of your deposit rate picked up and I kind of heard the reasoning on the call that, I think you may shift some of your finding away from kind of long-term debt. But also could you comment on deposit competition broadly, and also if you are seeing or hearing any kind of pressure from regulators, within the industry do increase liquidity levels?

Alan Eskow

I think we’re seeing a fair amount of competition on deposit level, so I think we are generally quite competitive, and so we are holding our own on deposit levels, pretty well there. I mean we can obviously increase or decrease as in our liquidity levels depending on our need for funding for loans or investments. So we monitor that as part of our overall outgo process.

In terms of liquidity, we are maintaining a fair amount of liquidity at the moment. I don’t think we’ve heard anything from regulators relative to increasing liquidity. I think we’ve been relatively pretty liquid in the last two to three years.

Gerald Lipkin

Well and particularly, its Gerald Lipkin, I have concerns not knowing what’s going to happen with the debt ceiling. I want to make sure the bank maintains a strong liquid position at this time.

Alan Eskow

One of the things, Craig, we did see and I think we indicated as we did see some broker CDs on a long-term basis not a short-term but long-term in the three to five year basis. So that’s helped also in our funding pace looking at the fact that we have lot of long-term fix rate kind of mortgages, and we like longer term funding deposits.

Craig Siegenthaler - Credit Suisse

Got it, and just my second question on the accounting rule change for trouble debt re-structuring that’s implemented in the third quarter. I am wondering if you expect to see any impact from that given by how you account for the TDRs now.

Gerald Lipkin

No, I don’t think we expect to see anything, I think we’re fine with how we are recording our TDRs at this point.

Craig Siegenthaler - Credit Suisse:

Great, all right that’s I got.

Gerald Lipkin

Yeah I have spoken on this thing before, because this is a source spot with me personally. I think that the category the classification tends to this sort more than it clarifies. If you look at the interest rate then our TDRs are carrying…

Alan Eskow

Over 5%.

Gerald Lipkin

Right on average, I mean this is but yet they need certain part of the definition and we put it into that category. Most of the almost all of them are paying

Alan Eskow

Yes, and I think, as we indicated, Craig, not only they are paying, not only we have a lot of equity behind them, but they are performing very well and our loss history both in terms of current and what our expectations are is relatively low on these, which again goes to how we underwrite credit and what kind of collateral we take, and then in addition what kind of personal guarantees we may have on some of these loans.

Operator

Thank you. And our next question comes from the line of Nancy Bush with NAB Research. Please go ahead.

Nancy Bush - NAB Research

Gerry, quick question for you. I mean the mortgage business is a significant business for you, and could you just sort of give us your opinion of QRM the qualified residential mortgage expecting it’s certain to get some push back from the industry right now.

Gerald Lipkin

Yes, I think its going to hurt the housing recovery. It takes away a lot of flexibility on the part to the lender because it fails in one category and may have not a lot of strength in another category, but nevertheless it has to be classified under the QRM, the bank is not going to make the loan. So I think the people the folks in Congress in Washington missed the point on this one big time.

Nancy Bush - NAB Research

Could you just sort of put forth your opinion of how you would like to have seen a structure or should QRM does not have been introduced at this point?

Gerald Lipkin

No, you can certainly come up with certain guidelines, but to break in hard fast rules with penalties on the other side if you violate the QRM. I think it just it ignores a lot of things. It ignores loan-to-value totally. I mean if somebody is borrowing $0.10 on the dollar on the price of the house, but their income measurements doesn’t qualify right away as a QRM the bank doesn’t want do loan.

Nancy Bush - NAB Research

Secondly Gerry, if you could just also update us, I think last quarter you gave some opinions or talked about foreclosure issue in New Jersey and how that was being jammed up in the courts. Has there been any progress in the last three months?

Gerald Lipkin

Well we’ve seen a little bit of progress, in our bank. We only have a handle I believe in the end of the quarter we had about 22,000 residential loans, we had of 88 them in foreclosure. And we haven’t begun to see some of them now finally going through the process getting them sold. That is one of the major hurdles to this economy coming back. We’ve just got to get rid of that product. In our case, Valley in particular, it’s really not a major factor obviously with the small number of loans in foreclosure.

Operator

Thank you and our next question comes from the line of, Collyn Gilbert with Stifel Nicolaus. Please go ahead.

Collyn Gilbert - Stifel Nicolaus

Just going back to the mortgage topic I just want to make sure I understand it completely. So, all your originations whether you portfolio or sell obviously sell but are fixed rate you are not portfolio any arms?

Gerald Lipkin

No.

