Flagstar Financial Inc (NYCB) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to the New York Community Bancorp's first quarter 2009 earnings conference call.

(Operator Instructions)

For opening remarks and introductions, I would like to turn the call over to Ms.

Ilene Angarola, Director of Investor Relations.

Please go ahead.

Thank you.

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

Today's discussion of our first quarter 2009 performance will be lead by our Chairman, President, and Chief Executive Officer, Joseph Ficalora.

together with our Chief Financial Officer; Thomas Cangemi.

Also joining us today are Robert Wann, our Chief Operating Officer and John Pinto, our Chief Accounting Officer.

Our comments today will feature certain forward-looking statements which are intended to be covered by the Safe Harbor provision of the Private Securities Litigation 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 general economic trends, both nationally and in our local markets, changes in the financial or operating performance of our customer's businesses, or changes in real estate values which could impact the quality of the assets securing our loans, changes in interest rates which may affect our net income, pre-payment penalty income, and other future cash flows or the market value of our assets, and changes in legislation, regulation, and policies, including those pertaining to banking, securities, and taxation.

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

This release also includes reconciliation of our GAAP and non-GAAP earnings and capital measures, which will be discussed during this conference call.

If you would like a copy of the earnings release, please call our Investor Relations department at 516-683-4420, or visit the IR portion of our website, www.mynycb.com.

I'd now like to turn the call over to Mr.

Ficalora, who will speak to you briefly before opening the lines for Q&A.

Mr.

Ficalora?

Thank you, Ilene, and good morning, everybody.

We're pleased to have you with us this morning for the discussion of our first quarter's 2009 performance, which exceeded our year-earlier performance in several significant ways.

In addition to discussing our year-over-year earnings growth, and the factors contributing to it, we'll also be talking about our tangible capital measures, our first quarter loan production and quality of our assets, which continues to exceed that of our industry as a whole.

Following my brief remarks, I will be happy to take your questions on these topics, as well as any others pertaining to our March 31st balance sheet and our first quarter 2009 results.

To begin, we were very pleased to report a significant year-over-year increase in our first quarter GAAP and operating earnings, as well as a significant increase in our diluted GAAP and operating earnings per share.

On a GAAP basis our earnings rose 22.5% from the year earlier level.

On an operating basis, the increase was even higher at 26.4%.

Furthermore, our GAAP and operating earnings both equaled $0.26 per diluted share in the quarter, an 18.2% increase from the $0.22 per diluted share in the first quarter of 2008.

We also realized an increase in our first quarter 2009 cash earnings, as well as our diluted cash earnings per share.

At $99.9 million our cash earnings were 22.2% higher than the year-ago first quarter level, and were equivalent to $0.29 per diluted share, a 16% increase.

As a result, the contribution of our cash earnings to tangible capital exceeded the contribution of our GAAP earnings by $11.2 million, or 12.6%.

Reflecting the contribution of our first quarter 2009 cash earnings, tangible stockholder's equity rose $22.3 million, to $1.7 billion over the course of the quarter.

And our ratio of adjusted tangible capital to adjusted tangible assets rose 5 basis points, to 5.99%.

Including the impact of AOCL on our tangible capital and tangible assets, the ratio rose 9 basis points to 5.75% since year-end 2008.

In addition, the community bank and the commercial bank continue to exceed regulatory requirements for well-capitalized classification, including leveraged capital ratios of 7.11%, and 11.28%.

Given the strength of our earnings and our tangible capital measures, we last night declared our 21st consecutive quarterly cash dividend of $0.25 per share.

Our ability to grow our capital while maintaining our dividend at this level is an indication of our confidence in our continued earnings capacity.

The growth of our earnings was driven by a better than 28% increase in net interest income to $207 million.

And the expansion of our net interest margin which rose 48 basis points year-over-year to 2.89%.

These improvements in turn, were fueled by the growth of our interest-earning assets, largely reflecting loan production, and by the strategic reduction in our funding costs.

The average balance of loans rose more than 9% year-over-year to $22.1 billion.

During this time, the spreads on our multi-family and CRE loans also rose significantly.

In the first quarter of 2008, the yields on our multi-family and CRE loans exceeded the five-year CMT by 302-basis points on average.

In the current first quarter, the yields on these loans exceeded the five-year CMT by an average of 438-basis points.

The increase in average loans reflects the volume of loans we produced in the past four quarters, with fourth quarter 2008 originations of $1.5 billion, representing the largest quarterly amount.

In fact, the lower level of loans we produced in the current first quarter was in large part a result of the accelerated closing of loans in the trailing three-month period.

The reduction in our cost of funds reflected the strategic decline in our higher-cost wholesale and retail funding, and the replacement of such higher cost funds with lower cost wholesale borrowings.

It also reflects the benefit of last year's strategic debt repositioning.

The same factors that contributed to the growth of our net interest income contributed to a 48-basis point improvement in our margin to 2.89%.

This increase was achieved despite a decline in the prepayment penalty income to $1.2 million from $10.3 million.

In fact, the prepayment penalty adds just one basis point to the current first quarter margin, in contrast to the 15-basis points in the first quarter of 2008.

This may be the lowest-recorded prepayment quarter that we've ever had.

Largely reflecting the growth of our net interest income, our GAAP efficiency ratio declined 486-basis points year-over-year to 36.63%.

