Flagstar Financial Inc (NYCB) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to the New York Community Bancorp first quarter 2007 earnings conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to the First Senior Vice President of Investor Relations, Ms.

Ilene Angarola.

Please go ahead, M'am.

Thank you.

Good morning, everyone, and thank you for joining the management team of New York Community Bancorp, .

for today's discussion of our second quarter 2007 performance as well as the sale of our Atlantic Bank headquarters and significant post-merger positioning of our balance sheet.

Today's conference call will be led by our Chairman, President and Chief Executive Officer, Joseph Ficalora.

And Tom Cangemi, our Senior Executive Vice President and Chief Financial Officer.

Also with us on the call are Robert Wann, our Senior Executive Vice President, Chief Operating Officer and John Pinto, our Executive Vice President and Chief Accounting Officer.

Our comments today will feature certain forward-looking statements which are intended to be covered by the Safe Harbor Provisions of the Securities Litigation and Reform Act of 1995.

Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those we currently anticipate due to a number of factors, many of which are beyond our control.

Among those factors are changes in interest rates which may affect our net income, pre-payment penalties, and other future cash flows as well as value of our assets, changes in deposit flows and the demand for deposits, loan and investment products and other financial services in our local market and changes in competitive pressures among financial institutions.

You will find a more detailed list of risk factors associated with our forward-looking statements in our recent SEC filings beginning on page eight of this morning's earnings release.

The release includes reconciliation of our GAAP and non-GAAP earnings and capital measures which will also be discussed on this morning's call.

If you'd like a copy of the earnings release please call our investor relations department at (516)683-4420 or visit our website, mynycb.com.

I would like to turn the call over to Mr.

Ficalora it will make a brief presentation before opening the line

Thank you, Ileen, and good morning, everyone.

We welcome this opportunity to discuss our second quarter performance as well as the actions we have taken to enhance our earnings and maintain our capital strength and future periods.

Before our focus on our second quarter results, which on an operating basis were solid, I'd like to discuss the recent sale of our Atlantic Bank headquarters and the significant repositioning of our balance sheet that began in early April and continued into the third quarter.

On July 16th, we sold our our Herald Square property in Manhattan generating proceeds of approximately $105 million an approximate pretax gain of $65 million, equivalent to an after-tax gain of approximately $45 million or $0.14 per share.

The gain will be reflected in our third quarter earnings and will maintain the strength of our tangible capital measures.

Consistent with our stated strategy, the sale of acquired assets began with the closing of the PennFed deal on April 2nd.

We used the proceeds to invest in higher yielding assets and reduce our higher cost sources of funds.

Specifically, we sold or securitized $1.4 billion of PennFed's one to four family loans in early weeks of April and by the end of the quarter, had utilized a portion of the proceeds to prepay $330.3 million of wholesale borrowings with an average cost of 5.35%.

We also used some of the proceeds to invest in securities totaling $671 million, primarily consisting of U.S.

government agencies with an average yield of 6.24%.

These actions were followed up in July with the sale of securities totaling $1.1 billion which generated a onetime after tax impairment loss in the second quarter of $38.7 million or $0.12 per diluted share without recognition of the reduction in securities portfolio.

Absent this lost, which was recorded in the second quarter, in accordance with the current interpretation of (inaudible) 115, our second quarter GAAP earnings would have been equivalent to $74.7 million, or $0.24 per diluted share.

While the recognition of the third quarter loss reduced our second quarter GAAP earnings to $39 million, or $0.12 per share, and there will be an additional third quarter loss of approximately $5.2 million, or $0.02 per share after tax.

The aforementioned gain on the sale of the Atlantic Bank property will add $0.14 per share to the earnings in the third quarter.

Meanwhile, our second quarter operating earnings rose on a linked quarter basis to $71.8 million, $0.23 per diluted share, and our cash earnings rose $0.03 per share on a linked quarter basis, to $0.27.

The increase in operating earnings was driven by core revenue growth,.

The expansion of our net interest margin despite the shrinkage of our assets and an improvement in our key operating performance metrics including our operating efficiency ratio.

In addition our return on average tangible assets rose five basis points to 1.09% in the quarter and our return on average tangible stockholders' equity rose 50 basis points to 20.54%.

Net interest income rose better than 10% on a linked quarter basis while our fee and other income rose $1.6 million combined.

At 2.44% our net interest margin rose 12 basis points on the linked quarter basis, and 15 basis points year over year.

The linked quarter increase in our margin was fueled by a 14 basis point rise in the average yield on our interest earning assets and by an expected increase in prepayment penalties.

Prepayment penalties totaled $22.3 million in the second quarter, exceeding the trailing quarter level of $8.6 million by 63%.

Partly reflecting this increase, the average yield on loans rose to 6.44% in the quarter, reflecting a three month increase of 30 basis points.

I mentioned in today's earnings release, but I believe it bears repeating, the prepayment penalties we have received year-to-date totaled $36 million and have already exceeded the total received in all of last year by 22%.

In fact, the six month total in 2007 exceeds the prepayments received in each of the last three years.

The volume of prepayments received may not be matched in the next two quarters, we're confident that the volume we see in the remainder of 2007 and the year before us will continue to exceed the levels recorded in 2006.

