New York Community Bancorp's (NYCB) CEO Joseph Ficalora on Q1 2016 Results - Earnings Call Transcript

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New York Community Bancorp Incorporated (NYSE:NYCB)

Q1 2016 Earnings Conference Call

April 20, 2016 08:30 AM ET

Executives

Joseph Ficalora - President and CEO

Thomas Cangemi - Senior EVP and CFO

Robert Wann - Senior EVP and COO

John Pinto - EVP and CAO

Analysts

Ebrahim Poonawala - Bank of America/Merrill Lynch

Ken Zerbe - Morgan Stanley

Bob Ramsey - FBR

Matthew Kelley - Piper Jaffray

Collyn Gilbert - KBW

Operator

Good morning, and thank you all for joining the management team of New York Community Bancorp for its quarterly conference call. Today's discussion of the Company's first quarter 2016 results will be led by President and Chief Executive Officer, Joseph Ficalora; together with Chief Financial Officer, Thomas Cangemi. Also joining in on the call are Robert Wann, the Company's Chief Operating Officer; and John Pinto, the Company's Chief Accounting Officer.

Certain comments made on this call will contain forward-looking statements that are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, 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 in the Company's local markets; changes in interest rates, which may affect the Company's net income, prepayment 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; changes in legislation, regulation and policies; and the Company's ability to complete the proposed merger with Astoria Financial corporation, which is pending the receipt of shareholder and regulatory approvals at this time.

You will find more about the risk factors associated with the Company's forward-looking statements on Page 9 of this morning's earnings release and in its SEC filings, including its 2015 Annual Report on Form 10-K. The release also includes reconciliations of certain GAAP and non-GAAP measures, which will be discussed during this conference call. If you would like a copy of this morning's release, please call the Company's Investor Relations department at 516-683-4420 or visit ir.mynycb.com.

As a reminder today's call is being recorded. At this time all participants are in a listen-only mode. Later you will have a chance to ask questions during the Q&A. Instructions will be given at that time. To start the discussion, I will now turn the call over to Mr. Ficalora, who will provide a brief overview of the Company's first quarter 2016 performance, before opening the line for Q&A. Mr. Ficalora?

Joseph Ficalora

Thank you, Christine. And thank you all for joining us this morning, as we discuss our first quarter 2016 earnings. Among the more notable features of our first quarter performance were the solid earnings we produced, the strength of our net interest margin, the benefit of the debt repositioning we completed in the fourth quarter, the management of our balance sheet and the increase in securities prepayments and the consistent strength of our loan production and asset quality. By the way, we will mention this later as well, we did have a 13% increase in the lending portfolio as a result of our gaining share in the market.

To begin with, we reported first quarter earnings of $129.9 million or $0.27 per diluted share in our press release this morning. With the dollar amount representing a 1.10% return on average tangible assets and a 14.76 return on average tangible stockholders’ equity. What’s unique about these earnings is the fact that they were generated in a quarter when activity in our primary lending niche was lethargic. Extending the number of quarters in which our prepayment income from loans declined.

In the first quarter of 2015, the prepayment income attributed to loans fell to $11 million from 17.4 in the trailing quarter and 30.1 million in the first quarter of last year. The decline was largely a function of the slowdown in property transactions, unnecessarily surprising as we were just coming off a year of record transaction activity. The good news is that the reductions in prepayment income on loans were somewhat tempered by the increase in prepayment income generated by our portfolio of securities. Securities accounted for $12.7 million of prepayment income we recorded in the current first quarter as compared to 8.5 million and 4.2 million in the prior periods.

Together the prepayment income from loans and securities added $23.7 million to our first quarter net interest income, a $2.1 million reduction from the trailing quarter level and a $10.6 million reduction from the year three months. Reflecting these reductions, prepayment income contributed 22 basis points to our first quarter margin as compared to 24 and 32 basis points respectively in the trailing and year earlier three months. Excluding the respective contributions of prepayment income, our margin was 2.72% in the current first quarter, 1 basis point wider than the adjusted trailing quarter measure and 36 basis points wider than the margin in the first quarter of 2015.

