Flagstar Financial Inc (NYCB) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to New York Community Bancorp's first quarter 2011 earnings conference call.

Today's call is being recorded.

At this time, all participants have been placed in a listen only mode.

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

Please go ahead.

Thank you.

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

Today's discussion of our first quarter 2011 earnings will be led by our President and Chief Executive Officer, Joseph Ficalora, together with Thomas Cangemi, our Chief Financial Officer.

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

Certain of our comments will contain 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 interest rates, which may affect our net income, prepayment penalty income, mortgage banking income, and other future cash flows, or the market value of our assets, including our investment securities, changes in deposit flows and in the demand for deposit, loan, and investment products and other financial services, and changes in legislation, regulation, and policies.

You will find more about the risk factors associated with our forward-looking statements on page 10 of this morning's earnings release and in our SEC filings, including our 2010 Annual Report on Form 10-K.

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 earning release, please call our Investor Relations department at 516-683-4420, or visit us on the web at IR.myNYCB.com.

I'll now turn this call over to Mr.

Ficalora who will provide a brief overview of our first quarter performance before opening the lines for Q&A.

Mr.

Ficalora?

Thank you, Ilene.

Thank you all for joining us this morning.

I expect you will have questions about the first quarter performance, so let me get started by quickly reviewing the most important features before opening the lines to Q&A.

First, we reported GAAP earnings of $123.2 million, or $0.28 per diluted share for the quarter, and operating earnings of $117.2 million, or $0.27 per diluted share.

Our GAAP earnings provided a 1.34% return on average tangible assets and a 17.01% return on average tangible stockholders' equity.

In addition, our efficiency ratio measured a gratifying 38.5%.

One of the key features of our first quarter performance was a $106 million, or 13.2% decline in total delinquencies from the trailing quarter balance as loans 30 to 89 days past due fell $102.3 million, or 67.7%.

The significant decline in past due loans was coupled with more modest declines in the balance of nonperforming assets and the balance of nonperforming loans.

As delinquencies were coming down, our production of loans per portfolio was increasing.

On a linked quarter basis, loans originated for investment rose $279.6 million, or 17.6%, to $1.9 billion, including a $112.1 million, or 11.3% increase in multifamily loan originations to $1.1 billion.

These were the highest loan production volumes we've seen in several years.

The last time we produced as high a volume of multifamily loans was in the third quarter of 2004.

The production of commercial real estate loans also increased substantially over the quarter as originations rose $165.8 million, or 47.7%, to $513.7 million.

Most of the multifamily loans we produced were due to refinancing as property owners took advantage of a decline in interest rates.

As a result, prepayment penalty income rose $4.5 million on a linked quarter basis, and the expected weighted average life of the portfolio declined from 4.1 years to a more traditional 3.2 years.

At the end of the first quarter, multifamily loans represented $16.9 billion, or 70.3% of loans held for investment, and 58.9% of the total loan portfolio.

With more than $2.4 billion of held for investment loans in our current pipeline, including multifamily loans of $1.8 billion, we expect to see continued portfolio growth as we progress through the year.

Although the balance of loans held for investment rose over the course of the quarter, the benefit was exceeded by a substantial decline in the balance of loans originated for sale.

As we noted in this morning's earnings release, the decline in 1-to-4 family loans held for sale was not unexpected, given the degree to which refinancing activity of 1-to-4 family loans declined throughout the United States in the last 3 to 6 months.

The decline in refinancing activity and the purchase of new homes was largely due to an increase in residential mortgage interest rates in the past two quarters which led to further weakness in the housing market.

As a result of these factors, our portfolio of 1-to-4 family loans held for sale declined on a linked quarter basis from $1.2 billion at the end of December to $507.5 million at March 31.

As a result of the average balance of loans declined $602.9 million to $28.5 billion in the first quarter of this year.

Nonetheless, our net interest income was comparable to the level recorded in the trailing quarter at $303.3 million and rose $8.7 million from the level recorded at the first quarter of 2010.

