Flagstar Financial Inc (NYCB) 2010 Q1 法說會逐字稿

Good day everyone, and welcome to the New York Community Bancorp first quarter 2010 earnings conference call.

(Operator instructions).

For opening remarks and introductions, I would like to turn the call over to Ilene Angarola., Executive Vice President of Investor Relations and Corporate Communications.

Please go ahead.

Thank you.

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

Today's discussion of our first quarter 2010 performance will be led 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 provisions 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 conditions and trends, both nationally and in our local markets, changes in the financial or operating performance of our customers' 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, prepayment penalty income, and other future cash flows or the market value of our assets, including our investment securities, changes in legislation, regulation and policies, including those pertaining to banking securities and taxation, and our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations, and our ability to realize related revenue, synergies and cost savings within expected time frames.

You will find a more detailed list of the risk factors associated with our forward-looking statements in our recent annual report on Form 10K, and on Page Nine of this morning's earnings release.

The release also includes reconciliations of certain 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 Investor Relations portion of our web site, mynycb.com.

I'll now turn this call over to Mr.

Ficalora, who will speak to you briefly before opening the line to Q-and-A.

Mr.

Ficaolora?

Thank you, Ilene, and good morning, everyone.

We appreciate your joining us for this morning's discussion of our first quarter 2010 performance, which underscored the merits of our business model in general and, in particular, our growth through acquisition strategy.

As we indicated in our earnings release, the AmTrust transaction on December 4 played a significant role in our first quarter performance.

Reflect three months of combined operations, and the year-long improvement in our net interest income and net interest margin, our GAAP earnings rose 40.2%, year-over-year, to $124.4 million, equivalent to an 11.5% increase in diluted earnings per share up to $0.29.

Our cash earnings rose $37.1 million during this time, to $137 million, and were equivalent to $0.32 per diluted share.

On an operating basis, our earnings rose 42.2% year-over-year, and 29% link quarter, to $126.1 million, or $0.29 per diluted share.

The difference between our GAAP and operating earnings was attributable to acquisition-related costs of $1.7 million, after tax.

Before I get any further into the first quarter earnings discussion, I do want to mention the bolt-on transaction we did on March 26.

The Desert Hills Bank acquisition strengthened our franchise and our presence in Arizona, by adding six branches to the 12 AmTrust branches we had aquired in that state.

It also provided certain assets, loans, and deposits, and provided an opportunity to further enhance our tangible stockholders' equity.

The increase in our first quarter earnings reflects a 42.4% rise in net interest income year-over-year, and a 15.8% increase linked quarter, as well as the expansion of our net interest margin, to 3.41%.

The margin was eight basis points wider on a link quarter basis, and 52 basis points wider year-over-year.

The expansion of our margin and the increase in our net interest income were partly acquisition-driven, and partly attributable to historical low level of federal funds rates.

The opportunity to enhance our funding mix with an infusion of low-cost retail deposits has been one of our many benefits of our growth to acquisition strategy.

On March 31, 2010, deposits represented 53.6% of total assets, a meaningful improvement from the 43.5% March 3, 2009.

The deposit growth was experienced -- we experienced in the quarter was driven by retail deposit growth.

At March 31, retail deposits were $820 million higher than they were at -- in the December period.

With more than 60% of the increase stemming from organic deposit growth.

While the acquisition of a bank typically leads to an outflow of deposits, our first quarter of branches in Ohio, Florida and Arizona accounted for a $198 million of link quarter deposit growth.

I'm also pleased to report that the growth was not limited to these three markets.

Our New York and New Jersey branches contributed to $247 million of link quarter increases in deposits.

Another first quarter highlight was an interest in non-interest income, largely reflecting the benefit of acquiring AmTrust's branch network and its mortgage banking group.

Non-interest income more than doubled year-over-year, to $55.4 million, primarily reflecting a $25 million increase in other income, to $34 million, which for the most part was attributable to mortgage banking operations and fees.

Of course, the AmTrust transaction was contributed to an increase in operating expenses, as did the doubling of our FDIC insurance premiums year-over-year.

Nonetheless, our operating efficiency ratio was an enviable 36.05%, in the current first quarter, comparable to the measures recorded in the trailing and year earlier three-month periods.

Aside from the increase in operating expenses, the growth of our earnings was tempered by a loan loss provision of $20 million.