Our confidence stems from the way that our multi-family loans are structured and the fact that our loans typically have an average life ranging from three to four years.

At the end of June, our portfolio of multi-family loans totaled $13.5 billion and had an expected weighted average life of 3.2 years.

While our balance of loans has shrunk somewhat over the past two quarters, the reduction not only reflects our commitment to maintaining our strong credit standards, but also our ability to refrain from lending in an environment that currently features irrational terms.

The period ahead will have fewer irrational lenders and more good property owners seeking to fund 1031 exchanges.

As a result of our acquisitions and the repositioning that has followed, we have a significant level of liquidity to deploy when market conditions warrant and the flexibility to capitalize on opportunities as they present themselves.

Loan originations totaled $1 billion in the second quarter, including multi-family loans of $378 million.

At the present time we have a pipeline of about $877 million in multi-family loans accounting for $596 million, or 68% of that.

Our loan production continues to be a component of our business model, so too is our record of asset quality Our ratio of nonperforming assets to total assets improved to 0.05% in the second quarter.

And, our ratio of nonperforming loans and total loans improved to 0.07%.

At the same time, our allowance for loan losses grew to 642% of nonperforming loans at quarter end.

Another improvement we were pleased to see had to do with our operations.

Notwithstanding an increase in core operating expenses resulting in part from the addition of PennFed branches, our operating efficiency ratio improved to 40.48% in the second quarter of the year.

Like in our income statement, our June 30th balance sheet reflects the addition of PennFed to our banking family and the benefits of the post-merger balance sheet repositioning.

The proceeds from the sale of PennFed loans were used in part to purchase higher yielding securities while we await a more favorable lending environment and to reduce our proforma balance of wholesale borrowing by $453 million.

Wholesale borrowings represented 36.2% of the total assets at the end of second quarter.

A reduction from 38.1% on March 31st.

Additional funding stemmed from a $1.2 billion increase in deposit to $13.8 billion, primarily reflecting the acquisition of PennFed.

Core deposits and CDs each totaled $6.9 billion and represented 50% of total deposits at the end of the quarter.

With the completion of a branch acquisitions from Doral Bank, FSB, now slated for late Thursday evening, this Thursday evening, our balance sheet will soon reflect the addition of certain assets and deposits acquired from Doral.

In conjunction with the transaction, which will add 11 branches to our commercial bank network, we expect to receive assets and deposits of approximately $386 million each.

The transaction will boost our commercial bank franchise to 38 branches, 19 of which will operate under the name Atlantic Bank.

The conversion of Doral Systems to those of New York Commercial Bank will be completed this weekend.

And, the conversion of PennFed systems to those of New York Community Bank is scheduled to take place next month.

Importantly, the Doral headquarters will now provide space for those banking operations that previously had been located at our Herald Square property.

Returning to our balance sheet at the end of the second quarter, tangible stockholders' equity totaled $1.5 billion, an increase from the balance at December 31st.

The growth in our tangible equity was supported by six month cash earnings of $153.3 million, equivalent to $0.50 per diluted share.

Excluding the second quarter impairment loss, and mark-to-market adjustments on securities, the ratio of adjusted tangible stockholders' equity to adjusted tangible assets would have equaled 5.80% at the end of June.

In view of the strength of our capitol and the continued improvement in our fundamentals, the board, last night, reaffirmed its commitment to our current dividend of $0.25 per share.

The next dividend will be paid on the 15th of August to shareholders of record at the close of business August 6th.

With the acquisition of Synergy Financial group's slated for the fourth quarter, we will have completed three transactions over the course of 2007, indicative of our focus on our growth to acquisition strategy.

Each of these transactions will have been immediately accretive to earnings and will have given us the opportunity to enhance our future performance through strategic repositioning of our balance sheet.

We believe that the actions we have taken to date and will continue to take as the year progresses will enhance the value of our company and your shares.

Enhancing value continues to be our primary mission and it is one of our board and management team's -- We take very seriously.

And this time I would like to open to your questions.

As always, we will do our best to get to everybody in the time allotted.

But, if we should miss you, please feel free to call us individually this afternoon or during the week.

Questions please?

(OPERATOR INSTRUCTIONS ) We will pause for just a moment to allow everyone a chance to signal.

We go first to Thomas McGovern of Lehman Brothers.

Good morning.

Obviously your credit quality is very strong.

There is no doubt that multi-family will probably remain the case, but is there any concern about the $1 billion of construction you have on the balance sheet that represent a little more than 5% of your total mortgage loans?

Right.

Our risk aversion is evident, I believe, throughout the entire portfolio.

Although our construction loans would seem as though they are higher risk assets than other type assets, we consciously decide, for example, not to do one to four family loans because they are higher risk than the construction loans that we actually are putting into our portfolio.

We're dealing with extraordinarily successful builders who build in most cases communities.

And they, in fact, are-- we are funding on contract, sometimes there are multiple backups to these contracts.

We are funding on contract, the building of houses within communities that are being built by people that have been very successful in developing gate communities that have golf courses and all kinds of other amenities that make them very, very attractive even in this environment.

Thanks a lot.

