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Executives

Ilene Angarola - EVP and Director of IR

Joseph Ficalora - Chairman, President and CEO

Thomas Cangemi - SEVP and CFO

Robert Wann - SEVP and COO

John Pinto - EVP and CAO

Analysts

Sal DiMartino - Bear Stearns

Tony Davis - Stifel Nicolaus

Bruce Harding - Lehman Brothers

Bob Hughes - KBW

Greg Petron - Citigroup

Tom Alonso - Fox-Pitt Kelton

Gerard Cassidy - RBC Capital Markets

Michael DeSantio - TCW

Mark Fitzgibbon - Sandler O'Neill

Soyan Raibu - Black Rock

Matthew Kelley - Sterne, Agee & Leach

Ted Kovaleff - Sky Capital

Steve Moss - Janney Montgomery Scott

Ross Haberman - Haberman Funds

New York Community Bancorp Inc. (NYB) Q1 2008 Earnings Call April 23, 2008 9:30 AM ET

Operator

Good day everyone. Thank you for holding and welcome to the New York Community Bancorp’s first quarter 2008 earnings call. Today’s conference is being recorded.

And for opening remarks and introductions, I would like to turn the call over to the Executive Vice President and Director of Investor Relations, Ms. Ilene Angarola. Please go ahead, Ilene.

Ilene Angarola

Thank you. Good morning, everyone, and thank you for joining the management team of New York Community Bancorp for our quarterly post-Earnings Call.

Today's discussion will be led by Joseph Ficalora, our Chairman, President and Chief Executive Officer and Thomas Cangemi, our Senior Executive Vice President and Chief Financial Officer.

Also with us on the call today are Robert Wann, our Senior Executive Vice President and Chief Operating Officer, and our Executive Vice President and Chief Accounting Officer, John Pinto.

Our comments today will feature certain forward-looking statements, which are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we currently anticipate, due to a number of factors, many of which are beyond our control.

Among those factors are: Changes in interest rates, which may affect our net income, prepayment penalty income and other future cash flows or the market value of our assets, changes in deposit flows and the demand for deposits, loan and investment products and other financial services in our local markets, and changes in competitive pressures among financial institutions or from non-financial institutions.

You will find a more detailed list of the risk factors associated with our forward-looking statements in our recent SEC filings, and beginning on page 8 of this morning's earnings release. The release also includes the reconciliations of our GAAP and non-GAAP earnings and capital measures, which will also be discussed on this morning's call. If you would like a copy of the earnings release, please call our Investor Relations Department at 516-683-4420, or visit our website www.mynycb.com.

I would now like to turn the call over to Mr. Ficalora, who will make a brief presentation before opening the line for Q&A.

Joseph Ficalora

Thank you, Ilene, and good morning all. Thank you for joining us for today's discussion of our first 2008 performance. As you might expect, we are very pleased with the results we reported this morning and with the positive trends we’ve seen in our performance over the past 12 months. In addition to the consistent quality of our assets our first quarter performance was highlighted by earnings growth, loan deposit and asset growth and the expansion of our net interest margin, not only a link quarter basis, but also year-over-year. These trends will be focus of this morning's discussion, after which I will be happy to take as many questions as our allotted time allows.

At a time when eroding quality is of real concern to bank investors, I am pleased to report that the balance of non-performing assets declined by $660,000 on a linked-quarter basis, and by $3.3 million were 13% year-over-year. At the end of March 2008 non-performing assets totaled a modest $22.2 million and represented 0.07% total assets. Charge-offs totaled $396,000 during the quarter and represented 0.002% if average loans. Consistent with our experience over the past 53 quarters, not one of our charge-offs recorded was on real estate loans.

I know that I have often said this before, but I believe in repeating the that the quality of our assets is a tribute to the unique attributes of our primary lending niche and our conservative underwriting standards which by and large have been constant even as our loan portfolio has growth and become more diverse.

In the midst of the current crisis in the financial markets, our willingness to sacrifice earnings growth with the quality of our assets has never been more prudent. Nor has our lending discipline seemed better advised. While we can’t expect to remain immune to the continuing downturn in the credit cycle, we believe that our standards and lending niche will continue to serve us well. In the current market, the quality of our assets is both a distinction and an advantage, as it enables us to retain more of our earnings and thus sustain our capital strength.

At the end of March the ratio of tangible stockholders equity, tangible assets were 5.78%, excluding market-to-market adjustments. Including this adjustments the ratio was 5.7%. These ratios were accomplished despite a charge to capital of $12.7 for the split-dollar post retirement benefit relating to our investment in bank home life insurance, in connection with the adoption of EITF ’06-4 on January 1st. By the way most of that split-dollar BOLI was put in place 14, 15 years ago.

Another first quarter highlight was the strength of our loan production and increasing attractive spread environment. In significant contrast to the 150 to 160 basis points spreads we earned in the past few years on our principal assets, the average spread on the multi-family and commercial real estate loans we originated in the first quarter, exceeded the average five year constant maturity treasury by 302 basis points.

Boosted by originations of $1.4 billion, our loan portfolio grew to $20.5 billion at the end of the first quarter. While the level of loan growth was limited by repayments and the repositioning of certain loans acquired with the Synergy Financial Group last October, this was our third consecutive quarter of loan growth at the two years of decline.

After securitization and sales of Synergy loans in the first quarter, total loans grew at an annualized rate of 5%. With loans of $1 billion in our pipeline as of this morning we would expect to see our portfolio growth continue in the second quarter and for that matter throughout 2008.

In addition to the cash flows produced by loan and securities repayments the growth of our loan portfolio was funded by an increase in deposits over the past three months. Deposits rose to $13.5 billion at the close of the first quarter while the balance of wholesale volumes declined to $12.1 billion.

