New York Community Bancorp, Inc.
Q1 2015 Earnings Call Transcript

Published: 29 Apr 2015

[Operator:]

Good morning. And thank you all for joining the management team of New York Community Bancorp for its Quarterly Post-Earnings Release Conference Call. Today’s discussion of the company’s First Quarter 2015 performance will be led by President and Chief Executive Officer, Joseph Ficalora, together with Chief Financial Officer, Thomas Cangemi. Also joining on the call are Chief Operating Officer, Robert Wann and Chief Accounting Officer, John Pinto. Certain of the comments made by the company’s management today 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 the company currently anticipates. Due to a number of factors, many of which are beyond its control, among these factors are

[Joseph Ficalora:]

Thank you, Steve. And thank you all, for joining us this morning as we discuss our first fourth quarter 2015 performance which was notable for the strength of our earnings, the expansion of our margin, the quality of our assets and the proactive management of our balance sheet. To begin, we reported first quarter GAAP and cash earnings of $119.3 million and $129 million which were respectively equivalent to $0.27 and $0.29 per diluted share. Notably, our GAAP earnings provide nearly 1.04% return on average tangible assets and 14.32% of return on average tangible stockholders’ equity. The strength of our earnings was largely fueled by the net interest income which rose $9.1 million sequentially to $292.8 million. The increase was primarily driven by $8.3 million sequential rise in prepayment penalty income to $30.1 million reflecting an increase in property transactions and refinancing activity in our primarily lending niche. The increase in transactions was not unexpected given the increase in property values in our local market and the tendency of borrowers to capitalize on such increases when they occur. The increase in prepayment penalty income also resulted in the expansion of our margin, which rose 7 basis points linked quarter to 2.68%. Specifically, prepayment penalty income contributed 28 basis points to our first quarter margin as compared to 20 basis points in the fourth quarter of 2014. As through the contribution of prepayment penalty income, our margins would have declined 1 basis point linked quarter in better result than projected on our last earnings conference call, reflecting the rise of prepayment and the sales loans, which I’ll further discuss later. Our portfolio held for investment loans totaled $33 billion at the end of the quarter in large decline from the balance we had December 31. As mentioned in this morning’s release the sale of loans was largely achieved through participations which proved to be an effective means of supporting two distinct goals. First, the sale of loans for participations enables us to retain control over those assets. And second, it supports our short-term objective of limiting our asset growth. as we mentioned on our last earnings conference call and in the release we issued this morning, we have been taking steps to remain below the current city threshold of $50 billion while at the same time maintaining or increasing the high volume of multifamily and commercial real-estate loans we produce. In the first three months 2015, we reduced our assets by $307.5 million while at the same time producing $2.3 billion of multifamily and commercial real-estate loans combined. The reduction in our balance sheet was achieved through securities calls of $14 million and more particularly in the sales of $553.3 million of multifamily commercial real-estate and one to four family loans. Multifamily loans accounted for $410.5 million of loans we sold, mostly through participations. While CRE loans accounted for $97.6 million of the quarter’s sales. Notwithstanding the sales of such loans and the increased repayments are mostly family loans totaled $23.5 billion at the end of the current first quarter, reflecting a modest linked quarter reduction while our CRE loans totaled $7.8 billion reflecting a modest linked quarter increase. In other words, while we were clearly taking steps to limit the growth of our assets, our generation of multifamily and CRE loans, was in no way compromised. The pipeline we reported today is yet another indication of our drive to maintain our status as a leader in our traditional lending niche. Of the $3.4 billion of loans, our pipeline as of this morning approximately $10.2 billion are loans held for investments while another $1.2 billion approximately are one to four family loans held for sale. Multifamily and CRE loans represent the bulk of the pipeline were held for investment loans we reported. And by that I mean, over 91%. Just one last comment I’d like to make about our first quarter loan sales. In addition to enabling us to limit the growth of our assets, the sale of loans generated a first quarter gain of $5.9 million. The gain on sale of loans is fully a non-interest income which totaled $52.2 million in the first three months of this year. Also included in that amount was mortgage banking income of $18.4 million reflecting a $2 million increase from the trailing quarter. The level as this client in residential mortgage interest rates sponsored an increase in home purchases and refinancing activity. For non-interest income declined despite the gain on the sale of loans and the rise in mortgage banking income, the linked quarter reduction was due to fourth quarter security gains of $8.7 million in the fourth quarter recovery of $17.3 million, on security we had written off in 2009. The next item I’d like to address is the quality of our assets which continue to reflect the benefit of our underwriting standards and the quality of our particular multifamily lending niche. For the fourth consecutive quarter, we recorded net recoveries rather than net charge-offs, in fact, net recoveries totaled $1.3 million over the past 12 months. We also reduced our balances of non-performing, non-covered loans and assets. Non-performing, non-covered assets represented 0.29% of total non-covered assets at the end of the quarter, an improvement from 0.30% at the end of December and from 0.1% at March 31, 2014. Thus far, most of our comments have focused on our assets. Now, it’s time to look at our liabilities. Consistent with our drive to attract deposits, deposits rose $602.7 million from December 31 balances to $28.9 million at March 31. We also reduced our borrowed fund by nearly $1 billion continuing the transition of our funding mix. As a result, deposits represented 60% of total assets and borrowed funds represented 27.5% at March 31. We had capital which continues to be subtle, stockholders’ equity rose to $5.8 billion on our tangible stockholders’ equity rose to $3.4 million at the end of the quarter. The GAAP amount was equivalent to 12.01% of total assets the non-GAAP amount was equivalent to 7.32% of tangible assets at that date. In view of our earnings and capital strength and our commitment to returning values, our board of directors last night declared our 45th consecutive quarterly cash dividend of $0.25 per share. The dividend is payable on May 22 to shareholders of record as of May 11, 2015. On that note, I would now ask the operator to open the lines for your questions. If we do not get to all of you within the time remaining, please feel free to call us later today or this week. Thank you. Operator?

