Flagstar Financial Inc (NYCB) 2002 Q1 法說會逐字稿

Please stand by, we're about to begin.

Good day everyone.

And welcome to the New York Community Bancorp's first quarter earnings conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the conference over to Ms. Ilene Angarola, Sr. Vice President, Investor Relations. Please go ahead.

08:05"/> And welcome to New York Community Bancorp's quarterly earnings conference call.

Today's conference will focus on the highlights of our first quarter 2002 performance, and our earnings outlook for the year.

The discussion will be lead by Joseph Ficalora, our President and Chief Executive Officer, who will be joined by Anthony Burke, our Senior Executive Vice President and Chief Operation Officer, Robert Wann, our Executive Vice President and Chief Financial Officer, and Thomas Cangemi, Executive Vice President and All Capital Markets group.

This morning's discussion will feature several forward-looking statements, which are intended to be covered by the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

You'll find a discussion of forward-looking statements and the associated risk factors on pages 10 and 11 of this morning's earnings announcement, and a more extensive discussion in our 2001 annual report. If you need a copy of either publication, please call the Investor Relations Department at 516-683-4420, or visit our Web site, www.mynycb.com.

At this point, I'd like turn the call over Mr. Ficalora, who will be taking your questions following a few brief opening remarks.

Thank you, Ilene.

If the company's 2001 earnings were indicative of the strength of our institution, our first quarter, 2002 earnings were indicative of our ability to build upon that strength. Earnings rose 68 percent on a core diluted per-share basis, while diluted cash earnings per share rose 23 percent.

In addition to the benefits of our merger with Richmond County Financial, last summer, our first quarter 2002 performance reflects our growing capacity to originate mortgage loans.

First quarter originations exceeded $511 million, setting a new record, and included nearly $400 million within our multi-family market niche.

The likelihood of our raising the bar even further in future quarters, is suggested by our current pipeline, which exceeded $728 million as of yesterday.

Our first-quarter performance also reflects the ongoing shift toward core deposits, and the downward repricing of our higher core source of funds.

Core deposits represented 60 percent of total deposits at the end of the quarter, while CDs

to 40 percent. Decline in CDs is consistent with our focus on core deposits, and the shift from CDs into revenue-producing annuities.

The simultaneous increase in borrowings was consistent with our ongoing re-leveraging program, which is capitalized on the favorable deal curve since the third quarter of 2001. As a result of these actions, our net interest income rose 136 percent on a year-over-year basis, while our spread and margin rose 102 and 91 basis points to 4.00 and 4.16 percent respectively.

These improvements reflect both an 87 percent increase in average interest-earning assets, and a 175 basis point drop in our average cost of funds. The increases were also meaningful when compared to the trailing quarter.

Net interest income rose 11 percent form the fourth quarter of 2001 level, while our spread and margin rose 32 and 33 basis points.

We also realized a 55 percent rise in core other-operating income, fueled by a 41 percent increase in fee income, and a 78 percent increase in other income, excluding non-core gains and asset sales in the prior year.

The growth in other-operating income was substantially fueled by fees from operations, and revenues from

, the sale of third-party products, and Peter B. Cannell.

Another achievement worthy of note was the measurable improvement in our already solid level of asset quality.

Despite the significant asset growth stemming from our transactions, we realized a three-basis point improvement in our ratio of non-performing assets, to total assets, and a six-basis point improvement in our ratio of non-performing loans to loans, net.

MPAs equaled 0.16 percent of total assets.

And NPL equaled 0.27 percent of loans, net at quarter end. A significant portion of our one-to-four family mortgage loans will be securitized this quarter, with the intent of further reducing our exposure to credit risk.

The quality of our portfolio appears to have been a meaningful factor in Moody's decision to upgrade the rating on our trust-preferred securities, and to assign an investment-grade rating at the senior debt level early in March.

Other factors that played a role in the investment rating upgrade, was the strength of our deposit base and operations, and the financial stability reflected in our long-term profitability.

Based upon our first-quarter results, the current pipeline, and our current assessment of other factors, we believe that our 2002 diluted earnings-per-share will range from $2.04 to $20.08, and that our diluted cash earnings-per-share will range from 230 to 235. Given that, our 2001 performance was instrumental in earning the Company first place in S&L Financial's annual thrift performance ranking.

And this was, by the way, the fourth consecutive year we have earned this designation.

