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New York Community Bancorp Inc (NYCB) Q2 2019 Earnings Call Transcript

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New York Community Bancorp Inc (NYSE: NYCB)
Q2 2019 Earnings Call
Jul 31, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the New York Community Bancorp Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. I'd like to turn the conference over to your host, Salvatore DiMartino. Thank you. You may begin.

Salvatore DiMartino -- Director, Investor Relations, Strategic Planning

Thank you and good morning everyone. This is Salvatore DiMartino, Director of Investor Relations. And thank you all for joining the management team of New York Community Bancorp for today's conference call. Today's discussion of the Company's second quarter 2019 performance will be led by President and Chief Executive Officer, Joseph Ficalora and Chief Financial Officer, Thomas Cangemi, together with Chief Operating Officer, Robert Wann and Chief Accounting Officer, John Pinto.

Before turning the call over to management is a few disclaimers we need to read. 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 that 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, and other future cash flows or the market value of its assets including its investment securities; changes in the demand for deposits, loans and investment products, other financial services, and changes in legislation regulation and policies . You will find more about the risk factors associated with the Company's forward-looking statements in this morning's earnings release and in its SEC filings, including its 2018 Annual Report on Form 10-K and Form 10-Q for the quarterly period ended March 31, 2019.

The release also includes reconciliations of certain GAAP and non-GAAP financial measures that may be discussed during this conference call. As a reminder, today's call is being recorded. At this time, all participants are in listen-only mode. You will have a chance to ask questions during the Q&A following management's remarks. Instructions will be given at that time.

And now to start the discussion, I will turn the call over to Mr. Ficalora who will provide a brief overview of the Company's performance before opening the line for Q&A. Mr Ficalora, Please go ahead.

Joseph R. Ficalora -- President and Chief Executive Officer

Thank you, Salv. Good morning to everyone on the phone and on the webcast, and thank you for joining us today as we discuss our second quarter 2019 operating results and performance. Earlier this morning, we reported diluted earnings per common share of $0.19 for the three months ended June 30, 2019, unchanged from the three months ended March 31st, 2019. We are very pleased with our performance during the second quarter, which has highlighted the strong loan and deposit growth, a continued focus on lowering our operating expenses, a relatively stable net interest margin, and as always, our hallmark asset quality metrics.

Furthermore, we believe that the Company is well-positioned for a lower interest rate environment given it's liability sensitive balance sheet, and the changed landscape in the New York City rent regulated multi-family real estate market, given our underwriting standards, our expertise in longevity in the market, and our long-term relationships with the borrowers and brokers in this segment of the market. To that end, before talking about our financial performance this quarter, I would like to comment on the new rent regulations and how we are impacted. In light of the new regulations, we have evaluated our underwriting and credit risk management practices, and we will continue to be an active participant in this market with underwriting guidelines appropriately calibrated to the new environment. And more importantly, we will continue to support our borrowers.

We have always been a conservative lender in this space. One who lend based on current not projected cash flows, and this conservatism has served us well in the 50 years in which we have been actively involved in this type of lending. As you can see by some of the additional information provided this morning, we are a low LTV lender compared to many of our competitors, and therefore, our portfolio should perform much better under the new regulations. Moreover, the bank has always been a main beneficiary of dislocation in the multi-family market. We are credit-driven like during the Great Recession or event-driven. As other players exit this market, we will be there to take advantage of the dislocation and seek opportunities to grow our portfolio at wider spreads.

Now moving to quick summary of our quarterly performance. Our overall loan portfolio grew 4% on an annualized basis compared to the level at December 31, 2018. This was driven by our multi-family portfolio, which increased $582 million including $534 million growth during the second quarter, and our C&I portfolio, which increased nearly $400 million on a year-to-date basis were 33% due to strong growth in our specialty finance business. More importantly, our loan pipeline heading into the third quarter of the year is a robust $2.0 billion including $1.4 billion of multi-family loans at a rate of just under 4%.

Growth was funded by deposits, which continue to grow, increasing $1.6 billion year-to-date or 10% annualized. The majority of the growth has been in CD category. Going forward, we will continue to lower our deposit costs once the Federal Reserve pivot to an easing environment. Our net interest margin for the quarter declined only 3 basis points to 2% excluding prepayments, which rose 32% to $12.6 million during the second quarter, the margin would have been 1.89% down 6 basis points.

Also, the margin was impacted by two additional items this quarter which reduced it by an additional 3 basis points . Despite this, we believe that our net interest margin will benefit going forward from a combination of lower short-term interest rate environment and the substantial upward repricing of our multi-family and CRE loan portfolios.

Operating expenses continue to improve during the quarter. At $123 million, our operating expenses now translate into a run-rate of less than $500 million.

On the asset quality front, our metrics continue to be very strong and remain among the best in the industry. Lastly, this morning, we also announced that the Board of Directors declared a $0.17 cash dividend per common share for the quarter. The dividend will be payable August 26th to common shareholders of record as of August 12th. Based on yesterday's closing price, this represents an annualized dividend yield of 6.1% .

Before turning to the call over to your questions, I will add that we feel very good about our prospects going forward. On that note, I now ask the operator to open the line for your questions. We will do our best to get to all of you within the time remaining. But if we don't, please feel free to call us later today or this week.

Operator -- President and Chief Executive Officer

Great, thank you.

Joseph R. Ficalora -- President and Chief Executive Officer

Operator.

Questions and Answers:

Operator

Great, thanks. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question here from Ebrahim Poonawala from Bank of America. Please go ahead.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Good morning, guys.

Joseph R. Ficalora -- President and Chief Executive Officer

Good Morning, Ebrahim.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Good Morning, Ebrahim

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

So, I guess I just wanted to start out in terms of the margin outlook on, Tom, obviously so you called out the two items. But when you look at the core NIM at 1.89% , deposit costs funding debt cost still went up quarter-over-quarter, if you can just talk to us about your expectations for the core margin, if we beckon[Phonetic] sort of a rate cut maybe this afternoon, and how do we think about deposit rates and debt cost trending from here, are they going lower or we still have some drift higher for both those?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Great. So, let me be very clear. Obviously, we were in a position to say that our margin, which we anticipated to start to rebound in 2020 assuming there is a rate cut this afternoon, that will happen in 2019, so I'm updating my guidance positively for margin expansion in 2019, not 2020. That should occur between Q3 and Q4, and we [Indecipherable] a very short-term position, we're looking at maybe one to two basis points in Q3 versus Q2 and from there we should rebound. Based on our funding costs and based on our repricing of the assets, I anticipate that the margin will go up every quarter thereafter throughout 2020. So, a very positive outlook assuming there is a rate reduction, we're actually assuming in our internal models two for 2019, one in December, and one as of today.