[Operator:]

[Operator Instructions]. Thank you. Our first question is from David Hochstim from Buckingham Research. Your line is open.

[David Hochstim:]

Hi, good morning.

[Joseph Ficalora:]

Good morning, David.

[David Hochstim:]

I had a couple of questions for Tom. I wonder if you can give us some guidance on non-interest expense in the couple of quarters and also the breakdown on mortgage banking.

[Thomas Cangemi:]

Good morning, David. So, I would say on the expense that obviously we have an elevated level and especially to identify the few items that increased more than we expected and particularly having several across [ph] as well as increase in payroll taxes and like. And also the pension expense increase now has been ongoing. So my guess going forward we are looking at a range of about $149 million, I think expenses versus the previous quarter about $165 million. That’s XCDI, some key reduction from Q2 versus Q1.

[David Hochstim:]

Okay.

[Thomas Cangemi:]

And on the mortgage banking side, the company has very strong mortgage banking quarter. We have approximately 12% quarter-over-quarter sequentially. Now through January was a very strong month, we had a substantial rally in treasury market. We saw the $1 billion loss come in, in the month of January, that wasn’t the interest swap to the quarter. And then tape it well, throughout the rest, remaining quarter that’s a very strong showing. So that being said, mortgage after coming in very nicely but not of January levels, so I would be cautious around being too optimistic until we get through the back half of this quarter but it seems like we’re doing good business going into the summer season. And margins unfortunately have tightened somewhat in order to the competitors. So my guess is that we’re looking at levels slightly below Q1 but hopefully above Q4.

[David Hochstim:]

And then, could you give us the gain and the impairment on servicing income for this quarter?

[Thomas Cangemi:]

Yes, so for the quarter we had $15.5 million of mortgage origination income. And the loan servicing fee was $11.8 million. We had a negative change in MSR value of $21.9 million and we have positive adjustments in MSR hedge of $13 million which brings the footings to $18.4 million as compared to the net $16.5 million in the previous quarter.

[David Hochstim:]

Thank you.

[Thomas Cangemi:]

You’re welcome.

[Operator:]

Our next question is from Dave Rochester from Deutsche Bank. Your line is open.

[Joseph Ficalora:]

Good morning, Dave.

[Dave Rochester:]

Good morning.

[Thomas Cangemi:]

Good morning, David.

[Dave Rochester:]

A question on the margin, how much did that extra yield maintenance boosted them or the securities yields this quarter, and is that something you guys expect to continue going forward?

[Joseph Ficalora:]

So, as you know Dave, we have a sizeable portfolio and some steady payment as well, it’s approximately $3 billion. Now we don’t forecast that so obviously we’re getting benefit in Q1 for the margins of approximately 3 basis points as a result $4 million towards the positive impact in Q1. But we have a very sizeable so it’s reasonable to say that we would see more potential yield maintenance benefits on Dusk [ph] portfolio but we don’t budget that. So, as the prepayments and as that potential that may happen on the road, we’re looking at unfortunately a down margin given the fact that you have the same interest rate environment that we’ve been living with for the past few years. So, we have a low rate environment you have mortgage yields that are still coming in. And the funding applies in the low 3% which is still a nice spread at $165 to $175.

[Dave Rochester:]

Got you.

[Joseph Ficalora:]

I think we just got muted, can you hear me Dave?

[Dave Rochester:]

Yes, I can hear you, yes.

