Flagstar Financial Inc (NYCB) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the New York Community Bancorp first-quarter 2004 post-earnings conference call. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's call, Ms. Ilene Angarola.

Thank you.

Good morning, everyone, and thank you for joining the management team of New York Community Bancorp for our quarterly post-earnings conference call.

Today's call will focus on the highlights of our first-quarter 2004 performance as well as our earnings guidance for the full year.

The discussion will be led by our President and Chief Executive Officer, Joseph Ficalora, who is joined by Robert Wann, our Chief Operating Officer, Thomas Cangemi, Head of our Capital Markets Group and Michael Puorro, our Chief Financial Officer.

This morning's conference 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 will find a discussion of forward-looking statements and the associated risk factors in our recent SEC filings and on Page 11 of this morning's earnings release.

If you need a copy, please call our Investor Relations department at 516-683-4420 or visit our website, myNYCB.com.

At this time, I'd like to turn the call over to Mr. Ficalora, who will make a brief presentation before opening the lines for Q&A.

If we do not get to your questions during the call due to time limitations, please feel free to call the Investor Relations Department later today.

Mr. Ficalora?

Thank you, Ilene, and good morning, everybody.

We're glad to have you with us this morning for the conference call.

Obviously, there's a lot to say about our first-quarter 2004 performance and our full-year expectations and the extent to which they will extend the Company's record of earnings growth.

Historically, our earnings growth has been fueled by loan production.

We are generally perceived as one of the leading lenders in our marketplace.

In the first quarter of 2004, we clearly lived up to this distinction.

Originations totaled $1.1 billion, exceeding the 2003 first-quarter record by $300 million or 39 percent.

With our pipeline now in excess of $1.7 billion, we are easily on track for 20 percent net loan growth by December 31st.

Of course, most of the loans we've produced to date were secured by multi-family buildings, and with emphasis on buildings that are rent-controlled or stabilized.

In the first quarter 2004, originations totaled 706 million, boosting the portfolio ever closer to the $8 billion mark for multi-family loans.

Based on the strength of our solid first quarter volume and our current pipeline, it is apparent that the 20 percent annual growth rate we projected at the outset of the quarter may well be exceeded by December 31st.

In addition to exceeding our earlier projections, the current 23 percent annual growth rate reflects the ongoing strength of our market and our dominant position within our chosen multi-family lending niche.

This is especially worthy of mention, given the current speculation regarding the impact of competition and potentially rising rates.

In the past six months, we've originated loans in excess of $3 billion.

We've exceeded our own production records consistently over the past three years.

As for our adaptability to rising interest rates, the weighted average life of our loans was 3.3 years at the close of the quarter.

For the multi-family loan portfolio in particular, the weighted average life is also 3.3 years at March 31st.

With our post-merger balance sheet structure to generate cash flows for investment into higher yielding loan production going forward, we are confident in our ability to lend well and profitably in the year ahead.

The magnitude of our portfolio growth is gratifyingly reflected in the growth of our net interest income, both on a linked quarter basis and year-over-year.

In the past 12 months, our net interest income rose 97 percent to $214 million.

In the past three months, the increase amounted to 24 percent.

At 4 percent, our net interest margin also exceeded our expectations, expanding 16 basis points over the course of the last three months.

While the impact of rising interest rates may exert some pressure on our margin going forward, the 4 percent we recorded this quarter provides a level of comfort that can't be argued with.

Another measure of profitability that gives us plenty of comfort was our efficiency ratio at 18.7 percent.

I understand that we were recently ranked as the third most efficient bank holding company in the nation on the basis of our third-quarter 2003 measure.

It's hard to imagine a better efficiency ratio than the one we've posted for the first quarter of 2004.

In addition to achieving the cost savings we expected to realize post-merger, we also succeeded in boosting our various sources of revenues.

While net interest income represented 85 percent of total revenues for the quarter, other operating income represented the balance and was up nearly 42 percent year-over-year.

Driven by loan and revenue growth that exceeded our expectations, the Company recorded a 93 percent increase in first-quarter 2004 GAAP earnings to $130 million and a 122 percent increase in cash earnings to 160.6 million.

On a linked-quarter basis, the increases were also fairly substantial, amounted to 16 and 13 percent, respectively.