On an operating basis, the improvement in our efficiency ratio was even greater at 543-basis points.

It is worthy of note, that the improvements in our first quarter performance were achieved despite an increase in our FDIC assessment, together with higher pension expenses and a loan-loss provision of $6 million.

In addition, our effective tax rate rose year-over-year as expected, adding an additional $3.2 million to our income tax expense.

The year-over-year improvements in our earnings were all the more gratifying, when you consider the challenges we like so many others in the industry and our customers are facing, as the recession extends in to its second year.

I'm pleased to say that despite the increase in net charge-offs and the non-performing loans, the quality of our loan portfolio was once again distinguished by our asset-quality measures, particularly in comparison with those of our peers.

For example, while our non-performing loans represented 0.79% of total assets at the end of March, the comparable SNL Bank & Thrift Index measures reflected 2.31% during the same time.

Similarly, our net charge-offs represents 0.02% of average loans in the current first quarter, in contrast to the Bank & Thrift Index measures of 163-basis points.

Although the increase in non-performing loans included loans from each of our lending segments, none of the loans we charged off were organically produced multi-family or CRE loans.

This experience has been consistent with our long-held expectation that our primary focus on multi-family and CRE lending would result in a better record of asset quality.

Another measure of the quality that we consider worthy of mention, is the ratio of net charge-offs to average loan-loss reserves.

Although our net charge-offs for our $5.1 million in the quarter, this amount represented a modest 5.37% of our average allowance for loan losses.

For the SNL Bank & Thrift Index, the comparative percentage was 19.23%.

In other words, our loan-loss allowance was 19 times greater than our first quarter 2009 charge-offs.

For the SNL Bank and Thrift Index the loan-loss allowance was five times the volumes of loans that were charged off.

Not withstanding, the increase in our non-performing loans and assets, our experience suggests that we should expect fewer of our non-performing loans to result in losses than our industry peers.

This was very definitely the case during the nation's last significant credit crisis which began in 1987, and continued through 1992.

We believe this distinction will continue in the coming quarters, even if our non-performing loans and assets continue to rise.

Going forward, you can expect us to continue lending as the changes in our competitive landscape provide us with new opportunities.

With $851 million of loans in our pipeline, we expect to see continued loan growth throughout the year.

We also would expect to see continued net interest income and margin expansion.

With $6 billion of CDs with an average rate of 2.80%, due to mature in the next four quarters, it is likely that our cost of funds will continue to fall, at the same time as the average balance of our interest-earnings a sets continues to rise.

At this time I would like to take 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 our Investor Relations department, or leave a message for us, and we will do our best to get back to you one day at a time.

And now for questions.

The floor is now open for questions.

(Operator instructions)

Our first question coming from the site of Mark Fitzgibbon with Sandler O'Neill.

Your line is open.

Please go ahead.

Hi.

Good morning, Joe.

I was wondered if you could share with us, of the $62 million increase in non-performers, how much of that came from multi-family and commercial real estate loans?

I think you have got the numbers there, Tom?

Yes.

Hey, Mark, it is Tom.

How are you?

Hi, Tom.

Total percentage is around I believe 42%, but $76 million is the total percentage of multi-family.

Okay.

And then could -- could you share with us the -- you had said during the quarter that the FHLB borrowings were much more attractive from a rate standpoint, than the deposits that were available, which is a little different than what we are seeing from a lot of other banks.

Could you share with us what kind of FHLB borrowings you booked, and at what rate, and how that compared maybe to your deposit rate?

With respect to the overall funding base, we -- obviously managing our funding costs at a focus level to get the least cost effectiveness into the balance sheet and for this P&L -- if you look at where the Federal Home Loan Bank short-term borrowings are, you are looking at sub 50 basis points.

So obviously, if we have high cost liquid deposits that are somewhere between 1.5% to 2% -- that is clearly not as attractive.

And the balance sheet, clearly is not growing in the first quarter, so we opted to go with the lower-cost structure.

Mark, we have a significant amount of outstanding borrowings at much lower terms.

So I think the unique opportunity that the current situation presents is that we are able to use a reasonable amount of money to actually enjoy these lower rates.

Mark, I think what is exciting about 2009, we have about $6 billion in the next year going forward that is going to be new pricing, of which that rate is approximately 2.8%.

So in this market, which is slightly south of 2, we should be in good shape to get some benefits there on the CD side as well.

Thank you.

Thank you.

And next we'll go to the site of Andrew Wessel with with JPMorgan.

Your line is open.

Please go ahead.

Yes, good morning, thanks for taking my question.

I guess one question or follow-up.

The question -- first question is on assets.

In terms of loan pipeline, can you give some color in terms of what you are seeing right now.

Obviously competition remains low for you, and what kind of opportunities you are seeing right now, and what kind of spreads those are presenting themselves at?

I think the good news is that the spreads are continuing to reflect the risk premium that is built in to this market.

There is a -- a broad awareness that lending is extraordinarily risky in the New York market or in the country as a whole.

So we are seeing very conscious efforts on the part of the very good property owners, or the people that are taking advantage of opportunities in the market to buy low, to do things that are prudent.

The important thing with regard to this market, is that although we may gain share, we are going to be very cautious in how we lend.

And certainly when we look at the marketplace, we realize that many of the larger property owners are also being cautious as to when in fact they enter this market.

The opportunity to buy at lower pricing levels is certainly going to be in front of us all.

