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Executives

Joseph R. Ficalora - Chief Executive Officer, President, Director, Chief Executive Officer of New York Commercial Bank, Chief Executive Officer of New York Community Bank, President of New York Community Bank, President of New York Commercial Bank, Director of New York Community Bank and Director of New York Commercial Bank

Thomas Robert Cangemi - Chief Financial Officer, Senior Executive Vice President, Chief Financial Officer of New York Community Bank, Chief Financial Officer of New York Commercial Bank, Senior Executive Vice President of the New York Community Bank and Senior Executive Vice President of the Commercial Bank

John J. Pinto - Chief Accounting Officer, Executive Vice President, Chief Accounting Officer of New York Commercial Bank, Chief Accounting Officer of New York Community Bank, Executive Vice President of The New York Commercial Bank and Executive Vice President of New York Community Bank

Analysts

Ken A. Zerbe - Morgan Stanley, Research Division

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Bob Ramsey - FBR Capital Markets & Co., Research Division

Bradley G. Ball - Evercore Partners Inc., Research Division

Moshe Orenbuch - Crédit Suisse AG, Research Division

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

Josh Levin - Citigroup Inc, Research Division

David S. Hochstim - The Buckingham Research Group Incorporated

David Rochester - Deutsche Bank AG, Research Division

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Jake Civiello - RBC Capital Markets, LLC, Research Division

New York Community Bancorp (NYCB) Q2 2013 Earnings Call July 24, 2013 9:30 AM ET

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. Leading today's discussion of the company's second quarter 2013 earnings will be the President and Chief Executive Officer, Joseph Ficalora; together with Chief Financial Officer, Thomas Cangemi. Also joining in 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: general economic conditions and trends, both nationally and the company's local markets; changes in interest rates, which may affect the company's net income, prepayment penalty income, mortgage banking income and other future cash flows or the market value of its assets, including its investment securities; changes in the demand for deposit, loan and investment products and other financial services; and changes in legislation, regulation and policies.

You will find more about the risk factors associated with the company's forward-looking statements beginning on Page 6 of this morning's earnings release and in its SEC filings, including its 2012 Annual Report on Form 10-K and first quarter 2013 Form 10-Q.

The release also includes reconciliations of certain GAAP and non-GAAP earnings and capital measures, which will be discussed during this conference call. If you'd like a copy of the earnings release, please call the company's Investor Relations department at (516) 683-4420 or visit ir.mynycb.com.

[Operator Instructions] To start the discussion, I'll now turn this call over to Mr. Ficalora, who will provide a brief overview of the company's second quarter performance, before opening the line for Q&A. Mr. Ficalora?

Joseph R. Ficalora

Thank you, Kevin, and thank you all for joining us this morning as we discuss our second quarter performance and the various factors that contributed to its strength. As I've mentioned in the earnings release, there was a lot to like about the results we produced during the quarter, particularly in comparison with our first quarter results.

Higher earnings, margin expansion, increased loan production, higher quality assets and consistent capital strength. To begin, our GAAP earnings rose sequentially to $122.5 million, providing a 1.21% return on average tangible assets and a 15.90% return on average tangible stockholders' equity. On a non-GAAP basis, our cash earnings rose to $132.5 million, adding $10 million or 8.1% more to our tangible capital in our GAAP earnings alone. On a per share basis, our GAAP and cash earnings respectively rose to $0.28 and $0.30 in the second quarter of this year. The link quarter growth of our earnings was primarily fueled by an increase in net interest income, together with a reduction in operating expenses, largely reflecting prepayment penalty income on net interest income rose sequentially to $299.9 million, and our margin rose 20 basis points to 3.15% during the same time. As prepayment penalties ebb and flow with the volume of loans refinancing, it's clear that refinancing activity was robust in the last 3 months. In fact, prepayment penalty income rose to a record $44.4 million in the current second quarter, adding 26 basis points more to our margin, that trailing quarter amount. In addition our average cost of borrowed funds fell 13 basis points sequentially to 3.22% in the quarter, partly reflecting the majority -- the maturity of certain higher cost repurchase agreements as well as the continued repositioning of wholesale borrowings. Today, we've repositioned wholesale borrowings of $6.6 billion, including $580 million in the last 3 months. The maturity dates on the latter funds were extended by 5 years on average and the average cost of such funds was reduced by about 73 basis points. Although held for investment loans declined over the course of the quarter, originations increased sequentially and year-over-year.

