Valley National Bancorp's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Valley National Bancorp ( VLY)

Q4 2011 Earnings Call

January 26, 2012 11:00 AM ET

Executives

Alan D. Eskow – SEVP and CFO

Dianne M. Grenz – Investor Relations

Gerald H. Lipkin – Chairman, President and CEO

Analysts

Ebrahim Poonawala – Morgan Keegan & Co. 

Craig Siegenthaler – Credit Suisse

Steven Alexopoulos – JPMorgan

Aaron Brann – Stifel Nicolaus & Co. 

Dan Werner – Morningstar

Gerard Cassidy – RBC Capital Markets

Nancy Bush - NAB Research LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter Earnings conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; 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, Miss Dianne Grenz. Please go ahead.

Dianne Grenz

Thank you, Good morning. Welcome to Valley’s fourth quarter 2011 earnings conference. If you’ve not read the earnings release we issued early this morning, you may access it along with the financial tables and schedules for the fourth quarter from our website at valleynationalbank.com.

Comments made during this call may contain forward-looking statements relating to the banking industry, Valley National Bancorp and the recently completed acquisition of State Bank Corp. Valley encourages participants to refer to our SEC filings including those found in our Form 8-K, 10-K and 10-Q for a complete discussion of forward-looking statements.

And 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 fourth quarter earnings conference call. Valley’s fourth quarter net income of $24.8 million or $0.15 per diluted share was negatively impacted by both non cash impairment charges on investment securities and transactional merger expenses associated with the State Bank acquisition. In the aggregate, those two items negatively impacted our diluted earnings per share by $0.08. For the year, Valley earned a $133.7 million and had solid earnings for each quarter of 2011. Valley in its 84 year history has never reported a losing quarter.

The following comments surrounding loan growth and activity for the full year and quarter do not include the impact of the $37 million short term loan to State Bank Corp. The loan was used to repay their tarp funds and was eliminated at closing on January 1 upon the acquisition of the company.

Total loan growth during both the quarter and full year was extremely promising as Valley originated over $685 million of new loans during the quarter and over $2.4 billion of new loans during the 12 months of 2011. This marks the highest annual volume of new originations ever recorded at the bank. As a result, net new non covered loans at Valley for the year grew by approximately 5.3%. For the quarter, the growth was approximately 7.4% annualized.

New commercial lending originations for the quarter equal $290 million, bringing the full year total to $1.1 billion. Net non covered loan growth for the year in the commercial C&I and CRE portfolios was nearly $200 million despite the enormous amount of prepayments received which partially mitigated the new volume. With the exception of construction loan portfolio, we are experiencing growth in all types of commercial lending.

Commercial Real Estate excluding commercial loans grew approximately $50 million from the third quarter as originations of $132 million were also impacted by both scheduled and non scheduled principal payments of over $80 million.

On average, prepayments in part precipitated by the low interest rate environment during 2011 were approximately 11% greater than the amount recognized in 2010.

The commercial C&I portfolio expanded $8.2 million or nearly 2% annualized from the prior quarter.

Line usage remained at approximately 38.5%. However, the total amount of committed lines from lines of credit grew by nearly $70 million.

Activity in Valley’s New York and New Jersey market place was strong during the fourth quarter as new originations equaled $157 million or 20% greater than new volumes realized in the third quarter.

The current quarter increase in loan activity is promising, yet from our perception does not imply customer sentiments has fully shifted in a positive direction. Much of our growth had come from taking business away from some of our competitors and many of our customers continue to be reluctant to expand their businesses until the economic conditions improve and they can anticipate sustainable business profits.

We remain optimistic about growth in Valley’s commercial lending portfolio and see continued opportunities throughout 2012. However, as is customary as Valley, loan growth is limited based on management’s emphasis on credit quality. 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 earning stream focusing of credit quality is the hallmark of Valley and ultimately drives the levels of 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 institutions as opposed to expanding existing lending relationships due to growth in the economy.

The competition for high quality low loan to value projects remain intense in our market place. Due to the low level of market interest rates, the origination rates on many of these projects are rates considerably lower than similar or originations in prior periods. However, in growing the balance sheet, Valley’s management continues to be mindful of the bank’s asset liability mix and the bank’s aggregate interest rate risk exposure.

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