Flagstar Financial Inc (NYCB) 2019 Q1 法說會逐字稿

Good morning, and thank you all for joining the management team of New York Community Bancorp for its First Quarter 2019 Conference Call.

I'd like to turn the conference over to management for their prepared remarks.

Thank you, Matt.

Good morning, everyone.

This is Sal DiMartino, Director of Investor Relations.

Thank you all for joining us this morning as we report our first quarter 2019 results.

Today's discussion of our first quarter 2019 performance will be led by Senior Executive Vice President and Chief Financial Officer, Thomas Cangemi; together with Chief Operating Officer, Robert Wann; and the company's Chief Accounting Officer, John Pinto.

Absent from today's call is President and Chief Executive Officer, Joseph Ficalora, who could not be with us this morning due to an unanticipated family matter.

Before I turn the call over to Mr. Cangemi, I have a few statements to read.

Certain comments made on this call will contain forward-looking statements that 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 that could cause actual results to differ materially from those the company currently anticipates due to a number of factors, many of which are beyond its control.

Among those factors are: general economic conditions and trends, both nationally and in the company's local markets; changes in interest rates, which may affect the company's net income, prepayment income and other future cash flows or the market value of its assets, including its investment securities; changes 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 the company's forward-looking statements in this morning's earnings release and in its SEC filings, including its 2018 Annual Report on 10-K and Form 10-Q for the quarterly period ended September 30, 2018.

This morning's release also includes reconciliations of certain GAAP and non-GAAP financial measures that may be discussed during this conference call.

As a reminder, today's call is being recorded.

(Operator Instructions) So to start the discussion, I will now turn the call over to Mr. Cangemi, who'll provide a brief overview of the company's performance before opening the line for Q&A.

Mr. Cangemi, please go ahead.

Thank you, Sal, and good morning to everyone on the phone and on the webcast, and thank you for joining us today, as I discuss our first quarter 2019 operating results and performance.

2019 has gotten off to good start for the company.

We were able to offset some manager's margin compression, with operating leverage resulting in a solid quarter.

Earlier this morning, we reported diluted earnings per common share of $0.19 for the 3 months ended March 31, 2019, unchanged from the 3 months ended December 31, 2018.

Excluding certain items, which are more fully discussed in our earnings release, our first quarter 2019 diluted earnings was also $0.19 per common share.

In addition to our solid results this quarter, we are also executing on several other strategies, which should benefit the company going forward.

First, we undertook a thorough analysis of our branch network, resulting in closing of 12 branches.

Second, during the first quarter, we sold our wealth management subsidiary, Peter B. Cannell & Co.

While this will result in lower level of noninterest income, it will be substantially offset by the cost savings we will realize from the sale.

Third, we entered into a new agreement with a third-party provider of nondepository products and services.

Under this agreement, our financial consultants will be employed by them, but will still service our entire deposit base.

This agreement will continue to generate fee income for us without the overhead associated with maintaining a large sales force.

And fourth, we are very excited to be partnering with Fiserv, as we convert our core account processing system during the fourth quarter of this year.

This product should result in further expense reduction in 2020 and beyond.

We look forward to having a long-term relationship with them.

We will continue to seek out other opportunities like these over the course of the year, as we continue to grow our balance sheet, rightsize our cost structure and focus on operating leverage.

Turning now to the financial highlights of the quarter.

Following on last year's resumption of growth, we continue to grow assets in the first quarter of this year.

Total assets as of March 31, 2019, were $52.1 billion, up $250 million or 2% on an annualized basis compared to December 31, 2018.

This growth was driven by loan growth, and to a lesser extent, growth in our securities portfolios.

Our loan portfolio increased $360 million or 4% on an annualized basis to $40.5 billion.

During the first quarter, we had growth in our C&I portfolio, our commercial real estate portfolio and our multifamily portfolio.

The growth in our C&I loan this quarter was driven by specialty finance business, as this -- that portfolio increased $315 million to $2.3 billion.

Since 2014, this line of business has grown at a compounded annual growth rate of 35%.

Commercial real estate loans grew $81 million to $7.1 billion, up 5% annualized and multifamily loans increased $49 million to $30 billion or 1% annualized.

The muted growth in our multifamily portfolio was the result of seasonality, as the first quarter is traditionally a slow quarter for NYCB.

However, as reflected in our pipeline numbers, we are very pleased to know that demand has picked up in the second quarter and the current pipeline is approximately $1.5 billion up 76% compared to the pipeline for the prior quarter, of which $1 billion or 67% of that pipeline is new money.

The multifamily CRE and specialty finance pipelines all are higher than the previous quarter's pipeline.

While market interest rate continued to decline during the first quarter of the year, our current loan pricing has been relatively unchanged and our spreads have been consistent.

More importantly, we have approximately $14.6 billion of multifamily CRE loans coming in the next 3 years, with an average coupon of 3.39%, coming up to the contractual maturity and option repricing dates.

Moving on to deposits.

We are also very happy to see that strong deposit growth we experienced over the course of 2018 continue into the first quarter of 2019, with total deposits increasing $837 million or 11% annualized to $31.6 billion.

While most of this growth was driven by our targeted retail CD strategy, we also experienced strong growth in non-interest-bearing deposits and in savings account balances, while interest-bearing checking and money market accounts declined modestly.

As a result of this strong deposit growth, we used a large portion of our excess cash position during the quarter to pay down some of our wholesale borrowings as we refrain from investing in securities, given the current market conditions.

Turning now to the net interest margin.

Our margin this quarter was 2.03%, down 6 basis points on a linked-quarter basis.

Prepayment income rose modestly and added 8 basis points to the margin, same as the prior quarter.

Excluding prepayment income, the net interest margin for the first quarter would have also been down 6 basis points compared to the previous quarter, in line with my previous quarter's guidance.

Moving on to our expenses.

As detailed in our earnings release, the current quarter's expenses included certain items totaling $9 million, including $3.5 million in employee severance costs and $5.5 million in branch rationalization costs.

Excluding these items, total noninterest expense, on a non-GAAP basis, would have been $130 million, down $5 million or 5%, compared to the prior quarter, and the adjusted efficiency ratio would have been 48.75% down 117 basis points compared to the prior quarter, which came in better than our guidance we provided last quarter.

On the asset quality front, our asset quality metrics remain strong during the current first quarter, despite an uptick in nonaccrual loans related to one C&I borrower, in the amount of $15 million.

Nonperforming assets rose $15 million on a linked-quarter basis to $71.3 million or 14 basis points of total assets.

Aside from the aforementioned nonaccrual borrower, the majority of our nonperforming assets consist of nonaccrual and repossessed taxi medallion-related assets.

