Flagstar Financial Inc (NYCB) 2007 Q3 法說會逐字稿

Good day and welcome to the New York Community Bancorp third 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 First Senior Vice President and Director of Investor Relations, Ms.

Ilene Angarola.

Please go ahead, ma'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 third quarter 2007 performance.

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

Also with us on the phone call are Robert Wann, our Senior Executive Vice President and 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 Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks an 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, prepayment penalties and other future cash flows or the market value of our assets, changes in deposit flows and the demand for deposits, loans, investment products and other financial services in our local markets, and changes in competitive pressures among financial institutions or from nonfinancial institutions.

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

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

If you would like a copy of our earnings release please call our investor relations department at 516-683-4420, or visit either of our websites mynycb.com or NewYorkCommercialBank.com.

I would now like to turn the call over to Mr.

Ficalora, who will make a brief presentation before opening the line for Q&A.

Mr.

Ficalora?

Thank you, Ilene.

And good morning everyone.

We welcome this opportunity to discuss our third quarter performance and the many factors that contributed to our solid results.

In addition to the consistency of our earnings on an operating basis, we were pleased to report a meaningful level of GAAP and cash earnings, a strong net interest margin and the maintenance of our record of solid asset quality in addition to continued capital strength.

During the quarter, we completed the sale of our Atlantic Bank headquarters and our acquisition of Doral Bank's branch network in New York City, and prepared for the completion of our Synergy Financial Group transition transaction which took effect on October 1st.

These are the key performance components I'll be talking about before we start our Q&A.

As we reported this morning our third quarter earnings amounted to $0.38 per diluted share on a cash earnings basis and on a GAAP basis amounted to $0.35 per diluted share.

Included into our third quarter GAAP and cash earnings was an after tax gain of $44.8 million or $0.14 per diluted share that stemmed from the sale of our Atlantic Bank headquarters.

As previously announced we sold the building in mid-July for $105 million, generating a pre-tax gain of $64.9 million.

We of also recorded a $7.3 million pre-tax loss on the sale of our lower yielding securities during the quarter, which translated into an after tax loss of $5 million, or $0.02 per diluted share.

The proceeds from the sale were invested in agency backed obligations featuring higher yields than the securities we sold.

The net effect was a $0.12 per diluted share increase in our GAAP and cash earnings.

Excluding this amount, our operating earnings were $0.23 per diluted share in the quarter, consistent with the level recorded in the trailing quarter and $0.02 higher than the third quarter 2006 amount.

The sale off our Atlantic Bank building, by the way, was a great example of our ability to execute accretive merger transactions and to generate long-term shareholder value through the sale of acquired assets that are either inconsistent with or our business model or simply do not suit our needs.

With the acquisition of Doral's branch network in New York City we attained an alternative midtown location to serve as the headquarters for Atlantic Bank division of New York Commercial Bank.

Another third quarter highlight was the stability of our net interest margin largely reflecting the level of pre-payment penalties received.

While the pre-payment penalty income declined $5.2 million on a linked quarter basis to $17.1 million, the latter amount was dramatically higher than the $5.3 million we recorded in the third quarter of 2006.

Year-to-date prepayment penalty income has exceeded $53 million, that's 156% higher than the year earlier nine-month amount.

As I mentioned in this morning's press release, the level of pre-payment penalties we recorded in the second quarter of 2007 represented the higher amount we have recorded in our public life.

As a result, our margin equaled 2.41% in the third quarter of 2007, a three basis point reduction from the trailing quarter level, but a 17 basis point increase year-over-year.

While the margin clearly will fluctuate from quarter-to-quarter depending on the level of prepayment penalty income, it's consistency over the past seven quarters has validated the strategies we've been actively pursuing in the past few years.

With the liquidity afforded by a post-merger repositioning of our balance sheet, our record of asset quality and the strength of our tangible capital measures, we believe that we can capitalize on the opportunities that are likely to be presented as the downturn in the credit cycle picks up speed as the quarters -- in the quarters ahead.

Given the news we've been hearing for months about declining real estate values and deteriorating credits, we were pleased to extend our strong record of asset quality.

Although the ratio of nonperforming assets to total assets was up from a very low 0.05% in the second quarter, the fact is the ratio was still a low 0.0% at the end of September, and our year-to-date charge-offs amounted to $286,000, a modest amount.

While we do not expect to remain immune to loss in the coming quarters, we do expect that the nature of our multi-family lending niche and certainly the fact that we have no subprime or alt-A exposure, will enable us to preserve our record of asset quality relative to our peers.

In view of the current environment we also are pleased with our solid capital position.

Not only have our tangible equity ratios remained in the 5.5% to 5.8% range, a level that gives us much comfort, it also -- our regulatory capital levels also have continued to be strong.

The community bank had a leveraged capital ratio of 8.05% at the close of the quarter and the commercial bank had a leveraged capital ratio of 11.35%.

The growth in our tangible capital is partially due to the growth of our cash earnings which contributed $273 million to tangible capital at quarter end.

The strength of our capital levels together with our capacity to generate earnings has enabled us to maintain our dividend at the current level of $0.25 per share.

The dividend continues to be a key component of our total return on investment and I am therefore pleased to report that our next dividend will be paid on November 15th to shareholders of record on November 6th.

There are just -- these are just a few of the points that I would like to make on the performance of the company before I take questions.

And I would like to start with our loan production over the past three months.

