New York Community Bancorp, Inc.
Q2 2015 Earnings Call Transcript

Published: 22 Jul 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 Second Quarter 2015 performance will be led by President and Chief Executive Officer, Joseph Ficalora, together with Chief Financial Officer, Thomas Cangemi. Also present on the call are Chief Operating Officer, Robert Wann and Chief Accounting Officer, John Pinto. Certain 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 those factors are

[Joseph Ficalora:]

Thank you, Keith. And thank you all for joining us this morning as we discuss our second quarter performance and the specific strategies that contributed to our results. There are a number of items that we believe merit your attention, the exceptional quality of our assets, our continued strength as a lender, the consistency of our margin and the success of our efforts to manage our balance sheet growth. To begin, I would like to quickly say that our GAAP earnings rose sequentially and year-over-year to $123.7 million, and were equivalent to $0.28 per diluted share. In addition, our second quarter GAAP earnings provided a 1.09% return on average tangible assets and 14.79% return on average tangible stockholders’ equity. Our cash earnings for the quarter were similarly solid at $133.2 million, or $0.30 per diluted share. Reflecting our earnings in capital strength the board of directors has declared a $0.25 per share dividend for the 46th consecutive quarter payable on August 18 to shareholders of record as of August 06. The strength of our earnings and capital have long been supported by the quality of our assets, which has been consistently superior throughout our public life. In the second quarter of 2015, we reported our best asset quality measures in 28 consecutive quarters, in other words, since the second quarter of 2008. Non-performing, non-covered assets fell $53.9 million from the end of the year to $85.1 million, and represented 0.18% of total non-covered assets at the end of June. Much of the improvement was due to the sale of a single ORE property in the amount of $41.6 million. That is what was on our balance sheet. The property had a sales price of $55 million, which generated a pre-tax gain of $7.8 million in the second quarter of this year. As a result ORE declined $35.8 million from the December 31 balance to $26.2 million at the end of June. In addition, non-performing, non-covered loans declined by $18.1 million and represented [0.18%] of total non-covered loans. The demonstration of quality also extends to the absence of any net charge-offs impact. This was our fifth consecutive quarter reporting a net recovery. The quality of our assets stems from two primary sources, our underwriting standards, which continue to reflect our risk averse nature and the attractive characteristics of our multifamily lending niche. In the first month of 2015, multifamily loan originations represented $4.3 billion or 69% of the loans we produced for investment, including $2.6 billion in the second quarter alone. Given the loan structure similarities between our multi-family and commercial real estate credits, we also originated CRE loans of $1.1 billion over the past two quarters, including $484.3 million in the second quarter of this year. Reflecting the strength of our multifamily and CRE loan production, we established a new record for the volume of health for investment loans produced in a single quarter, $3.5 billion to be exact. The fact that we originated more loans in the past three months than we have produced before in a single quarter may well seem ironic given the emphasis we have placed in the last nine months on containing our balance sheet growth. Obviously it is in our discretion as to how we will portfolio or sell these particular loans. Yet from the time we embarked on this strategy to the end of the second quarter, our assets rose just $31.2 million to $48.6 billion at the end of the year. Before I continue my comments on that particular topic, I also want to acknowledge the pipeline of loans we’ve reported today. As of this morning, we are looking at loans of about $2.6 billion, including approximately $1.9 billion of loans held for investment and approximately $649.2 million of one-to-four family loans held for sale. Multifamily and CRE loans represent the bulk of our held for investment loans in our pipeline, approximately 89% of the total to be somewhat more precise. Returning to the topic of balance sheet growth or more particularly its containment, our ability to limit our growth while establishing a new record for loan production is just the sign of our ability to achieve our objectives, but also the attractiveness of the loans we produce. Of the $1.6 billion of loans we sold since the end of last September, more than $1.1 billion or 68% were multifamily and commercial real estate loans. Another $522.2 million consisted of one to four family loans that at one time had been held for investment loans. The vast majority of our sales have been through participations given the quality of our loans and the status of our multifamily loans as CRA credits. Our search for willing partners and buyers have met with great success. In addition to enabling us to contain the growth of our assets the sale of loans has also supported our earnings by producing fairly attractive gains on sale. In the first six months of 2015, gains on sale of multifamily and CRE loans amounted to $14.7 million, including $8.8 million in the second quarter of this year. Another appealing feature of our multifamily and CRE credits is the prepayment penalty income we receive when loans prepay or refinanced. While prepayment penalty income rose year-over-year to $26.7 million it declined from the level recorded in the first quarter of 2015. As a result, the contribution to prepayment penalty income to our net interest margin declined on a linked quarter basis from 2.68% to 2.64% or 4 basis points. Excluding the contribution of prepayment penalties in the respective quarters, our second quarter margin was unchanged from the margin in the first quarter of this year. The decline in prepayment penalties also affected our net interest income, which declined on a linked quarter basis, but rose year-over-year. The impact of the linked quarter decline was more than offset by a rise in non-interest income together with a linked quarter decline in operating expenses. As a result, our efficiency ratio was 43.40% in the current second-quarter, reflecting an improvement of 160 basis points. Before opening for questions, there is one more comment I suspect is worthy of making, and that has to do with the duration of our current balance sheet management strategy. As I mentioned when we first disclosed our plans to contain the growth of our assets, this was a short-term objective designed to maintain our assets below the current threshold for a SIFI bank. To be classified as a SIFI, the average of our total consolidated assets would need to exceed $50 billion over a four quarter look-back and would not expect to cross over that line until the second quarter of next year. On that note, I would now ask the operator to open the lines for your questions. If we don’t get to all of you within the time remaining, please feel free to call us later today or this week. Keith?

