Flagstar Financial Inc (NYCB) 2002 Q2 法說會逐字稿

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Good day everyone and welcome to the Roslyn Bancorp, second quarter 2002, earnings conference call.

Today's conference is being recorded.

Some of the information presented during this call and in Roslyns earning press release, issued this morning, contains certain forward looking statements.

Examples of forward looking statements include, but are not limited to; estimates with respect to the financial condition; results of operation; and business of the company that are subject to various factors, which could cause actual results to differ materially from these estimates.

These factors include, but are not limited to; general economic conditions; changes in interest rates; deposit flows; loan demand and competition; changes in legislation or regulation; results of operations from real estate joint ventures; changes in accounting principals, policies or guidelines; and other economic, competitive, governmental, regulatory and technological factors; affecting Roslyns operations, pricing, products and services.

Investors are encouraged to review the forward looking statements, disclosure contained, in the companies press release and to access Roslyns periodic report, filed with the Securities and Exchange Commission, for financial and business information, regarding the company.

For opening remarks and introductions, I would like to turn the call over to Mr. Joe Mancino, President and Executive Officer.

Please go ahead sir.

Thank you

.

Good morning and welcome to Roslyn Bancorps, second quarter earnings conference call.

With me today is

, Vice Chairman of Roslyn Bancorp and President of the Bank;

John Tsimbinos, who's Chairman of the Bancorp; and Mike Puorr, our Executive VP and Chief Financial Officer.

As usual, Roslyn had another exceptional quarter of record financial performance.

We increased our earnings four cents a share this quarter, without any increase in joint venture income.

The four cents came, all from operations.

As many of you as have already read through our press release, I would like to expedite the conference call this quarter by having Mike give a brief overview of our financial results and then hand it over to Jack for an update on our mortgage operations.

After that we will be available for a question and answer session.

Mike, take it over.

OK, good morning everyone and just to comment as we've said the last quarter that Roslyn is really a simple story, again its a story that we base our operations on having the utmost flexibility on our balance sheet across all business lines while capitalizing on our retail reputation of service which enables us to grow deposit at record levels and when you can grow deposits at 25, 30 percent a year on an annualized basis plus having an efficiency ratio of 28 percent, that produces the results that we are going to go over right now.

To begin with, some earnings and stats for the quarter, we achieved record core EPS of 45 percent, 45 cent, up 45.2 percent compared to the prior quarter and 9.8 percent or as Joe said a 4 cent increase on a lean quarter basis.

We beat the street consensus by 2 cent, over the past two quarters we've increased our EPS by 9 cent, if you annualize that that's 50 percent growth.

We continue to achieve record levels of ROE and ROA, the ROE on the cash basis is 28.13 percent, ROA on a cash basis 1.64, on a GAAP basis of 26.02 for ROE, and 1.52 for ROA.

In terms of dollar amount of income, the core income of the dollar for the second quarter was 36.7 million, that was up about 36 percent versus the quarter a year ago, and even more impressively we are up 3.2 million in net income from the first quarter, that's an increase of 9.5 percent if you based it on terms of dollars.

In the past 12 months, the company's ROE is increased over 46 percent, the ROA in the past 12 months has increased over 14 percent, the efficiency ratio has decreased by 12 percent, while we open five branches and have already hired the personnel for our next five branches and its important to note those, the hiring for the next five branches has been in place since probably mid May.

Some of that expense is already incorporated into our cost expense.

Also during the past 12 months, the margins increased 26 basis points and the spreads increased 44 basis points.

On the

we expect to have to have it stable to slightly increase margin as we announce 21 percent positively GAAP in the one year bucket and they're going to take that GAAP to the five to 10 percent range and additionally we have 2.1 billion CD still coming due in the next four quarters.

In terms of the retail story, deposit growth continues to be substantial, we've had annualized quarter and year to date core deposit growth of 23.7 percent and 31.1 percent.