So, we anticipate our margin outlook to be very favorable. More importantly, as far as the funding costs are concerned, we anticipate that the deposit costs and the borrowing costs have peaked at the end of the second quarter, so we will see[Phonetic] reductions on the funding side, both in the borrowings and also on the retail deposit side as well.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

That's helpful. And just in terms of prepay income, I think there is a fair amount of concern that prepay income driven by the rental or changes could significantly reduce or go away, like the loan growth was pretty strong in 2Q, was there a little bit of a catch-up in 2Q, how should we think about one, the sustainability of multi-family loan growth, and as it relates to also prepay income going forward?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So, obviously Q2 versus Q1 was a very favorable change. We were up over 30% on prepay which is an exciting dynamic. However, given our dynamic of a portfolio coming due in the next three years, we had a sizable amount of refinancing as expected. So for the next year, for example, we have $4.4 billion coming due at a 3.13% coupon, that clearly is not going to pay eighth and quarter which will be the current option rate they would have to pay in this environment; that will all refi. The question is what happens with the 2021 and 2022 which is also around $4 billion a year. Do they accelerate? They accelerate prepays relatively strong. Just to give you some statistics as far as the pipeline concerned, that pipeline that we have right now, I'd say, 95% of it is all refi between ourselves and others. So, it's only a 5% purchase market right now.

So, obviously, there's still contemplating what's happening with the market with respect to the changes in rent law. However, having the amount of refi coming from within our portfolio generates prepayment, but also a little bit more encouraging aspects for growth is that we're now seeing loans gravitate to our portfolio from other banks, which is what we expect. So, it's 30% today that should be higher as other banks exit the marketplace.

Joseph R. Ficalora -- President and Chief Executive Officer

I'm sorry. That is very consistent with what happens in normal cycle evolution, we gained share during periods of difficulty because others leave the market. So, the people that are typically in our portfolio, we have the ability to be a buyer in a decreasing valued market come to us and get financing.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And what are the new loan origination yields [Indecipherable] , have you seen any spread widening coming out of the rent law changes at all?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Yes, there is no question that it has economic value as far as spread widening. We're currently around three and five eights of three and three quarters for the the Tier 1 type structure for 5-year money going out to 7-year [Indecipherable] money is close to the [Indecipherable] If you think about the portfolio yield right now, the portfolio yield with all in I believe is around 402 million, $403 million doing all in for the quarter of that total pipeline $1.4 billion is a new money pipeline.

So that's obviously going to -- it should be very accommodate for our growth expectations of 5%. So we're not concerned about growth this year. Obviously, the 5% was the number that we came out early on. We'll update in the latter part of the year, but clearly having a new money pipeline of $1.4 billion will bode well for our growth expectation and obviously the coupons being around 4% and funding cost coming down should add to the margin as well.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. And just one last question if I may, expenses, you are running at $492 million annualized run rate in 2Q, talk to us in terms of like your previous guidance for low 500 for this year, do you expect that to be guide -- are you updating that for a lower guidance just in terms of any expense outlook that you can give?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So obviously we were very pleased coming in better than expected as far as our previous quarter's guidance, we came in below the 125. I mean, for the next quarter will be around this level. We hope to continue to slightly improve that number. What's interesting is that we're going through a substantial conversion that will happen at the end of the year, and going into 2020 that will potentially bode well for further adjustments depending on how much efficiencies will be driven from being on one platform.

I won't say if we are going to lend for 2020 as far as guidance, we're looking at probably low 40% type numbers for the efficiency ratio, that's a substantial reduction coming off the city [Phonetic]threshold of $50 billion. So that number is in the low '40s is kind of what we projected of a year-and-a-half ago, and now it's coming to fruition.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

If you don't mind, may I ask --

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Low 500 for 2020 should not be a problem, and that we'll call it somewhere to the low 40% threshold for efficiency ratio.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Do you mind giving like a dollar number for that low 40% because there is the other side of the equation there. Like, what is the low 40% assume in terms of the annual expense for next year?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

[Indecipherable] I would say, again estimate 505 to 510, probably more toward the lower end of that range...

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Understood. Thanks, thanks for taking my question.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

...which is relatively flat over year-over-year.

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

Our next question is from Steve Moss from B. Riley. Please go ahead.

Steve Moss -- B. Riley FBR -- Analyst

Good morning.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Good Morning, Steve

Joseph R. Ficalora -- President and Chief Executive Officer

Morning

Steve Moss -- B. Riley FBR -- Analyst

Just want to follow up on the loan growth expectations here, it seems like you're implying a acceleration for the second half of the year, and just how do we think about the drivers there?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

I mean, obviously the pipeline is a very strong, worth of $2 billion and we have a $1.4 billion new money pipeline. So, although it's lot of a refi, as refi that actually taking advantage of the equity they built within their own portfolio, that 70% of our own book, with 30% some others. So I think that that will probably be the in my view the trend over the next couple of quarters until is actual property transactions, and ultimately will be some value where people will put on these billing in such trading again, when the meantime, we're getting a very interesting amount of business from the refi opportunities within the marketplace.

And going back to our portfolio, we have substantial refinancing coming $14.5 billion over the next 36 months, of which $4.4 billion next year, is that the lowest rate we have in the portfolio. So that's why we put, that's our market, that's a significant jump, going from 3 and let's say, 3.813. So let's say around 4. That's a nice benefit for the margin for next year, and this is something we've anticipated. They waited as long as they can but they are not going to pay 8.25%, they're going to have to exercise other option. The question is how many of the ones that are coming in 21 and 22, which is around $4 billion as well. Each year decides to exercise early which will generate prepayment and higher coupon, and they're all in the very low threes. So we're excited about the opportunity. We're very comfortable with the LTVs in that portfolio, given that significantly lower than the market and we're an in-place cash flow lender. All these loans that were originated four or five years ago, they built up of cash flow. They built up the value and they're going to look to try to extract some value here which will add to portfolio. So we think that we're going to have a very achievable 5% net loan growth. I know there has been some discussion that's not achievable in this environment, we started a 4% in the mid-year assuming things going to be very challenging going into Q2. Now, we look at the second half of a very strong pipeline. So 5% is very achievable this year. And we'll update the guidance as we get closer to year end.

Joseph R. Ficalora -- President and Chief Executive Officer

So I think it's important to note that the changes in the marketplace have been significant and adverse, and therefore the lesser players are vacating the space. As in all cycle turns, we fill the void, we do not have the same problems that others have. Many, many, many players took into account projected earnings that were significantly higher than now would seem attainable, therefore there is problem for those people. And we in fact will fill the void there are good property owners who in fact do business with us on a regular basis or intending to buy at discount properties in their proximity because there will not be the kind of funding available to accommodate the loans that already exist in their markets.