[Operator:]

[Operator Instructions] And we can take our first question from Ken Zerbe with Morgan Stanley. Please go ahead.

[Ken Zerbe:]

Thank you, good morning.

[Joseph Ficalora:]

Good morning Ken. How are you?

[Ken Zerbe:]

Doing well, thanks. In terms of – first question, I know you said in the past that you are waiting on the Shelby Bill to progress one way or the other in terms of whether or not SIFI buffer gets raised before you announce a deal, can you just update us on your thoughts like are you – how are you feeling about the Shelby Bill and how do you feel about announcing a deal at some point in the near future?

[Joseph Ficalora:]

I think Ken the important thing to recognize is when you are dealing with the politics of Washington there can be changes in the perception of what will happen from moment to moment. We clearly are of the view that it is far better for us to be in a definitive situation with regard to our actually being or not being a SIFI, when in fact we consider the specific ramifications of a deal. So although we are doing lots of internal work, we are not in a position to have the relevant conversations with our regulators, which are the important conversations to have. Until we get to a point down the road that there is some clarity as to whether or not we are going to be asking our regulator to classify us as a SIFI or not. So that uncertainty has not changed. There is a period of time during which this could happen in the few months ahead, and then there is a likelihood that we would be more inclined to go forward without there being certainty of the politics because there would be no capacity to truly gauge when it might actually happen. So this is important to us but it is not something that we manage or control. It is certainly something that we are prepared to deal with when the time presents itself.

[Ken Zerbe:]

Okay. A couple of maybe numbers questions, in terms of the margin or the core margin specifically, it looks like it held up a lot better than expected, can you just talk about why they held up and I suspect that maybe that some of the gains from selling or the premium that you get from selling the multifamily and CRE is the end margin, is that correct?

[Thomas Cangemi:]

Ken, good morning. It is Tom. So the upside surprise from our guidance was that the loan pay downs on the multifamily-CRE portfolio was lower than what we expected what we modeled. So we had a sizeable amount of amortization and prepayment on our portfolio at a much lower coupon. That is a very encouraging signal. However, we are not in a position to say that margins are going up given there is still uncertainty in the [out quarters] and respective rising interest rate. What we also want to take into account that in Q1 and in Q2 we had the benefit of [DUS] prepayments and that particular benefit for Q2 was 5 basis points and in Q1 was 4 basis points. If you take out [DUS], take out pre-pay, the actual margin excluding prepayment and [DUS] was down 1 basis points, still significantly better than our guidance. So that the upside deal was clearly on the prepayment of the coupons paying at lower levels.

[Joseph Ficalora:]

I think an important thing to recognize our particular asset model does have a strong or a likelihood of a favorable rate than in fact it might have had one, two quarter ago.

[Ken Zerbe:]

Okay. So the last question then, so the gains of $8.8 billion that you highlighted that presumably is other income?

[Joseph Ficalora:]

Other income.

[Ken Zerbe:]

Okay. So as long as you are below $50 billion we should expect those gains to continue resulting in service possibly of stronger other income than you would have otherwise?

[Thomas Cangemi:]

I mean in this environment we have been managing the balance sheet and we have been selling not only mortgage banking asset to the resi portfolio, but also to the commercial portfolio as well. In the press release we had indicated [Indiscernible] north of $14 million, [Indiscernible] for six months of the year.

[Joseph Ficalora:]

It is certainly not a bad business to be in making money on the ability to sell quality asset participations.

[Ken Zerbe:]

All right. Thank you very much guys. I appreciate it.

[Operator:]

And we will take our next question from Mark Fitzgibbon with Sandler O'Neill. Please go ahead.

[Mark Fitzgibbon:]

Good morning gentlemen.

[Thomas Cangemi:]

Good morning Mark. How are you?

[Joseph Ficalora:]

Good morning.

[Mark Fitzgibbon:]

I’m just following up on the last question about the margin, Tom, what is your outlook for the NIM excluding prepayment penalty income in the coming quarters?

[Thomas Cangemi:]

Still obviously we are covered by a change in the coupon. Obviously our coupons right now are substantially lower at the portfolio, the multifamily coupon is at 3.49, and the CRE is at 4. That is a significant drop. The market is around 3.25 for the [Indiscernible] and probably somewhere between 3.50 to 3.75 for a little bit of duration. So we’re looking at again close to stabilization. I would guide down 1 to 3 basis points for Q3 given – depending on what types of portfolio yields come off. We had a nice upside to flat in Q2. We are hopeful, but there is no guarantee that is going to continue, but the good news is the portfolio yields are dramatically lower than they were a year ago. So the [lead] a year ago was over 150 basis points. Now the [lead] is around 50 basis points. So that is very encouraging.

[Mark Fitzgibbon:]

And then I wondered if you could share with us what the approximate average life of the wholesale borrowings are today?

[Thomas Cangemi:]

Actually we have extended about a billion dollars over the past few months and towards the end of the quarter, but we are trying to move around very methodically as we look at where rates are going. [Indiscernible] for the quarter of approximately $400 million, extended out about 3.1 years and we did some just longer-term borrowings approximately $500 million to $600 million at 2.8 years. So we are probably running around 2.7 years I think Joe.

[Joseph Ficalora:]

Yes.

[Thomas Cangemi:]

Approximately 2.7 years for the whole portfolio. We do have something – we are liability sensitive, but we’re still managing it very methodically as we see rates – with the expectation that rates rise in the future.