The net effect of this provision, and the first quarter net charge-offs of $10 million, was a $10 million increase in our loan loss allowance to $137.4 million.

At the end of the quarter, our non-performing assets totaled $750.8 million, and represented 1.77% of total assets, a linked quarter increase of $157.6 million and 36 basis points.

Non-performing loans accounted for $734.7 million of non-performing assets at the end of the quarter, and represented 2.61% of total loans.

Although non-performing assets continue to rise, as we had expected, our level of charge-offs remain comparatively small.

Consistent with our experience in the current and prior adverse credit cycles, our ratio of net charge-offs to average loans continue to be significantly lower than the ratio of non-performing assets to total assets, and of non-performing loans to total loans.

Importantly, we are seeing low- and no-loss resolutions of prior non-performing assets.

In fact, net charge-offs represented a mere 0.04%, of average loans in the current first quarter, consistent with the measure in the fourth quarter of last year.

The level of non-performing assets and loans was not impacted by the loans we aquired in our acquisition of AmTrust or Desert Hills Bank.

Those loans are covered by FDIC loss sharing agreements at 80% and 95% , that substantially mitigate the inherent credit risk.

At March 31, covered loans totaled $4.8 billion, and represented 16.5% of our total loan portfolio.

Under the terms of the Desert Hills agreement, the FDIC will reimburse us for 80% of losses on acquired loans, up to $101.4 million, and for 95% of losses beyond that amount.

Similarly, the loss sharing agreements pertaining to AmTrust acquisition called for 80% of reimbursement up to $907 million, and 95% beyond that initial amount.

Our ability to grow our earnings during the current credit cycle is indicative of our focus on producing multi-family loans on below-market rental apartment buildings in New York City, as well as our consistent credit standards and the loan-to- value ratios on our multi-family and commercial real estate loans.

At the end of March, our portfolio of multi-family loans had an average LTV, at origination, of 60.9%, and our portfolio of commercial real estate loans had an average LTV, at origination, of 53.9%.

These ratios were comparable to the LTV's at December 31.

Our ability to generate earnings growth as reflects our ability to resolve our troubled loans, more often than not by working with our borrowers, and more often than not having a troubled loan restored to performing status.

In an adverse credit cycle, there is nothing more important than the ability to operate from a position of capital strength.

At March 31, 2010, we continue to be in that position, with our adjusted tangible equity representing 7.33% of adjusted tangible assets, signifying a linked quarter increase of eight basis points and a year-over-year increase of 134 basis points.

Desert Hills transaction on March 26 was capitalized by the 1.8 million shares issued through our DRP, while capital was further increased by the $30.1 million net contribution of cash earnings to capital.

In view of the strength of our earnings, and our tangible capital position, the Board of Directors last night declared our 25th consecutive quarterly cash dividend of $0.25 per share.

The dividend will be paid onMay 18, to shareholders of record at May 5.

In closing, the actions we have taken in accordance with our business model have resulted in higher earnings, stronger capital, and enhanced liquidity.

Although economic weakness continues and regulatory reform, in one guise or another, appears certain, we believe we are well positioned, as a result of our actions, to contend with these challenges and related uncertainty.

At this time, I'd be happy to take your questions.

As always, we will be -- do our best to get to everybody in a timely manner.

But if we should miss you, please feel free to call our Investor Relations Department, or leave a message for us and one of us will get back to you.

And now, the first

(Operator instructions).

Our first question comes from Collyn Gilbert with Stifel Nicolaus.

Thanks.

Good morning, gentlemen.

Good morning, Collyn.

How are you?

I'm good, thanks.

A question on the efficiency ratio.

Could you give some color as to what your targeted efficiency ratio is, and when you expect to achieve that?

I know you ran through some drivers last quarter of that.

But maybe just refresh our memories on that.

Hi, Collyn.

It's Tom Cangemi.

How are you?

Good, thanks.

I'll give you some color in general for the expense run rate that we are going to anticipate for 2010, then you should be able to back into our efficiency ratio.

For the year 2010, we expect to be around $514, $515 million of non-interest expense.

Of which, in addition to that, about $31 million of CDI.

That should you give you some good cover from there.

And then, on that same -- so you gave the expense side, but then on the revenue side, just -- the exact amount of the mortgage servicing fees this quarter was what?

Well, we had about $34 million of total non-interest income, of which around $27 million came from the mortgage banking ops, including servicing and origination.