On a GAAP basis, our margin was 2.94% in the current first quarter, 1 basis point narrower than the trailing quarter margin as adjusted and 26 basis points wider than the margins in the first quarter of last year. The meaningful difference between our margins in the current and year earlier first quarters can be attributed to the benefit of our fourth quarter debt repositioning. As you may recall, we prepaid $10.4 billion of wholesale borrowings with an average cost of 3.16% in the trailing quarter and replaced them with a like amount of wholesale borrowings with an average cost.

Consistent with our expectations, the benefits of this action in addition to the year-over-year rise in our net interest margin was a $35.1 million increase in our net interest income and the year-over-year increase in earnings which was $10.7 million or 8.9%. Mortgage banking income contributed $4.1 million to our first quarter earnings reflecting both sequential and year-over-year declines. The reduction was largely due to a servicing loss of $9.5 million the bulk of which was attributable to a charge -- to a change actually in our MSR valuation model assumptions and to a lesser extent a decline in hedged effectiveness during the period for unusual interest rate volatility.

Moving now to our balance sheet, the first thing you may have noticed was the $1.8 billion decline in our total assets from the balance recorded at December 31st. Our sales of multi-family and commercial real estate loans contributed to the linked-quarter reduction, the far more significant factor was a $2 billion decline in the balance of securities. As the low level of market interest rates triggered a rash of repayments, securities declined to $4.2 billion representing 8.7% of total assets at March 31st. Reflecting the decline in securities and loan sales in the amount of $579.9 million are assets totaling $48.5 billion at the end of the current first quarter, bringing our fourth quarter average to $49.1 billion at that date.

This of course kept us from crossing the SIFI threshold as expected, leading to the obvious question when? Reflecting the extent of the linked-quarter reduction in total assets the timing could now coincide with the completion of the Astoria merger, which is currently pending the approval of our regulators, Astoria’ shareholders and our own. In the meantime, we continue to engage in our normal day-to-day business producing multi-family, commercial real-estate and other loans for investment and originating one-to-four family mortgage loans for sale. As we reported in this morning’s release, our pipeline rose sequentially to $2.9 billion with most of the loans in that pipeline in fact $2 billion consisting of held for investment loans.

In the first quarter of 2016, which is typically a low volume quarter, we originated $2.1 billion of loans held for investment including $1.6 billion for multi-family loans. At March 31st held for investment loans totaled $36.2 billion with multi-family loans accounting for 26.4 billion of that amount. Absent the sales of multi-family loans over the course of the quarter, the portfolio would have grown $873.4 million sequentially and represented an annualized growth rate of 13.4% that is our principal asset by the way. The quality of the loans, we produced had long been a Company hallmark and our current asset quality measures are indicative of that fact.

For the eighth consecutive quarter we recorded net recoveries rather than charge-offs and our measures of asset quality remained among the lowest we have reported since 2008. Specifically non-performing non-covered assets represented 0.14% of total non-covered assets at the end of the first quarter. And non-performing non-covered loans represented 0.14% of total non-covered loans at that date. All-in-all I have to say that we have a solid first quarter despite the various challenges I have mentioned on this call. Reflecting the strength of our earnings and that of our capital position the Board of Directors last night declared a quarterly cash dividend of $0.17 per share payable May 17th to shareholders of record at May 6th. The dividend represents a 4.3% dividend yield based on last night's closing price.

On that note I would now ask the operator to open the line for your questions. We will do our best to get all of you within the time remaining, but if we don’t please feel free to call us later today or at any time this week. Please open the line.

Question-and-Answer Session

Operator

Thank you, we will now be conducting the questions-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Ebrahim Poonawala with Merrill Lynch. Please proceed with your question.

Ebrahim Poonawala

I guess first question just in terms of going back to loan growth and Joe you talked about some sluggishness in the primary niche CRE multi-family market. I am just comparing to some of the other New York banks that reported this morning, when you look through the rest of the year do you see that as a softness driven by market volatility, some seasonal slowdown or is there something more cyclical going on where we should expect softness in that market over the next few quarters?

