Flagstar Financial Inc (NYCB) 2011 Q2 法說會逐字稿

Good day, everybody.

Welcome to New York Community Bancorp's second 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, Director of Investor Relations and Corporate Communications.

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 second quarter 2011 earnings will be led by our President and Chief Executive Officer, Joseph Ficalora, together with our Chief Financial Officer, Thomas Cangemi.

Also joining us 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 effect 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 9 of this morning's earnings release, and in our SEC filings, including our 2010 annual report on 10-K and our first quarter 2011 10-Q.

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 Investors Relations department at 516-683-4420 or visit us on the web at www.ir.mynycb.com.

To start the discussion, I will now turn the call over to Mr.

Ficalora, who will provide a brief overview of our second-quarter performance before opening the line for Q&A.

Thank you, Ilene.

And thank you all of you for joining us this morning, as we discuss the highlights of our second quarter 2011 performance and the various corporate strategies and external factors that drove our results.

First, we reported GAAP earnings of $119.5 million $0.27 per diluted share for the quarter.

And second-quarter operating earnings of $113.2 million, or $0.26 per diluted share.

Our GAAP earnings provided a 1.29% return on average tangible assets, and a 16.76% return on average tangible stockholders' equity, while our operating earnings provided respective returns of 1.23% and 15.90%.

The returns on our tangible assets and equity have, in fact, been a constant in our performance and were among the various measures that contributed to our appearance among the top 3 performers on S&L Financial's annual ranking of the nation's 100 largest THRIPS.

Among banks with assets of $2 billion or more, we clearly were at the top of the list.

We also reported cash earnings of $142 million, or $0.33 per diluted share, in that quarter, and those numbers are important because they represent the contribution made by earnings to tangible stockholders' equity.

Even after distributing $218.4 million in cash dividends in the first 6 months of 2011, our tangible stockholders' equity rose to $3.1 billion at the end of the second quarter.

Excluding AOCL, our ratio of adjusted tangible stockholders' equity to adjusted tangible assets rose 25 basis points during this time to 8.15%.

Given the strength of our tangible capital, as well as the strength of our earnings, the Board of Directors again declared a quarterly cash dividend of $0.25 per share at our meeting last night.

The dividend will be paid on August 16 to shareholders of record of August 5.

In addition to citing our strong tangible common equity position, I also want to mention that our regulatory capital levels continue to substantially exceed the requirement for classification of our banks as well-capitalized.

At the end of June, our savings bank subsidiary had a tier 1 leverage capital ratio of 9%, and our commercial bank subsidiary had a tier 1 leverage capital ratio of 10.72%.

I also want to set the record straight about our primary bank regulator, given that there has been so much in the market questioning whether or not we're among the banks that soon will be regulated by the OCC.

Both New York Community Bank and New York Commercial Bank are New York State-chartered institutions and our primary regulators are the FDIC, New York State Banking Department and the Federal Reserve Bank.

We are not subject to regulation by the Office of Supervision, or ultimately by the OCC.

Turning back to the second-quarter performance, I would like to focus on the improvements in our asset quality.

The first of these was $114 million, or 18%, reduction in non-performing, non-covered loans over the course of the quarter to $503 million and the 43-basis point improvement in the ratio to total loans to 1.76%.

Next was the dramatic decline in the balance of loans 30 to 59 days past due from the balance recorded at the end of December.

At the end of June, loans 30 to 59 days past due fell $91.9 million to $17.9 million.

This is the lowest level we have reported since the third quarter of 2007, which, as you know, was pretty much the onset of the downward credit cycle turn.

In addition, our net charge-offs declined $11.8 million in the past 3 months to $26.8 million and represented a modest 0.09% of average loans, an improvement of 5 basis points.

Although the level of other real estate owned increased during this time, the increase was more than exceeded by the improvement in non-performing loans I pointed out before.

As a result, non-performing, non-covered assets declined $89.2 million or 13.8% linked-quarter to $559.6 million, representing a 1.38% of total assets.

That measure represents a linked-quarter improvement of 20 basis points.

Although the market where most of the buildings securing our loans has improved in recent quarters, the improvements in asset quality also reflect the success of our efforts to work with the borrowers to facilitate repayment and our success of disposing of such loans at minimal loss.

Another important feature of our second-quarter performance was the significant volume of loans we produced for investment, and the resultant growth in our held-for-investment loan portfolio.

Loans produced for investment totaled $2.9 billion in the quarter, including $2 billion in multi-family credits and $619 million in commercial real estate, or CRE loans.

Reflecting the high volume of multi-family and CRE loans produced in the second quarter, originations of held-for-investment loans rose to $4.7 billion in the first 6 months of 2011, a $3 billion increase from the volume produced in the first 6 months of 2010.