In the second quarter of 2013, the average balance of loans rose to $31.9 billion, $326 million higher than the trailing quarter, and $1.2 billion higher than the average in the second quarter of 2012. As usual, multi-family loans represented the bulk of our loans held for investment, $19.2 billion, or 68.6% to be precise. Commercial real estate loans represented $7.3 billion or 26.1% of the June 30 balance, with the remainder of the portfolio consisting of ADC, one-to-four family and other mostly C&I loans.

While the production of held for investment loans rose both year-over-year and link quarter, the production of one-to-four family loans held for sale declined. In contrast to our traditional lending niche in which refinancing activity increased, the refinancing of residential mortgage loans declined as mortgage interest rates rose. Looking ahead, our pipeline of loans is currently $3.4 billion, with loan held for investment accounting for approximately $2.5 billion were 73% of that amount. By the way, the $2.5 billion is the largest pipeline we've had in loans for investment, especially going into the third quarter of the year.

While the quantity of loans we produced is, of course, important, we continue to hold to our long-held belief that quality trumps quantity. In the second quarter of 2013, nonperforming non-covered assets represented 0.57% of total assets, the lowest measure we reported since March 31, 2009. In addition, nonperforming non-covered loans represented 0.54% of total loans at the end of the second quarter, and this was the lowest measure we've reported since December 31, 2008. Also of note, the ratio of net charge-offs to average loans was 0.01% in the current second quarter, improving upon the 0.02% we reported in the first quarter of this year.

Moving down our balance sheet, I'd like to point out that our balance of wholesale borrowings declined from the levels recorded at the end of March and December, and represented 28.6% of total assets at the end of June. We also continue to be gratified by our consistent capital position, which continues to reflect the strength of our earnings and our asset quality. Accordingly, we were pleased to declare for the 38th consecutive quarter, a quarterly cash dividend of $0.25 per share. The dividend will be paid on August 16 to shareholders of record at the close of business, August 7. This concludes my prepared remarks, so I will ask the operator to open the line for your questions at this time. As always, we will do our best to get to everybody in the time that is alloted. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Ken Zerbe with Morgan Stanley.

Ken A. Zerbe - Morgan Stanley, Research Division

A couple of questions for you. I guess the first one, just in terms of margin, can you talk a little bit about the outlook for margin given the rise in rates we've seen in the back half of the last quarter, where are you originating new loan yields, when you think about NIM outlook in the -- maybe the back half of this year and into '14, like how has that changed?

Thomas Robert Cangemi

Good morning. It's Tom. So I guess when you look at what we had in the past 2 quarters, we've been bumping around close to stabilization, it looks like third quarter should be the down part of our margins, so again, I'll guide down slightly, 4 to 7 basis points going into the Q3 and then most likely by Q4, we stabilize, and hopefully, if rates stayed, this type of a slow, we'll probably see some upwind next year. So again, I'm not going to be too bullish in '14, yet it's early. However, we see that going into the third quarter that this should be the bottom of some declines, very small decline. It's x prepayment, obviously, prepayment has been very strong, so looking at the -- take the prepaids out of the equation, we're getting close to the bottom. So I think fourth quarter should be the bottom and you should see maybe another 4 to 7 basis points of potential decline.

Ken A. Zerbe - Morgan Stanley, Research Division

Okay, 4 to 7, in the third quarter. Okay. Next question for you. In terms of, I guess the NYCB Specialty Finance Company, so if I read this right, it looks like you're now pushing more into C&I. I don't mean this in a bad way, but I will be pretty direct to my question, does this signal any kind of capitulation or change in your outlook when it comes to commercial real estate that you now want to focus more on C&I?

John J. Pinto

No, in actuality, this is merely the realization that this happens to be an extraordinarily good opportunity to actually originate low risk assets. The group that we've engaged here was brought to us with a very attractive portfolio and a 20-year history of performance metrics that rival our own. And certainly, over the course of time, which includes obvious difficult periods, they've demonstrated time and time again, that they know how to do this business with very, very little risk. And therefore, since we're a risk-averse company, we like their business.

Thomas Robert Cangemi

I advise to another buyer we have [indiscernible] of getting people, they just love the assets. So we started from scratch. With the people that generated a very successful track record, I think, as Ficalora mentioned, historically, I believe the number that they put out was about $7.5 billion over a 20-year period with losses of about $1.4 million. So a very sound, conservative group of lenders.

Ken A. Zerbe - Morgan Stanley, Research Division

Okay. Great. And just one last question for you. In terms of loan growth, I think the average growth was a little bit lower-than-expected end of period for held-for-investment was basically flat to down a little bit. Was -- can you just reconcile your very strong pipeline versus what we saw this quarter? Was it a timing issue? Should we expect loan growth to sort of reaccelerate in the back half or is the competition in refinancing just being too much of a headwind to really see any material growth?

