Flagstar Financial Inc (NYCB) 2002 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Roslyn Bank third quarter earnings conference call.

Some of the information presented during this call and in Roslyn's earnings press release issued this morning contain certain forward-looking statements.

Examples of forward-looking statements include but are not limited to estimates with respect to the financial condition, results of operations, 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 principles, policies or guidelines and other economic, competitive, governmental, regulatory and technological factors affecting Roslyn's operations, pricing, products and services.

Investors are encouraged to review the forward-looking statement disclosure contained in the company's press release and to access Roslyn's periodic reports filed with the Securities and Exchange Commission for financial and business information regarding the company.

At this time, all participants have been placed in a listen-only mode and the floor will be open for questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Joseph Mancino.

Sir, the floor is yours.

Thank you, Carly.

Good morning, everyone, and welcome to Roslyn Bancorp's third quarter earnings conference call.

With me today is Jack Bransfield, Vice Chairman of the Roslyn Bancorp and President of the bank, and Mike Puorro, Executive Vice President and Chief Financial Officer.

First, I'm here to announce that Roslyn had a strong quarter during a very challenging economic time.

Our progress was marked by a 42.4% increase in earnings per share over the period to date period and a corresponding increase in core net income of 31.4.

The quarterly key financial ratios of return on equity and return on assets remain strong at 25.40% and 1.50 on a core cash basis.

Additionally, since December, 2000, our efficiency ratio improved by 17% during active de novo expansion period in which we grew our branch network by 42%, and even some of the branches that aren't open yet, we have the staff that's here and ready.

So those have already been expensed.

That said, we continue to forge ahead with a strategy that centers around our retail banking reputation and provides flexibility throughout our operations including the management of our balance sheet.

I will now hand it over to Mike to give you a brief overview of our financial results and then to Jack for an update on the two non-performing commercial credits.

At the conclusion of the call, we will be available for a question-and-answer session.

So, Mike, it's all yours.

OK, good morning.

I'm going to try and keep the comments in terms of the highlights pretty quick so we can get right into the Q&A.

We'll get right into some of the third quarter highlights.

Our core EPS was $0.45.

That's up 36.4% over the prior year quarter.

As Joe had mentioned, on a year-to-date basis EPS was up over 42% from the prior year.

Joe mentioned some strong ROE ratios on a cash basis, over 25%.

ROA on a cash basis at 1.5, on a GAAP basis it's 24% and 1.42%.

In terms of a dollar amount of income for the quarter which was $36 million, that dollar amount is up over 26% over the prior year quarter.

In the past 12 months the ROE has increased over 29% and while opening seven branches in the last 12 months, the efficiency ratios improved to about-improved by 13%.

And as Joe had mentioned, we intend to open up three more branches by the end of the year and the staff is already in place, much of which they were in place for the third quarter.

In terms of the margin-you know, we're not alone out there.

We did have some margin compression due to a spike in the pre-payment activity.

But one advantage we feel Roslyn always has is the flexibility we've incorporated into our balance sheet in terms of assets and on the liability side.

Some of this flexibility will give us the advantages, perhaps taking some market gains which are currently inherent in the MBS portfolio, which as a matter of fact as we currently speak we're in the process of finalizing taking some sales in October which to date have already been $750 million.

We'll also continue to explore opportunities to reposition the liability side.

That may include pre-payment of some of our borrowed funds.

In regards to the retail operation, overall retail deposits for the quarter and year to date grew at annualized rates of over 22-26%.

Our retail deposits grew in total $279 million for the quarter.

Core deposits for the quarter grew $309 million and that was annualized core deposit growth of 62%.

On a net basis in the past 12 months we've increased our account base by 11 percent or 36,000 new accounts.

Average balances for our free checking accounts continue to exceed $3,400 and overall average account balance is still in excess of $14,000.

A quick de novo update.

The last 12 de novos have now accumulated deposits of $631 million with an impressive core deposit ratio of 39%.