Loans totaled $19 billion at the end of the quarter and were up albeit modestly from the balance recorded at the end of June.

The increase was due to loans we acquired in the Doral branch transaction as well as the $175 million increase in the volume of loans that we ourselves produced.

Originations totaled $1.2 billion in the third quarter of 2007 and included $681 million in multi-family loans.

Although some of the irrationality has since been removed from the market, it still remained a factor in the third quarter of this year.

I'm pleased to report that our current pipeline amounts to $937 million, an increase from last quarter's number with multi-family loans representing approximately $617 million or 66% the current amount.

Another achievement I would like to point out is the strength of the year's nine-month performance as compared to our performance in the nine months ending September 30th, 2006.

In addition to a nearly 10% rise in net interest income to $462 million, we reported a better than 10% rise in core noninterest income, which we would define as fee income, Bowley income and other income combined.

During this time we also realized a 12 basis point rise in our net interest margin which was 2.39% in the current nine-month period.

The increase is partially a function of the average yield on our assets which rose 42 basis points year-over-year to 6.06%.

The average yield on loans accounted for much of the increase, rising 45 basis points year-over-year to 6.32%.

We are pleased with the year-over-year improvement in each of these nine-month measures and are eager to see continued progress in the last three months of this year.

Finally, I would like to welcome those of you who have joined us through the Synergy transaction.

We look forward to serving all of our customers through our expanded franchise which now consists of 218 locations including 53 in New Jersey and to enhancing the value of our shareholders' investment in our company.

At this time I would be happy to take 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 next week.

Thank you.

Thank you, sir.

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

(OPERATOR INSTRUCTIONS) We'll go first to Tony Davis with Stifel Nicolaus.

Good morning, Joe, Tom.

How are you?

Good morning, Tony.

Just wanted to ask you a little bit about some of these pre-payment fees.

As I recall, you were selectively beginning to implement commitment fees as well given the recent environment, I just wondered if that trend has continued near the last quarter?

Yes, Tony, the change that was evident as we were discussing it is obviously a continuing trend, but it is not a dramatic change.

The very big changes were the very large players that left the market and some of the players that were most extreme.

But the market generally has had a significant amount of continuance of the existing product, meaning what was in the [pipe].

Lot of our competitors had loans that they were already committed to and there was an awful lot of product that was on the table that needed to be refinanced.

So the big changes in how these loans will be priced will come in the months and quarters ahead.

The significant change that we saw, for example, at the end of the last cycle took years to get to.

So I think that the directional movement is very good, but the immediate effect of this is not going to be dramatic.

Could you talk a little bit about how much business in general you have picked up from broken conduit agreements here in the last quarter or so?

Yes, I think one of the things that needs to be recognized is that although the conduits have pulled away in some cases from some very attractive, big deals, those deals with at pricing levels or at a size that we would not find acceptable.

I don't mean that the loan is too big for us to do, I mean the loan has too many dollars based on the income stream of the property.

An awful lot of that property was done based on market values that were extraordinarily high.

We would not do those loans.

So even though there has been change and there are new lenders that have to accommodate those loans, we're not going to be that lender.

We're going to be getting product as we evolve down the road that more meets our expectations.

This is not something that's going to happen overnight.

It's not as though loans that otherwise were very well structured is going to come to us in a structure that's acceptable to us.

This going to have to be some readjustments in the market before that occurs.

Tony, this is Tom.

I would also add the risk premium adjustment is going to occur in that typical part of the business.

The seven to 10 year window is clearly pricing much higher than it was six months ago, dramatically higher.

But, Tony, you might remember, we don't do seven and 10 year loans.

I did notice though that your embedded mortgage yield fell in the quarter.

And so I was wondering kind of what your incremental spreads were, versus say the [product core].

Tony, the fold is obviously $22 million of our $17 million on prepaid, that goes to our margin, as you know.

Right.

Right.

So that's most of it.

That's the big effect.

No question, in this environment we're seeing better spreads and we're looking at better spread opportunities than we saw in the previous quarters.

Final question.

Just, Tom, if you would give us some thoughts about balance sheet moves you've made since Synergy closed or what you're thinking about.

We're still evaluating it.

I meaning obviously we're looking at the lines of businesses and that's forthcoming.

It's a small company, it's not a material company to the total balance but we'll do some asset sales as we go through the quarter.

My guess is that all our asset activity will be completed by the fourth quarter of this year.

Thank you much.

-- have any.

We should have some.

Thanks.

We'll take our next question from Sal DiMartino from Bear, Stearns.

Hey.

Good morning, guys.

Good morning, Sal.

Actually, Tony beat me to the punch with my questions on pricing.

But maybe, can you talk a little bit, just since it seems to be the topic of the quarter, on credit quality trends, what you're seeing in your portfolio, and kind of what you're seeing in the market?

Yes.

Given the nature of our assets, we really don't typically track the trends of most other lenders.

As you well may imagine, we have a very disproportionate small amount of properties that are making the headlines.

One to four family loans are typically season loans.

Most of that portfolio goes all the way back to Roosevelt Savings Bank and those loans are 10 or so years old.

So the trends that we see are not dramatic.

I mean, because the numbers are so small, the change of one house or one property going into a nonperformance status moves the numbers, but it doesn't have an impact on our actual losses or reserves, of course.

Sal, I would also add that on a linked quarter basis there has been no change between the 30 to 89 category.