Thomas Robert Cangemi

It's fair to say that if you look at the average, we had a very strong quarter as far as activity. However, the significant deals as of the end of June, end up refinancing as you look at the prepaid housing[ph] being robust, the highest ever, we're going into the third quarter, as Mr. Ficalora mentioned, at the highest pipeline historic for the company as a public entity. $2.4 billion, about $2.5 billion being the highest ever in our multi-family side, the highest for multi-family. So obviously, we had some significant refinancing activity, high -- significant prepays but going into the Q3, this should be a -- probably a growth quarter more than we typically see in Q3 given the seasonality. So we're heading out ourselves very nicely for the second half of the year with good loan growth. Again, we feel fairly confident that loan growth should be in the high single-digits going into '14.

Joseph R. Ficalora

By the way, we had a very large satisfaction at the end of the quarter, which impacted the numbers. It's the second-largest loan we've ever done, and that satisfaction obviously, brought down the closing quarter number.

Thomas Robert Cangemi

But on average, we had a very strong average balance of the quarter.

Operator

Next question comes from Collyn Gilbert with KBW.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Just kind of on that topic, I mean, what do you think the impact will be sort of longer term or at least in -- for the rest of the year or '14, of this pull-through of refinance activity? I mean, do you -- obviously, this came as a surprise, the accelerated prepays. Do you think the borrower behavior is changing a little bit here? And I guess ultimately, where I'm trying to go is what your outlook is for loan growth.

Joseph R. Ficalora

I think this is very consistent with what we've been saying since mid-2010. The period ahead is going to be very rich in refinancing and in the amount of prepayment penalty that we collect. Our business model is very consistent, and what we're seeing here, this activity is very much what we would expect.

Thomas Robert Cangemi

And I would also add, the good news that rates are up materially from the previous quarter, so we have a much higher outlook and expect to have higher asset yields. And if you look at where we were going into Q1, where people are hovering around 3%, we are hovering around 3.5% to 3.75% on the reoffer rate for 5-year paper, and 7-to-10-year paper hovering around 4%. That's a significant differential from the beginning of the year. So the outlook is much more favorable for asset yields. We have a lot of customers that are scratching their heads thinking, should I refi today or tomorrow, if not, they may miss a significant move and there's no question that, that is driving their decision. We were very bullish on prepaid going into the quarter. We had a record quarter in prepaid. We said it last conference call, expect to see prepaid. We're elevated, and you'll see the continuation of that. It should be additive to the profitability of the company. And the good news for us is that we also look at loan growth, having a very strong pipeline going into the second half.

Joseph R. Ficalora

The number is right around 3 years, so the average life of our principal loan is about 3 years. That's very consistent over the last several -- couple of years. That's been very, very consistent.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Right. I guess, I was just trying to see if the anxiousness to get to lock-in now maybe curtails future demand.

Joseph R. Ficalora

No, I don't think so. And when you think about it, our portfolio is constantly moving. So if we're refinancing a $30 billion portfolio in the 3-year period, that gives us a tremendous amount that can be refinanced each and every year.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And just one quick follow-up on the specialty finances. Do you any have sort of targeted size that you think you could get it to? I know, Tom, you talked about what the previous team did, but what's your appetite in the near term for that business?

Thomas Robert Cangemi

I think, conservatively, in a 12-month period, we're budgeting between $500 million and $650 million. The group had -- was managing a $1 billion portfolio. It is high peak content [ph] with that portfolio, so they've done a phenomenal job. We're looking forward to growing it. But we just started the business. I think we just booked handful of loans going into Q3, so it's not a material number today, but it will contribute to our growth. And I think, in reality over time, given our balance sheet and our capital, that number can easily be, down the road, a $2 billion portfolio.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then just quickly, the average loan size within this business is targeted to be what?

Thomas Robert Cangemi

Anywhere from $10 million to $40 million. That range.

Operator

Our next question comes from Bob Ramsey with FBR Capital Markets.

Bob Ramsey - FBR Capital Markets & Co., Research Division

I was hoping you could talk a little bit about mortgage and the outlook. Obviously, you had much better servicing income this quarter. I'm curious how much of that was MSR recovery and how to think about the potential for further recovery if rates stay where they are or trend higher?

