Valley National Bancorp (VLY) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Third-Quarter Earnings Conference Call.

At this time, all phone lines are in a listen-only mode.

Later, we will take your questions and instructions will be given at that time.

(Operator Instructions) As a reminder, today's conference call is being recorded.

With that, I would now like to turn the conference over to your opening speaker for today, Dianne Grenz.

Please go ahead.

Thank you.

Good morning.

I'd like to thank everyone for participating in Valley's Third-Quarter 2011 Earnings Conference Call, both by telephone and through the webcast.

If you've not read the earnings release we issued earlier this morning, you may access it, along with the financial tables and schedules for the third quarter, from our website, 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 with State Bancorp.

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 Third-Quarter Earnings Conference Call.

We are pleased to report strong operating results for the quarter.

After tax net income equaled $35.4 million, or $0.21 per share.

Net interest income expanded during the quarter to $121.9 million from $117.7 million in the prior period.

The linked quarter increase reflects the third consecutive quarterly increase in our net interest income.

The continued growth in net interest income is partly attributable to the steady growth in Valley's non-covered loan portfolio.

At September 30, 2011, total non-covered loans increased approximately $35 million from June 30, 2011, as growth in the C&I, CRE, and residential mortgage portfolios were slightly mitigated by ongoing contraction in Valley's automobile lending and construction portfolios.

For the first nine months of 2011, Valley originated over $1.7 billion of new loans, including many commercial borrowing relationships new to Valley.

Although total non-covered loans expanded only $309 million during the same timeframe, partly due to the fact that many of the originations were sold into the secondary market based upon Valley's asset liability management decisions.

Furthermore, a large portion of the variance in originations and portfolio growth is attributable to the enormous amount of prepayments realized within the loan portfolio.

As we have previously noted, Valley enjoys the benefit of many strong borrowers with significant liquidity, who faced with the current interest rate environment chose to utilize some of their liquidity to prepay loans rather than allow their liquid funds to earn only nominal interest.

The largest area in which Valley has experienced the increase in prepayments fees is in the commercial lending portfolio.

During the quarter, Valley's commercial lending portfolio, comprised both C&I and CRE loans, grew 47-- $45.7 million from June 30, 2011.

Although total originations in these two asset classes exceeded $240 million.

The origination volume recognized in the current quarter is consistent with activity in the prior linked periods, and reflects a substantial increase of approximately 16% from the same period ended one year ago.

During the third quarter, activity in Valley's New Jersey commercial lending marketplace expanded compared to prior periods in which much of the commercial loan activity was generated in Valley's New York marketplace.

New Jersey C&I originations grew 34% from the prior quarter, of which little was attributable to line expansion, but rather actual new loan originations.

The current quarter increase in loan activity is promising, yet, from our perception does not imply customer sentiment in New Jersey has fully shifted in a positive direction.

Many customers continue to be reluctant to expand their businesses until the economic conditions improve and they anticipate sustainable business profits.

That said, activity in Valley's New York marketplace continues to be brisk.

Customer attitudes within this marketplace appear to be more positive with regard to the economic outlook and the resulting impact on business activity.

New York commercial line usage expanded during the period as borrowers continue to grow inventory levels and seek capital for expansion opportunities.

We remain optimistic about growth in Valley's commercial lending portfolio and foresee continued opportunities through the remainder of 2011 and 2012.

However, as customary at Valley, loan growth is limited based on the borrower's credit quality, as growing the balance sheet, simply for the sake of size, has never been the focus at Valley.

Growing the most profitable and long-term sustainable earnings stream, focusing on credit quality, is the hallmark of the institution and ultimately drives the level of the portfolio growth.

As previously stated, many of Valley's new commercial lending relationships originated throughout 2011 are largely the result of borrowers migrating from other financial institution as opposed to expanding existing lending relationships due to growth in the economy.

During the year, we continue to increase our emphasis on growing the co-op and multifamily loan portfolios.

We have originated in excess of $150 million of newly booked, underlying co-op mortgages with low loan-to-value ratios.

The competition for high-quality, low loan-to-value projects remains intense in our marketplace.