Our expectation of further earnings growth in 2002 says a lot about the fundamental strengths of the company.

Based on those expectations, it was decided at last night's Board of Directors meeting to raise the quarterly cash dividend 25 percent to 20 cents a share. This is the third time in a year that we have taken such action, reaffirming our confidence in our future earnings capacity.

On that note, I would now like to open the line for your questions.

Please go ahead, sir.

Thank you.

Today's question and answer session will be conducted electronically.

To ask a question, press the star key, followed by the digit one on your touch-tone phone. Again, that's star, one for questions.

Our first question is from Jack

with Lehman Brothers.

Hi guys.

Good morning.

Good morning, Jack.

How are you?

I'm good, thanks.

Good.

Two quick questions on maybe some forward-looking guidance.

I know you put in some guidance to both '02 and '03. On the operating-expense line for '02, was there anything in this quarter that was maybe discretionary, or brought that number up a little bit higher?

And are you comfortable giving a range for what operating expenses will be for the year 2002?

And then second, can you talk a little bit about what kind of assumptions you're taking into account for your 2003 guidance in terms of earning asset growth and margin trends?

Yeah, OK. With regards to the expense, the first quarter did have some extraordinary items in it.

But we are still very comfortable with the numbers that we previously have given you guidance with. So where you have our expenses for the year has not changed, despite the fact that the quarterly number looks high.

This quarter was always expected to be the narrowest earning quarter of the year.

OK.

Any thoughts on 2003?

We actually didn't give any guidance on '03.

Nothing in the release deals with '03.

Oh, OK, OK, OK.

I'm sorry. I was looking at the cash line.

I'm sorry about that. OK, good.

We increased both the expectations for '02 in GAAP and in cash. Cash went up by five cents, and the GAAP range went from 200 to 205, to 204, 208.

OK. I apologize for the confusion. Thanks.

Oh, that's fine, Jack.

Our next question is from

Inc

.

Hi,

, how are you?

Good mornings, Guys.

How are you?

Good.

Nice quarter.

Thank you.

Just two real quick questions. One, on the 600 million or so in one-to-four-family loans that you've designated to be securitized ...

Right.

Can you talk a minute about whether you're just going to securitize them, or you're going to put them into your mortgage back portfolio?

Well, when they securitize, they automatically go into the mortgage back portfolio. But we're going to hold them.

OK, you're going to hold them. That's what I meant, I'm sorry.

That's right. All that we're really doing is, we're taking out - we're paying a very favorable price to remove, from that portfolio, any credit risk.

Right. OK.

And just an unrelated question. On your pipeline, the percentage of multi-family, is that sort of in the same range as ...

It's probably higher than the range that has existed up to this point. It's probably closer to the 90 percent range.

Oh, OK, great. Very good.

Thank you.

You're welcome.

Our next question is from Rick

, Montgomery

.

wisejenny? Rick: Good morning.

Hi, Rick.

How are you guys doing?

Good.

Question on your cost of funds.

You claimed .08, I guess for this quarter. It's down considerably from the fourth quarter.

Do you see it going any lower than this if interest rates don't change?

If interest rates don't change, yes it should be going lower.

You know, but if interest rates were to change, obviously it depends on how rapidly they change. But in the modeling that we've done in the guidance we've provided, we did increase interest rates despite the fact that the market may not have that result.

OK, great. And also, with respect to the pipeline, did you say the pipeline is 728?

Seven, yes, $728 million.

OK.

So that was like - in last quarter, I noticed it was like 504 million?

Right.

This is definitely a major step up. There's no question that we are really beginning to lend at a much higher volume level.

Joe, was that coming from new business or refi's?

It's coming from new business and refi's.

It's actually - the nature of the business.

Right.

So, you know, there is no question that it includes both.

Can you be more specific?

I think that the good news is, I guess that the first quarter is showing that we're growing the loan portfolio at about a 35 percent annualized rate. This number would only increase the growth in the portfolio.

OK. Thank you very much.

You're welcome.

Our next question is from

with Sandler

.

Hi, Joe. Nice quarter.

Hi,

. How are you?

Good, thanks. Had a couple of quick questions for you.

The first one - I wondered if you could tell us if there was any gain in the quarter associated with the sale of those seven branches up in Connecticut.

No, no gain recorded on that.

Is there going to be a gain next quarter from the sale of those other branches?

No, very minimal.