Joseph Ficalora

I suggest a couple of things, one, there is a national perception that there is a significant amount of lending in commercial product that is not necessarily consistent with history from the banking industry and then as you well may know there are many players that come into the New York market anxious to get product and they have been in the last year, year and a half, two years active in the New York market. Many-many people are interested in getting product from New York through our channel which is very-very commendable. And certainly they recognize the quality of the asset they get and obviously they pay to have access to the market through our channel. That also means that there are people had no longer coming into the market and therefore the market is changing with regard to the availability of funding. And we are not talking about small banks we are talking about banks of size or non-banks that come into the New York market at a time like this in the cycle. So I didn’t think that we are in a back-end of the cycle where the activity level will change, the players will change, so those that have a well-established relationship in the New York market will continue to gain share as we do. 13% in the first quarter is a substantial number and we obviously think that we can do even better than that on perceptive basis, so gaining share and then re-deploying assets and otherwise taking the benefit from a transaction with Astoria is definitely on the horizon for us. So whatever is happening in the market to others and to whatever degree the market may change, we believe we will gain share in this market as in fact we decide to take additional share.

Ebrahim Poonawala

Understood, and I guess switching to the securities book obviously you let it run off meaningfully in the second quarter. Tom if you could share sort of outlook on what to expect on the securities book next quarter and sort of related to the timing of the Astoria deal and if we decide to again sort of ramp those back up what would we be buying?

Thomas Cangemi

Well obviously, Ebrahim we are actually pleased on the outcome given that these are held to maturity securities and there were primarily all level two type assets and as the transition to LCR requirements are initial goal is to obviously build up our level one, that was one of our shortfalls we had a substantial amount -- had a substantial amount of an abundant sub level two assets so virtually $2 billion of level 2 rolled off the balance sheet added held to maturity which makes it very simplistic as far as making a balance sheet maneuver there without breaking HTMs to file for our regulatory requirement of LCR. Well, obviously the reduction is favorable in our outlook the coupons are approximately 278ish so below 3% as you know our lending yields are coming on north of 3 and we’re looking at a security yield going forward assuming on add securities into the portfolio of about a 347 just slightly south of 350 which predominantly the vast majority of our securities are DUS related securities backed by Fannie and or Freddie the K transactions. So they are all level 2 type assets that had substantial yield maintenance provisions embedded in the security which gives us a very good option in the event that people do pay off we will get significant amount of benefits on repayments.

So, we don’t envision the magnitude of a reduction going forward since the vast majority of all our callable debentures and some DUS paid off in the previous quarter that leaves us with a couple of $100 million left callables going forward and ultimately the transition will be into level 1 asset as we get closer to the closing of the Astoria deal and/or our SIFI crossover when we decide to do that, so as indicated in Joe’s commentary that it could coincide with the Astoria transaction. In the meantime, we have a lot of room to put on growth given a substantial balance sheet reduction from the securities repayment. We have approximately $3.6 billion of growth of the asset base of the Company before we trip over SIFI world this quarter. So I think it’s unlikely that we’ll trip over in Q2 which gives us a very good position to manage our SIFI threshold cross all that and get a better understanding of when our LCR execution will take place.

Ebrahim Poonawala

Got it and just a follow up to that any sense in terms of -- is there any likelihood that Astoria could close in 3Q instead of fourth quarter?

Joseph Ficalora

Yes, I think it’s always a possibility but we need to recognize, we won’t decide when the transaction will close. That will be decided by our regulators and there may be a whole array of reasons why that maybe longer than otherwise we might like. So, we can’t foretell the exact timing of that event, but we decided that the balance sheet should reflect moment of time rather than our expectation of how we would actually position ourselves in the execution of the deals.

Thomas Cangemi

Ebrahim I would just add to Joe’s commentary that obviously LCR filing is substantially more beneficial on the close of the Astoria transaction given that they have a securities book as well and we can reposition into LCR at the time of close. So that’s obviously another potential benefit when we look at our requirements to do be -- SIFI that.

Operator

Our next question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your questions.

Ken Zerbe

Just staying on the securities side just for a second, I just want to understand sort of a net financial impact of this. Because I think Tom you mentioned 278 was the yield on those, it looks like CDs went up a lot. I am trying to understand the dynamics of -- so they ran off the kind of -- what is the net financial impact?