As of March 31, 2019, our total taxi medallion exposure was $69.6 million.

Excluding taxi medallions, and the 1 nonaccrual borrower, the asset quality measures of our core portfolio remain pristine.

Lastly, we continued to execute on our previously announced $300 million share repurchase program.

During the first quarter, we repurchased 7.1 million shares, at an average price of $9.47.

To date, we have repurchased a total of 23.9 million shares, at an average price of $9.54 per share or $228 million in aggregate, leaving $72 million remaining under the current authorization plan.

This morning, we also are pleased to announce that the Board of Directors declared a $0.17 cash dividend per common share for the quarter.

The dividend will be payable on May 28 to common shareholders of record as of May 14.

Based on yesterday's closing price, this represent an annual dividend yield of approximately 6%.

On that note, I would now ask the operator to open the line to your questions.

I will do my very best to get to all of you within the time remaining.

But if we don't, please free to call me later today or during the week.

(Operator Instructions) Our first question here is from Ebrahim Poonawala from Bank of America Merrill Lynch.

So just, I guess, the first question in terms of the margin outlook, as you see how that progresses from here.

And in the context of, if you could discuss also your funding strategy around more CDs, less borrowings, how you plan to kind of fund the balance sheet going forward?

That would be great.

Sure, sure.

So Ebrahim, I would say that, obviously, we came in line with the quarter, down 6. And we were seeing, in the short term, that margin should be approximately down 3 basis points for Q2.

But more importantly, we're seeing visibility given the fed pivot, and respect to their view of short-term interest rates and what their -- and their actions anticipated.

And so in this given that, that circumstance, we believe that we're still calling for NII growth in the second half of this year, may come a little bit sooner, given the market conditions.

But more importantly next year, we see margin expansion in 2020, with EPS growth to follow up with '19 versus '20.

So we're in a unique spot given the patience that we've had over the long term with continuing NII declines, but it appears that there's a significant light at the end of the tunnel.

Understood.

And any signs of a pickup in prepay or is given just overall activity being lower, we should expect that to stay around the 1Q levels?

We typically don't give guidance on prepayment as you're aware of, but it's been a -- it was an encouraging Q1 versus Q4, it's pretty much relatively flat.

So typically, Q4 is stronger than Q1.

But Q1 had a nice amount of prepayment.

I think that consistent level is reasonable.

Obviously, there's been less property transactions as we know it, it's mostly refi within the marketplace, some other portfolios, including our own.

But big picture, I think, on the prepaid side, we'll wait and see.

Obviously, there's some interesting dynamics going on with the potential adjustments to the rent regulatory laws, I think bars waiting on the sidelines.

So property transactions are relatively slow.

But -- and also, going back to your other comment, you had on deposit -- you had a question on the deposit side.

I would say that overall, our strategy has been consistent.

Last year, we were very focused on growing the balance sheet.

We grew the balance sheet the first time coming off of Citi for 5 years, and without crossing over $50 billion.

And we were successful on bringing in good deposit flows.

What's most encouraging about that it continued into 2019.

And the reality is that of every dollar we continue to bring in, approximately 82% of that money is coming from our existing customer base.

That's a very encouraging dynamic, given that we do have regional pricings, we have branch structures in Arizona, Ohio, Florida, in metro areas.

So we have the ability to target these unique opportunities.

On the retail front, the good news is that most of that money is coming from our existing customer base.

At the same time, some of the money that we brought in, prior to our significant growth, we can now rightsize that cost of deposit, then manage our margin towards hopefully having some of the higher cost money roll off, including institutionals less 15-C3 type money.

And then we target the retail campaign, which is in this environment, slightly lower than the institutional market.

So we're excited about being able to shift around some of those deposit flows to benefit the margin in the short term.

Understood.

And just moving very quickly to expenses.

You came in at a core run rate of about $129.7.

That's $520 million annualized.

As we look at your previous guidance for the low 500s by the end of the year, given the sale of the wealth management business; one, what should -- how much more expenses go away because of that sale, and what's your expectation in terms of where expenses land by the end of the year?

Absolutely.

We're very excited about where we are, and we were very focused on meeting our goals.

Just one of the few -- one of the few things we can't control is our operating expenses.

We've done a fine job in getting there.

Just to be specific, I'll guide down in Q2 to $125 for the quarter.

If you take that run rate, that's $500 million.

So we're at the run rate as we speak today.

We've announced a number of initiatives.

These initiatives are real changes to the P&L going forward.

We're very excited about the accomplishments we've had since the announcement going back to 2017, of looking at the balance sheet and looking at how we can look at our operating expenses and in particular, our headcount reduction has been down significantly.

We're down approximately 20% from our targeted initiative of looking at cost containment and looking at lines of businesses to rightsize our efficiency ratio.

So we had approximately 3,500 full-time equivalents back in, let's say June of '17, went down to 27 -- or just under 2,800 today, which is a 20% reduction.

So we are focusing on what makes sense going forward here.

Our efficiency ratio, as my prepared remarks talked about, we're in the high 40s, but once you start getting operating leverage to kick into balance sheet growth and the NII starts to go up, we should target that low 40% type efficiency ratio.

So we're excited about where we are.

We're very comfortable in our guidance on that $500 million number, I think last quarter was $505 million to $515 million.

It seems like $500 million is, in the short term, very achievable.

And we're going to run it flat after 2020.

We have a lot of other initiatives that we haven't publicly announced yet.

We continue to grind hard on looking at operating expense reductions, and we're going to hopefully benefit from the rise of our balance sheet and operating leverage.

Understood.

And then you mentioned in your remarks on the Fiserv and bringing them, and moving your core systems to that.

Like, just what's the thought process behind that?

Is there any expense impact tied to that?

And does that make M&A easier?

Or does it not have any impact, just one last question.

It will make M&As much easier obviously because then we're going to eliminate a lot of the patches that we have currently.

This is going to be a partnership with Fiserv, long-term contract.

We chose them, they choose us, we are in business together.

And more importantly, as we continue to invest together, and the opportunity on systems and data processing and IT, we have to look at our internal process, and down the road, we'll look at the cloud computing, a lot of other items that will generate better efficiency for the company.

That's all in the docket going forward.

I'm not going to be specific on that.

But we're not specific as far as when it's going to happen.

But we'll start reaping the benefit at the end of the year.

And our conversion is slated for, I believe it's November of 2019.

So that will be behind us this year.

We move forward with the potential of further cost reduction in respect to our systems.

More importantly, we are an M&A company.

We look at transactions to grow our funding base and look at opportunities.

This should only make that more of an enhancement for us, given that we do look at it as a partnership and hopefully as we look at other opportunities to merge other Fiserv clients to our other non-Fiserv clients onto our system.