We also are very pleased to report the continued growth of our net interest income, and the expansion of our net interest margin on both linked-quarter basis and year-over-year. During the quarter our net interest income rose 4.6% to $161.5 million while our margin increased by 5 basis points to 241. In addition to a reduction in funding cost, and an increase in interest earning assets, the linked quarter improvements reflect a $5.8 million increase in prepayment penalty income to $10.3 million. While prepayment penalty income declined year-over-year by $3.4 million, our net interest income rose by 10.4% during the same period.

In addition, not withstanding the decline in prepayment penalty income, our margin expanded by 9 basis points year-over-year. This year-over-year increase was driven by the growth of our interest earning assets in the wake of our three acquisitions and the organic loan production and by the increase in the spreads on our multi-family and commercial real estate loans. In addition, while the average yield on assets rose 8 basis point year-over-year to 6.04% in the quarter, our average cost of funds declined by 4 basis points to 3.85%.

Largely reflecting the growth of our net interest income, our earnings totaled $72.4 million in the current first quarter, a 7.4% increase on a linked-quarter basis and an 11.7% increase from the year earlier amount of earnings. On a diluted per share basis, our earnings were up a penny from the trailing quarter low and consistent with $0.22 per diluted share reported in the first quarter of 2007. On an operating basis, our earnings totaled $70.2 million in the current first quarter and were equivalent to $0.22 per diluted share, same as the (inaudible) amount. Our cash earnings with which our dividend is paid, totaled $82 million in the quarter and were equivalent to $0.25 per diluted share.

In view of the strength of our capital and our first quarter earnings, board of directors last night declared $0.25 per share dividend payable on May 16th, the shareholders of record as of May 7, 2008. We believe the solid performance trends we are seeing will continue going forward and our confidence in our ability to maintain the dividend at the current amount. Having deliberately positioned our balance sheet to withstand the impact of a negative credit cycle, we look forward to distinguishing ourselves favorably in the quarters ahead. At this time, I would be happy to take your questions. As always, we will do our best to get everybody in the time allotted but if we should miss you, please feel free to call our investor relation department or leave a message for us and we will do our best to get back to you during this week.

Question-and-Answer Session

Operator

(Operator instructions). First up in the roster will be Sal DiMartino with Bear Stearns.

Sal DiMartino - Bear Stearns

Hey, good morning.

Joseph Ficarola

Good morning, Sal.

Sal DiMartino - Bear Stearns

I just have two questions, one, Joe in your comments you mentioned that average loan spreads are coming on, at over 300 basis points, could you talk about how you know about competition in the market place and your view on how sustainable those types of spreads are? And the second question is on deposit pricing. Looks like your cost of deposits were down about 20 basis points sequentially and I just wanted to know how quickly you think you’ll be able to lower your deposit cost, especially if you think you are going to show stronger loan growth going forward.

Joseph Ficarola

I think there are good news with regards to deposits. They are up despite the fact that we’ve positioned ourselves in the middle or in the low range of deposit offering rates, so the opportunity continues and looks like it will be improving as we go through the three or four or five quarters in front of us. We have almost $6 billion in deposits that have a rate in the range of about 4.5% that we’ll be re-pricing which we believe to be down fairly substantially over the next four quarters. So, when we look at deposits, we see them flowing in, despite the fact that we are saving substantially on the deposit rate. Now, with regard to -- your first question was competition on lending?

Analyst

Yeah and…

Joseph Ficarola

Yeah.

Analyst

And the spreads that you are seeing.

Joseph Ficarola

We are seeing a significant difference. Some of the larger, more aggressive lenders are looking at 500 and 600 basis points that they are positioning themselves over their previous rates because there is a lack of funding for a large number of loans that are in the marketplace.

As I mentioned, I guess in the earlier call, we are in a period when there is a lot of adjustments occurring. People are rethinking the pricing on sale and rethinking the values of their assets and when and how they are going to refinance them. So until this market readjusts itself and that will take a few quarters, there is going to be less activity than we will be seeing later in this year and certainly into 2009.

As we look at the competition, the competition has changed fairly dramatically. Obviously, none of the conduits are there, none of the large players who have a bad perception of what it is that they are trying to accomplish in this market, they are not there any more. The people that were most affected, Norfolk and Independent, they obviously have been combined into other companies that have a different priorities and are not necessarily as focused in this market doing the lending within our niche. Very important to make the distinction, our niche is not the multifamily market in New York City, our niche is a subset of that market and we do expect that as time passes we’ll have a better opportunity to refinance more of what come to market in the third and fourth and quarters ahead.

Thomas Cangemi

Sal, its Tom. I just want to add another point to the deposit side. The CDs that we are looking at for the year approximately the number that Joe coated 86% of that is coming during 12 months in the average rates around 435, so that can be a sizable benefit for future quarters probably pickup absent any additional rate cuts around 200 basis points.

Sal DiMartino - Bear Stearns

So current CDs are probably in the mid two CD rates?

Thomas Cangemi

That’s correct, mid to low two’s and going lower depending on obviously additional intervention by the fed.

Sal DiMartino - Bear Stearns

Could you give us some color on the margin if where it was in March and or can you tell us the progression of the March over the quarter from January through March?

Thomas Cangemi

Yeah. Sal, absent any prepayment activity, the margin looks, it's moving in a right directions, obviously the rate cuts happened in the latter part of the quarter you will get sizable benefits throughout 2008 beyond because of this cuts, so we are positioned well to see margin expansion in 2008.

Sal DiMartino - Bear Stearns

Okay. Thanks

Thomas Cangemi

You’re welcome.

Operator

Next up we have a question from Tony Davis, Stifel Nicolaus.

Tony Davis - Stifel Nicolaus

Good morning Joe and Tom.