Steve Moss -- B. Riley FBR -- Analyst

And in terms of your exposure by market , just wondering if you could update us the loan-to-values by borrow, and the debt service coverage, and how you think about --

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So the good news is that obviously we put out some additional disclosure, we filed an 8-K this morning. Breaking out the dynamic of the multi-family book, and you can see on page 14 of that 8-K, we break out the New York City borough by the five boroughs and break out the other markets. And as you look at, if you want to look at the highly concentrated rent regulated market, which is the five boroughs, Manhattan's at a 48.42% LTV, Brooklyn at 52.49% weighted average LTV, The Bronx is at 52.9% and Queens at 47.8%, and Staten Island which has very little exposure to their 57%. So for the most part, the New York City books around 52% on average. So that's obviously a lot of coverage that at an in-place cash flow LTV that was based on a current rent loan and future value, we do not lend toward MCI, we did not have any meaningful exposure in that regard. So we're very comfortable that when these loans come due, we will have more than adequate collateral to refinance with us, and potentially take us to more dollars depending on what value they create.

Steve Moss -- B. Riley FBR -- Analyst

Okay, that's helpful. And then one last question, in terms of just the funding cost here, I'm wondering what are your marginal funding costs these days, when it comes to borrowings in CDs and I'm just kind of thinking about how we should think each Fed rate cut benefits your margin going forward. ?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So, we're going to be very aggressive on reducing the cost of funds. And, we feel highly confident that our cost of funds have peaked. So it's also in the borrowing side as well as the CD side, retail CDs. So we're very active on looking at our deposit base. We took into extra money last quarter knowing there'll be some other deposit type sources that will go out of the bank because we're going to be aggressively reducing our cost of funds. So effective today we dropped our rates again.

So I believe our rates are around 2% offering on average, some in the 1.75%-ish, but that is significant adjustment from September of this time last year when it was a [Indecipherable] , we were close to 3%.

So, we have $13 billion coming due in over a year, it's around $3 billion to $4 billion per quarter that's going to be rolling on the CD side, and that sort of roll down to the very low-2s and if the Fed continues to to ease that could be sub-2. So we're going to be very proactive on making sure that we get the benefit of the beta that we had on the way up, now we did on the way down. So we were obviously a significantly impaired by the beta risk that we had given that we're a retail shop. The fact that the retail CDs will now react very quickly. We're going to be very active.

So, we're not targeting 10% deposit growth. We're going to target our substantial drop in our cost of funds and the borrowing market on the forward position will accommodate money in the mid-to-upper ones. So we believe that's going to clearly drive our deposit and borrowing costs lower in 2019 and 2020 for sure.

Steve Moss -- B. Riley FBR -- Analyst

All right, thank you very much.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Sure.

Operator

Our next question is from Steven [Indecipherable] from RBC Capital Markets. Please go ahead.

Unidentified Participant

Okay. Good morning, guys.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning.

Unidentified Participant

Morning. just to get back on the borrowings, if you may, so how much in borrowings is due in 2020?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Yes, we have what we believe what [Indecipherable] that's going to mature in 2020, about $3.4 billion, predominantly from the [Indecipherable] bank and that average rate of 2.13%.

Unidentified Participant

2.13, is that right?

Joseph R. Ficalora -- President and Chief Executive Officer

Yeah, that's right. So we've been -- so for example, last quarter, we refinanced some structures I think 1.70 was the new positions and that was expected back in November, to be around three.So significantly lower based on the expectations of the forward curve.

So we put on $755[Phonetic] million in last quarter at 1.70. I'd say right now given where the rally in the bond market where rates are often in the forward curve, we're probably 1.50 to 1.55 depending on the structure that we choose to go.

Unidentified Participant

Got it. Would it ever makes sense -- I assume you guys still have a decent amount of borrowings beyond that. Would it ever makes sense to prepay those borrowings and just take the hit?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

A lot of the stuff is relatively low cost and we are not looking at 3%, 4%, 5% money, it's still very low cost in compared to the historical norms. Going out to 2021 to 240[Phonetic] it's -- and again, most of the money is coming due in the next year and a half. So this stuff is going to mature without any consequence to our capital. Yeah, but I don't know the $2 billion coming due at for the rest of '19, so that's just under 2%, 1.90% so that should be no negative impact to our cost of funds, and depending on how much deposit flows come in and where the source of the funds come from, we're going to be very active on price in the best possible liability, and it's hopefully a declining rate environment. Assuming, if they are one and done [Phonetic] it's still going to be a very favorable environment for us because we had so much headwinds as far as our margin is concerned.

I don't anticipate NII to go down post Q3, we should have NII up every quarter. There are up as we go into 2020. We do that with cost containment at the $500 million level, you're looking at EPS growth at a significant when you look at year-over-year comps, because the Company is not typically running at 75 basis point ROA. We should be somewhere north of one.

Unidentified Participant

Got it. And just getting to your pipeline. It seems like your pipeline's pretty strong with the refi. Do you know what percentage of the refi is coming from new customers versus existing?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

I mean I think I said before, 70% of our refi book is ourselves, the other 30% is coming from others. That's going to be a trend that we believe -- I believe is going to increase dramatically. There's many players that are no longer in the business. So they're shying away from the business, and we are in business, this is what we do. This is our primary focus. So we're excited about the opportunity as Mr. Ficalora indicated this locations where we make a lot of money and we underwrite very conservatively.

And if their loans are substantially above what we would ramp we will still lend to them.So we will be a very targeted low leverage lender, and we are going to be in the market at higher spreads. The spreads have widened approximately 50 basis points to 80. Right now 185 to almost 200 over depending on the day of the curve, but that's significantly higher than the 150 that we have to compete. Our largest competitor right now is the government, and once the government realizes that they're giving away the -- maybe we'll feel spreads too but the Dutch [Phonetic] market is probably the most competitive market, and we clearly are looking at a unique opportunity as a portfolio lender, and we have lots of very strong relationship that will tend to go to a portfolio lender versus going to the agency.

Joseph R. Ficalora -- President and Chief Executive Officer

Agencies are growing throughout luxury[Phonetic] and there's no question that people in Washington are concerned about this, and have for quite some time expressed a desire to have the agencies far less involved in the marketplace rather than absorbing ever greater share throughout the country. So that change will be very good for us.

Unidentified Participant

Understood. And just last one for me. There had been some questions about just like potential RWA is going up, assuming cash flows on the collateral rent regulated properties do not weaken, is there any conceivable scenario in which risk weighted assets would increase from major market declines, let's just say something draconian to say like a 70% drop in market values?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Well, that's very draconian. Look, we've done such a deep dive since these laws have been put in place. We've analyzed at the loan level detail, assuming cap rates are going to probably gravitate a little bit high year. They're going to be more borough specific, Manhattan cap rates versus the Bronx is dramatically different. So you have to look at it holistically, as far as what has impacted more negatively, because of this change, but the reality is we are low leverage lender. We look at interest rates and cap rates, and we've sharpened up reasonably significant, and we feel that it's not going to impact our capital position negatively, and we ran 15 different ways in what you can look at this market. I'm not going to run a 70% drop in value, that is just -- that will be a silly analysis, but if you run it we will see in adjusted and it's very simple, 100 basis point cap rate is probably going to be around 80% drop in value. If you raise interest rates 50 basis points it's probably 9 basis points of the DSCR. So you do the simple math, it's manageable when you're running Manhattan at 48% LTV.