Collyn Gilbert - Stifel Nicolaus

What’s the reasoning behind that just curious?

Gerald Lipkin

Well there is very little demand number one for an arm. Number two, I would question somebody why they were taking arm when you can get a fixed rate long term mortgage at such a low rate.

Alan Eskow

Low pre-payment. I mean it just doesn’t make a lot of sense but people are not to take it today and so hence that’s the majority of the product we are seeing coming through the door.

Collyn Gilbert - Stifel Nicolaus

Okay, okay and then just a follow up on that. With the considerable success you’ve had in the mortgage business, do you guys have had a program in place to try to make somebody’s mortgage borrowers actual bank customers?

Gerald Lipkin

Oh, yes aggressively.

Collyn Gilbert - Stifel Nicolaus

Could you just talk a little bit about that? Is there anything you have tracked yet?

Gerald Lipkin

As I mentioned we are up to 85% of the applicants that are coming in are non-Valley mortgages. Of that some of them some are depositors obviously, but most of that them are not. And we close all of our loans in the branches and the branches are very aggressive in following up and trying to get checking accounts, savings accounts, do additional business with the borrower. When a person is in there closing on their loan or applying for their loan generally they are most vulnerable to get their account away from another institution. So, we have incentive programs in our branches to try cross sell them.

Collyn Gilbert - Stifel Nicolaus

Okay, okay that’s helpful, and then just on the increase in the CRE non-performing loans this quarter you mentioned that were five of them. Can you just give a little bit more color behind that and I know, Alan, you had said in general you feel this credit quality stabilize. So was this quarter kind of anomaly than with what came in, and maybe talk a little bit about if kind of what coming in or what’s going out?

Alan Eskow

Yeah, I don’t know. There is always loans coming in and out so its hard to do anything more. We had one large loan incoming that was not really a commercial mortgage, it was a commercial loan. That was probably the largest of all of them. We are working through that. We expect to get out of it in a reasonable period of time. Our goal is to move these through the process as quickly as possible. And obviously, in these trouble times you can have borrowers that are going to struggle and have some problems but I think once again we would like to think that we have significant enough collateral behind a lot of these we work our way through it.

Gerald Lipkin

A couple of our larger ones are sold under contract. It takes a while to close for whatever reason the borrowers. Closing a real estate transaction doesn’t usually take 30 days or 14 days like you could do a commercial loan.

Alan Eskow

Yeah the one, the larger one that I just talked about I mean, the reserves that we have against it is almost nonexistent because again it’s a collateral situation.

Operator

Thank you. Our next question comes from the line of Ebrahim Poonawala with Morgan Keegan. Please go ahead

Ebrahim Poonawala - Morgan Keegan

Yeah, I had a question just if you can talk a little bit on your title insurance business you have talked about trying to cross sell that on the commercial side if like what you are doing there, and I guess a drop off from the first quarter to the second quarter was essentially coming out of a seasonally strong quarter in the first quarter?

Alan Eskow

Yeah, I mean what happens there is a lot of cross sell opportunities while talking mainly to our commercial mortgage lenders and making sure that they obviously are aware of the fact that we are out there with this product and that they should be pushing to the extent they can get a borrower to agree to take title insurance through Valley. I mean the rates are general -- they are the same no matter who you go to and so we try and get them. And I think over the last probably two years, we have seen a very nice increase in the amount of commercial mortgage activity that has taken our title business.

Gerald Lipkin

Yes, we really have to emphasize we have not allowed to mandate the title insurance and we don’t by any means, but certainly telling somebody that we would appreciate their business then we get an awful lot of it

Alan Eskow

Yeah, the first quarter by the way really the increase you saw was not necessarily the title business, it was the P&C business. That has typically first quarter of which we see lot of additional commissions come through and so that increases, and that typically happens in the first quarter event. So you see some drop off in this second quarter but its not necessarily because of title insurance

Ebrahim Poonawala - Morgan Keegan

Got you, and I guess if you can make a quick comment in terms of you talked about do you know of branches in Long Island? Do you already have some scheduled plans for the next two to three quarters in terms of how many branches you want to open or ?

Gerald Lipkin

Well, firstly, we haven’t closed on the acquisition yet. And one of the things that we are going to be relying upon is suggestions from their staff as to where we should be going. They know Long Island far better than we do at this moment. So we do rely upon that. So, you really not going to see any activity probably for six to nine months, because even when they come open recommend a location or a town, we then have to find the location within that town, acquire it. In most cases build the structure none of which in approvals of building and then build it, and none of which is going to happen in three to six months. I said that we would like to double the number over a five-year period.