Due to the low level of market interest rates, the origination rates on many of these projects are at spreads considerably lower than similar originations in prior periods.

However, in growing the balance sheet, Valley continues to rely primarily on credit quality, while also keeping in mind Valley's asset liability mix and the Bank's aggregate interest rate risk exposure.

During the third quarter, we continued to emphasize our fixed cost residential mortgage refinancing program, which allows borrowers to refinance their New Jersey or Pennsylvania home for $499, including all lending fees, title insurance, and recording fees.

In New York, we offer a similar program at a slightly higher cost due to the additional state transfer taxes.

For the quarter, we processed over 3,000 applications and closed approximately $230 million in residential mortgage loans.

Approximately 80% of the originations came from non-Valley customers, which provides the Bank an excellent opportunity to cross-sell additional products and services.

In the latter half of 2010, Valley opened a loan processing office in Bethlehem, Pennsylvania.

The office was profitable almost immediately, and we continue to witness increased activity in this market.

In part, as a result of our success with this loan production office, we are more confident in our belief that Valley's fixed, one-cost residential mortgage refinance program is easily transportable to new markets.

Hence, we believe there is opportunity in Long Island to capture significant market share, and eager to expand our mortgage products into the Long Island market, in conjunction with the closing of the State Bank transaction.

Mainly due to asset liability management considerations, at times, Valley elects to sell residential mortgage originations into the secondary market.

During the past 3 years, Valley has transacted over $1 billion of sales to the various government-sponsored enterprises.

During this 3-year period, Valley has been required to repurchase only 3 loans, solely attributable to rate discounts granted to employee borrowers, which made the loans ineligible under GSE standards.

Valley has not been required to repurchase any-- repurchase any of its loans sold due to either deficient credit underwriting or flawed documentation.

At Valley, our staff takes great pride in delivering a quality product, irrespective of whether the loan is sold into the secondary market or held in portfolio.

Valley's automobile portfolio contracted approximately $22 million from the prior quarter, despite an increase in total originations.

During the quarter, Valley originated approximately $80 million of new automobile loans, an increase from the second quarter.

For the first nine months of 2011, Valley originated over $240 million of auto loans, compared to approximately $170 million during the same period one year ago.

Although activity is increasing, Valley's market share of new originations has declined from prior years as our focus on receiving a reasonable return on our investment limits Valley's desire to match competition on both rate and term.

Additionally, Valley's stringent credit criteria, which focuses on borrower down payment in addition to credit history and capacity to pay, differentiates Valley from many of our peers, and further impacts the pool of improved borrowers.

During the quarter, we rejected over $260 million of auto loan applications.

For the year, Valley has rejected approximately $750 million in such applications.

Whether within Valley's consumer lending or commercial lending portfolios, the united focus throughout the bank is maintaining Valley's pristine credit culture.

As the economy continues to show signs of stress, it is unlikely Valley will experience significant organic loan growth.

We remain steadfast in our belief that in the long run, banks with consistent and conservative credit cultures provide the greatest returns to their shareholders.

That being said, we do not plan on sitting idly by during this current period of economic uncertainty.

As I referenced earlier, we originated in aggregate over $1.7 billion of new loans in the first nine months of 2011.

This figure compares extremely favorable to the $1.2 billion originated in the same period one year prior.

Every Valley employee, from tellers to senior management, are actively attempting to expand existing relationships and court new customers.

We believe the strides we have made in enhancing Valley's brand, and geographically expanding Valley's traditional customer-focused approach to banking, will pay immense dividends to our shareholders as the economy begins to emerge from this period of slow growth.

We are pleased with the progress we have made in our previously announced merger transaction with State Bank of Long Island.

We anticipate a closing by year end, subject to shareholder approval.

Both Valley and State employees have diligently been working on preparing for a successful integration.

We believe it is likely that the full data system conversion will take place before the end of the first quarter of 2012.

This should allow for early recognition of many of the anticipated cost saves.

We are excited about the opportunities State Bank offers, and are eager to work with their staff to provide Valley's relationship-focused banking model on Long Island.

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

Thank you, Gerry.