And do you have a growth -- targeted growth goal on that business?

No.

It's way too early for us.

We're still working very closely with the people over at the new AmTrust franchise.

They're doing a phenomenal job for us.

We're learning the business and we're excited about the opportunity, and we're still going through the process of evaluation.

Good news is that we feel that we are meeting our targets internally, and things are working out very well.

But we're not going to give any specific guidance as far as revenue for that line of business yet.

Okay.

So just putting those two comments together, could we assume then that the efficiency ratio is going to start to decline a bit?

I think that's correct.

I think, given that we're up and running, and doing a phenomenal job as far as volume is concerned, we're meeting our targets, that will improve our efficiency ratio.

It's early on in the process.

We've been together for about four months now.

The pressure is on, though, Tom.

We can't wait.

[laughter]

We are excited for the operations over there.

They're doing a phenomenal job.

I'll leave it at that, for now then.

Thanks.

Thanks, Collyn.

Our next question comes from Bob Ramsey with FBR Capital Markets.

Good morning, guys.

Good morning, Bob.

How are you?

Was there any bargain purchase on Desert Hills or anything one-time running through the fee income lines?

No.

Bob, it's Tom.

Basically, we closed that two to three days before quarter end.

It's a very small transaction.

My guesstimate right now -- we're still in the process of evaluating the loan mark, it was pretty tight.

So it's going to be -- probably much a -- pretty much a break-even, give or take plus a few million dollars, of nothing material there.

It's a very small transaction.

Couple of million bucks either way.

My guess is that it's going to be zero to maybe up one or two, as far as the bargain purchase, potentially.

But, it's still in the process of evaluation.

I think the growth in the AmTrust deposits is certainly a positive.

Could you talk a little bit about what's going on on the rate front, in terms of the AmTrust franchise?

Yes.

The rates are still coming down.

No question, these markets are different, each from each other, as well as from the New York markets.

The rates do show significant opportunity to continue to come down.

Okay.

Then maybe final question.

With the level of NPL growth looking like it increased a bit this quarter in dollar terms, could you talk a little bit about the inflows and some of the resolutions in the NPL number?

Sure.

At this point in the cycle, there's no question that there is going to be, in some cases, significant reordering of portfolios.

And in those cases where the loans are being refinanced or otherwise, there's going to be some sort of activity to sell or to deal with the asset.

There's going to be resolution, prospectively.

The good news for us is that we're already seeing positive, or low- or no-loss, resolutions on assets in the tens of millions of dollars.

Those numbers could be, down the road, hundreds of millions of dollars.

The reality is that we have, in some cases, very large loans that go non-performing.

Doesn't mean they're going to lose any money, it means that they've gone non-performing for some reasonably short period of time.

So,the number will be lumpy.

It's going to change.

The practice, and certainly our experience has been, that we have significantly greater positive resolution than most of our peers might, with the same kind of non-performing.

So our non-performing is going to be higher, and is going to be resolving on the one hand, and showing increases on the other hand, but the actual losses will be reasonably modest.

Bob, it's Tom.

Just an additional commentary to that.

It seems like things are getting better on the credit front.

As Joe indicated, we are seeing some resolution.

Some of these NPAs that are gettting to work out and or are being sold in the market are coming out of prices that make sense for the borrower and the bank.

And we're looking at, potentially in a very short order, significant declines in some of these NPAs, that are existing NPAs.

Now, as Joe indicated, there may be some more coming on.

I think we're seeing a trend that, most hopefully by year-end, it'll be going the other way, with decling porfolio in non-performing assets.

Okay.

Great.

Thank you, guys.

You're welcome.

Thank you.

Our next question comes from Matthew Clark with KBW.

Go ahead, please.

Good morning guys.

Good morning, Matt.

Just first, would you mind clarifying your earlier comments related to the deposits in Arizona, Ohio and Florida.

I think you mentioned that they were up $198 million or so.

Right.

Does that include the Desert Hill branches?

No, no, no.

Not at all.

Not at all.

Those deposits are the deposits in the existing branch franchise that represented AmTrust in the acquisition.

Got it.

Okay.

Then, in terms of the fees, is there anything else in -- with no BPO.

Is there anything else going on in that fee income that might not be -- that might move around quarter to quarter?

Just trying to get a sense for if that's a true run rate or not.

I think -- it's Tom.