I'm sorry, Tom.

There's been no change in the 30 to 89 category in delinquencies, so we're very comfortable with the quality of the portfolio.

No negative reaction, despite the conditions in the marketplace.

Right.

See, our portfolio is very atypical, Sal.

It is not at all the same as the portfolios that are catching headlines these days.

Okay.

I guess I'm just looking at your nonperformers.

I guess you ended the year at about $22 million.

It declined to $15 million last quarter and now it's back up to $22 million.

I was just trying to see what was going on there.

I think that's not a volume issue.

I think it's more a matter of a size of a particular loan that comes in or goes out of a particular category.

As you well know, none of our bigger loans result in our taking losses.

But they change that number fairly dramatically.

So if for one reason or another a property is being sold or property goes into a one month or a two month or a three month nonperformance it could change that number fairly dramatically because the number itself is small.

So I don't think there's any trend or any concern that we have at all about the nonperformance.

By next quarter, you could see a dramatic drop, just because a couple of loans move.

Okay.

Thanks, Joe.

Thank you, Sal.

We'll go next to Bob Hughes of KBW.

Hey.

Good morning, guys.

Good morning, Bob.

I guess a couple of questions.

On pricing in the market today, obviously you've been feeling the benefits to some agree, particularly in volume of the conduits kind of going away.

I'm wondering a story you told us on the call yesterday that pricing in multi-family is somewhere around 5.875% today, whereas last quarter you told us you were around 6.25%.

Can you give us a sense for where the absolute level of pricing was in the third quarter?

Yes.

I think Bob, the important thing to recognize is that in your opening comments, you mentioned very dramatically different kinds of properties.

Story is typically dealing with much smaller properties and certainly in the niche that is not our niche.

As you well know, they have a very low volume in our particular area of lending and even though they're there for the last couple of years, they're primarily a one-to-four family lender.

Their experience is not our experience.

So, I know that what he's telling you is absolutely true with regard he's seeing and in fact he's opting not to do certain kinds of lending.

And what I would say to you is the obvious, rates have changed generally in the marketplace that we're in, and as I think you well know, we were getting 6.375%, 6.625% not very long ago.

We are getting lower yields today, excepting for the overall term yield.

One of the things that is very distinguishable about our asset is the fact that we get term yields that in some cases are as short as one year and as long as four years.

That's a very short asset.

We don't have an interest rate change.

We have an actual coupon plus points change in the overall yield that we've experienced in let's just say a three-year period.

Yes.

I understand.

I'm curious, maybe you can give us a sense for what the initial coupon was on loans you originated in the third quarter, then.

I think that we're running at about 165 over, typically.

I would add to that, Bob, that if you look at our overall couple of quarters, we've actually -- we've really draw the line if the sand when we were at 150 or better and our overall performance for the quarter has been north of that.

Obviously in the summer it was significantly higher from the dislocation in the credit markets, but we saw deals substantially higher than that.

We're still seeing some benefit of that, although it waned a little bit.

We're still seeing better spreads to the historical 150.

We believe that the premium reward will now be factored into the marketplace for all assets, including multi-family going forward.

It will take some time.

We are seeing some better economics where we stand today.

Okay, the five-year [CMT] has come in pretty considerably though, so on an apples-to-apples basis --

We're putting on loans [built] at 6%.

So that's a huge spread compared to the current five-year CMT.

Okay.

That's all I wanted to get to.

On the deposit side, backing out sort of acquired deposits in the quarter, can you give us a sense for what kind of growth or decline you had in core deposits?

And then secondly, what kind of flexibility are you seeing in the market today to actually ratchet back administered deposit pricing given some of the rates being hung out there in the market by larger competitors?

I think there's no question, Bob, that we are being very conservative here with regard to how we're pricing deposits.

You sometimes have to adjust your deposit base to feature the core and not to try and grow with the hottest money in the market.

We have a huge amount of liquidity coming into this period.

We have a significant opportunity with regard to new funding sources and we have a foundation that we want to build upon with regard to core relationships.

Therefore, we have had taken advantage of during this quarter the opportunity to let go some of the hottest money that's in the market and to build on relationship banking.

Bob, I would also add to that, that obviously in this environment we have probably the lowest pricing in the marketplace for deposit liabilities on retail and we'll probably forecast through the quarter a lower retail cost to fund.

Continued lower retail cost to fund.

So we are clearly very liquid right now.

And the hot money will roll out.

And we are very comfortable with that.

We will right price our funding needs as the loan book is out there.

The loan book demand goes higher, we will find our sources of fund.

But right now, we have a reasonably decent pipeline with very expensive deposits rolling off and going to elsewhere.

We're getting margin benefits from that.

I think you're pretty well aware, Bob, that it's very easy to move into this market with a product array and gain deposits very quickly.

So many of the people that have literally shown a change in their deposit base are more often than not showing a dramatic change in how they're choosing to price.

Okay.

And one final question, if I may.

I don't think anybody would question the relative strength of your asset quality.

That said, you've originated $820 million of C&I credits this year with no provision, you've got a reasonably sizable construction portfolio.

I'm curious to what extent you've scrubbed that portfolio --

I think the important thing is we do an analysis every single month.

We have plenty of reserves against all of those assets that are there.

When you say we've originated $820 million, when you look at the numbers, we've actually been able to keep ourselves in a very, very attractive place with regard to reserves.