Furthermore, the portfolio of non-covered held-for-investment loans net rose to $24.4 billion at the end of the second quarter from $23.5 billion December 31.

Excluding $92.1 million of CNI loans that were sold in connection with the recent disposition of our insurance premium financing business, held-for-investment loans net at a 7.7% annualized growth rate and represented 60% of total assets at the end of June.

With $1.8 billion held-for-investment loans in our current pipeline, including multi-family loans of $983 million, we expect to see continued portfolio growth as the year proceeds.

A significant portion of multi-family loans we produced in the past 3 months consisted of refinanced credits, which resulted in our recording prepayment penalty income of $25.9 million in the second quarter of in this year.

This was a significant increase from the $2.3 million in prepayment penalties income recorded in the year-earlier and a healthy increase from $19.6 million in the first quarter of this year.

At a time when average market yields are lower than they have been in several quarters, our prepayment penalty income contributed to the maintenance of our margin at a reasonable 3.50%.

While this margin was 8 basis points narrower than the trailing quarter measure, it was also 8 basis points wider than the measure we recorded in the second quarter of last year.

The benefit of the linked-quarter and year-over-year rise in loans held for investment was offset by the impact of a decline in the portfolio of covered loans to $4 billion, primarily reflecting the repayment of loans acquired in the AmTrust and Desert Hills transactions over the past 6 months.

Specifically, the balance of covered loans declined $132.8 million from the March 31 balance, and $289.6 million since December 31.

The balance of 1 to 4 family loans held for sale also declined year-over-year and linked-quarter, reflecting a reduction in the volume of loans produced.

With consumer confidence sorely strained by the continued economic weakness and the average market interest rates rising in the 1 to 4 family housing market, originations of 1 to 4 family loans for sale by our mortgage banking operation fell to $1.1 billion in the second quarter from $1.5 billion in the first quarter of this year.

The impact of the decline in 1 to 4 family loans produced for sale was reflected in our mortgage banking income, which fell $8.2 million to $11.8 million over the last 3 months.

This decline stemmed from a $6.4 million decrease in income from originations to $9.3 million, coupled with a $1.7 million decline in servicing income to $2.5 million.

I am pleased to say that our pipeline of 1 to 4 family loans held for sale has grown on a linked-quarter basis, while nonetheless remaining well below the volumes we saw in 2010.

While our second quarter earnings were also reduced by an increase of FDIC insurance premiums that took effect in April, the linked-quarter decline was primarily due to the drop in mortgage banking income and the reduction in average market yields on our held-for-investment loans.

Accordingly, the strength and growth of our tangible capital during this time underscores our resilience in the face of continued economic weakness and the current interest rate environment.

At this time, I would ask the operator to open the lines for questions.

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

Thank you.

Questions, please.

(Operator Instructions) Bob Ramsey with FBR Capital Markets.

I was hoping you could talk a little bit about expenses.

The number obviously came in a little higher than you guys had guided for heading into this quarter.

It looks like the G&A line particularly saw a big bump this quarter.

I was just curious what happened in this quarter and what your outlook looks like going forward?

It's Bob.

A couple of items that are (inaudible -- technical difficulties) here.

On the FDIC side, we're a little bit off on our budget.

We probably about $1.5 million higher than expected on the FDIC insurance expense, as well as additional foreclosure expenses.

As the REL book builds, over time, we had some more additional expenses on REL.

My budget for probably next quarter, we should be $145 million-ish, so slightly down from Q2.

And then maybe could you touch on mortgage.

You guys I know you hit it on your opening comments, but with the servicing line, I was a little surprised to see it drop as much as it did since the unpaid principal balances should be growing every quarter.

Was there a hedging loss in that line?

Yes, hedging.

We had an adjustment from the hedge position.

We felt we had a $2.9 million adjustment against the fare value market we had against and MSR as a negative due to not fully covered on the hedge side.

We were probably around 75% to 80% covered into going into the greek situation in the middle of the quarter, and we ended up getting more coverage towards the back- end of the second quarter.

So right now, we're probably running around 93% to 95% hedge, that definitely resulted in an adjustment to the value of the MSR.

And on the origination side, can you talk about gain on sale margins in the quarter?

Margin's a little bit tighter.

Obviously it's a very competitive environment, we're trying to hold share.

We probably came in around 20 basis points in the previous quarter, I'd say we're running around 77 to 80 basis points all in with the margins.

So we were probably about 100, 2 quarters ago, 105.

David Darst with Guggenheim.

Tom, could you walk through some of your bond purchases and the yields and durations?