Joseph Ficalora

Morning Tony.

Tony Davis - Stifel Nicolaus

I gathered that that 1031 exchange time is slowed a bit and I would infer what from what you are saying here until the fed is stop cutting rates, we really shouldn’t expect a surge in prepayments is that fair?

Joseph Ficalora

I’d say that’s fair because obviously you can never really gauge prepayment activity, but the dislocation that have occurred in this market are substantial and all though there is no questions that people are going to have to redeploy funds into this particular niche that’s going to occur overtime and although we are very pleased with the opportunity, should be prepared to do that we have no way of knowing exactly when that’s going to accelerate.

Thomas Cangemi

Tony, its Tom, just an traditional point here. The average yield on the comp portfolio for multi is still extremely low and still below the current yield that we are putting loans on. So if you look at the 2008 levels they are still in their low fives and we are putting on credits north of that. So we’re in a good position to benefits just on the movement of the portfolio.

Tony Davis - Stifel Nicolaus

Tom, what impacted at this point, do you sense you are seeing in terms of property owners attitudes about refinancing, about borrowing in anticipation of dislocation of Wall Street, layoffs et cetera? Is that having any impact yet?

Thomas Cangemi

I don’t think that will impact our niche. The people that live in rent-controlled, rent-stabilized buildings are not working on Wall Street.

Tony Davis - Stifel Nicolaus

Yes.

Joseph Ficalora

So I think that the last cycle is the best way to look at what happens when in fact we go through a serious downturn in real estate evaluation or slowing of the economy. During the last cycle, we had zero non-performing multi-family loans. All of our buildings were fully occupied. Rent-controlled apartments, or rent-controlled, or stabilized units typically continue to pay their loans and continue to occupy their space even when the market slows.

Tony Davis - Stifel Nicolaus

At this repayment level given your backlog, given the credit spreads you gave right now I summarize your appetite for loan growth is faster than five.

Joseph Ficalora

Our appetite is definitely beyond five, but the realty is we can’t force the market. We are not looking to press to do loans that do not meet our standards. This is not the time to be sacrificing standards. So we do believe that the market is going to become more fluid and the opportunities are going to be increasing as we go ahead, but we are not going to force the issue and certainly as we look at this market it's still readjusting itself. And our niche will be fine and grow rather substantially later in this year.

Thomas Cangemi

Tony, its Tom. I’d also add that, over the past three quarters we’ve seen net asset growth on the loan side and we were pretty comfortable with that mid single-digit level in Q1 and if you look back two years prior to that, we had a substantial amount of decline in the portfolio because of the credit parameters that were being done in the marketplace. So we're in a very unique position to capitalize on much higher spreads, coming from 150 going to around 300. I think the multis are at 292 for the quarter in excommercial real estate and those are very healthy spreads and the current loans that are on the portfolio were originated at spreads that were much tighter. We should see some unique benefits here in the core business model going forward.

Tony Davis - Stifel Nicolaus

Not this is an issue, but final question. Just a little detail on the $396,000 charge-off.

Joseph Ficalora

Yeah, that’s basically on acquired assets. They are typically auto loans or other consumer type loans. These are assets that ultimately are running off the balance sheet. So when you look at our overall portfolio we’ve had no charges at all for years and years and years on the bulk of what the reserve represent. So the reserve is way more than adequate given the actual charges that are coming against it. The assets that we are charging are diminimus compared to the portfolio and the assets that we are charging are virtually declining rapidly.

So even though we do have charges here, these charges are on assets that are dissipating. So a great degree of that was obviously part of our order book that we’ve acquired to synergy. Now that portfolio is down. I think when we first started (inaudible), we had 125 million. We sold some assets in the quarter, we ended out right now with approximately $42 million, $44 million total as of quarter end, so it’s clearly paying down very rapidly. It is a short time pay but it is high yielding pay and you are going to have some loss in this market and we are prepared to deal with that and hopefully in short order that portfolio will shrink to zero.

Analyst

Thanks very much.

Thomas Cangemi

You are welcome.

Operator

Next for Lehman Brothers, this is Bruce Harding.

Joseph Ficarola

Good morning, Brooks.

Bruce Harding - Lehman Brothers

Good morning.

Tom Cangemi

Hi Bruce.

Bruce Harding - Lehman Brothers

With the strong loan growth opportunities and with the spreads, do you have the equity to take advantage of the market? And if so, you know, can you talk about if you are cherry picking, you know, the best loans, are you able to service all the customers coming to you? And then would it make sense given what looks to be extremely unusually high ROEs on the business to deploy a little more capital?

Thomas Cangemi

Bruce, this is Tom. I will address this as the first comment on the as far as capital. We are prepared to grow the portfolio more towards historical levels. We have had a lot of cash flow over the past six months just coming from the securities portfolio. We were very prudent in going into the same type of products. You know, agency CMOs, agency debentures because of the excess cash flow that we received as expected. Our goal is to have a lot of that excess liquidity go into our product and with that being said, the balance sheet does not need to grow as dramatically because the cash flow that we are generating is from securities and the like and repayments, but more importantly if we were to grow the portfolio, we will call it, you know, let’s grow at high teens or low 20 percentile, you still have excess capital as a bank and a holding company level to see very good growth for number of years without going to the capital markets.

Bruce Harding - Lehman Brothers

Okay.

Thomas Cangemi

And we run those models consistently. We are very comfortable. Obviously, 5% net loan growth is right on target as we expect it due to the current trends. We are well prepared for a higher loan growth in the future periods.

Joseph Ficalora

Bruce another to consider, if we were to chose to raise capital we’d be raising capital to do accretive earnings. So any capital that we would raise would be raised to the purpose of increasing our earnings. That’s very different then what’s happening in the market today. In all the cases that are catching the headlines people are raising capital to deal with losses. If we chose to raise capital it would be with the purpose of increasing our earnings, so an accretive capital deal is definitely in this desirable thing to do.