And I think we're evidencing, some of the people just delaying in their refinancing of their portfolio, as well as in their acquisition of new properties.

I would add going back to the point of spread, last quarter we closed out 438 basis points of both multi-family and CRE.

There is always a lag as far as what we have in the pipeline, and what we close, but over the past four quarters, our spreads that we actually booked to the balance are much higher.

So we're seeing those types of levels going in to Q2, and as the (indiscernible) indicates the pipeline is up 40%, over the significantly lower pipeline that we reported in January, from the last release.

So we'll see this continuation of increased spreads, and obviously competition has waned dramatically.

Great, thanks.

And one follow up, just if you could have any comments around the legislation currently in front of the state assembly in regards to rent control.

Any thoughts on valuation or how that will affect your in-place portfolio or how you look at loans going forward?

If any of that was ticked back?

I think the important thing is what you just said in the end.

The reality is there's been proposals year after year after year, that would be detrimental to the real estate markets in New York.

These proposals as in fact they have been passed by the assembly are not good for New York real estate or for tax revenues or whatever in the city of New York.

The bottom line is, I think that there are enough people in the Senate, who recognize that these would not be constructive new change,s at a time when the New York economy is going to come under pressure, and when the budget in the city and the state is under pressure, so I do think that the Senate will ultimately ensure that none of the bills as in fact proposed by the assembly will be passed.

Thanks a lot.

You're welcome.

Thank you.

And next we'll go to the site of Gary Gordon with Portales Partners.

Your line is open.

Please go ahead.

Okay.

Thank you.

The two questions.

One is obviously you have had conservative underwriting standards over time.

Considering the change in the market, have you changed your own standards in light of where the real estate prices or rents may be going?

No, I think the important thing is we have tried to be consistent over the course of decades.

The business model that we're following here, and the way we lend, basically was set back in '93, for the purpose of being prepared to deal with a cycle turn.

We have always been consciously aware that there would be a credit cycle turn, and real estate values would deteriorate.

So we do believe that the bulk of our loans in fact, are well structured and will in fact, conservatively get through this cycle.

Having said that, there's always inevitably going to be some loans in our portfolio that will not perform as expected.

We believe that number is extraordinarily small given the size of our portfolio and certainly manageable.

Okay.

Great.

Two, you got about $4 billion of agency mortgage-backed, with the government making a pretty strong bid for those assets.

Are there are thoughts about selling some of the portfolio effectively to the government?

Gary, it's Tom.

With respect to the portfolio, we have been, you know as far as keeping it at a very nice level.

We have come from a very significant amount of securities back in 2003.

Now we are hovering around 17%.

The focus has been ranging between 15% and 19%, keeping it under 20%.

The challenge as you indicated, a lot of debt being bought back by the government, and with that being said the yields in the marketplace are extremely low.

Our focus is to lend, our focus is to keep the security portfolio at levels that are for collateral purposes, so we have been managing it for collateral.

We haven't been selling, we have just been enjoying these nice yields from the portfolio thats seasoned.

However, we do expect significant cash flow from our securities portfolio, with the expectation that our pipeline and loans will climb dramatically in the out years.

We're expecting to see the portfolio grow, we are expecting to see our margins grow as well, as we put on loans.

As well as the fact as our corporate funds will be dropping.

But looking at the pipeline going forward, we're going to utilize this cash flow to put on good solid multi-family credit.

Okay, so I think you just said, then will see some shrinkage in the mortgage-backeds in order to grow the loan portfolio --

Mortgage-backeds, absolutely.

It's obviously there is a lot of cash flow out there.

A lot of people are refinancing.

We do have a lot of agency debentures, and that also has been coming back to us very rapidly, as expected.

We do expect to see the loan growth.

So in reality, could we keep the portfolio at this level for a few quarters?

Possibly.

The range is going to be between 15% to 19%.

We won't - we don't plan on going above that 19% level.

Okay.

Thank you.

And next we'll go to the site of Tom Alonso with Fox-Pitt Kelton.

Your line is open, please go ahead.

Good morning, guys.

I just had a -- I missed this number you gave on Mark's question about NPA's.

Was that -- you said 42% of total NPA - non-performing loans was multi-family?

Tom, it was 42% of the total non-performing assets was multi-family, so $76 million of the 176.

Perfect.

Thanks.

And just on the prepays, does that -- just your sense of maybe what it's going to take to get that turned around to maybe shake some people off of the sidelines.

I think the -- it's kind of like it's building behind a dam.

There is no -- no question that we're getting a lot of reload in the prepay, even though that we're not getting prepayment, a lot of the loans that we have are -- are virtually going to a five, four, three, two, one prepay, that will come in the period ahead.

The important thing for us to recognize is that we're not refinancing our portfolio, anything near normal.

And that's mainly because people are waiting for better circumstances, which they clearly can see on the horizon.

And as you might expect, better circumstances for the people I'm talking about, would be deterioration in real estate values in the New York market.

The people that in our portfolio during a credit-cycle turn, typically have fully performings assets, and have the necessary cash flow, Refinancing their performing assets to buy at deep discount other assets that become available in the market.

Tom, it is Tom.

I would tell you we are budgeting very little expectations, so we still feel very confident that our margin will still continue to increase.

We're hopeful that we'll see 3%, hopefully in Q2, which -- we're in there now.