At 3.58%, our net interest margin was just 3 basis points lower on a linked quarter basis and up 17 basis points year-over-year.

While the impact on net interest income was not all that substantial, the impact of the decline in loans held for sale on our non-interest income was significant.

With fewer 1-to-4 family loans being made, income from the origination of 1-to-4 family loans fell $21.2 million linked quarter to $15.8 million, exceeding a $709,000 increase in servicing fee income to $4.2 million.

Our first quarter earnings were also impacted by a linked quarter rise in our loan loss provision.

Primarily reflecting the revaluation of large loan relationships, our first quarter's net charge-offs were $38.6 million, and therefore, we increased our provision to $26 million from $17 million in the trailing 3-month period.

Property reappraisals accounted for most of the quarter's net charge-offs and were indicative of the lumpiness with regard to certain large loan relationships.

Though higher than the measures reported last year, and in the trailing quarter, the ratio of net charge-offs to average loans was a modest 0.14% of average loans.

Our ability to withstand the vagaries of interest rates and weak economic conditions is reflected in the continued growth of our tangible capital.

Excluding accumulated other comprehensive loss, our adjusted tangible stockholders' equity represented 7.99% of adjusted tangible assets representing a linked quarter increase of 9 basis points and the year-over-year increase of 66 basis points.

In view of the strength and growth of our capital and our ongoing confidence in our ability to generate strong earnings in 2011, the Board of Directors last night declared our 29th consecutive quarterly cash dividend of $0.25 per share.

The dividend will be paid on May 17 to shareholders of record at May 6 and based on last night's closing stock price represented a dividend yield of 5.85%.

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

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

And now the first question, please.

The floor is now open for questions.

(Operator Instructions) In the interest of time, management asks that you limit yourself to one question.

(Operator Instructions) Bob Ramsey, FBR Capital Markets.

I guess I wanted to talk a little bit about mortgage origination volumes.

It looks like originations were down 60% quarter-over-quarter which I think is a bit more than the market.

Could you just maybe talk about what happened there, and why that is down more than the market?

What your outlook is, and where you all are with the new jumbo product?

Bob, it's Tom.

I guess we were very cautious in respect to mortgage banking activity for Q1 given a number of factors.

Number one, rates did move up quite a bit, and looking at the -- we'll call it the substantial refinancing wave that started in the late summer, actually closing out toward November.

Going into the first quarter, we saw a substantial drop-off in the financing activity, and in general, there was a lot of slowdown in general from the winter months.

So our expectation was around 50%, 55%.

So that 60% number was not a shock to us.

However, we were very cautious going into the quarter in respect to mortgage banking originations.

The good news, in this environment, we're going into the selling season.

So hopefully we'll see a pickup, and hopefully, Q1 is the low point for the year in mortgage banking activity.

I think in line with regard to our jumbo production -- that we do expect will pick up as time passes.

Unfortunately, we tied into a very large player that didn't produce very much in the way of loans.

So the fact is that we're in that business.

We've done the necessary changes, and we would expect that we'll be able to produce more in line with the market's appetite.

I think in general, it's very slow throughout the entire mortgage banking space, and we hope to see some pickup in the latter part of this year, hopefully in Q2.

Rick Weiss, Janney Montgomery Scott.

I was wondering if you could give us, Joe or Tom, a little bit of color into the multifamily loan pricing dynamics?

And what the competition is doing these days?

I think the pricing is definitely weaker than you would expect at this point in the cycle, but that's being driven by -- the very large player in our world continues to be Fannie Mae.

There's no question there are also international banks in this market, and therefore, they're using rate metrics that are very, very different than you would see in local lending.

But they are taking real volume.

So the increase in lending on our behalf and the increase in the availability of product in the marketplace is exactly what we expected.

The unexpected is the active participation by the really very large players, including Fannie Mae.

Rick, I would just add that in this environment the rates are still substantially lower.