As reflected in this morning's press release and accompanying financial tables, Valley's net interest margin increased significantly from the linked quarter.

The net interest margin on a tax equivalent basis was 3.86% for the third quarter of 2011, compared to 3.1-- 3.71% in the prior linked quarter and 3.78% in the third quarter one year ago.

The expansion of Valley's margin is largely attributed to a few infrequent items identified in the release.

Approximately 13 basis points of the margin is the result of additional cash flows received on closed-covered loan pools, which Valley accounts for under ASC 320.

The timing and recognition of this income is subject to a multitude of external factors, and therefore we cannot predict whether Valley's net interest income will benefit from similar adjustments in future reporting periods.

Additionally, Valley recognized recovered interest on non-accrual loans during the period at a greater degree than previous quarters.

Exclusive of the aforementioned items, Valley's net interest margin contracted slightly from the linked quarter, largely as a result of excess liquidity, coupled with the overall low level of market interest rates.

During the linked second quarter of 2011, and in conjunction with Valley's accretive asset-- active asset liability management strategies, the Bank liquidated approximately $250 million of investment securities, which under the current interest rate environment displayed an increased likelihood of prepayment.

As a result of the security transactions, Valley recorded approximately $16.5 million of security gains in the second quarter of 2011.

The transactions, while accretive to income, negatively impacted our margin in the third quarter.

In part, as a result of Valley's excess liquidity position, the Bank continues to aggressively manage its funding cost and reduce deposit cost where appropriate.

Certificates of deposit declined nearly $134 million from June 30, 2011, largely due to Valley's decision to lower the rates offered on all new CD maturities.

Additionally, during the latter half of the quarter, Valley decreased the deposit rates on many municipal and money market deposit customers.

Unfortunately, the deposit interest rates being paid are already at historic low levels, and we anticipate only a slight improvement in the cost of funds.

Another factor limiting Valley's ability to decrease funding costs is the large percentage of non-interest bearing deposits comprising its total deposit balances.

Valley's non-interest bearing portfolio comprised 27% of total deposits at September 30, 2011.

While Valley's net income is enhanced as a result of the large percentage of non-interest bearing deposit funds, the Bank's ability to decrease its deposit funding cost in low and declining interest rate environments will remain difficult.

That being said, the benefit of this funding source more than mitigates the asset liability management hurdles in the current economic environment.

For the remainder of 2011 and into 2012, we anticipate continued pressure on the margin, exclusive of the potential impact due to infrequent items.

A net interest margin in the mid to low 3.60% range is likely, should interest rates remain near the current low levels.

And the reinvestment rate on loans originated and/or modified continue to be less than the current yield on our loan portfolio.

The reported net charge-off figure of $11.0 million includes approximately $6.1 million of commercial net charge-offs attributable to covered loans for the third quarter.

Exclusive of covered loans, net charge-offs declined, on a linked quarter basis, from $6.2 million in the second quarter of 2011 to $4.8 million in the current quarter.

The recognition of net charge-offs for these particular covered loan pools is solely attributable to the provision for losses on covered loans of $18.9 million that Valley realized in the first quarter of 2011.

As with prior periods, net charge-offs of covered loans will more than likely be recognized against the fair value mark described to each loan pool at the acquisition date, unless the losses associated with a certain pool are greater than the balance of the fair value mark, at which time a net charge-off may be recognized.

Due to the accounting guidance, it is more than likely that covered loan net charge-offs, in excess of the original forecast, would be provided for through the loan loss provision in periods prior to the recognition of the actual net charge-off.

For the quarter, exclusive of the covered loan net charge-offs of $6.1 million, Valley's loan loss provision was in excess of net charge-offs by approximately $3.0 million.

For the first nine months of 2011, exclusive of the covered loan net charge-offs, it totaled $11.9 million.

Valley realized net charge-offs on non-covered loans equal to $14.9 million, which compares favorably versus net charge-offs of $22.3 million for the same period of 2010, and the current year-to-date provision for losses on non-covered loans and unfunded letters of credit of $19.9 million.