And the reality is if you look at last year, we were $15 million in Q1 versus 1.2 this quarter, so this is at lowest -- we hope this is low as it gets -- these are very nominal numbers, so we are budgeting very low numbers going forward.

But we believe that we'll see -- we'll see hopefully this is close to the bottom on prepays.

And we'll see some nice benefits going forward, especially in 2010.

I think we may have just experienced the bottom.

I can't imagine that it could ever be lower than the number it is.

I could easily say to you there is good reason to believe it is the lowest that we're likely to see.

The fact is, that on a go-forward basis, the contribution from prepay should ultimately accelerate.

The fact that it has delayed, has had a damping effect on some of our yield and some of our earnings, but ultimately, it can't be denied.

Okay.

Great.

And if I could just get one more.

Sure.

On the expenses, is that -- I know you guys mentioned that you have been trying to sort of hold the line.

Any kind of color you can give in terms of a run rate?

Yes, Tom, I will tell you that obviously -- efficiency ratio is very low compared to the industry.

The big cost in this particular quarter for all banks has been the FDIC assessment.

We have had an uptick on pension costs because of the change in the market value of the obligation.

We're still overfunded in the pension plan, so we're comfortable there.

But I guess to say going forward, are you going to have an uptick next quarter on FDIC payments, in addition to what we had in the first quarter?

For just for averaging basis I would use approximately $87 million on average per quarter.

So we're going to see a little bump up in Q2, driven by FDIC.

But on average, I would say $87 million if you want to run that for the whole year, was the total of approximately $356 million for the year.

Great.

Thanks very much.

You bet.

Thank you.

And we'll go next to the site of Theodore Kovaleff with Broad Street.

Your line is open.

Please go ahead.

Yes, good morning.

Thank you.

Hi, Ted.

Question for you with regard to the fact that you declined TARP, and I'm wondering whether regulators might hold this against you in any assisted acquisition?

I have no indication that that would be the case.

It would certainly be irrational for the regulators to do that.

The regulator wants to create the most stable banking environment they possibly can create.

And I would expect that the absence of TARP would have no bearing at all on their willingness to participate with a particular institution in creating a better, safer bank.

It's Tom.

I will tell you, we work actively with the regulators on opportunities throughout the country.

And I will tell you that it is very competitive.

And we're looking at everything.

However, in the event if we do find an institution that has TARP funds, you would assume that we would look to pay that off as part of a transaction.

Thank you.

Thank you.

And next we'll go to the site of Matthew Clark with KBW.

Your line is open.

Please go ahead.

Hey good morning, guys.

Hi.

Can you give us the 30 to 89 days past-due number, please?

Yes, we're looking at as far as going in to this quarter, Q1, we're approximately $200 million for 30 to 89.

Okay.

And is it -- is it possible that we can see more significant reserve building here, if we see further increases in non-accruals, despite your expectation for limited loss?

I guess similar to what we saw last cycle?

I think the important thing to recognize with regard to reserve, is the adequacy of the reserve to meet the charges.

And I think we have tried in a variety of ways to articulate the differences between our non-performing 30 days, 89 days, and our actual charges against the reserve.

When you go back to, for example, the last cycle.

In the last cycle we had 248 basis points in non-performing, and zero charges for the whole year.

In this cycle, we are seeing some of the weaker loans that are in the portfolio, and there's a variety of ways in which these loans have been created, show signs of weakness early.

So we're going to have some of the -- the weaker loans fall out of the portfolio, very early in the cycle.

We still have very strong confidence that the portfolio as a whole, will greatly perform.

The metric which you should think about, is the one that we gave earlier, the comparison of what our portfolio reserve represents.

When you think about the fact that -- that some banks are charging off against their reserve, 85%, 95% of their reserve, and then replenishing it and increasing it.

And other banks are charging off on an average what represents nearly 20% of their reserve, we're charging off something close to 5.

So the actual charges against the reserve would suggest that our reserve has a viability significantly greater than that of the industry as a whole.

Now having said that, we have demonstrated a willingness to add to the reserve.

And we did add $6 million this quarter, and we are likely to add additional amounts in each of the quarters ahead.

But we believe we can manage the amount of money we need to put in the reserve, so as to continue to see the strong earnings we have been demonstrating.

Hey Matt, it's Tom.

I would also add, if you look at the quarter's charge-offs, I mean obviously we had, as Joe indicated on his opening discussion points -- we had zero charges related to any multi-family and/or CRE loans originated by the bank, which is vast majority of our portfolio.

All of the acquired assets in the C&I book is stuff that is fairly seasoned and what is left is de minimus compared to the entire balance sheet.

Okay.

Great.

Can you just talk about how much in the way of extensions you are seeing in the second phase of the multi-family product?

And whether or not we're seeing any of the -- I believe you guys do get a point on that ex -- on that role.

I'm just curious if we are seeing in of that in loan yields today?

And if there is an opportunity for that going forward.

I think the good news is that that opportunity represents an immediate reloading of prepayments.

So when people go in to year six, and historically that has not been the case, but we are seeing people go in to year six.

Their prepayment penalty immediately goes in that year to five points, and then it's five, four, three, two, one.

So we're not giving them any new dollars.

But they in fact, are potentially are giving us significant benefit, because they are paying a point up front, they are paying a rate no lower than the rate they were paying.