We go next to Sal DiMartino at Bear Stearns.

Good morning, everyone.

Good morning, Sal.

A question on multi-family loans.

What did you see in the quarter that made you pull in the reins on lending?

Was it anything incremental that wasn't there in the past several quarters?

That is my first question.

Then my second question--

Let me answer the first one first, Sal, and we will get to the second one.

Okay.

To answer the first question.

It is not this quarter alone to we have seen this.

We have been at the back end of an elongated positive credit cycle.

We have had many irrational players coming into the marketplace and offering terms and offering dollars and offering rates that just do not make sense.

So, although we, in fact, did lessen our actual lending during this quarter just ended, we have been lessening our lending for several quarters.

The reality is over the course of the last year or more, we have probably not taken well over $2 billion in loans that we might have been willing to take under more favorable terms.

This discipline that we're following is, in fact, an indication of the extremes.

So, in this quarter.

we had a large amount of property that was refinanced or sold and in some cases the properties were sold at extremely high prices.

We would not refinance, we're a cash flow lender, not a market lender.

Tough the pricing is so high that in some cases we opted not to do the refinancing or the sale financing because we are intent on keeping ourselves as a lender who is certain that we have the ability to be repaid by the cash flows, not by the market.

Therefore, we are very diligently still, as we go forward, looking at opportunities as they arise, and using discipline so as to take properties that make sense on a repayment basis.

They need to fit our model.

The good news for us is that we're already beginning to see fewer irrational players in the marketplace.

We are already beginning to see less in the way of exotics or the kinds of things that are trying to draw people away.

But, as I think I've said previously, we are perfectly willing not to do a refinancing that is excessive on the sale of a property, but we are hopeful that we will get the 1031 exchange on that gain that is realized by the good property owner and will refinance or finance for the first time the properties the that property owner buys.

The opportunity for us to do lending in the future is going to be driven by two things.

One, will be the fact that there will be fewer other lenders in the market place, and two, that there will clearly be an opportunity to refinance better priced cash flows and those will be the good owners who are actually redeploying funds that they were able to get on a sale, at market, of properties today, tomorrow, and they will be buying properties because they have to do that in order to avoid tax, .

they will be buying properties at much better pricing so as to virtually begin again, a three-year cycle of refinancing improvement to the property.

Sal, what's your

My second question, you kind of answered it.

Maybe you can add a little more color.

Are you seeing any sorts of changes in terms of the competition that gives you confidence that loan growth will resume in the back half?

The spread is widening with regard to the competition.

And, that is likely to continue.

All of the discussions surrounding sub prime and who the participants are in that market should not be missed.

It is a beginning of a cycle move that is impacting every participant in the market place.

Even though, obviously, we're not a subprime lender and none of the loans we are doing our one to four family loans, the reality is that many of the participants in the market to all kinds of loans and the good news for us is the guys that are most irrational are all over the place and they are the ones that in some cases are being pulled out of the market because of their subprime activities, are being pulled out of the market because of the changes in their funding.

One last question and I will turn it over to someone else.

In terms of competition from other local savings banks.

There've been two acquisitions.

Have the new companies pulled back at all in the multi-family lending?

I'd say the reality is that the two most prominent participants in our market have been Independence and Northport.

Both of those lenders have prompted significant change.

The sovereign acquisitions of Independence and the cap one acquisition of Northport.

They are, therefore, not the same focused lenders they had been.

Normal transactions caused that and the priorities of people also changed.

For us, that is a good thing.

The most important people we compete with are, in fact, less likely to be as focused as their predecessor group.

Thank you.

Now, we go to Theodore [Coboloff] at Scott Capital, please go ahead..

Yes, greetings and congratulations.

Thank you, Ted.

Just two quick questions.

The $67,000 write off.

Where did that come from?

Undoubtedly predecessor loans But I'll ask consumer loans.

Okay.

Acquired consumer loans.

Not loans that we generated.

This probably represents the 51st quarter.

That was what I was getting at.

Okay.

Probably the 51st quarter that we've not had a charge on loans that we generated.

It probably represents almost 28 years that we haven't had a charge on our multi-family niche assets

That is most commendable.

The other question I have is-- you mentioned the Synergy acquisition taking place in the fourth quarter, and, there are dividends that are being likely declared in October for Synergy and early November for NY Community.

My question is should one expect the acquisition to take place after the dividends?

Ted, it's Tom Cangemi.

Our best estimate is this deal should close on or about the end of the third quarter, so we say around the fourth quarter, but early fourth quarter.

We're looking for early October.

So, therefore the dividend in November should be the NYB dividend.

Okay, but with Synergy, that dividend is normally in very early October.

Their dividend is scheduled the same time as our dividend.

From the merger agreement.

Very good, thank you.

We go next to Bob Hughes of KBW.

Thank you.

Good morning, guys.

A couple of questions.

It looks like you had in the multi-family portfolio about $1 billion or so prepayment and loan satisfactions in the quarter..

Is that correct?

What would you say the yield on those loans was?

Right.

Well, it varied.

Some of the yields were extraordinarily low.

Some of the yields were a little higher.

I'm not sure but I believe that some of that activity was 14 months and therefore, they may have had a little higher yield.