[Joseph Ficalora:]

So, I’d say the margin we’re looking probably down based on the similar guidance in the previous I’d say maybe 5 basis points to 8 basis points depending on market conditions that’s excluding any value from the $3 billion Dusk [ph] portfolio that we do have. That could be significant. Obviously a lot of those transactions are essentially due to sales transaction, and actually have so much refinancing that their loan regulation has securities.

[Dave Rochester:]

So, that downside that’s for next quarter basically assumes that the 3 basis points of benefit you’re talking about this quarter won’t stay.

[Joseph Ficalora:]

That’s right, right I’m not giving any values to that.

[Dave Rochester:]

Got you, okay.

[Joseph Ficalora:]

That would be upside potential. And we were seeing, occasionally we do get some value from that portfolio but remember these are typically longer date that we’re put into this same project.

[Dave Rochester:]

Got you, okay, great. And then just on the balance sheet trends going into 2Q, should we expect more of the same kind of flat loans, securities running off a little bit before you resume growth in the back half of the year?

[Joseph Ficalora:]

So, when we think about strategy, I think we’ve done a good job over the past three quarters on articulating probably where we’re going to go as with the balance sheet. I’ll go with that and we should see second half, I mean, in the first quarter that are overall net balance sheet growth would start to come back rather than 2015.

[Dave Rochester:]

Yes.

[Joseph Ficalora:]

We are well positioned to move into 2016 and we decide to cross the $50 billion loans and we kind of set that in 2016. As we do that in the second quarter that would push us out to a sequence filing in 2018. So we’ll give example time to compare. But most importantly we’ve executed on investments that the transactions that we need to have in order to get to that ‘16 timeframe. And you’ll see the more transactions into 2015 in particular second quarter and from there we’ll the balance sheet grow probably accelerate in the back end of the 2015 year. So, I would say that we feel very confident that we could long stuff from time to time but it’s not going to be a necessity in order to keep us below the $50 billion mark. We’re going to have some good growth as we go towards the back half of ‘15 on the loan side.

[Thomas Cangemi:]

I think the important thing to recognize here Dave is that we would not be impacted by the 50 rules directly until 2018. That emphasis is really important. And how we mechanically do it, it’s something that we very, very firmly understand. But the market need to understand is that we will not be impacted by the rules until ‘18.

[Joseph Ficalora:]

Again with the exception of LCR, we would be prepared for LCR once we cross.

[Dave Rochester:]

Got you. And then on, from the standpoint of the LCR how is that the plan progressing in the build-out of that segment?

[Joseph Ficalora:]

It’s moving according to plan as always would be fully implemented internally for 2015. And when we do crossover, we’ll be able to be compliant.

[Dave Rochester:]

Just one last one on the expense guidance, I know you had $4 million in severance which will likely be a lot lower in the next quarter but you talked about higher pension cost is probably stick around. What else drove that increase from kind of what you thought about before versus the 149 now?

[Joseph Ficalora:]

Ramp-up was typical payroll taxes in Q1 that would be many offices will facilitate the requirements on payroll and like that will be a significant adjustment in Q2. And the pension cost, I think it is unfortunately the world we’re living in, let’s say lower rate environments longer and suggesting the unfortunately the liability that’s attached to the pension plan itself as well as metallic rates that has an industry, that more of a corporate world phenomena, so most pensions are already increasing. Our number is about $1.7 million a quarter, so that’s in there. And we adjust for particular items I’m looking at around $149 million guidance for Q2.

[Dave Rochester:]

Got you. And should it remain fairly stable through the end of this year or do you see that the $149 million?

[Joseph Ficalora:]

I would say we can balance it, obviously we know when I said some cost savings throughout the year, but we’ll have some edge when we got into our separation from Citibank. So I think we should be pretty much around those levels rapidly.

[Dave Rochester:]

Okay, great. Thanks guys.

[Joseph Ficalora:]

My pleasure.

[Operator:]

Our next question is from Ken Zerbe from Morgan Stanley. Your line is open.

[Ken Zerbe:]

Hi, thanks.

[Joseph Ficalora:]

Good morning.

[Ken Zerbe:]

Just a really quick on the whole $50 billion mark. I mean, just given your answer to that last question, I mean, is it knowing that you guys have wanted for so long to crossover $50 billion through a deal and knowing that this is really not happened for many years. Is that, is the new base case assumption that you just simply second quarter slow loan growth, third, fourth ramp up?