I think the reality is that, we're in the business for four months on the mortgage banking side.

This is the first quarter of a full quarter of operations on AmTrust, that has the lion's share of the up-tick there.

I think that could be higher going forward, depending on how we manage the business.

Right now, we're still in a early phase of that business.

And that's the lion's share of the increase.

Okay.

Lastly, can you update us on your deal appetite?

With what we're seeing down in Florida, you've got international buyers now getting involved, well-bid deals, thresholds have changed with the FDIC.

There's still deals out there to be had.

But just curious as to what your appetite is now.

I think Tom may have some comments on this as well.

The bottom line is, there are going to be plenty of deals over the course of the period in front of us.

There's no need for us to be aggressive in every deal that comes to the table.

There's no escaping the fact that we are in a moment in time when there are buyers that are willing to pay substantially more than the deals have traded at as early as a quarter ago or two quarters ago.

So, when you look at these structure of deals, they may be more aggressive than we're willing to be involved.

Therefore, since there's plenty of opportunity on the horizon, and some of the bidding that is occurring may be more aggressive than we would want to be, the likelihood that you see us taking a transaction may at least, in the near term be less, but in the long-term, certainly will increase.

The good news for us is that we have an awful lot already on the table.

We have a lot of dry powder, a lot of liquidity, a lot of capital, a lot of capacity.

So, we have the ability to grow our earnings, to grow our franchise, without doing a deal ,and be very well situated quarter-by-quarter into the future.

Matt, it's Tom.

I would just add to the fact that this aggressive bidding is not going to change our philosophy about being conservative on our IRR.

Our IRRs are substantially higher than most banks, as far as how we look at acquisitions.

And we'll be patient.

If something comes in, in a bolt -on transaction that makes sense for us, at the right price, we'll hopefully be able to get something done at the right price.

But, we're not going to chase opportunities.

As Joe indicated, we're very focused right now.

We have a lot on our plate.

But the good news, that the two deals that we've accomplished are very high IRR's.

Matt, just a further comment.

Even when we weren't doing FDIC deals, we considered significantly more transactions than we ever executed.

So it's a long standing process for us to actually evaluate the market and choose our places to do business.

So we are virtually very much aware of what's going on out there, even though we may not be showing deals closed.

Great.

Thanks, guys.

Thank you.

Our next question comes from Tom Alonso with Macquarie.

Go ahead, please.

Hi, Tom.

How are you guys?

Good morning, Tom.

Just real quick.

You guys note the pipeline was about $1.2 billion at the end of this quarter.

Can you just give me the number at the end of last quarter?

I think it was shy of $1 billion dollars.

I think we exceeded it.

I think, as has been the case, probably for I don't know, years maybe, we've exceeded our pipeline, quarter-by-quarter.

We exceeded our pipeline last quarter and, in fact, the pipeline that we're looking at here, we think we're very comfortable that we'll be able to get well beyond.

And, to that end -- your thoughts on when you could potentially start to see some increased appetite here, with some commentary about maybe the economy's getting a little better, things are getting a little better.

Well, it's interesting.

The economy, in broad brush, is less relevant than the actual assessment of our immediate market by the owners, that are relevant to us.

Now, New York will trade differently than our niche will trade.

And the real people that we're willing to lend to have a very different perspective than, let's say, the broader markets might.

In our particular niche, there's no escaping the fact that there are very good property owners who are being very patient, because they're fully aware that there are great properties in the marketplace, that have already defaulted, that just have not come to the market for sale.

The difference between this cycle and the prior cycle is that we've had a huge amount of structured debt, which was way overpriced, and therefore it's going to resolve.

But it doesn't resolve with an FDIC transaction, it resolves with a conduit being broken up and decisions being made as to how those losses are going to be allocated amongst the various existing owners.

So the timing is longer.

Ultimately, everything has to resolve.

And therefore, the opportunity for us is real and continuous into the future, but the activity levels in the last few months and, certainly as we see it immediately in front of us, are slower.

But the volume of product can't be denied.

Ultimately, a tremendous amount of product will change hands and, ultimately, a tremendous amount of our portfolio will refinance.

When there is genuine expectation that rates are going up, a large share of our portfolio will refinance.

Okay.

Understood.

And I just want to make sure I understand, on your commentary on the deposit rates.

Basically, the little pick up this quarter was just for the full quarter effect of AmTrust.