We have been spending most of our efforts in buying only agency structure, predominantly in the multi-family space.

We have been a very large buyer of agency multi-family [dust] paper in the marketplace at a discount.

That is pretty much the product du jour over the past 6 months.

We came in early to the market, prices were much cheaper when we first got into the space.

Things have tightened up here, we are probably looking at yields anywhere from 3.60% to 3.80% on average, below 4%.

The average life is somewhere 7.7 to 8.8 years.

And do you expect to continue these purchases and bring down the cash balance further?

I think depending on market opportunities.

We had a lot of expected calls so we positioned some of those securities to offset the calls that we expect to see in the forthcoming quarters.

[Call] should probably slow down dramatically after Q3, but we had a substantial amount of our callable divesture's that came through, that was around a 4% yield.

So we lost about 20 to 25 basis points just on the call features, on stuff that and ran up to the portfolio.

So we are being proactive on managing the portfolio between 14% to 17%.

We're well below 20%, and it's been awhile since we've put securities on the books, and any securities we do put on the book, our agency backs.

Collyn Gilbert with Stifel Nicolaus.

Joe, can you just give a little bit more color on the pipeline as it stands today.

Are there some larger credits in there at all, and then just talk a little bit about loan pricing, as well.

Loan pricing continues to be quite aggressive.

There are many players in the market that are looking to get these particular assets.

We have had a long period of people appreciating the consistency of the performance of the assets that are most relevant to us, so we have lots of people that in the marketplace trying to get the assets.

So the reality is that our pipeline does have a mix, as always, of larger and smaller loans.

Our bread and butter is still the dominant component of our pipeline.

But occasionally we have been doing some larger loans, so there are some large loans in the pipeline.

Collyn, I would just also add, what is interesting about this particular pipeline, the new money level is much higher than the refi.

So, though we still see expected to see continued refi given the rate environment, we're looking at more like an 80% level on new money versus refinancing, so that should add to growth for the quarter ahead.

One quick follow-up on that.

Can you just tell us where you are on your 5-year multi-family product.

Right now, it's probably around 275, the 5 year's come in quite a bit, so just slightly north of 4.125, 4.375, that level, which around 275 off the 5-year treasury.

Some days 300, 275.

It depends where the 5-year window is.

Tom Alonso with Macquarie.

I'm not sure if you disclosed the dollar amount of the loans that you sold on the premium financing?

$92 million.

It is in the Press Release.

I am sure I missed that.

Your guidance on expenses, that 145 for next quarter, that is without the, whatchamacallit, amortization charge in there?

That's correct, that's excluding CDR.

CDR is around $6 million to $7 million, around that range.

And then just to make sure that I understand, the cash deployment this quarter into the securities book, that was because you had calls?

Or you expect calls coming?

We had a substantial amount of calls over the past 24 months.

Last year, we had substantial revenue benefits on the average balance of the warehouse that we funded for mortgage banking.

That warehouse has come down over $700 million on average.

So that money has been deployed into securities.

In addition to that, we had a substantial amount of calls from our agency divesture book.

Anything under 4% is being called in its environment because we were actively buying those types of securities 2 or 3 years ago at the 4% level, you'd expect a lot of that to be called.

So we expected a lot of calls in Q2.

We had a lot of calls.

We expect some calls in Q3.

So we're preparing for the expectation of additional calls given the [current] rate environment.

So we're replacing the agency divesture's with agency (inaudible -- technical difficulties).

Plus we had a couple of billion dollars in cash that was not in the earning.

And we have no reason to expect there is going to be a substantial use of the funds to accommodate the mortgage company.

So holding the money without investment is not a good use of funds.

I think also, the good news on the mortgage side is that the average balance of the warehouse portfolio has improved slightly on a quarter-over-quarter basis.

We're not at [the lows], we started the quarter at [the lows] and we had a significant downturn in Q1.

So hopefully we can rebuild that program up.

We just launched our new products on the prime jumbo space, where agency ARMS, [5171], and I believe a couple of days ago, we just launched a 10-1 product.

(inaudible-voice cutting out) So we are rolling out new products, hopefully that can generate some new business.

Fair enough.

On the margin, I would have thought putting all that cash to work would have helped more than it did.

Was it just the loan growth or just the dynamic?

Tom, it was back-loaded in the quarter.

It was on overage, banking security portfolios up on average down to $600 million.

You look at the portfolio north of $1 billion, a lot of that was back-loaded to June.

So we should see a little bit of a pick-up there then?

Like I said, on the margin side, absent prepayment, fairly stable.