[Joseph Ficalora:]

I think the important thing to recognize here Ken is that we have a business model that we’re very dedicated to, and we have very good reason to believe that we can create great value for shareholders by executing on transactions thereby we grow the company into seeing a better company. So, we have a great deal of confidence that that can be done. However, there is no reason in the world why we should not be preparing ourselves for the obvious that there could be for whatever reasons an extension of time before we actually could execute on the closing of such a deal. This environment is complex, this environment presents many opportunities but it also presents a great deal of uncertainty with regard to execution time. Given that, we are very much prepared to do day-to-day what we need to do so as to be effectively maintaining our earnings, maintaining our dividend and maintaining the quality of what makes this company well positioned to be an acquirer of others. Having said that we cannot assume that the law is going to change or that other factors are going to allow us to do this in a particular moment in time so, the time that this can be done is string and part with us, but we do not have certainty of that. That’s why we’re talking about 2018 under the rules as they defined.

[Thomas Cangemi:]

And Ken, I would just add to Joe’s commentary, that we’re expecting low double digit net loan growth from here. So that we’re very sole substantial assets starting in the third quarter of 2014, as continuations in the fourth quarter of ‘14 as well as the first Q in ‘15. So, where we stand today, we’re modeling low double-digit net loan growth while for our business model. So, we’re originating, we have significant pipelines of business impact and we may sell long in the future because we feel very confident that we have the ability to crossover asking the transaction in 2016, should push the C-cost requirements at the 2018. Having the short term business plans to manage through this interesting regulatory environment in fact have been articulating publicly that we have a specific goal here. We are into the multifamily business and CRE business in a very material way. But most importantly we are originating our product and we have a tremendous amount of activity that’s its very attractive asset class that is in the office. So we have the opportunity to continue to originate and starting at the back end of 2015 to grow again.

[Joseph Ficalora:]

I think and it’s important to recognize that we’re gaining market share principal asset and making money or actually sharing of the assets with other bankers. We have plenty of bankers around the country who want to see quality of the assets that we’re creating and we get paid nicely for making that available to them.

[Thomas Cangemi:]

And it’s not as anticipated as was indicated through participations we’re working with the controlling interest.

[Ken Zerbe:]

Understood, understood. So, last question is I guess, borrowing deal, if it does come, we do have any push-back to any through the sales side community if they had to crossing $50 billion organically early ‘16?

[Joseph Ficalora:]

I think we just said that on this call, we expect to cross sometime in ‘16. I mean, the reality is that, again we’re not going to force on January 1, 2016 that would be foolish to lose a complete year on C-cost. As we crossover the second quarter which we believe that we can manage our growth to crossover in the second quarter of 2016, as from an M&A transaction, we would then push our C-cost reporting employment at the 2018. Yes, LCR would kick-in immediately and we’re preparing for that and we’ve been preparing that for a while. But I think we expect to grow through acquisition but as for the fee announcement deal tomorrow, you still have to get that deal approved and closed regulatory wise. So it would take time. So as for an acquisition, you should expect to see the company grow in 2016 as north of $50 billion on full quarter average look-back.

[Ken Zerbe:]

Great.

[Thomas Cangemi:]

Ken, there is no accident here. We are managing this well because we understand fully how to do that. So, there will be no unexpected pregnancy. We’re just going to have a stash. So let’s be clear, therefore managing this in a manner that gives us high confidence as we can decide when we will actually crossover.

[Joseph Ficalora:]

And I think in for the big picture Ken, we moved on, we expect to move on, I think we’ve moved on for well over $2 billion of assets either to call and sell the securities and more importantly sell the loans, some non-core and some core after participation. But all in, we’re going to move on close to $3 billion and when we should be, we took the market risk. So that’s not the risk behind us and expect us the execution without loss. We’ve been executing these transactions profitably to our capital costs. So we feel very confident that where we stand today, we minimize our market risk on execution.

[Ken Zerbe:]

Perfect. Thank you.

[Joseph Ficalora:]

We’re very happy about that.

[Ken Zerbe:]

Understood, all right. Thanks guys.

[Joseph Ficalora:]

Thanks Ken.

[Thomas Cangemi:]

Thanks.

[Operator:]

Our next question is from Steven Alexopoulos from JPMorgan. Your line is open.

[Steven Alexopoulos:]

Good morning, everyone.

[Joseph Ficalora:]

Good morning.

[Thomas Cangemi:]

Good morning, Steven.

[Steven Alexopoulos:]

I hate to start to follow-up on that. So, now at least you’re planning as a back-up across and 2016 organically. How should we think about the ramp and expenses that will now be required? And will there be a large jump at some point as you bring more consultants in etcetera?

[Joseph Ficalora:]

Yes, Steven, I’ve been crystal to answer the past multiple quarters. We’ve been working on it since 2011. So, we’re going into 2016 and we do expect any material cost increases to the company at this stage.

[Robert Wann:]

Yes, I say to you Steven that the consultants that are nationally mailing are impressed with what they’ve actually been capable of doing and recognizing in our environment. So, that expense is already based into the numbers you’ve been seeing.