Correct.

Those are repricing down as we speak.

That's correct.

Perfect.

Okay.

I just wanted to confirm that.

Thanks.

Okay.

Thank you.

Our next question comes from Matt Kelley with Sterne, Agee & Leach.

Good morning.

Yes, hi guys.

Just on the mortgage banking line and that $27 million.

Was there a MSR write-up included in that?

We actually had approximately about $17 million from pure mortgage originations, which included approximately 127 basis points all in on the overall portfolio growth.

We did about $1.3 billion in volume.

So we booked about a 127, I believe, the total amount was, approximately.

Okay.

Obviously, we're not selling servicing.

[inaudible] retaining servicing.

Right.

But there was no write-up on that.

No.

Definitely not.

Okay.

Just the other question.

On the pipeline, the $1.2 billion, what's the yield on that looking like?

I'd say right now on the multi- side, somewhere in low five,low- to mid- five, depending on the market.

Around 300 over the five year.

And a lot of that pipeline is obviously mortgage banking related.

Somewhere in the low five's.

We are earning on the held-to-sale portfolio, very nicely.

The single largest player in the marketplace, that is holding rates lower than the market generally, is Fannie Mae.

So the question is, how long will Fannie Mae continue to be a significantly below-market player in this market.

Fair enough.

Then just on the NPA growth and formation.

Can you talk about, during the first quarter, the types of resolutions that you had?

Maybe a couple of examples.

How did it break down between foreclosures where there was modest loss, versus note sales?

How are you working through the pile of that assets?

It's all of the above.

You can easily imagine that there are going to be circumstances where assets that were in ORE were actually sold, where assets and, by the way there is some active contracts in play here, where there are existing loans that were sold in their entirety or being negotiated to be sold in their entirety, where there are existing loans that are, in fact, refinancing.

So it's basically all of the above.

What is on the horizon is a series of sales and trades, where we're getting paid substantial amounts of money, as a result of those trades.

Matt, it's Tom.

I would just add to that.

A lot of that activity has taken place at the end of March, which will actually be a second, probably April, May, and June.

There was one large relationship that went into bankruptcy that actually sold, and without any negative impact to the company, we will resolve that.

There's a 30- to 60- day window they have to actually, physically close on the transaction.

But all of every favorable pricing for the company.

So we'lll see some nice activity in Q2.

Obviously that activity did not take place in the physical quarter of Q1, but at the end of the quarter, as far as actual legal transactions, closed literally at the last week of March.

So we're going to see some good activity in Q2.

Okay.

And then, last question.

Tom, could you just give a little guidance on the margin, what you're thinking about there?

Yes.

We're sitting with a lot of liquidity, a lot of cash.

Keeping our patterns right, as Mr.

Ficalora indicated.

We still expect to see margin up every quarter, going into the 2010.

It's not going to be at the level of the previous year, given that the low-lying fruit on the CDs have been picked off, most of it.

But we're still seeing good margin expansion here, with a substantial amount of liquidity.

If things change and rates start to rise here,we'll be in a much better position.

Okay.

Thank you.

Thank you.

Our next question comes from Rick Weiss with Janney Montgomery Scott.

Go ahead, please.

Hi, guys.

Good morning, Rick.

I just wanted to follow up on Matt's last question with the margin.

Are you seeing -- what's happening with respect to refi's?

Very, very little, Rick.

It's been very dismal.

So we're holding onto the asset a little bit longer.

We're not seeing much prepayment at all.

So in those numbers, I think it was like a million and two, or something like that, for the quarter.

Very small.

We're budgeting a very low amount for 2010.

Exempt of prepay, we're still seeing some margin expansion here.

Okay.

Tom, are you thinking about trying to extend the liability side to protect the margin, at this point?

We are looking at all opportunities on the liability side.

The good news is that our leverage ratio is at the lowest it's been in probably a decade.

We're at 30%, wholesale liability, for total assets, which is a nice place to be, given our history.

And we have some flexibility, given the AmTrust transaction, to do some liability work going forward.

Okay, got it.

Thank you.

Thank you.

Our next question comes from Christopher Nolan with Maxim Group.

Hi.

Morning, morning.

Quick question, Joe.

The rise in the NPAs.

Is this really related to landlords in New York being under greater financial stress just from high vacancy rates or low rents.

Can you characterize the drivers?