The growth in these 12 branches from July 1 to October 11 is $130 million or 26% and if we annualize that, it would be 92% growth.

In terms of 2002 and beyond, we are opening three more branches by the end of the year.

It's still a target of the bank to grow the retail locations by 15 or 20% a year and after these new branches are open by the end of this quarter we're currently working on at least 10 branches.

Whether they all open in 2003 or not, that remains to be seen.

But we have 10 more in the works.

Some other retail points.

Our mature branch locations are experiencing annualized growth of 20%.

The average branch size in these locations has risen now and is at $219 million and in our backyard of [inaudible] County, the average branch size is $251 million.

In terms of efficiency, we continue to be an industry leader.

During the quarter, we improved our efficiency ratio by 72 basis points to a GAAP number of 27.54%.

Asset generation, loan origination for the quarter were $281 million.

That's up over 35% from the prior year quarter and on a year-to-date basis we're up over 40%.

Non-performing assets actually dipped in the third quarter by $800,000 to $44.5 million.

Again, it's important to note as we always do that $4.5 million of this $44.5 million relates to fully government guaranteed FHA/VA and another $32.3 million relates to the two commercial credits which Jack will comment on in about a minute.

Net charge-offs for the third quarter were $59,000, year to date $174,000 and they're primarily all consumer related loans.

Again, this translates into a charge-off history of one basis point, and again to mention that since 1997 our average net charge-off ratio is one basis point or less.

We did provide $750,000 in the allowance for the quarter which brings our allowance to total loans up to an impressive 1.28%.

We did have some guidance issued for the remainder of the calendar year.

If we take the $1.76-1.78 range that we gave, that would translate into the fourth quarter estimate to be $0.45-0.47.

And with that we can take Q&A or we'll turn it over to Jack for an update on our non-performing.

Thanks, Mike.

Let me just give a brief update on our non-performing.

As Mike said, we had a slight reduction in our overall non-performing for the quarter, but as you know, the two major loans make up approximately 81% of the non-guaranteed portion of our non-performing assets.

So let me-with that in mind, let me just give you a brief update on those two.

The first, of course, is American Tissue.

That's a $13.3 million loan secured by four properties here on Long Island.

Three of those four properties are currently under contract of sale, executed and signed contracts of sale.

The fourth-we have a contract out for signing.

It's with the attorneys.

There are no substantive issues and we expect to receive that signed contract this week.

So effectively all four properties are spoken for in terms of the sale.

We will be receiving a full recovery, and by that I mean a full recovery not only of all of our principle, but of our interest, our late fees, our legal fees.

This recovery should be something in excess of $2 million and we fully expect to receive that by the end of this year, sometime in the fourth quarter.

The other property is the assisted living facilities, consisting of two facilities.

The loan on that is $19 million.

We're still working through the bankruptcy and the foreclosure process to try to get a final resolvement on this.

We have had the opportunity to accept offers to buy our position but of course this would include a discount.

But as time goes by we get closer and closer to actually selling the property, whether it be through the full foreclosure process or accepting offers that are given to the court by potential buyers.

And obviously this would be at a higher price.

So we're at this point weighing the relative merits of both options.

If you take out these two non-performing loans, the large ones plus the guaranteed portion, we have a non--NPA portfolio of about $7.5 million which on a total portfolio, our portfolio of $3.3 billion represents less than one quarter of one basis point of the portfolio.

And as I said, you know, we do expect to get these two loans resolved, especially American Tissue, very quickly, and we're weighing our options on the assisted living facility.

Thank you, Jack.

I would now like to open it up for questions and [Carlie], if you would, take it from here.

Thank you.

The floor is now open for questions.

If you have a question or a comment, you may press the number one followed by four on your touchtone phone at this time.

If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key.

Questions will be taken in the order they are received and we do ask that while posing your question that you pick up your handset to provide optimum sound quality.

Please hold while we poll for questions.

Thank you.

Your first question is coming from Mr. Kevin Timmons from CL King and Associates.

Hi, guys.