Our next question is from Brock Vandervliet from UBS.

Just wondering if you could just start with maybe an update on the FHLB refinancing that you may have done this quarter, and what you got ahead of you the remainder of the year and how you're looking at that?

Right, sure.

So what we have remaining for the rest of 2019, about $2.9 billion.

So I think less quote me, now we announced $3.8 billion.

We've dealt with about $1 billion of that repricing.

The current $2.9 billion that's remaining, that's at 1.8% cost of funds that would impact us.

The good news is that with the $1 billion dollars that is already dealt with, going forward in the previous quarter is at approximately low twos, let's say 205 to 215 type range of levels.

When we looked at this in November, and where markets where in November with this Fed in the position of continuing to raise rates with expectation of higher rates, that number was posted 280 to 290.

So we're seeing the benefit there clearly for the funding side.

But more importantly, when you think about past '19, which is we're getting there, past '19, you look at low to upper 2s on the funding coming due in '20 to '22.

So that's pretty much slightly above the market.

So that's the opportunity.

So I'll call that a slight tailwind for the company going forward on the funding side.

That -- and mirror that with the CD opportunity, given where CD repricing is in the market, we think that will also be a potential tailwind for the company on the funding cost.

So we're excited about where we were.

We had a lot of beta risk last year, we had to reprice the liabilities up quickly from the aggressive move by the Fed, but given this Fed pivot and their position, it should bode well for the company.

And it seemed to be a bit of a change in terms of Q1 where, and the period borrowings were down, securities growth looked somewhat less than we had expected.

Is that kind of a pattern given where rates are?

You may pay down borrowings as opposed to building up securities as much as you have in the past?

No, Brock, I would say long term, we'd like to have our securities more rightsized to the industry but still well below.

We should be between 15% and 18% is reasonable.

So as -- we're not there yet.

We've been very proactive to ensure that when we put on some duration risk, we're going in at the right opportune time.

We were more aggressive last year in putting on securities.

We built it up in the third and fourth quarter, and rates went the other away.

So we took advantage of, in the first quarter to sell some assets given the substantial rally in the market.

So we'll be opportunistic if the long-term plan over the next quarters ahead is to grow the portfolio.

But we'll be very prudent on when we deploy the cash.

We sat on a lot of liquidity, the deposit growth was real, it was significant.

And we looked at what the margin was on securities versus paying down debt.

We paid down debt, it makes sense for us.

But I would say put the big picture, you'll see tight securities growth and you can probably model it between $300 million to $500 million a quarter until they get to that 15% to 18% total securities to total assets.

Our next question is from Ken Zerbe from Morgan Stanley.

Can you just talk about -- in terms of Peter B. Cannell, on a full year basis, how much were they adding to both fees and expenses?

Yes.

So big picture, it's about a $20 million expense business -- income business, with about $14 million to $15 million, $16 million of total expense.

So net that, we're looking at approximately just under $4 million of contribution to the bottom line.

We've had a tremendous -- and that's a before tax number.

We've had that tremendous long-term relationship with them, and obviously, they're growing into a position where they opted to do a management buyout of the firm.

So they own the company now, and they took it private.

And we had a very long relationship with them.

It was a very successful relationship.

And our investment is pretty much at a level where we were getting decent returns, but a very insignificant amount to the consolidated company.

So when we look at our cost-cutting initiatives, it was many items on the agenda.

This happened to be one of them.

We're pleased that they're enjoying the private world again.

But more importantly, we have to focus on the big picture for the company.

So clearly, we needed to look at some expense initiatives, and this happened to be one of the items that we spent some time on over the past few years in evaluating, and opted to -- it was just too small of a business for us.

And I noticed that, yes in the press release, you mentioned that fee income was lower because of the sale.

Were expenses also lower in this quarter, given the sale?

Yes.

Yes.

So again, Cannell, is very clear about this...

Yes, that was part of it.

Back out the $9 million, we had the onetime severance payment as well as the branch optimization charge we took for the quarter, of a total of $9 million.

But I was clear on the $125 million to Q2.

We're in the run rate of $500 million.

We are very pleased.

We think we are about 2 quarters ahead of that.

There's a lot of work that the entire bank focused on, and as far as reducing FTEs was another strategy for us over the big picture, given health care costs and the like and overall payroll cost, so we're very pleased on where we are right now.

We're not saying we're going to further adjustment there, there are other things to do, but we like the fact that we have now the operating leverage capability as we grow the balance sheet.

And around at that $500 million level.

In the best case scenario, I would like to go to the balance sheet and keep $500 million flat into '20.

We'll update that as we move along during the year to see how much benefits we get from the conversion.

But clearly, that's a real possibility going into next year, to have flat expense base and assets growing and margins expanding and then they are growing.

So we're excited about where we are on a cost-cutting initiative.

Great.

And then just one last question.

It's good to hear the pipelines are picking up in 2Q but can you just talk about the other side of that, which is the competition for the nonbanks.

Like, what are you seeing there?

How aggressive are they being right now?

So I think there's a number of factors going on.

Obviously, there's the nonbanks, and more importantly, they're our competition that has to look at the multifamily space, and the CRE space, and then I still believe, personally that there is some real rightsizing on institutions on credit risk management skills.

So we went to a very interesting time, with the announcement of our transaction and ultimately not closing that transaction.

At the same time, we've invested heavily on credit risk management.

With that being said, we think we're in a great position to be in the market, so we continue to be relevant in the market.

We are the leader in the market for commercial real estate multifamily in the New York City marketplace.

And you have to look at the dynamics of what's been going on in New York City politics.

We have this uniqueness of a democratic controlled position in the political framework, and there's some rent regulatory changes that may come down the pike, and I think a lot of smart property just sitting on our hands right now, watching and waiting to see what happens in the next 3 months.

The good news, what we'll be able to talk about this at the next quarter, what the results are.

But there's 4, 5 items that are now on the table for potential adjustments, and we just have to wait and see.

But I think a lot it has to do with the property transaction.

Our refi business is very strong, both within our portfolio, and without -- and most coming from other portfolios because we're in the business of doing this.

This is our core model, and we're very focused on building it.

So although growth in multi-family was not significant for the quarter, we still grew the book, and we anticipate that mid-single-digit loan growth is reasonable for us, in a time where things are relatively sublime right now.

Our next question is from Dave Rochester from Deutsche Bank.

Just -- so on the sale of the wealth management business, you've already sustained a hit from a fee perspective and the numbers, that's completely in the numbers, is that right?

Yes.

That's right.

It was no gain at sale, it was a wash.

Okay.

So the $5 million came out, and that's it.

Okay, got it.

And then following up on your NIM be...

Excuse me?

Yes, so that was all the fee income, so $5 million is out.