Thomas Robert Cangemi

That's correct. I mean the origination number was around $17 million. The net servicing number was $6 million. Of that, we have approximately $26 million right before we keep the change in the MSR versus the net of the hedge of $23 million. So we're probably $3 million or $4 million positive on the net hedge of the MSR. But net-net, it's been an interesting environment. We saw a significant shift from refi purchase. So right now, it's fair to say that between 50% to 60% of our businesses is now purchase activity. And refi has slowed down materially, when renewal rate move from 3.5% to 4.5% overnight, it does impact us as a wholesale aggregator. So once again, we're going to see downward mortgage banking activity, but I just want to point out a specific statistic for the company. Last quarter, mortgage banking income was 6% of our net -- 6% of revenues and 6% of net income. So if you look at the totality of the earnings stream, it's a manageable number. As we always talk about, when we got this business, it's a barbell strategy. We're getting -- we're enjoying the benefit of higher rates for the portfolio. We're going to look at portfolio growth going into the second half of '13 and definitely into '14. At the same time, prepaids are elevated, so we feel that it's a manageable barbell strategy and it's definitely a downward cycle. And we pointed that out probably at the end of last quarter that we saw a significant change in refinancing activity. And I think that's an industry expectation right now.

Bob Ramsey - FBR Capital Markets & Co., Research Division

Okay. That's helpful. And then Tom, how often could you give a little guidance around expenses? I'm wondering what you're looking for in the third quarter.

Thomas Robert Cangemi

You'll probably see some belt-tightening going to Q4, given the environment but around $447 million approximately x CDI per quarter, for the next 2 quarters.

Operator

Our next question comes from Brad Ball with Evercore.

Bradley G. Ball - Evercore Partners Inc., Research Division

A couple of questions. So on the multi-family prepays, did you actually see a pickup in the prepays late in the quarter following the rate rise? Was there a reaction to the rate rise, and did that carry through for -- through month to date here in July?

Thomas Robert Cangemi

Brad, it's fluid, I mean, I said on the conference call and in the beginning of the quarter, we were going to have a good prepay quarter, and I see the sheets every day, it's a robust prepay environment. We're in that typical prepay environment. This is last, this will be the third year of that cycle starting at the mid-of -- mid-2010 and it continues. So here we are in July, things are looking bright. We never give guidance on prepays because we can't control the prepay activity. However, we now had good property transactions, things are being traded out in New York City, and we have a lot of refinancing. I think it's fair to say that refinancing did pick up towards the higher rate environment, but that doesn't stop property transaction. So we're enjoying both, both on the commercial real estate portfolio and the multi-family portfolio.

Joseph R. Ficalora

I think it's also important to recognize that we are in a niche: The people that we deal with, are cycle players. At this point in the cycle, a lot of them are repositioning themselves to buy assets, and therefore, they're funding those acquisitions. So there's a lot of activity in the marketplace and this will continue for the period ahead. So we're in a very, very good place with regards to expectations. It is not merely driven by rates.

Bradley G. Ball - Evercore Partners Inc., Research Division

Okay. Fair enough. And then on the mortgage banking side, you mentioned originations being down in more of a purchase mix. What was the gain on sale in the quarter?

Thomas Robert Cangemi

Were hovering just around 100. So we've definitely seen a fairly large squeeze from the beginning of the year. I'd say it's about 40 basis points squeeze going into the beginning of the quarter, first Q2 1, up until today, so about 100 basis points. Big picture as a wholesale aggregator long term, 75 to 90 bps is probably more reasonable range. Now remember, we went out and hit[ph] environment, given the government intervention and the acceleration of refinancing activity. So we hover around here on 90 to 100 basis points towards the end of 2013 with low origination volume. There's no question that things will slow down as expected, by the way.

Bradley G. Ball - Evercore Partners Inc., Research Division

Sorry, Tom, you said 40 basis point squeeze, is that from the beginning of the --

Thomas Robert Cangemi

Yes, the beginning of the year. That's right.

Bradley G. Ball - Evercore Partners Inc., Research Division

Beginning of the year, through, today?

Thomas Robert Cangemi

Correct.

Bradley G. Ball - Evercore Partners Inc., Research Division

Okay, got you. Great. And then sort of a bigger picture, Joe. I wonder if you could just tell us what you see in the bank M&A environment. Do you see any heating up in the second half? Is there anything of interest to you out there?

Joseph R. Ficalora

I think there's no question since M&A has been our basic business model from the time that we became a public company in '93, we continually see all the opportunities that the market has to offer. And there's going to be -- I'm going to suggest a great deal of activity in the last half of this year. And then we certainly are very focused as we've been recently on waiting for the appropriate larger transaction. We clearly are looking to do a highly accretive deal and there will be opportunities to do such.

Bradley G. Ball - Evercore Partners Inc., Research Division

Does your interest in opening up a C&I business, does that suggest that you might be interested in buying a bank that has commercial lending capability?