I wonder if you could give us a little bit…

Good Morning.

How are you doing today?

Good.

--give us a little bit of color on the margin going forward and also maybe a little bit of color on the joint ventures.

OK.

Why don't I take the question, Kevin, on the margins.

This is Mike.

Good morning.

One ratio we put in there which you can take pretty much on a go forward basis-we always disclose the end of period margin which is 2.75%.

That would mean that on September 30th the actual margin on that particular date is 2.75%.

So you can roll forward with that number, but I would give some caution to that in terms of some of the repositioning, as I said, earlier, that we're currently doing.

That will impact the margins in the fourth quarter on a positive basis and also 2003.

So I'm kind of reluctant to tell you that all things being equal, as they may be today, you know, what will be the impact on a go-forward basis to the margins because we are-as we have in the past, you know, we just don't sit back and let the market dictate how that's going to impact the margin.

We proactively manage both the asset and the liability side to help us.

This is Jack Bransfield.

With regard to the two joint ventures, the current one which we're winding down-as of the end of the third quarter we had 73 units still to be delivered, most of which we expect to be delivered during the fourth quarter.

There may be some run off into the first quarter of '03.

We expect our profit on this to be approximately $24 million.

That's on our original $25 million investment.

And if you recall, in addition to that we received and continue to receive a 9.5% deferred return on whatever was outstanding in that $25 million investment.

On the second joint venture which is a 177-unit project in Mt. Sinai, coincidentally we fully expect either today or tomorrow to get the final attorney general approval, and the plan is to open the models for actual sale this weekend.

They have the-not a grand opening, but an opening with invited guests only who have indicated a strong interest in these units.

So there will be sales taking place this weekend.

With regard to when they will be delivered, typically these type of houses are delivered within 10 months by the Holiday Organization.

So we're looking at the first deliveries on Mt. Sinai sometime in the third quarter of '03 and we will start to recognize the profits at that point.

Thanks.

Is it possible to get any more color at all on the mortgage backed portfolio and on the residential mortgage portfolio as far as the kind of prepayments you saw and how much sell ratio you saw late in the quarter-any kind of-

Sure, I can give you some color, Kevin.

In terms of the MBS portfolio, you know, it's always a strategy of the bank to keep that portfolio relatively short.

In terms of CPR percentages we're probably at about 44-50%.

But it's really important to note that even before the recent spike we were never putting on product that had more than, you know, a two- to three-year average life.

So in order to keep the flexibility going into these portfolios we've always kept them quite liquid.

So right now you could expect about a 50% CPR.

Was there another part to your question, Kevin, in terms of the One to Four Family?

One to Fours

Yeah, the One to Four Family portfolio-you know, we're not really putting on any more One to Four Family.

That portfolio is pretty much running off.

The prior market ran off $80 million which was, you know, maybe 10-15% higher than the month before.

You know, To us that’s really a non-event One to Four Family portfolio because it's not a big part of our book of business.

Thanks.

Also, I appreciate how much you've added to the press releases.

Very-very well done.

Thank you.

Thank you.

Your next question is coming from Mr. Richard Wise of Jenny, Montgomery, Scott LLC.

Hi, guys.

Good morning

I want to follow up a little bit with Kevin's question on the net interest margin and up to-as of June 30th I know you were asset sensitive-

Yes.

Which hurts in this environment but in the long run might be the best way to go.

Are you still asset sensitive as of September 30th?

Even more so, you know, because of the liquidity in the portfolio at September 30th.

We're a little more than 30% asset sensitive in the one-year bucket.

OK.

So when you're talking about repositioning your portfolio, you're not thinking about going to more liability sensitive, I take it.

Are you more comfortable being asset sensitive at the moment?

We're comfortable being asset sensitive.

But on the liability side, as I mentioned before, we're currently in the process of repositioning some of our borrowings and we're not shy about pre-paying them.

And if we can pre-pay-as an example, some borrowings that are up in the 485 range in terms of rate and, you know, bring those costs down to one-year rates, you know, of 2% or less, we certainly may do that.