Our basic GAAP earnings per share rose 35 percent year-over-year to 50 cents for the first quarter, and 62 cents was our basic cash earnings, which was up 55 percent.

On a diluted per-share basis, our GAAP earnings were right in line with our expectations, which ranged from 47 to 49 cents at the start of the year.

The per-share amount was impacted by the number of shares included in the calculation, reflecting our recent follow-on offering and accounting increase in common stock equivalents and shares issued under our stock related benefit plan.

Reflecting these factors and other computational items, the street consensus share count was over 10 million shares below the actual number of shares used to calculate our first-quarter diluted earnings per share.

Given the strength of our first-quarter 2004 earnings, and our current loan growth projections, we are maintaining our full-year projection in the range of 2.17 to 2.20 per diluted share.

Encouraged by our earnings growth and by the strength of our 2004 prospects, we raised the quarterly cash dividend at last night's Board of Directors meeting and authorized the repurchase of an additional 5 million shares of common stock.

The 25 cents per share dividend is 19 percent higher than the dividend paid last quarter and 122 percent higher than the dividend paid in the fourth quarter of 2002.

We have now increased the dividend in six consecutive quarters during which time we also twice split our stock.

On an annualized basis, the May dividend amounts to $1, signifying a yield of 3.5 percent based on last night's closing price.

As for the stock repurchase we authorized, this was our 18th special authorization since inception and the second such authorization in 2004.

Clearly, we believe that our company is a sound investment.

We've invested $902 million to buy back 91 million shares since 1994.

Year-to-date, tens of thousands of shares have also been acquired by insiders, including the four of us at this table and several of our directors, as well.

If you want to know about our insider transactions, I suggest you visit our website where our filings are posted for all to see.

In sum, we are frankly bullish about our performance and our prospects, as the actions taken by our board and our full-year estimates suggest.

I know that you have questions about our earnings and our projections, so at this time, I would like to open the lines to questions and answers.

(OPERATOR INSTRUCTIONS).

Jack Micenko, Lehman Brothers.

Actually a couple questions.

One, wondering if you could break out the specific share impact from the -- some of the incentive comp -- was there any trust preferred hit there from a share-count perspective?

If you could break the 10 million out into the (multiple speakers) there.

The 10 million differential was driven more I think computationally.

The actual change in share count as a result of the exercising of options and the RRPs and the other shares that were actually purchased were approximating 3 million shares.

Okay, okay.

And then the 2.17 to 2.20 guidance, what is your internal interest rate assumption for the remainder of 2004 that gets you to that number?

The internal interest -- the expectation on rate change or the internal interest rate that we're using?

The rates you're using.

And I believe your assumption was for higher rates through the balance of '04.

But I forget what the exact assumption was.

Yes, I think you're right, Jack.

We are assuming that rates are going to be going up over the course of this year.

In fact, obviously, all of these recent activity with regard to rates has created a tremendous amount of discussion that is really no different than the discussions that have occurred in earlier times accepting.

And you guys may know, because with Mr. Greenspan is speaking as we speak.

There is no question that the overall sentiment is that rates are more likely to actually rise now, versus a speculation that is less likely to verify.

So we are already moving with regard to rates that we're issuing on all of our existing loans that are going into the pipeline, as well as we are already changing our positioning with regard to our deposit mix.

Okay.

So you don't look at it as something simplistic as, okay, we've got 50 basis points of tightening in our 2.17 to 2.20 range kind of number; it's more of a dynamic basis?

Yes, I think that's right.

And there's no question that as we go down the road here, we will be well positioned both on the active (ph) side and the liability side.

I guess as was said yesterday by independents, we are a bank, so we have a lot of assets and a lot of liabilities, all of which are going to be impacted by changes in rates.

But we are constantly aware of that and constantly modeling to deal with that.

Okay.

When was the last time you bought back stock and when can you buy back again?

I think -- are you blocked out since April 1st, and can you buy back immediately after (multiple speakers) -- what's the timing on that?

I think that the good news is that we're announcing today that we are authorized to buy another 5 million shares, and that we are likely to start buying back stock, as soon as -- what I will tell you is, we are awaiting a decision by our lawyers.