Total retail deposits for the quarter and the year to date grew at an annualized rate of almost 31 percent and 26 percent.

Our pre-checking campaign has added more than 13,200 accounts during the year to date basis, and almost 57,000 new accounts since its inception roughly about two years ago.

On a net basis during the last 12 months we have increased our overall account base for the bank by 12 percent or 40,000 new accounts.

The average balance of our free checking campaign are now exceeding 3,400 an overall account balance is bank

are now in excess of 14,000 which we still believe is the biggest in New York today by a substantial margin.

Our fee income has for the year to date period was up almost 49 percent and our fees from alternative investments are up 44 percent on the year to date basis.

A brief to

our branching update a last 10 to no vote which we had a table in the press release has now accumulated to pie, that's a 513 million and a quarter pie ratio of 30 percent.

The growth in these 10 graphs for the second quarter alone was 138 million or 37 percent if we analyze that growth in the quarter it's a 150 percent analyzed growth.

Although 10 not

branches, six of them have hit profitability and the one's that have achieved profitability are growing at an analyzed rate of 100 percent.

We're still on schedule with opening five to seven more branches by the end of this year and beyond 2002 we expect to continue to grow our retail locations by 15 to 20 percent per year.

Our currently right now, we're working on 10 locations for the balance of this year and the beginning of next year.

Finally a couple of other retail points, access to

branches are mature branches have experienced annualized growth of 19 percent.

The average balance in these branches is now 205 million systems wide and more importantly in our background of national accounting our mature branches have average balances of 250 million.

Of Roslyn, here's the number one departed accumulated in the locations we serve based on every town we have a branch in.

We control roughly 22 percent of that towns bankable deposits.

Our competition on average controls about five percent so we're more than four times the amount.

In terms of efficiency we want the bank to take a leading position as well as the most efficient banks in the country.

Our efficiency ratio on a GAAP basis of 28.26 percent, on a cash basis 24.68 percent and since December 2000 we've expanded our branch locations by 33 percent while bettering our efficiency ratio by 15 percent.

In terms

generation and equality our loan origination's for the quarter totaled 270 million that was up 63 percent from the prior year quarter.

Non performing

actually decreased in the second quarter by almost a million dollars, they stand at 45.3 million.

We still have of that 45.3 million 4.1 of FH ADA totally government guaranteed one to four family a loan and two commercial credits roughly about 32 million.

Net charges also for the second quarter

amount to 13,000 year to date also fairly

115,000 and the bulk of that is consumer related.

Ya know this translates into a charge

percentage of less than one basis point year to date and going back to 1997 our charge

continues to be

that's averaging about one basis point and much of those charges going back the last five years were clearing up some loan from our merger.

We did have 750,000 provision for the quarter, which brings our allowance coverage up to 1.24 percent.

The out look in guidance we did change we did change our guidance for the calendar year 2002, we put out a new range of a dollar 76 to a dollar 80 and just a couple of more notes in terms of PE, right now it's rating based on 2002 our earnings 11 times based on 2003 first call consensus is 10.2 times and our price to book is 2.9 times and with that I'll turn over to Jack for his comments.

OK, thank you Mike.

I just want to go over, add a little to what Mike said about

quality and in particular those two large commercial loans totaling 32.3 million that makes up about 78 percent of our non guarantee, non performing assets.

The first of those two loans and these have all been previously recorded.

The first of those two loans is the $13.3 million commercial loan that secured by four properties in

county.

Three of those properties again as previously reported have been put in chapter 11.

We have recently received court approval for the sale of those three properties, subject to a stipulation agreement with the subordinated bondholders.

We have virtually reached the stipulation agreement.

We have full approval in principal and we have started to market those properties and we're getting some very interesting and attractive offers.

One that's especially is an offer for all three of the properties

in bankruptcy and it's in an amount that gets us Roslyn amount entirely and when I say entirely I mean, not only all above principal but all above interests, our penalty interests, our legal fees, there's an appraisal fee in there, everything we will get out.