Okay.

Got it.

And then just following up on your NIM comments, where are you seeing new loan pricing on multifamily and commercial real estate at this point and then on the commercial as well that you brought in?

Yes.

So obviously, we reported our pipeline about $1.5 billion, of which $1 billion is new money.

The average rate on that portfolio is at 4.35%.

So that's what's coming on.

Obviously, it's not 4.5% but it's still north of 4%.

Pricing right now, I'd say in the marketplace, given where interest rates are, I would say that, we'll call it the cherry transaction, the best 5-year structure is probably 3.78%, that's a 4.25% for a 5-year product, 7-year, 4% to 4.25% as well.

And I look at the CRE portfolio, somewhere between 4.25%, 4.5% and its highest, 4.75% in that range, depending on the type of parameters that we're looking at.

So although they're slightly lower than the previous quarter, given interest rates, the spreads are holding up very nicely, and as we all understand here, we have a tremendous amount of vintage from 2015 coming due.

That's pretty much the unknown.

When is the 2015 vintage going to refinance or reprice?

That vintage is approximately about $8.3 billion of '15 vintage that needs to deal with the current rate environment.

That's a 3.29% for multi-family, a 3.72% for CRE.

So they're significantly in the money.

And if they roll into the -- in year 6, they're paying a floating rate, close to 7%, 8%, and fixed rate is just not an option for them.

So they're going to have to come to the market.

And if they come to the market, our rates are around 4%.

So that's going to be a catalyst for us.

We haven't seen the catalyst yet.

But as time passes, we get closer to all of '15, going into '20.

And that means every single loan has to be dealt with in 2020.

So we're excited about that dynamic in the balance sheet.

Yes.

Okay.

And then you're saying, so the '15 vintage, that's 3.29%.

I thought I heard at 3.39% number earlier.

Was that for everything?

Well 3.29%, it's just the multifamily.

CRE's approximately 3.72%.

When you combine that, that's a 3.37%.

So that $8.3 billion.

These are just the 2015 vintages.

This is not taking into account anything from legacy '14, which the majority of the opportunity that we see right now is that, those with the lowest yields we've originated, and the most volume we originated.

So if you look at rate and volume, this is the opportunity given the current marketplace.

As long as rates don't fall dramatically from here, our customers are going to have to make a decision to deal with their financing.

And that decision in this environment is now the only way up.

The course is only going up, not down in the current market.

Now if that changes, we'll deal with that.

But obviously, '15 is significant for us.

At this point right now, the 5-1 pricing, it is sounds like 3.78% maybe 4%, is that right?

Yes, I mean, the average is 4.35% in the $1.5 billion pipeline in which $1 billion is new money.

We quote rates every week.

We change them literally weekly depending on what happens with the treasury curve, but given where the current rate environment is, 3.78% to 4.25% is the range of our pricing.

We have Tier 1 pricing versus Tier 3 pricing, But I would say somewhere around 4% is reasonable for the 5-year pay term.

4.25% to 4.5% is a little bit more duration.

And when you go into the commercial real estate book, you're hitting around 4.75%.

Got you.

And then, I guess switching to the funding side.

Have you seen any softening of the competitive pressures there, where are you bringing in new money on the interest bearing side of things?

I'd say, again, we are targeting our growth.

And through asset and acquisition, we're going to grow deposits versus borrowings because borrowings are more expensive in the environment.

So we're very pleased to be able to lower our deposit rates.

We've been very targeted, subsequent a significant first quarter growth quarter.

And if you look at what we're offering in the market, we have a 5-month program out there at 2.40%.

That's kind of the rate du jour that people are putting money in.

If they want to go alone then they get 10 basis points.

So when I'm offering 2.80%, 2.90%, it's 2.50%, is the highest offering we have, for CD customers.

And we're going to catch a lot of repricing over the next 1.5 years.

It may not be this year, but next year, assuming rates are relatively flat and potentially declining, this could be a nice tailwind for the company because we have a tremendous amount of CDs that would have to reprice.

And the magnitude of that beta risk there is de minimis, given where the current interest rate environment is.

So we're excited of the fact that customers that were 1 year CD players going to the 5-month category at 2.40% versus 2.80% a year ago.

And then as the other borrowings roll through this year, I know you paid some of that out with cash last quarter, or in the first quarter.

How much more can you reduce cash going forward to pay those down?

And then if you have to roll the rest of them, were you saying the cost of the wholesale callable advances right now still in that low 2% range?

Is that where you roll to?

We've done some interesting transactions.

Also the home loan bank industry, in the low 2s as well as 202.

So that's -- could be anywhere from 18-month money to 3.5-year type of money.

Very attractive, some pullable transactions, but if you think about what we have left, $2.9 billion is the risk, added 1.8% cost of funds.

And then next year, a lot more coming due in the mid to upper 2s.

So that's like -- as I indicated in my previous commentary, that, that could be another tailwind on the funding side.

Given where interest rates now that -- assuming the rates are at these levels.

Can you bring cash down anymore to fund some of that?

No.

So if we had our druthers, you'd probably want to put cash in the securities market, try to get the average balance up, but we were very cautious given the duration risk out there because we had a significant bump up after rallying in Q1.

So we took advantage of selling some assets so we were very liquid, we brought in a lot of deposit flows, and we opted to take out some of this -- we'll call this, this very tight carry, and we're going to wait and see.

But I think my guidance is that we anticipate being $300 million to $500 million per quarter of securities growth and we'll be opportunistic, and again, securities didn't move a whole lot in Q1, but we should see a little bit of an uptick this quarter, depending on market conditions.

And cash will be deployed, more importantly, into our loan portfolio.

That's the goal.

The long-term goal is to get that loan portfolio up to, let's say, 5% to 7% growth.

I think 5% is achievable, but the market is still, I think, on the sidelines, waiting to find out what happens with the New York City results on any adjustment they may make in the rent regulatory laws.

Right, which we should find by mid-June anyway, right?

Yes, I mean we'll know the next time we're on this call where we stand because by the end of June, it'll be finalized.

And then the good news that I think a lot of borrowers, you have brokers, you have well constituents working really hard to make sure cooler heads prevail here and not destroy New York City.

Yes.

And maybe one last one.

You talked about NIM expansion next year, a little bit of pressure in 2Q.

For the back half, I would imagine you still expect to get -- reach some kind of stability by 4Q, is that effectively the terms or outlook for the back half?

The question, yes.

The question is that Q3 or Q4.

We were looking at NII expansion.

And like I said, the beginning of the year, at the second half of 2019 can come sooner, depending on market conditions and where we deploy cash and the like.

But no question that the visibility is very bright and the margin compression as de minimis.

So we were guiding down 3 bps for Q2.