It's non-consequential. The disposition of the branches had a explicit affect, in the first quarter in particular, on deposits, because the deposits went down over the course of the quarter with regard to those Connecticut branches, because the money was being moved out, and hopefully going into Webster.

With regard to the second quarter, we'll be having the branches, from Northern New Jersey, leave the portfolio as well. So we'll have a decrease in deposits from that transaction as well.

OK. And then secondly - it doesn't look like you bought back an awful lot of stock during the quarter.

Could you give us a sense on your thoughts for share repurchases, going forward?

Yeah.

I think that the modeling that we've used indicates something in the range of about 500 million, 500,000. We'll have to do a few transactions with that.

Five-hundred thousand shares per quarter. The first quarter was a very extraordinary quarter, had a lot to do with planned shares, with

shares coming online, and other factors.

All of that taken into account, we are very confident that the guidance we are providing today will get us to where you all expect us to be. And certainly we're raising the bar a little bit here, because we have a great deal of confidence that the quarters ahead will be better than the quarter just passed.

And then just finally, I wondered if you could give us a sense for what you're targeting for core operating expense growth, long term?

I think we're looking at it basically to be flat.

We're taking some expense lines and lowering them, and other expense lines having additions. We are looking at some very sophisticated new service systems.

So that is going to be an expense. But we have offsetting savings, with regard to our network and other factors, that will help to offset that.

So obviously we're also putting into the mix new branches, indicating that we had two open in the first quarter, one opening probably in the second quarter, and another opening sometime during either the end of - probably during the end of the second quarter, or the beginning of the third.

Thank you.

You're welcome.

Our next question is from Thomas

,

Brothers and Company.

Good morning, Joe.

Hi, Tom. How are you?

Good, thank you. Could you speak to the one-year GAAP?

To the one year GAAP?

Yeah.

In other words, your asset and liability sensitivity, could you talk about that a little bit?

I think that basically we are, at this point, relatively prepared to be slightly negative.

So it's really of no great consequence with regard to the impact that it will have, unless there's a huge change in rates. Lacking a huge change in rates, it will have little to no impact.

So if there's a little change in rates, you're not worried?

No, not at all. In fact as I said, Tom, the numbers that we're using, our modeling to come to the expectations for the year, take into account rates will go 100 basis points.

Obviously with that, we're still suggesting that we're going to be in the range of 204 to 208.

Got you.

So, 100 basis points up is already in it?

That's right.

So, if rates do not go up, then obviously that will be factored in, in the future.

If they don't go up, you'll do better?

Yeah, but not dramatically. The good news about all of this is the fact that we are not going to be overly affected by change in rates.

The way we're currently positioned, we have a great deal of flexibility to deal with rate change.

Got you.

Thank you very much, Joe.

You're quite welcome.

Our next question is from

, Friedman Billings Ramsey.

Good morning, Gentlemen.

Congratulations on another solid quarter.

Hi, Scott.

How are you?

Good.

Doing Well. I had question for you.

I know you mentioned your cost of funds is down significantly.

Right.

Your in-string asset yields are pretty flat. Is that indicative going forward?

Yeah, that is typical. And I guess it's one of the attributes of our balance sheet.

We do, because of the fact that our principal asset is a multi-family loan that is a refinancing asset, normal course refinancing asset, that we have a significant amount of prepayment penalty built into. We have an insulation against downward-moving rates that causes our yields to stay up longer, typically, than our peers.

so over the course of many, many, many, all of our public life, this has been proven by the changes in the marketplace. So whenever interest rates have moved dramatically, one-to-four family lenders lose yield, both from their loan portfolio, as well as from their mortgage back securities.

they lose that yield with no compensation. In the case of our portfolio, because of the way we're structured, we wind up getting yield maintenance from the multi-family portfolio. And also the reaction of the market, to interest rate change, is different in a portfolio of refinancing assets that typically refinance within a five-year period in any event.

OK. So it's underlying coupon may be 6.5 or something like that.

That's right.

And then on a refile, will the additional basis points. OK.

Yeah.

Two additional questions - one, your fee income link quarter was up, as well as your expense.

Is that the Cannell, the addition of Peter B. Cannell, on both lines?

That's right.

There is - Peter B. is a fully integrated - is fully integrated into our financials. So it does increase our expenses, and does increase our income.

It is, without question, a net positive to us to have Peter B. Cannell in our financials.