And they in fact are likely to be paying up more in the immediate period ahead.

Remembering that, when they get in to year five, their prepayment penalty is only one point.

We have now had the opportunity to increase, as this cycle evolves, the good loans in our portfolio are going to refinance in order to take advantage of the evolving credit cycling.

The evolving credit cycle will represent discounted opportunities to buy real estate.

The good property owners, many of whom are in our portfolio, will be in a position to do that.

And when they do that, because they are getting an asset at a deep discount, paying a three or four point prepayment penalty to us doesn't become a problem.

Okay.

Thank you.

You're welcome.

Thank you.

And we'll go next to the site of Tony Davis with Stifel Nicolaus.

Your line is open.

Please go ahead.

My questions have been answered.

Thanks.

Hey, thanks, Tony.

We'll go next to the site of Thomas Kahn with Kahn Brothers.

Your line is open.

Please go ahead.

Thank you.

Good morning.

Good morning Tom.

Hi.

If the decision on the Tishman Speyer Peter Cooper, Stuyvesant Town J51 matter is upheld in appeal, what effect would that have on you folks in terms of properties that have availed themselves of J51, but may have increased their rents, and they may have to give refunds and may not be able to increase going --

I think, Tom, the important thing to recognize here is, that at least from the lawyers that we have talked to, under the law with the amicus filings made by the city or state agencies, it seems highly improbable that something, which has existed for the last 17, 18 years, would be overturned by this action.

So the likelihood that it goes the other way seems to be a very prudent thing to consider.

However, with J51s, we never calculate the property using the J51 benefit that they are deriving.

So when we calculate the actual cash flow on the property, we're not using the benefit of J51.

However, there -- again, depending on how the ultimate outcome is determined, if -- if the cash flows of the property are decreased to whatever extent that would impact, and we believe it's a relatively small amount of our portfolio, to whatever extent that would impact a particular property, that could cause pressure until such time that the J51 expires.

So, for example, we have properties that had J51 in place the day we did the loan, and two years or three years later, it was gone.

We had properties that had J51 in place for long periods before we did the loan, and there is only one or two years that is left in it.

And we have other properties that may have J51s in place.

Importantly, we do not calculate the carry on the property with the J51 numbers.

Okay.

Thank you very much, Joe.

You are welcome, Tom.

Next we'll go to the site of Greg Ketron with Citigroup.

Your line is open.

Please go ahead.

Good morning, guys.

Thanks for taking my questions.

Had one about the pipeline --.

I know Joe you talked about the pipeline -- say $850 million or $900 million this quarter, maybe $1.5 billion in the past quarter.

And then just maybe with the trends that you seen in March, maybe in to April, where you think the pipeline could approach and if it could get back to that $1.5 billion type level where --

Well, I think the good news is that as we go down the road, we expect the opportunity to do good lending to increase.

That may sound, you know, counter intuitive, because lots of people are looking at losses and significant concerns about commercial properties and multi-family properties.

Remember that during the last cycle, multi-family properties virtually destroyed Bowery American greater dollar.

It's important to recognize that in a very, very difficult period, we in fact were lending more money on fully performing assets.

We would expect that as this period evolves, we're going to have the opportunity to lend more money.

We're virtually in a unique period where everything is slowed down.

And I think everybody recognizes that the events that are circulating around us are extraordinary.

And people are rethinking their jobs, their investments, what they are going to do with real estate.

Investors in real estate in the New York market have reason for pause.

That doesn't mean they are going to leave the market entirely.

The good investors will be buying properties at discounted prices in the future period.

Okay.

And by the way, just so I can reiterate.

We did in fact close $666 million.

That was above the pipeline that we had projected for the first quarter.

And of course, the existing pipeline is significantly above that number.

And as we go quarter by quarter beyond that, we would likewise expect that we would be seeing increases in the loans we would be closing.

Okay, on the pricing you alluded to, 5 years, that seems close to 450 basis points, does that put the yield at about 6%?

Its close to that, that's right.

Okay, And the roll -- do you know the roll off yield?

It varies, but yes.

(inaudible) -- a yield of approximately 558

Okay.

If I could ask one last question.

On the NPL formation, are you seeing any trends, any particular situations that is kind of becoming a theme on the NPL build, or on the increase in early-stage delinquencies.

No.

Not really.

The interesting thing there is that when you consider non-performing loans, you need to realize that more so in a portfolio such as ours, it's the unique circumstance of that particular property owner, and that particular property, so we have a significant uptick in 30-day non-performing.

That's not the same as 1,000 homeowners not making their payments, and likely to have lost their job or otherwise evolve in to a significant loss for the company.

It could be a relatively small number of properties that wind up for one reason or another not making a payment, but otherwise will in fact resolve favorably with the existing property owner.

Because the inherent value of the property hasn't been lost.

The existing property owner in many cases will rectify their inability to pay slow one or two months.

And in other cases, because of the way we have underwritten the loan, our actual losses even at disposition of the property may be substantially lower or nonexistent.

We have had numerous cases where a property has gone in to non-performing, evolved in to our actually disposing of the property, and we get back all of our interest and all of our principal.

The important thing to recognize is that the industry numbers are not our numbers.

And it's not an easy thing to try and and make those comparisons, but the reality is when you look at our portfolio, it has a long track record of greatly outperforming.