That amount also pays the full amount of the

fee and leaves a fairly decent amount left over for the subordinated bond holders and we're in discussion now with the potential buyer as well as the bond holders to try to finalize terms of that offer.

We do have several other single offers on the other properties individually but if we could get all three sold to one, that would be our preference.

The other property is the assisted living facility, which alone is in the amount of $19 billion.

We are continuing to actively pursue the foreclosure process on that property.

As always in a foreclosure process, there is a fair amount of time involved.

We have analyzed this and we've come to the decision that if we could sell our note in a rather quick time period, it might be beneficial to wading out the time to go through the full foreclosure process.

So, we are in discussions with two groups for the potential sale of our note.

This would involve somewhat of a modest discount on our $19 billion, however we feel that most of that discount, whatever it might be will be offset by the recoveries that we're getting on our other commercial loan.

A further two other comments, one on the pipeline.

You'll notice in the press release that the pipeline amount was listed as $460 million, about 60 percent of that is multi family and in addition to that we have another $292 million that represents the unfounded portion of loans that have already been closed.

These are construction loans where we still have $292 million to fund as progress and building completion on these properties take place.

So, our overall pipeline is a little over $780 million which is by far the largest pipeline that we've had in the history of this bank.

A couple of comments also about our joint ventures, perhaps

any questions, I know there's always a fair amount of interest in our

activity.

First of all, our joint venture in

is right on schedule.

We had projected 75 units closing for the second quarter, actually 78 units did close and so far out of the total of 370 units as of the end of the quarter 233 have closed, or 63 percent, that leaves another 137 left to be delivered and we expect the bulk of that to come in the third and fourth quarters.

Our pending joint venture, which we have actually funded, is not Sinai we've previously this, this is a 177-unit golf course community out in Suffolk County.

The models, the six models are being are close to completion we expect full Attorney General approval of the perspective being as this is a home owners association by mid to late August, at which time we can take contract of sale.

The AG does allow us to do a marketing test for sales penetration, and on that basis the principals of the holiday organization who are our partners in this have done a marketing test they've invited 90 of the people on a waiting list - a long waiting list there's some 1,200 people, they've invited the first 90 to come in and discuss potential sales, and 40 of those have delivered non-binding deposits, so the reception on the sales of this Mount Sinai project - 177 units is going extremely well, we expect that, we fully expect that to be a very successful project.

Thank you

.

Ah Sherry, Sherry.

Yes I'm right here.

We'll open it now for questions.

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

If you have a question please press star one on your telephone keypad.

Again press star one.

Now we'll pause for just a moment.

And our first question comes from Mr. Fitzgibbon from

.

Good morning Joe good quarter.

Thank you

I had a couple of questions, first for Mike, I wonder if you could discuss what kind of securities you bought this quarter, you had really significant growth in the securities portfolio, and if you could give us some sense of what the next spread on those securities would be.

Sure Mark and good morning

Good morning.

As we've put on a billionth rate on the securities with a book yield of exactly, I'll give you the exact figures 6.39 percent an average life of 2.3 years and they're basically agency type

.

And you've funded it predominantly with barrings.

Deposits, deposits basically on a preferably matched basis.

OK ah

Basically you can see it will be done

funded with some of our longer term CPS we're still making a very handsome spread in excess of 200 basis points on it and if you want to say we're funding it with shorter time liabilities the spread will be even better.

OK and then the second question you indicated that a lot of the expenses for the new branches that you're opening later this year are already in the numbers so I'm wondering is 24.5 million or so a good run rate for operating expenses for the next........

Basically what I said was all the personnel for our next five branches are already in place and in training at our current branches, and they've been in place on pay roughly about a month or so, so that will what I really meant for you to take from that was as your projecting the D&A for the balance of the year at least keep that in mind that the expenses really will not increase significantly for quarter three and quarter four.