Other activity was more like two years or three years.

So, it varies, Bob.

I would say, Bob--.

it's Tom-- it was definitely below the market yield that we are currently offering.

What is most exciting as the future yield that we will be refinancing are extremely low.

We're looking at very low yield going into the end of 2007 and the end of 2008, low coupons that have to refinance in the very low five.

That's for bonds that are coming up for (inaudible)

Absolutely We have a significant amount of expected cash flow off the existing portfolio that has to contractually mature or refinance at levels in the low five.

In 2008, no question is going to be very low coupons that will have to do something in this environment..

Okay, of the $1 billion in prepayment satisfactions, you're saying a good chunk of that was not your traditional five plus five product then?

It is a mix.

It's a good mix.

A lot was the traditional product.

I'm not sure if I understand, Bob.

The product was the same product and it .

had originations varying in terms.

Some of them were actually packaged sales that the properties were put together for sale rather than for refinancing.

And, they were very short.

Their rate structure was different.

The fact is some of these were two-year or three-year-old paper.

Rates were lowest in 2003.

So, when you look at where those loans came from, that dictates what the rate

I would say, Bob, upper five is probably the average coupon for the quarter.

The assets shown indicated some shorter type loan that was structured as being not on the portfolio for many years.

Probably not between (inaudible) average life maybe an 18 to 24 month average life, that structure..

That paid off as expected.

I am trying to understand what's really driving the elevated prepayment.

It is still below normal which is a good thing.

Clearly not the experience that many of your competitors --

We have a very different portfolio.

We were lending in '03, '04 and '05 so we have a lot of paper that we'll have to refinance.

A good chunk of that was driven by property sales rather than refi?.

Some of its was.

Some of it was.

As I was mentioning earlier, this is an environment wherein the market pricing is extremely high.

So, if a property owner is getting paid 15 years' worth of appreciated growth in cash flow, in some cases they are selling that property only to do a 1031 exchange, and reinvest those profits into other properties that are, in fact, true cash flow properties.

So, when you get to the end of a cycle where there are extreme valuations, some of the guys that are most astute at doing this over time are in a position to sell at great profit the properties that they hold.

We don't refinance those properties.

We wait for them to come back, three months, six months, nine months down the road, and present new properties that they are acquiring which are truly cash flow builders.

That's the product we are, in fact, involved in.

Okay.

That doesn't sound like the type of borrower that was refinancing in this recent quarter.

It sounds more like borrowers that were --

No, Bob, what I'm saying is, that we have a mix of participants in this last quarter.

We had people that were selling properties,which is what I just explained, and we have people that are refinancing properties which is just normal for business, the refinancing of a cash flow that has reached a plateau that the property owner is prepared to recognize that new value in his property.

It is very much the same as what is normal accepting that there are also-- and this will continue because the market valuations are extremely high.

So, there is an opportunity-- and that's why we always have said prepayment penalties are not a pre-determinable amount because the drivers of what we will actually receive from one quarter to another will vary and the participants, in some cases within their own portfolio, will have opportunities of having more seasoned properties that they can sell at an extravagant market price, and therefore do, and they have other properties that are just in the initial stages of improvement.

So, our guys are building value by improving property.

At any given moment in time there is going to be a varying amount of success that they've had within their portfolio.

So, quarter by quarter there going to be a difference we are going to see.

Okay, okay.

And then, Tom, a quick question on the margin.

There will be a lot of factors in the margin going forward but, I think if we look at the most recent quarter, excluding (inaudible) the margin which was flat, despite some potential benefits from restructuring --

That is correct.

Looking into the quarter we did not really put any other construction benefits of PennFed or any of the repositioning until the tail end of June.

We opted to sit on cash for the vast majority of the second quarter.

So, we have now put some money to our going to Q3 and as obvious, we've also repositioned the balance sheet going into Q3 and beyond with the securities portfolio as well as the failed PennFed loans are redeploying some of the cash.

So, you are correct, thus far on the linked quarter basis, take out any activity on prepay and it is a very tough environment.

And, going into Q3, you would imagine that this should be some improvement there absent any prepayment activity.

As Joe indicated, there is no guarantee of what will come in on a month-to-month basis but activities is relatively robust right now.

So.

we're still pretty bullish about levels of ways of prepays.

In addition to the repositioning we deal with our balance sheets.

So, I think.

margins are going to hold up pretty nicely.

Granted, we had a nice pickup on a significant amount of prepay activity too, but we didn't grow the balance sheet and we didn't grow the asset base, so we feel pretty comfortable that the margin will hold in very nicely in 2007

Bob.

the reality is that the structure of our loan includes prepay as a term-yield generator..

So, when we lend, we lend on a term yield, fully recognizing our expectation is between three, and four years, we're going to have in addition to the coupons prepay.

So, the yield that we derive on our lending is consistently a combination of the coupon and the prepay.

So, it is part and parcel of how we lend.

That is the return that we get on our lending activities with regard to multi-family in particular

Next we go to Mark [Fitzgibbon] at Sandler O'Neill.

Good morning.

Joe, just to clarify, what would you say the current yield on your originations in the $800 million pipelines of loans you have?