Remember, reserves are for losses and we have amongst the lowest losses in the industry.

So there is always a concern when a bank starts setting aside reserves without there being a comparable expectation that there are going to be losses.

The good news for us is that we've been able to enhance our reserves as a result of every deal that we've done.

And I think that we believe that we have more than adequate reserves for the kinds of things that we're seeing in our portfolio.

Bob, I would add, obviously, if you look at the comparisons from the beginning of the year to where we are today, you have a lot of renewals within the portfolio and core selling within our community bank customer base who happen to be our long-term customers on the lending side that we're trying to cross sell commercial products that we haven't in the past.

With that being said, if you look at the broad categories, we're not seeing overall net loan growth with the exception, this is the first quarter I believe in three or four that we actually grew our net multi-family loan book, approximately just something south of $100 million.

But the trend is moving in the right direction.

We've been very focused on credit quality.

We've been clearly originating the paper that we are comfortable with originating for our current customer base.

We're not overreaching for additional new credits in the commercial side.

That's fair.

Thank you, guys.

Thank you, Bob.

We'll take our next question from Mark Fitzgibbon of Sander O'Neill.

Good morning.

Joe, and Tom, I wondered if you could kind of -- you have a lot of moving parts right now with the balance sheet with the restructuring and the acquisitions.

I wondered if you could help us sort of thing about how the margin's going to look going forward, what are kind of the key variables we should be focused on.

Mark, obviously this is an interesting environment.

What I will say is though, depending on the pre-payment level activity, depending on where the Fed is going, right now assuming that in this environment in pre-paid'd held up reasonably well, we'll see probably slight up margins, 5% to up margins in the fourth quarter, without any real balance sheet growth.

We are not forecasting dramatic growth.

If we see the pipeline build dramatically, you could have significant margin expansion here.

No question where we are today is that we're in a very good environment where we were six to nine months ago in respect to margin.

We're not seeing the pressure on the margin like we had in previous quarters.

In broad brush, there's no question that we have had significant growth in the cost of funds over the preceding couple of years.

We are not looking at that at all now.

If anything, we're looking at our retail deposits are actually coming down in cost.

We're looking at broad brush increase yields on the assets that we have.

So both of those things indicate that margins will in fact be strong and widening in the period ahead.

We don't have any reason to believe that our deposit costs are going to be going up, nor do we have any reason to believe that our asset yields are going to be coming down.

Even though you'll see fluctuations from one quarter to a next, based on the actual amount of prepayments, and I guess that's why for many, many years we always cautioned against over expectation or trying to put into a particular box the pre-payment penalties.

They will fluctuate from period to period.

Sometimes they'll be extraordinarily strong.

Other times they'll be a little less strong.

The reality is over time, they in fact provide us with a very strong yield, term yield, on our assets, given the ability for us to do less risk lending and that's very important.

I will tell you with certainty that we're getting a lower yield on our assets than many of our competitors this month, last quarter, over the course of the last year.

We could have taken much bigger yields out of this marketplace, chose not to, because we wanted to take less risk.

I think the charges that you're seeing in most banks today reflect the fact that they've been taking greater yields and are now paying back with greater losses.

And that is inevitable.

You don't get more interest unless you take a greater risk.

Okay.

And then secondly, I'm sorry, Tom, did you say something?

No.

The second question I had is, we had heard from another area bank that there's one large multi-family credit on something like 18 or 19 buildings in Manhattan where there's a fraud situation and it doesn't look particularly good.

I'm wondering if you're, A, aware of that loan and B, have any exposure to of it -- to it.

I don't think we have any exposure to it.

I'm not particularly aware of whatever that loan is.

So I'd say if they were an issue surrounding something that we were involved in, we would know about it.

But no one at this table has any awareness of what you're talking about.

Okay.

Last question I had, Joe, is on -- wondered if could you share with us your view of the acquisition marketplace, maybe the areas in your franchise that you would like to strengthen over time if -- or if you see any sort of holes in your --

I think the important thing here is, Mark, that we have consistently, since we were a public company, been prepared to consider the opportunities to do deals that make sense for our shareholders.

I think that as you noticed, we have often chosen deals that are good stock deals, not good franchise deals.

In other words, the driver is not filling a hole in our franchise.

The driver is doing what is, momentarily, whatever the circumstance may be, momentarily the numbers align themselves in a way that make good sense.

Ultimately the franchise builds and the franchise is more valuable and as you can see going from 12 branches to 218 branches, we've actually built a very large metropolitan area franchise that has real value as a franchise.

But the driver has never been size, nor has it been the proximity of the particular branches.

The driver has always been can this transaction in the very narrow window between announcement and disposition of assets and the ultimate preparation of the financials going forward, can this transaction enhance the value of our stock?

And I think that will be continuing to be the case.

We will have many more opportunities, and we may have opportunities that go outside of our geography.

But that has already previously been the case.

And I emphasize such a circumstance such as south Jersey.

Not a big departure from our franchise, but very economically beneficial to the company.

Thank you.

Mark, I would add one other point to that.

As you know, PennFed and Doral, the system has been integrated into our platform.

So we have the Synergy transaction that will be done early in '08, sometime in '08 as far as integration.

And then we have the ability to continue to take the platform to a much higher level.

We'll go next to Thomas McGovern of Lehman Brothers.

Yes.

Good morning.

Good morning, Tom.

Given the record level of repays in the quarter, looking to find out what type of borrowers those are.