OK and then last question is on the joint venture the Mount Sinai project I think you said there's 177 units Jack could you give us some sense of what you would expect when those units would be delivered in '03?

Yeah Mark, the, as I indicated the sales should start to take place, around the end of August, typically, they maybe some delays, but that would be it.

The lead-time for the delivery of the first unit, should be, I would say maybe optimistically, towards the end of the first quarter, but more realistically in the second quarter of '03.

And I think, you had said you expect the profits on that venture to be about $10 million, so that's like a poor unit profit of like 56 thousand, which is correct me if I'm wrong, that's a little lower then what you did on the first, the last project?

Yes it is, but we were in a lot earlier on the last project and the land costs of the last project, therefore, considerably less then this project.

But still, we are looking at $10 to $11 million on our portion of the return, plus a preferred return on our investment of five plus one percent.

Great, well thank you.

Nice quarter guys.

Thank you Mark.

And our next question comes from

.

Morning guys.

Good morning Jim.

Now a couple of questions for you if I could, I was wondering if you might be able to give us a one year gap update?

Sure, one-year gap is 21 percent positive.

And could you tell me, what kind of prepayment assumptions you're making with regards to your mortgage pack portfolio to come up with the, the 21 percent positive gap?

Yeah, roughly, well first the reason why it went 21 percent from 16 percent a quarter ago, is that six hundred million of Agency Bond roughly at about eight percent, that we are now counting, that they'll be called in the second half of the year.

The prepayment assumptions basically is what we are running through right now, in terms of the one to four, for the month of June ran up 58 million, if you want to annualize that, the call is going to come to, gone 30 percent run off rate, you know, securities are, are properly running off roughly about the same.

OK.

And, I was wondering if you might be able to give us a little bit of labor with regards to the non-agency portion of your investment securities that you have on your balance sheet, if I recall correctly, it's someone in the neighborhood of 1.3 billion of debt equity and securities?

Yeah, but in most pile, a lot of the 1.3 billion, well we do have absently agency that would try to clear mode.

It's trustee first of all, of our local competitors and basically that's it.

We do not really have any type of a common soft portfolio and after that that's about it.

OK.

Great, thanks a lot.

Sure.

And as a reminder if you would like to ask a question, please press star one on your telephone keypad.

And our next question comes from James Abbott with

.

Well good morning gentlemen, it was a good quarter again.

Thank you.

Thank you.

I have a couple of questions, you have a very very good deposit gross rate and that's obviously one of your Cora, core competencies of your business.

Wondering how sustainable that deposit gross rate is?

The deposit gross rate was opening the new branches, very much sustainable, but then again that depends on, you know, the stock market, of course a lot of people are selling and a lot of money is coming into the bank from the market.

Now should the market turn around, it might slow down a bit, but that would be offset by opening up new branches and brining in new deposits from new customers.

So I think we could sustain it pretty well at the level that it is right now.

And if I'm not mistaken, that's about somewhere in the six to eight range quarterly, if that's correct.

So you're saying...

Yeah.

Long-term over the next couple of years, that's a sustainable rate.

Yeah, initially we expect, we are growing roughly in the 20-24 percent range in terms of

growth.

We expect that number to relatively hold throughout the year.

And we're going to go out there and tell you Jerry and Fred, we're going to have 24 percent per year, you know...

That's difficult to look into you know, a couple of years from now to see if that is sustainable.

One thing that we feel is definitely sustainable is that we'll be able to grow deposits exceedingly better than the local competition.

Sure.

We know how to do it.

Second question is related to that.

Actually, what are your plans on the residential real-estate side, obviously running that off the fairly, just allowing it to run off at this point.

At what point do you stop running it off and replacing it?

Let's assume rates stay roughly where they are plus up to maybe 50 basis points higher than they are?

OK.

Well first of all it really comes down to,

of how low we let the residential portfolio or the percentage of

go.