Even when there is slow payments, we wind up getting an increase ultimately in the value derived from either the disposition of the property, or even the refinancing of the property under favorable terms.

Greg, it is Tom.

I would add also, going back to any trends, if you look at our CRE book, its significantly low.

We have about a $4.6 billion CRE book with $25 million NPA.

So we are very pleased on the performance of that portfolio.

Okay.

It sounds like on the early-stage delinquencies you guys expect cure rate of those to be substantially higher than we may see in a subsequent situation.

I think that that is a very, very reasonable assessment.

Given that -- that in most non-performing portfolios, the amount of loss is is 5 or 10 times our loss.

The ability to cure a evolving, non-performing portfolio is very different for most of the industry than it is for us.

Okay.

Great thank you.

You're welcome.

And next we'll go to the site of James Abbott with FBR Capital Markets.

Your line is open.

Please go ahead.

Hi, good morning everyone.

Good morning, Jim.

Couple of questions on the non-performing assets, just leading off that last question.

Take us through the process.

When a loan moves to non-accrual status, tell us a little bit about how you process that loan.

I mean, I generally understand how it works, but I wanted to understand a little bit more precisely how you do it.

Yes, I think when a loan goes in to non-performing or maybe before it goes in to non-performing, we have people that are typically discussing with the property owner, the current circumstance for that particular property owner's decision not to make a payment.

In essence, it sometimes is after the fact, the guy doesn't make his 30-day payment, but often it is before.

So there could be a variety of reasons why an individual property owner is not making the payments on his property.

We, in fact will treat each and every property uniquely, because the circumstances in many, many, many cases are distinguishable, and therefore, deserve direct intervention by the appropriate people at the bank, to determine what it is we are dealing with, and how we best can resolve the issue.

And when do you get a new appraisal?

Do you get it right when it goes into non-accrual?

Yes.

We get the new appraisal as soon as it goes in to non-accrual, because there are rules that are followed, that allow for us to assess what we're dealing with.

In some cases, it is very evident, and other cases its not evident for maybe even some time.

But the process of getting appraisals or financials, is one in fact, which we follow pretty consistently.

Okay.

And then -- so tell us, if you can, as you have seen a lot of appraisals come in on these non-performers, what are you seeing in terms of the value depreciation?

When you look at our -- and again, this would be dependent upon which property it is.

There are all kinds of properties that are affected, and some of them are appraised at values that are substantially above where we are.

And others are appraised at values that suggest that there has been deterioration in the value, and maybe even put us in jeopardy.

That's how we wind up with the taking of reserves.

Jim, I would add with respect to our total non-performing assets, thats the appraised value, the appraised value is substantially higher than the current loan balance, so that --

Yes, I understand that.

I was just trying to understand versus the original appraisal.

So

Just trying to give you some color, Jim.

Sorry?

Just trying to give you some color there.

No, I appreciate that.

Let's say the original loan was put on in 2006.

What would be the approximate price depreciation that you would of seen?

Yes, Jim, it's very hard to say.

In other words there's not enough of them to say these are the approximate numbers across the board.

The values of individual properties are uniquely tied to their cash flows and their -- I mean, their full appraisal decides their value.

So when in fact a property doesn't make a payment or two.

It's yet another appraisal that is going to decide their appropriate value at that moment in time.

There are no averages that I can give you that would be relevant.

Okay.

Okay?

And -- and so -- and then the other question -- on a related note, and then I'll hop off, is the -- non-performers, some of them been there, perhaps for a little while, six months or longer.

When do you re-appraise those loans at that point?

They are re-appraised early in the process.

I mean, I don't know that there are very many loans that have been -- I mean, for example, we may have added another house loan.

The timing with regards to multi-family and house loans is very different.

It could take a fairly long time, for example, to get a one to four family property, but it would be pretty quick with regards to a multi-family, or a commercial property.

I guess the question is do we have a second appraisal.

The problem we have, we haven't had a situation -- because we don't have a lot of NPA's.

Right.

So they don't lag that long.

It is difficult selling houses right now in this environment because of market conditions, but we haven't had a situation where we had NPA's to multiple years on the same credit.

Are you seeing a lot of NPAs moving out of the non-performing -- they are being resolved actively?

Yes, there's no question that we -- that's a pretty consistent effect of our handling of our portfolios.

We see change in our portfolio quarter by quarter.

Every single quarter there are properties that resolve, and there are new properties that come in.

So even when the number goes up, it doesn't mean that no one resolved, it means that there is a -- a change reflecting the additions and the subtractions.

So, it's not as though people go in to final resolution and disposition, there is a one or two or even a three-payment nonpayment ultimately resolved.

Right.

That will go to the point as far as REO, we only have $1.4 million in REO.

So obviously we're not foreclosing these properties.

It takes a while to do the foreclosure, we are not seeing that yet.

Okay.

So there -- there were a lot of loans that were resolved in the quarter, but just even more that came in --

Yes.

Yes, that's what happens from quarter-to-quarter.

And again, Jim, without going in to specific loans, we have some large loans.

So a number can change dramatically because a large loan goes in to non-performing.

When that loan resolves, there will be another positive change, or if that loan holds for an extended period of time, we could wind up carrying one loan with an ultimate disposition that we already accounted for, and once it is resolved, that is also out of the non-performing portfolio.

And the encouraging note here for the first quarter 2009, we had zero charge-offs on multi-family and CRE originated by the bank.