So we will buy back stock as soon as our lawyers say it's fine to do so.

They are apparently deciding it as we speak.

Okay.

So it will be this week probably or something.

It could easily be this week.

It could be as early as -- as early as we get the opportunity to buy our stock, we will.

Right, right.

Okay, thanks, guys.

Mark Fitzgibbon.

Just a follow-up on a prior question there.

Could you give us a sense for how you anticipate the margin laying out or over the remaining three quarters of '04, assuming (multiple speakers) --?

I think that the margin expansion that occurred in first quarter here is a wonderful place to start from, but it is not likely, given the current environment, to be sustainable.

We would see it as potentially contracting a little bit over the course of the period ahead.

We see the margin contracting here.

Okay.

And then secondly, I know that you guys have been starting to extend out your liabilities over the last several months.

I wondered if you could give us a sense for how much you've accomplished and (multiple speakers) --

We don't have detail on that yet.

We obviously will have information I guess in May and we will have information again further down the road.

But we want to make sure that when we put it out, it's out to everybody at the same time and it has all the necessary components taken into effect.

Okay.

And then lastly, there was about a $5.5 million linked-quarter reduction in fee income; is that solely due to prepayment penalties and (multiple speakers)?

Yes, a lot of that had to do with the prepayment fees.

Obviously, the prepayment fees for the first quarter were down substantially.

So we would certainly expect that that will have an impact for some period without certainty as to how long.

Obviously, the refinancing of our portfolios are driven by more than just interest rates.

But the immediate past three months is in fact an example of a slowdown in the dollar amount of fees that we actually collected.

Scott Valentin, Friedman, Billings, Ramsey & Co.

A question regarding -- I think a lot of volatility surrounding the stock, all the questions I get surrounding the Company has to do with the size of the securities portfolio.

And then once again, it grew this quarter mainly due to the offering earlier in the quarter and trying to seek to offset dilution.

But I mean, at what point do you see the portfolio, the growth rate slowing or actually changing direction, shrinking and loans becoming the predominate asset?

Well, the direction will be consistent -- as we go from here forward, the direction will be consistently growing the loan portfolio and reducing the securities portfolio.

The exact timing will depend on a lot of factors.

Many of the things that we'll address be (ph) with regard to the securities portfolio changing aren't controlled by the Company.

So the reality is that we are going to be consistently moving from securities to loans over the course of the periods ahead.

Exactly how much that happens in a week, a month, a quarter, in two quarters, I really can't say other than the fact that it will be consistent over time here.

It's Tom.

I would also add that, obviously if rates rise, we will clearly put on the loan structure versus the security structure.

And obviously, our focus is we see a lot of that cash flow come back to the Company and re-deploying the loans.

If rates continue to rise in this marketplace, you'll start seeing the reductions in the securities portfolio.

Okay.

And as a follow-up question, can you talk about the duration of the securities portfolio?

I think you said it was 3.3 years as of March 31st.

I am wondering, since we've had a pretty significant rate move since then if that's changed significantly.

And also talk about maybe any type of duration gap between the funding versus the securities duration on the leverage book?

Let's talk about securities first.

Clearly, we publicly (ph) put out 3.3 years.

We are very comfortable with that number we put out regarding that marketplace, that's (ph) the 2.31.

Given a you know, reasonable rise in interest rates here, you're not looking at a dramatic expansion (ph) on our portfolio because of the structure that we buy.

Typically, if you look at what we put on the books, we can (ph) see (ph) -- using as a proxy, look at a typical 3.1 year to 2.9 year average life sequential, as well as a blend between a 15-year pass-through and look at the extension of what's (ph) there, up 100, you're probably looking at maybe a 4.2 to 4.5 years, up 300, 5.6 or 5.9.

Feel pretty comfortable with that.

On a securities side, we're not going to extend too much.

On the loan side, obviously, Joe would attest to this -- as rates rise, our multi-family book actually prepays a little bit faster.

So blended, you're probably looking at an average life well below five years.

Okay.

And how about the liability side.

I think Mark had mentioned you guys did some work on liability duration there; any estimate on what that is?

As we sit today, we're still in the process of preparing those numbers.

We are transitioning consistently.

Over the course of this quarter, we had already begun moving some of our liabilities.