OK.

And finally, I guess, based on your comments about your pipeline, not too worried about Washington Mutual, their statement they're going to focus on multi-family?

No, not at all.

Obviously, Washington Mutual is a major national player in multi-family loans. The loans they typically deal with are not the same as the loans we deal with.

The bank they acquired here in New York,

, was not a bank that we were competing with. Even though they may have done multi-family loans, they did not show up as a competitor for us.

So Washington Mutual can do a lot of multi-family lending in the New York market, just like the world does, and never touch the segment that we deal with.

OK.

And last question - you drew a very strong currency of your peers. I know you guys always say you're looking.

Any thoughts on M&A?

I think that there's no question that we have been a very disciplined buyer over the course of time.

Our currency is a strong currency. But I think you could take a look at many of our peers.

Our relative strength in currency, to our peers today, is not anything near what it has been historically. We've typically traded at three to five multiple beyond our peers.

We're not trading there today. There's actually some peers that are trading at higher multiples than we are.

So if anything, we are today on a relative basis, discounted tour peers. And that is based on an eight-year history.

If you look at how our stock has traded against our peers over the course of the last eight years, which arguably were the best of times, we've traded significantly about our peers with regard to our multiple. Today, we're trading at or below some of our peers.

And the distinctions with regard to our balance sheet and our performance numbers are, if anything, more dramatic today than they were historically. So there is, in fact, a residue that is holding the trading in our stock, which of course we expect will be dealt with over the course of time here, and we will ultimately enjoy the favorable multiples that we've historically traded at.

OK. Thank you very much.

You're welcome.

Again, that's star, one for questions.

Our next question is from Theodore

,

.

Yes, and good morning.

And congratulations on another good quarter.

Thank you Ted, thank you.

Just two questions - in terms of your mortgage portfolio, can you give a breakdown between adjustable and fixed rates?

I think the good news is that the bulk of our multi-family loans are fixed for the first five-year period.

They adjust in the later periods. But there's no question that our average length of holding a multi-family loan is in the four-year range.

So, when we look at the interest-rate risk of our portfolio, it is certainly different than it might appear. Even though these loans are written as ten-year loans, the actual hold time on the portfolio is significantly less.

Now we talk about our securities portfolio - we've been intentionally leveraging the company, and doing other things with our securities portfolio to advantage capital, but not to make a long-term investment in securities. So the average life on a securities portfolio is about two years right now.

So when it comes to the assets of the Company, we are well positioned to re-price those assets at a significantly better timeframe than maybe even our GAAP table shows. I mean, the inaccuracies of those GAAP analysis tables have been notorious.

The good news for our investors is that we are very disciplined in creating a portfolio of assets that maintains an average short yield. As I mentioned earlier, the principal asset of the Company is a re-financing multi-family loan.

That asset, just by its structure, is intended to refinance in less than five years.

But is it likely to do that if interest rates have gone up?

It think that the good news about this particular asset is that it re-finances regardless of interest rates, because people that we lend to - this is not typical of the world necessarily - but the people that we lend to are very successful managers of the properties. And they are cash-flow property owners.

We are a cash-flow lender, they're cash-flow property owners. They are primarily rent-controlled, rent-stabilized businesses which definitely are advantaged by the passage of time.

In essence, the income stream that they can generate goes up as they renovate and improve the property. So they, by their own discipline, like to be re-financed within less than five years so that they can recognize the values that they're creating in their property.

OK, and then one other question with regard to the New York market. There was a statement, the other day, that I believe it was North Fork Green Point, and Astoria should merge because that would be the only way they could compete in the market.

I wonder if you have any comments on that, and the lack of both you and

in that grouping?

I'm not sure who made that statement, but obviously they probably think we can compete.

The good news is that all of the banks in this market have been competing for many decades. The introduction of new players to the market may have a change in how we compete.

But those of us that have been successful competitors with the best banks in the country, will in fact be very successful in competing as this marketplace changes. There is no question in my mind that we are a focused, consumer-oriented bank.

And as a result of that, we've been competing with the largest banks in the world, with the best possible branding. And we've been doing that very, very successfully for our entire life, not just our public life, and we're 142, 143 years old.

So, there's no question that the changes in this marketplace will change how we compete. But it will not necessarily shift anything away from those of us that are already highly competitive banks.