You know, we have-we have a lot of horsepower in that gap position to tweak the liability side if we choose.

OK.

And you had mentioned too that there was a gain that you were going to be taking in October of $750 million.

Note-taking, is that correct?

Yeah, I mentioned that we're in the process of finalizing roughly $750 million in asset sales.

OK.

Is that included in your guidance for '02?

That number for the $1.76 range?

That takes into account that?

Yes.

Certainly if I thought I was going to make more then I would have had to adjust, you know, what I put out this morning.

Oh, OK.

Great.

Let me ask you-with the joint venture, what is the total exposure that you have right now to the Holiday Organization?

In terms of joint venture-it's the two.

Actually though, our initial capital on the first one of $25 million has been paid off.

So we have exposure on a joint venture basis, the second $25 million.

We also have loans to the Holiday Organization which in terms of outstanding at this point are approximately $35 million.

Those are all secured by properties that under construction and they have personal guaranties of the principles.

OK, great.

And one other question, if I can, was asset quality.

With respect to the assisted living care, would you think that like charge offs are going to be in store if you decide to, you know, sell the property at a loss?

Can we expect to see charge offs relating to that one asset?

Well, certainly if we sell the property at a loss there will be a charge against the loan loss reserve.

OK, thank you very much, guys.

OK, Rick.

Thank you.

Thank you.

Your next question is coming from Mr. Jack Desinco of Lehman Brothers.

Hi, Jack.

Hi, guys.

Good morning.

Actually two questions for you.

The-do you guys think around the target leverage ratio in terms of borrowings to assets?

I think now you're around 42% and that's crept up a bit.

I'm assuming that number might come down given maybe the gain and offsetting some payments on the liability side.

Is there a borrowing asset number or a ratio you guys look to target going forward?

Sure.

Approximately-we've been looking to target, as we have for a while now, approximately 40%.

40%.

OK, great.

40-41.

You know, we are up to, as you said, closer to 42% at the end of the quarter.

Correct.

OK.

And second, I don't think you've put out '03 guidance but just kind of-if you could talk to your comfort-I mean you look at doing double-digit EPS growth off of $1.76 it would be somewhere around $1.94.

I guess the Street's at $1.98.

Are you guys in a position to talk about your comfort level around that kind of range?

Well, you're right.

We haven't put out '03 guidance because, you know, until we utilize some of this flexibility and repositioning as we're doing currently as we speak-you know, at that time, you know, we'll feel more comfortable putting out '03 guidance.

But you're correct in saying that it's always our target as a management team to seek double-digit EPS growth year over year.

OK, great.

Thanks.

Congrats on the American Tissue, by the way.

Thank you.

Your next question is coming from Mr. James Abbott of Friedman, Billings, Ramsey and Company.

Good morning.

Good morning.

I just wanted to ask a couple of questions related to the borrowings, and we've hammered on this quite a bit, but what's the duration of the stuff that you guys are putting on at this level?

It was up almost $0.5 billion in the quarter.

Jim, I didn't hear your beginning of the question.

I'm sorry.

Just the length of the borrowings that you're putting on these days.

Are they two, three-year type of paper?

We have lost in some long term but we're also taking advantage of the short term also.

You know, due to our gap position being 32% [inaudible].

So do we have borrowings that we put on with one year or less?

Absolutely.

Would you be willing to give color on maybe-out of the 560 some odd million that came on, how much of that was greater than three years in duration?

Sure.

I think in the past quarter it was really our internal target of putting, you know, $50-75 million a month locking in long and the rest short.

OK.

Thanks very much.

Secondly, if you could briefly just touch on-my question relates to the assisted living property as well-- $19 million loan.

In the press release it talks about weakening values in that market.

Could you maybe touch a little bit more on what you mean by weakening?

Is it a severe weakening or-I don't know exactly know how to interpret that.

Well, the assisted living market in terms of the financing available for it has weakened because there are so many of them that have been built up.