Bruce Harding - Lehman Brothers

I just jumped off for one other question, but the deposit markets in the New York Metropolitan area footprint. Can you just talk about the competitive environment and things like pricing has come down quite a bit and what’s your sort of interplay between for the home loan bank borrowings and deposits? And is it a good time to go back into deposit market?

Thomas Cangemi

I’d say the good news. We’ve been very disciplined in how we approach deposits. Deposits have been coming down on course consistently months by months by months and we expect that to be in the continuing case. We have been less aggressive and our marketplace is becoming less aggressive and so as a result our deposit funding course are going down rapidly and even though we are paying less than many of our peers, our deposits are actually going up and that’s mainly because a lot of people are taking money out of equities. They are taking money out of bonds and put it into savings because there is no question that in a deposit you have a safe principle bet and today that does matter. So, when we look at the deposit cost to funds we see it coming down consistently over the quarters ahead.

Bruce Harding - Lehman Brothers

Thank you.

Joseph Ficalora

You are welcome.

Operator

The question now from Bob Hughes at KBW.

Bob Hughes - KBW

Hi. Good morning guys.

Joseph Ficalora

Good morning, Bob.

Bob Hughes - KBW

I guess a couple of questions, the increase in the construction book this quarter is that related to new origination, is it related to draw downs on existing commitments, is there any funding of interest reserves going on there?

Joseph Ficalora

Yeah. That’s mainly draw downs on commitments. When you look at the construction book it has a huge amount of money that is being allocated for the purpose of building a particular complex and the number that you are talking about does reflect in fact drawdown.

Bob Hughes - KBW

Okay. Should we expect to see that portfolio shrinking in the coming quarters when do you anticipate that peaking out?

Joseph Ficalora

I think we have already begun to see it come down and I think that will continue to be the case. We’re not seeing big opportunities with regards, well, let me put it differently; we are not taking big opportunities for construction lending. But there are some out there, there is no question and the fact I just sort a couple of books on $380 million on new construction, which were not likely to take any up, but the fact is that our book with regard to construction should in fact be decreasing from the standpoint of new commitments and any dollars that you see flowing into that would be based on existing relationships that are brining projects close to completion or otherwise building homes based on a definitive contracts.

Thomas Cangemi

Just additional comments on contractions, just bear in mind about $180 million is the co-op city facility.

Analyst

Alright.

Tom Cangemi

That we will be moving into permanent financing. That is, you know, obviously done and that’s going to be a matter of process over into the multi-family portfolio, if you kind of take that out of the total calculation.

Analyst

Okay, great. As I look at the margin in the quarter and if we exclude the impact from prepayment penalties, it looks like the margin might have been actually down about three basis points sequentially.

Joseph Ficalora

That’s accurate. Yeah, we are down about three basis points year-over-year.

Analyst

I think Joe you might have commented on some of the funding repricing over the course of this year, I didn’t catch all that, but in general a combination of incremental balance sheet growth and some funding repricing, you would expect to see that margin lift in the second quarter?

Joseph Ficalora

My comment previously Bob was that you are going to see in the quarters ahead (inaudible) prepay, up margin.

Analyst

Okay.

Joseph Ficalora

So, obviously depending if it’s you know (inaudible) in this quarter previous quarter is down 5.5, which we believe was very low. And we see good trends on the funding side, tremendous trends on overall funding, not only do we do saw CD reach dramatically, but our overall money market funds are down dramatically. So we were well positioned to take advantage of a low rate environment and the overall spreads on the new business is significantly wider that it was in previous years. We are not looking at 150 anymore; we are looking at around 300. As indicated previously 292 for multi for the quarter, 302 including CRE. So we are getting healthier spreads and we can fund that at an incremental benefit to the margin going forward.

Analyst

Okay. And perhaps one final question. I know your cash earnings are certainly higher, but it’s been two years of not earning that dividend I guess so. And maybe it’s a two part question. Number one, what is cash of the holding company today and do you foresee running into any particular difficulties up streaming cash to sustain the dividend, number one, and then I have a follow-up from that.

Thomas Cangemi

Bob, this is Tom. I would say that right now we had about 125 million holding company as of 03/31. Obviously, we plan on earning all the dividends on a GAAP basis and short order. These are healthy trends to the company. We are seeing an upward earnings per share growth going into 2008 and 2009, and we have been through a tough few years and now we are seeing the trends now in more favorable to the company, so what I am thinking right now is that up margins, up earnings, and obviously the goal is to cover the dividend on the GAAP basis, so we feel pretty confident there.

Joseph Ficarola

I think an important thing to recognize though Bob is that the contributions to capital come from cash earnings, so our actual contributions to capital do in fact cover the amount of money that comes out of capital to pay the dividend.

Analyst

Right, right. Okay. You know, that’s all. I will stop there.

Joseph Ficarola

Alright, thank you so much Bob.

Operator

We have a question now from [Gregg Petron] at Citigroup.

Greg Petron - Citigroup

Good morning.

Joseph Ficarola

Good morning.

Greg Petron - Citigroup

Just a couple of questions and you guys have answered some of this already but looking at the construction portfolio and your commercial real estate portfolio, can you comment on the conditions that you are seeing in terms of any weakness there, any concerns you may have there going forward?

Joseph Ficarola

Well, obviously we have concerns with regard to construction lending wherever that may be. The fact is that our existing relationships, the loans that we have in place, we believe are in fact, you know, sustainable. They have the kinds of property owners or builders that have been through cycles in the past and they have, you know, reserves and wherewithal to deal with a slowing construction environment. So, even if their product is not seeing at the speed that it was selling at a year ago, it is selling at a speed that they can accommodate. So I do think that construction lending across the nation and certainly even within our portfolio is going to evidence a slowing and maybe even a devaluation of product that actually comes to the market. But having said all that we are still very confident that the people we are dealing with have the ability to manage through this particular cycle.