There is a possibility that it can go up or down 5 or 10 basis points, but relatively stable based on what we're looking at in our budgets, it doesn't seem dramatic as some of the other scenarios that we ran recently.

So I think in general, we're protecting flat margins, give or take 5 or 10 basis points excluding prepayment activity.

Brad Ball with Evercore.

A follow-up to the last question.

So what was the contribution from prepayment penalties in the second quarter and what is your outlook for that contribution going forward?

I think the number is around 30 basis points.

We had a very substantial prepayment benefits for the quarter, as we have in the past 2 quarters.

So it's been very robust given the rate environment.

We don't ever give outlook on prepay.

The good news is that [rate employment] is low, we should get prepay.

We see a tremendous amount of opportunities within our own portfolio.

Portfolios are 3.1-year average life, and it is a very large portfolio, and our commercial real estate portfolio also is relatively short, you'll see some activity there as well.

So it's fair to say that prepays are strong.

We never give any predictions going forward, but the results over the past 9 months have been fabulous.

And then the followup on FDIC expense.

What was it that caused the delta of $1.5 million?

You come up with an estimate based on what they give you and then you actually put your model to a calculator and it spits out what you have to pay.

So unfortunately, given when we gave the guidance, we didn't have the specific calculator in our hands, it was estimate.

So we were off about $1.4 million, $1.5 million for the quarter, so we're going to be up that, multiply that by 4 quarters.

So unfortunately, we figured about $1 million a month, it was heeding out about $1.5 million a month.

$1.3 million.

$1.3 million a month.

And other thrift's are talking to the FDIC about qualifying assets and possibly getting some relief based on the new assessment levels.

Are you guys having those kind of conversations?

We're all going to band together on this one.

Unfortunately, the expense keeps getting higher.

Okay, that is a yes, I guess.

We're very proactive.

And then just one more question on the regulatory environment.

Joe, thanks for the clarifications to those that are still confused about your regulator, but has your regulator addressed with you the issue of your dividend?

No, we have had no new conversations with regard to dividend.

We have been a fed-guided institution since our beginnings.

Most people miss the fact that we have been communicating, fed is very interested in dividend and interested in liquidity and those measures that are out there and being discussed have been discussed with us for years.

So this is not a new phenomenon for us.

It's something that is very consistent and, obviously, most investors had no idea.

Because, frankly, what we have found in the last 3 months is that most investors thought we were an OTS bank.

I would also add that the capital of an A15 is very, very high right now.

Obviously, that is a substantial insulator when you look at other -- comparable banks that pad a very significant pair ratio.

Tangible common equity is now north of 8% so we're very comfortable having excess capital here.

Jack Micenko with SIG.

Most of my questions have been asked and answered.

I just wanted to talk about the CRE line item, a move-up there quarter-to-quarter.

Just remind us what is going on there, and what percentage of that would be quasi-multi-family multifamily, just given the cash flows and rent roll and sort of thing, and what kind of growth should we forecast this that book going forward?

I think from the standpoint of what we seeing in the marketplace, we're seeing very good opportunities at that extraordinarily low LTVs with high-quality property owners that gives us the ability to participate in some real commercial paper.

Not commercial paper but commercial properties that are, in fact, adding to the overall growth in our commercial loans.

So as we look to the future, we continue to see strength in that particular category.

There is, in fact, as always the case, on that line, some properties that are driven by multi-use, as we have talked about in the past.

But I think it's important to recognize that some of these properties are very large properties that, in fact, we have discussions with regard to sharing some of those loans with others.

I think we talked about this over the last quarter or so, that, that obviously would be our intent from time to time to share larger commercial properties with other people.

So it sounds like that's more traditional commercial real estate rather than a multifamily blend this quarter?

The large ones for sure.

Yes.

Matthew Clark with KBW.

On the margin, is the margin you guys printed of 350 core, was there any notice from FDIC Amtrust in there?

No, it's pretty core.

If anything, the impact of the margin is still getting the results of a negative adjustment from FDIC assets.

Obviously the rate environment is still very low and you a lot of repricing of the covered assets.

That covered asset book has come down dramatically in yields given market interest rates.

We're hoping that by Q3 and that should start to stabilizing.

They're down to the levels where you can't go much lower, because a lot of it is the way the ARMs are structured, and two-thirds of that portfolio are adjustable rate and mortgage loans.

So I think, no noise, it's unfortunately a negative impact because of the interest rate environment on the asset side.

But you haven't isolated the tip?

No, and as part of the funding side, we're at the point now, where if you look at our [cost of funds], it's probably the lowest in the industry.

We have about just under $6 billion that is going to re-price on the CD book over the next 12 months instead of $129 million.

Our rates are slightly lower than that, so we have some benefit there.