[Mark Fitzgibbon:]

And lastly, I wondered if you could just sort of share with us Joe your thoughts on the deal environment, whether you think there will be large transaction opportunities for you in coming quarters?

[Joseph Ficalora:]

I think that the deal environment if anything is getting to be more and more attractive. The likelihood that there are banks in the marketplace that would like to combine with a bank that has the tributes that we have is very real. And although we have had ongoing awareness, because every major player in the market brings us opportunities, we had awareness of plenty of opportunities in the marketplace. We are very disciplined in how we will proceed and we are very sensitive to the expectations that our regulators will be consulted with before we actually negotiate a definite deal. So the immediacy of a change in the overall characteristic of the consolidated bank, whether will be a SIFI or not is material and therefore we are literally actively involved with people who are addressing that issue. But as we all know, in the world of politics there is no certainty as to when enough people come together to actually do something, which I think arguably is in this unique case, the $50 billion threshold, in this unique case the regulators are asking for this. In this unique case there is an overwhelming awareness that that metric is not appropriate, even Barney Frank himself has publicly said that. So the reality is this should be and will be addressed. It is just a matter of when.

[Thomas Cangemi:]

Hi Mark, it is Tom again, just to clarify the average maturity of our portfolio is 4 years, the borrowings portfolio, 4 years, not two points.

[Mark Fitzgibbon:]

Thank you.

[Thomas Cangemi:]

Sure.

[Joseph Ficalora:]

You are welcome.

[Operator:]

And the next question comes from Dave Rochester with Deutsche Bank. Please go ahead.

[Dave Rochester:]

Hi, good morning guys.

[Joseph Ficalora:]

Good morning David.

[Dave Rochester:]

Hi Tom, on the NIM guidance, I was just wondering what your assumption is that you are including in that on the prepayment penalty income in those [DUS] securities, you said it was 5 for this quarter?

[Thomas Cangemi:]

I am basically calling it a [DUS] [Indiscernible], to give you those two items excluded. So on an adjusted basis that is 1 to 3 down, and that is, we were down 5 to 8 and that is what I have guided. So we came in flat. So again it is fluid given where rates are. We are seeing significantly good prepayment activity in the portfolio of our coupons, but that was a very good positive signal for Q2. We are hopeful going forward. That assumes both [DUS] and prepayment excluded at the margin, down 1 to 3.

[Dave Rochester:]

Got you and on the discussions that you are having with the regulators or the relationship there regarding a deal, do you guys need to have all of your systems in place like your LCR system for example, before you are able to get approval for a deal that pushes you over the SIFI threshold, and can you update us just on where the progress is on the LCR?

[Thomas Cangemi:]

I will give you an update on LCR. We are moving ahead towards our project plan as discussed in previous quarters. Our expectation is by year-end a vendor has been chosen. The system is being built. We still expect that to be completed by year-end.

[Dave Rochester:]

And then regarding whether you have to actually have that in place before you get approval, any sense there?

[Thomas Cangemi:]

Well, we are hopeful that by year-end we will be in a very good position with LCR, but again this is not a significant overhaul for the bank. This is upgraded systems situation and we are very confident [Indiscernible] towards doing deals, but we will have it in place.

[Joseph Ficalora:]

I think it is very important that you not misunderstand what Tom is saying. We are not going to first consider a deal at the end of this year when this process is complete. We will complete this process and discuss this matter with our regulators as soon as it is appropriate for us to actually on point to be dealing with a deal opportunity. So there is no expectation that we’re not going to be considering a deal until the end of this year.

[Dave Rochester:]

Got it. And then, how do you think about capital as you resume stronger loan growth into 2016, you are about 7.3% on TCE, can you take that below 7% as you post stronger loan growth next year?

[Thomas Cangemi:]

Dave, we’ve internal buffers that we’ve managed over time, we’re very confident that our capital position being very strong given our risk profile, we’ve been actively selling our loan portfolio given the situation we got typically in our threshold. But when we do ramp up growth they also assume ramp up profitability and we’ll build capital. We’re very mindful about capital position, we’re very confident that if we ever need capital for growth will be very profitable for shareholders.

[Joseph Ficalora:]

The other component of this is we do not have the same need for capital that banks that [Indiscernible] during cycle times dramatically. The need for capital is openly discussed as a need to accommodate losses, we’ve not had a history of charging capital for losses in our principle assets. And therefore, there is a very, very different dynamic at play with regard to our need for capital and the need for capital in institutions that having genuine expectation are their regulator and their board that they will lose sizeable amount of capital during a cycle turn.

[Thomas Cangemi:]

So the probability of expect the capital rate most likely will be in conjunction with a merger announcement. We’re very focused on looking at the pro forma capital position of a new call and the new call obviously we price into our economics whatever take to one of larger bank on the capital position.

[Joseph Ficalora:]

We’ve done it historically, we’re very comfortable on presenting an opportunity for shareholders to invest into a larger company in the mid capital base.

[Thomas Cangemi:]

That’s very consistent with what we’ve actually done deal after deal after deal.

[Dave Rochester:]

Okay. And then, just one last one, your appetite for loan sales whether it’s multifamily, commercial real estate in the back half of the year since you guys are planning on ramping up for loan growth, I was just wondering how much we would expect to see there?

[Joseph Ficalora:]

I think there is no question that we’ve a capacity to take share in this market, whether or not the portfolio, the asset is driven by the actual building if you will of a New Co in a very large new company versus where we would choose to be in the next 3 to 12 months should we not be effectively closing a deal. So this is a good income stream, if it’s not in any way compromise our participation in the market with regard to real estate lending in fact if anything it gives us greater share of the marketplace that is very, very good thing.