Our next question is from Steven Alexopoulos from JPMorgan.

So I'd like to start.

If look at the loan growth in the quarter, you had really strong specialty finance growth.

And I would think there would be higher risk content than in the New York City [cree].

What drove the reserve release in the quarter?

We had a number of construction loans that left the portfolio and the allocation in reserve for construction is dramatically higher than anything we have in the portfolio.

So it's the highest risk asset class that NYCB has in its portfolio, so that with, so that's where the lease was coming from.

On the C&I growth, though, just to be clear, we've never had a late pay.

This is a solid book of business.

It's being CAGRing in the 30s.

We had a very strong Q1, probably a little bit of seasonality on the positive side there.

I'm not envisioning 67% CAGRs on the C&I book, but we'll probably grow at 30% this year, 28% to 35%.

Right now, we're running a 35%, I should say it's 20%, conservatively 20%, 25% for our growth, but we're very selective, Steven.

We look at every deal we see, we turn down 97% to 98% of what we see.

So this is household transactions that you would know by name.

These are solid companies, all super senior secured.

And we're very selective.

We're not getting deposit relationships, we're just participating with the best deals in the market selectively.

And that's been the strategy.

Now it will be nice if we have deposit relationship.

That's not the business model for what we have here.

This is a credit buy up shop, they've done a phenomenal job on selecting of these credits, and it's a Board process.

This goes to a Board of directors and then it's approved by the Board for the most part.

So we're very excited about the growth.

It's got tremendous returns, the coupons about 4.36 right now.

The return on invested capital is around 20%.

So we're doing well with that business and it's continuing to grow.

And remember, we started from 0 and we have the same team that's been in this business for multiple decades with 0 losses.

So we're excited that at least you can put some of these cash supposed to work in alternative asset class, besides multifamily.

Right.

Tom, I wanted to explore the prepayment penalty income because your peers have reported a really sharp decline this quarter.

And obviously you see what's going on in the market.

Why were you able to hold that steady, versus most peers not being able to do so?

And are you expecting a big drop here in 2Q?

Again, I'm not expecting a drop.

I would say that our portfolio, not that we're different, we're the largest player portfolio in the country on total dollar amount.

So you have different dynamics that move prepayment.

Like I said, we have a lot of money coming due on -- from '15 vintages, so that particular book will not have a lot of prepayment benefits because it's getting close to its role, but they'll have the coupon benefits going forward.

But from time-to-time, prepayments are always lumpy.

For this, that number that we reported still is a dismal number.

We should be dramatically higher, given the size of the book.

But the encouraging number is that it's, it's consistent with Q4, which was a tough number.

So if we can start the year out with Q4 number, then we're sitting here going into mayhem and April doesn't look too bad, so we're pretty confident that prepay is going to be consistent.

But unfortunately low, given the lack of property transactions, given market conditions, which could change, by the way, very rapidly in July if things do finalize themselves in respect to borrowers who want to take more risk on going back to -- into the New York City marketplace given there's a complete understanding of what potential changes they may do, regarding rent regulation.

So again we don't guide for it, Steven.

We never guide for prepay.

It's kind of a benefit of the portfolio yield that we book, but we break it out for analysts to understand that.

We don't control it, but we're pleased to a have at least a decent number compared to the previous quarter.

And Tom, thinking through the rent regulations which are really causing a slowing of volumes, what are you seeing on building valuations?

Understand you're quite a bit of pressure, but what are you seeing there?

I would, again, rule cash flow in this, Stephen, so if you think about what we do, we're lending to customers that see the opportune upsides on embedded cash flow.

So clearly, when we're a discounted cash flow lender.

We're not a market player.

So valuations that we underwrite in our LTVs are dramatically lower than our competition, okay, are based on cash flow.

And we look at the opportunity as upside potential, and that's why they choose the structure of dealing with their financing 5 years out.

Instead of going along to the agency or other types of opportunities or insurance companies alike.

So obviously the MCI is a big issue out there, major capital improvements.

And IAI increases could have impacts, but I think that could impact the current portfolio, but we're still underwritten those portfolio based on in-place cash flows and to get to the 50% risk-weighted, we have to go back to the previous years' cash flow.

So not only are we insulated.

We'll boil underwriting for -- with the target to get 50% risk weighting eligibility where other institutions look at the potential, we're learning on the historical, which is always a more conservative view.

And Tom, if I could squeeze one more in.

What date did the sale of the Peter B. Cannell transaction occur?

It was throughout the middle of the quarter.

So we actually anticipated it gets done at the end of last year, but given current market conditions, I think there was a lot of nervousness into equity markets, but the good news is that we were able to successfully complete this, and we're very pleased that there are -- they're in a good place and they're going to run their private company and it was a good long-term relationship.

We're very disappointed to see them go, but I think it was best for both parties.

So there's still a fee and expense impact flowing through...

No.

It's netted out to 0. So there's no impact in Q1.

Our next question is from Collyn Gilbert from KBW.

Just want to drill into some of the behavior this quarter on the loan book, just to get a sense of what -- kind of where the depositor's -- I'm sorry, the borrower's mindsets are?

Do you have the actual dollars of roll off and what their corresponding yields where?

And then what the roll on?

I know you indicated what your pipe...

Yes.

I'll give you that.

So we had, for the quarter, we had approximately originations of about 437.

We're paid off with the 391.

So it's about 45 basis points benefit.

Now that's a good number, but unfortunately, we'd like to see higher numbers.

Because going back to Q3 of 2018, that was 25 basis points.

So in Q4, it's 50.

So it's consistent with Q4 within 5 basis points, and the trend could be stronger given the current average yield coming up to roll.

But the good news is that it's moving in the right direction, where 3 years ago, that was a negative 175.

So as far as what we originate versus what paid off, it's been a positive delta for us and we continue to experience that going forward, and we think that's going to be the trend given the current interest rate environment.

Now rates are to be substantially inverted, that may change, but given where we are today, having anywhere from 45 to 75 basis points change, could be a very meaningful impact to the go forward margin outlook.

Okay.

And that's -- those yields...

It's a big ship to move, right?

So it's depending on how much volume and activity occurs, but, as you know, our pipeline right now is $1.5 billion, is a 435 coming on.

Yes.

Okay, so the blended -- those rates of 391 to the 437, is that a blended rate, or I was curious, especially for multifamily, specifically, do you have those?

I could probably, can follow back to you with that, I don't have it in front of me.

I would think, big picture, between coming on, on average, probably about 4% to multifamily on average, and then commercial's probably 25 to 30 bps higher.

The multifamily that was coming on, you said it was at 4%.

Last quarter.

In the low 4s.

If you still -- you're always about a 90-day lag, so we price that booking, you try really hard to close the rate that you have in agreement with your customer.