Thomas Cangemi

On the yield side bear in mind all our deals have floors on the structure which also gives them an intention, obviously if rate are going dramatically lower and they have a very good low LTV, they may look to go elsewhere, obviously because they are paying a much higher rate through our structure and the market if down dramatically on rates they may look to move. So we’ll move than loan to portfolio burn-off very quickly.

Greg Petron - Citigroup

Yeah. If you look at your construction portfolio, can you comment on the mix of that multi-family versus single family?

Joseph Ficalora

Or can I say it’s probably more in the way of residential homes that are located in communities. There are gated communities, you know across Long Island most of the people that we are dealing with are the top builders on Long Island and they don’t build house, they build the community. So they have lots of people that are lined up to typically buy into that community with the desire to be, they want a golf course and the gated community with the club house and so on and so forth.

Thomas Cangemi

And also in excess of 90% is in our backyard. So the vast majority, 90%, of it is literally New York related products.

Greg Petron - Citigroup

Okay. And not as much of that multi-family but more of concentrated toward residential.

Thomas Cangemi

That’s right.

Greg Petron - Citigroup

Okay.

Thomas Cangemi

I mean, you would have the co-op city structure with the 180, which is going to be if that’s obviously multi-family.

Greg Petron - Citigroup

Right, okay. Then one question on the margin and it sounds like you already answered this to a degree but just may be a little bit more color. Yeah, extra pre-payment fees which certainly you’ve got to consider that important revenue source, but just looking at the margin access, it did drop the three basis points. Was this somewhat of a surprise to you or were those your expectation for the first quarter realizing that for the rest of this year it would be expanding?

Thomas Cangemi

No, we were pretty much right on, we felt pretty good about where we were on. In respect to asset growth we were assuming around 5% net. We had the securitization behind that quarter. On synergy we sold some auto paper. The reality is that in this environment prepays they have doubled, that’s great, but they have doubled off a very low base, $5 million is not a typical quarter for us if that was in the fourth quarter and having 10 is much better.

We feel pretty good about overall margin benefits here in this low interest rate environment on the funding side. As indicated previously the asset yields in the portfolio for multifamily is very low fives and we are getting north of that. So, just the incremental spread here on new business is great, but even just running off the portfolio and seeing some of cash flows coming off securities portfolios as well, will all be additive to the margin.

So we are in a very unique position here until we see some good margin growth without having aggressive asset growth. In the event we have good asset growth in this environment the margin growth won’t be significantly better.

Greg Petron - Citigroup

Okay. And then if you can comment on the CD portfolios, certainly it’s a big anchor and very importance of the margin section of declining rate environment.

Thomas Cangemi

Right.

Greg Petron - Citigroup

Looking at the facts the rates have gone down 200 basis points, the CD rates have only gone down about 20 basis points over the last two quarters so should we expect a pretty strong acceleration in that down pricing?

Thomas Cangemi

Yes. Right now I said previously 5.1 million or 80% of our entire CD book we priced in 12 months and the average coupon and that’s about 4.35%. So we are looking at about 200 basis points benefit today without any additional fed reduction on the short-term rates.

Greg Petron - Citigroup

Okay. And from a maturity standpoint is there a certain quarter we have more maturities.

Thomas Cangemi

Its spread out throughout.

Greg Petron - Citigroup

Business. Okay.

Thomas Cangemi

Its an ongoing benefit, bear in mind the fed cuts in the first quarter will benefit greatly Q2. So obviously you will have pay much in January, because lot of that January money went to April so therefore the April refinances will be substantially lower than January and that was well over $0.5 billion.

So we are seeing some very nice significant benefits on CDs but more importantly the entire deposit base has been repriced. We are one of the lower rate payers in the marketplace and we are holding our deposit base, we are not looking to bring in aggressive funding, because we don’t need the aggressive funding right now. If loan growth is substantial we will fund it via through the deposit market as well as the wholesale market, and if you look at wholesale spreads versus incremental growth on the assets, this is very impressive compared to the previous quarters. We are seeing very nice economic spreads through borrowings, as well as through the CD market. So we are in a good position to capitalize on that.

Greg Petron - Citigroup

Okay. Great. Thank you, I appreciate it.

Thomas Cangemi

Thank you.

Operator

We move on to a question from Tom Alonso at Fox-Pitt Kelton.

Tom Alonso - Fox-Pitt Kelton

Hi good morning guys, most of my questions have been asked. Just one quick clarification point on the $1.6 million the Visa gain, can you split that up just between the gain and what was the actual reversal of the accrual?

Thomas Cangemi

$1 million was the reversal if you go back to the fourth quarter we booked $1 million for the liability, a 500,000 reversal.

Tom Alonso - Fox-Pitt Kelton

About half that reversed?

Thomas Cangemi

That’s correct, we have about 500 in liability as well we have other stock that’s sitting out there for three years.

Tom Alonso - Fox-Pitt Kelton

Okay. Just thanks that’s it.

Thomas Cangemi

Thank you.

Operator

A question now from Gerard Cassidy, RBC Capital Markets.

Gerard Cassidy - RBC Capital Markets.

Good morning guys.

Thomas Cangemi

Good morning Gerard.

Gerard Cassidy - RBC Capital Markets.

Following up on that last answer, the $500,000 reversal was that taken out of the operating expense line or was that just in the net number on the gain for Visa?

Thomas Cangemi

It’s Net.

Gerard Cassidy - RBC Capital Markets.