Joseph R. Ficalora -- President and Chief Executive Officer

And by the way, Manhattan has the lowest capex, that was always viewed as the most upside potential. So as you can see from our statistics, we put out on Page 14 of our 8-K that's where we are super-conservative, and by the way, a lot of our loans have mixed use characteristics. We have a lot of opportunity on the ground force it's is not just that if a building is rent regulated, does it mean the ground floor is rent regulated.

Unidentified Participant

Great. Really helpful. Thanks guys .

Joseph R. Ficalora -- President and Chief Executive Officer

Sure.

Operator

Our next question is from Steven Alexopoulos from JP Morgan. Please go ahead.

Steven Alexopoulos -- JP Morgan -- Analyst

Hey, good morning, everybody.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Good morning.

Steven Alexopoulos -- JP Morgan -- Analyst

So, first for the multi-family loans that you refinance in the quarter, how much did you haircut appraisals or values when issuing the new loans on average?

Joseph R. Ficalora -- President and Chief Executive Officer

It depends on the timing of that. The reality is that we're always proportionate to the actual market,.We have the ability to recognize change in valuation, and as the market evolves it's going to be a decrease in the value of this product. We have led on this product for decades at much, much lower values. So, the loan that we do has to be repayable. All of our existing loans based on how we structure them are repayable. All of our future loans will likewise be repayable, but they may be on a lower value building. So by example, if somebody over lend and the building goes into default and the value of the building collapses we do a loan on the existing cash flows, whatever they may be.

And when we do that loan at a lower value, we are still going to be proportionately safe. The ability for us to manage our risk is demonstrated by decades of success in doing so. So every new loan will be at a proper value based on the actual rent rolls. So we're very confident that this is a good period for us despite the fact that there is change in the marketplace, change in the marketplace has always given us greater share , greater return and greater stability.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Here just bear in mind, we don't have [Indecipherable] always an abundance of caution when there is a market shift like this, but the reality is that always weighted average LTVs won't change, we will be writing our paper in those low weighted average LTV levels and more importantly, in the event that we have our own customer that for example may go to that 50% to 100%, we're going to charge them for it. We're going to -- just because the loan that let's say 77% LTV with the debt service coverage is slightly below that criteria, they will have to pay. So I think again economic spreads, I think [Indecipherable] prepared remarks, we prepare to benefit from higher spreads in the business model.

There will be higher spread that's already starting. As property transactions start to take place, which we really hadn't, I indicated in the pipeline, 5% of our business is purchase. The rest is all refi when the purchase start to occur, the capex sort to be set, my view is that you'll see the ultimate spreads to widen further which eventually the government will catch up as well. So we're excited about the opportunity. We're not going to change to be aggressive, we are super concerned, we are known as an A lender in this space, and will continue to be super conservative on our approach.

Steven Alexopoulos -- JP Morgan -- Analyst

And then Tom, I know, credit quality is obviously very good again for multi-family in the quarter. But did you increase the reserve at all multi-family given the rent change, and what is this specific reserve on multi-family?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So again, if you look at historical losses or do which we have embedded in our Asia Billable [Phonetic] to 7 basis points historical losses allocation, and then you're looking at a total reserve about 31 basis points that we have embedded within the portfolio as a 24 basis point is qualitative. So, no question that we have a very low risk book, we follow GAAP, right. I mean we make adjustments from time-to-time and you assume, We've also made adjustments qualitatively because these rent regulation changes. So that's what we have in our portfolio 31 basis points.

Steven Alexopoulos -- JP Morgan -- Analyst

31, OK. And then the prepayment penalty income, I know, is a focus of the call earlier, it's been very resilient versus peers, one thing I noticed the weighted average life has come down quite a bit. I think you're calling out 2.1 years in the multi-family book. Why has that come down so much?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

We were sitting on the sidelines, like I indicated, we're opportunistic about 2020 because we have $4.4 billion at 3.13%, that's going to eight and a quarter. Well, let's say it's eight, they're not going to pay eight. They are going to pay as markets, so market's around four. So that's as they wait on the sidelines, they have to come to market. At the same time, prepay activity, we believe we'll be continuing to be relatively strong given that we have the 2021 and 2022 credits that are coming up to the option period, and those are all both in the lower threes, so they're not going to pay 8%, they're not going to pay 7%, going to pay the market, which is around 4.

So that would -- so the fact that we have a significant portfolio refinancing our [Indecipherable] of substantial borrowing is indicated, they are all the more refi within our portfolio. Some are zero point, some are 1% or 2%, it may not be the 3 or 4 point you are accustomed to because of the pent-up demand on and increased valuable, you'll always have a choice is being made by customers to lock in their financing.

Joseph R. Ficalora -- President and Chief Executive Officer

I think that it is -- go ahead.

Steven Alexopoulos -- JP Morgan -- Analyst

No, no, go ahead. Joe. I've just this final one and then --

Joseph R. Ficalora -- President and Chief Executive Officer

I, yeah, I was just going to say, given the way we lend everybody has value in the buildings that they're managing today. We in fact did not over-lend as many of our competitors did, so when they look at the opportunity to refinance, they don't have to go chasing after dollars that don't exist. They already have the dollars in their cash flows. So the reality is that our portfolio has the ability to fund the acquisition of the market as every cycle has demonstrated, our people actually have value in the buildings that they manage and therefore, they can get additional dollars from us on their actual rent rolls.

Steven Alexopoulos -- JP Morgan -- Analyst

All right, OK. Just one final one on the margin, the Fed cutting rates obviously will take pressure off your funding costs letting the hope [Phonetic] for all banks is at the intermediate part of the curve holds right as the Fed cuts rates, Tom, do you[Phonetic] let's think about what's the level of steepness ideally you need of the curve to see the NIM expand more sustainably? Thanks.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Well again, I'm running a very conservative model into 2020, and I have my margin going up every quarter, quarter-quarter by trades [Phonetic] of 20s starting between Q3 and Q4, and that's assuming cut today and more likely another adjustment at the end of the year. So we're very bullish, we will come in with such a low base, our overall asset yields were at bottom, of course the funds we are at peak. So I was very clear that our deposit for the quarter, we believe that peaked in Q2.

So we'll have the benefit of deposit cost coming down, borrowing cost coming down, the forward curve is showing a much lower rate scenario. So that sticks for the rest of the year, we will lock in that funding at lower costs on the borrowing side, and we're going to be very proactive on adjusting our retail franchise aggressively as the Fed goes to a more of the easing a neutral stance.

So, we feel highly confident that our margin, but very different than others. We're not a LIBOR-based lender, we are lending in the value of the curve. So we're going to see margin expansion every quarter thereafter, and it's going to be a very meaningful benefit to year-over-year comp and EPS, you're looking at a sizable increase in earnings per share numbers in 2019 versus 2020. And a very conservative balance sheet, very conservative [Indecipherable], if assuming that we, I mean this is by the way, an inverted yield curve. So if the curve steepens that numbers will only get better for us.