And when rates are, well, say declining rapidly, rapidly, I mean, I just have a number in front of me, 4.25% was the actual number for all quarters.

So 4.25% is the multi for the quarter.

But again, that far back would have been a 4.5% quote that ends up closing at 4.25%, given where rates are.

You strive to accommodate the environment because we are very focused on the asset quality side and looking at very strongly underwritten credit.

So -- rate is -- we're going to be right in there with the rates, more on the credits size where we choose to be very selective, let's put it that way.

No, right.

I get you.

Just trying to again, kind of back to Steven's question on prepaid.

Just trying to understand the borrower's sort of sensitivity here.

So the multifamily on board rate was 4.25% and then what was -- do you have what the roll-off rate was the specific multifamily book?

I would say probably in the 3.80s.

We'll bring back the (inaudible) in a second.

I guess about 3.80s [is right to call.]

Okay.

Okay.

And then, so just to be clear on Peter B. Cannell move, so we should assume like a $20 million drop in fee income, right?

Yes, again and also, with $20 million of noninterest income going down, of that $60 million to $70 million of the expense removal, we will grow the balance sheet to offset that.

And obviously, this has been part of our ongoing initiative on how you're going to get to that $500 million number.

We're there.

We were actually targeting this to happen in 12/31 last year, but we were there.

This is part of our strategy.

The competition structure's dramatically different, and they are growing and they're going to invest in the company as a private institution, and we're going to look at other alternative ways to grow fee income items over the long term.

In the short term, we are where we are, and more importantly, the expense number, which we feel very proud to be at, at $500 million will be the operating leverage that will run off into 2020.

Okay.

And then just a question on capital.

I know your outlook for securities growth is, it's holding.

But if the curve stays unfriendly or, and the dynamics within the loan book don't allow you to get to that 5% target or whatever, how should we be thinking about share repurchase appetite and just your kind of capital targets from here?

So look, we always truly believe, given our risk profile, we have excess capital.

So when you look at our capital analysis, we have significant excess capital.

Remember, we pay a very substantial dividend back to our shareholders which is a large portion of our earnings, but we still have excess capital in our targets and our warning levels we're not close to, so we're very confident that we could continue to be active growing the balance sheet, which is a priority.

The repurchase opportunity, the $300 million authorization, which we have about $72 million left.

When that's behind us, we'll deal with that going forward.

But I think the priority for the company is to maintain a very strong dividend and over time utilize that opportunity to be a strong dividend payer as we've always been, and with the expectation over time as we grow the balance sheet through acquisition, that we offer a unique, we'll call it payout to shareholders who want to join our team as part of our M&A strategy.

So it's always been helpful to understand that some of the smaller banks that we've acquired, and some of these, let's say, large institutional -- large owners of stock have the opportunity to get a very sizable uptick in the cash flow on their yield of their investment as they become part of the NYCB family.

So no question, the dividend is very important.

We're going to continue focusing on that and obviously buybacks will come, and depending on market condition, but we got the one approved last year, given a very volatile Q3, Q4.

We felt that was appropriate.

And the Fed was accommodative for us.

And we'll evaluate markets as we go forward.

But if things don't -- if they don't grow as fast, we have excess capital, buybacks would be potentially on the table to be utilized in a different environment.

There's no question, we are in growth mode.

We're very focused on growth.

We're looking at the opportunities to consolidate other opportunities within the marketplace.

We think there's lots to do out there, and we'll be very proactive.

Okay.

Just one final question quickly, sort of tied to that.

Any preliminary guidance you can give on CECL?

We're not going to give the number, but I will tell you that we're in a very good place.

I mean we have been working on this for, probably going back to when we were becoming a CCAR bank, having this modeling and all that's -- one of the things that was required for us to be like a Citibank.

So we're very confident that our backlog was able to get our models in a place to switch over to a CECL strategy, and given that we have a very low average -- a very short average life, and a history of no losses, we believe we'll be in a de minimis impact to the company.

Our next question is from Matthew Breese from Piper Jaffray.

Just hoping for some clarification.

On the Peter B. Cannell sale, it sounds like $20 million in fees coming off around $16 million, $17 million in expenses.

But in the release, you noted that the loss feels will be substantially offset by cost saves, relating to the sub.

So there's -- is it $16 million, $17 million?

Or is there anything in addition there that'll come out?

We are going to have, I mean, obviously some of that will have some additional, we'll call it related party because you'll go back and forth.

But more importantly, it's not just 1 strategy.

We've done 3 strategies announced in the quarter.

We looked at branch optimization.

We looked at our own internal people that are selling financial products to our customer base, that's now being rolled off the P&L.

We take this all collectively.

This is going to be a positive impact to the bottom line for the company, driven by our cost initiatives.

So yes, dollar for dollar, you're taking off $20 million, and you've taken off of income and you're reducing around $17 million of expenses.

The net of that before tax for that particular line of business is just under $4 million.

However, when you take all of these strategies into the quarter, we will have a net income benefit for the year.

Understood.

And can we talk a little bit about the other strategies?

So the branch consolidation, I think you noted there was 12 closures or relocations?

What was the exact number of branch?

Closures.

Closures, okay.

And what is the cost saves from that?

Approximately $4 million or $5 million a year.

And we think -- we feel highly confident most of those deposits will be coming to the banks, so we're not looking at any real attrition there.

Okay.

And then from the outsourcing of your folks selling financial products, what's the cost saves there?

Approximately around the same, $4.5 million to $5 million.

And the yield give up, I mean the revenue give up is less than $1 million, like it's $500,000 to $600,000 a year.

So it's not a big number.

And are these items included in the '16, '17 from Peter B. Cannell or standalone?

I'm just wondering if it's really like a 20...

No, that's separate.

That's separate.

At the end of the day, you're looking at a, we'll call it a strategy when you take these 3 particular announcements that we put in Q1, that will have a positive impact to the bottom line on expenses.

Health care costs and the like, and dealing with payroll-related expenses are significant.

So like I said before, we got our headcount down, our FTE equivalents down 20% since we've announced our initiative, going back to '17.

There are M&A transactions that get you 20% cost savings.

So it's not just cost things, we're exiting lines of businesses given our profile.

We had a $660 million run rate when we embarked on this journey and now we're running to $500 million.

That's a tremendous -- not only are were down 20% on headcount, but 25% on actual expenditures.

So we're very pleased to be where we are.

We said operating leverage is going to be the story in '19, and it should continue to '20 as we grow the balance sheet, as margins open up, and NII starts to grow, this should be at, least a positive tailwind for the company, which we're excited about.

We have 12 quarters, I believe it's 12 quarters of declining margins, our NII.