Total non-accrual loans declined slightly from the linked quarter; although the decline was largely mitigated from an aggregate credit quality perspective as total accruing and past due loans increased $12.4 million from the second quarter of 2011.

The increase in past due loans is mainly attributable to two commercial real estate loans, which are estimated to be at risk for an immaterial loss.

And we currently believe these delinquencies do not represent a systemic shift in the credit quality of the loan portfolio.

Valley's entire non-covered loan portfolio, including those categorized as either non-accrual or accruing and past due, are analyzed in conjunction with Valley's quarterly impairment and reserve for loan loss analysis.

As we have stated on numerous occasions, as a result of Valley's robust credit underwriting process, combined with Valley's requirements that all borrowers maintain a sizeable equity position in each loan, the mere categorization of a problem and/or non-performing loan does not inherently imply that a large net charge-off is forthcoming.

Non-interest expense on a linked quarter basis increased approximately $2.2 million, largely a result of the $1.6 million impairment charge on certain loan servicing rights.

The impairment charge is mainly attributable to an increase in residential mortgage prepayment speed expectations, and the resulting implied impact of this change within the model Valley uses to value its servicing portfolio.

Additionally, during the same period, salary and benefit expense increased approximately $1.0 million, largely due to accelerated compensation expense related to a change in employee retirement eligibility within Valley's stock award plan, coupled with a slight increase in healthcare expenses.

Non-interest expense was also negatively impacted during the quarter, due to an increase in expenses associated with the loans acquired in the Park Avenue and LibertyPointe Bank FDIC-assisted transactions in March of 2010.

Although covered loans under the loss share agreement are reimbursable from the FDIC at 80%, the gross expense is recognized in the non-interest expense category, while the change in the amount reimbursable from the FDIC's reimbursement is recorded in non-interest income.

During the quarter, non-interest expense associated with these two transactions increased approximately $750,000, of which the majority was attributable to legal fees.

Additionally, although not an increase from the prior quarter, advertising expense continues to play a larger role in Valley's operating budget, as we have seen a direct correlation between our loan origination activity and the level of advertising.

As Gerry indicated earlier, we are witnessing record application volume in our residential mortgage department, in part attributable to the increase in Valley's advertising expense.

Furthermore, the incidental benefit of expanding Valley's brand is difficult to quantify, yet we have witnessed increased activity in all segments of the Bank.

While the interest rate environment remains accommodative to the success of Valley's one-cost residential mortgage refinance product, and the consumer base continues to be enthusiastic, we anticipate continued, elevated advertising expense.

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

Thank you.

(Operator Instructions) Our first question is from Ken Zerbe with Morgan Stanley.

Please go ahead.

Thanks.

Regarding CRE loans, obviously we heard your comments.

The spreads are tighter than where they have been before.

Are you still willing to write CRE in any kind of material way, given the spread tightening?

And how close are we to the point where that might not be as economically sensible?

Thanks.

Well, we do some interest rate swaps to protect ourselves on those.

Our number one focus, as I pointed out earlier this morning in my remarks, is credit quality.

I'm not as concerned about the interest rate spreads because we, as I say, we can cover those with swaps, we could-- we do a number of different things with them to offset the interest rate risk.

There's very little you could do to offset credit quality risk.

So I'm not really concerned.

I would be happy to allow that portfolio to grow.

One of the things that we traditionally require is a significant down payment, a significant equity position in all of our commercial real estate.

I know everybody gets very nervous when they hear commercial real estate, but if you're requiring 30%, 40% or more as an investor down payment, as their skin in the game, the risk is significantly mitigated.

And the other comment I would make, Ken, is that two things.

Number one, the majority of our loans are written with amortization so that cash flow is constantly coming in and can be reinvested as interest rates change in the future.

And in addition, many of our loans are written with 5-year interest rate resets.

So the fact that we may be putting on loans doesn't mean that we've locked ourselves in forever on those interest rates.

So we model all this out and we take all those things into account.

Okay, that helps.

I guess it's more not being locked in forever, but being locked in for 5 years at a given rate.

But that helps.

The other question I had, very quickly, was do you guys know the split on the higher cash flows, on the covered loans this quarter?

I think it was the $3.9 million.