Steven Alexopoulos -- JP Morgan -- Analyst

Okay, thanks for the color.

Operator

Our next question here is Moshe Orenbuch from Credit Suisse. Please go ahead.

Moshe Orenbuch -- Credit Suisse -- Analyst

Great, thanks.

Joseph R. Ficalora -- President and Chief Executive Officer

Good Morning

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Good Morning

Moshe Orenbuch -- Credit Suisse -- Analyst

Most of my questions have been asked and answered. Maybe could you just talk a little bit of how you see each of the next, the steps play out in terms of the competitive environment in response to the rent changes, like what what happens over the, over the next three months and over the next six months and over the next year?

Joseph R. Ficalora -- President and Chief Executive Officer

Yeah, well, it's not only the people are afraid, there are people that over-lend. And the reality is, it will become more and more evidence that the capacity of that particular property to accommodate the excess dollars will in fact fall away. So there is going to be value change in the marketplace, it's going to be significant losses taken by the excess lenders. That is all consistent with cycle turn is being driven by an act of the government that has changed the pro forma income stream of this particular product. The good news for us, we've always lend within the existing cash flows. So we are not being impacted in the same manner, when in fact we refinance prospectively. We will likewise do the lending that we've done for decades, very conservatively, and very consistently dependent upon the existing cash flows. So the dollars that are on the table for our new loans will be proportionate to the actual income stream that the property provides.

So we are a lender that has a demonstrated track record, out-performance during periods of adversity, the period ahead will represent adversity, and many of the people that have over-lend in this market will in fact retreat from the market, they won't be providing new loans, and the loans they have will be defaulting. So, the reality is this dislocation of the market works to our advantage. So prospectively, we are highly confident that we'll be able to grow our portfolio very nicely and that we will be able to perform significantly better than the market and quite frankly, to our great satisfaction.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Moshe, one thing I would add to Joe's commentary that there is a high probability that customers may look to potentially go between 7-year and 10-year money versus the traditional 5-year, just because it may take a little bit long to try to extract value, and that's obvious. Obviously, that then with the agency becomes a more unique player to our competition. But that's possibly one of the scenarios that will play out because of these changes.

Joseph R. Ficalora -- President and Chief Executive Officer

And reality is that when they go to 7-year and 10-years we wind up getting higher yields. So this is definitely good for our prospective margins.

Moshe Orenbuch -- Credit Suisse -- Analyst

Got you. And, but just what's the factor that causes them to realize that decline in value, right. I mean it's not like, it's not like they have to mark this stuff to market on a day-to-day basis?

Joseph R. Ficalora -- President and Chief Executive Officer

Yeah, it's very simple. The people that are making the payments stop making the payments, when loans are going into default you don't have to do an analysis, it's pretty clear. They recognize the owners recognize that their expectations with regard to income are not going to be met, and they make a decision as to whether they want to continue to pay at very high value property at a rate that they don't particularly like for value, which is not sustainable. So people that have literally expose themselves to excess dollars, whether they'd be the lender or the owner are going to make the decision that they do not believe they can justify carrying that value into the future. So therefore they will default. That's why the market is going to have significant change. The good news for us every time in decades, every time the market has adjusted, we have gained share, and we greatly outperformed. This is not a bad period for us. This actually turns out to be based upon our conservative methods. This turns out to be the time that we are most distinguishably better than our competitors.

Moshe Orenbuch -- Credit Suisse -- Analyst

Got you. Thanks very much.

Joseph R. Ficalora -- President and Chief Executive Officer

Sure.

Operator

Our next question is from Matthew Breese from Piper Jaffray. Please go ahead.

Matthew Breese -- Piper Jaffray -- Analyst

Good morning.

Joseph R. Ficalora -- President and Chief Executive Officer

Good Morning

Matthew Breese -- Piper Jaffray -- Analyst

Hey, just, Tom, you mentioned several times that you're running your very conservative model that every quarter in 2020, you have the NIM expanding.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Yes

Matthew Breese -- Piper Jaffray -- Analyst

If I assume exactly what's in your model, could you give us some idea of what that NIM expansion could look like if you book ended for us?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Well, I'm not going to give 2020 guidance but I will say from my scenario I have two rating, [Phonetic]a two-way adjustments one effective today, so going to this the tail end of Q3, and then you have one at the end of the year. Now we are coming off of what we call bottom margins, bottom of peak funding costs, and bottom after yield. So that's going to play out very nicely when we reprice that multi-family portfolio and other assets that we're repricing. As far as growth, growth is going to be very conservative. I'm running 5% growth, it's early. I think that number is probably going to be higher, but right now we're at 5%. I feel highly confident given the current pipeline 5% is very achievable for 2019. There's been a lot of discussion out there probably that NYCB is not to be able to grow 5% this year.

I think that's still the assessment, given the current pipeline and given we're starting at 4% mid-year. So I think the growth is real. We feel confident in the growth. Spreads are wider. So again, we were assuming about probably a 180 spread on the model and they may go to 200, so relatively conservative that's where the market is right now. And funding costs like I indicated, we're going to be very proactive on dropping our cost of funds. Effective today our rates are lower, a lot and so, open up a CD it's probably 199, open up a liquid CD probably 175. So rates are coming down. I think the market is followed [Phonetic] already and I think the fact that -- again I go back to my previous statement, our beta risk last year was high off the chart, two years in a row we lost a lot of money on NII because of high beta. You have to give us credit on the way down, rates start to go lower, we'll see that same beta impact the benefits of the retail franchise. $13 billion of CD is repricing at levels at the highest some of these had probably in a decade. They will be priced lower. And we will be proactive on adjustment and by the way, if this deposit runoff we will just replace with borrowings. So right now the forward curve is a lot cheaper than the borrowing cost. We're very mindful of this transition when the Fed is either at an easing and on neutral stance.

Matthew Breese -- Piper Jaffray -- Analyst

All right. So maybe we could focus in on that. So the cost of interest bearing liabilities when and if the Fed cuts and if we get one more. What would you expect the cadence of reduction in the cost of interest-bearing liabilities? Is that a low kind of single-digit basis point or high-single digit just summarize would be helpful?

Joseph R. Ficalora -- President and Chief Executive Officer

I think I would say if you think about a 25 basis point adjustment you're probably looking at 85% of the move that we're going to put to our retail franchise. So, if I'd say some of that 250 is going to be close to more closer to 230 is right now, we are not at 250, so we're right down to 2%, the next move could bring it down 180 on average. You're looking at a very proactive view on reducing our retail deposit plus we have a very proactive coming off the city threshold [Phonetic] and growing the balance sheet, and we use retail funding to finance the balance sheet. So we're going to be very proactive on reducing the cost of funds. It's going to be very meaningful to us, and as I indicated, I believe that Q2 was the peak of our cost of funds, both on the retail side, as well as the wholesale side.

Matthew Breese -- Piper Jaffray -- Analyst

Okay, understood.