Are they historical borrowers that were waiting for the environment to change in order to [re-fi]?

If so --

I think there's always a mix, Tom.

And certainly in some cases we have still had properties in our portfolio -- let me step back a second.

I cannot give you a number today.

However, we are putting this number together.

Many of the properties that come out of our portfolio sell into the market at two, three, four times the value that we carry it in our portfolio.

So when you think about what is happening out there, an awful lot of properties are changing hands at very high prices.

As I mentioned earlier, we're not financing those because they don't meet our standards with regard to how we will decide appropriate dollars for particular property.

Properties that sell at market are typically way too high for us to put into our portfolio.

So when you think about it, there is a mix of trades that are occurring today.

In some cases, properties are actually changing hands.

For us, that's very good.

Although it is not evident in the immediate financials, it is very good for us over time.

Because when a property owner, a smart property owner that's in our portfolio sells at a huge gain, he does a 1031 exchange and comes back with far more dollars to buy far more rational properties for us to put into the portfolio three, six, 12 months down the road.

So a lot of the activity that looks like we're losing share or losing market is really preparing us for a future benefit down the road.

From the standpoint of refinancing, we have said many times that there is an awful lot of build with regard to loans that are in our portfolio that are seasoning to the point where they're going to refinance, just because the calendar has moved them along.

So when you take the two things together, over the course of '08 as an example, we should see a significant opportunity to move an awful lot of property.

Despite all of the discussion that is surrounding depreciated values in the U.S., the actual reality is that rentals in the New York market are very, very strong.

All right.

So it's going to be your hard to predict the trend going forward then.

Exactly.

That's right.

There's quite an interesting mix.

I think in broad brush again, the good news for us is we should have a higher percentage of our portfolio literally repricing over the course of the 12 and 18 month period in front of us.

We should have a significant opportunity to provide good loans to very stable and astute property owners who are going to be in a very good position to acquire properties under reasonable terms and to build those values over time.

Remembering that even though we build value over time and some of our property owners may own a given property for decades, we refinance that property every three to four years.

So we are very different than most of the market.

We're not doing Trump Tower.

We're not doing the bulk of the marketplace.

A lot of what you hear about the marketplace is not our experience.

So by example, in the last cycle which was devastating, multi-family loans lost enough money to take [Bowrey American Great] out of business.

We lost nothing during that cycle because the actual experience with regard to our niche was very different.

And even today, even though there is a very strong market, our niche is still very different.

And that's driven by the quality of the owner, the business model of the owner, the person who is going to be working with us as this cycle evolves and gets worse down the road, our guys are typically not the ones who are losing money.

Our guys are typically the ones that are buying more properties.

Got it.

Great.

Thanks a lot.

You're welcome.

We'll take our next question from James Abbott from FBR Capital Markets.

Good morning.

Good morning, Jim.

First question is on, I was curious as to if you could give us the amount of repayments that you experienced during the quarter, do you have that number?

The amount of repayments.

No.

The amount of cash flow coming off the loan portfolio for the quarter.

No.

We can get that to you.

But we don't have it.

And I guess what I was trying to get at is, what's your sense on in terms of prepayment penalties going forward?

Do you see in the fourth quarter and the first quarter, do you see it's relatively stable at this level?

I know you talked a lot about --

I think, yes, Jim, I think it's important to recognize that given the fact that pre-payments for a given property could be extraordinarily high.

We can get four points on one property that is virtually changing hands because it was packaged with the intent of being sold, let's say.

We can get four points.

We've even gotten five points on some properties that are sold that as we did the deal, it was pretty evident to us, based on our relationship with the owner, that this was not at the beginning of their ownership, this was at the end of their ownership.

They were going to be selling it.

And at the same time, we got lots of properties that are very early in the process, properties that are going to be refinanced every two, four years over the course of the next two decades that are going to just keep rolling.

It is very hard to put a number on exactly how much we'll get in prepayment because any given quarter will have a change in the extraordinaries, meaning the large ones that actually go to the market and sell.

Yes.

That's what I'm trying to isolate.

Can you give us a sense, maybe a different way to ask the question is then, can you give us a sense of the $17 million in pre-payment penalties, how much were large dollar transactions, larger buildings, maybe over $3 million?

A couple of quarters ago you had some building sales were huge and -- but I think eventually you'll get back to a point where it's a much more granular number.

At the time I would say it was granular throughout the quarter.

Nothing of magnitude.

It was a nice flow of prepays.

Yes.

We had some larger ones in the second quarter, but the first quarter and the third quarter was consistent.

We saw a nice level of continued pre-payment month after month.

Okay.

I think the release does have in the nine-month period $6 billion in prepayments and in the three month period, $1.3 billion.

So obviously the prepayments were much higher in one of or both of the earlier quarters.

This number is never going to be a consistent number.

In other words, it's very hard to try and model this and that's why we always caution about this.

It is not something that we manage.

It's certainly something that occurs and has an impact on our overall performance.

But it is something that is going to be driven by the unique circumstances each particular property owner may be in and how they're looking at the markets that they're literally looking to buy into and sell out of.

So, for example, a group of properties that make good sense to a particular property owner may in fact be sold because he finds an opportunity to buy something else that makes more sense to that property owner.

Okay.

And, Jim, I would also add --

Let me just move on --

Jim, one other point, in Joe's point there, you should look at is the future out year.