Thomas Cangemi

So I would think that it takes the net financial impact that is marginally beneficial I mean big picture this is not negative to the margin we’re just a little bit smaller with the expectation of putting on more loan growth in the future. Now having the ability to move on held to maturity securities without any consequence to the accounting for that is substantial to us. It has always been something that we looked at as opportunistic but it was siting in the held to maturities portfolio, these are callable debentures, yield is up 3%. Obviously getting called out of those securities eventually will soft to LCR and we will get the more likely than not but main market is soft to that particular requirement and we’ll put on yields overtime mostly later when we have to fill the requirements at higher yields, but obviously this market is a low yielding market so the volatility that we experienced in Q1 was extreme to the securities market. So, we are not into securities we are letting it run off and putting on as Mr. Ficalora indicated some good loan growth, extra loan sales.

Obviously as we’ve said in previous quarters, the priorities of the Company was not to crossover C cross status or SIFI status as of 3/31 it puts us into another reporting requirement, this puts us into 2018, that’s always been the public company stand as far as the balance is concerned. The good news for us that we are a little bit smaller so we have the opportunity to have more flexibility for the quarters ahead and given that we had the largest pending merger of the history of the company, flexibility is not a good option right now. But going back to securities opportunities, I would say categorize it as a positive for margin going forward as indicated in the pipeline, the pipeline is strong going into Q2. The coupon in the pipeline is about 356 coming on all blended and the current coupon in the portfolio I believe is 356. So, as we replace our loans with new loans at 356 and the securities are rolling off sub 3%. Margins should be slightly better going forward assuming the current environment.

Ken Zerbe

And maybe just staying with the margin topic, do you have any guidance for where you think margins might play out on a core basis next quarter?

Thomas Cangemi

Again as you always know challenge I don’t want to go past three months and we don’t like to give long dated guidance but I would say we’re probably about flat to slightly up going forward and maybe one or two basis points up given the change in the balance sheet depending on where the five year ends up in the next quarter ahead as right now we have a pretty strong pipeline that’s matching the current coupon in the portfolio. So, sooner we close those loans and which we typically do, we typically close more than we announce historically it should have a positive impact to the margin. Just one discussion point on the deposit side you mentioned a lot of that shift was going from one category to the other the average cost of that margin was around the same. So there was really no detriment to margins you had a shift from product mix. We had a unique savings price eventually unique CD price so the net-net there was really no negative impact to the deposit cost to that shift that was more of a retail strategy for the quarter.

Operator

Our next question comes from the line of Bob Ramsey with FBR. Please proceed with your questions.

Bob Ramsey

First question I have for you, was thinking about the growth next quarter in average earning assets given the $2 billion in end of period securities balances not much of that I guess at the average balance sheet this quarter so I am guessing it will happen kind of late in the quarter but will you all be able to -- are you re-investing or do you expect loan growth to offset that to kind of hold your average earning assets to stable or is it fair to expect sales dip because of the security prepayments this quarter?

Thomas Cangemi

So Bob, absent any substantial loan sales which is that we always from time-to-time given market conditions to have the opportunity to generate some good participations, we expect to see balance sheet growth as I indicated in my last discussion is that we have the flexibility of 3.6 billion net asset growth in the given quarter before we trip over the SIFI threshold, so we are clearly in a position for growth the pipeline is strong as we didn’t sell assets last quarter we will grow into the net loan book by 13%. So I would look for growth this year would provide it to the Astoria closing and hopefully manage the SIFI threshold as we get closer to the closing date. But clearly we’re in a position to grow and the pipeline is strong and given that just one of the points that Mr. Ficalora indicated about property transactions active so in property transactions for our company means higher growth, because we have less prepayment activity, so although when you get less prepayment income in a given quarter your balance sheet will be there for long as you have been a little bit of extension in the asset class in duration but you will have a much larger balance sheet going forward and that is just historically how the Company has operated.

Bob Ramsey

I guess the balance sheet is growing on a end of period basis just wondering would the $2 billion drop in securities late in the first quarter, is that sort of is -- keeps you from being able to grow average balances in the second quarter?

Thomas Cangemi

Yes I would think it’s fair to say given the substantial volatility and we will call it loan prolonged scenario and in particular February many of the callable debentures were called out and they settled in March. As the call feature was in February and would have the sales and loss so March was a substantial decline so we had a reasonable average balance to January-February then we had a drop in March because the actions were taken off the balance sheet.