The reality is that we are prepared to deal with change in interest rates as in fact, they verify or as in fact we believe there is ample evidence that the direction is going to be consistent.

Rick Weiss, Janney.

A quick question, most of them have been answered.

But would there be a point we would consider downsizing the securities portfolio to deviate (ph) some interest rate risk?

It could easily happen, depending on cash flows and other factors.

One of the things I think we are consistently doing is re-evaluating the positioning of our balance sheet.

We are in the process right now of restructuring the balance sheet.

Obviously, the consolidation of two large balance sheets causes there to be a moment in time positioning, as well as an expected change over time.

And the change over time is what you are speaking to.

Will we be overt (ph) in reducing the securities portfolio because of market factors?

It could happen.

I think Tom will address that.

I would also add to that -- in light of where we are today in a flat rate environment, the cash flow is very robust in securities.

If we choose not to buy securities and (technical difficulty) to loans, we are looking at still billions of dollars of cash coming back to the Company to be re-invested in loans.

In a rising rate environment, our securities are structured to generate adequate cash flow.

We believe in a rapid-rising rate environment, as (ph) cash flow slows down and will not slow down more than our loan demand.

Our loan demand is very strong and stays strong.

With that, we believe that we will have more than adequate cash flow from our AFS portfolio.

And we shop this portfolio daily and very focused towards a rising rate environment.

And with that, we believe we will have billions of dollars of cash over a period of time to put into lending.

So clearly in this market, cash flow is coming in and the rising rate environment, we believe that the slowdown will not be as dramatic because of the structure that we have in the portfolio.

Okay.

And with respect to putting the money into lending, besides the multi-family, how are the other -- construction lending (multiple speakers)?

The construction lending is actually up.

As you might imagine, some of the specific opportunities here on the island are very, very aggressive with regard to new construction.

So the people that Roslyn has had long-standing relationships with have been very effective in moving some of their new projects.

So we do have online right now some very interesting new construction projects.

So if anything, our actual deployment of assets into construction lending is running higher than we were previously anticipating.

Is this primarily two-year type of loans?

Typically, they are 18 months.

They are 12 to 18-month duration.

We are not doing the permanent financing.

We are just doing the construction financing.

So these are short assets.

That's one of the nice things about having this much in the portfolio.

They are short and they are adjustable.

Lee Cooperman, Omega Advisors.

Two questions from a neophyte.

One, just kind of looking at the Company and assuming no change in capitalization, what are your kind of objectives to grow the business, given your market share, the growth of your market, what kind of earnings growth you think over a three to five year horizon rate of change could you produce?

And then a second question, just in my own modeling of the company, I am thinking in terms of your cash earnings which roughly are running a rate of say 2.40 a share that maybe 45 percent of that is going to be directed towards a dividend, 10 percent to finance the growth in the portfolio and theoretically, as much as 45 percent in a typical year could be available for stock repurchase, which would basically give you something like 250 or $300 million a year or 3 to 4 percent theoretical cap shrink.

Yes, Lee, your second question first.

Obviously, your numbers are about right.

Your assumptions are running well.

With regard to three to five years out, we never model three to five years out.

But the direction of the company clearly is toward growth.

We are going to grow the Company this year in excess of 20-odd percent.

That number is not inconsistent with how we've been growing the company over the last three to five years, very much in line with how we've been growing the company.

Obviously, we would be looking to position ourselves to do acquisitions in a three to five year time horizon.

I can't say specifically that we will absolutely do so.

But the chances are that the attributes of our business model will give us the opportunity to do good transactions over a three to five-year horizon.

So the growth in the company will be substantial when you add in the likelihood that we will be consolidating with others.

Given this is a trade-off that every company has to make, but the market is saying something very different about your prospective growth rate than you're thinking unless financial (ph) is (ph) just so meaningfully different.

Given what one ought to be thinking of for earnings next year, our stock now is selling at less than 11 times earnings.

And so you normally can't buy -- unless (ph) it's (ph) even (ph) cut the number a 15 percent grower or 11 times earnings with almost a 4 percent yield.

Where do you make a trade-off, we're saying hey, we'll cut back on the growth rate of dividend and put more money into stock repurchase?

Because we think the stock is selling below the franchise value so to speak.