[Thomas Cangemi:]

And they are not our expense ratio based on historic expense ratio, significantly higher than it was it’s usually been. So, we’ve absorbed significant, quite building more across absorb going forward but it won’t be material changes to us.

[Steven Alexopoulos:]

And on HQLA what is the current balance of securities and where do you need to get that to?

[Joseph Ficalora:]

As I indicated we have a $3 billion Dusk portfolio and level one. So that’s a level 2 asset. So we will look at our complete faster securities we want to do cross. The downside ratio that we will have to buy, substantial security as we cross which would add to net interest income in a title margin perspective depending on interest rate. So we’ve been out of securities market for extended period of time, we’re still reducing our securities portfolio. When we do crossover, when we are required to the compliant LCR we will comply with the required level one security that we need to have put on the balance sheet. So we have an opportunity given that we have, and we understand the multifamily business extremely well. We looked at the mortgage family trust portfolio as tremendous value opportunity. So for example, we’re getting a high yield business just because of partial years ago, we’re getting a nice above market yields. And we also have the benefits of yield maintenance on a free brand portfolio, so with a very attractive asset class. The offsetting of that will be going to the June month which, are lower yield loan iterations. And we have [indiscernible] and probably do that change, so that’s something that we have to consider while we go into the treasury market and buy more yields and treasury as we get closer to crossing over $50 billion. But obviously it’s going to be interest rate centered in and we’re an independent. And we believe we have adequate time to manage through that.

[Steven Alexopoulos:]

Okay. Maybe shifting gears for one minute. The story you have reported there, multifamily pipeline fell almost 50% this quarter from year-end. And you’re talking about the competitive environment being totally irrational. Your pipelines are up nicely right? What are you guys seeing in the market, right, one of the largest players I would think you would be saying this to?

[Joseph Ficalora:]

I’d say that the marketplace is very, very rich. It has many players that are inexperienced and are excessively lending, putting away so many dollars on the table. It does in fact roughly then challenge but as evidenced by power some usual increases in our lending. We have relationships and juggle markets such that we’re able to beat 15% loan growth last year. And loan growth this year is going to be extremely strong, double-digit and we clearly have ability to manage far more than we can portfolio. So, in that environment that everybody’s recognizing as difficult, we have very, very good property owners in our niche that we lend to in a manner that is consistent with what we’ve been doing for decades. So I think that we’re very, very pleased with how we’re positioned in this marketplace. There will be less involved lenders, new participants in this market who will lend too many dollars or otherwise not get high quality from this marketplace. That is not us.

[Thomas Cangemi:]

I would like to give some more color for the commentary regarding the business, the pipeline as we forecast, $2.1 billion the average coupon to 328 is a strong coupon when you compare to the private treasury which is around 140-ish. If you look at where current market yields are today, it’s between $155 million to $180 million depending on the marketplace which is still not a 3% to the five-year paper. Seven-year products are about 3.5%, we see very little production right now but we would do a call off site transactions around 4%. So, we’re still seeing reasonable yields but the spreads are very wide, because we’re very certain are particularly low from the belly of the curve to the backend of the curve. With that being said, we have a coupon that’s sitting in our portfolio that the current coupon for multifamily that’s 3.54%. So the continuation of that lead is getting closer to market, I know it sounds as of every quarter we’ve been saying it’s going to run lower than longer environment but a 3.54% on a multifamily pace and we’re originating around 3% in the quarter. So we’re pretty close and brings to go higher in the back end of the curve or the belly of the curve, you start to see the NIM stabilize sooner.

[Steven Alexopoulos:]

Perfect. Thanks for the color.

[Joseph Ficalora:]

Yes, thank you.

[Operator:]

Our next question is from Bob Ramsey from FBR Capital Markets. Your line is open.

[Joseph Ficalora:]

Good morning, Bob.

[Thomas Cangemi:]

Hi Bob.

[Bob Ramsey:]

Hi, good morning guys. Tom, also if you could talk a little bit more about loan sales, I know you sort of alluded to the fact that there already are some sort of in the works for the second quarter. What should we be thinking about in terms of the balance and I guess potential gain on sale for multifamily commercial real-estate sales in the second quarter?

[Joseph Ficalora:]

Obviously, it varies depending on interest rates. We’ve been extremely proactive on trying to time our transactions to making a real good economic spend. So all of our long transactions I’ve been, I would say principally north of one mark apart, somewhere in the 101 to 102 range depending on market conditions. And we expect to have a continuation in Q2 of the reasonable transactions probably close to around what we saw in Q1, that type of principal balance. I’m not going to specifically say the execution, so we execute. But that’s obviously we feel pretty confident about that. That will lead to a positive impact of the company in the second quarter for earnings, also sort of what I want to major is that our transaction to a 50 bank in 2016. So, assuming that we could execute approximately executing in Q1 to Q2, then will be a net loan growth at the end of the year. Now, from time to time we may decide to sell participations with let’s say larger credits or we do deals with banks that are interested in taking appeal of us, of a very attractive multifamily credit or in the CRE credit, and we will get economic value with that. And there, we also start in the act, we look at the asset and coupon, we’re getting the servicing value plus the original coupon so it is in economic value. But most important, this is a strategy that we’re not going to be selling billions of dollars of loans every quarter, we are in track to move to 2016 and crossover $50 billion assuming 50 is the 50-threshold. We know it’s currently today but when we monitor in Washington on a daily basis, see what they do as far as the levels.