I'd say that we're looking at something in the range of 150 -- five years, the easiest way to look at because it's constantly changing.

We are in the mid sixes or so.

The average yield on the portfolio for the mortgage loans right now, I think in the second quarter is 644, You're saying slightly higher?

You have to carve out prepay from that.

If you look at the pure coupon on the multi, it's much lower than that.

You have a substantial amount of pickup in the refinancing of the current portfolio and , putting our liquidity to work, we're sitting on a lot of liquidity in respect to the repositioning, as well as sale of the one to four multi-family loans that are sitting in cash.

And as the multi-family loans-- continue to refinance you're looking still in the low fives.

So you are (inaudible) well over 100, that's on

So, I think, Mark, you've touched upon the reality that our loan portfolio does have construction loans and other loans so the yields are in fact, driven by the composite of the portfolio, all of which is higher typically than the multifamily accepting during periods where we have a large amount of prepayments.

Okay, and then secondly, on the prepays, the third quarter, correct me if I'm wrong, is usually seasonally the softest for the multi-family lending business because of summer months and some of the holidays--

That is probably right.

I think that seasonally a correct statement.

But given the unusual events that are occurring I can't say for sure what we'll (inaudible).

I would imagine you're not going to see the continuation of substantial decline in a loan portfolio.

Our guess is that in the back half of '07 you'll start seeing some nice loan growth going into the latter part of the year.

We deliberately ran up the portfolio because of some the deliberately that we're seeing out there.

One exciting situation that has happened is that the condo market has widened out dramatically.

So, that may force some customers to look at the (inaudible) product again.

And on the margin, am I reading correctly that what you are saying is maybe prepays will be down a little bit, but the benefits from repositioning the balance sheet should offset that and on balance the margin should be relatively flat in 3Q?

I would have to look at it differently.

I would have to look at it an say on a core basis, and again, link quarters link quarters going back from the first quarter, second quarter, third quarter, we see continuing improvements, and I'm extrapolating significant activity on prepay.

So, the core margin of the company is doing very nicely and we have repositioned a lot of billions of-- significant billions of dollars of securities and loans that will add value to the margin given the interest rate environment.

Obviously, if prepays accelerate that will only improve the margin.

But again, we had a very nice show on prepay in second quarter.

If that continues margins will continue to be robust.

Even (inaudible) that, we've done a lot of repositioning going into the acquisition strategy that we have, and we still have Doral closing next week-- actually this week, and we have Synergy closing at the end of the third quarter.

This will all be additive to our liquidity position and our ability to lend.

Which we'd hope would help fuel the margin in future periods..

Okay, and the last question I have.

With respect to acquisitions, sort of a multi-part question.

When do you think you will be ready to do more acquisitions and could you sort of remind us what you'd be looking for an acquisition targets or maybe deal criteria?

Yes.

You know, I think, Mark, we've been very, very consistent in looking at deals that we believe we can manage the risk in the deal, we believe that there's an opportunity to be (inaudible) to both tangible and earnings.

And, obviously there is an enhancement in the overall franchise value.

The constant building of franchise value in the environment we're in is definitely going to be a worthwhile endeavor over the course of time.

We are prepared to go forward as we sit here today, we're prepared to go forward with deals when they present themselves in a way that meets the basic criteria of being in a creative deal that we clearly can define,\ as beneficial to our shareholders with a low degree of risk.

That is an important component.

If in fact, we believe the risks between announcement and disposition of assets are higher than we're willing to tolerate, we won't do the deal.

There are very few banks, I suspect, that turn down deals because they are unwilling to take losses.

But, if you have a measure of loss that potentially could cause the loss of the appreciant in the deal, you are not willing to if you're going, in fact, going to be consistent.

So, we've been very consistent in how we two deals.

There is, in fact, a very active market out there.

We're seeing lots and lots of opportunities.

We're not doing every deal that we see, and in fact, the deal that we are doing fit well and economically provide the kinds of benefits that we are used to seeing.

Bob, this is Tom.

I would just add that what's exciting where we stand today, is that this summer we're converting both Doral as well as PennFed.

That will be behind us in the early part-- latter part of the summer and .

we have Synergy closing at the end of-- I'd say at the end of September, first of October.

That's the estimate there as far as time frame to be converted sometime early '08.

So we still have, as we stand today, the ability to continue to look at opportunities in our backyard, as Joe alluded to, a substantial amount of great opportunities but again, our focus is a good economic transaction and we won't do deals that are not economically feasible for

Thank you.

We go next to Rick [Weiss] at [Janney].

Thank you.

Good morning.

I was wondering just if you would expect any more balance sheet restructuring after Synergy, and Doral closes, assuming there is no change in the interest rate environment.

Rick, it's Tom.

I'll get to that.

We put forth a nice repositioning plan as part of Synergy and Doral, collectively.

With that, we always look to the target (inaudible) and obviously if it is a loans we're not comfortable holding, we will sell them off.

But in theory, I think, what we have put in front of our shareholders this morning is what we're doing with the balance sheet combined with Synergy as well as with Doral.

Okay, and also what is your policy with buy-backs?

(inaudible) because of the pending deals, but after they close?