Ebrahim Poonawala - Morgan Keegan

Okay, got you, and just in terms of recruiting efforts, like are you guys actually looking to get the higher season bankers or have you been very active on that front?

Gerald Lipkin

Well, they have a great staff out in State Bank. We’re very pleased with their staff. We met with each and everyone of them. We have encouraged them to stay we told them that we really want them to say, we've given some incentives to stay. So I think we’re going to be able to hold on to most of their staff. So, I don’t see a big recruiting effort necessary to their bank.

Operator

Thank you, and our next question comes from the line of David Darst with Guggenheim Securities. Please go ahead.

David Darst - Guggenheim Securities

Could you discuss the co-op and multi-family business that your doing and perspective of the target size of the loan and current yields?

Gerald Lipkin

The multi-family and the co-op, and co-op in particular mainly New York City, we have gotten our name onto the street that we’re interested in that. Our lenders in New York have been meeting with people who own or who manage co-ops and expressed our desire to get involved in that marketplace as well as in the multi-family. We look for the those situations where we would have a very large equity position in the loan. The yields are very competitive in that marketplace. Right now the co-op margin is probably between 4% and 5% when it comes to the making loans on that product. Of course they want a longer term the rate is going to be higher. It is an individual negotiation on each and every loan.

We do have as we do on the residential side the ability to offset that by doing some swaps to convert the lower fixed rate to a floating rate. We constantly monitoring from an outlook standpoint where we stand. But I do think that’s a good opportunity for us, it’s a market that we really have taken a big slice in the past. In fact it is on our books the outstanding is still relatively modes. So I think there is good opportunity for future growth for us.

David Darst - Guggenheim Securities

Okay, could you tell us whether your loan pipeline has been building over the past quarter or is it about the same or decline?

Gerald Lipkin

We had a interest as I alluded to the rest I mentioned in my presentation earlier we had a good inflow of new business. Unfortunately, we had that offset by pre-payments we think we have some of our larger loans that really hurt us. So we still have a nice pipeline and new stuff coming in. If we don’t hit with pre-payments in the third quarter unanticipated pre-payments we should do very nicely.

Operator

Thank you, and our next question comes from the line of Ken Zerbe with Morgan Stanley. Please go ahead.

Josh Wheeler – Morgan Stanley

Hi guys. This is actually Josh Wheeler from Ken Zerbe’s team. You mentioned you expect some margin pressure over the next several quarters, but if rate say at this level where do you think the margin kind of bottoms out?

Gerald Lipkin

I think as we said we expect some slight compression. I mean it’s a little hard to say. If you look at the investment portfolio I mean investments have continued to decline. I mean you look over the 10 year reason where it was probably a year ago when it’s probably down 100 basis points. So, I can tell you on the lending side you’ve got a lot more competition out there these days. It’s forcing rates to levels that maybe we’re not always 100% happy with, but if those rates can continue -- if we continue under pressure there we’re going to see some type of margin compression. As I said on the liability side, there is only so much you can do large banks on extremely low rates. However, one of the things we are doing is as we indicated also we’ve done some swaps and those swaps are helping us to the extent we are going on some work with straight loans. We’ll continue to monitor that market is well to see what make sense from us an overall asset liability management involvement.

Josh Wheeler – Morgan Stanley

Okay, and how far below the current on your loan book are new loans going on the books?

Gerald Lipkin

And not necessarily a lot.

Josh Wheeler – Morgan Stanley

Okay, and last one how do you see the repeal rate you playing out in terms of cost of corporate checking and then you know potential assets in terms of eliminating earnings credits?

Gerald Lipkin

It’s got affected obviously I mean you’re going to be paying interest on something you don’t currently pay. However, this they won’t affect this, the very small check lending accounts because they don’t have a enough balances that all set their volume and right now. So we are not going to be affected by it. The very large depositors it's interesting, so far most of them would rather opt for the FDIC insurance. You have unlimited FDIC insurance if you don’t get interest on our account. That significant to a lot of people, especially if you have got somebody got $20 million on deposit and then the prospect if they got to earn some modest interest they will have the insurance.

Operator

(Operator Instructions). And currently there are no further questions, please continue.

Dianne Grenz

Thank you for joining us for second quarter conference call. Have a nice day.

Operator

Ladies and gentleman, this conference will be available for replay starting today at 12.30pm and will run until August 11th at midnight. You may access the replay service by dialing 1800-4756701 and entering the access code of 209506. That does conclude our conference call for today. Thank you very much for your participation and for using the AP&T executive teleconference. You may now disconnect.

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