[Thomas Cangemi:]

I think the important thing to recognize here is by quarter by quarter by quarter, we are gaining share of the marketplace. That is a very, very positive with regard to our business model.

[Bob Ramsey:]

I’m curious too with the loans sold, could you tell me what the yield was on the loans sold and whether it was new or seasoned loans?

[Joseph Ficalora:]

Everything is new.

[Thomas Cangemi:]

So, I would say we had a combination of we sold to CRE, $100 million to CRE and that foreign exchange as multifamily. The overall yield around higher programs is since we saw that executing on the assets around low frequency on a 308 to 311 range. So we’re not giving up by coupons in order to accomplish this. Bear in mind, the multifamily products have the CRE components in the New York City marketplace wasn’t attracted as value to other balance sheet that has any difficult time sourcing the CRE type assets. In our history, the only times we ever sold multifamily assets are the people who have actually had a need for appreciation of CRE. And therefore as the asset has a unique value to them, it’s not just the yield or the asset, but the safety of the asset represents, it’s also the meaning of the CRE component. So, when a bank has a real CRE meet, they will buy these assets at better premiums and otherwise they might to generate.

[Joseph Ficalora:]

And Bob, I would just say, based on my expectations for Q2 what we’ve done in Q1, that’s the overall coupon regarding this program will be well what the cong contemplates this. So we feel good that at least we’re getting rid of assets that are slightly below the company’s multifamily coupon which is right now at a 3.54%, embedded into the company’s balance sheet, mortgage around low 3%. So that’s pretty much well through what’s leading the balance sheet.

[Bob Ramsey:]

Okay. And then, since you guys are retaining the servicing, is it fair to assume that the buyer is not someone who is President of Metro New York markets?

[Joseph Ficalora:]

Correct.

[Bob Ramsey:]

Okay.

[Joseph Ficalora:]

Let me take that back, they could be doing business in New York market but not doing expensive multifamily business in the New York market. They are good partners to have, and we were glad to work with them.

[Bob Ramsey:]

All right, okay, great.

[Thomas Cangemi:]

Their needs with regard to, for example the CRE may very well be in the New York market.

[Joseph Ficalora:]

I think that we’ll be stating that we did not want to push that paper out into the marketplace with Wall Street type program. We did this internally and walked with a handful of potential partners in particular on a commercial real-estate side and maybe additional sales in the future depending on concentration of large credits. But you’ve been very selective on accomplishing our goals with managing that $50 billion number. And we’re pleased to say as of Q2 that we’re on our path to execute our short-term plans.

[Bob Ramsey:]

Okay. Looked to like the specialty finance loans were down quite a bit in the quarter, is that seasonal or what we’re sort of driving that?

[Joseph Ficalora:]

Yes, we had a bunch of customers that did a bunch of capital market activity in March. And literally they will be borrowing in April. So, we’ll see a bump up as we go into Q2. Based on phenomenal jobs they’re asking, the yields have not been 3% all loans received the fee structure has been fabulous for us going into one margin. And they’ve done a phenomenal job on sourcing great credits. We’re ahead of plan on the bottom line with them on their group, and we’re probably looking at a portfolio of active risks and get close to $900 million by the end of the year.

[Bob Ramsey:]

Okay, great. Last question on OpEx, but the prepayment penalty income of $30 million this quarter, what was the amount of principle that was prepaid that generated these fees?

[Joseph Ficalora:]

So, we had a lot of activity Bob.

[Thomas Cangemi:]

Probably with that number was on, I’m not exactly sure.

[Joseph Ficalora:]

I can give you some statistics to meet the level of what we saw and expect to on activity. We had over $1.2 billion of stocks that we’re not retaining to the market so we had a lot of sales transactions. And we had about $700 million of activity that was retained with the company of relapse so, a combination of those two numbers and incompetent $30 million of prepayment rate.

[John Pinto:]

And it’s not driven by size, it’s driven by time. So the prepayments are based on the amount of time the loan was existed, not the size of the loan. And obviously applied to the overall dollar value that had prepayments there is going to be a percentage of what that dollar volume is. With the circumstances loan by loan, it will actually be different.