I think what you're saying is one of the things that we have the flexibility to decide in future periods.

At this juncture, we felt a strong dividend, given the current tax code and the ability to return to a broad-spectrum of shareholders, you know, real dollars was a good thing to do.

The ability to buy our stock is not compromised by the dividend that we pay.

I think the consequence of capital on the dividend side is far less than the consequence of capital on the share buyback.

Since we are growing our capital so rapidly -- and the important thing is our cash earnings actually grow the capital -- so since we are growing our capital so rapidly and over the course of the last one, two, three, four years, we have consistently been growing capital, growing earnings and increasing our dividend, and at the same time, buying back substantial amounts of stock.

As we sit today, we have a tremendous amount of capital in place and we have a business model that is going to earn a significant contribution to that capital.

So I think we have the flexibility to both buy stock and pay strong depends.

You are doing a good job.

Keep up the good work, thank you, very much.

Kevin Timmons, CLK.

My primary questions were asked but I have a couple of housekeeping things.

I know you sold some home equities during the quarter.

What was the gain on that?

Probably small. (multiple speakers) goodwill.

Kevin, it's Michael Puorro.

Since those were Roslyn loans, it was an adjustment to goodwill.

And it was pretty immaterial.

Okay.

And then I guess perhaps related to that, the intangible number increased from 12/31 to 3/31.

Is that just kind of finalizing numbers or what was that about?

Yes, it is.

It's right, finalizing numbers, it's somewhat related to some of the stock plans and the benefit plans.

And much of the increase was picked back up in an increase in tangible capital.

Okay, very good.

Thank you.

Ely Parse (ph), SAM (ph) Investments.

(No response.)

Ely Parse, you may proceed.

(No response.)

I think you may want to go onto the next question.

Okay, your next question comes from Theodore Kovaleff.

Yes, congratulations on another good one.

Thank you, Ted.

Two questions, firstly at the risk of beating a dead horse, with regard to interest rate assumptions, the present assumptions that you have if I remember are 50 to 75 basis points by the end of the year.

Is that correct?

Yes, that's about right, Ted.

Let me ask this.

Were interest rates to increase at a higher rate than that, how would that affect earnings?

I think the bottom line is, we are not going to be sitting with our balance sheet waiting for that to happen.

So the changes that will occur in the restructuring of our balance sheet will in one way or another mitigate that.

I think it is probably safe to assume that over the course of the remaining three quarters, which include this quarter, the actual impact to financials, even if rates were to change dramatically by December 31st, the actual impact to financials would be relatively minor.

If anything, we are well structured to deal with change.

Okay.

And then the other question is in terms of this quarter and the future quarters, cost of the Roslyn consolidation, etc., is there anything much left over?

And how much was in first quarter?

Yes, I think we are basically done with regard to that.

All of the financial impacts from the consolidation -- and this is both the positives and the negatives, have already occurred.

The activity with regard to stock in the first quarter was a bit extraordinary.

But that was because we had an awful lot of stock that people elected to realize; so we issued about 3 million shares of stock in that first quarter.

This of course added to our capital position.

But I think as you look at the numbers, it is a very substantial positive in the capital position.

One of the numbers, that $25 million, that is a positive that comes from the stock-related benefit plan.

Okay, very good.

Thank you.

Steve Berman, Steinrose (ph) Investments.

A couple of questions, first of all, this issue on the buyback -- you already have an existing buyback that you have not finished yet, so, am I right?

It's approaching -- what our Board likes to do is have in position an authorization to buy shares from meeting to meeting.

So the bottom line is we are going to be an active buyer of our stock.

And we do believe that this market has represented a good opportunity to be buying our stock.

So yes, we have been buying the stock and we are going to continue buying the stock with the authorization that's in place.

But didn't you have like 3 million to go on the prior authorization?

That's right, we did.

I mean, it seems like fluff, I mean, basically to reauthorize.

I mean do the 3 million and then reauthorize.

You meet every month, don't you, at the board?

But anyway, that's a minor item.

I would rather go forward and talk about the margin.

I still don't have the perspective that with the Roslyn deal, which was supposed to come on your books with a lot of short-term liquidity that the strategy was again to roll that into loans, granted, rates didn't cooperate in the first quarter, they went down instead of up.