Okay.

Thank you again for your time.

You are welcome.

Next we'll go to the site of David Darst with Ftn Equity.

Your line is open.

Please go ahead.

Good morning.

Good morning, David.

Joe, can you give us the balance of the loans that you consider to be non-organic, or those that were acquired.

It's relatively small, but I don't know exactly what it is.

There -- clearly 71% of our portfolio is multi-family.

And the bulk of that is within our niche, 21% is commercial.

Again, the bulk of that is within our niche.

And then there were other loans that were either generated by others, or for whatever reasons, not within our niche play, and that's a relatively small number.

And when I say small, small compared to the portfolio, it is certainly 10s of millions of dollars, but I just don't know exactly what that number is.

Just to give you color on the commercial bank, total amount of accrual there, including 30 to 89, about $14 million, which is a very small amount of loans.

Okay.

It looks like you have given us the multi-family non-performing loans of $76 million CRE of $25 million.

That's right.

So the remaining NPLs of close to $75 million are attributed to --

Well, construction $45 million.

The rest is other, 1 to 4, they're small $13 million.

Again, its spread out through all the categories, the largest being multi-family at 43%, construction at 25, and CRE at 14.

Okay.

Thank you.

You're welcome.

Next we'll go to the site of Matthew Kelley with Stern.

Your line is open.

Please go ahead.

Good morning, Matt.

Hi.

Just getting back to the subject of reserves.

I know you mentioned kind of how this business has migrated through cycles.

I mean, if you go back to 1994 for yourselves, you guys had reserve coverage on your multi-family portfolio of about 111 basis points.

Right.

According to the most recent 10-K that's 28 basis points today.

And so I guess the question is what makes you feel comfortable having a quarter of the reserve level, as we head in to the cycle this time, compared to the early '90s.

Yes, I think it is important if you go back to 1994, that you look at how much we charged against that reserve.

That reserve was suggested by the people who was taking us public.

So we set up a significant reserve, even though we had de minimus charges.

In 1996 we had to recapture $2 million from our reserve.

In 1998 we recaptured another $2 million from our reserve.

There aren't too many banks that set up reserves that have to recapture from them.

The fact is that the comparison you are making has no relevance to our perception of risk.

It has only -- what I have just explained, relevance to -- as we became a public company, we, in fact, increased our reserves for the perception that you are touching upon.

The perception of the market was that banks were losing huge amounts of money.

I think in our initial conversations with the street, we had 111 years worth of reserve coverage at the time that we did that.

So obviously, it was a significant positive that we had such a huge reserve.

But also it was evident that we didn't need that reserve, and certainly it has no bearing on what we have today.

We believe the numbers we shared with you suggest that we have significantly greater coverage in our reserve than the industry as a whole, and for that matter most of the banks that you cover.

Our reserve, based on the charges that reserve, is substantially greater than the reserve in almost all of the banks that are in our marketplace.

And certainly many of the banks throughout the country.

Okay, then is there any discrepancy between the non-accrual rates and your $16 billion multi-family portfolio between loans that are -- have collateral that are rent-regulated versus market rents?

And what is the --

I don't -- I don't think there's anything such as that -- that -- there's no reason for that to be, and certainly I don't think there's any evidence of that.

Okay.

And how does that portfolio split between rent-regulated assets versus market-rent assets on the $16 billion multi-family?

I would say the vast majority -- I mean we don't have an exact number, but the vast majority of our loans are written against what we call below market rents.

Meaning that even if a relatively small percentage of the units are rent-controlled or rent-stabilized, even at the at-markets when you take the full rent roll into consideration, it's below the market.

So that is just the way we lend.

It is very consistent no matter what market we're in.

There are markets we lent in outside of New York, where there is no rent-control or rent-stabilization, and even there an important component of our willingness to lend is that the rent roll is below the market.

Our desire and our focus has always been on dealing with a credit cycle term, we want to be below the market with regards to rent rolls, so that people within the marketplace during a period of stress are more likely to move in to the buildings that we have a loan on, rather than the opposite.

And that's how over the course of stressful periods, we have had fully performing multi-family buildings.

Doesn't mean we always, always will have that, but certainly it is a component of how we lend.

Okay, I guess I will ask this a different way.

How much of the portfolio is actually rent regulated by the rent guidelines board, in New York either --

We don't actually have that number.

It's a fairly large number, but we don't know that number.

And Matt, I'll share with you that 3.7% of our entire multi-family in CRE is outside of our market, so 90, so almost 97% of all our loans in our backyard.

Okay.

All right.

And getting back to a question earlier about your thoughts on what pricing could do in this asset class with NOI down, rents down, and cap rates way up, what do you any we're going to see for price declines for multi-family buildings in metro New York?

Yes.

You touched upon a few of the reasons why there will be price declines.

But there will be even more reasons than that.

There is going to be a significant movement in real estate, due to the extraordinary excesses that occurred during the preceding cycle.

We have been in a very long, robust cycle wherein many loans were made that are totally irrational.

They can't possibly be repaid.

And those loans are going to default.

So there is going to be a large influx of rental properties coming in to the market, and that will, of course cause depreciation in values.

The ones that were handled properly, the ones that were virtually -- good property owners making rational decisions and getting rational loans, they are going to continue to perform.

The guys that were excessive, they are going to default.