By example - the introduction of seven-day banking, we are already a seven-day bank. We have a large supplement of in-store branches that provide seven-day banking.

In-store, by the way, is not our franchise. In-store represents 12 to 13 percent of our deposit base.

It does represent a very attractive growing component in what we will provide

base. And it facilitates a competitive advantage over our peers, because people can, in fact, bank with us during what our normal banking hours, as well as extended banking hours.

And they can do that rather conveniently in the shopping center that they buy their food. So we will be opening additional in-store branches.

We will continue to open traditional branches. And we will be capitalizing on ever more sophisticated systems, and deliverables.

We have a much wider array of product deliverables today than we had a year ago or two years ago.

Thank you.

You're welcome.

Our next question is from Dean Unger,

.

Hi, Joe. How are you?

Good. How are you, Dean?

Good. I just had a question about two - one about the CDs. Among the CDs that you still have, how many of them are of the high cost?

And what is that cost, and how many are they going to be rolling off in the next couple of quarters?

There's at least 600 million in high-cost still in the portfolio.

Obviously, I don't know that we added the next quarter to the list. But obviously we're re-financing CDs on a quarterly basis.

Most of our CDs are very short. We're positioned in the market, with regard to those CDs, on a relatively short basis.

So the repricing of CDs is continuing to add to the favorable impact that is already demonstrated on our spreads and margins.

I guess another way of looking at this - we're not just looking today at the possibility of strong spreads and margins driven by declining liability costs.

We're also looking at favorable asset pricing. So as you well know, the yield curve has been very favorable to lenders such as us with regard to the differential in the yield we're able to derive, for the term that we actually hold the asset.

And there's no question that the import folio CDs that are still at an average price with regard to the next quarter. I believe that the average for the quarter is well over six percent.

There's no question that that's going to have a favorable effect to us. Many of the CDs, by the way, that are coming out of the portfolio, are not causing us to lose customers.

In many cases, as you well know, we had the

banking that took place principally in the supermarket branches. A lot of the CDs are very high core CDs that were issued at that time.

As those CDs are maturing, as well as others, we are offering people very favorable yields on fixed annuities. Those fixed annuities maintain the customer relationship.

And they also, at the same time, give us a very favorable kick to earnings. And they do not have the adverse effect with regard to us having to price up our CDs.

Right. I have another question about the multi-family - you mentioned that most of the multi-family are rent-controlled, rent-stabilized.

Right.

Could you give us a percentage that are not rent-controlled, rent-stabilized?

And maybe make a distinction between in New York City and outside of New York City?

Well, outside of New York City, none of the buildings we do are rent-controlled or rent-stabilized.

Inside the city, an extremely high percent - I do not have the percentage - I'll probably try and get that to you, you know, following the call, but it's a very, very high percentage.

All right, Joe.

Well, thank you very much.

Thank you, Dean.

OK, bye.

Our next question is from James

, R.B.C. Capital Market.

Good morning, guys.

Hi, Jim.

How are you?

I'm doing fine thanks.

How are you?

Good, good.

Hey, a couple of quick questions. I was wondering, in terms of the projections that you're making from an EPS perspective, what sort of implications are we talking about with regards to the overall size of your balance sheet, ballpark?

Well, we're not really, at this juncture, showing any large growth in the portfolio. So we're expecting - see the good news is, we're very, very disciplined in how we're looking at this whole thing, even though we're leveraging, we are still aggressively restructuring the balance sheet.

That is both on the liability side and the asset side. So we are accomplishing these earnings without significant growth.

Now, over time, once we are finished with restructuring, we will have the capacity to grow rapidly. And there are many other factors that will lend to the plausibility of the Company becoming a rapidly growing company.

I guess the immediate past is a perfect example of the fact that a person who looks at just our organic capacity to grow will miss the obvious. We are so significantly well positioned to grow by acquisition, that that number would be so dramatically favorable that concern about, or any over concern about the growth of the company from the standpoint of organic growth, would I think be missing the point.

We have the capacity to grow dramatically because we have such strong numbers. We also have the capacity to grow slowly while growing our earnings rapidly.

And I think the numbers show that. The earnings are growing extraordinarily rapidly, despite the fact that we're not demonstrating any large growth in the balance sheet.

OK. So, borrowing and acquisition you would expect sort of a continued slow-growth to no-growth type of a balance sheet environment?

That's right. Well, only for a relatively short period of time.