So you are seeing some compression on pricing.

So that $300,000 is now more like $275,000, $250,000, $275,000-ish given market conditions on spread.

Dave Rochester, Credit Suisse.

A real quick one on the regulatory side.

Any additional color you have on the way regulators are looking at dividends, and that 30% payout level they're generally focused on for the larger banks?

Is it your sense that , that 30% level is something generally that won't apply to banks your size or

It's been indicated at least in all the conversations we've had in Washington that, that would not be the case.

They are looking at just the very large banks with regard to that kind of a limitation.

Great, and just wanted another quick one -- real quick.

How much did the repricing of that recovered loan portfolio -- the ARM portfolio -- impact the loan yield this quarter?

I would say probably on a linked quarter basis -- probably $3 million to $5 million.

The big impact -- as you know, the loans held for sale portfolio is down dramatically, Dave.

That was probably at least [$10.5 million] Having a much smaller held-for-sale portfolio.

Remember, we had a close to a $3 billion cash position coming off the AmTrust transaction.

A lot of that cash was utilized at the warehouse -- warehousing ourselves at a 4% spread.

So if you cut that average balance in half, it's a meaningful adjustment to top line revenues.

Collyn Gilbert, Stifel Nicolaus.

Could you just give us a little bit of color on the reappraisal that you saw on some of your larger relationships and which drove the increase in the provision?

And maybe what we could expect going forward?

I think that this has got to do with the annual reappraisal of properties that have been in the portfolio as nonperforming.

And within a year, those properties are reappraised.

Disposition goes to the market and actually gets realization of whatever the market value has improved to.

Reappraisal does not.

The unfortunate reality is, as we've indicated many times, we do have some very large relationships.

So when those large relationships go into court or otherwise have troubles, it has a broader impact.

Upon resolution, which is down the road, those adverse impacts will be less.

So although we've had significant charges that we've booked here, these are on anticipated values.

These are not on disposition values.

We've actually had well over $100 million in dispositions that went extremely well.

Matthew Clark, KBW.

Can you maybe give us your view on reserves, and the outlook there?

Obviously, you had a pretty meaningful drop in delinquencies, but non-performers not down much despite higher charge-offs.

Just curious about reserve coverage and how you're thinking about that going forward?

And the expectation for additional reserve at least?

When you think about it, this charge, which is the largest charge we've ever had to our reserve, represents the reserve has a capacity to last 4.5 years to 5 years of quarterly charges.

4.5 years to 5 years of quarterly charges at the same level.

If you look back at the statistics for banks, there are very few banks that have significantly higher reserves that have had charges to their reserve that would represent only 9 quarters of remaining reserves or 10 quarters of remaining reserves exist even after this large charge.

So I think when we think about our reserve, we're going to be adding to our reserve in the quarters ahead.

But this extraordinary charge is not indicative of an expectation that we're going to be increasing our reserves materially.

Any willingness to update your view on the margin outlook and expense run rate going forward that I think we talked about last quarter?

Matt, in this environment, rates are still very low.

As I indicated in one of the previous comments, you are seeing some pricing pressures.

There is no question the multifamily space in the commercial real estate space right now is seeing significant competition.

So assume that we have a lower spread of between [$250,000] to [$275,000], north of 5-year treasury.

This is a production volume going into 2011.

We're looking at rate and volume analysis, and obviously, production.

We're seeing some very good business forward.

So that probably will lead to some pressure on the margin, give or take 5 to 7 basis points in the short-term.

We hope to make that up with fee payment activity, as indicated.

If you look at the last quarter, a lot of our activity was refinancing activity.

We have a $2.4 billion pipe going into Q2 of which a lot of that is going to be re-fi'd.

So that depending on the level of prepayment activity, that could stabilize the margin.

But absent any significant swings there, you're looking at between 5 to 7 basis points negative.

On the expense front, anything new or different there?