But the higher-yielding loans was going to, over the course of 2004, improve your margin gradually each quarter.

But now you're telling me -- and admittedly the first-quarter margin was above where I thought it should be, where I thought it would be; you did better in the first quarter.

But now you are telling me it's going to erode as you go forward.

But you are going to be making more loans and less securities and more loans at higher yields.

Why isn't the margin stable to up as you go forward in your outlook?

I think as we go down the road here, there is going to be market influence on how the margin will in fact react.

So the changes that we anticipate in the market would suggest that our margins may in fact contract somewhat in the period ahead.

There's no getting away from the fact that this changing interest-rate environment is going to have an impact on all financial companies, including us.

But the consistency of our business model and the direction in which we are going is such that if we give up something on our margin, we still have substantially greater margins to work with than all of the other financial entities that we compete with.

So yes, we will change our margin as interest rates change.

The speed of change and the degree of change will impact margin.

But it will impact everybody's margin.

And in fact, we have more to work with than others.

So on a go-forward basis, over time, we would see a consistency in the growth in our earnings and the growth of our company, and the margin will contract from period to period, based on what's happening in the marketplace.

Steve, this is Tom.

I want to add one other item regarding the margin.

Obviously, we put the capital in place at the end of January.

But the assets do not come on till the latter part of the quarter because of the interest rate environment.

We selectively chose, when to go into the market to optimize reasonable yield for the Company.

That impact will be (ph) into the margin next quarter.

Obviously, we had a very strong margin in the fourth quarter because we did not lever up the Company until the latter part.

That is the rationale why you might see some compression.

And we are not talking about dramatic compression.

We are really talking about the compression associated with a leverage of the 400 million that we raised at the end of January.

I see, okay.

But absent that leverage, obviously, the margin would remain at this level.

So could it be that once the full impact of the late leveraging of the capital is reflected in a slightly lower margin thereafter, as you transition from securities -- MBS -- to loans at higher yields, presumably?

Absolutely right.

I think you have to realize that in a rising rate environment, our business has been proven to have a significant amount of volume.

If you look at what happened in the fourth quarter, that was a consequence of a rampant rise in interest rates that happened in the late part of the summer.

The closing took place in the fourth quarter.

We had a very robust first quarter despite interest rates.

Going into the second quarter, rates are higher.

We believe that production will be higher as well.

That will also contribute to a positive impact for the margin.

Okay.

I have one other question.

Thank you, that's helpful on the margin.

On the fee income, it certainly came in -- I think you may have answered this and I didn't quite get the answer.

But the fee income was definitely well below where I thought -- I was anticipating.

And are you saying it's all because of prepayments, basically, prepayment fees that boosted the second half of last year?

That's right.

A good deal of that decline is in fact driven by the reality that we were doing a significant number of new loans rather than refinancing our existing loans.

So the activity that we have from quarter to quarter obviously will change based on what the market wants to do, but also based on where we are directionally heading.

So when we do new loans, we do not get that fee income.

When we refinance our existing loans, we do.

Okay.

And you don't think that's going to change -- in other words, this lower level of fee income that we have in the first quarter is a more realistic number going forward than the inflated second half of 2003?

Steven, what I would also add to that is that when rates rise and they are rising -- rates are up dramatically since the low in the first (ph) quarter, people will refi.

When they refi, they have to pay the penalty.

That's how we run our business.

That means there is a probability that if refi picks up, which we believe will, because our assets actually shorten in duration in the rising rate environment for the loan side, we will have the ability to generate more fee income from that.

Al Sabatano (ph), Midwest Research.

A couple questions, on the multi-family and your originations, is there any kind of seasonality through the year?

Oh, yes, there definitely is.

Obviously, our first quarter is usually a light quarter.

Our second quarter's typically better, our fourth quarter is typically better.

There's definitely the seasonality in the way these loans go.

So as we mentioned, this particular quarter, the first quarter of the year, we exceeded last year production by about 300 million.

And the growth for the multi-family in particular was up about 23 percent.

So this was a very positive turn of events during the quarter.

So the second and fourth quarter, can we expect them to mirror what happened in the fourth quarter of last year?