How much of that related to an acceleration of the accretable yield from, say, payoffs versus sort of sustainably higher cash flows from I guess a reallocation from non-accretable to accretable?

No, it really doesn't have to do with the accretion.

It was really all based upon payoffs taking place in certain pools in which the loans are no longer in existence.

So that gives you the right to take the cash flow in immediately as income.

Okay, perfect.

All right, thank you.

Our next question is from Craig Siegenthaler with Credit Suisse.

Thanks, guys.

Good morning.

Good morning, Craig.

Good morning, Craig.

First just a question on the $2.5 billion taxable securities portfolio.

The yield here looks fairly high, but I believe a lot of it is still classified as held to maturity.

I'm just wondering if you could help us with the duration of this portfolio, and also how quickly this one should reprice lower, given current macro conditions.

That has some longer-term securities in it that we're-- even though that's the case, the duration has been coming down on all of those over the last couple of years.

We've had a number of securities that have been called.

We have some trust preferreds in there.

And as you know, with the change in the rules for 2013, there are some calls going on.

So we've seen some of those.

Cash flow comes back in, and the duration goes down.

Got it.

And I've noticed it looks like your tax exempt portfolio had a little bit of growth in the third quarter.

If deposit growth remains stronger than loan growth, is that going to be your primary strategy at this point to grow the tax exempt side, or do you think you'll focus more on the taxable security side?

Our focus is to, is on loans.

If we're going to grow anything, we would prefer, number one, to grow the loans.

We can-- we do better on our refinance program, holding in portfolio more of those loans that we would have sold.

Even though they are booked on a very conservative basis, we're still better off holding those.

Those are still yielding roughly 4%, where you can't get a mortgage-backed security of a similar duration to yield anywhere close to that.

Mortgage-backs of that duration are in the 2s.

We've looked very carefully, as Gerry just said, of holding our own residential mortgages.

I mean mortgages are mortgages.

One maybe has some guarantees or not.

But as Gerry said, to buy yields at such low levels, when we can get our own paper which we trust our credit quality and we can pick and choose and keep what we want, that makes sense.

So that's really our first place we want to put the money.

That doesn't mean we won't buy some additional tax exempts, however, we pick and choose very carefully what we put into our portfolio.

Great.

Thanks, Alan.

Thanks, Gerry.

Our next question is from Steven Alexopoulos with JPMorgan.

Hi, good morning, guys.

Good morning.

Good morning.

I want to follow up, maybe I'll start with the securities book.

So the decline is not that much, even though you're selling securities.

I would have thought the reinvestments would have brought that yield down.

Alan, can you help us think about how much risk is there in coming quarters that that yield falls off fairly materially from where it is now?

You're talking about the yield in the tax exempt portfolio or the taxable?

I'm looking at the $2.5 billion of securities, taxable, yielding 4.43%.

Right.

We have, as I indicated just a couple of moments ago, we have a few hundred million dollars of trust preferreds.

These are not pooled trust preferreds; these are single issuer trust preferreds that probably have been on our books somewhere between 10 and 15 years.

Because of, as Gerry mentioned, the Collins amendment, there are-- there's a reshuffling going on out there in terms of capital requirements for the larger banks, especially for which we may hold some of those securities.

And some of those are going to disappear over time, depending on how they look at their own capital.

So that being said, I'm happy with the yield that I have right now, but I don't know that it will stay there forever.

But that's over a couple of year period.

Again, we're in '11, and Collins I think takes full effect in 2013.

So, and again, I'm not sure that every bank is just going to call it.

It really will depend on their own institution and how they look at their capital requirements.

Alan, looking at, and I think I've asked you this in the past of that $2.9 billion in long-term debt.

Is there any opportunity to refinance that as an offset?

You know, we're always looking at that.

That debt was put on-- I think as Gerry talked before, when we look at putting on maybe some longer-term mortgages, whether they're residential or commercial, we look very closely at how we protect ourselves.

Obviously we're in a very low interest rate environment.

Nobody projected, I don't think, this extended timeframe.

That being said, while they may match up well against a lot of our, even some of our investments, there's only so much you can do with that.