So-and with financing, especially when you're selling either your position or you're selling a property that's in foreclosure, financing is an integral part of it.

And we're finding that potential buyers are indicating that potential lenders are looking at these properties much more conservatively.

So that's what we mean by the weakening in the assisted living market, primarily in the financing area.

OK.

All right.

Thanks very much.

You're welcome.

Thank you.

Your next question is coming from Mr. James Acker of RBC Capital Markets.

Good morning.

Good morning.

Mike, I've got a question-a couple of questions for you, actually.

If I'm doing my math correctly it looks like on a net basis you guys probably purchased somewhere in the neighborhood of $1.2-1.3 billion worth of mortgage backs, taking into the account the run off speeds that you mentioned before.

What kind of product are you putting on your balance sheet to replace what's being run off, in addition to the fact that you've actually grown your balance sheet pretty significantly as well.

Why don't we talk about what we're actually putting on if we put on more today, OK?

That would be fair to discuss today.

Currently we're putting on AAA MBSs roughly in the 4.5-5% range.

Those MBSs that we're putting on have less than a two-year average life currently.

However, it's important to note those MBSs are backed by coupons roughly at about 7.5% to mitigate duration extension, you know?

So actually if rates spike up 300 basis points in a severe rising rate environment we really wouldn't expect the average life to extend more than approximately eight years and that would be a severe rise of 300 basis points.

OK, so-

So the key here-the MBSs we're putting on-we're being conservative in making sure they're backed by higher coupon [inaudible].

Are these fixed-rate MBSs or are they hybrids or-

They're AAA, fixed rate.

They're plain vanilla MBSs.

All right.

So if we look at your total MBS portfolio right now which is somewhere in the neighborhood of $5.6 billion, what would you characterize as sort of the average life at this particular point?

But then I'd also be curious as to what the average contractual maturity of that portfolio is.

OK.

The average life is probably two years or less, you know?

And the contractual-well, I mean these are MBSs so they're-you know, they're backed by mortgage loans.

You know, they're contractual-you know, it could be five, six years on average in a more normalized rate environment.

OK.

And then just one final question on the gains that a couple of questions have been asked about in terms of what you're taking in the fourth quarter- apps.

You're selling $750 million worth of mortgage backs or loans or whatever the case may be.

What kind of actual bottom-line gain on sale are we talking about there?

I'm still finalizing it.

But I can give you some statistics.

The pieces that we're working on right now, approximately $750 million.

The give up yield is roughly about 480 so actually we can, if we so choose to, reinvest at approximately the same yield.

But the profits could be anywhere from $4-6 million on that piece alone.

OK.

Don't forget, that may be offset by pre-paying some borrowings.

Understood.

OK, guys.

Thanks a lot.

OK.

Thank you, and as a reminder, if you have a question or a comment, you may press the number one followed by four on your touchtone phone.

Your next question is coming from Mr. Mark Fitzgibbons from Sandler, [audio interference], and Partners LLP.

Hi, guys.

How are you?

Hi, Mark.

My first question relates to the joint venture.

Correct me if I'm wrong, but you won't have presumably any joint venture income in the first and second quarters of next year.

Maybe a little residual in the first quarter from Plainview, the one we're in now.

But you're right.

The first three quarters should be relatively little income from joint ventures.

And then secondly, do you anticipate the profit per unit to be comparable to what you had on the most recent project?

I think it was like $67,000 a unit or something?

No, no.

We're-you know, we're talking about 177 units and a $10-11 million profit.

So, you know, do the math.

It's much less per unit.

OK.

My next question is about the buy back program.

This quarter I guess you only bought back about 200,000 shares, which is pretty considerably below what you've done in prior quarters.

I wondered if you could share with us your thoughts on buy backs going forward.

Sure.

Joe, you want to take it?

Yeah.

I think, Mark, with the buy back program, we made a decision how to use our capital and what we're doing is we're going to use it to expand our deposit base.