Okay. Second, you guys over the years have obviously done a number of acquisitions and I apologize if you answered this question already since I have been jumping on and off the call. But in the acquisition or on the acquisition front, can you give us the flavor what you are seeing in terms of people being more interested or less interested in selling out now we know prices are depressed, because of what’s going on out there and then second, are you also prepared or have you contacted the regulators that you’d be interested in failed institution should any of those come in the metro New York market?

Tom Cangemi

I will answer the second question first and Joe will jump on the first question. We are part of a national program with the regulators. Where any event there is a potential institution that may be viewed as a failed institution, we are notified to get the opportunity to review those opportunities alike and analysis any (inaudible) that we can actually through a process. So, we are yes queued in and we are more than willing and ready to pounce on opportunities.

Joseph Ficarola

I think we had (inaudible). Well, maybe it is not publicly clear but I think people are being more reasonable today and I think there is no question that there are deals to be made. We are being very cautious with regards to taking on risks of pricing assets but in any deal you have to price what is it that you acquire on the day you close the deal, so we are being very mindful that there must be an adequate amount of capital around to deal with the possibility that pricing will be erratic or in some ways be inappropriate at the time of close. So, there are deals that are going to be made, especially given the change in accounting for 2009. People that want to do deals need to do them in the next several months, otherwise the likelihood will decrease that deals will occur in 2009.

Analyst

Can you refresh my memory about what’s coming in ’09 on the accounting that will make it less likely to do a deal versus now?

Tom Cangemi

Well for example if you do a highly accretive deal in this environment, you pretty much price the consideration value on or about the time of announcement. Going forward, in 2009 with the new adoption of the accounting rule, you are looking at pricing the consideration value at the time of closing. So, for example, a lot of our deals that we have created that are sizeable deals, we had anywhere from 30-70% appreciation in our currency, that would then be booked towards the goodwill level wherein previous acquisition it would not be booked. That’s clearly a significant determent in my opinion.

Joseph Ficalora

When we think about Gerard, it’s penalizing good deals.

Gerard Cassidy - RBC Capital Markets.

Yes. It sounds that way. That’s true.

Joseph Ficalora

Yeah.

Gerard Cassidy - RBC Capital Markets.

One last question, you were talking about the Long Island housing development, the gated communities. Have you guys done any sensitivity analysis or just anecdotally in talking to your developers about the impact that Wall Street might have on their higher end houses in this gated communities considering….

Joseph Ficalora

No. I think Gerard let me kind of…

Gerard Cassidy - RBC Capital Markets.

Sure.

Joseph Ficalora

Explain. Most of the people that are buying into those gated communities are people who are retiring. So they are not the people that are on Wall Street. The people on Wall Street are buying the house that the person is selling to move through a community further east on the island where they are playing golf and just having a second home. Often these homes represent the northern home and they have something in the south as well.

So the people that are buying these homes are often people who are virtually, financially well established and at the end of their life they are retiring, so that market is still is very, very rich and there are plentiful of buyers given the fact that they are baby boomers if we talk about that over the course of decade. Baby boomers represent the market that buy into these communities.

Gerard Cassidy - RBC Capital Markets.

Thank you.

Joseph Ficalora

You are welcome.

Operator

Next up is from [Michael DeSantio] of TCW.

Michael DeSantio - TCW

My question was asked actually. Thanks a lot guys.

Joseph Ficalora

Thank you, Mike.

Operator

All right. Moving on now to Mark Fitzgibbon at Sandler O'Neill.

Mark Fitzgibbon - Sandler O'Neill

Hi, Tom. Hi, Joe.

Joseph Ficalora

Hi, Mark.

Tom Cangemi

Hi, Mark.

Mark Fitzgibbon - Sandler O'Neill

In the past, you said that doing deals would be sort of tough in this challenging environment because it would be difficult to restructure balance sheet given kind of the lock up credit markets. Has your view changed on that at all?

Thomas Cangemi

Mark, its Tom. I would say that things have loosened up dramatically in certain deposits, but then tightened up in other pockets. For example, if you follow the mortgage markets in the MBS side and agency side there were significant volatility in March and where we stand today things have more normalized. If we have very large jumbo credits right now its still probably very difficult to sell, but if you have the agency type structure there is no problem getting Fannie and Freddie to participate on securitization so that market is very healthy. Depending on the type of outage you are looking at require there is some risk and its was very cautious on looking at the target and dismantling assets that don’t fit well with the combined company.

With that being said compared to fourth quarter to where we are on a second quarter, its been a significant change and its been a change to the better and its more focused for us, we feel pretty confident that in this environment we could see opportunities not only on just in the asset side to dismantle assets for liquidity, but also on the capital side there is a lot of excess capital that is not being put to work that could be put to work on a combined balance sheet perspective what that might be.

Joseph Ficalora

Mark, as you know we are a currency user to deals. We look at deals as an opportunity to come together as investors in the pro forma company. So when you know that the pricing on assets is somewhat uncertain, you have to be prepared as a seller or as a buyer to take into account that the price has to reflect the risk. So, where as it used to be relatively consistent the day you announced the deal you know if you are going to pay, now we are not necessarily sure and the buyer and the seller have to come to an agreement as to how do we deal with risk. If in fact it goes well, everybody will just win more, if in fact it goes badly then everybody will still have a accretive deal, that’s the important thing that the two parties discussing the deal recognize the inherent market risk that are present.

Thomas Cangemi

I would just add that the critical nature of tangible book value accretion on a merger is a priority for us in such an environment and we stress test the targets to our asset in a very significant way knowing that if the worst case scenario occurs we will be able to still have a tangible accretive deal like closing. And we feel based on our multiples right now that is going to occur in this type of environment.