I'd probably run -- just for an estimate -- between [$140 million, $143 million]-type range for the quarter, per quarter, on just non-interest expense.

Ex CDI?

Yes.

Okay, thanks.

Christopher Nolan, CRT Capital.

Quick question.

On the funding costs for the deposits.

Tom, can you give us any detail in terms of deposits -- CD deposits you might have repricing in this quarter?

I think you are going to see, Chris, you'll probably still see some more repricing lower.

We're still slightly above the marketplace -- on an aggregate.

But again, I would tell you the low-lying fruit -- and I've been saying this for a number of quarters right now.

You're not seeing significant reduction in deposit cost, but our overall cost of deposit for the quarter is I believe is like 86 basis points.

So we're pretty low, but we have some room on the CD side.

Give or take a few basis points a quarter.

Any quantity -- any amount of CDs which are repricing in the second quarter?

Can you tell us?

I can get back to you off-line.

I don't have the numbers.

Ken Zerbe, Morgan Stanley.

Just on the servicing portfolio, could you update us on how large that is now?

And is there any change to your expectations for -- I think there was $1 billion a month in growth in getting up to eventually the $20 billion?

Thanks.

It's Tom.

I will tell you that we're just approximately $11 billion in total UPB.

Obviously, depending on loan origination growth, we'll get to that $20 billion.

If we're not going $1 billion a month, that will take us a little bit longer.

Coming off the re-fi wave last year, $1 billion seemed very achievable.

Obviously, that's significantly lower now going into the winter months.

But assuming a pickup in mortgage banking activity in Q2 and beyond, you are looking at a reasonable range of time to get to that $20 billion.

And then when we hit $20 billion, I think we have to reevaluate our capital allocation there given the view on capital position for regulatory purposes.

But we feel pretty confident that we can get the $20 billion in a reasonable period of time.

We opened up the business last year -- in January of last year -- and now, we're sitting at approximately $11 billion.

So we're moving in the right direction, and I think the coupon that we have is very low.

So we have a very strong value of an asset class that we feel comfortable with that will be around for a while, and we believe that the value in general in the marketplace is probably somewhat undervalued given the view on servicing in general.

We continue to build it.

The good news there is that we're well past our breakeven point.

So as every month goes on, we make more profits from the business model because we have our cost structure set in place when we did the AmTrust deal.

Brad Ball, Evercore.

Could you talk a little bit about the dynamic between strong loan production, HFI production, and high satisfied loans?

And what the implication is for loan growth for the rest of the year?

I think it depends on what the exact product is.

If the product is satisfying, and it's as a result of sales, then typically that goes away all the time.

If the product is satisfying and going into -- let's say, Fannie.

That could be a bunch of the smaller loans.

The reality is that it is always going to be quarter-to-quarter, a changing dynamic, depending on where the volumes are actually being driven from.

So I would say that we see some very large production coming in this quarter, as indicated by the pipeline.

But we have some very large loans that are already known to have closed, or otherwise definitive with regard to expectation to close during the next two months.

The good news for us is that there is a growing -- as we've said, quarter for quarter here -- there's a growing marketplace in our niche, and we're going to see more activity.

We're going to see more prepayments.

We're going to see more production.

Whether or not there is a continuing satisfaction away or in the portfolio will depend on what the product actually is.

So we've seen at least in the beginning of this quarter a significant retention differential between last quarter and this quarter.

But that can change in the months ahead.

Brad, it's Tom.

I will also add to that, obviously we're planning growth in 2011.

Obviously, we grew slightly in Q1.

The big reduction of the portfolio was predominantly the held-for-sale portfolio for mortgage banking.

If you carve that out, we were up for investment.

I believe that will continue throughout the year.

We hope not to see a further reduction in mortgage banking held-for-sale volumes.

We hope to see that start to build here.

But the reality is that our loans held for investment, both on the multifamily side and the commercial side, are improving.

It's more of a rate volume analysis where you look at -- rates are lower just because of the market conditions, but we're seeing a lot more volume.