Again, I've probably repeated this the last 3, 4 quarters, the low-lying fruit was taken on the CD side and the funding side, and we're still getting some slide benefits there.

It's not to be material but it is coming down very so slightly.

And then in terms of the rate locks, can you give us a sense of how much those were in 2Q relative to 1Q?

I think it was $1.1 billion versus $1.5 billion, in that range.

$1.1 billion this quarter?

We funded about $1.1 billion, rate locks we're probably looking at probably about just about $1.5 billion.

And then just on deals, given all we know about Bothell 3 and City Buffers, I know obviously it has to do with institutions that are a heck of a lot larger than you guys, but knowing what you all know today, does it make you less willing to do a deal that would put you over $$50 billion in assets?

Well, I think we said in the last 2 quarters, we're being very, very cautious about getting to that particular mark as a goal.

So we would much prefer to do really bigger deals and step over the $50 billion in a meaningful way so that the benefit of the deal offsets any of the detriment from being a bank characterized as a better-than-$50 billion bank and then taking on whatever those burdens may be.

So we continue to be very restrained in our approach to doing deals, but we're very much aware that the marketplace over the quarters ahead will present many opportunities, including big opportunities, to do deals.

Rick Weiss with Janney Montgomery Scott.

In regards to the multi-family, what are you seeing in terms of the market?

Are there new competitors coming in?

Also are rent rates starting to increase throughout (inaudible -- multiple speakers).

I think it's important to recognize that most relevant to us is not whether or not the broader market has increases in rent rates.

It's more relevant because we're in primarily rent-controlled units what the individual owners do.

So if individual owners are improving the property, the rents in those properties clearly go up.

If the marketplace is seeing higher or lower rents, that is dealing with properties that are typically not in our portfolio.

So when we look at the New York marketplace, it's stronger than it has been for quite some time.

There is no question that the values of real estate, rental income, are, in fact, improving, but we're not a market player, we are a player in a niche that has specific controlled attributes that are beneficial in periods of difficulty, but also restrained in growth and value or growth in cash flow.

So I think the important thing for us to know is that we're seeing good performance in our portfolios, and as I motioned earlier, an awful lot of our portfolio non-performing has come down dramatically, and we expect that to be the continued case.

Plus, we're also going to see pretty favorable dispositions of assets as the months and quarters ahead kick off.

Let me ask you this.

So if rents go up for the overall market, does that make it easier for the owners of the rent-controlled properties to get approvals to raise their rates?

No.

There is no tie-in?

The only way rent-controlled and rent-stabilized units get increases in rent has nothing to do with market, it has to do with the owner's relationship with the tenant.

So the report control board has a very rigid fixed rate.

So the increases coming from the rent control board are always low.

The only way good owners build value in their property is by improving the property, and by improving the property owners, the actual tenants that have rights under rent-controlled and rent stabilization, agree to new kitchens and new bathrooms and so on, and therefore the rent control board, with the agreement of the tenant, allows for the recapture of that expenditure.

But the recapture of the expenditure is literally brought into the income stream over a 36-month period and continues, and the owner of the building doesn't have to wait in order to have the value of his loan literally be able to refinance more.

He has the ability to do that as soon as the rent control board has approved the increase in rent.

So we actually get to lend more money as a result of that.

Right, but you're not seeing that happen yet?

We are seeing that.

You are seeing that.

In other words, the question is whether or not the tenant agrees with the owner to have the rent go up.

I think I got it.

And also, are you seeing any -- what is Fannie Mae up to?

Well, that is a very big question.

The bad news is that Fannie and Freddy have consistently been a major contributor to the reevaluation difficulties faced in the real estate markets, more in the 1-4 family than the multi-family.

Uniquely, they, in fact, are doing more lending and they're are literally arguing or making the case to politicians that they should be lending on 50-year-old and 75-year-old buildings because they make more money on those loans.

As we know, Fannie and Freddy are not in the business for making money but in the business for providing a secondary market support of a primary market.

They are the primary market in 1-4 and they're trying to get a bigger share of the multi-family market by passing the assets through to others.

So that activity is in flux.

We're looking at change with regard to what Fannie and Freddy are doing in the period ahead.

Steven Alexopoulos with JPMorgan.

First I wanted to clarify.

Tom, did you say that only 20% of the $1.8 billion in held-for-investment pipeline is refi?

I said about 80% of the pipeline is going to be in the new money pipeline.

80%.

Which would imply 20% is refi, right?

Approximately again, it bounces around.

What we see now, a substantial amount of new money, which would be to probably the continued -- I would say probably most definitely the continuation of growth in the portfolio.