A lot of them go out a couple of years, but we are looking actively at that to see what we can do.

Okay.

And then a final question.

Gerry, with mortgage rates moving up a bit here, are you seeing that refi pipeline slow?

And what percent of these customers that are refiing with you are actually opening up checking accounts and becoming Valley customers?

Good point.

Good questions.

First of all, the guy who looks just like me who is on all the radio and television ads seems to be actually working.

Our volume was in the 700 to 1,000 applications up until around the first half of the year.

In the last couple of months, that's begun spiking upward.

In the month of September, we did approximately 1,300 applications.

This month, we are seeing a level that we expect will exceed that.

So we're pretty excited about the fact that that business has not fallen off.

We've expanded our footprint because of the media advertising.

As I mentioned in my opening remarks, we're drawing in from Pennsylvania, we're drawing in throughout the entire state of New Jersey.

And we hope that, and we expect that as we move into Long Island, that's going to open up new vistas for us.

I know their staff, their branch staff are very excited about being able to offer a program of that nature.

So I think that at least for the next 6 months, that volume should be brisk and remain brisk.

We have incentives to our branches.

Most of the refis close in our branch.

We have it set up so that the actual closing can take place in the branch.

As a result, at the actual closing, the branch staff has an opportunity to try to cross-sell our products, our checking accounts and so forth, right there in the branch.

So we're experiencing a high percentage, whether that percentage is 30% or 60%, at this moment, I don't have the answer.

I know that we discussed it.

In fact, yesterday in our Alco meeting, and I'm supposed to be getting that exact number, although I am told that a very high percentage do open up accounts.

As I mentioned earlier, 80% are non-Valley customers.

So there is that opportunity.

80% of all these mortgages that close, close in the branch and they're not Valley customers, so there's an incentive for our branches to go after checking accounts.

All right.

Thanks for all that color.

Appreciate it.

Our next question is from Jason O'Donnell with Boenning & Scattergood.

Morning.

Morning, Jason.

I apologize if I missed it, but can you just give us an update on much in interchange fees you expect to lose that are Durbin in the fourth quarter?

For the full year, I think the number is about $2.5 million, on a full-year basis.

$2.5 million to $3 million, it's in that range.

$2.5 million to $3 million.

Okay, great.

That's an annual number, Jason.

And then on the-- in terms of helping us with the modeling process, can you just tell us what your FTE margin was in the month of September?

In the month of September.

He wants to know the margin for the month of September.

You know what, it's really-- I don't know how to tell you the model that.

I think you got to go by what we told you before.

We had a couple of infrequent items.

They got recorded during the quarter.

We don't necessarily expect to that extent to see those again.

And we've guided you towards a margin going down into the low to mid 3.60% range for the rest of the year.

Yes, it's very difficult, as I keep telling our board, when you get monthly numbers to really judge where the direction of the Company is going by any single month.

It's difficult enough on a quarterly basis, but events take place during any month that could spike a number up or down.

There's a lot of volatility in this Park and Liberty thing.

It's worked out very well for us, but that being said, it depends on how things flow between us and the FDIC.

So to some extent, it's a little hard to tell you on a month basis what kind of trend we're looking at.

Understood.

Okay, thanks.

And then my last question is really more strategic in nature.

Accounting for the shift, really a massive shift in the way that small businesses and consumers have been banking over the last 10 years, at what point does it make sense to think about consolidating portions of the branch network to reduce overhead costs?

We are always looking at our branches.

During the past year, we closed about a half a dozen or so of our branches.

We're always looking to both open or close branches, depending upon shifts in demographics, volumes that go through the branch.

There will be continued closings in the future and there will be continued new branches opening in the future.

We look at every single branch, literally, that we do look at on a monthly basis as to how they're doing with deposits and loan generation, etc.

Okay, thanks, guys.

Our next question is from Ebrahim Poonawala with Morgan Keegan.

Good morning, guys.

Good morning.

Good morning, Ebrahim.

Alan, just following up on the margin in terms of the margin outlook and your comments on funding costs.

I'm looking at time deposits, which averaged about 1.8%.