We still have a very low coupon on the multi-family debt that needs to be refinanced.

Clearly (inaudible) if it stays with us or it goes away, it's not negatively impacting our margin in this environment.

We're very excited about the low coupon paper running out.

We have very good opportunities in '08 and '09 in the future to see a lot of continued cash flow at low coupon.

Did you give us -- in the past you've given us a dollar amount of contractual maturities over the course of the next say six months.

Do you have that number?

It's very consistent as the previous amount.

It's a huge amount of prepays.

'08, '09 the numbers are dramatic and the low coupons.

So we're enjoying that opportunity right now.

As you know in the past few quarters we haven't grown our loan book, but we've experienced stabilization on earnings and margins have held up because of our ability to get lower coupon paper off the books and enjoy the ability of generating substantial pre-payment opportunities.

Now, you've said in the past that you would consider putting a table of what's coming due and the coupons per quarter.

No, I think the reason we don't do that is for the things that we've been saying.

When you think about this, if a guy has a loan for 18 months and he prepays it, and let's say it's a very large loan, that's going to change those numbers very dramatically.

It won't be in the future period of loans that are potentially going to prepay.

And in many cases we're dealing with the same owner who may have a variety of properties.

So if he prepays early on let's just say $15 million worth of his properties, he may choose to hold a little bit longer, six months, 12 months, 18 months, something else that he has in his portfolio.

I think one of the things that we're comfortable in saying is that there is a large amount of properties out there that are approaching their fourth year or certainly to a lesser degree their fifth year.

Those properties must refinance based on the calendar.

And they will.

And we've not seen any change in that.

But because of the unusual numbers, meaning the guys that refinance in year two, or the guys that refinance in the beginning of year three versus the beginning of year four or five, that number is always going to be different than what a table would tell you.

Oh, sure.

I understand.

I just think that some data is better than no data and that's just for what it's worth.

If you were to disclose it I would applaud that.

Let me just shift gears to the noninterest expense item.

The -- can you tell us, are there any contra expense items in that number?

Is that a good run rate going forward, or are there some reversals?

We just bought a company.

We close on October 1st.

So the expenses will be up from here.

You'll see an uptick because of Synergy, get the full impact of Doral for the fourth quarter.

So you're probably looking at somewhere I would say in the upper -- in the mid-to-upper $70 millions.

And we have an uptick because of the acquisitions.

That will also be right-sized for Synergy when we actually integrate the system in the beginning of '08 and we decide to finally put the systems together.

But keep in mind, PennFed now is in the raw platform.

So we received all our cost saves from our acquisition.

In addition, we see the opportunity across the board to reign in cost control in this tough environment.

Were there any specifically though any contra expenses in that number as in like reversals of bonus accruals or incentive plans or anything like that?

We've been very, very conservative throughout the year that the possibility was very strong to be very -- record, focused on putting incentive accruals there.

I mean, obviously, we charge that every quarter.

So we do have accruals in respect to bonuses.

But that moves around depending on profitability.

Right now it is a tough environment.

We're very comfortable to reign in cost control.

I mean, clearly, the margin is holding up very nicely for us.

Profitability is relatively strong compared to previous quarters.

And expense control is a focus for the company.

We are putting on Synergy as of October 1.

That will increase our expense space.

And that will have an increase on the branches acquired from Doral.

With that being said, you'll see an uptick in the fourth quarter, but we're going to work very hard to keep control on expenses especially in this tough environment.

Okay.

I understand.

But just to reiterate, were -- was there anything that was a negative expense in that?

Not that I'm aware of.

Not that you're aware of.

Okay.

Thank you.

And then can you also give us some sense on the noninterest bearing deposit growth?

It's been very strong.

Is -- how much of that is title and escrow or 1031 exchange money?

We don't have a 1031 exchange program, although that has been offered to us.

And certainly if we had a 1031 exchange program, that could throw an awful lot of money on a temporary basis into the bank.

So when it comes right down to it, there are no large programs like that right now.

We will have large deviation in our deposit mix, based on some of the very large relationships that we have.

So for example, we do some very, very good business with the Pentagon on behalf of the National Bank in Greece.

That kind of stuff results in some very large flows of dollars in and about of the bank in those account relationships.

So there will be times when we have money flowing in and out as a result of procurement.

That is not something that was typical to the community bank, but that is something that is typical to the commercial bank, by example.

Okay.

Thank you.

That's helpful.

And last question, and I apologize for doing so many, but I noticed that the cost of borrowings was up, it sort of accelerated.

It's been running at up at about two to five basis points per quarter.

It was up nine basis points this quarter.

I assume that's due to callable advances.

Can you give us a sense going into the fourth quarter if there's a lot of structures that are eligible to be called in the fourth quarter and what your projection might be there?

Jim, as you recall, back in '04, we had a substantial restructuring about how that money became due, so we had to re-price that.

That's just stuff that was called.

As you had mentioned, the '04 restructuring was a substantial restructuring for the company.

We'll see an uptick in the fourth quarter.

I don't think of materiality.

I think the benefit of the reduction in the retail size, the up price on the asset size, we're looking at a bump-up in our margin in the event that we have the current rate environment and continued pre-payment activity.

So I think you're correct.

You'll probably see a little uptick not so much due to the callable side, but due to the environment.

We're not growing the balance sheet.