Mark Fitzgibbon - Sandler O'Neill

Okay. And then the second question is on the expense side. Are you still extracting cost from some of the past acquisitions and if you are how much more should we look for G&A to come down coming quarters?

Thomas Cangemi

I think we are going to see it fall into the back half of the year some benefit we are working on a company wide cost containment program right now. We are evaluating systems, there will be a point in time where ultimately the company will be on one platform. We are moving in that direction, that will be very beneficial to the bottom line I’d rather not give specific guidance on actual savings, but we are going to a company wide analysis of all lines of businesses and I believe there will be a savings on a systems side. We do have the multiple platforms right now, synergy should be integrated by the end of the year and then hopefully first quarter ’09 we are looking at the most likely scenario one platform one bank platform which will in our opinion drive efficiency going forward, in all aspects of the company.

Mark Fitzgibbon - Sandler O'Neill

Thank you.

Thomas Cangemi

You’re welcome.

Operator

We’ll take a question now from Soyan Raibu at Black Rock.

Soyan Raibu - Black Rock

Hey Tom, hey Joe.

Thomas Cangemi

Hi.

Joseph Ficalora

Good morning.

Soyan Raibu - Black Rock

I’ve a quick question. It’s a couple. So again in the past, you’ve been very acquisitive in terms of gathering deposits and I was just noticing that your loan growth was relatively flat year-over-year and my question is you say that in this environment it is tough to acquire banks, because it’s hard the price they are risking assets, but this flat loan growth, was that kind of deliberate?

And going forward, I guess what should we expect the growth in the top line to come from? From the widening in the spreads alone for net interest income or should we expect loan growth to pick up too?

Joseph Ficarola

I think both. Actually the fact is that our particular niche is readjusting itself, you know, than it has been for the last several months. We will see a period when in fact the normal recycling of the cash flows will result in significant refinancing. That is coming down the road. It had just been somewhat slowed by some of the market situation that will in fact eradicate. So, we are going to see loan growth increasing quarter by quarter by quarter down the road, so the ability for us to do acquisitions and transition assets is definitely in front of us. The precaution that we’ve been exercising with regard to doing deals is driven by the erratic market place and the uncertainties with regards to the pricing of their assets. So, it’s very important for us to be confident that we are in a position where that number is livable, even if it is dramatically different than we set it at. And that’s an important component of when you will see us actually announce the deal. When we are confident that the assets that we are pricing and the capital that we are using for the purpose is more than adequate to keep the deal as accretive to changeable. It must be an accretive deal in order for us to do it.

Soyan Raibu - Black Rock

That makes sense.

Joseph Ficarola

Right.

Soyan Raibu - Black Rock

And then, refinancing. I guess I am not sure how to ask the question but the people who are due to refinance or choose to repay and then say, look I need a new loan, let’s refinance. How does it look to you in terms of credit quality? If they qualified two, three years ago and they comeback now and you look at their cash flow and environment. Can you breakdown the percentage of how many people you have to turn down things no longer qualify.

Joseph Ficalora

I think the important thing to recognize here is that the principle asset we do is rent-controlled, rent-stabilized buildings with property owners who are building cash flow. They have a business model that works whether the external market is in fact going up in value or down in value. In the last cycle by example values collapse and our particular niche continues to refinance their increasing cash flows which is basically driven by their rent role and their rent role is driven by rent-controlled, rent-stabilized units. So typically they are below the market and they are moving up as a result of the improvement of the building. So that happens whether the marketplace is decreasing in value and a perfect example is 1990 let say. When values were depleting all throughout the New York market, when vacancies in multi-family buildings were high, our buildings were fully occupied and refinancing improving rent roles because the rent roles were so far below the market even though the rest of the market was deteriorating our niche was not. So I think that as we go forward we’ll continue to see that.

Now obviously every loan we do is not a rent-controlled, rent-stabilized loan, but the important thing to recognize nearly 70% of our loan portfolio is the niche I am talking about.

Soyan Raibu - Black Rock

Okay.

Joseph Ficalora

Even the commercial loans that we do to a great extent many of those commercial loans are also rent-controlled, rent-stabilized to some degree. So I think that the difference between our asset class and the market generally is very meaningful. It doesn’t mean we are not going to have an auto loan that goes better, consumer loan that goes bad, where some other deminimus amount of loss. It means that those losses will be significantly less than the losses being taken by the rest of sector.

Soyan Raibu - Black Rock

Okay. And then Tom may be if you could talk a little bit. The assets that you are trying to depose off you mentioned that auto loan book that we know, that was the main reason for increase in charges, can you quantify how much is left from your previous acquisitions that they are still in a run off mode?

Thomas Cangemi

Yeah, we were, when we started talking to these targets they had about, I think its about $120 million in total auto book. We ended up with about a $35 million loan sale that occurred, $30 million loan sale occurred in Q1, we are looking at right now about $40 million is the balance, we are burning around $2.5 million to $3 million per month. And its consistent. It’s a very short book of portfolio, our goal obviously is to see it go away.

We are now positioned to be in the auto business where we have decent reserves against the book we felt obviously comfortable on the portfolio that we require. We would like to sell it all, but the market conditions in Q4 and Q1 we are not that healthy for that type of sale. We were able to sell a decent portion of it in Q1. So, obviously we are left around $40 million and the goal is watch it go down to zero in cash flow.

Soyan Raibu - Black Rock

Is that all you have left for the whole, balance sheet?

Thomas Cangemi

That’s correct. That’s it.

Soyan Raibu - Black Rock

And the reserve can you quantify, as like breaking point how much have you reserved against the book?

Thomas Cangemi

I can’t quantify that.

Soyan Raibu - Black Rock

Okay. Thanks guys.

Joseph Ficalora

All right, Soyan

Operator

Question now from Matthew Kelley at Sterne, Agee.