Last quarter it was around 50/50 split on refi versus new money.

But if we compare just the dollars of loans in the pipeline for refi this quarter versus last quarter, it implies it's down substantially, right, over 50%.

So should we be thinking about, I know you don't give guidance on prepays, but the prepay income should be down substantially in the firsts quarter.

It is way too early to tell.

Given the rate environment, we have significant amount of activity going on.

Our pipeline is chest in the drawer, so we can talk to the chest in the drawer which we know we're [going to have a comfortable close], so we have good visibility there.

But the refi activity has still been robust in general.

There is a lot of conversation going on with customers, and my guess is that prepayment activity should be robust around 2011 and continuing to 2012.

Depending on market condition and interest rate environments.

New York market is very strong, you'd expect a very low, guys are definitely accessing their lending facilities rates for capital.

And just one follow-up question, without the prepayment income, I guess the core is like 320-ish, given where rates are today, where do you see that bottoming?

I think we're pretty close.

In the short run, I gave some pretty good guidance for the next quarter.

I don't see those margins moving around a whole bit, give or take 5 or 10 basis points up or down.

And it is a pretty tough, rates are low and dealing with a very low asset yield situation.

However, via a little bit higher rates, we can have a nice pick-up in the margin.

So I think we're positioned close to the bottom on the margins, ex-prepayments, so you are looking at that 320-ish level, and we feel pretty confident that we're not looking at severe margin deterioration given the current interest rate environment.

There is still a healthy spread out there.

Just final question, the yields that you're adding new multi-family today, how does that compare to the average where you added in the second quarter?

The average for the year has been just south of 5%, like 4.75%, so it is down about 100 BIPs, that is the market conditions.

So right now if you look at 300 over the 5-year, you're probably around 4.375%.

But again on average, you have the commercial real estate loans, which are priced higher, so I would probably say they'd stay around 4.5%.

So pretty consistent with the prior quarter.

Yes, I'd say give or take 25 basis points.

Chris Nolan with CRT Capital.

Joe, from your seat, does it look like the multi-family property market is getting a little frothy?

It seems like the low rates, but also a weak dollar driving a lot of foreign money coming in.

I think that is obviously the case, but it's important to recognize that the markets were extraordinarily overpriced.

Way, way too much money was going into multi-family in New York over the last many years.

And although that may be the case in some circumstances even today, that there are more dollars going into properties in the New York market.

New York's doing very, very well.

That is not our principle asset.

That is not what we principally do.

So when we do a loan that is in a 40% or 50% LTV, that is a real LTV.

One of the guys that's out there doing 120%, 130% loans, there will be some of that in the market and that will be on properties that would not qualify to be in our portfolio.

I guess asked another way, if we were to either see a jump in treasury yields or some sort of strengthening in the dollar, could that negatively affect the valuations in this market, just because it seems to be a little bit of a distortion to the normal rental market?

The housing market.

I think even asking it in another way, it really is the same.

Meaning that the market is not what we do.

So when, for example, Stuyvesant Town put out there $5.4 billion, $3 billion in excess of what would be a reasonable number to consider, that was a frothy market and there were lenders willing to put way too many dollars on way too many properties.

We're not at that level, but that is not us.

If we want to talk about New York generally, New York, as you rightly suggest, New York generally would be more affected by the things you're saying, but our particular portfolio would be very, very slightly affected by that, if not at all affected by that.

Given the weak housing market, there is no question the rental market is definitely up.

There are a lot of people looking for rentals versus the buying home because many people don't have the credibility right now to get a home or get a mortgage.

So that is actually favorable towards the multi-family space.

A quick follow-up.

The property tax cap proposed by Cuomo, are you get anything feedback in terms of improving cash margins for property operators on this at all or no real effect?

No real affect.

There could be isolated circumstances where it's more meaningful than other places but, again, given our niche, the people that we're dealing with, the lending that we're doing is significantly more conservative so the change in the tax is not going to have a meaningful effect on how we calculate our numbers.

David Hochstim with Buckingham Research.

Could you give us a little more color on pricing again, competition, the pressure that you are getting from Fannie Mae, and are you seeing much in the way of new competition in your segment from other financial institutions?

There are clearly occasionally people in the niche.

Now, I want to be emphatic here.

The New York market is different than our niche.

So there could be lots and lots of people that are literally headlining lending in New York City and, in fact, in some cases doing multi-family loans.

So Riverton and other very large properties in Manhattan were, in fact, taken by non-traditional lenders on multi-family product, and they lent way, way, way too many dollars on those properties, and that is beginning to happen now and will continue to happen into the future period.

But those headlines are not our niche, and they will have no meaningful effect on how we lend.