I think it's -- the broad answer would be that rentals are down in New York.

The specific answer, with regard to our portfolio, is that our portfolio is typically not affected by declining rental.

In every cycle, including this cycle, most of our properties are so far below the market, that the rentals continue to go up, albeit slowly ,but continue to do what they've always done, go up even in the depths of the cycle.

I think that the evolving marketplace, our activity is slower because there is clarity.

In the eyes of the people that represent the most activity in our niche, they are fully aware that there are good properties that have already defaulted and will be coming to the market.

So they don't need to refinance their existing portfolios.

And they're virtually letting those existing portfolios wait for refinancing, in order to be able to be in a position to buy, down the road, when product comes in to the marketplace.

When we look at the nonperforming, that is, in many cases, people readjusting their holdings.

There are going to be some players, these may very well be different than the ones I was first speaking of, there may very well be some players, that are going to be moving out of their holdings of certain kinds of assets.

They in fact -- we have a rather public situation where there is a holder of $50-odd million of our non-performing, that has hundreds of millions of dollars of non-performing elsewhere.

The resolution of his holdings is resulting in our getting paid 100 cents on the dollar.

The net effect, so far, is that we're getting out even.

There may be very small losses in some and small gains in others.

The net effect of that whole resolution should be that we lose no money.

And that is something that's already in the pipeline.

So I think that when we think about the future here, there's going to be non-performing going up and resolving.

I think the ratios will be favorable.

Quarter-by-quarter, we'll have more resolution than we have additions, as we go down the road.

And then, just a quick follow up.

Can you give us some sort of geographic breakdown in terms of where the NPAs are.

Are they more centered in Manhattan or the outer boroughs?

I think it's in many markets.

It's not -- the non-performng in our niche is nonexistent.

The non-performing or, let me put it differently,it's very, very, very small.

The non-performing in the portfolio that we're seeing is, in some cases, coming from other markets.

So, we have a large population of asset holders today, including asset holders in markets outside of Manhattan, or our niche, and therefore some of that non-performing is atypical, but because of the way in which we lend, we're still having very, very good results in many of those cases.

There are some cases where we've lost money.

We charged off $10 million this quarter.

And, lo and behold, we've charged off money in other quarters as well.

They're the exception, not the rule.

Great.

Thank you for take myquestions.

Sure.

Thank you.

Our next question comes from Mark Fitzgibbon with Sandler O'Neill.

Go ahead, please.

Good morning.

Gentlemen, I wondered if you could share with us whether you've hired senior level people to oversee your operations in Florida, Arizona and Ohio.

The good news is that the existing people are extraordinarily talented and effective.

The reality is that that bank was in an 18, 24-month downsizing.

A lot of the people that left that bank were not the best performers.

The people who are there are proving to be exceptionally good performers.

So the performance metrics of the franchise in Ohio, Florida, and Arizona, far exceed any deal we've ever done.

So I think the good news is that even though these are distant markets, they have people present in those markets that are very effective, that are now reestablishing their deposit base.

Their deposit base has the ability to be billions of dollars larger, because it already has been.

The availability for the people that are there to reperform on a positive basis is indicative.

I don't think, Mark, there are any deals that we have done, and certainly most deals that others have done,do not result in the first full quarter after the announcement of a deal, deposit base going up $198 million.

That just doesn't happen.

So I think it's much to the credit of the talent ,the people that are there and doing what they have proven they have the capacity to do, grow deposits.

Okay.

And then, a second question.

How much are your TDRs, and how much of that number is on nonaccrual?

So far, our TDRs are relatively low.

I'm not sure exactly what the number is.

We certainly could get that to you.

Mark, it's Tom.

All our TDRs are nonaccrual.

Right.

It's not a big number right now.

As they evolve, in the fourth quarter, we had some TDRs, I believe we had disclosure in the K, on the specific amount.

That's probably where we are as of today, the amount that's sitting in the 10K.

The reality is that, interesting point there, is that that was a relationship, a few relationships, that went bad in the quarter and they were quick to resolve with the company a plan of cash flow to get out of their problems.

The good news, as Joe indicated, some of these deals are coming to the table now for sale.

What we plan to see, a reasonable amount of resolution for the TDR portfolio as well.

We're seeing some contracts for sales that make sense for the borrower to sell their assets, in conjunction with the bank assisting them on resolving their issues.

Okay.