If we were to grow the balance sheet and look at the wholesale markets you'd see a drop in wholesale because we're very -- right now we're looking for the loan book to build and to build we have very good opportunity to fund.

Funding right now is extremely inexpensive.

So the current liability that we have right now is going up slightly but not materially compared to the reduction of our retail fund.

So we'll get back to a normal run rate maybe three to five basis points a quarter rather than nine on the borrowings?

Probably about four, five bips for the wholesale, somewhere in that range depending on the market conditions.

Alright.

Thank you very much, Tom.

And thanks.

We'll take our next question from Rick Weiss with Janney Montgomery Scott.

Hey, guys.

Actually most of my questions have been answered.

Just real -- want to know if multi-family is about 70% of the loan portfolio.

Seems like it's been there for forever, actually.

Do you expect that percentage to continue?

As we go down the road, I think we'll be doing more and more of that.

As you have seen in the last couple of quarters, we have actually been doing less than 70% with regard do our originations.

And that is mainly because we have been very, very disciplined in how we choose to lend and as a result, we're doing less of the product which is out there.

That will change as the quarters evolve down the road.

So I'm going to guess that if we're talking six to 12 months down the road, our percentage will be going up.

But in the near term, a lot of things need to be realigned.

We're getting some very good alternative product which winds up changing the percentages as well.

I'm sorry.

I'm confused.

So is that like a kind of around that number or a little bit less, Joe?

I would say that we're probably going to stay in the range of that 70% in total, probably for the next couple of quarters.

We will go up down the road.

Exactly when that will start to be the case will depend on how the market actually evolves.

So for now something in the range of about 70% in total is where we'll be.

Rick, it will depend on the level of repayment.

Obviously, if the repayment activity is significantly high, as well as continuing to stay where it is right now, you can generate a lot of multi-term of credit a higher coupon, however not grow the book.

So clearly that's pretty much what Joe is indicating here.

You can have a substantial amount of origination in the quarter, taking that low 5% coupon off the book, putting on 6%, and having a slight growth instead of substantial growth.

The good news for this particular quarter on the third quarter is that we saw growth off the second quarter for the first time in a number of quarters in the multi-family category.

Okay, and can you specify a little bit on the prepayments this quarter, how much of it was people just prepaying and taking their loans elsewhere or just re-filing and staying with NYB?

We don't have a break down of that number, but it was obviously a mix.

One of the things over the last several quarters, including the immediate quarter, has been a sale of properties.

Whenever there's a sale, we are very unlikely to do the financing.

And there have been more sales in the recent quarters, including the last quarter.

So how long will that continue to be the case?

It depends on the marketplace.

Okay.

Thank you.

Thank you, Rick.

We'll take our next question from Matt Kelley with Sterne Agee.

Yes, hi, guys.

Just to follow up on an earlier question, what was the actually structure of the new borrowings that you took on during the quarter?

Matt, we put some long liabilities out there, we tried to balance it, depending on our needs.

I'd say on average 18 months is typical for us.

We like to try -- we typically mismatch our multi-family book by about a year and a half.

So if it's a three and a half year average life we typically put on, on average, a 18 month type structure.

And a typically callable structures.

As you can see, we hadn't moved on a growth perspective of materiality.

We just refinanced our existing calls that were callable back in time.

Okay.

What would the final maturity of those be versus the callable period?

10-year structures.

10-year structures.

10 year.

10 year.

Two, three, 90 days, varies.

All average I would say is 18 months.

Just kind of a blended average there, looking at their website's around 4% as of today.

Or a little under, maybe.

Yes.

Depending on when you put the money on.

Obviously, in June it was higher.

Today it's lower.

So as I previously stated, in the event we were to fund wholesale right now, which is very attractive, the numbers are substantially lower than that.

Lower than 4%?

Oh, yes.

In this environment, yes.

Like on what type of a wholesale structure?

Just to give you an example, the typical -- if you're going to fund it short, 10 years, knock off 9 months probably off the 10 year.

So do the math, it's probably somewhere in the mid 3%.

Okay.

If I was doing that structure.

I'm just giving you an example.

Right.

Of the -- just kind of turning real quick to credit.

Of the $88 million worth of reserves that you have, what's the dollar amount allocated to commercial real estate in construction.

I know that you provide that in the Ks.

But wondering if I would give an update there.

I don't think there's been any dramatic change.

I would go with the consistency is the same as it was in the prior year.

Nothing has changed.

Like I said before, looking back on the category between 30 to 89, we haven't seen any deterioration.

We're very comfortable with the company's credit quality portfolio.

You have a few loans that come in and out, but starting at odd $20 million on average is extremely low for the sides of the bank.

We're very comfortable.

I guess the bottom line, everybody trying to dance around the margin issue and how much sensitivity there is here.

If you do look at just one metric that we do have in terms of sensitivity, looking at the NII change data that you provided in the 10Q, rate's down 100 basis points, net interest income up 3%, that's about $0.04 a share on a parallel type of shift.

How do we think about magnitude beyond that in terms of how much the margin and earnings could improve particularly as we look at '08, '09 numbers?

To give you a look at the out years what we are going to hope to see is improvement in the slope of the curve, continued pre-payment opportunities within the portfolio.

And again I want to reiterate, the ability to take that low coupon paper that's sitting on our books, which is billions of dollars that has to refinance, if it stays with us or if it goes away, we benefit from that in this environment.

We're very pleased that there has been a risk premium adjustment for the marketplace, not so much in our particular space yet, but that will come.