Joseph R. Ficalora -- President and Chief Executive Officer

And I'm not going to give 2020 guidance, it's way too early, but we're very optimistic that we're going to have a very unique comparison when you look at these dynamics. We are looking at significant EPS comp year-over-year, even though I don't have 2020 guidance out there, you can run the model, you'll see how this will react, and take into account these low coupons that are coming due that will be diffused to go to the option period that pay 8%. No one pays 8%, everybody refi. So we're excited about that opportunity, and we talked about this last year.

We thought that rates have been higher, so you may lose 4.5 now, we're talking low fours the high threes, but it's still meaningful, better than 3.13% that's coming due. And I believe there is going to be more of our -- more customers coming from the 2021 and 2022 option days coming in, which will also pay us points on the way through the next refinance.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay. Joe, you had mentioned that competitors have just simply over-lend in this market, and some of your peers protect themselves have not taken what appraisers would give them in terms of cap rates, call it a 350 cap rate or 4% cap rate if you something higher. Have you done something similar and could you give us some color around what the cap rate you would use versus the market to underwrite your multi-family?

Joseph R. Ficalora -- President and Chief Executive Officer

I think the interesting thing is that the end result is the key to recognizing that we use lower cap rates that we in fact are. I'm sorry we use higher cap rates and we are in a position to understand what makes the market change, and how that will impact our values and have the ability for us to refi. So even during periods such as this we have substantial refinancings and the ability for us to refi is the realization of the owner that the rate in of itself is not the only reason why they would come to refi. They in fact utilize their opportunity to gain dollars and use those dollars effectively to buy cheap. So the marketplace is going to be very real, values are going to come down.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So when you think about cap rates, it's Tom. So when you think about cap rates, think about the fact that Manhattan and Bronx are very different market. So whether you're looking at about 100 basis point differential between eight appraisal coming out Manhattan versus something that's predominantly rent regulated in the Bronx. So clearly the marketplace has had embedded, so we think that our current LTVs that are out there, these are current late average LTVs. The lowest LTV the company has is Manhattan and Queens, 48.42% of Manhattan, 47.8% for Queens, that's embedded a very conservative view of that cash flow. So other banks may be lending at 75% LTV. You can see based on the actual LTVs that we have publicly disclosed that we take a very conservative view toward cap rates. So it's cash flow, it's upside potential. We don't lend on the upside. We're not giving them advance funding on major capital improvements . Well, we view that a lender of choice for a conservative bar that's willing to take out less dollars and ultimately draw-down[Phonetic] funding when it need improves rent growth.

Now, obviously the rent malls are not going to improve as fast enough given it's current rent changes. However, we have a lot of embedded value, and I indicated if you bank in the cap rate up a 100 basis point is going to cost you probably about 18%-19% in value. Interest rates go up 50 basis point is why we're going to be 9 basis points in an adjusted DSCR. So we've stressed this portfolio, we stress it up significantly, and we feel highly confident that these customers will have the capacity to come back to us, and get the next round of financing. That's what's important.

Matthew Breese -- Piper Jaffray -- Analyst

Okay. And given those dynamics, you know, cap rates potentially going up 100 basis points, that's an 18% hit to the value. I guess I'm trying to square that with the qualitative factors in your allowance, it doesn't seem like there is much of a change or maybe you can provide some color there.

Joseph R. Ficalora -- President and Chief Executive Officer

Yeah, first of all, this is a hypothetical scenario, you don't adjust your allowance to hypothetical scenarios . Okay so, we don't believe when something is purchased we will finance that new purchase at the market. When someone refinances we will refinance that based on the new appraisal but the loan has got three , four years before its options, you do nothing because it's still, you don't have to make that that GAAP assessment so until it's coming due. So we're very comfortable with that, and I indicated before, as far as risk weighting going from 50% to 100%, if they happen to be in a position where they stay with us and the LTV, let's say, it's slightly higher than what the regulatory mandate as far 50% risk-weighting, we just charge them more interest.

We will charge them a higher spread, and that's how we'll get paid in value, because we're comfortable that over time, we work through this changing in the marketplace and our customers are well-positioned to take advantage of as [Indecipherable] indicated dislocations, there will be dislocations. There will be dislocations for banks have lend on capital improvements, significant capital improvements, and they will have to figure out how to pay their bills when they are on a monthly basis. If they default, other customers come in and buy the asset based on its inherent cash flow and based on an IRR that suits them as an investor in real estate.

Matthew Breese -- Piper Jaffray -- Analyst

Understood. Okay.

Joseph R. Ficalora -- President and Chief Executive Officer

And also -- one thing I want to take a look at Page 12 of our presentation. It actually shows that over the course of the period 12/31/2014 through June 30, 2019 we actually have a positive entry of 4 versus zeros in every year in charge-offs. We don't have charge-offs as a typical of other lenders. This is just a fact.

Matthew Breese -- Piper Jaffray -- Analyst

I understand that this is historical credit quality, but I thought the quality factors were to -- were there to in fact take into account changes -- significant changes, perhaps in an industry and, therefore, this would be something the rent regulation changes might be something that causes qualitative factors.

Joseph R. Ficalora -- President and Chief Executive Officer

We may still do, we've incurred loss model obviously it's GAAP. So we'll go into and see what comes along, we'll adjust that, the risk in general for the market seesaw [Phonetic] be somewhat impactful to many institutions. We may have a little bit more of extensions, who know that happens or not two, three years down the road, and we'll have to deal with having a little bit longer. Other than that there hasn't been a major change in our philosophy as far as credit risk.

Matthew Breese -- Piper Jaffray -- Analyst

Understood.

Joseph R. Ficalora -- President and Chief Executive Officer

On the new originations, because the turnaround of going to come do relatively short. It's only for the new loans on, you have a quite we have about 24 basis points in qualitative like adjustments in our allowance for the multi-family. That takes into account market conditions that will move around from time to time, but we have a very low leverage book, but were in place cash flow lender. When the new loans come on, and the new loans come from other portfolios, we're going to underwrite and probably more conservatively given that you're not giving any potential view on upside potential, because it's all dependent upon how much those rent rolls could possibly go up. So clearly, in place cash flow, you should not be as impacted as others that are looking at upside potential.

Moshe Orenbuch -- Credit Suisse -- Analyst

Understood . That's all I had. Thanks for taking my question.

Operator

Our next question is from Lawson Nicholas from Stevens . Please go ahead.

Unidentified Participant

Hey guys, good morning.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning.

Unidentified Participant

I appreciate the comments on the risk-weighted assets and kind of the deep dive into the, but I guess maybe just thinking about the incremental risk weighted assets on what you put books from the multi-family book. And then I think more broadly, you mentioned adjusting your underwriting guidelines, I think the word was appropriately. Can you maybe just dive into the risk-weighted assets, I guess, question first, and then second talk about maybe what changes were made on the underwriting guidelines in the market, is it the just kind of specifically of the LTVs, debt service or cap rate?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Yeah. So, obviously, our LTVs are very tight. We're not changing the absolute LTV. I think when you're looking holistically at the future cash flow, is giving very little benefit of upside potential depending on the property. We are not a a luxury lender, so we have mixed use properties, we have properties that have 50% rent regulated, 50% non-luxury type market value rent rolls. You look at it, you're going to look at it with an abundance of caution going forward because of these rent roll and potential change. These actual actual changes in the law.