Joseph R. Ficalora

I think it's not a matter of change in direction. The interest in this particular line of business is the consistency of the track record that is demonstratable as being risk-averse. That's the important component of this particular line of business. We're not interested in C&I generally, but we're interested in how well the people that we've now engaged actually do their business. I think we're open to opportunities as they're presented to us. For example the mortgage banking business. We were not planning on that business and it was being done so well that we've made a great deal of money doing that business. So I think the idea that we could wind up with a acquisition of a company that's in a different line of business, and maintain whatever it may be that we've acquired there, is very, very possible as long as it's a demonstrated, risk-averse lending model.

Operator

Our next question comes from Moshe Orenbuch with Crédit Suisse.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Could you talk a little bit -- I mean, it seems like you bought some securities. Can you talk a little bit about your thoughts on how you're going to manage the portfolio in this environment?

Thomas Robert Cangemi

Sure. We've been reluctant over the past 3 years to grow it. This is probably the first quarter where we saw the opportunity to really start thinking about real growth here given we had a significant market move on interest rates. We're looking at probably growing that portfolio anywhere from a range of 15% to 18% over the next 6 months, more in line to the industry peers. With that being said, that's up 100 basis points from the previous quarter. And we're looking at probably security yields in general, probably at the bottom as of Q2, you'll probably see security yields go up into the proceeding -- in the forward quarter. So I think that side of the asset yield would be a nice bump up over time. So you're looking at anywhere from 3.50 to 3.80 depending on duration, renewal purchases and predominantly in the multi-family space, as well as some agency space or the government. If you look at the -- on the asset side, on the loan yields, we're at probably the low for the company, 4.01% coupon on multi-family. So we're getting close to seeing those asset yield start to bleed, that's why we're fairly bullish on the market stabilizing. As we said last quarter, it's going to happen in 2013, it looks like we're pretty much there, give or take, a few basis points. So I think on the asset side, we are seeing some stabilization but that's when security yields should be up in the future.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Right. And the increase in rates, any opportunities that presents from a restructuring of the liability side of the balance sheet at all?

Thomas Robert Cangemi

We have a couple of hundred million left in the future. But I think we really were proactive in the beginning of the year with the Home Loan bank, we did -- we finished off the top of the tail end of about $550 million going into Q2. There's always that possibility that there's some significant changes to the market and we look at them. But I think in general, we have some payoffs over the quarter that was about $780 million. Probably close to the bottoming of the cost of funds throughout and hope the liability -- with the exception of any new liability to put on, which in this environment will cause a short-term liability. So obviously, short-term liabilities are significantly lower cost. We feel fairly confident that, at least in the short run that short-term rates are not rising significantly from here. We're enjoying the benefit of a very steep slope right now.

Moshe Orenbuch - Crédit Suisse AG, Research Division

Last question for me is just -- you mentioned obviously, the third year of really strong prepay penalty income. What -- I mean, you're hesitant to kind of forecast it, but is there any way to kind of bound how much of the existing book is still subject to that, is there anyway to...

Thomas Robert Cangemi

I think, look at the average volumes, we have a nice concentration of pure CRE, which has a little bit longer duration, so those deals are coming to prepay and interesting enough, they have higher prepayment structures, some of the longer duration paper. More importantly if you look at '09, where there wasn't really any prepayment activity, a lot of borrowed, the extended with that know that pre-op[ph] that very inexpensive option of paying a point to go out to the next 5 years, we're seeing those guys come to the table today. We're enjoying the benefit of the people that rolled their coupon in 2009 are now prepaying today. So it's about a 3-year average life and I think you're going to see a long-term cycle of prepayment activity. The portfolio is much larger and we're seeing some good results in both the multi-family and the CRE book. But we never give specific guidance but it's elevated, and the good news is that it continues to be elevated. So as the portfolio enjoys a higher yield going into the end of the year, if rates continue to rise, we should get close to where it's normal asset yield be, and now have some asset yield accretion over time.

Operator

Our next question comes from Rick Weiss with Boenning and Scattergood.

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

I was wondering if you can talk a little bit about the loan competition for multi-family and if you could give like the percentage of loans that are prepaying, but in staying with New York Community Bank versus refinancing away from you.