Joseph Ficalora

But I think Bob that the important thing to recognize is that lean out to the transaction of Astoria we announced a two phase effort to be accretive to earnings one was the restructuring and the other was the actual closing of the deal. The closing of the deal is going to allow for substantial growth, and substantial allocation into our niche and loan behold as a result of doing that we know that on the horizon one quarter, two quarters, three quarters out there is a very definitive opportunity for growth in earnings and growth in asset size. We just don’t know the exact timing of that but don’t underestimate the reality that we have substantial growth in earnings and growth in assets on the horizon.

Bob Ramsey

Shifting just quickly to prepayments I appreciate you guys providing the breakout of loan versus security prepayments in the prepared remarks, just kind of curious how you thinking about the outlook there, I mean the securities book is a lot smaller so I am guessing that number would have to be smaller next quarter sort of how you are thinking about it on the loan side of things?

Joseph Ficalora

So as you know we have never given guidance on prepayment activity for loans that we do not control that side of the market obviously you don’t control the securities market as well. But it seems like it started with able them to picking up a little better was very slow in the quarter. As we discussed previously property transactions were significant in '15 it tapered a little towards the back half '15, it seems like there is a slight pickup so we are seeing some sign of the better life going into Q2 but we don’t give specific guidance on loan prepayments. As far as securities prepayments I think in my opening remarks regarding the portfolio of the most of the callable debentures have been called. Now it’s a matter of if DUS securities get called away or they will be prepaid that will be a function of property transaction so for example if one wants to pay a 10% to 12% yield maintenance penalty on selling their building that’s how we get value out of the DUS portfolio in addition to holding a very high coupon.

Operator

Our next question comes from the line of Mathew Kelley with Piper Jaffray. Please proceed with your questions.

Matthew Kelley

I was wondering may be you can give a little bit of an outlook on what you expect for the expense run rate over the next couple of quarters, or at least for Q2?

Joseph Ficalora

And I guess last quarter we were I guess in line with what we have forecasted about 156 we came in on about 156, I was bumping a little bit for Q2 158 to 160 in total ex-CDI in that range.

Matthew Kelley

And then just to be clear it was 12.7 on pre-payments from securities in the quarter 8.5…

Joseph Ficalora

That is correct.

Joseph Ficalora

…fourth quarter, and 4.2 in the year ago is that right? Okay.

Joseph Ficalora

Yes. As you know DUS payments from time-to-time it’s all depending on multi-property transactions and usually for sales I should say unless we see a much lower interest rate environment there is a possibility that some of these customers may refinance but these are I would say mid to low 3% coupon so it is unlikely to see a way unless you see a substantial decline in interest rates.

Matthew Kelley

And just in terms of what to read through in that there was massive volume and refinancing activity nationwide which drove the prepayments on the DUS bonds versus what you saw in your local market which was already driven with the slowdown is that a disconnect there that is…

Joseph Ficalora

That is a different process. I think so when you look at the DUS transaction depending on your coupon if you were to let’s say go to the agency and get a yield maintenance of passage into your financing and you’re paying let’s say 3.5% to get out of that coupon today is very expensive. I mean it will be anywhere from 8 to 12 points and depending on your -- if you’re going to sell your building, it’s irrelevant, right. You are planning for the property transaction market. However, if you’re looking to refinance, you’d have to have a substantial decline in interest rates to make the economic net balance work. We’ve been in this market for many-many years in the DUS portfolio we have been buying probably five-six years ago. So, our portfolio is somewhat seasoned, so there may be more flexibility given the actual yield maintenance provision when we’d have to exit in order to think about a refinancing and/or property transaction. But again it’s really I would say driven by property transaction. There is a -- it’s very onerous to get out of these instruments if you decide to go along with the agencies.

Matthew Kelley

But the read through on the national trends because the underlying collateral in those bonds is spread out geographically, right?

Joseph Ficalora

Well not necessarily DUS is a specific cloud and K yields are spread out. So, we have mostly semi DUS which is a single instrument it’s actually a single entity that is collateralized and then sold as an agency security.

Matthew Kelley

Okay, all right.