The opportunity for us is that we have the good owners likely to, not only refinance but also to take new loans on those opportunities.

Matt, I would expect to see the CMBS market to crack here and most likely as Joe indicated, there is a lot of liquidity on the sidelines, a lot of pent-up cash flows in our portfolio.

For example we have very low LTVs in our portfolio, despite any devaluation in the marketplace.

They utilize their intent on value to buy distressed real estate off of CMBS rolls

Right.

But any guess on the percentage decline for the asset class, regardless of who provided the financing, whether it was on balance sheet banks or securitization?

I will tell you that you probably spend most of your time looking at the CMBS market, and that's where a lot of the mistakes were made.

The bigger properties would be the more likely ones to be defaulting here.

And mainly because the bigger properties were the attractive, structured debt lenders went to the bigger properties.

Right.

So -- you don't see any collateral damage for you guys then?

So those large pools of refinancing

They should (Overlapping speakers ) Very little damage to our niche, very little damage.

Because as I said, when the city had 12% unemployment when real estate values fell off of the table,when vacancies were extremely high, our niche was fully performing, refinancing and buying, so that is reasonable for us to expect.

Outside of our niche, there will be losses.

That's what we have been taking.

We have been taking losses outside of our niche.

If you take 71% and 21% representing our niche, that is 92% of our loans.

I think that's a pretty comparatively strong number against other banks that have been lending all over the country, or lending in a variety of ways that differ from the niche that they may have been very good at.

A lot of people in this positive cycle went outside of their market, went outside of what they were comfortable with, and didn't do some things that ultimately hurt.

Okay.

Last question, the doubling of the past dues, where did that really occur?

$103 million at the end of the year, and went to $200 million, what is the composition of that growth?

I would say it is consistent.

The multi-family is around 40%.

I think that is consistent with the actual non-performing asset levels, throughout the board.

Okay.

With the exception of construction, wasn't that -- wasn't as big of a move, so there is an encouraging note there, construction is relatively flat.

Okay.

And if I could just ask one more, on the $4.6 billion commercial real estate, how much of that is backed by some form of multi-family assets?

I would tell that is a lot of 1031 in mixed use and very encouraging to see that we had zero charge offs in that book -- it's a very interesting statistic.

Our LTV's are extremely low.

We don't give out the percentage of that by mixed use.

We're very encouraged by the trends on CRE.

We have zero charge-offs I think in the past two quarters.

Right.

And we're very encouraged by the current trends, and the overall MTA levels are very low as well.

Matt, we can certainly spend more time talking to you off line, but that is your fourth question and we should move on to the next one..

No problem.

Thank you very much.

Thank you.

And we will move next to the site of Christopher Nolan with Maxim Group.

Your line is open.

Please go ahead.

Morning and thank you for taking my call.

Good morning.

Quick question.

Since a large portion of your portfolio is rent-stabilized, multi-family housing, and given that the rent increases from year to year are mandated by the government.

Right.

Are you seeing -- what do you take in to your modeling in terms of projecting forward cash flows for a property?

Do you take that mandated rent increase, assuming the property owner will be getting the full increase from year to year?

Yeah, see the interesting thing is, the mandated increases are very, very difficult to know, because it has got to do with the taxes, and it has got to do with the cost of oil.

It has got to do with the ultimate, market conditions.

They are always very low.

That's why rent controls or rent-stabilized buildings have much lower rents.

They go up very slowly, and though -- the only differential comes from improvements to the property, where in the actual tenant agrees to an increase in rent.

That's definitely is a -- a positive, but something you can't really assess.

So we don't really go there.

But we typically underwrite on the current cash flow, on very rare circumstances we'll deal with property owners that have a formalized plan that is signed up by their tenants, but typically most of our loans are underwritten based on the current rent roll that is coming in to the cash flow when you evaluate the transaction.

Great.

And a follow-up question is for the rising MPAs within the multi-family portfolio, what is the source of distress here?

Is it cash flow from operations?

From an ongoing property?

Is it refinancing problems, or --

No, I think it's -- it's again, unique to the individual property.

I don't want to go in to specifics on individuals, but the reality is, that a -- a property owner may have more than one property.

He may have a -- a need that drives him to make a payment elsewhere, where he has a deficiency, and make a slow payment, let's say to us.

So it's a mix of issues, and -- and I think that case by case, it will be resolved.

There are some cases where -- multi-family is -- is pretty consistent, but there are other loans where -- where there could be loss of tenancy on a commercial property or otherwise.

I would add when you are starting close to zero, I mean if you look at the portfolio with $15.9 billon of multi-family loans on the balance sheet, and a $7.6 million total on a non-performing base, and in this environment, we are very proud of those levels.

And again, it looks like an increase when you are starting with such a low base base.

So we're very pleased on the current results, and also we'll see the trends of the delinquencies.

There are upticks here, but in relevance to the size of the portfolio in this type of economic environment, we are very pleased on the performance.

Great.

Thanks for taking my questions.

Sure.

Thank you.

And that's all the time we have for questions today.

I will turn the floor back over to Mr.

Ficalora for closing remarks.

Thank you so much.

On behalf of our Board and our management team, I thank you for the opportunity to discuss our solid quarter 2009 performance, and the continued strength of our balance sheet.

Thank you, and good-bye.

Thank you.

This does conclude today's New York Community Bancorp first quarter 2009 earnings conference call.

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