So hopefully, we'll see some good growth on the net portfolio throughout the year.

Great.

Just a quick follow-up.

The $2.4 billion pipeline, about how much of that is likely to be re-fi'd?

I would say it's a high percentage.

But of that, we're probably looking at, let's say, around 50/50.

That's a very unusually high pipeline.

But as Tom suggested, it could be at least at this juncture a 50/50.

The new money pipeline is probably about 50%.

Again, now we don't know what's going to leave the bank, but we had a very high retention in Q1 which is a good sign.

We're getting prepayment activity.

We're getting fees to restructure these loans as far as rate.

Obviously, rates are lower.

So it's attractive for borrowers to take advantage of these low rates.

But we're also getting paid prepayment activity.

And commenting on that, we view the same level type of volumes on prepayment activity as a positive going into Q2.

Again, that's a relatively short outlook, but we're see good prepayment activities in the months ahead.

David Hochstim, Buckingham Research.

Could you pull together your comments about what's happening to the margins with the lower balances or loans for sale?

You've got a change in deposit mix.

You've got some pressure on new loans from repricing, and I guess, competition in the market.

Can you just talk about those different dynamics a bit?

I guess in general, depending on the unknown, which is prepayment activity that could move the margin quite a bit.

So without a significant rise in prepayment activity, looking at between [5% to 7%] down, given the rate environment, and the type of yields that we're putting on the book in this current interest rate scenario.

However, prepayment activity can move that.

Assuming we have around the same level of prepayment activity, you are looking at between [5% to 7%] down, but we're going to have -- we believe -- a higher production going into Q2.

So we're going to have some more volume for the average balance to start to build.

That's [5% to 7%] in Q2?

Or for the balance of the year?

Q2, Q2.

I'm not going to go past Q2 right now.

And if the mortgage banking volume picks up again a bit, then you would get some extra yield from -- .

Oh, absolutely.

We lost probably in excess of $6 million in the first quarter just from the drop of the held-for-sale portfolio.

That was literally cut in half because of the market condition.

We hope to see that start to recover.

No guarantee, but we are seeing some signs of more production.

We are rolling out new programs.

Our goal by the end of this quarter is to have our jumbo ARM portfolio for the market in place.

That's an ongoing process.

We hope to have that closed by this quarter.

So we'll have a fixed jumbo program that's been up and running since late January, and our goal is to have an ARM jumbo program up in Q2.

So now we have a full array of products to offer customers throughout the United States.

Then, Joe, could you just clarify what you were talking about?

The valuation readjustment that doesn't reflect market values, the new appraisals?

That's got to do with the disposition of assets actually is when a real buyer steps up and evaluates the cash flows in a portfolio and makes a judgment that on a go-forward basis he will make money on that particular real estate.

In a reappraisal process, there are many other issues that are taken into consideration.

Not necessarily a real buyer in the market, but the actual activity in the marketplace.

Meaning that if lots of other properties are selling at deep, deep discounts, the appraiser can only look at lots of other properties.

So the reality is that our disposition experience is often extremely better positioned than our appraisal experience.

So whereas people think the market -- and I'll give you an example.

We had a property in New Jersey that was perceived to be worth $8 million based on appraisal or assessment.

And we sold that property for $13 million -- $13.5 million.

So the reality is that often our dispositions are significantly better than a perceived value.

But you've seen in this quarter -- you've seen a lot of appraised values that impacted our portfolio.

The impact to our portfolio with regard to disposition was basically neutral.

We, in fact, did not have any material losses on the actual disposition of properties in the first quarter.

That would be losses from relative to the prior appraised value?

That's right.

Prior appraisal or the values at which the property was actually foreclosed.

In some cases, we've reappraised.

In some cases, we have not.

Let me put it differently.

In some cases we've reappraised, and the value is the same as it was.

But my point being that our disposition charges were nonexistent in the quarter.