Shouldn't you see a decent decline in the cost of time deposits over the next few quarters?

Because I assume that-- go ahead.

We should continue to see a decline.

There is no doubt about it.

I think I said that last quarter, that we would continue to see that.

Again, I think we've lost a fair amount of the deposits, 135 million I think I indicated during the quarter.

And in addition, they're all repricing down.

So you're right; there will be a continued decline in CD rates.

And obviously it depends on the maturity of those and how long they went out originally.

I mean I see, as I look at some of our reports, you can see CDs that were written 3, 4, 5 years ago.

And as they mature, yes, there's no doubt that that will come down.

And do you have the breakdown in terms of what you expect in terms of maturities in the next quarter or the next 6 to 12 months?

Yes.

Yes, we look at it all the time.

I don't have the number in front of me, so I can't really tell you that.

That's fine.

That's all located on there.

All right, thanks.

That's all I had.

Our next question is from the line of Nancy Bush with NAB Research LLC.

Good morning, guys.

How are you?

Good morning, Nancy.

Good morning, Nancy.

Quick question for you, Gerry.

We were hearing a lot about sort of a backlash on both the consumer and the commercial side against the large banks.

And theoretically, you should be a beneficiary of that.

Can you confirm that that is indeed happening?

And is there any way to sort of track the business that's coming to you out of some of your larger competitors?

It's very difficult.

We don't track bank by bank, but it's clearly coming from some of the larger banks.

There are a lot of people who just aren't happy with the-- and I don't know it's as much rate or anything as it is the level of service.

In New Jersey, you could have started out with one of the major Newark banks and ended up that bank having transferred to 6 different owners over the last 15 years, and you're just not happy.

They've gone from a bank that had roughly $10 billion in assets 15 years ago to one that's in the trillions today.

And the level of officer that they're dealing with isn't the same.

The perception of the client as to the amount of attention that they're getting at the top level isn't the same.

And we have benefit clearly from that.

As you know, we try to make ourselves, all of our senior officers available to our clients.

We're out socially, all kinds of functions several nights a week, having our faces shown.

And that helps, clearly.

So we are getting a nice rollover coming in to us from the bigger banks.

You made some comments just about the continued sort of subdued outlook in your operating area.

But are there any marginal changes in sort of the business climate in New Jersey?

Well, I don't want to get political, but we do have a governor who is very pro-business, and that is helping.

He speaks very well for the state.

I just heard him earlier this week, I was at a function that he was at, and he was quite proud of the fact that we've added 45,000 new jobs in New Jersey this year when we've seen that number declining throughout most of the country.

So I guess a lot of that is moving favorably here in New Jersey.

As I said, we are seeing more activity in New Jersey this year than we did last year, the prior year, so that's a good sign.

Thank you.

Our next question is from David Darst with Guggenheim Securities.

Good morning.

This is [Rahl Haliral] for David.

I just had a question on if you had an update for expected accretion from the State Bancorp deal?

No, we don't have any updates at this point from what we've already disclosed.

Okay, great.

That's all I had.

Okay.

Thank you.

(Operator Instructions) And our next question is from Collyn Gilbert with Stifel Nicolaus.

Thanks.

Good morning, guys.

Good morning, Collyn.

Gerry, I guess this is a question for you, kind of perhaps following on to what Nancy was asking.

I'm just trying to reconcile your conservative approach to the business, more limited growth, with higher-- much, much higher growth rates that certain banks in your area are putting on.

And as you're looking at the competitive landscape and your kind of seeing deals come through, do you have a sense that these other local competitors are making concessions on credit, on price?

I mean it just-- in one bank, in particular, I don't follow, but there just seems to be a big gap between the kind of growth they're seeing versus what you guys are putting on.

And I know obviously you are, you guys have been always very, very conservative.

But just if you could, sort of help to maybe connect the dots.

Well, Nancy, as you know-- excuse me, Collyn.

Collyn, as you commented, or as I commented before, it's our philosophy to stay on the conservative side.

That's not an insurance policy that you will never have a loan go bad, but it protects an awful lot better when one does go bad.