Over the course of our public history, we have been a historical buyer of our stock aggressively at times.

In the last three years we have not been buying back our stock.

We have been, in fact, in some cases quite contrary to our peers, we have been building capitol going into the back end of the cycle that we believe will cause credit losses to the sector and opportunities for buyers such as we.

So, having capital is a desirable thing for us and that is one of the reasons we've been positioning ourselves the way we do.

As you well know, you can use capital to grow the company and you can use capital to reposition the company.

We believe those are better tools than buying back stock.

Of course, that may change down the road depending on what else happens, but at the present time with the opportunities we are seeing, the chances are that we are going to be buying banks, not stock.

Rick, it's Tom.

I would also add that obviously we love to see the dividends completely as a coverage event on a GAAP basis and that's the focus going forward.

When we start exceeding that which we believe in 2008 is something where we need to focus on and we believe we can get there, then we'll have some extra capital generations that we can push towards the repurchase of our stock.

But meanwhile our dividend has been the priority with the board and our preservation of capitol is the key right now, at 580, proforma, we feel our tangible is very strong and we continue to build capital.

We're not growing our balance sheet aggressively here and we are not going the asset base is of asset acquisitions and our acquisitions have been capital accretive at the outset.

So, we're very comfortable with the plan.

And today our goal is to see GAAP earnings exceeding the dividends.

Then we'll be able to put some additional, we'll call it, coffers away and use that to repurchase stock at the appropriate time.

Right.

I had to ask since you're building a tangible capital and slowing down --

At 580 we have a very strong (inaudible) position.

If we wanted a six -- I think six is going to be too high for us, but we'll continue to build capital.

And I think what is interesting is that we haven't done any deals other than the drowsy, which is relatively small, on a cash basis.

We're very comfortable doing merger transactions that create tangible capital for future value in respect to leveraging our capital at the appropriate time.

The market in the environment is not indicative right now to really go out and be aggressive on leveraging up the balance sheet on growth..

We want to see the lending environment prove for us put our balance sheet to work.

On the funding side it still looks like core deposit growth is as difficult as ever.

Is it still very competitive out there?

We have been very aggressive on keeping our rates low.

We have close to $2 billion in average the first (inaudible) of the quarter..

We do not need to be increasing our interest rates on the cost of our liability.

So, if you look the rates (inaudible), we have been on the low end of a range.

We're not aggressively pricing our liability.

We're very comfortable in letting some of the higher cost funds roll our.

PennFed has some municipal money that will rollout.

Our broker deposits we're looking to roll out to zero.

Our goal this is to contain and improve our cost of retail funds as was so liquid right now.

We were not as liquid, more conscious on being more competitive in the environment.

If we weren't as liquid we would be more conscious on being more competitive in the environment, But, again, keeping the range relatively low, on the low end of the spectrum, we are holding our liability.

Thank you.

We go next to James Abbott at Friedman Billings Ramsey.

Please go ahead.

Good morning.

I was wondering if you could give us some sense on the margin question that has been addressed.

I appreciate that.

On the expense line item, two questions.

First is probably a quick question to answer, is the FDIC fees that will probably be accruing in 2008?

We do have a one time credit as do most of the other people here in the industry.

We also will--- I would say probably, mid '08, there will be some assessment fee that will start occuring.

And so there won't be evenly amortize across 2008, may be the second half of -08?

Would be at the five basis point level?

It's hard to know that Yes.

Okay.

You don't expected to be at six or seven which would be the higher risk profile.

No, no, no.

.

Not only do we not expect that but obviously it is not something I think people are

No, and for most companies, I think, people are modeling at the five basis points but I wanted to make sure.

And then a second question on expenses, that is probably where I missed the most on my modeling this quarter was in your expense base.

I had--- Last quarter, you had $74.3 million of expenses.

PennFed would have added $6 million without any cost savings.

So, combined, without any growth and expenses, you would have been about $80 million of expenses, You were at 81.4.

Could you talk about whether any expense, cost savings have been brought out?

--

On a modeling basis, there would be a lot of movement and expenses throughout this year because we are putting a lot of companies and branches.

So, on a pure stand-alone basis, MYV, around 75, $76 million, you're picking up around $4 million for PennFed.

That gives you-- that's a definite-- let's say total in the New Yor Community Bank as well as Consolidated (inaudible) you're around 76 in total.

We did get some cost savings out of PennFed.

More cost savings will come as we integrate the system in mid August.

Doral's picking up $1.5 million per quarter, approximately, with the addition of those branches and the personnel costs there.

And, Synergy should run around $3.5 million, conservatively.

You're looking around a base of about $80 million going into Q4 assuming we close Synergy on October 1st.

We had some uptick in expenses for restricted stock.

As you can see.

we have allocated some restricted stock to the offices of the company.

That was an increase in expense.

But, other than that, we feel that we can hold the line in expenses and the goal was that we'll see more cost savings in these integrations.

We are not fully -- again, once we integrate the systems we ring out a significant amount of cost savings.

Right now we're getting immediate cost savings when we buy these companies, but until we integrate the systems we get the true value of our expected cost savings.

That's why typically when we buy a company we integrate within six months of the closing of the transaction.