Well, it would be hard to say exactly what it'll do.

But I would say that the second and fourth quarter are typically better quarters than the first and third quarter.

So I would say that yes, that's true.

There's not a consistency quarter to quarter with regard to loan production.

Great.

Can you talk a little bit about what's going on in the market as far as pricing, and if you noticed any changing cap rates quarter to quarter?

I think I've pretty consistently suggested over time that at this end of a credit cycle -- and we are probably in the 11th or 12 year of a positive credit cycle -- you get all kinds of lenders who are desperately looking for access (ph).

And sometimes they get into businesses that they don't fully understand.

So there's no question that there is a strong desire in some cases to put too many dollars on the table.

You put the extra dollars on the table, you get extra loans.

And that turns out to be a mistake.

The only time that mistake comes to the surface is when in fact, the credit cycle does turn and the overall performance of the portfolio deteriorates.

We have been through multiple cycles.

Our consistency with regard to how we lend is very different than that of our peers.

So the portfolio that we have generates a safety net that probably is unparalleled in the marketplace.

So even though there are changes in interest rates and changes in the cap rates and other factors that influence who the players are and how aggressively they play, it does not really impact us dramatically.

It impacts us from the standpoint of interest rate.

It doesn't impact us from the standpoint of credit quality.

So there is no getting away from the fact that there are people in the market that are doing some things that they do not have a credible basis to substantiate.

That's going to, in fact, get worse until the credit cycle turns.

Cap rates are going up and loan rates are going down?

Well no, cap rates (multiple speakers) cap rates are going down and the loan rate may actually start to go up again.

But cap rates are going down from some of the competition, irrationally.

In essence -- in any given market, the cap rate for different properties could be very substantially different.

A party that really understands what they are doing will have the right cap rate on the particular property.

It's a loan-by-loan decision.

There are people that are putting cap rates on properties that do not deserve the cap rate.

So a cap rate that's too low, may be 8 percent.

A cap rate is adequate, may be 7 percent.

So the facts of a particular borrowing decide whether or not the cap rate is correct.

And a broad brush is inappropriate, both from the standpoint of analysis and also from the standpoint of lending.

The broad brush misses the good and the bad.

And the broad brush may be okay for government work, but not okay for lending other people's money.

Two more questions.

What's your current loan rate and then your all-in yield?

Or if you just want to give me your all-in yield on your multi-family loans?

I think the all-in yield is actually part of our published information.

If you look at the yield, it's published out there, it's about 5.98.

But the rate that we were closing loans at over the course of the last quarter were approximating 5 percent.

Now another thing to remember about us in particular, is over the course of time our term yield -- and that is the yield that we ultimately derive over the course of the life of the loan -- and we mentioned earlier that the life of our multi-family loans is approximating 3.3 years -- so our term yield is always a component that is driven by the fees that we earn up front, the coupon rate and the fees that we earn at the back end.

So over the course of let's just say a 3.5-year period, our term yield may be significantly higher than our coupon rate.

That may not be the case with other lenders.

So again, the broad brush can miss the distinction.

The best way to look at our company's business model is to look at it over time, and the consistency with regard to how we've created value over time is what we're dealing with on a go-forward basis.

Okay.

Very good, thank you.

Last question, please, on the liability side, I know you're still considering it, but what are you thinking on extending a debt (ph) or CDs, and how long are you thinking?

I think we are looking at everything.

This is not the kind of situation where we can do just some of what we are looking at.

We are looking at everything.

We are obviously well positioned.

A good thing about the positioning of the company -- of all the banks that we compete with, we are probably one of the best positioned companies to be aggressive with regard to depositor rate, should the environment so allow.

There are many companies that don't have the efficiency ratio or the margins or the spreads that we have.

They don't have the room to pay higher rates in order to attract deposits.

That puts us in a very good position, should interest rates change over the period ahead, we have a lot of ammunition to work with.

Now, what I have to say not to you, please -- but what I have to say generally is we have another conference call that's coming up.

So I think we're going to take one more question.

Two.

Well, if it's quick, we'll take two.

If not, we'll take one.

Thank you.

Ariel Rosowky (ph), Elmridge (ph) Capital.

Thanks, a lot, for taking the call.