Joseph R. Ficalora

Yes, I think it's important to recognize that when you look at this market today, there are far fewer competitors that are impacting our niche than there was 5 years ago. So when you think about who are the players, there are people that you know, banks that are explicitly talking about being in the multi-family business or basically being in our niche. That's a good thing because the guys that had been in our niche was significantly larger and they were lending significantly more ridiculous amounts of money. So the availability of product for refi is significantly greater today. Given the absence of the structured debt lenders, we have a opportunity to gain share. That's why the numbers you see are the way they are. So we're not aggressively lending in this market. If we were to do a very big deal, we would change our lending profile dramatically in this market. But having said that, the marketplace is rich. And although there are a lot of additional names, there is not a lot of additional dollars that are actually being lent against us in the market. So you'll see people that show up with -- all of a sudden, they're in the market and are doing some loans, not a big deal. Not a big deal. So the refinancing is about what we would expect at this point in the cycle. There's nothing unusual at least from the standpoint of our normal business model, at this point in the cycle. So I think that our expectation is that the period ahead will continue to be robust. We'll have a lot of opportunity to do new lending, and we will in fact, have a significant amount of opportunity with regard to prepayment penalties.

Richard D. Weiss - Boenning and Scattergood, Inc., Research Division

Okay. And I feel the average size of the multi-family, it hasn't changed much over the last couple of years. Is there an opportunity to do significantly larger borrowing?

Joseph R. Ficalora

Not really. I think the opportunity to do some larger -- I mean we can do larger loans because the structured debt lenders are not as active in the market. A lot of the new guys that you're speaking of earlier, the new competitors, they're not very large. So we will get a disproportionate share of the larger loans in the market. But having said that, we're not in any way changing our risk profile. We're not in any way changing the criteria by which we lend. So we have some very, very large, very successful property owners. We may get some of their bigger properties in the period ahead.

Thomas Robert Cangemi

Rick, I would just add, over the past 6 months, the 2 largest deals has totaled over $1 billion. So I think -- I don't expect to see a substantial deal lead the portfolio. So I think that goes back to my bullishness of asset growth. I think we're going to see asset growth because we had a good inclination about Co-Op City, we knew that was eventually going to go to a government structure and one larger commercial credit that paid off at the end of the quarter.

Operator

Our next question comes from Josh Levin with Citi.

Josh Levin - Citigroup Inc, Research Division

Tom, it sounded like, in response to an earlier question, it sounded like your guidance for NIM over the second half of the year and maybe a quick look at '14, it sound like that guidance was roughly unchanged versus the previous quarter when you gave guidance. I guess, why isn't it a little bit more bullish given what's happened to the 5-year treasury, it's had a huge move since we last spoke.

Thomas Robert Cangemi

Yes, we like to be conservative, number one. I mean, we -- in the first quarter of the year, we had enough margin that we guided down. So I think we're close to bottom of the margin. It feels like the bottom that's here in the margin, so probably 1 quarter off in '14, again, I don't have a crystal ball for 2014, but a great day like this and I run through my model, it's pretty bullish, and you're going to have a margin that will be up. But again, it's early, this is 1 quarter of the significant rise in interest rates. We're going to capitalize on it. We are moving on securities, or putting on some growth there of 100 basis points in the previous quarter. And a long pipeline strong, I mean, that falls to 50 to 75 basis points. I mean, again, it's 1 quarter of activity in respect to this -- we'll call this location interest rate. If there's a negative economic situation going into the fall and rates go the other way. Again, I'm trying to be relatively constructive.

Josh Levin - Citigroup Inc, Research Division

Okay. And an accounting question, how much did equitable yield contribute to net interest income during the quarter and how should we think about that trending, going forward?

Thomas Robert Cangemi

That's probably consistent to the previous quoting, about $50 million, approximately.

Josh Levin - Citigroup Inc, Research Division

And how would that trend going forward?

Thomas Robert Cangemi

I don't know, Joe?

Joseph R. Ficalora

Covered loans around 4%. [indiscernible]

Thomas Robert Cangemi

Yes, so covered loans around 4%, you're probably looking at, give or take, may be up 5% to 10%, what in that $50 million, going forward. And we'll put that in our Q when we file the Q with the exact number.

Operator

Our next question comes from David Hochstim with Buckingham Research.

David S. Hochstim - The Buckingham Research Group Incorporated

Most of my questions were answered already, but I wondered could you just give us a sense of what kind of opportunity there is to reduce deposit rates and continue the mix?

Joseph R. Ficalora

It's interesting when you talk about deposits, we are in 5 very distinct markets today. And that's a very good thing. That gives us a lot of flexibility as to how we would approach a given market. And where deposit rates have the greatest differentiation between us and others, is in your traditional savings, money market deposits. So there is an opportunity to actually, seriously look at, at realigning ourselves with the rest of the competition in some of the markets that we're in. And that will be a bottom line contributor.