Very, very little in the way of disposition charges.

And the larger bulk of the charges were in large relationship revaluations.

So we talked about that, I think, going back.

We can't talk about the specifics as to where we are right now.

But going back with [Connolly], we had $50 million of at-risk assets.

And although the perception was that those assets were going to cost us a lot of money.

In actuality, they cost us almost no money because they were disposed of very quickly.

The ability to dispose of assets does not always come very quickly.

So the appraisal then somehow related to the relationship and the borrower's condition rather than the asset value?

No, no, you're talking about the current -- no, no, they're related to the market.

The appraisals go to the marketplace.

They don't go to the ability of the individual.

They go to the marketplace.

And virtually in certain markets, you're having significant losses being taken on assets so the appraisers can only look at those assets.

And therefore, the values may be well lower than the ultimate dispositions.

On a case-by-case basis, that will be decided in the future.

But with regard to the size of the portfolio that we are revaluing, it's a large portfolio.

Matt Kelly, Sterne, Agee and Leach.

In 2010, you had FDIC insurance expense of $49 million, and now they're changing the methodology for the base rate for calculation.

What do you anticipate the annual rate will be in Q2?

I would add, Matt, to that $1 million per month.

About another $3 million per quarter, starting April.

Okay.

Is that included in the -- ?

-- $13 million going into the new assessment.

Right, so an extra $12 million a month?

$12 million a year, excuse me.

$12 million to $13 million a year.

Yes, that is right.

Is that included in the $140 million to $143 million expense guidance you provided earlier?

Yes, that's pretty much the range, yes.

Okay.

All right.

And then just a question in the model.

What was the actual dollar amount of loans sold?

I would probably say it's -- you mean, the actual disposition of assets, nonperforming assets?

No, no, no.

In the mortgage banking business -- loan sales -- single-family loan sales.

I did [$2.9 billion] last quarter.

I have that.

Just bear with me.

About $1.5 billion.

Got you.

Much lower than the previous quarter.

Right.

Your gain on sale margin was like 105 basis points.

Gain on sale held in, but obviously, much less volume.

So obviously that's -- it's clearly a substantial change in the refinancing opportunity has definitely slowed down dramatically.

We are seeing some recovery here in April, which is a good sign.

But, no, no guarantee for the rest of the months ahead.

But obviously, this is the selling season.

Hopefully, we will see a pickup.

We were pretty cautious going into Q1 on volumes.

We expected between 50%, 55% of a drop for our business going into the winter months.

Okay.

I was just looking at the last 4 quarters -- trailing quarters.

Your gain on sale margins were 110 basis points, 130 basis points.

Do you think they will hold above 100 basis points?

I think it's fair to say we're going try to hold them over 100 basis points.

To be conservative, 90 basis points to 105 basis points is probably going to be the range.

We may tighten it up a little bit to gain some share here, but the reality is it's slow in general.

If rates continue at these levels, we may see a continuation of re-fi's.

Our rates are a little bit lower than they were in the beginning of January.

When January rates went significantly higher, pre-Middle East crisis and Japan crisis, we had a -- it stopped.

Literally.

A substantial change in interest rates.

Got you.

Last question.

What do you think you can do for gross non-covered loan growth for the year?

We're moving in the right direction.

We grew the net investment portfolio for the Q1.

Obviously, a lot of our closings came in late in the quarter.

So it was not indicative of Q1 for the earnings model.

But going into Q2, I think we're see good growth.

We have a very strong pipeline of which 50% of it is probably new money business.

The rest is re-fi which will contribute to prepayments.

I guess in this reality it's fair to say we should be -- I'm hoping for high -- we'll call it mid-single digits.

Mid-single digits on just the gross portfolio?

On net -- net loans.

Okay.

So including the runoff of the covered?

As you know, yes.

You know our seasonality of our book.

Q1 is typically is slow off of a tremendous Q4.

So we did grow the portfolio Q1, and we see good business in Q2.