It's a matter of profitability, of putting on new

, and we believe, even still, the strength margin in that business is virtually nil, and what that will do for us by putting on long-term low-rate

, will not only give us after sales and be around a long time, it really impacts our interest rate risk.

Right now, I believe that percentage is down to about 53 percent of total loans.

It was 57 percent a quarter ago.

Is it our strategy to continue not to put

on the books?

I would say 'yeah'.

Right now we're making strides of 350 basis points on our construction of sub-division portfolio, and also our rehab of multi-families, our multi-family permanent loan which has an average license calling on more than four years.

We're making right now, I would say, in excess of 200 basis point right on that.

So we feel there is a lot better places, and places where we do not believe we really have increased the credit risk of the company to

our Dollars.

So we are not

and

production.

If this credit margin returns to that business, we're still originating it to a third party national originator.

We always have the opportunity because, one thing I said at the beginning of the conference call is flexibility.

We always employ the flexible attitude where if this broaden margin profitability of

improves, we can then portfolio the loan.

That's our choice we have with the segment.

For the time being, we're not interested really in carrying the interest rate risk associated with it, and the large

expense that's also associated with running that type of business.

OK.

Can you elaborate maybe on what type of an environment you found these types of loans to be profitable in the past?

Well, if you can tell me that I'll be making spreads similar to a multi-family permanent of over 200 basis points, and not have longer debts on the books, that would roughly be about when we would probably consider it.

OK.

And I don't have a servicing issue with putting on a servicing act down the road, subjects me to an impairment of that act.

You know, and also the fact that you know, I really think the market looks at huge mortgage originators, in terms of a

.

I'm not sure you really can expect a debt of

of more than about nine times, so obviously the market doesn't think tremendously high of that type of business.

Thank you very much.

One final quick question is a follow up on the pipeline, 780 million was the number that was quoted which included the unfounded loans.

The previous quarters press release had a number of 450 million I believe it was, does that also include the unfounded loans or?

No that didn't, James that did not include the unfounded portion of our construction loans.

What was the comparable number in the prior quarter then?

I would say probably 600

range.

600 and say again.

Including the construction loans?

It was about 690.

690 in the prior quarter?

Right.

So, we're up a

About 90 million.

OK, thank you very much again.

OK, thank you.

And our next question comes from

with

.

Morning.

Good morning.

I was wondering if you could kind of give me, everybody a general sense on real-estate conditions on Long Island and if things are still like, super hot or are you seeing any cooling off in the market?

Mostly with respect to I guess the construction lending that your doing.

Yeah.

Most of the construction lending that we're doing out here is for residential sub-division and that market continues to be extremely strong.

On a combined basis for

the medium price increase year to year over the last year has been around 26 percent.

Do we expect that to continue, really not that, a sustainable number but it continues to be very strong.

And the reasons we feel comfortable in the market place is that and I've said this many times before, unlike previous times when prices spiraled up, there's no speculation in this market.

The reason prices have been driven up is pure old-fashioned supply and demand.

It's just not enough product to meet the needs of people looking for housing, both, especially now in

county but also in

county.

If you go back 12, 13 years there was a significant drop in prices but that was caused by all of the speculation in the market place and people were buying five and six condo units anticipating flipping them without ever taking ownership, there's none of that in the market place.

Other than on the construction side, residential is most of what we do out here on the island.

We do a lot of multi family construction in the borrows.

Other than that, the overall real-estate market is still strong, I wouldn't say very strong, I wouldn't say fairly strong, I'd just say it's strong.

Commercial office is softening a little bit from where it was even three to six months ago but, the vacancy rates are still fairly low.

Hospitality has obviously strengthened somewhat since the post 9/11 months and that's doing OK as well.

Retail and industrial are doing just fine so, overall the real-estate market that we do most of our loans in is very strong and as I say, residential sub-division construction is our

out here and it's never been stronger.