So we see visibility in the very short term.

Right.

Right.

Okay.

And then the second of the loan portfolio that grew the most this quarter, the specialty finance segment.

I was just hoping to learn a little bit more about that.

So could you give us a breakdown how much of the $2.3 billion are in the 3 verticals: the asset-based lending, the dealer financing...

ABL is about 30%, the $727 million and then the equipment finance is about $1.061 billion, so just about just under $1.1 billion, which is about 42% of the portfolio and dealer financing is about 26% of $633 million.

And that's including LC, so a total of $2.4 billion.

Outstanding is about $1.7 billion.

$2.3 billion, yes.

$2.4 billion is, when including LC.

So all in, it's been, over the long term, we were trying to look at 30% allocated to each bucket.

Right now we'll probably have a little bit more in the equipment finance side, about 44% for equipment finance.

And how much of that book is syndicated?

All of it.

We are a credit buy up shop.

We do not drive the deal.

We, like I said previously, we look at the best transactions that work for the bank.

Our Board is actively involved in picking those credits.

And we turned down 97% of what we see, we haven't had a late pay, we haven't had a delinquency, we haven't had a credit downgrade.

We are razor-focused on asset quality because we're not driving a deal.

We're not bring in deposits, we're just participating in significant syndications where we take a small piece of a very high profile senior secured deal.

And what's the average size of a deal and what's the average size of a loan in that book?

I got to get back to you on that one.

I don't have that in front of me, but we can follow up.

The coupons about 436.

I would say they're probably between 15 to 20, but I don't want to give you misinformation there.

And is there any vertical that is more predominant than others?

No.

It's widespread out.

We've avoided, when we had issues regarding the oil markets we tried to stay away from any oil credits.

But we're very cognizant of what's going on throughout the GDP of the economy, and what areas could be a risk profile, and we avoid them.

Like I said, we see a lot of paper and we turn down about 97% of what we see.

So we have that flexibility.

We're not driving a deal.

We don't have headcount that's based on commission of bringing paper in and employees.

We have a small group of very smart, razor-focused underwriters that do a great job for the bank and pick and choose the best deal they can see and we participate.

My last question, you mentioned a couple of times just M&A and the strategy for M&A.

Can you give us an update on activity in the market, conversation flow and just remind us of your appetite for geography, deal size and deal metrics?

So we're very excited about the opportunities, but most importantly, we're disciplined, right?

So we're not going to take down our tangible book value so anything we look at is going to have a benchmark to have a tangible book value creation, not dilution.

So we don't want to be in a call, making an announcement about earn back.

That's not in our DNA, and we're not looking to do transaction that have any meaningful earn backs.

I mean obviously, you never say never, but the reality is that, that's part of our M&A philosophy.

We see lots of opportunity in all scale, small, large, and we're very cognizant of what's out there.

And we're very focused that our business strategy, which has been the hallmark of growth from $1 billion to $52 billion has seen growth in mergers and acquisitions.

So in the past 2 years, we've grown our deposit base to fund our growth, and we are razor-focused on helping -- finding a partner that could continue bringing in funding and perhaps in the long run, also bring lines of businesses.

We're not discounting any line of business, however, we are very focused on asset quality.

We are an asset quality shop, so we're not going to take away any of our quality of our assets, but the reality is that we are ripe to be in a position as we focus on M&A to do our strategy, which is create a transaction that don't impact tangible book value.

And obviously, with a biasedness towards bringing in funding.

Our next question is from Christopher Marinac from FIG Partners.

Just want to ask more about funding.

Do you think this year is a time where the funding mix continues to evolve towards more CDs or stay about stable?

It could be more mix, I think.

Given where there's been a lot of interesting competition pulling away from high rates, so the good news that some of the Internet players are -- very focused on bringing their rates down.

So I think when you look at where treasuries are trading on, let's say the 1 to 2 year basis, and you have that inversion going on, I think customers are willing to go much shorter, so they're looking at products that are being offered by financial institutions, the brick-and-mortar franchise, which -- that's what we are.

We have a very small Internet presence there.

So I think the fact that the competition is waning, should bode well for us, as targeting our customer base.

But more importantly, we hadn't really seen the noncustomer base come through yet.

So like I said on my previous commentary, 82% of every dollar bought into the past 1.5 years has been from our customers.

So it's only 20% is new money.

So we hope to now tap into the money.

We hope to get our commercial real estate personnel focused on bringing in some more customer deposit base, which could be more demand type money and lease money and rent income flows from these buildings that we have a major presence in.

That would be helpful over the long term.

And I guess more of a long-term strategy, but the reality is, it seems like since the Fed pivot, going back into the fourth quarter where we are today, it seems like deposit flows are more towards the shorter end of duration, and I think that the cost has been coming down throughout the nation.

So that will be helpful for us as we're going to fund our balance sheet until we find a partner to look at on the M&A side.

So we're going to continue to grow our balance sheet with the best possible funding sources, which in this environment, would be retail deposits.

In the event that wholesale becomes more attractive and the Fed is in the position of cutting rates, then we may go back to the wholesale markets.

But we have the refinance of wholesale book, that's obvious.

It's less material than it was 2 years ago.

And the fact that the cost structure is much lower, it was lower last year, it's going to be higher in the future, will be another positive for us.

And when we go into 2020, you're looking at mid- to upper -- let's say we'll call it mid-2s as that's coming due.

So it's not as painful if rates are low 2s and maybe potentially with a biasness for it towards going lower.

Great, that's helpful.

Are you incenting folks in the branches more than you had in the past?

I'm just curious on more there.

Again, I would say nominal.

I mean we've -- again, we are very retail-focused.

So we've advertised in regional pricing.

We have a unique presence in Arizona, Ohio, down South Florida, New York Metro.

These are all regional pricing opportunities.

Some markets are more competitive than the other and were going to be in line.

We're going to do the highest rate payable, we're not going to be the lowest.

We're going to be in the market, and I think that will get a lot of these deposit flows continuing to grow.

We just reduced our rates recently about 1.5 weeks ago, and deposit on the CD side as well coming in.

I think we're going to have money coming in and out regarding tax payments and the like, but the reality is that people are putting money in the bank right now, it's still adding to their position of deposit growth right now, as we stand in April.

So we're going to make some strategic decisions on getting some of the highest cost money out of the balance sheet, as we go into Q2, depending on growth.

We're going to sit on excess cash if we can save real money on the margin by reducing the cost of funds on what's on the portfolio, so we have some higher cost institutional-type money that we're not going to take.

We'll let them roll off and benefit ourselves on the retail side.

Our next question is from Steve Moss from B. Riley FBR.

Just on the mid-single-digit loan growth front, originations for the quarter were down year-over-year and pipeline was down as well, going to the second quarter.