[Thomas Cangemi:]

I would also add that just to assume going to the back half of ’15 so many we’re going to see some good growth, obviously we will position ourselves to cross over some time next year as we indicated second half of next year will cross over and that’s exclusive of LCR, so between LCR adds for the balance sheet as well as good portfolio growth you can have meaningful after growth with the expectation that we’ll cross over in ’16.

[Dave Rochester:]

So then, on the loan sale side, in terms of loan sale activity, we should expect that to continue at least to a certain extent?

[Thomas Cangemi:]

Yes, good to move. We’ve been very opportunistic, banking commissions have been strong, there is a substantial appetite there is a CRA component to some of our asset that we do so, there is a lot of anchor looking to participate and we’re comfortable in inviting the participants.

[Dave Rochester:]

Okay, great thanks guys.

[Joseph Ficalora:]

You’re welcome.

[Operator:]

Our next question comes from Matthew Kelly with Piper Jaffray, please go ahead.

[Joseph Ficalora:]

Good morning Matt.

[Matthew Kelly:]

I’m just wondering if you can just give a little update on your outlook for expenses going forward something new, some thoughts there?

[Thomas Cangemi:]

Sure. So obviously, we had some one time severance expenses in Q1, we probably came in slightly down based on guidance on Q2. So my guess is that you look at Q3, we’re looking at around the same level of factor [$150 million] for Q3. We had some additional cost adds that regarding just continuing growing towards the SIFI World in Q2 and I think at this level at 150 we should stabilize.

[Matthew Kelly:]

Okay, got you. And then, yesterday [Signature] talked a little bit about some tax benefits coming through at state, SIFI type of level. Anything changing on your tax rate outlook?

[Thomas Cangemi:]

So given our structure and where our assets are located, our tax level should be consistent with the previous quarter so around 36.5, 36.48 percentage of effective rate so nothing meaningful change there.

[Matthew Kelly:]

And then, on the selling, multifamily, commercial real estate loans, just talk a little bit about what you have been selling and kind of the variation and gain on sale margin, do you have experienced over the last several months as you have been embarking on this strategy. And the long that you’re selling longer duration, maybe little bit more detail?

[Joseph Ficalora:]

I think it’s important to recognize that we’re participating in loans that we otherwise were holding in our portfolio. So there is no opening characteristic of the loans that we do where we share a portion of the outstanding balance with a partner. So these loans all of them are in our portfolio, none of these loans are leaving our portfolio, all of these relationships are in fact being maintained. The important thing here is that we’ve these flexibility to choose how much of every given loan we would want to share with somebody else. We get paid for that upfront and ongoing. So it adds to the overall yield that particular asset has to us.

[Thomas Cangemi:]

The exception of the book, everything has been said, so we are retaining the services and controlling the asset class. We had some servicing lease last year and some of the jumble client assets that we sold as far as the economics, subject to market conditions, there is a CRA component like I said previously. There is some value to this because there is a need for CRA assets especially in the city marketplace and as Joe indicated we are participating, so we’re controlling the assets. We did $3.5 billion of production in Q2 if you normalize the company's run rate working at 10% net loan growth run rate for long term investment we didn’t sell assets, so we are not as large as far as growth rates in the previous year, that's a pretty respectable rate in an uncertain environment when it comes to lending. So we are very pleased with the potential growth and we just like to portfolio all of our loan and it feels like the way we use it next year it breaks high, we can have a high single to low-double digit type net loan growth as we cross over the city threshold which would be very traffic for net interest income.

[Joseph Ficalora:]

I think it demonstrates our capacity to gain share of our highly attractive niche within this market. And the gaining of share is very rarely managed from the standpoint of their being in ready market to participate again whatever we decide we are going to allow available to the market.

[Thomas Cangemi:]

So just another commentary there, when you look at some – we have slight slide up in Q2 in interest rates. We had a significant rush for activity. That just goes to show how the customs will react to arriving rate of environment. That takes place in the foreseeable future quarters you will see lots of activity and obviously with the hope of high coupons coming on portfolio that was encouraging signal for few weeks that we had in June.

[Matthew Kelly:]

Got it. Can you maybe give us an update on your Taxi Medallion loan book and what your plans are with that portfolio, there has been a lot of conversations on that with some other banks in the marketplace and what do you folks are planning to do with yours?

[Thomas Cangemi:]

So obviously, we have approximately $165 million the Taxi Medallion exposure and we have been monitoring on a monthly basis right now. It's a 100% performing. We have adjusted the average, we have adjusted the market value prices for the new market and we still have an LTB level that's around 65% LTB. So overall, we are pretty confident that we will monitor it what we are just doing month to month and watching some of these individual owners decide to get financing elsewhere which has been so far the strategy. We are not looking to add more case by case basis.

[Matthew Kelly:]

Okay. Thank you.

[Thomas Cangemi:]

Sure.

[Operator:]

And our next question comes from Collyn Gilbert with KBW. Please go ahead.

[Collyn Gilbert:]

Thanks. Good morning gentlemen.

[Joseph Ficalora:]

Good morning.

[Collyn Gilbert:]

Tom just to tighten on that loan growth outlook that you are thinking about, so the just one thing I want to confirm is, so your target for crossing 50 billion, did you say second half of next year?