We see some improvements in overall offerings through our product.

Overall, in reality over time, we should see some more normalization of getting much better spread.

As you look at the space right now, every category in the U.S.

has seen a risk premium adjustment, even government securities.

So we have the ability to benefit from that.

We are being very cautious on forecasting that running models internally.

When that occurs, we will get substantial benefits for our model because it is a short asset type -- short asset model.

I mean, just looking at your GAAP table, it's about $11 billion worth of loans in the one to five year kind of bucket maturing.

I assume that's where most of the low coupon stuff is coming down the pipe then.

Into the back half of '08 and of '09 those coupons are extremely low and if they prepay it's a tremendous benefit.

And typically they prepay on an accelerated basis.

They don't typically prepay when they have to prepay.

They usually a year or two in advance.

What is the average kind of coupon be of that?

Low 5%.

Low 5%.

Okay.

All right.

Thanks a lot.

Thank you.

We'll go next to Dustin Brumbaugh with Ragen MacKenzie.

Good morning.

Good morning.

Just wanted to ask a couple questions about the commercial franchise.

And I guess, first, just a point of fact mentioned $494 million in assets from the Doral acquisition.

And I thought I remembered from the second quarter call hearing $386 million.

Did I miss something?

We had some that were literally closed on our books that were subsequently repositioned back to the -- their parent company.

So overall I think the net number is going to be smaller than that when we clean up the rest of the assets that we have in the book.

There will be some assets that we will not be holding on for long durations.

So most likely by the end of the year, any assets that were supposed to be put back to Doral will be put back to Doral, as well as Synergy, Synergy as well.

Significant amount of assets that we're evaluating we may keep or we may sell.

It depends on the credit quality and our plans as a company.

The difference between Doral and all the other deals, in all the other deals we sold into the market assets.

In the case of Doral, we had a unique relationship where assets were actually returned to the parent since there is an ongoing surviving entity.

Okay.

So am I understanding right that the $108 million or whatever difference between $386 million and $494 million those are assets that are expected to be put back to Doral over the next --

$495 million I believe was assets.

The other -- I think the number you're quoting may have been a deposit number.

Okay.

I looked back through the transcript and it said assets and deposits.

So anyway -- that's fine.

And now I was just going to have you refresh my memory too.

I know a big piece of the loans there were the taxi medallion loans.

Would you remind me how big that portfolio is and then also how much and what types of other loans you may have brought on?

About $80 million, the taxi medallion business.

And the other types of loans are consistent with our current underwriting standards.

The multi-family credits, some small multi-family credits, one to four family credits that ultimately either we secure to sell back to them.

We have a few commercial real estate loans that are relationship loans that we're consistently managing because they're part of our portfolio.

The relationship of one borrower is in their portfolio.

And we're very comfortable was that particular borrower.

So those are loans that we selected to require.

As Joe indicated this is a unique situation, loans that we selected to acquire was our -- that was kind of our opportunity.

We did not take their bridge loans, did not take their land loans, as well as other loans that we were uncomfortable in accepting.

Okay.

And in total, loans of the $494 million, how much of those assets were loans?

About $200 million.

Small amount.

Okay.

And then, finally, just wanted to -- you have 38 commercial branches now and just maybe wanted you to talk a little bit about how aggressive you are in trying to generate assets out of those branches.

And --

Yes, we're not being very aggressive at all.

As we've said many times, we're building a commercial bank foundation that we want to have in place as the cycle evolves.

The best time to be doing loans is in the worst market.

And the market is in fact as everyone is quite aware now evolving from being a very, very rich, positive market, into being a more troubled, credit cycle turn.

And we're not being aggressive in our lending here and that's very conscious on our part.

We are being very cautious in how we prepare our systems and our people, and we are building relationships that we believe to be good, sustainable relationships.

But we're not being aggressive.

And is that just kind of a continue to monitor the situation, or do you have a sense of when things might get to a point --

I'd say it depends on a case by case basis.

So for example, we may pull on some very good larger relationships that are very sound relationships that have a capacity to survive the cycle.

We may let a large number of relationships go away.

In other words, where we have seen less comfort with regard to the nature of the relationship, the lender, the person that had worked for the bank or the -- or the relationship itself, we let that go away.

So we're not anxious to get everything that's in the marketplace.

We're being very selective as to how we prepare our people and who we'll use to actually build the portfolio.

That means the numbers will move more slowly.

And it doesn't mean that we're not interested in servicing good relationships.

It means that we are being more selective than many of the people that are in the market today.

I would add, the opportunity in the community bank portfolio, we have a sizable book of loans that have relationships with very good borrowers that have other types of commercial facilities, out with the largest commercial banks in the world that could bank with us.

That's the opportunity.

Okay.

Great.

Thank you, guys.

You're welcome.

We have no additional questions at this time.

I would like to turn the call back over to Mr.

Ficalora for any closing remarks.

Thank you.

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

We appreciate the opportunity to discuss our third quarter performance, which reflected the continuing stability of our net interest margins, the consistent quality of our assets and our ability to maintain a position of capital strength.

We look forward to reporting our fourth quarter results, which will reflect the addition of the Synergy Financial Group to our banking family.

Again, if you have any further questions please feel free to call us either this afternoon or during the week ahead.

Thank you.

This concludes today's conference.

We thank everyone for their participation, and you may now disconnect your lines.