Q3 is typically a slowdown.

Q4 becomes a tremendous pickup in volume.

In general, we're see going deals.

We have a very strong pipeline.

Rates are much lower.

Customers are accessing their ability to refinance.

You are seeing some good property transactions.

Okay.

All right.

Thank you.

Tom Alonso, Macquarie.

Just a couple of quick ones.

Most of mine have been answered here.

You say you are seeing pretty good re-fi volumes.

Are people following the standard pattern and taking more cash out when they do these transactions?

Usually, that's the case.

The market is definitely stronger.

So rents are up, and valuations are up.

So people are, in fact -- remember, we've come off of a period where the length of our loan was the longest that it had ever been in history.

And people have, in fact, come back and said, I will take a few more dollars, and they're justified by the cash flows.

So we're going to see increasing lending in the period ahead for sure.

We're going to see increasing earnings in the period ahead from a few dynamics.

We have billions of dollars of cash sitting there that's not earning anything.

So the cash could earn money.

We had an extraordinary charge in this quarter.

So that's going to be an additional bottom line contributor.

And we had a significant downturn in the origination of the mortgage bank which has multiple additional products that it is literally lining up to offer into the marketplace.

So the ability for us to earn in the future period is greatly enhanced by those 3 major factors.

Okay, fair enough.

Then I don't know if I misheard you before when you were talking about pre-pays.

Do you expect them to stay relatively flattish in the second quarter?

Yes, there is no question.

Pre-pays do have the ability to either stay flat at these very high levels.

Remember, a year ago comparison, we had a little over $1 million in prepay.

We did $19 plus million in the first quarter.

So the ability for us to do a very substantial prepay in the year '11 is indicative by what we've already seen and what we already have in the pipeline.

Tom, I think it's fair to say in a very short-term outlook -- we'll say, Q2.

We see the same consistent levels of prepayment going into the quarter.

And obviously, if that prepayment activity picks up, we can even see greater volumes depending on interest rates.

And obviously, depending on production in respect to new transactions in the marketplace.

There are a lot of customers looking at real estate deals, and they are accessing their capital.

Okay, fair enough.

Then just lastly, the bump up in the share count?

I assume that's just option grants and stuff like that year-end, or --?

That's right.

David Darst, Guggenheim Capital.

Could you comment on where your deposit growth came from, and then should we expect to see further improvement in the mix?

I think the important thing is that our retail banking is literally producing deposits even though our rates have been very, very conservative.

So I would say that it's coming generally in all of our markets.

Not just the New York market or just the Florida market.

It is something that is available, maybe in banking generally, but certainly with us.

David, we have not been aggressive on the deposit side, but we have a much larger retail platform.

And if we have to bring in funding as a growth mechanism -- right now in 2011, 2012 we want to utilize the liquidity position.

But when we exhaust our liquidity position in respect to excess liquidity, then we'll obviously look at the funding markets for retail.

And we believe having a much broader retail franchise will give us access to good funding.

Right now, it's very fluid throughout the entire banking business, obviously, given where rates are.

I think, importantly, our deposits grew core.

So even though CDs are down, our deposits grew on core deposits.

Very, very good deposit mix.

Okay.

Do you feel like you're under any pressure to further reduce your exposure to FHLB advances?

No.

Not at all.

New York is one of the best performing, if not the best performing Federal Home Loan Bank in the system.

So we have every reason to believe that the Federal Home Loan Bank will be a strong and viable partner.

David, I would add to that if you look at the Company's balance sheet, 29% is the lowest we've been in probably a decade on wholesale liabilities to total assets.

So we are focusing on, concentrating on retail liability growth over the past multiple years.

But the good news for us -- we're below that 30% benchmark.

Steven Alexopoulos, JPMorgan.

Question on the multifamily.

Just following back to what you said earlier.

When you look at the pricing you're talking about, what's in the pipeline.

I think you said [$450 million, $475 million] range.