Thomas Cangemi

Good morning, Matt.

Matthew Kelley - Sterne, Agee & Leach

Hey guys.

Joseph Ficalora

Hi Matt.

Matthew Kelley - Sterne, Agee & Leach

You gave some good detail on the deposits and the CDs a little bit, what about on the bonds the 12 billion, what matures this year and at what rate?

And then second question, in a stable rate environment how much would you anticipate getting called away?

Thomas Cangemi

Right. I will tell you no change in last quarter. You know, we are very pleased to hold the borrowings levels at where we are today. It’s just a tiny bit for the quarter. In respect to this on the borrowing side, we are looking at…

John Pinto

He’s talking about bonds.

Joseph Ficalora

No, he’s talking about borrowings.

Thomas Cangemi

Matt, the question is borrowings, is that correct?

Matthew Kelley - Sterne, Agee & Leach

Yeah, that’s correct.

Thomas Cangemi

The question for the borrowing is no different than last quarter in that niche environment. This is the book is not going to be called, so we anticipate to hold the current quarter funds and borrowings throughout ’08 with the exception of additional growth. If we have additional growth on borrowings the cost will come down. As you know looking at our balance sheet we did not grow our leverage booked, we opted not to be leveraged in the balance sheet in this environment with a lot of volatility out there, but if we want to put some wholesale on right now it’s much cheaper. In a normalized environment you are probably looking at still stability, so we are not going to get a whole lot of benefits from the borrowings book but over the past three and a half years our overall cost of borrowings have been relatively flat and we find opportunities here and there to reduce the cost, but this is significantly out of the money with respect to it’s call provision.

Matthew Kelley - Sterne, Agee & Leach

Okay. And then following up on some of the comments and questions on capital, I mean if the market is willing to give you a 370 multiple intangible book why don’t you just issue stock kind of proactively fill the war chest. You know, it looks like it would be obviously quite accretive intangible books and if there is enough asset growth here at 300 basis points, spreads and 15% to 20% ROEs, it seems like it would be accretive on earnings as well.

Thomas Cangemi

Yeah. Matt, we are not going to dilute our shareholdings to create earnings. That’s no question. I mean, yes it is accretive to tangible book value, but we are not looking for additional capital unless we have the ability to create very good earnings per share growth with that capital. And it will overtime, but we would do something that would have to be immediately accretive, significantly beneficial to shareholders. If we were to do something it would not be distress capital raise, it will be a very shareholder friendly situation that will create significant earnings per share growth and that opportunity we would consider.

Analyst

Right. And then following on Gerard’s question from earlier about opportunities that may arise on the regulatory assisted kind of transactions. Would you consider kind of a deposit rich type of franchise outside of your market?

Tom Cangemi

The whole (inaudible) obviously, you know, deposits are deposits. So, you know, we’ve got tremendous amount of opportunity over the past four or five years. You know, we are very selective and we are not looking to jump out of our core markets unless something is very compelling and when you have an effective transaction typically they are compelling, but you know it happens then you know there have always been a lot of discussion about substantial amount of issues out there but I haven’t seen an influx of that yet. So, we are trying to wait and see right now.

Analyst

Okay. Alright, thank you.

Tom Cangemi

Okay.

Operator

Next question comes from Ted Kovaleff at Sky Capital.

Ted Kovaleff - Sky Capital

Yes and good morning.

Joseph Ficalora

Good morning, Ted. How are you?

Ted Kovaleff - Sky Capital

Just fine, thanks. Got a couple of questions about the securitized loans and the sold auto loans and I am wondering if you have any ongoing responsibilities there with them potentially being put back to you?

Tom Cangemi

No, the securitization on the straight Freddie deal (inaudible) Freddie. It's Freddie, right?

Joseph Ficalora

Fannie.

Tom Cangemi

Straight Fannie deal. That was about 75 million, 25-30 million of that was auto and that was a sale to a larger company with no recourse.

Ted Kovaleff - Sky Capital

Great. Well, thanks very much.

Tom Cangemi

You are welcome.

Operator

Steve Moss from Janney Montgomery Scott is next.

Steve Moss - Janney Montgomery Scott

Good morning. Actually, all my questions have been answered. So, thank you.

Operator

Alright. Finally we will go to Ross Haberman at Haberman Funds.

Ross Haberman - Haberman Funds

Good morning gentlemen. How are you?

Tom Cangemi

Good morning.

Joseph Ficalora

Good morning.

Ross Haberman - Haberman Funds

Just a quick question Joe. Did you have much condo conversion loan exposure? And do you expect to see much of that involving your rate control properties or typically when that happens is that an automatic repayment event?

Joseph Ficalora

Yeah, we don’t have much of that at all and we don’t see this as being an issue that we’re going to have to deal with.

Ross Haberman - Haberman Funds

Okay. Thanks.

Joseph Ficalora

You are welcome.

Operator

With that, thank you very much for participating in the Q&A session, ladies and gentlemen. I’ll turn things back over to Mr. Ficalora for any additional or closing comments.

Joseph Ficalora

Thank you again for joining us for this morning’s discussion. We appreciate the opportunity to discuss the favorable trends that highlighted our first quarter performance and the components of our business model which drove our results. The quality of our assets which continues to be solid, organic loan production at more attractive spreads, the efficient operation of our company and our franchise, the continued repositioning of our balance sheet.

We look forward to talking to you again next quarter when we expect to further report an increase in our loan growth, reflecting the substantial size of our pipeline and the continued reduction in our funding costs. While the level prepayment penalty income cannot be predicted, we would generally expect to see continued expansion of our net interest margin together with continued net interest income growth. Thank you.

Operator

Thanks again for joining us, ladies and gentlemen. That will conclude the conference call. Have a good day.

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