[Thomas Cangemi:]

Yes, it’s pretty simple. We cross over the second quarter let's say April, May or June after second quarter, we would then be starting to see clock, reporting 2018. So I think a lot of time to deal with [Indiscernible] lending process. With that being said you assume to start seeing ramped up growth in the end of this year and we will still be well in line not for [Indiscernible] so where we stand today our average portfolio look back is 48.5 billion, we would have to add $6 billion tomorrow in Q3 to be shipping over the SIFI line. So we have room here. we believe that going into Q3 and Q4 you will start seeing growth typically as everybody knows if you follow the company, the fourth quarter is always the robust origination quarter, so we can start seeing some good ramped up growth in Q4 going into 2016.

[Collyn Gilbert:]

Okay. And that was question two, on the third quarter growth because I know you said at the first quarter you expected back half growth to really ramp-up and it sounds like that's consistent again. I am just curious the drop off in the loan pipeline in the third quarter relative to --?

[Thomas Cangemi:]

Seasonality and as you know it's always to believe third quarter for the company in the past 20-30 years has been seasonality issue. We look very confident we will good production. We are in the Jewish holiday the way they fall typically in September you get a big ramp-up in Q4.

[Collyn Gilbert:]

Okay and then just tying that into kind of the outlook for the NIM, I guess if you start to ramp-up growth and your multifamily – that your five year multifamily product that you say it was 3 in the quarter?

[Thomas Cangemi:]

Correct. Again that changes on a weekly basis. The base start to rise out of the higher obviously.

[Collyn Gilbert:]

Okay. Okay just in the core NIM, I mean, the preservation of the NIM maybe has been a function too, would you say of not adding to the balance sheet so then when you start end of the balance sheet do we see a re-acceleration of that core NIM pressure?

[Thomas Cangemi:]

Again, depending on what happens with short term interest rates we have a nice five year, we broke up some [Indiscernible] assets from our specialty finance business, so I’m being very cautious and we expect to what happens when it just rings. Right now we feel comfortable that it's very slight modest adjustment given what we saw in the past few quarters as we move on. We can have lower coupons payoff, we can have it upside them being conservative, I got it down 5 to 8 basis points we significantly outperform the previous quarter based on the activity from [Indiscernible] so that’s an encouraging signal but again I am not going to say one quarter is going to be trend. That 3.49% is the average coupon for entire multifamily book so if we are putting out loans north of that in future that will be very encouraging and typically when rates are arriving you have a tent up demand to come back to the table and locking in next three to four years financing.

[Collyn Gilbert:]

Got it, makes sense. And then, just one quick follow-up you mentioned especially finance how is that portfolio looking? I think did you target, was it 900 million by –?

[Thomas Cangemi:]

Yes fabulous, they are just five re-sales of 800 million, we expect to be about a $1 billion by the end of the year they are doing extremely well. We are very pleased with the operating performance. It's a good sea business so the margin which has the nice sell fees; they’ve been yielding within the north of our short-term multifamily yield. So it's been attractive and two thirds I believe is LIBOR based funding. So we will have a nice kick if and when rates go up. So we act very favorably to higher interest rates and more importantly the portfolio is 100% performing. We’ve been through the [snake] exams and we had one credit which is clearly it's off the books – so we feel pretty confident. They are doing a fabulous job. We are going to continue building that portfolio.

[Joseph Ficalora:]

Collyn, this is very consistent with our expectations of the comments over the course of the last year or so.

[Collyn Gilbert:]

Got it, okay that's helpful. That's all I have. Thanks guys.

[Joseph Ficalora:]

Okay.

[Operator:]

And we will take our next question from Bob Ramsey with FBR Capital Markets.

[Bob Ramsey:]

Hey good morning guys. I just wanted to touch on the other income line just to make sure I get all the moving pieces here, it was about 28 million that includes the 7.8 million ROI gain, what was in that line for gain on sale of the multifamily commercial real estate did you guys just paid it out?

[Thomas Cangemi:]

Approximately $8.5 million from the gain on sale.

[Bob Ramsey:]

Sorry did you say approximately $1 million?

[Joseph Ficalora:]

8.5, I believe.

[Bob Ramsey:]

Okay. 8.5 got it. Okay so if we take that out then is sort of 14, sorry I guess more or like 12, is 12 sort of the right base plus any multifamily gain on sale on future quarters is the right way to think about it?

[Joseph Ficalora:]

Assuming that we continue – we assume we are going to be selling more going forward but just to be clear in our press release we’ve articulated the six months cumulative benefits from these transactions to the billion dollar and that was I believe $14 million so we have that in other income.

[Bob Ramsey:]

Okay. And all the pace of loan sales, participations be similar to third quarter or recent quarters you think?

[Thomas Cangemi:]

Again, we are confident that it is a very, very strong market. Very, very strong market and it's not – it's not shortfall, people are looking for long growth inside the back half of that. So we are confident on our ability to continue transact again depending on market conditions we are always optimistic that we could move on these assets.

[Joseph Ficalora:]

I think the important thing is that we have discretion to make choices and the choice will be appropriate for the other present that are occurring in any given quarter.

[Thomas Cangemi:]

The real point in time as we focus on growth again and this will be versus gain on sale versus growth right, we will have a substantial amount of growth as we move in towards SIFI cash and we get the benefit on top one instead of down – into other income lines all the time.

[Bob Ramsey:]

Okay, all right.

[Thomas Cangemi:]

And we give up for significant growth and like I said if you carve out the loan sales for this year, we are growing at 10% net loan growth, last year it was 12% on pre-sell. That's pretty strong growth and again given the higher rate environment we believe that we tend to have a more higher portfolio loan growth – given that you see more people come to the table to lock in rates we have a significant amount of growth, so we have demonstrated in the past in the right way, the environment growth can be very robust for us.