We don't wait a year, year and a half to integrate.

Okay.

And then, two follow-up questions.

One is related to the callable advances.

We spoke about this in the past.

Some of those were called in June.

I would imagine with the higher interest rate, although they've fallen back now , any sense as to the impact that might have on your cost of borrowing?

Cost of borrowing in the quarter was, I think, 433, that was our bonified five basis points, is it going

No question.

If you go back to the company's history, we had a substantial amount of restructuring done in 2004.

A lot of that money is coming due.

In addition, in the current yield curve environment, we were able to manage that increases at the cost of liabilities and wholesale.

We're very impressed right now was that our retail franchise is not seeing any increase in our costs to run the business.

We will see upticks in our liability base and we have publicly said that on wholesale..

That is fairly manageable.

We're moving around millions of dollars in Q2, Q3.

but net net with our repositioning, our ability to put cash to work, we will still see improvements of the margin on a core basis excluding any prepays.

So, I think we;re going to get through it.

We feel very confident that the yield curve environment is such that the increase in wholesale is not going to be significantly dramatic although will it be the up tick in our cost of funds, retail will hold the line and we'll continue to see significant increases in our asset deals.

The net-net margin will see, on a core basis, some good contribution in 2007 and going into '08.

Would you happen to have the end of period costs of borrowing just to try to give us a jumping off spot on that?

I don't have that in front of me.

What we put in our margin is the average balance sheet for the quarter.

But, as you know, If you look back into our 10k, you will see complete detail in our liability structures.

We have been taking money around, let's say mid to low fours right now and that is pretty much the market if we are going to go into wholesale liability.

Our goal is to bring wholesale down over time.

These acquisitions that we're putting on to the company are assisting us on managing our wholesale structure.

We paid down some high-cost money in the second quarter, 533.

We have actually shrunk the pro forma balance sheet with PennFed by paying the money that is mature.

We just didn't refinance.

So, I think managing that level, in (inaudible) mid to low 30sit is a target but ultimately having a 30% wholesale leverage ratio for us will be ideal and by doing that, getting -- a branch structure is more attractive to us.

So, I think, no question there will be an increase in costs but we're not seeing an increase on the retail side.

So I think it will be blended where you'll see continued margin benefits on both the asset side and manageable costs in retail with a slight uptick on wholesale..

Okay.

Understood.

And, last, looks like your non-interest bearing deposits on average balance basis were up about 2.5, or 2.6 % as I calculated organically.

Joe, you talked about this last quarter on the conference call.

You made a concerted effort in that area.

Is that rate sustainable?

I think yes, that's sustainable and what I would say to you is that we are currently working on three integrations.

So some of the effort with regard to delivering commercial banking into the larger franchise is not as focused is, in fact, not as focused as it otherwise might be given that we have lots of resources being used to bring together, simultaneously nearly, three different banks.

So, I am very optimistic that down the road the opportunities we see a for enhancing our core deposits and enhancing our non-interest bearing deposits as they become more and more commercial bank like throughout the entire franchise including the much larger community bank.

I think that's definitely going to be of benefit that will be continually accruing quarter by quarter by quarter.

Just to recap your comment there, you're basically saying in the near term some of the efforts in the DDA side will be diverted a little bit, but eventually you get back to that?

I'd say that some of our efforts have been less active due to the fact that we've have had many people involved in the integration of --- , we've literally been involved now in three different transactions, different systems, different people.

The people that need to come together to make all of this work are-- , this is a bank effort.

There are a lot of people involved in making these integrations work out well.

They're doing a great job but you can't be changing your operating system at the same time that you are deploying the same amount of effort into changing your product mix.

And, the good news for us is our people are stepping up to the plate and doing what needs to be done to make these transitions very successful.

The reality is that we are not necessarily using as much resource to bring the enhanced products we have been talking about tot he border population branches that --.

today, clearly, we have a real opportunity to build significantly better commercial banking products throughout the larger bank.

And, that as I say, will come over the course of time.

But, a lot of people that would be instrumental in making that happen are, in fact,

Okay.

Got it.

Thank you very much.

We go next to Michael Cohen at Sinova..

Please go ahead.

Hi.

Quick question.

The new security portfolio, the $671 million with an average yield of 624.

Is that short dated that you could liquidate or is there some degree of duration risk there?

I would say the vast majority of that securities portfolio that we purchased at the tail end of the quarter, obviously in a different yield covering environment, that's not the market today, it's probably below 6%.

So, if you sell today, yes, you would probably liquidate it, but there is no question, it's got cash flow., it;s predominantly ten one ARMS, government-backed (inaudible) securities as well as some agency CMOs.

You're not buying private labels, we're not buying just straight AAA, .

we are only buying government securities.

And, we're very comfortable in the-- obviously in the collateral.

But, more importantly, we are reasonably comfortable on the cash flow.

We're looking at (inaudible) that have cash flow, which is going to be important for us in the future as the market place allows us to lend back into the market place.

We still want to be able to tap our portfolio.

Not to sales, but the normal cash flows to find out multi-family

I am confused.

I wasn't asking about credit risk.

It was what is the duration--.

It's about 3.2 years

What

3.2.