We're going to accelerate our branching program, as Mike said.

We've got two branches opening up in November, another in December.

That will give us 10 for the last 12 months.

And we feel that to use up capital just to buy back stock would be better served if we increased our deposit base.

Our branches are growing almost 22% a year.

Our deposits are growing on a steady basis.

Our core deposits are growing every quarter.

And we feel at this point that's the best way to use our capital.

Our buybacks will be done when we feel the time is right.

If the price is low enough we'll look at it.

But basically we're going to try and conserve our capital.

But we do have the option to buy back stock.

And if you wanted to know, and I know you didn't ask it but I'll tell you anyway-how we're doing against Commerce and Washington Mutual?

No affect whatsoever from either bank.

Commerce is open near four of our locations and they're all open and our branches are growing at a minimum of 12 and a maximum of 24% around the Commerce branches.

And Washington Mutual, we have one office that competes with us that's our Syosset office and Syosset has grown $71 million in less than one year, and you can take a stone from our front door and hit Washington Mutual and hit Astoria at the same time.

They're both on the same corner.

And then just one final question.

I guess, Mike, what are you assuming for an approximate margin for next year?

Because if you were just to extrapolate out the margin from today and take buybacks out of the model, it's pretty hard to get to a double-digit earnings growth number.

OK.

I guess-as we said before, you know, the end of period margin was 2.75% but in terms of articulating where we think it's going to go, I'll say if the yield curve stays exactly as it is- you know, one thing to note and I would caution if you're going to project, we have a lot of flexibility and horsepower in some of those portfolios which as we said today we're currently using.

You know, once we're done repositioning on the assets and from the liability side I'll feel more comfortable in telling you exactly where the margin is headed.

Thank you.

OK, thanks.

Thank you.

Your next question is coming from Mr. Tom Monaco of KBW, senior vice president.

Hi, good morning.

Good morning.

How are you?

Good.

A couple of questions.

Can you talk about the CPR and the purchase mortgage back security portfolio as well as in the mortgage portfolio?

And-as well as the one-year gap.

I'm not sure if I heard you correctly.

You said 27.5%?

No, 33%.

33%.

OK.

And also-last question, on-there might be-there's a good potential for recovery on one of the-well, I guess on your-on those-one of the large non-performing loans next quarter?

This quarter.

This quarter.

This quarter, yes.

OK.

You want to take the CPR question first, Tom?

Sure.

OK.

CPR-and if I'm hearing your question right on the security portfolio mainly the MBSs-it's 50%.

The One to Four Family is running off roughly $80 million a month.

At September 30th we had $1.6 billion so you can-if the prepays continue, you can do the math and, you know, that portfolio will continue to lose about $250 million a quarter.

OK.

OK.

What was your next question?

Oh, the recovery?

On the recovery, yeah.

Yeah, Tom.

I mentioned earlier that on American Tissue we have three out of the four properties in contracts.

We expect the fourth to be signed momentarily.

As a result, by the end of this year we expect that in addition to the full principle of $13.3 million we will be receiving all past-due interest, which has not been accrued, and other expenses which have already been expensed.

So a combination of those two should be a recovery of something north of $2 million.

$2 million, okay.

It's basically on interest and I guess-

Interest, late fees and legal fees.

Appraisal fees.

About-on the property itself?

Yeah.

We'll get the full principle amount.

You'll get the full principle.

OK.

Yeah.

And there's just full principle?

Excuse me?

There won't be a gain on that property?

No.

Well, we can't take a gain because we don't own the property.

Anything that's left over after we get it goes to the general creditors.

Gotcha.

OK.

Understood.

Thank you.

Your next question is coming from Mr. Kevin Timmons from CL King and Associates

Hey, guys.

I have a couple more for you.

I'll take them one at a time.

Back when we had the get together down at your place you mentioned the 10 biggest borrowers.

Has there been any, you know, really significant change here?

I don't need to know if it's just non-material.

OK.

You're talking about the 10 largest residential borrowers?