Just kind of wondering how do you get there in terms of mid-single digits or could we maybe be at low end of our range?

Yes, I guess the new money pipeline's encouraging.

If you look at that $1.5 billion and of that $1 billion of it's new money.

That's new, that's growth, so we know we have $1 billion coming on, depending on how much we retain on refi, which typically is high, and we typically retain around 85%, so we're encouraged by that.

But I think what's most encouraging about the growth in the past year, if you think about the property transaction and the lack thereof, we're getting money from other banks.

And I think that has a lot to do about where we are, what the statement that we're in business to be the premier multifamily rent regulated lender, and we spent a lot of money on credit risk management practices to ensure that.

So we don't have a cap, the 850 cap has been lifted.

So we're very comfortable on managing our capital position in our credit risk management position going forward here.

And I think that's a positive.

I think a lot of other banks that have to get there will have to spend some money on OpEx to catch up, and we're going to take advantage of that the opportunity.

So as far as the level of property transaction, not only has the market been rich for the past decade, it's probably stabilized in value, but more importantly, the property transactions are not happening, but we're getting money from other banks because for various other reasons.

It could be rate.

My view, I think it's more driven on their own internal view of the business and what they can put on and what they can do with the capacity of their capital.

We're in a very good place where we need to be.

Last year, the last 2 years we ran with a cap.

We raised capital to be in business.

Now that was a painful exercise, to go to the, to raise preferred stock to be in business, and the good news that restrictions behind us and we're focused on being the premier of rent regulator lender in the marketplace.

So we get it through refi of other portfolios, it's still growth.

That's helpful.

And then, just wondering -- are there any further branch rationalization plans coming up?

Yes.

Over time, yes, we took a hard, deep dive in the past year and a half.

We look at, does it make sense now versus what the true cost to exit and what's the earn back?

We try to get the earn back within 1.5 years.

So we were there on this particular first batch.

But from time-to-time, I think that may come to consolidation in the event that we look at the environment on acquisitions and perhaps we join with some other institutions where there's some branch overlap, perhaps.

But no, we like, that's part of our DNA when it comes to looking at what makes sense on a financial point of view.

So realistically, the 12 was the first real true leg of it.

A lot of it has to do with the fact that these were compelling reasons to -- we have a branch across the street, and you have $20 million and the other one has $100 million and we're losing money and given where the current environment is, and our exit costs are de minimis, we'll exit.

And that was the first 12.

It was very focused on financial driven.

It was really an earn back analysis we did, and we think it was like a one year earn back.

Our next question is from Brock Vandervliet from UBS.

Sorry, just a follow-up on the FHLB that rolls next year.

You mentioned that in passing.

It's mid- to upper 2s.

What's the -- how much of that do you have for next year?

Think about $5.2 billion, at about a 2 20.

And then we might as well go to 2 21, and in 2021, it's $4 billion, at 2 42.

So that's encouraging because we're doing trades below that right now.

So that's going to take away some of the pressure that we have to deal with.

And obviously, that's a long way out in the long term.

We would like to replace our overall wholesale borrowings mix with retail deposits, either through our internal growth or through M&A.

I think the long-term strategy would be could be less reliant on wholesale funding over the long term.

Just a follow-up on that $15 million NPA loan.

What's the outlook and loss expectation there?

Again, it's a little too soon to tell.

We're doing our work on it.

It was a one-off.

Our customer is an importer of wholesale of nonfashion apparel.

Well, this goes back to legacy Atlantic bank, long-term relationship, probably multi decades.

Guy's never had a problem, never had a miss payment, he just got himself caught up I guess in a very turbulent 4th quarter and one his customers went bankrupt.

So he had a large order that just went bankrupt and put them in a very difficult position.

We're evaluating collateral.

We have our people out there, counting the inventory we have.

Cash collateral, we have all receivables, we have the inventory, but again, at the end of the day, we don't think it's going to be any material loss, but it's $16 million in total.

So that's the exposure.

Okay.

And is there anything regarding the Fiserv transition that would knock you out of the box, in terms of a deal M&A?

Not at all.

No.

We're super excited about the opportunity.

This is going to deal with years of consolidation, lots of patches that we have in our current system.

We're excited.

We chose Fiserv.

They chose us.

We're partnering.

We're going to get the conversions done this year.

And if you think about the long term, we will be under 1 platform for all our systems, [the loans, table, GL loans], online, we're going to have a unique opportunity here to be on 1 platform and deal with our multiple patches through many years of growth.

So we think that we have tremendous cost-savings opportunities.

And eventually, we get -- some of us will go into the cloud, there'll be further cost-saving initiatives that may not happen in 2019, that could be 2020 story, but this should be very good for the company because historically, we've utilized our partner relationships, to get benefits when we consolidate other institutions.

So if we have a -- by the way, many institutions are on Fiserv, so it's only going to make it that much easier for the M&A conversion opportunity as well.

So historically, we typically get preferential arrangements on drawing balance sheet with the contract.

And that's part of our strategy with them.

Our next question here is from William Wallace from Raymond James.

I'm sorry to kind of beat a dead horse here, but I just want to make sure I understand some of your commentary around the expense.

So you're guiding $125 million in the second quarter.

So you're at the $500 million run rate.

Are you saying that you think you are going to get $500 million for the year?

Or you're at where you're going to be in the second quarter?

Yes.

Simple math.

$125 million times 4, you hit $500 million but bear in mind, the first quarter, you had the onetime $9 million charge.

If you take the onetime out, it's possible, but I think $125 million is multiplied by 4 it gets you to $500 million.

I don't see our expenses growing.

I see our expenses being razor focused to reduce over time.

I'm giving you a 1 quarter guidance.

And kind of true up to 2019 scenario.

I would, if I'm an analyst, I'd back out the onetime expenses on severance and the branch closure expenses.

I mean when you look at 2020, I'm kind of saying that I don't anticipate to grow the expense base in 2020 because we're going to have further opportunities as we focus on the company's P&L going forward.

So again, the operating leverage story is in place.

Now we had to get the asset growth and the NII up.

Then we can have some meaningful benefits on EPS growth.

That's helpful and then just housekeeping on tax rate.

I think you're suggesting 25%.

It looks like you're at 24%, did you change your expectations on tax?

Yes, I would run a 25.25% is fair, and probably somewhere in between 25% to 25.25% but conservatively 25.25% for 2019.

This concludes the question-and-answer session.

I'd like to turn the floor back to management for any closing comments.

Thank you again for taking the time to join us this morning and for your interest in NYCB.

We look forward to chatting with you again at the end of July when we will discuss our performance for the 3 and 6 was ended June 30, 2019.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you again for your participation.