In government agency-backed CMOs as well as ten one governments as well.

Right.

Thank you.

We go next to Matthew Kelly at [Stearn] (inaudible) Please go ahead.

Yes.

Hi.

guys.

I was wondering if you could just recap the balance sheet changes there subsequent to the quarter end again.

I know you gave a little bit of an overview there, but.

the street sale, and the borrowing and a pay down, those yields of cost, if you could review those again that would be helpful.

Obviously on the repositioning side, the Penn Fed was a big transaction that occurred in the second quarter.

That was $1.4 billion, that was loan that either we sold or secured and subsequently sold as a security form.

The average coupon in that portfolio was about 545.

We sat in cash for most of the quarter so we actually didn't earn -- we didn't have an accretive transaction for a couple months because that was earning about a 518.

That money was put to work at the tail end of June about 50% of the proceeds was still sitting on close to a billion dollars of liquidity right now that we are looking to lend into the environment.

which we talked about, that we feel we will see some loan growth, or at least flat to up slide up loan growth going into third and fourth quarter.

so, we have liquidity to put to work.

So, the average benefit there could be significant if we put it back into loans.

If we go into the securities market, as discussed, it will be probably high fives, low sixes in this environment depending on the yield curve.

Our goal is to put that money to work into our core product over time.

So, we're being very cautious on putting money out there in this environment.

We (inaudible) $1.1 billion, that was a significant repositioning that actually cash settled in July for accounting purposes.

was on our books as of June 30th on the fast 115.

That obviously is significant repositioning it came at a very low coupon.

We're looking at probably the mid to lower four, I think it was like 434ish, was the average yield that was sold.

If you look-- just by redeploying that in the market, you're looking around 6% approximately, so you have $1 billion coming around six conservatively.

Any other changes in the borrowing side going forward?

As discussed, we paid down some borrowings in the quarter that came to us, that was maturing.

We also restructured $330 million at 533 coupons, in high-cost money.

We took a slight, small prepayment expense on that in the second quarter.

But going forward, we have wholesale liabilities that we are managing through.

The market right now in this environment in the low fours, There will be some pressure on the cost of liability, however, as discussed in the call, between retail holding the line and active yields going up, we feel we will receive benefits to our margin in the core basis.

A few billion dollars was due in June because of a restructuring in 2004.

Thank you.

You got it.

Our final question is from [Dustin Rubah] at Wells Fargo.

Good morning.

Two of my three questions were answered and the other one was mostly a answered but I will ask anyway.

Kind of going back to the competitive environment you mentioned you had seen some players already leaving the market and condo (inaudible) widening.

Just wondering if you could comment on the pace of change there.

I assume if you're talking about flat to up growth in second half, that those things are happening pretty quickly.

So, any color you can give would be great.

The interesting thing is that when a cycle change starts to evolve, the pace of change can be extraordinarily erratic.

We can see things happen from day-to-day that will take large participants out but directionally it is going to be a consistent shifting away from certain types of lenders back to more traditional lenders.

And, it is very hard to pace exactly how quickly that will happen.

And, in particular, how that will impact individual loans.

So there's going to be a continuous, positive movement for us here, but there is no certainty in the exact timing, quarter by quarter, as to how rapidly we will see that kind of improvement.

What is exciting is the condo market has widened.

Three or four quarters ago, you're looking at a ten-year market, 80, 90 basis points, we're looking at deals right now, our competition, people looking for a five-year versus 10-year structure going to a conduit facility close to what we're offering at the five-year level.

There is a compatibility that may move them back to the core product and also get away from the significance the seasons (inaudible) dealing with the conduit as well as dealing with someone who knows what they are borrowing.

So, having that significant change -- because of a lack of, we'll call it liquidity in that market right now, it's not that it's dead or drying up, it's just that prices of widened dramatically.

That should help our business model in the future.

That's how we feel fairly confident going into the second half of '07 that we won't see this significant decline in our portfolio, running away from, we'll call it, expensive deals in respect to LTDs and very attractive financing costs.

If it's at 160, 170 or 150 over the ten-year, and you're paying 10 to 12 points to get out in three to four years, you may just opt to do a 150 off the five Cand P and get out two points..

That is something that is attractive for borrowers right now, and they're evaluating that.

It does takes time to weed into the system.

We believe in the second half of 2007 we will get the benefit back.

Okay, great color, thank you.

At this time I would like to turn the conference back over to Mr.

Ficalora for any additional or closing remarks.

Thank you again for participating in this morning's discussion.

We appreciate the opportunity to discuss the continued improvement in our operating earnings and the actions we have taken to enhance our margins in the current quarter and in the future periods.

Our repositioning of our balance sheet, we have provided ourselves with liquidity and flexibility to replenish our interest earning asset mix (inaudible) yielding assets and to enhance the quality of our funding mix.

We look forward to reporting our third quarter results which will reflect the gain on the sales of the Herald Square building as well as the addition of 11 branches to our commercial bank franchise as a result of the transaction with Doral.

Again, if you have any further questions, please call us this afternoon or later this week.

Thank you.

That concludes today's conference, we thank everyone for your participation.

You may disconnect your lines at any time.