Thomas Robert Cangemi

Big picture, we're not the lowest rate pay, we are at the highest rate pay, we're right in the middle right now, for the savings bank, and that we've been holding our level of deposits. The good news for the market is that rates in general between for corporate 2-year in, is pretty much stable given that short-term rates have not really moved a whole lot, and that customers aren't going into the 3- to 5-year bucket. So it's still looking to the 18-month, probably 2-year bucket, 1-year bucket.

David S. Hochstim - The Buckingham Research Group Incorporated

Is there an opportunity then to scale back on CDs?

Thomas Robert Cangemi

I think, yes, strategically, probably -- that's probably a strategy, obviously, we're timing our rates. We're going to manage the company to make sure we have the best opportunity on cost of funds and like I said, we're pretty much right in the middle of the pack right now. We're not the lowest, we're not the highest.

Joseph R. Ficalora

You are seeing in the deposit mix, a shift from CDs to our other type deposits.

Thomas Robert Cangemi

Culturally, the company has always been at the low end of the pack, so we try to move up knowing that we have some good loan growth coming in the out quarters, and depending on loan growth that we have a significant rise in expected loan growth into '14, will bring in more deposits.

David Rochester - Deutsche Bank AG, Research Division

And then I think you sort of alluded to, but could you just speak more specifically the competition from Fannie Mae and as the rise of the 10-year made their rates less...

Thomas Robert Cangemi

That spread -- that's when you have widen in the agency product which is good news both on the security side and also our offering for competition. If you look at where we can buy this[ph] paper, it's pretty much a Fannie Mae wrapper of multi-term multi-family structure, you're around 3.5 to 3.40, 3.50 and that's backed by the government, so you kind of see and that's a little bit longer duration, but its spread is definitely wide. So typical purchases on Fannie Mae does offer swaps was going into the quarter between 35 and 40, we're seeing 50 to 70, so about 25 -- 20 to 25 basis points of widening in the product mix, which is a good thing. So obviously, we're seeing better yields going into Q3 and Q4.

David S. Hochstim - The Buckingham Research Group Incorporated

How is that helping then -- attracting borrowers who don't want to pay?

Thomas Robert Cangemi

I think the borrowers, they will consider the 5-year structure because it's a cheaper rate, and to keep matters of government's origination fund.

Operator

Our next question comes from Matthew Kelley with Sterne Agee.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

I was wondering if you could just get back to the discussion on the borrowings. It seems like the market is pretty receptive to some of these blend and extent type trades. A story I did once. Just wanted to get your thoughts on why not do a little bit more on some of the longer duration bonds that you have out there from '14 through '18 or so.

Thomas Robert Cangemi

Just to go back a few quarters, we did it earlier. So we were picking up north of 100, 120 initially So we probably put out $6.5 billion already on blend and extent. We've done this historically, about 4, 5 years ago with the same transaction. So we look at all ideas on the liability side, we were probably earlier than most, we did a little bit more in Q2 depending on market conditions, it's something to do that we look at our repo book. Right now it's more negotiating with The Street on the repo side, and The Street has a different perspective on restructuring.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

And the stuff that you did in 2Q, you were extending to what type of a term?

Thomas Robert Cangemi

About 40 -- 4.5 to 5 years.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

And then...

Thomas Robert Cangemi

We picked up around 75 bps on that, I did a low line through was done in the beginning of the year, towards the -- actually towards the end of the fourth quarter of 2012 and into the first quarter of 2013, well north of 100.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

And then the largest satisfaction during the quarter, the one that paid off, what was the rate in that and where did that customer go? Is it in another bank or a securitization, what type of structure?

Thomas Robert Cangemi

We downside our position with them, so we had half the deal, it was about $0.5 billion position, we took half the deal, and it's about 4 -- low 4, that went into the high 3s, so there wasn't a material change in the margin going forward. Co-Op City was a material change, this was a very manageable, I mean, it was a very healthy prepay.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Yes, and what type of a lender did they go to?

Thomas Robert Cangemi

It was, I believe the other was...

Joseph R. Ficalora

It shifted. It shifted altogether.

Thomas Robert Cangemi

[indiscernible] another player. [indiscernible]

Joseph R. Ficalora

We leased it 50% of the refinancing.

Thomas Robert Cangemi

That was the largest one we had in the portfolio we downside the risk because we're uncomfortable with the risk with that -- is a large loan and they want to -- it was a very attractive prepayment for us and the current coupon was very -- actually very nice compared to markets.

Joseph R. Ficalora

Based on the reminders, we still have $262 million in that one.

Thomas Robert Cangemi

It was just under a 3 80, on the new yield.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Right. And then you had mentioned that the mortgage banking business in the first quarter was roughly 6% of revenue and net, what was it in the second quarter, roughly?