And then the last question.

The effective tax rate bumped up a little bit this quarter.

Is that a good run rate, 35 and a halfish?

2010, we are making more money and expect to make more money going forward.

I think it's fair to say that the run rate for 2010, we're making more money, we expect to make more money going forward here.

So that's probably going to be the effective rate for the year.

Thank you.

You got it.

Thank you.

Our next question comes from Ken Zerbe with Morgan Stanley.

Go ahead, please.

Good morning.

It's more of a theoretical question for you.

When you think about acquisitions out of market, is there any kind of practical limit that you would apply to geography or size as a percent of total deposits, for example of your total portfolio, where you might just say it gets a little bit cumbersome, right, you buy in Washington or Puerto Rico, or wherever you might buy the next transaction --

We are not likely to go to Puerto Rico.

I think it's a rational question.

The most relevant answer is our actual experience.

In other words, whether we're sitting in southern Florida or southern California, that's far enough away, that if we don't have talent on the ground, the franchise can't be run.

The good news is that, in particular, in the deal that we did with AmTrust, we have real talent on the ground.

The integration of a bolt-on, for example to the Arizona franchise.

The talent that's already there from AmTrust makes it very easy to integrate those additional franchise branches into that world.

So the ability for us to build a franchise in another state is driven by the quality of the people and existing franchise.

In each case, where we're in three different states, if that was three different deals rather than one deal, it would still all work because the necessary talent to run the branches is already in place.

And the branches themselves are very strong performing branches, that already have had, for the staff that's present, have already had significantly greater deposits.

So the ability to do de novo.

You've got to go into a community and convince people to come into your bank.

In the case of each of these new franchise branches, Arizona, Florida, people are already familiar with going to those locations in banking, and they took some share of their money and put it elsewhere.

They're bringing it back.

Okay.

It sounds like additional acquisitions if you can get comfortable with the management or the quality you'd be willing to go out of market again.

That's right.

But, Ken, I think in reality, in this environment, we actually transact on the fourth largest FDIC transaction, a very sizable deal, obviously, and we have a great bolt-on opportunity, Arizona, Ohio, Florida.

We could do bolt-on transactions.

They may be much smaller but they're very effective, as Joe indicated, the talent is on the ground.

We're in the market.

To make the market more profitable by expanding within the market makes a lot of sense for us.

All right, great.

Thanks.

Thank you.

Our next question comes from Greg Ketron with Citigroup.

Go ahead, please.

Good morning, guys.

Good morning, Greg.

Just a question on a more strategic basis, as you have had AmTrust for four months and you look at other potential opportunities, is there at some point that you reconsider the strategy ,and maybe try to fully leverage the deposit bases that you're acquiring through looking at other business activities?

As I understand, you're still using third parties to originate in the new branch system.

At some point would you revisit that, and maybe think about commercial lending or other avenues to fully leverage the branch franchise?

I think at this juncture we have no strong desire to change our asset generation capacities.

We have every confidence that we're going to be able to deploy significantly greater amounts in our principal lines of business, as they exist today.

The good news is that we've aquired talent, and we do know that we have the ability to conservatively do C&I lending.

Our commercial bank performance is extremely strong.

Now, that is obviously principally in the New York market.

But to the extent that we want to to do any kind of lending in any market we are in, we existing talent on staff that can adequately assess the risks involved in doing a particular kind of loan.

Greg, it's Tom.

I would just add to that, given that we have this well-oiled machine in Cleveland on the mortgage bank side, and we have 300 branches, we have an opportunity here.

None of the originations right now, from our mortgage ops, are coming from the retail front, that is right now currently outsourced.

So we have a tremendous opportunity to make significant revenue benefits, by marketing that product through the branches and being able to own the product.

So there is potential, I guess at some point, maybe you do add some of the mortgage production to the balance sheet.

Not for the balance sheet, but for the bottom line, yes.

Origination.

We are not still not interested in portfolio in one- to four- family houses.

We are 100% producing [inaudible] paper, that's it.

Okay.

Great.

Thank you.

Thank you.

Our next question comes from Daniel King with JPMorgan.

Go ahead, please.

Yes.

Just one quick question, just regarding ADCs.

How much more commitments do you guys on the book, and how much of those you expect to fulfill?

It's Tom.

Very, very small.

We have not been building that portfolio.