Exactly the number of quarters, I don't know that I'd be able to go there today. What I could say to you is that we're growing at approximately, the balance sheet, at approximately a five percent rate right now.

OK. OK.

And with regards to a question that was asked earlier, which I thought was kind of interesting, but I don't know if it got the point across, in terms of your pipeline on the multi-family side, obviously it's grown by leaps and bounds. I was wondering if you might be able to quantify what percentage of that growth is coming from your ability to lever existing relationships because of your substantial growth in size, versus attracting new customers.

I don't know the number, but there's no question that one of the very attractive things about size is that it is having a very positive affect upon our ability to lend up on very, very strong long-standing relationships. So for example, we might have very strong generational hold as a real estate, but have a $100 million or $200 million in real estate that they're managing.

Historically, we might have lent those people up to no more than $20 million or $25 million. Today, we can lend those same people 75 or more million dollars in composites.

So the ability for us to lend on good product, to well-established property mangers, or property owners, is enhanced by our bigger size. So at the end of the day, we're having zero deterioration in credit quality.

And we're having an increased size that we're able to hold for very successful real estate property owners.

OK, good deal.

And if I could just ask one more question.

Sure.

I'm not sure if you have any thoughts that you care to share with anybody. But you mentioned that your stock historically is traded at a pretty substantial multiple premium to your peer group.

Any particular thoughts as to why that doesn't appear to be the case right now, at this particular point in time?

I'll tell you the truth.

There could be lots of reasons, none of which I am sure represent the actual reason. The only issue that I'm aware of, the only metric that may be extraordinary for us is tangible.

And that is obviously a readily resolvable metric. But for those that might have that concern, that may be holding the stock from the standpoint of realizing its historical range against its peers.

OK, good deal. Thanks a lot, you guys.

Thank you.

Our next question is from Tom Monico, KBW.

Good morning, Tom.

Good morning, Joe.

How are you?

Good, good.

Can you talk, I guess specifically about, I guess, the charge for Peter B. Cannell, the number?

Are you talking about the good will?

Well, the operating - you mentioned in operating expenses, there was an increase due to Peter B. Cannell.

Yeah.

I mean, it's in the financials. Off hand, I don't know what the exact numbers are, but we can certainly get back to you with regard to that. The consolidation of financials occurs as of the very beginning of the quarter because we did that transaction January 2nd.

So it does increase expense, and it does increase income. But, and actually, it has an adverse effect on our efficiency ratio, but it at the same time has a very positive effect on our net income.

But the exact number, I'd have to get that and talk to you after.

OK, that's fine.

Also, on the multi-family book, I guess Don Community looked like it had a decline in its multi-family portfolio, a number of refis going on. I guess, what kind of refinance - I guess the refinance activity that you're seeing.

And I guess in terms of the prepayment penalties, I guess, where would those normally show up on your income statement?

Tom, I think obviously, first of all I'll mention, we are a different lender than Don Community.

So their results may, in fact, be different than us. From the standpoint of refi, it is, at least from the standpoint of multi-family, it is a refi business.

Almost all the loans that - and when I say that, it's probably, in the best of times, maybe eight percent, or nine percent of the lending that we do on multi-family properties are changing hands. But for the most part, multi-family properties are refinancing properties.

With regard to the prepayment fees, those are, in our case, yield maintenance fees, and showing up in the interest income.

OK.

Did you see a - I guess, did they represent a larger percentage of net interest income than they did the last quarter? And if so, what does it mean in terms of the net interest margin?

I think the good news is that our historical performance during periods of interest-rate increases and decreases has been very consistent. So our current performance is indicative of what we might expect.

The future period basically has a lesser impact with regard to interest-rate changes than, you know, others may have. So with regard to these fees, since it is continually a refinancing business, these fees are not going to disappear.

They're ongoing because we are going to have fees on a regular basis. So we're not expecting a dramatic change in the net interest income we derive as a result of either interest-rate changes, or as a result of our increased volume.

If that didn't answer your question, another factor that also impacts the yield maintenance that we have is that in many cases, our fees are utilized to negotiate a better yield to us from the renegotiated loan. So again, since the refinancing business, a lot of what could be fee income is not realized.

And it is realized in the factor that we're able to get a better yield on the loan, compared to our competitors, because our competitors have to go against the fact that the mortgagor would pay us one, two, three points if they went to the competitor. They don't wind up paying that, if they stay with us, on loans that we feel are highly desirable, and that we effectively negotiate a proper yield prospectively on.