Joseph Ficalora

So for example let’s say if a New York City, $100 million New York City building decides to securitize itself it is one building and given that is at a required valuation that is very strong they may just look to walk themselves in for a very long-term financing to a literally a 10 year financing and in that particular security it’s a matter of one security decides to make a decision, versus a bucket now I am afraid in K yields you have unique situations where one or two may payoff it within a pool then you have some benefits there as well. But most of our securities are positioned in DUS securities we do you have some K transaction but I’ll say the majority are DUS.

Matthew Kelley

And then just looking out to the closing of the Astoria transaction, just trying to get a general sense of what some of the key balance sheet metrics might look like in terms of loan-to-deposits and securities to assets. Just the composition of the balance sheet, I understand there might be some movement besides the balance sheet but how are you tracking on composition?

Joseph Ficalora

I will tell you where we need to recognize a very substantial benefit given the substantial reduction of our own balance sheet with respect to the held to maturities portfolio. When you look at LCR it’s a requirement that we have to live with as becoming a Citibank or on the Basel III you have to deal with the fact that we have to have an abundance of liquidity. So, looking at Astoria’s securities portfolio, our securities portfolio net-net we will have a smaller securities portfolio projected given that HTM has now substantially reduced our own portfolio. So, it will effectively there that will have a better makeup of our balance, we’ll file the LCR up primarily through the consolidation as it is depending upon the timing of the close which will give the Company a much better balance with respect to the concentration of securities the total assets. In respect to the flexibility of the balance sheet as you can know you can do the simple math we are acquiring an institution that has a substantial revenue book, and where we have the multi-family book and in consolidation we have flexibility. As far as the loan to deposit ratio is going to be probably I would imagine in the low 120ish depending on what we do with the total balance sheet given that the ultimate side of $15 billion emerging into a $50 billion franchise. So, again if this was a much larger deal the loan-to-deposit ratio would decline dramatically but again the simple math shows that it’s around I would say 120ish-125ish.

Matthew Kelley

Okay. That makes sense. And then just on the securities assets, you are at 9 now. I think if you put the two companies together, it’s around 11 or 12 is that where that would shape up?

Joseph Ficalora

So again just to be clear, we’re 8.7% that is the lowest the Company has ever been since the Company went public. So this is a function of preparing for the consolidation of the combined entities. We are happy to file the LCR, we haven’t given a public number what that number will be we want to consolidate it with Astoria the flexibility is significant. So, that securities portfolio could easily be transitioned to LCR asset that will change the dynamic of the level of securities that we have for the whole to call it and to satisfy our LCR requirements.

Thomas Cangemi

I think the important thing here Matt is that the future transaction gives us a tremendous amount of flexibility as to how we will look at the completion of that transaction and then the environment when this happens, and if it happens in three months, six months, nine months, twelve months. When it happens that environment will decide how much we’re going to have in each bucket.

Joseph Ficalora

And I would just add to that. When we decide to actually transact under the LCR requirements we’ll do it where it’s beneficial to the overall run rate of the Company where it will be top-line beneficial in that section there.

Operator

Our next question comes from the line of Collyn Gilbert with KBW. Please proceed with your question.

Collyn Gilbert

Okay. Tom can we just go back to this I just want to make sure I get these numbers right. Okay. The securities that rolled off the 2 billion, that yield was what did you say roughly?

Thomas Cangemi

2.78%.

Collyn Gilbert

Okay. And your expectation is you’re going to replenish that earning asset with loans, right? So that’s why you are saying why it’s going to be NIM accretive?

Thomas Cangemi

I would say and obviously we’ve announced a very strong pipeline and I would say it is going into Q2. The yield on the pipeline is a 3.56 and our coupon of portfolio is a 2.56 we’re not currently adding securities to satisfy our LCR requirements going forward, because we’re not in a position current therefore you will see significant growth in the loan book as we get closer to the closing of Astoria which we believe based on that dynamic will be margin accretive to the Company.

Collyn Gilbert

Okay.

Joseph Ficalora

I think that’s a very important point Collyn that this actually gives us greater flexibility rather than in any way being detrimental.