If you look over the past, we'll call it 24-29 months or so, we've been declining that portfolio dramatically.

We're just managing our commitments that we have.

We're very reluctant to expand that in a downturning economy and a downturning real estate environment.

Obviously, unless something is a significant relationship that has very, very low probability of any loss at all, then we would pursue it.

But we've been pretty much out of that market for a while.

Thank you.

Thank you.

Our next question comes from David Hochstim with Buckingham Research.

Go ahead, please.

Good morning, David.

How are you?

Good morning.

How are you?

Couple of things.

Can you give us some sense of how different deposit rates are in the new markets versus New York, are they appreciably lower in Arizona and Ohio?

It's about 50 basis points differential, and some of those markets are actually higher not lower.

But the branches are significantly more profitable in those markets.

So by example, in Florida where rates might be higher for certain kinds of deposits because you have a lot of retirees, we have $475 million, $425 million, in a branch.

So the branches are far, far more efficient net bottom line, taking the cost of deposits into account, the branches in Florida and Arizona are far more profitable than the branches in New York, for example.

And then, again, on the non-performers can you give some additioal color in terms of the inflows and what kind of concentration was there, and the increase in Q1 in terms of number of borrowers or --

I don't think there were any large numbers of borrowers.

I think that the changes are basically in line with what we've seen before, excepting there's just additional loans that are in fact in the process of being resolved.

David, it's Tom.

If you look at the delinquency trend in to Q2, right now on a link quarter basis it's down 20%.

In addition to that, we have some significant resolution ahead of us, and we will finally come into resolution, either through the bankruptcy process or through actual sale from the borrower transacting on his portfolio.

We're seeing favorable movement in the portfolio, as far as resolution.

That doesn't mean it's not going to have any up-tick.

But it seems that credit trends are getting better and that we're getting close to stabilization and, in the event that some of these larger relationships resolve, you could have a declining NPA, maybe in the back half of 2010.

Okay.

And the relationship between the decline, the pretty significant decline in delinquencies and non-performers is attributable to the fact that you see these borrowers as troubled?

We have a few relationships, and we're working through them.

The good news is that they've already resolved some of their issues going into Q2.

It's interesting to see some of these larger situations resolve themselves.

As I discussed on a previous question, a lot of that happened at the end of March, which will resolve itself, we hope, in Q2 and Q3, as far as getting contracts at sale completed, sold, and assets disposed of.

It's clearly moving in the right direction.

This is the first time we've seen this in probably about a year and a half.

Okay.

And, then just on the mortgage banking business.

Is it safe to say you decided not to sell it after all?

We have not made any comments on our direction, but the good news is that it's working very nicely for the company.

We're getting a very good understanding of it.

And the team is in place.

Obviously, we're doing a lot of good work there.

We're working through the thought process right now, still.

You might well imagine, given how conservative we are, and our risk-averse nature, we are spending time and money making sure that we fully understand what the risks and rewards are of the business, and who are the relevant partners that we might actually move along with, and do things that make this even more plausible than it is at the moment in time.

I think it's fair to say the machine is well-oiled and well-managed, and we're very pleased with the current results so far, and clearly we're very pleased to have the new addition of the personnel, and they're doing a phenomenal job with the company.

And we're working directly on a daily basis with them, trying to figure out the long-term plan.

Is there a way for us to think about the expenses that are related to that $ 27 million?

I will tell you this, David.

I gave specific guidance for the expense for 2010, I said 514, 515 for total amount interest expense for 2010.

That assumes no -- any type of transaction.

In addition to that, we had about $31 million of CDIs.

So I gave you pretty good comfort on what the run rate will be, assuming that we maintain that business.

Okay.

Thanks.

You bet.

Thank you.

That is all the time we have for questions today.

I'd like to turn the conference back to Joseph Ficalora for any closing remarks.

In closing, the actions we have taken in accordance with our business model have resulted in higher earnings, stronger capital, and enhanced liquidity.

Although economic weakness continues and regulatory reform, in one guise or another, appears certain, we believe we are well-positioned as result of our actions to contend with these challenges and the related uncertainty.

On behalf of our Board and management team, I thank you for the opportunity to discuss our first quarter 2010 performance.

The continued growth of our earnings and capital, and the flexibility provided by our liquid assets, give us reason to believe that we are uniquely well-positioned for the economic and regulatory pressures that likely lie ahead.

Thank you, all.