Two quick questions, I hope they are quick, because the first one has to do with your cash.

Okay.

I just noticed year-on-year in the reconciliation, you had 800,000 stock in associated tax benefits on 1.7 million of cash?

Yes, yes, the reconciliation of cash earnings, yes.

Yes.

And this year, you had 23 million.

So 8 of the 11 cents was a number ten times bigger or whatever it was than the --?

That's correct.

Can you just explain that a little bit to me, and also, is that recurring?

That is not recurring from quarter to quarter.

That is recurring typically from year-to-year, but not necessarily in every year.

In this particular year, there was a significant desire on the part of many people that have the right to enjoy the benefit of their stock actually get their stock.

We had a lot of stock activity, which creates significant tax benefit to the Company.

So this is just exercising of stock options?

(Multiple speakers) -- 3 million --

-- is predominantly exercising stock options and the tax benefit the Company enjoys (multiple speakers).

Okay, okay.

So I understand that.

So unless they do -- and is it possible that these people can do the same thing next year?

Or is this the Roslyn guys getting out.

No, no, no one actually got out.

These are people that exercised options in the executive group.

And if there was some on the Board, that exercising kept the stock.

So for example, I think what I could say and I think it's possible for me to say this, I've invested over $1 million in the Company in the last three months.

Now the Form 4's don't make it easy for you to see that, but the fact is that I've had to take out of the bank money in order to put it into the stock.

Sure, I am with you.

All of the executives and others that have actually been making decisions to literally participate in share ownership and get the dividends that are being created, are using real dollars because we all have to pay taxes.

I got you.

So the better way to look at your recurring cash earnings is to take that out (multiple speakers) --

Yes.

And look at maybe 50, 51 cents versus GAAP of 48, is that right?

The difference on a go-forward basis, I would say is approximately between GAAP and cash, about 4 cents a quarter.

Okay, that's helpful.

And then one other question.

You know, you guys have been using a leverage strategy for some time.

Is there a way to help me understand if you just separate out the leverage strategy from the core company, how much in EPS contribution and how would you get at that, did you get this quarter -- of the 48 cents from the leverage strategy?

That is not an easy thing to do, but I will let Tom talk about that.

I mean, obviously, we are not going to you know publicly talk about isolated numbers regarding our wholesale book and our retail book on deposit side.

But clearly, if you look at where our liabilities stand on the leverage versus liabilities as a bank basis, and blend it altogether, one would argue that we don't have a mismatch.

Clearly, a lot of our leverage is now being put into lending.

Our goal during the year is to move the securities book lower into loans.

In a rising rate environment, our cash flow will still remain strong on a securities side.

Therefore, we can grow our loan book in excess of our targets and you'll see a shrinkage.

Over time, we will readjust the securities book.

And we have dramatically done that in the past three years in substantial changes in interest rates.

We are not going to identify the contribution towards the securities book versus the loan book, because, obviously, we are still restructuring three significant mergers, Haven, Richmond and Roslyn.

Both companies had -- all those companies had substantial asset sales and restructuring, which also, we had some securitizations which I can classify as securities which really are loans.

So all in, based on our restructuring, we believe that you will see a dramatic change in the loan book from securities into loans, that will clearly be a long-term better strategy for the Company.

I hear you, Tom.

I did something extremely naive, but it is so dramatic, I thought I might have something wrong.

All I did was I took your interest income from your non-mortgage stuff, and you know set that against borrowings and said that's leverage.

And it looks like it was 18 cents this quarter and so core was 30 cents.

Probably very naive, I wouldn't comment (multiple speakers).

And the last quarter, the core was 45 cents.

So it looks like your core business dropped a lot.

I must have it wrong, right?

Probably.

We can (indiscernible) talk about this offline. (multiple speakers) an hour with you on the phone, but not on the conference call.

If you guys can follow up with me, I really would appreciate it.

Unfortunately, we have a scheduled meeting following this meeting that we are going to have to break for now.

So I thank you, again, for participating in the morning's discussion about New York Community Bancorp's first-quarter 2004 earnings and our current expectations for the year ahead.

We believe that our record earnings growth will be convincingly extended as we establish a new record of loan production and continue to strategically restructure our balance sheet.

Thank you, all, for joining us.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.