No, the 10 biggest borrowers-borrowing in relationship to the bank overall.

No.

No significant change in that group.

OK.

The recovery that you just mentioned-I'll follow up on that a little bit.

The reversal of interest income is going to go to the P&L so that will-that's included in your estimate for Q4- your guidance for Q4?

Yes.

OK.

And on the-

Kevin?

Yep?

Could you just repeat that question, please?

Yeah, the interest recovery will be treated as a reversal of-not a reversal but will [inaudible] back into the interest income line, right?

Oh, sure.

On American Tissue we-yeah, the amount of recovery of lost interest-yes, it will go through there.

OK.

And then finally, on the AAA mortgage backs you had mentioned adding at yields of 4.5-5% but with a 7.5% coupon.

What kind of premiums…

No premium.

Sorry?

There's no premium.

We don't buy premiums.

OK, good.

Great.

Thanks a lot.

OK.

You know, one thing I want to go back-Mark-if Mark is still out there, he mentioned that with the margin compression and even some of the repositioning we do, I think he-Mark, you were alluding to the fact that our target of double-digit EPS growth-you know, you're doing the math and you may not get there.

One thing-when you're growing deposits at over 20% a year which would translate into average interest earning assets when you're using those deposits to put the money to work of probably $1 billion more next year than this year, you know, you can utilize any potential margin that you think we'll be in, in 2003.

That is a significant pick up of net interest income.

Thank you.

Your next question is coming from Mr. Chris Bonafidi of [inaudible].

Hi, guys.

How are you doing?

Good morning.

Hi, Chris.

Yeah, I had the same kind of question related to the growth when I look to '03.

I mean-and it was brought up before regarding if the-you're going to be missing two quarters of joint venture income which this year generated somewhere- of $10 million.

You've got-then when the new joint venture comes in, it's about half as profitable.

So you're probably getting up somewhere about $0.10 a share or something along those lines in earnings year to year.

You know, with all the comments that have been made before I still-you know, that's a tough one to overview and then grow 10% on top of that.

Well, how about adding on $1 billion worth of deposits with a spread of about 200-250 at least.

Let's take that billion dollars in average interest earning assets, Chris.

You want to assign-you can pick the margin.

If you want to take a 275 at the end of the period, even say it will be compressed to some extent but then mitigated somewhat by some of the repositioning we're currently doing.

I mean any way you slice it, it's $25 million more next year.

What about in terms of if the-I guess part of the way that this company is positioned is from rising short-term interest rates which would be-that would be the scenario that gives you growth pretty quickly.

I don’t think interest rates are going down.

Excuse me?

I don't think interest rates are going to be going down.

Well, I don't really think they're going up all that much.

No, not a lot, either.

So then what-what is that way out for the scenario in terms of '03?

You mean if everything stays static?

Yes.

We'll continue to grow core deposits and continue to put our adjustable rate assets-you know, in terms of our construction portfolio and the rehab of the multi, we're making 300 basis points on that thinking.

So, you know, we're perfectly happy in that scenario-that's not going to change.

So the only scenario you don't want to see are rates going down?

Well, certainly, yeah.

If the long end comes down a bit more-

Yeah, that makes it-yeah.

Obviously.

But, you know, we're not the only one lining up for some [unintelligible]

I see.

OK.

Thanks.

OK.

Thank you.

Your next question is coming from Mr. James Abbott of Friedman, Billings, Ramsey and Company.

Hi, again.

Appreciate the follow-up opportunity.

Just wanted to touch on a couple of things.

One is compensation expense, and I should congratulate you for doing a great job in that area.

It was down last quarter, and I was just wondering if you could touch on why.

Obviously the stock price was down somewhat.

Didn't know if that was-affected that somewhat.

Sure.

I mean the average price does affect the ESOP and certain performance IRPs but also the original 1997 IRP Plan was a five-year plan.

It ran out in September.

OK, thank you very much.

OK.

And then as-another point that I'd be curious about.

Phenomenal core deposit growth-15% sequentially unannualized.