[Bob Ramsey:]

Okay. That's helpful. Shifting gears a little bit to mortgage banking, the pipeline in that business dropped versus last quarter, is that just seasonality or how are you thinking about the mortgage origination outlook?

[Thomas Cangemi:]

I think it's fair to say some of the seasonality definitely because of interest rates. Interest rates are much higher on average on a quarter-over-quarter. So we expected flat, we came in line with our internal expectations. Our guidelines for the third quarter is same I don't see April month pick up where the rates are given that the swing rates around 4% and the 30ish typical mortgage you have last three financing more purchase right now. We are not a true retail player, we are wholesale aggregator so we tend to lag the guys that have the retail platform. So clearly, the purchase mortgage which by the way is somewhat lackluster continues and probably be around that level give or take a million or two slightly down through a given seasonality in total revenues.

[Bob Ramsey:]

In total mortgage rate revenues so including services?

[Thomas Cangemi:]

Correct.

[Bob Ramsey:]

Okay and on the service inside you just have the break out this quarter what were servicing feels, the MSR adjustments and hedge?

[Thomas Cangemi:]

Sure. So for the quarter was 12.3 million was the loan servicing fees. The change in MSR value was a positive 14.6 and then MSR hedge was a negative 21.5 and net assets 16 million when you take into account mortgage origination of 10.6.

[Bob Ramsey:]

Perfect. And then last question, I will hop up I know you all said you’re a multifamily [Indiscernible] sort of gives tweaks every week, Signature said on their call yesterday that they hadn't raised their pricing this week I think for the first time and maybe they don’t move quite as frequently by a point. Just kind of curious if you think about pricing over the course of the quarter have you all seen a material change or lift in pricing for you guys in the market?

[Thomas Cangemi:]

Yes, so I would say that we will get it there because obviously it's our business model. And clearly when it's a significant bump up in the valley of the curve, we react so the good news is that people are not stretching below 3% we are slightly around 3 and a quarter for the traditional labor, commercials around low 4s, which is not terrible in this environment with the expectation of rate being moved. If rates move we then want to react given that we – there has been so much pent up demands for the move, we haven’t had the move for the multiple years. So I think that we – now we watch it daily and it is clearly in my opinion that banks are reacting towards the upside move interest rates. Now it is very favorable for us.

[Bob Ramsey:]

Alright, great, thank you guys.

[Thomas Cangemi:]

You are welcome.

[Operator:]

And our next question comes from Ebrahim Poonawala with Bank of America, Merrill Lynch.

[Ebrahim Poonawala:]

Good morning guys.

[Joseph Ficalora:]

Morning.

[Ebrahim Poonawala:]

Questions just in following up on LCR just so that understand it correctly, you will have the systems in place by year end but you are not taking any balance sheet actions to sort of begin complying with LCR as of now is that correct?

[Thomas Cangemi:]

LCR for us is not apply to the SIFI bank. We have probably said that the project plan will be put in place in 2015 then as it been showed people have been hired our expectations to have it complete by year end. With that being said, as we’re putting on assets we are putting on assets when required to put assets in SIFI bank.

[Joseph Ficalora:]

What I think you need to recognize that we need to be ready to deal with LCR in any conversation with the regulator surrounding a deal so that conversation to happen a lot earlier than what Tom is talking about.

[Thomas Cangemi:]

As far as the project plan is concerned it will be done by the end of the year.

[Ebrahim Poonawala:]

Understood and I guess following up on that Joe, how important is the LCR benefit in a potential target that you are looking at when you are looking at these targets in terms of data attractiveness to you or does it not really play a role?

[Joseph Ficalora:]

No. No. every single deal brings attributes to the table and also challenges. So each deal is assessed based on the expected consequence regulatorily as well as economically.

[Thomas Cangemi:]

So big picture, we haven't had the target that has flush with liquidity and has a lot of what we call level one assets and [Indiscernible] very quickly on pro forma basis at the same instance we have the target that has very little of that and we have to model them into the M&A run rate and the pro forma basis what we would have to purchase to comply so it's part of a fighting methodology and each case by case basis depending on the balance sheet target.

[Joseph Ficalora:]

So the outcome needs to be recognized by you, by the street as to the value creation in the deal. So it's not going to be something that you are going to have to be guessing about. It will be pretty evident when we announce the deal. So the market can properly price the outcome.

[Thomas Cangemi:]

So bear in mind historically, for acquisition accounting for us, we have moved on billions of dollars of assets turning to the cash, bank cash we have moved into our table LCR type investment securities as an alternative to cash. So we have modeled that before, we have transacted that before but more importantly the market is right for asset acquisition therefore you need to sell out that there is a very strong market for assets sales.

[Ebrahim Poonawala:]

Understood and just one separate follow-up on M&A Joe? Do you think, means you obviously have a currency advantage but the longer you wait for a deal we have had two large deals approved in the last month or so do you think you will be competing with a larger number of buyers if you – six to nine months from now?

[Joseph Ficalora:]

Yes, I think your speculation as to what the future may hold is something that we consider at all times. We can't control the positioning of others in the future markets. However, we do know that we clearly have a discernible capacity to create substantial value for anyone who chooses to combine with us. That opportunity is something that we have proven time and time again and there will be ample evidence of why the metrics themselves will demonstrate the why a seller could expect if I sell to A or if I sell to B there are differences in the outcome. The speculation that a promise to pay is ever going to be delivered is time to time and time again being subject to the actual market conditions and the actual markets revaluation if you will of a combined New Co. The reality is when we combine we have a very clear understanding of how the New Co creates a greater value and therefore why the street reacts positively to the New Co that we’ve produced.