Do you put in perspective the 275 margin you are getting today to the highs and lows you've seen over the last 10 years?

Over the last 10 years?

Yes, obviously, when you go further back our margins were more attractive.

Normally during difficult periods, the numbers widen.

So when we got into 8 and 9, the beginnings of 9, you saw Fannie erratic in the market, and our rates were 100 basis points higher.

So the reality is, if Fannie lets the market gravitate to its natural place, rates will be higher, we will earn more on the new product that we put into the portfolio.

If Fannie stays in the market, they will keep rates down.

So the reality is, you can't gauge where Fannie is going to be because they're driven by a committee of government players.

Ultimately, the decision is going to be made by the banking committee, and whatever that decision may ultimately be is in front of us.

Is it not something that anybody can actually be sure of, it's in front of us and it is actively considered.

There are some people who are making believe they had nothing to do with the crisis.

In fact, they had everything to do with the crisis, and certainly as we look today at what are politicians going to do with regard to getting Fannie out of the real estate markets, it is an unknown.

Regardless of what they're saying, the way they vote is all that really counts, and at the end of the day if Fannie Mae continues to be an under-the-market player, in 1-4 family or in multi-family, they will distort the market.

I guess there are not enough opportunities to buy those loan at discounts to make up for it on your books?

Yes, the bottom line is they have a meaningful effect in how pricing occurs on all kinds of loans, whether they be 1-4 family or multi-family because they actually play in that market.

Usually, not usually, always, at a discount.

So the reality is, if you want the markets to gravitate to normal, you have to have less spending by Fannie and Freddie.

Okay, not very encouraging.

You've talked in the past about some accounting changes that you thought could be positive for the [Company]?

The reality is that rational accounting would greatly stabilize the financial sector but, and although there are people within the Congress that are actively talking about this and it is an agenda item at the ABA, there is no certainty that reasonable people sit in positions of power at the FAS-B.

Obviously, they have continued to make ridiculous suggestions that exasperate the situation.

And low and behold, unless people take them to task for the mistakes they make, there is no way of knowing when these mistakes will be corrected.

Mike Turner with Compass Point.

Hopefully this will be your last question on the margin.

I'm trying to figure out, first, should this quarter mark a bottom in net interest income, and then secondarily, if I back out the prepayment fees, it looks like the yield was down close to almost 30 basis points quarter-over-quarter.

If you're originating loans say 50 basis points below loans 50 bases points below where that yield is, I'm trying to figure out how the margin really hits a bottom here?

Well, we've deployed a substantial amount of our liquidity position in Q2, on average more towards the back-end of the quarter.

That is going to boost the Q3 going forward and at levels where you are earning 25 basis points on cash going into close than 4%, that is a healthier overall margin.

In addition, you have volume versus rate right now, you're correct by saying the top line should hopefully have stabilized here.

We also hope to have the benefit from the continuation of, not saying that the mortgage bank is going to be robust, but we hope that the average balance of our warehouse it bottoms out in Q2, because it was at a very low level, we get the benefits of a higher warehouse.

That's very significant benefits of the top line.

We lost over $9 million, or $8.8 million, in Q1 just for the drop in the warehouse on a linked quarter basis off of Q4.

So I think what I said before, I gave very specific guidance, margin should be relatively flat give or take 5 or 10 basis points, ex-prepay.

I think that it is important to recognize that many of the assets in the last couple of quarters that came out of our portfolio were at higher yielding than the remaining portfolio has assets to give up.

So we will lose less in yields, even though the yields that we're expecting to put on are about the same as they have been in the first quarter or in the second quarter, the yields that are coming off are lower yields, so the impact to the margin will be less in the period ahead.

So then are you saying that this should mark a bottom in net interest income, or near a bottom?

I think it's fair to say.

There is no guarantee in life, but feel pretty comfortable we have a good visibility on the top-line, and top-line had some significant negative impacts the past 6 months.

We have had a very robust warehouse facility that was north of $1 billion, that dropped to about $200 million, that's a significant earning asset that disappeared that we made up [either] securities and now through portfolio growth.

So we replaced that asset going back and going into Q3, we would like to see and replace it with different types of assets.

It's not a held-for-sale asset, we turn on average within 2 weeks' time period.

Now it's a matter of just volume versus rate.

Now rates are low, we can't control rate, but we believe that we will see growth in volume both in the long book as well as the maintenance of the securities portfolio at a slightly higher level than it was in the previous 3 or 4 quarters, given that we had to replaced held-for sale portfolio on the warehouse.

Matthew Kelly with Stern Agee.

I was wondering, are you guys doing any longer-dated multi-family?