What-are there things that you can do to expand your commercial lending platform?

Because you had very good growth there.

Are there things you can do to expand that, to sort of keep up with, if you will, the core deposit growth?

Yeah, Jim.

What we're doing [inaudible] we're geared up now and we've brought some people on or that will be coming on within a few weeks-this year we'll do in terms of commercial lending a little over $700 million.

Next year, our plan with the new teams in place is to do $1.3 billion.

We're very comfortable with that, and the predominance of the increase is coming from the multi-family market.

And as you know, the multi-family market from a credit point of view has a great history of credit quality and that's where our growth is going to be.

So we're looking to be up a good $600 million in fundings between '02 and '03.

OK, thanks.

I noticed your pipeline was very strong in that category, stronger than it ever been so-

Yeah, we added on more lenders and we've beefed up the lending team to make the process a little faster and a little more efficient.

I didn't get the number that you said that you had added.

Did you give that?

The number of people or the number of dollars?

Number of people.

Sorry.

We've added 2-1/2 lending teams.

We had 3-1/2.

We're now up to six.

And we're actually contemplating-you know, if things go the way we think they're going we'll add a seventh team.

Now our teams consist of two people, a lending officer and an analyst.

And then behind them we have the loan administrators and the clerical back up.

OK.

Thanks very much.

You're quite welcome.

Thank you.

And as your final reminder, if you have a question or a comment, please press the number one followed by four on your touchtone phone.

Your next question is coming from Mr. James Acker of RBC Capital Markets.

Thanks for the follow up.

OK.

A couple of quick questions.

The one-year gap at positive 33%-what kind of CPR assumptions do you have baked into that number?

Currently what we're running at right now, Jim.

OK.

And can you-the units sold in the third quarter?

I couldn't find that in the press release.

It said it was 64.

Sixty-four?

Yes.

Not sold-delivered.

Delivered, OK.

Yes.

And that was-

Everything was sold.

And that was down 14 from the second quarter.

And do you guys have any kind of a preliminary schedule as to what the next project is going to look like in terms of units delivered on a quarterly basis in '03 or is it too early to tell at this point?

Yeah.

It's probably a little too early.

I'll tell you, after this weekend we'll probably have a much better handle on that.

As I said, they take generally from contract to delivery for these type of single-family houses about 10 months.

To be honest, and maybe I shouldn't even be saying this, but they felt they sold out much too quickly on Plainview.

They're going to manage the sales a little bit slower on Willow Creek out in Mt. Sinai.

If you recall, in Plainview they sold out within two weeks.

Now, that gave them a certain amount of time to raise the prices, but just not enough time.

When I say they're going to manage the sales in Mt. Sinai a little better, they're going-not take the sales as quickly in order to give them chances, if the market supports it, to raise the prices over a longer period of time.

So that's a long, round-about way in answering your question, but in terms of deliveries for the third quarter, there probably-you know, as I say, I'll probably be able to tell you much better after this weekend but I would say, you know, maybe a handful, 10-15 in third quarter of '03 and then picking up 25-35 a quarter after that.

OK.

And just one last quick one.

In terms of the teams that you're adding-where are these people coming from on the commercial and the construction lending side?

Typically from other multi-family lenders.

We're able to attract them.

Actually, one that's starting with us in November was with us up until a year and a half ago, went where he thought the grass might be greener and found out maybe it wasn't so much greener.

And he's coming back with us starting November 1st.

And we've picked them from other-typically, as I say, Jim, from other multi-family lenders.

Experienced lenders who bring with them pretty much of a book of business.

OK.

Thanks a lot.

OK.

Bye bye.

OK.

Thank you.

We appear to have no further questions at this time.

Do you have any closing comments, gentlemen?

No.

Just myself to say thank you all for, you know, listening in.

And if you have any questions that you think of after we hang up, just give us a call and we'll be happy to answer them for you.

Thanks again.

Have a good day.

Bye bye.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time, and have a wonderful day.