[Joseph Ficalora:]

And Bob, as you recall in the past three quarters, we’ve been expecting to see a profit transaction come to fruition. This is very just expensive but a loss free market and expect the real-estate and many customer tabbing on the asset and they’ve been up to sale for a while by seeing the actual fruition of closing of these transactions, which we expected and particularly expect to see some more in the commercial real-estate side. So, this could be an ongoing phenomena as we haven’t seen the levels of activity in CRE versus multi, multi was very strong on the property transaction side.

[Thomas Cangemi:]

Right. I think the important thing to recognize here is that prepayment occurs to many different reasons. And therefore, the strength of our prepayment here is not the same reason driving, it might have been two years ago.

[Bob Ramsey:]

Okay. And when you are seeing customers prepay or repay, are you seeing them when they do refinance with you borrow more or I guess, what is the…?

[Joseph Ficalora:]

For example, as the value of selling this property and taking millions of dollars in profit, we had significantly more money than he could utilize to actually leverage into a new borrowing from us. So, let’s just use a number. A guy has got $10 million investment, $10 million loan with us, and he sells the property for $20 million. He has significantly more money that he could actually borrow. So he goes out and buys qualifying assets and winds up with instead of $10 million in outstanding debt with us, $25 million in outstanding debt. So this is a win-win proposition. We get paid, he gets paid and lo and behold we have more loans on a prospective basis.

[Bob Ramsey:]

Okay. Thank you guys, that’s helpful.

[Joseph Ficalora:]

You’re welcome.

[Operator:]

Our next question is from Collyn Gilbert from KBW. Your line is open.

[Joseph Ficalora:]

Good morning, Collyn.

[Collyn Gilbert:]

Thanks, good morning guys. Just quickly on the loan sale, what was the timing, when did you guys sell those loans in the quarter?

[Joseph Ficalora:]

When did we sell the loans? I would say early March.

[Thomas Cangemi:]

Yes, we may have renegotiated earlier but slowed on a date, as suggested.

[Joseph Ficalora:]

You’re trying to calculate the average balance?

[Collyn Gilbert:]

Yes, a little bit.

[Joseph Ficalora:]

That’s what I figured. I’d say we filed in early March.

[Collyn Gilbert:]

Okay, okay. And then, just, the deposit growth was enormous, savings deposit growth was enormous this quarter. A little more color there I know you would say Tom that it’s been fairly easy to get deposit in from the floor to market. Is that still what’s driving that or if you could just talk a little bit about that?

[Thomas Cangemi:]

So, we think, it’s probably going on for quite some time. Right now, if you look at where we are and hope some office works, we’re pricing our product mix versus on what the cost is, where insurance versus having non-typical wholesale liabilities. So we’ve done a focused job in choosing our wholesale liabilities in total given the additional costs that’s involved on SCIC insurance. So we’ve been making a concerted effort to try to bring in retail deposits. We haven’t announced in the real deal since Am Trust. So it’s years and our model is grow through acquisitions so we have to have a funding source, when you compare funding sources from the retail market versus the wholesale market, the retail market when you look at all-in, actually dispensed to cover that wholesale is more attractive right now. So we have been making strong efforts throughout the entire franchise. But what’s most important is that we are looking also into the tap of our commercial customers. We have a huge CRE booked in a huge multifamily book that has the opportunity across the low lying fruit, or at least we’ll be bringing in substantial deposit relationships from our customers. That is the goal for 2015 and beyond. We believe what we’re seeing today is mostly retail expectations that we saw commercial deposits come in even at a lower cost. That could make some upside potential to our franchise.

[Robert Wann:]

The other thing to recognize here is that, these are business models to grow the acquisition in each acquisitions, the principle purpose of doing acquisition is to get deposits. So, we are positioning ourselves today to put in the elongated periods since the last transaction. We’re actually paying up for deposit. That is not typical in our business model. And certainly when we execute transactions, we will not have to pay at these levels, we would actually pay less and we’ll still have liquidity and we’ll still have the ability to add to the bottom line in a very attractive manner.

[Collyn Gilbert:]

Okay. And how much of an effort do you think you can be successful here with, I mean, how do you think that loan to deposit ratio migrates?

[Joseph Ficalora:]

Sure. We’re going to update you quarter-to-quarter. But this is something that the bank is focused on. We want to bring in better type deposit funding given that we have not closed on a transaction in many, many years. So, the full practice is on at the banking, we want to bring in liabilities at a more attractive, obviously if the wholesale market becomes more attractive, we makeshift our strategy. But right now retail deposits and commercial deposits are much more attracted source of funding in today’s environment.

[Thomas Cangemi:]

The ability to do this is simple or straight forward as you’re going into the kitchen and turning on the forces. You want more you just turn the force a little bit higher.