[Ebrahim Poonawala:]

Understood. Thank you very much for taking my questions.

[Joseph Ficalora:]

Sure.

[Operator:]

And we will take our next question from David Darst with Guggenheim Securities.

[David Darst:]

Good morning.

[Thomas Cangemi:]

Good morning David, I think you are on the fourth David this morning, I don’t know.

[David Darst:]

I appreciate your comments on, you’re not meeting capital in terms of losses, but as you think about the next year and if you begin to accelerate growth and there is not an acquisition, could you talk about your capital plans in that scenario?

[Thomas Cangemi:]

So David, we don't disclose publicly our capital plans on where our buffers are and what our expectations are. We are very confident that if no need for capital in the short term but if the company is growing at very high levels we are not [that hold] to fund that through good capital raises and shareholders historically have been very amenable towards accommodating that type of growth. So we are not in the mood to be raising capital by the session of doing a acquisition. We have been saying that for multiple years that the [Indiscernible] acquisition is way we see a beneficial capital rates where the combined company will have an earnings stream what people will buy into the new shares for issue to pay for that acquisition. As in fact, we have done capital raises for our significant growth if we see any significant opportunity to grow multifamily that a high team type level in the growth rate then you would assume that north of the whole you have to have some additional capital. We are not [Indiscernible] of doing that given that great environment if the strengths are very attractive to us that will be considered profitable capital rates.

[Joseph Ficalora:]

I think it's important to recognize that raising capital at the highest possible price is most desirable. So when we announce a highly accretive deal and we have an elongated period over which we get to the point of actually closing the deal we have the benefit of choosing the right place to issue capital at a very attractive price. And that's certainly one of the things that we will consider on a go forward basis here. The reality is that the higher the pricing issue that capital asset the better will be in the circumstance and this is just history, we announced a deal on Friday, we in fact had the market readjust pricing up 30% on that Monday and we in fact issued capital thereafter. So the important thing is that there is a great deal of flexibility and opportunity for us to appropriately choose the place at which we will issue capital and you should assume that we will make that choice to the best advantage of all shareholders.

[David Darst:]

Okay. Is there still room Tom to continue to blend and extend your borrowings and does that reduce?

[Thomas Cangemi:]

Absolutely, we look at from time to time. We do a little bit of movement over the past few months and obviously if things change we are into a position where we are at, we always look at the opportunity to blend and extend our home loan bank advances and structure some of our repos ranges at Wall Street and time to time we may spend some of short time borrowings out to two, three, four years borrowings depending on market conditions. So we have the flexibility to move quickly, we also have the flexibility to buy instrument that can protect in a right and rate environment and there is perspective so this is something we do on a daily basis. We evaluate. We have been proactive, [Indiscernible] but again we have, are pinning the ability to move when it's time to move.

[David Darst:]

Okay. Thank you.

[Operator:]

And we will take our next question from Steven Alexopoulos with JPMorgan.

[Steven Alexopoulos:]

Good morning everyone.

[Joseph Ficalora:]

Good morning.

[Steven Alexopoulos:]

Joe not to be the dead horse, but I am trying to reconcile your comments around M&A with the potential for this stiff threshold being raised is your M&A strategy on hold pending resolution of where that shapes out or you now moving forward and not waiting for that to get resolved?

[Joseph Ficalora:]

No, no. We do all of the appropriate ground work so as to understand the evolution of the marketplace. It's not as though there are new players coming into the market, but everybody’s numbers change quarter-by-quarter by quarter, our expectations are constantly being adjusted with those candidates that we would seriously consider combining with. There is good reason if in fact there is a strong likelihood that the first discussion of relevance is with the regulator. If the regulator is looking to approve with SIFI that is different bar then if the regulators just looking to approve a deal for bank that doesn't have the burdens of being a SIFI. So for the reason rather than have that consideration begin with a SIFI designation because there is no deal we would do that wouldn't make us a SIFI in the current structured rules. But down the road if that rule changes, immediately the consequence to us changes immediately the discussion with the regulator is to approve a deal not to approve a SIFI. So it's very, very important that and when I am talking here is or even talking months, so we do lot of work every day. We have conversations, we in fact know how we best position ourselves based on the evolving rate environment, the evolving credit environment, the attributes or the less than attributes of a potential candidate having settled of that. The most important first hand conversation is with the regulator to either approve a SIFI or to approve a good deal and we would much rather have the regulator approving a good deal than approving a SIFI, so it's worth our time these weeks, months, it's worth our time to let this evolve and as you know we have no capacity to judge the absolute certainty of or the timing of a political event. Even though, there is good reason to see to why if the regulators want this, the politician should approve this. Politics, politics. And we have no reason to either ask you or ask ourselves to be driven by a political outcome. We know what we like to see. We do not know what will happen.

[Steven Alexopoulos:]

Okay. And Joe maybe the follow-up on that I believe you said you need to have the LCR platform and process in place for bringing the deal to regulators, are there any –?

[Joseph Ficalora:]

Yes, I think the very important point there is, if in fact we are going to ask the regulator to consider approving a SIFI, we have to demonstrate that as a SIFI this is what we would look like. So there is a great deal of work that goes into that process but don't misconstrue there is a very big difference between the ask and the conclusion, so we may begin our process with the regulator in days, weeks, even months and we may not end that process for the days, weeks or months. It depends on what actually going to be on the table during that consideration.

[Steven Alexopoulos:]

Are there any other systems or infrastructure needs maybe enterprise versus manager or anything that we would also need to build out as you consider bringing the –?