How much of a step-down is that from what the multifamily loan book is currently yielding?

And how does it compare to the rate you are seeing on pay downs?

I'd say probably close to flat.

Again, this is a low rate environment.

We're not at a 5% -- just south of 5%, the coupon for multifamily.

We had a lot of repricing over the past year and a half.

So at this level, I don't think it's going to be a meaningful impact going forward.

I think the benefit is going to be the volume opportunity, putting on more assets.

Our average balance was down for the quarter, both in held-for-sale loans and in loans for investment.

We did put on a lot of production at the end of the quarter, but clearly the rates are lower.

This is a lower rate environment.

A lot of the higher rates have already previously re-financed.

But let me say, you could have a 50 basis point, 75 basis point, even a 100 basis point drop in a particular loan.

There are still loans in the portfolio that are 100 basis points higher than they would refinance at.

So the risk to earnings on the asset side does, in fact, occur when you refinance a lot of these loans that have been out there 3years, 4 years.

The good news for us is in the '09, beginning of 2010 period, a lot of people went into year 6.

And in year 6, they automatically went to 5 points.

And in year seven, it's 4 points.

So there will be a substantial amount of points that will insulate the first 12-month period that we have a refinancing.

But the reality is, the current rates in the market are, in fact, lower than many of the loans that are repricing as we go into the period ahead.

Let me just correct that statement.

Our overall yield is probably in the low 5s, not the high 4s.

For the multifamily dwellings.

The existing, yes.

Probably like 5.25-ish.

Right.

But the maturing loans would be higher than the portfolio yields.

That's right.

And then, you even said you are sitting on a lot of cash.

Any thoughts on moving some of that cash into securities?

We look at that every day.

It's been very challenging when rates are where they are right now in taking on duration risk.

So we're being prudent.

We're earning a little bit less money in this environment with the hope that if rates do rise in the future, we'll take advantage of that opportunity.

We've been very cautious there.

In 2010, we had the wave of accelerated cash flows.

This year, the cash flows are very manageable.

We're not expecting a lot of cash flow from the portfolio.

It's reasonable.

It's very manageable compared to 2010.

So as the market changes and opportunities arise, we'll take advantage of it.

We should be larger.

Our portfolio is too small.

The reality is that we're risk-averse on all assets, and therefore, we're earning less.

It's a fact.

If you look at our balance sheet, we could be earning more money right now, and we've chosen to earn less with the reality that we are taking less risk.

Right.

Bob Ramsey, FBR Capital Markets.

Maybe you gave this.

How much of the provision did relate to the reappraisal of the properties you all mentioned?

And can you maybe just give a little color in terms of whether the -- ?

I'd say the vast majority of what you have there was a result of reappraisal.

The important thing to recognize, our actual losses on disposition were very, very little, and the amount of disposition was extraordinarily high.

So the fact is that what we've seen in this quarter in very many ways is exactly what we've been talking about for the last year, year and a half.

So we are seeing increased volumes in the ability for us to generate loans.

We're also seeing the disposition of assets under favorable terms, and we're seeing a improvement in the nonperforming of the portfolio overall.

The extraordinary was the drop-off in earnings from the mortgage bank, which we would expect will have a pickup in the period ahead.

And certainly, the fact that we had such a large reserve that we put up because of the large charge that we had.

And with the reappraisal, could you say -- was it multifamily or CRE or a combination?

It was mostly multifamily, and, in fact, the largest issue is not even in our market.

And I think that's very, very important and telling.

I'll now turn the floor back over to Joseph Ficalora for additional or closing remarks.

On behalf of the Board and management team, I thank you for your interest in the Company and for joining us for this first quarter 2011 performance report.

We look forward to discussing our second quarter of 2011 with you on the morning of Thursday -- this is an unusual day -- on the morning of Thursday, July 21.

Thank you.

Thank you.

This does conclude today's New York Community Bancorp's first quarter 2011 earnings conference call.

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