[Collyn Gilbert:]

Okay. And is there a loan to deposit ratio that you think you could take this to?

[Joseph Ficalora:]

We’re not looking at loan to deposit ratio, well, let me add, what makes sense to fund the balance sheet. We’ve always had historically a high loan to deposit ratio than we would acquire a company. And that ratio will come down substantially. So, when you look at the past trend in the past three years, our deposit balances are up materially. Our wholesale booking is down materially. But we continue to look at the balance sheet that as we indicated, the balance sheet hasn’t moved a whole lot since September of last year but our core product and volume has been strong and we’ve been doing significant originations on the [indiscernible] side but we’re focusing on the balance sheet as far as growth. As we grow, you will bring in better liabilities over time.

[Collyn Gilbert:]

Okay, that’s helpful. And then just one final question, I want to make sure, Tom you said second quarter expenses excluding amortization you said we’re going to be $149 million?

[Thomas Cangemi:]

Yes, that’s my guidance for the second quarter.

[Collyn Gilbert:]

Okay, okay.

[Joseph Ficalora:]

And that goes to XCDI time.

[Collyn Gilbert:]

Okay, all right. So, that’s just running higher than kind of the $146 million to $147 million you guys were running in ‘14. I’m just trying to understand what the pick-up and expense was when you take up the expenses?

[Thomas Cangemi:]

Of that previous guidance, again, the valuation of pension liability is $1.7 million a quarter times four it’s a pretty big number. And unfortunately that’s a corporate phenomenon not an initial phenomenon. If you have a pension, all pension plan, is frozen for many, many years now. But unfortunately there is a lower interest rate environment where tally rates are increases as the bad debt liability to the P&L.

[Collyn Gilbert:]

Got it, okay. That’s all I had. Thanks guys.

[Thomas Cangemi:]

Yes.

[Operator:]

Our next question is from Theodore Kovaleff from Horwitz [ph] Capital.

[Joseph Ficalora:]

Good morning, Ted.

[Thomas Cangemi:]

Good morning Ted.

[Theodore Kovaleff:]

Good morning to you. I wonder if you could give us a little color on what’s going on in the various banking committees that might lead to a change in that $50 billion.

[Robert Wann:]

Yes, Ted, I think the important thing here is that there are both senators and congressmen who actually have a keen understanding of why the consistent traditional manner in which regulation and examination has occurred in this country should be restored. The idea that each individual bank is examined for the risk profile of that specific institution, and judgments are made by the various regulators as to how that particular institution is structured and representing risk to the system is appropriate and is being done accepting that we have these artificial triggers at $10 billion and $50 billion that have meaningful adverse consequences. And the principle regulators, got Frank, only Fran himself recognizers that the $50 billion mark needs to be removed. The single largest regulators in the country to rule out [indiscernible] the Chairman of the OCC SCIC all agreed that these artificial triggers need to be removed. So I think that there is general receptivity from rational informed congressmen and senators. There are some that are zealous about their view and go away to suggest that there is no way that we would change any of these rules even if there blatantly obviously wrong. And therefore they’re speaking as was the actions taken by LOC. When this bill was passed and as he commented that the reason we were doing this, the way we were doing it was because at the end of the day we would have thousands of pages that would come to us all and we’d be able to figure out what was contained in the bill after it was passed. That’s not the way American justice saw American law should be created. And certainly the mistakes that were made back then need to be fixed and there are very intelligent rational people today who prepared to take the steps to fix this. People who speak against this, who speak against Frank himself are glaringly warm in their effort to withstand or hold up something that is glaringly warm just because it exists. So in any event, do I think it happens, I don’t know. The future is extraordinary and certainly not everything that’s right occurs. What is expected is that the house is in a very good position to prepare a bill within by the end of this month, the cell is prepared to do a bill by the end of May, they can literally go to a conference during the month of June. And as everybody talks to the relevant impacted parties, the regulators themselves are all asking for these changes. So as everybody gets together and talks this through rationally, there will be change. But there is never any certainty in the political environment.

[Theodore Kovaleff:]

Okay. I thank you and I hate to say that I agree with it.

[Joseph Ficalora:]

Thank you, Ted.

[Thomas Cangemi:]

Thank you, Ted.

[Theodore Kovaleff:]

Take care.

[Operator:]

And we have no further questions at this time. I would like to turn the call back over to Mr. Ficalora for any closing remarks.

[Joseph Ficalora:]

Sure. Thank you. On behalf of our board and management team, I thank you for your interest in the company, our strategies and our performance. We look forward to discussing our second quarter performance with you in July of 2015. Thank you.

[Operator:]

Thank you. This does conclude today’s first quarter 2015 earnings conference call with the management team of New York Community Bancorp. Please disconnect your lines at this time and have a wonderful day.