So there is no question that you're going to have an abundance of caution when you look at the credit as the appraisal will and we'll evaluate it, a very simple based on in-place cash flow. The big question is going to be when the market does adjust for transactions what is a willing buyer going to put a value on the inherent value of their cash flow and what there is what's the hurdle rate of return. So zero, is not going to be -- not to be any more zero returns on real estate, can have some early return to one going to buy over the long term and invest, my guess is going to be significantly higher than it was two years ago because of these rent regulation changes.

Joseph R. Ficalora -- President and Chief Executive Officer

I think it's important to note that we've been public for about 25 years now, and during that period of 25 years we've charged off 101 basis points, 101 basis points in 25 years. The bank and thrift Index during that same period charged off 2,350 basis points. The difference between us and others is glaring. It's not a opinion, it's a fact, and low more the whole we have every reason to believe prospectively this wide differential will continue to resist.

Unidentified Participant

Understood. And then maybe you spoke about kind of the government guaranteed business, and kind of the attractiveness of that in this environment, I guess, can you maybe just speak to what you're seeing from your customers and maybe demand for that no longer term government guaranteed product after these like regulation changes, and then got any comment on how you expect that to play out over the next couple of years?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

I will just comment, Joe will be more active in Washington. But I think that is since some real pressure on the mission statement of the agencies as far as their view on being such a dominant force in the multi-family space. But at the end of the day reality kicks in. If you have a cash flow that it takes a little bit longer time to get more improvement, you will tend to look at the longer in the curve to lock-in low rates, we're going to be fine. so 7-year and 10-year money may come into play, we're traditionally a 5-year type lender, tenure final 5-year reset, average life two to three years that may extend to couple of years.

We're going to be in that market. It doesn't mean we're going to be an outfitting the agencies that we're going to be a source to go and potentially a little bit more. If a customer wants a couple more years of duration risk, it just function over the fact that they feel that their cash flow may take a little bit more time based on these changing rent laws.

Joseph R. Ficalora -- President and Chief Executive Officer

There is no escaping the fact that the US government does not compete with General Motors to manufacture Buick's. There is no way in the world they should be in the business of lending aggressively below the market and they do, and in the cycle that evolve, most recently they failed by September. Others were failing before them and certainly many failed after them, but they failed by September. The reality is they're not the appropriate lender. They are the most aggressive lender in the marketplace. So that change may or may not occur. Clearly, it is an active pursuit in Washington to make a change and if that change occurs, we will be one of the beneficiaries.

Unidentified Participant

Right. All right, understood. That's helpful. And then maybe just and you talked about being optimistic on a 5% kind of growth number for next year. I guess just within that, can you maybe break down for us what percentage of that do you expect net income for multi-family versus maybe more specifically on the specialty finance business and kind of your outlook for growth there?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So again, I'm not going to get specific on 2020. Again 5% this year was a year of transition, remember we came off of a very volatile $50 billion [Indecipherable] that we had no growth for many, many years, we were selling assets in previous years is just a stable over $50 billion. They came out with this 5% threshold that we can grow multi-family in light of slowdown in purchase activity, a potential change [Indecipherable] change in the rent-regulatory world. We feel that we're going to probably exceed 5%, but right for now it's 5% net loan growth and it was contemplated that we couldn't achieve that.

So, we feel highly company will achieve for '19. When we deal with '20, I think you got to think about, you know, specialty finance probably grow probably in 22% to 25% type carriers[Phonetic] And I think there's going to be customers that will probably move more toward CRE opportunities, right, that maybe they'll move some of their assets on 1031 Exchanges out of multi-family CRE, but the realities and by the way will be in other markets and in other markets that are contiguous to our New York City market, you know, New Jersey, area that's outside of our immediate metro area we're very familiar with, but we will see some additional customers move that way to try to think about where they're going to invest into what they know very well, which is investing in apartment houses, and so we're going to continue being a partner with our borrowers.

So I think, so we get historically 5% is not a big number for us. Growth, when we deal with both the acquisition strategy over the past multiple decades, we will grow in our target in the 25%, 30% type and we had the funding. So obviously, if that changes the mix and we happen to get an opportunity to acquire liabilities, we can move the number up significantly but after an acquisition mid-single loan will be very conservative for us. Historically, it's always been like around 9% to 10% [Indecipherable] of multi-family net loan growth.

Unidentified Participant

Understood. And then maybe just one last one a strategic question. I guess as you think about M&A, we like just some comments on your strategic view there . And then any changes, given the rate environment and then maybe also just the changes in the New York City multi-family market and the --

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So, I'll just comment on the M&A, and Joe will go back into into New York multi-family. I would say, on the M&A front, our currency is not there, other currency back [Phonetic] will be very proactive, we're always active. We said it multiple times publicly, we're not interested in doing a dilutive tangible value deal, so we're open for business hopefully at a higher stock price. We have currency to utilize to create tangible book value creation, getting great liabilities to offset some of the wholesale funding that we had and builds value over time, however, immediate benefits a tangible book value.

That's one of our primary goals in M&A, and we're going to be very proactive, but it has to make logical sense. It has to be immediately beneficial. Shareholders, which we have very large shareholders has to be in a position to create immediate value.

Joseph R. Ficalora -- President and Chief Executive Officer

I think it is always gave the fact that we have a demonstrated capacity to actually acquire banks very accretively and to perform in the marketplace very successfully. Our price does not reflect the consistency of our balance sheet. The consistency of our performance and long behold [Phonetic] it will ultimately readjust appropriately. We are not performing at levels as good as we performed in the past, we are performing at levels better than the market continuously, so we should be literally trading at a significant premium to the market and long behold [Phonetic] as we move more in that direction, we'll utilize that stronger currency to do highly accretive deals.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

I think as [Indecipherable] it's just commentary, it's exciting to look at 2020 versus '19 given the current shape of the curve given the anticipation of a neutrality or a bias for leasing that we're going to have very significant EPS growth year-over-year and that should bode well for our valuation going forward. So we're excited about what we did on the operating side, but there is more work to go there, and we'll update our investors every quarter, but we are razor-focused on what we can control which is operating expenses, and obviously being a liability sensitive institution if there is an adjustment toward the short-end of the curve, we will benefit greatly from it.

Unidentified Participant

Got it. Thanks for taking my questions.

Joseph R. Ficalora -- President and Chief Executive Officer

Sure.

Operator

The next question is from Collyn Gilbert, KBW. Please go ahead.

Collyn Gilbert -- KBW -- Analyst

Hey, good morning, Tom.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Good morning.