I know some of the competitors have been going into this 7- and 10-year.

What has been your involvement in those types of maturities?

Matt, what we're seeing is that we're losing some business in that space, we've opted not to go into the 10-year space.

Very selectively, we go out past our traditional product.

So if we do lose some multi-family deals, we're losing it more on structure.

We see some IO structures that are 10-year-type products.

We're also seeing agencies obviously being aggressive, after the agencies, more for the secondary mark and not so much for portfolios being aggressive.

So I would tell you on a limited bases we do that, very limited.

But the vast majority of our multi-family bread and butter loans are that 10-year with 5-year reset.

And just getting back to incremental spreads versus portfolio spreads, Joe, did you say that some of the stuff that's coming off and you expect refi to have lower coupons than the origination yields and 4.125% and 4.25%?

Yes.

Some of the stuff that's coming off has higher, not lower, higher yields that are earning for us today and last year and the year before.

So the stuff that's coming off actually is earning more than the stuff that it's being replaced with, in our securities portfolio we well as in our mortgage portfolio.

And the good news, I think, now is that the highest-yielding assets are the assets that have already come out of the portfolio.

Both securities and [the existing].

There's still a drag but the drag is not significant as it was in the past 3, 4 quarters.

Rates are very low right now, but on average we've been on 4.75% just moving the multi-family book.

It's a horrific rate, but it's not 4.125%.

I think the important thing to focus on is that the rates that we're going to get on the newly generated assets, we expect to be the approximately same.

Obviously if there is a change in Fannie, it could get better.

But the reality is that the rates that are in the portfolio, that we are getting prepayments on, those rates were higher, the ones running off, were higher last quarter or the quarter before than remains in the portfolio today.

So the risk of loss of yield is less in this quarter and the quarters ahead.

What I'm trying to reconcile is you have a portfolio yield at 570 and origination yields at 4.125%, 4.25%.

If we stay here at these lower rates for an extended period of time, would you consider restructuring the borrowing, which are still pretty high, because your deposit costs are already pretty low, there is nothing much more to be done on that side of the funding part of the equation, So an extended period of low rates where you gradually track closer to 4.25% on the new yield is going to drag down that portfolio yield quickly.

Yes, I think you touch upon something, back in May of 2008, we restructured liabilities to great economic advantage.

Will the environment such be that we can do that again?

It could.

It depends on a variety of factors, but it could.

That focussing on the liability side being restructured rather what happens on the asset side.

So you touch upon a very good point.

Matt, currently there is no restructuring plans in place.

What if the MBS and securities yields went below the cost of borrowings?

I'm sorry, what was that?

What if the mortgage-backed and securities yields, which, is currently I think 415, sell below your cost of wholesale funds at 393 and you went inverted on that trade?

We look at our wholesale borrowings every day.

If there is something to do on restructuring, we can do a lot of a accommodation without taking capital consequences.

That has to be the appropriate market conditions, we look at it on a daily basis.

It's been on the table.

The market conditions have to be perfect for us to make that change.

You have to look at the long-term horizon and any consequences to future earnings, and, more importantly, where the capital consequence could be.

A pure restructuring would be very expensive on removing the liabilities and replacing it.

But restructuring on just reshuffling is a possibility depending on interest rate environment.

As it stands today, we look at it, it's possible.

We've done it in the past year, but it was a very insignificant amount, $100 million a quarter, not a material amount.

Last question, what was the accretion during the quarter?

Just looking at your accretive yields from your deals, $51.7 million in the first quarter?

I don't have that number at my fingertips, but I can come back to you on that one.

But no changes or reclassification?

I think what the change you're going to have, and like I said before on the call, you had a lower yield environment again.

So the Amtrust portfolio was once again pricing lower.

I believe we're getting close on that bottom on the repricing for the Amtrust portfolio.

That is also going to help the margin.

The margin has been hit dramatically over the past 2 years since the FSE transaction because of interest rates.

Most are those loans are adjustable-rate loans with no floors and they're repricing and they're making payments.

Believe it or not, they're performing much better than expected, therefore, we're earning less than expected, and that is definitely hitting the margin.

We believe that is going to get close to stabilization in 2011.

Follow-up from Bob Ramsey with FBR.

Hey, my questions have all been answered.

At this time, this concludes our Q&A session for today's conference.

I would like to turn it back to Joseph Ficalora for any closing remarks.

On behalf of our Board and Management team, I thank you for your interest in the Company and our second quarter 2011 performance.

We look forward to discussing our third quarter 2011 results with you on Wednesday morning, October 19.

Thank you all.

Thank you, this does conclude today's New York Community Bancorp's second quarter 2011 earnings conference call.

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