Rick, this is Joe Mancino.

Heah Joe.

I live in Garden City and the houses in Garden City range anywhere from 600 to a million three, a million four.

One of the local, the major real-estate brokers in the town took a full page ad in the local paper saying, "Please, if your thinking about selling your house, before you call anybody else, call us, we need the inventory.

That's how bad it is.

They just have no houses to sell and that's what's going on and I can tell you for a fact my son's been looking for a house for two year's and he just found one, but it took him two year's to find what he was looking for.

Plus there was just no place, nothing for sale, so this is what is going on in Long Island.

OK, that's very

and also in terms your projection which kind of interest rates scenario are you assuming?

Like we have in the past I mean the dollar sells at a six's to a dollar 80 and absorb a condensing year occurred.

If that's what your looking, if that was the question Rick?

Ya, that was for me, so you think that the

won't be as steep then.

No, I'm saying we can still earn the numbers that we have in the press release with some condensing of the yield code.

OK, thanks a lot.

OK, thank you Rick.

Our next question comes from

with RBP Capital Market .

Just one quick follow up on the bond portfolio if I could.

.

do you guy's hide from I think you mentioned the

call

600 million at an eight percent that you expected to get called away on the second half of this year.

Yes.

What other part's of you portfolio contain any callable securities if any at all?

You know what Jim I don't have that information at my finger tips except for the one

and

just gave you on the 600, I would say it's probably not more material than that I will, I can definitely back to you up lines that.

OK that's great.

Thank you.

Right.

and this is a reminder if you would like to ask a question today please hit star one and our next question comes from

and he is a private investor.

Gentlemen good morning.

Good morning.

Just a question based on how the market is in the psychology in the market and how can you assure investors

that your accounting practices going to ease down and reflect honest and accurate earnings?

Well, I appreciate you question what we have is, we have multiple examinations, first of all we have our accounted for in

comes in and reviews all of our numbers.

Then the second is the federal deposit insurance corporation comes in and as a matter of fact they just finished the safety and soundness examinations.

The New York state comes in and they do a safety and soundness examination and then the final one is the office of

supervision they come and the holding company and they do a safety and soundness, so and also we have our also our

loaded up, so we have multiple examinations where a company like

I assume that's what your talking about, one company after

and that was it.

We don't, we have actually four to five examinations on safety and soundness so there is not just one set of eyes looking for it.

You got to remember the

the

was a major customer when it comes to the FBIC, the OTS and the New York state banking department were not major customers, they regulate us and they look at us very very carefully so I can assure you that with those four examinations that our numbers are pretty solid.

I appreciate your answer, thank you.

Thank you.

and our next question comes from

with

.

Yes, Hi guy's its

.

Hi, good morning.

good morning, can you just give me a field that with the affect of tax relief was a lot higher in this quarter versus the first and then versus the fourth and is that the trend were going to see or is there something strange?

Were projecting the affective tax rate to be basically for the rest of the year what you see in the second, second quarter you know, I don't know if it was, I can't believe it was materially different from the beginning of the year maybe a couple percentage points, which really had to do with as we said before the growth in income that doesn't have some of the tax preference treatment attached to it, so as the bank grows its core income the true tax rate on that income is what 39 percent, overall your effective will climb slightly, as it has.

OK fair enough thank you.

Also I want to respond to the previous question we have our audit committee, its totally made up of independent auditors, there are no bank trustee officers on the audit committee, these are all out side directors.

And as a final reminder if you would like to ask a question please press star one, now we'll pause for just a moment.

It appears there are no further questions at this time.

OK thank you Sherry.

Well I want to thank you all for coming and listening in on our conference call again another exceptional quarter we're looking for the rest of the year to be similar to that and you saw again for the second time this year we've raised our earnings estimates so things are looking good, the economy is working well and everything is going well.

Thank you very much and we'll talk to you next quarter.

Once again thank you for joining us today and that concludes today's conference.