Thomas Robert Cangemi

Second quarter, you mean -- second quarter '13 or '12?

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

Second quarter of '13 in terms of the contribution and net, I'm just trying to understand...

Thomas Robert Cangemi

It's just under 7%, 6.5%.

Matthew Brandon Kelley - Sterne Agee & Leach Inc., Research Division

So it's holding that relationship?

Thomas Robert Cangemi

Yes, I mean, did you want to go back when we had some significant volume, it was 20%. So the reason why I mentioned that number, we put up a fairly strong quarter, but it's only 6% net of mortgage banking. So like from day 1, we said it, the barbell strategy. They're doing a fine job managing the business model and we're taking a very conservative view about it, but it's not a material number on the outward -- in my -- for 2013 and '14 and beyond, it's a very small number today than it was when refi was robust. And if you look about 6% to 7% net versus 20%, it's a big difference.

Operator

Our next question comes from David Rochester with Deutsche Bank.

David Rochester - Deutsche Bank AG, Research Division

Just a follow-up on Bob's expense question earlier. As mortgage volumes decline, is there any way you can cut expenses out of that business? How much do you think you can bring those in?

Thomas Robert Cangemi

Yes. My numbers do not have any expense cuts in. So you assume that it's mortgage volume does decline both on variable cost and fixed cost, you'll have a reduction in expenses. Again, I gave you conservative numbers in Q3, Q4, it's around $147 million. My guess is that you'll see lower numbers as -- if the mortgage business continues to slow down, there will be a reduction both on variable and fixed cost. As well as our -- other cost -- generally tighten -- belt-tightening, in general.

David Rochester - Deutsche Bank AG, Research Division

Great. And just on the securities growth that you had mentioned, the 15% to 18%, is that based on the assumption that rates stay here or do you need to see rates move higher from here to get you more interested in doing that?

Thomas Robert Cangemi

I think, given where -- relying on multi-family paper versus the agency product, it's right on top of each other. So it make sense to put some money out here. We've been actually reluctant for 2.5 years to do it, because those rates were in the lower 2s, now we're in the high 3s, and hopefully soon to be in the 4. So as rates continue to rise, we will put some growth on. We already committed some -- using growth in Q3, so you'll see both the asset yields start to pick up and you'll see the portfolio growing to Q3 and probably towards the back half of the year and to Q4.

David Rochester - Deutsche Bank AG, Research Division

And then, how should we be thinking about a minimum cash flow where you need to keep to run the business. Should we look for cash to -- drop to maybe closer to the historical levels of around $200 million? Is that the kind of bottom line?

Thomas Robert Cangemi

I'd say between $700 million to $1.1 billion in that range, depending upon cash outflows.

David Rochester - Deutsche Bank AG, Research Division

$700 million to $1.1 billion?

Thomas Robert Cangemi

Definitely $1.1 billion, I mean, we're [indiscernible].

Operator

Our next question comes from Ken Bruce with Bank of America.

Unknown Analyst

It's actually Karti Bhatt on for Ken Bruce. Most of my questions have been answered, but just one quick one on the spec finance business. Should we expect costs to increase for 2014? You mentioned, I guess, $147 million expense run rate x CDI.

Thomas Robert Cangemi

Again, it's a small group of originators that have been seasonally doing this for well over 20 years, and our cost structure is embedded in that run rate I gave you.

Operator

Our next question comes from Jake Civiello with RBC Capital Markets.

Jake Civiello - RBC Capital Markets, LLC, Research Division

Just one question. How much specifically did the large satisfaction contribute to prepayment revenues in the quarter?

Thomas Robert Cangemi

$15 million.

Operator

And we'll take our last question from Collyn Gilbert with KBW.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Just a quick one. What percent now of your multi-family portfolio is rent stabilized?

Joseph R. Ficalora

It's -- honestly, I don't know. Very high, but I don't know exactly what percentage it is. But the reality is that it's rent and regulated housing. So in many cases, there are a certain number of units that are regulated through stabilization and others are just rent control, very historical. But exactly what the mix is, I really do not know.

Collyn Bement Gilbert - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. But you would say the majority -- greater than the majority.

Joseph R. Ficalora

Only majority, but to what extent it is building by building, I really don't know.

Operator

I'll turn the call back to Mr. Ficalora and our speakers for any closing remarks.

Joseph R. Ficalora

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 chatting with you again in October when we report our earnings for the third quarter of 2013. Thank you.

Operator

Thank you. This does conclude today's second quarter 2013 earnings conference call with the management team of New York Community Bancorp. Please disconnect your lines at this time. Have a wonderful day.

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