[Thomas Cangemi:]

Well sure, I’ll add is that obviously as we grow towards potentially using a SIFI bank, capital planning becomes key. So we have been working on capital planning for years, so we are very confident that we are in a very good position. But every year that we continue to mature to that level you continue to grow with the marketplace so I feel very good about where we are as a company and we will continue to progress there. But again going back to LCR, LCR is merely a calculation for the exercise from the system that takes the information to make sure on a monthly basis we comply that's not the big risk here. So I just want to say the requirement we will have as far as the true focus for these banks is you have to have a good capital planning process and we are very proud of the capital planning process.

[Joseph Ficalora:]

I think the important thing to recognize here it's not a matter of everything has to be in place the day we begin the conversation, everything has to be in place the day the regulator approves the actual transaction. There is going to be a difference in time there for good reason. So we are very confident that we have the necessary tools to prepare and demonstrate to the decision makers as to whether or not the new company will meet all of their expectations.

[Thomas Cangemi:]

We will get there and we continue to add people in those specific types of areas but again it's been manageable, it's been over the past four and half years, five years now so it's been an ongoing mission for the company.

[Joseph Ficalora:]

So it's in our financial as what Tom is saying.

[Steven Alexopoulos:]

Okay. Maybe just one totally separate question on the multifamily originations, did they include any larger loan packages in the quarter or those too difficult to participate out here?

[Joseph Ficalora:]

No, no, no. We typically do individual loans. We don't typically do packages. I mean obviously we may arrange for a transaction with a particular bank where they are going to get let's just use a number $100 million in 10 loans. And then that I guess – being a package but we do not do package lending deals and we are not required or expecting that we will only deal with our partners in package deals. The loans that we put in to that group will be the loans that we are willing to participate with that particular party.

[Steven Alexopoulos:]

Okay. Okay. Thanks for taking my questions.

[Joseph Ficalora:]

Great.

[Operator:]

And our next question comes from Kevin Barker with Compass Point.

[Kevin Barker:]

Good morning. Just a follow-up on the previous question. Could you discuss what was last time you did a major system overhaul on your risk management and your general ledger on your various systems?

[Thomas Cangemi:]

It’s ongoing. The major overhaul internally the bulk of where we are, when we were close to announcing that acquisition back in 2001 so, I am sorry 2011, 2011 from now over those past four, five years we have been overhauling entire backlog just preparing ourselves to be a larger bank. So clearly that particular acquisition we missed, it went away as to somebody else and we continue to run from what we need to do going forward and we continue to add systems and people and we are working very closely to be a larger institution and we are very confident that we are moving in the right direction and when we have the opportunity to present the attractive transaction, we will do so with the expectations that we have our systems in place.

[Kevin Barker:]

So you would say that in general your general and administrative expenses are your technology expenses that you might have are adequate for what you will have as a larger organization or will be similar –?

[Thomas Cangemi:]

Okay, look I think if we are going to double the dealing to increase the bank materially we are going to add additional expenses obviously in a pro forma basis but on a standalone basis as we cross over and eventually become a SIFI in 2018 we have more than adequate time to continue to add at a very modest pace any additional cost necessary after an acquisition. In acquisition you have a new pro forma income stream, new pro forma expense space and you get the leverage between the strength of the both party which we are trying to do.

[Kevin Barker:]

Okay. Thanks for taking my questions.

[Thomas Cangemi:]

Pleasure.

[Operator:]

And we are going next to Matthew Kelly with Piper Jaffary.

[Joseph Ficalora:]

Welcome back Matthew.

[Matthew Kelly:]

Just the quick follow-up as we start to model out this kind of gain on sale business on or the participation business I should say in the multifamily commercial real estate I want to make sure we get our numbers right here. So you mentioned early in the call you had $8.5 million of participation gain in the second quarter is that on a denominator of the 477.6 to kind of get a gain on share margin of 178 that seems pretty high but you know –?

[Thomas Cangemi:]

Yes, we have servicing and capitalization servicing, we have the combination of that as well.

[Matthew Kelly:]

Okay. So that is the number to use I mean –?

[Thomas Cangemi:]

Okay Matt, bear in mind, every long transaction that we enter into has different economics, you may have [Indiscernible] you may have straight component. So we had priced differently. No difference in our interest rates component so if you price the transactions, the rate are materially low you offer high coupon you get paid.

[Joseph Ficalora:]

Matt, participants that need CRA assets will pay more for CRA asset.

[Matthew Kelly:]

How much of a basis point benefit do you get in your gain in share margin for the CRA type of–?

[Thomas Cangemi:]

It depends. It again it varies depending on the, I mean just for example if we are in a market and other state wise you’re putting on asset as a premium level but that’s no different we buy securities on CRA and fortunately standing out the ratio put in one significant premiums and also qualify to be – to CRA qualification. Part of them is business of the bank.

[Joseph Ficalora:]

I think if you check with all the banks Matt everybody pays up the CRE.

[Matthew Kelly:]

Yes, got you. Okay. And what percent of the 478 million so or participated out during the second quarter were CRE assets.

[Thomas Cangemi:]

Vast majority.

[Matthew Kelly:]

Okay, okay. Got it. All right. Thank you.

[Thomas Cangemi:]

You are welcome.

[Operator:]

And it appears we have no further questions. So I will return the floor to you Mr. Ficalora for closing remarks.

[Joseph Ficalora:]

Sure. 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 third quarter performance with you in October of 2015. Thank you all.

[Operator:]

And this does conclude today’s second 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.