So, when I say"yield maintenance," it's not merely what we recognize in the fees we pull into income, but it's also what we recognize on the yields that we derive prospectively.

Our next question is from Sam

, Black Rock.

My question has already been answered, thank you.

Thank you, Sam.

Our next question is from Michael

, Salomon Smith Barney.

Hi, Joe.

How are you?

Excellent quarter.

I'd like to go back to the question on expense guidance.

Great.

In your press release last quarter, you said that operating expense, excluding core deposit and tangible amortization, would be 123 to 125 million. Are you saying that's still the guidance?

Yeah, we're not changing any of the guidance with regard to expense. We're keeping that the same.

So, obviously the expense are going to go down from where they were this quarter?

Yes.

This quarter is probably the worst performing quarter for the year. And it does have higher expenses than future quarters will have.

OK, great. Thank you.

Our next question is from David

, CIBC World Markets.

Hi guys.

Great quarter.

Hi, David. How are you?

Pretty good. I have a question about where you see the loan growth, assuming that interest rates start to edge up slightly in the second half of the year.

Yeah. Because of the way we operate, and it's a refinancing business, we're not seeing any change in loan growth as a result of interest-rate change.

So if interest rates edge up, there'll be no change in the loan growth. But as we look at our portfolio, we're still expecting that the portfolio will grow by about 40 percent for the year.

OK. And looking at the transactions you did last year, I see that they've been very accretive to earnings.

Right.

What would the earnings growth, had they been accounted for as poolings, just for an apples-to-apples comparison?

To be honest, I don't know that we calculated that, but I could certainly look into it and talk to you off line after we figure it out.

OK. Thank you, that's all.

You're quite welcome.

Our next question is from Ron

, Value Line.

Good morning. Fine quarter.

Hi, Ron. How are you?

Hi. Joe, have you said anything about your geographical expansion preferences?

I think that some of our immediate actions indicate that we are very comfortable with the New York Metropolitan area. We are uncomfortable with branches that are so widely disbursed that they become inefficient to run.

But, that doesn't mean that we couldn't be comfortable with a full community franchise operation that is serving a community outside of our immediate geography. And then what I mean by that - I'm not talking about going to California.

What I'm saying is that it does not have to be, you know, continuity with regard to our branch franchise. There needs to be efficiency in operating any of the retail components of our franchise, wherever they may reside.

So a community bank that is well established, and doing what it's been doing for many decades in the immediate community that it serves, would be conceivably a very good addition to our franchise, despite the fact that it would be so far removed from the rest of the franchise that we wouldn't be staffing it from here. So that's the important thing here.

There has to be a capacity for the community to provide, not just funding, but also for the community to provide, without question, a local staff to meet the needs of that community. So the move out of Connecticut had to do more with the way the branches were situated, rather than the Connecticut market.

You know, the move with regard to Rockland County, again, where they were situated more so than the county. So we could do banking wherever the community bank that we are acquiring - because we are committed to maintaining the community identity of the banks we acquire, we could do banking anywhere where there is a strong community identity and franchise.

The important thing is that that acquisition has to be highly accretive to the interest of our share holders.

OK.

And as for your range of services offered, do you have any specific targets of how you're going to expand that?

I think beyond the fact that we have all of the traditional deposit offerings, and we today are offering a wide array of annuities, mutual funds, life-insurance products, we have an expanded capacity to offer lending products through

because of that relationship."

We're not portfolio in those loans, but we are issuing loans in a wide array of choices, as well as our NB&A relationship with consumer loans. So when it comes down to what a person can actually get at the bank, there should be available through our branches, whatever they could get at any other bank, in some cases, better products than they can bet at other banks because we don't have to own the provider."

So we do John Hancock, and

. And there's no question that those products are desirable, but that we don't have to own them in order to earn money on the distribution of the product, and at the same time meet a real need of our consumer.

OK, thanks.

You're welcome.

This does conclude the question and answer portion.

Mr. Ficalora, I'd like to turn the conference back over to you for any additional or closing comments.

OK.

Thank you, again, for your interest in New York Community Bancorp.

We look forward to keeping you informed about our strategies, and performance, in the quarters ahead. Thank you.

This does conclude today's conference. Thank you for your participation.

You may now disconnect.