In my 36 years here at Valley, I have seen other banks growing much faster than us periodically -- in fact, on many occasions -- only to see that they regretted it later on.

Almost without exception, they've regretted it later on.

So we're true to our culture that credit has to meet certain standards.

And we're going to see other banks grow faster than us in periods like this, and we're going to see other banks have a lot bigger problems.

You know, for years, we were talking against why would anybody do a subprime residential mortgage?

Our mortgage department suffered, no other term for it, from a lack of growth, when others were growing leaps and bounds faster than us.

Who proved to be the right one?

I go back into the 1980s when everybody was going gangbusters in our marketplace doing speculative office buildings.

We stayed out of that market, and then who ended up at the, being the winner?

Banking is not a high risk-taking business.

The margins are too small to cover it.

I've said that repeatedly.

And I'm a big believer in that slow and steady wins the race.

Remember in the race with the hare and tortoise, who won?

We're not the hare.

I can't help it that we are what we are.

But we are steady, and I think our shareholders appreciate that.

Okay.

Okay.

That was all I had, thanks.

Okay.

Our next question is from Gerard Cassidy with RBC Capital Markets.

Morning, Gerard.

Mr.

Cassidy, is your mute button on?

We'll go next then to the line of Matthew Kelley with Sterne, Agee.

Please go ahead.

Hi.

Just a question on the multifamily market, you commented on that a little bit earlier.

What are you seeing for new origination yields in the New York market for rent stabilized versus New Jersey, Pennsylvania, in that asset class for pricing?

I'm just curious in the discrepancy there.

Well, we have a floor pretty much that we won't go in below.

The market fluctuates around today in the 4% or below for that product.

The good news with that product, usually, is your loan-to-value is in the 10%, 15%, so you have a high quality--.

The rent stabilized doesn't fit that category.

I thought he was talking about the co-op that we spoke about before, no?

Co-ops, I'm curious in that as well, but generally just multifamily units throughout the boroughs, curious on pricing there.

I'm sorry.

The multifamily are very, very low today.

I've seen situations come in in the 3 and even sub 3% category.

Even with a swap I can't cover myself; it gets too low.

Got you.

And what were the-- what was the impact of prepayments on the margin in the third quarter compared to the second quarter on the non-covered portfolio?

Basically-- you're talking about the non-covered, right?

Yes, on the non-covered.

The benefit to the margin this quarter.

Yes, again, I think we talked about it before that we saw cash flows coming through on pools that had completely paid off.

So once the pool pays off and--

He's talking non-covered.

Oh, the non-covered?

On the non-covered, I think really the issue is is we're seeing a lot of borrowers that want to prepay and get lower rates.

How much did that add to the margin?

1 to 2 basis points.

I'm sorry?

1 to 2 basis points.

Okay, okay.

And the recovered interest on non-accrual loans, how much did that add?

About $1 million dollars.

Okay, got you.

And last question.

On the tax preferreds that you have, can you remind us the total dollar amount of the single issuers and the pools?

And on the single issuer side, how much is issued by banks that are subject to the Collins amendment who presumably will be tendering for those before 2013?

I don't have the numbers in front of me.

I would say that the majority of the single issuers, not all, a large percentage of them are probably subject to the Collins amendment.

Maybe 75%.

Single issuers make up about 95% of our trust preferreds.

We don't have a lot of pools.

In fact, I think we only had 2 and they're relatively small.

We have about 350-- we have about $350 million of single issuer, and my guess is about 75% of that, I don't have the exact number, is probably subject to the Collins amendment.

Got you.

If I could add just one more.

On a long-term borrowings, you said you were actively looking at things you could do to lower that rate.

But the math is pretty straightforward, so besides a restructuring or an extinguishment, what else might be considered to reduce the burden of that high-cost funding?

You know, I'd rather not go into at the moment since we're looking at things and I don't have anything specific on the table to give you.

But we are looking at ways to try to figure this out.

Obviously, prepayment penalties are extremely large, but we are looking at some possible restructurings.

Got you.

Thank you.

And speakers, at this time we have no further questions in our queue.

Okay, thank you for joining us on our Third-Quarter Conference Call.

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