Thomas Cangemi

And Collyn I would just add that there is going to be much less lean on the securities book because the vast majority is paid off that were called these are callable instruments. From time-to-time you’ll have a DUS security transact but right now our coupon on the securities is around 347. So, we have a pretty high securities yield, and a lot of that is encompassing the Fannie and Freddie multi-family last instruments which are not as volatile as the callable debenture market.

Collyn Gilbert

Okay.

Joseph Ficalora

But I think the important thing here Collyn is that that many of these assets might have had to be sold in the future rather than selling them we made a nice profit on them as a result of them being called.

Collyn Gilbert

Kind of yield making okay, makes sense. Okay. Just back to the growth thing, Joe you had mentioned the 13% in loan growth you saw this quarter that you expect that to be increased I mean can you kind of frame that a little bit as to where you think…?

Joseph Ficalora

I think in every transaction we’ve ever done, when in fact we actually have the balance sheet in hand we increased our market share of lending and we have methods by which we accomplished that that are not necessarily public but the reality is in every transaction we accelerated our lending within our niche dramatically and as a result of doing so we grew our loan book so as to accommodate the bigger size companies. So, we transitioned out of many of the assets that we acquired. We’re going to have a great deal of liquidity, we’ll have a great deal of flexibility to decide on assets that we will dispose of and therefore we will be creating a substantial amount of assets. So, regardless of what’s going on in the broader market, our niche has the ability to be grown as we have grown our niche last year and the year before and obviously this quarter 13% growth is not small but it’s small compared to what we could grow on niche perceptively and have grown our niche over the course of every transaction we ever did. So, this transaction gives us the opportunity to gain additional share in our market, and are highly confident that we’ll be able to do that.

Collyn Gilbert

Okay. And just one final question Tom, I just want to make sure I understood correctly, in terms of the sort of the pro forma complexion of the balance sheet. Did I hear you right in saying that you’re going to have a smaller securities portfolio post…?

Thomas Cangemi

No what I had said clearly was that given we had $2 billion of held to maturities run-off those are level 2 assets. We have a requirement to put into level 1 bucket a substantial amount of security. We just freed up $2 billion of flexibility to deal with level 1 because you’re dealing with held to maturity versus loan to secure the non-held to maturity gives you a lot more flexibility so the actual securities book in totality upon consolidation is filed for LCR which is important to us it is a mandate, right. We will then have a smaller portfolio given that we had this level 2 asset pay off in the Company we could replace the level one overtime.

Joseph Ficalora

Collyn I think the important point here is we would had to sell assets possibly at a loss instead we’ve actually been paid off on assets at a very substantial benefit. That’s a good thing.

Collyn Gilbert

Right, got it, okay that makes sense.

Thomas Cangemi

And in the percentage again we have a requirement of that, we haven’t publicly tell what is the requirements is going to be when we consolidate to sort of look at the combined balance sheet but clearly having that $2 billion of level 2 off, I was shortfall of only level 1 we have very little level 1 on the portfolio but this gives us $2 billion of flexibility when we combine the two entities.

Collyn Gilbert

Okay. And just Tom you are kind of how we should thinking about the yield on some of these level 1 assets. I mean is this a 1.5%-2%...?

Thomas Cangemi

Look obviously if rates are higher it will be a benefit for our security yields, we haven’t been in a securities lock in I would say a year and a half now so it’s been we have moving away from solving that situation so it is required by us. However we would look to the marketplace of doing accretive transactions as far as top-line beneficial. We’re not going to put on negative carry we’re not going to put on abundance of U.S. treasures at a negative spread. We’ll probably dabble into the June-May market and depending on where that market is, it’s somewhere into the lower mid 2s depending on interest rates. If rates slide it could be in the mid 2s if rates go lower it is 2%.

Operator

Thank you. Ladies and gentlemen, that is all the time we have for questions today. I will now turn the floor back over to Mr. Ficalora for closing comments.

Joseph Ficalora

On that note I would like to ask the operator to -- I am sorry, I am now ready to close. Taking the time to join us this morning, we look forward to discussing our second quarter 2016 performance review which most likely will be during the last week of July. Thank you.

Operator

Ladies and gentlemen, thank you again for your participation in New York Community Bancorp’s first quarter 2016 conference call. You may now disconnect your lines.

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