Collyn Gilbert -- KBW -- Analyst

So, just quickly on the loan growth outlook, Tom, you know, 5% for the year, I know third quarter seasonably is slower. So, should we still anticipate kind of that seasonal slowdown in the third quarter and then a reacceleration? No?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Obviously, I would say this year the dynamic is somewhat different, it's always been Jewish holidays -- the Jewish holidays and if you there, but the reality is we had a real adjustment because of these rent regulatory changes. So obviously having a $2 billion pipeline of that $1.4 billion is a new money pipeline. We typically pulled our pipeline. So we are just doing that -- we're going to continue to see growth, both in the third quarter and the fourth quarter. So we're excited about that. Again I think 5% is highly achievable. And I'm not going to say we're going to double that growth. But you can do the simple math, depending on how much refinances what we have, what we see right now of that portfolio 7% of own book refinancing and they're taking out some more dollars with we've created value. And that is going to add to the portfolio, I think there's going to be more, and some other portfolios.

So, we're excited about the opportunity, we see about 30% of that coming today. That number will only increase. We're going to be very mindful of what happens on property transactions . I don't think 5% is an indication of what this year on repurchase, eventually there'll be a purchase market come back, and that will also fuel future growth into 2020, probably at lower prices as Mr. Ficalora indicated dislocation will occur, and we're going to lend it on a cash flow basis, and it's going to be based on a customer's willingness to put money to work on cash on cash and put leverage on it with a hurdle rate of return, and I don't have the answer what the hurdle rate return is going to be today but I view it is going to be very conservative and we're a conservative lender.

Collyn Gilbert -- KBW -- Analyst

Okay, that's helpful. And then Tom --

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

We're very optimistic, optimistic about '19 on the growth side but I love to say -- I can see in '20, it's way too soon, but definitely for '19 we feel very confident that the only real change is a change in margin, our margin will go up sooner. In my last discussion on the call, it will happen in '19 versus '20 and then you'll see margin expansion every quarter thereafter going into 2020. So you're looking at, -- if you do that dynamic and run it through your model you're looking at significant EPS come up.

Collyn Gilbert -- KBW -- Analyst

Got it, OK. And Tom, you had mentioned that maybe some of the borrower behavior shift to longer duration structures. What is your all appetite for adding 10-year paper? How would you be thinking about incorporating that into your book?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Well, we will be opportunistic as it comes. I mean I think we will wait and see but obviously, if someone wants a seven-year deal we've always offered seven and we tend from time to time we offer ten but no one as competitive on the 10-year slide. So we will gauge that business, we will gauge our customer base. New business will probably less than favorable for us because, you know ,let them go to the agency but if it's for our own customer base and they are locking in what we've created and they want a couple of more years we will accommodate that. We know we have an appetite to be there for our customers, especially in times of dislocation . So we've done it before, we've adjusted terms before to be accommodated for them to create value, we are going to have to do the same in this environment .

Collyn Gilbert -- KBW -- Analyst

Okay. Okay, that's helpful and then just one final question, can you just tell us what the actual dollar amount is of funding, that's going to be indexed off of Fed funds that it's going to reprice automatically when the Fed dropped?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

I would say that through on the CD side -- the about $4 billion or $5 billion right out of the gate[Phonetic] on the CD side, and the borrowing are more forward. So that's a significant adjustment, you know, day one, and I think we'll see more exciting is that every quarter 3 and 4 CDs that have to be priced. So they are not getting to 50 anymore, and definitely not getting to 85. So we're between 175 and 210 is the highest rate off when we have on the banking flow right now. So that was 285 last year. So that's a very exciting dynamic, and that's clearly, as the CD customers come to their maturity they have to roll their CDs the highest rate we've offer today is 210, the shorter durations at 2 or 199 and I would say, liquid type CDs are at 175 and that's adjusted for today's anticipated rate adjustment.

Collyn Gilbert -- KBW -- Analyst

Okay, that's great. I'll leave it there. Thanks guys.

Joseph R. Ficalora -- President and Chief Executive Officer

Sure. Thank you.

Operator

Our next question is from Peter Winter from Wedbush Securities, please go ahead.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning, Peter.

Peter Winter -- Wedbush Securities -- Analyst

You guys have done a very nice job on the expenses, and I'm just wondering, you mentioned that expenses should be flat 2020 versus 2019. I was just under the impression that you guys still had some expense initiatives in the works.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

So, Peter, it's Tom. I would say that we're very proud of what we've done. We came off of the $660 million run-rate, we're down to the low 500s, and we're going to a major system conversion occurring at the end of this year, and after that we will reevaluate the Company's dynamic of efficiencies and systems that we could further look at the potential efficiencies in 2020 but conservatively, that's a big adjustment.

I think that's a 25% adjustment year-over -- , over the past 18 months in our cost structure, a year in over operating expense structure, that's substantial. We are very razor-focused on looking at controlling expenses given our current returns. Like I said before, we're not at 70 basis -- 75 basis points return on assets Company. We should be somewhere, north of 1%. These strategy that we put in place over the past few years, given the dynamic of the Fed tightening our goal to get back to that 1% plus ROA, we feel highly confident that we're moving that right direction going into 2020. OpEx will be a focus of us. We're being conservative , we like to hopefully beat again. We came in this quarter. We came in better than expected because we can't control that.

So I'm giving you a short-term guidance in Q3, it's around the same level. You may come in a little bit better. Definitely Q4 will be interesting given that the conversion should occur. We should be successful in getting it done, and then we'll look at 2020 as being the next opportunity, and at the certain point in time , we are, -- what is the true efficiency ratio for this company. All we're going to get in the low '30s, it's possible, but already I kind of guidance for 2020, low 40% efficiency ratio for 2020 is a meaningful adjustment coming from a high of 52% and 0.52 which is a significant drop over the past two years.

Peter Winter -- Wedbush Securities -- Analyst

Okay. And then, Tom, just on that point on the efficiency ratio for 2020, that's a full year number that you're giving low 40s?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Yeah, low 40 to full year 2020. Obviously margin is -- we're getting a lot of it from the top line, right. I told that on a call, we're going to see margin expand every quarter assuming we have these two adjustments to short-term interest rate. One today, one at the end of the year. If it doesn't happen that may adjusted but clearly that's in my forecast for 2020. So you're getting a lot of the benefit. That's so much on the reduction of OpEx, you're getting it from the NII finally going up. I think one of the analyst came out this morning, talks about the 13 quarters of drop in our NII. But the good news we're coming to the end of that. We're going to see increase every quarter of NII. And that's what's going to drive the profitability of the bank.

Peter Winter -- Wedbush Securities -- Analyst

All right. So given that outlook progression in the margin and NII growth and the loan growth for 2020, do you think the efficiency ratio could drop below 40 by 4Q?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Yeah, I think it's possible by the end of 4Q, yes, I mean the big picture is that I'm giving a conservative view of 2020, things if the curve that much steepens it's going to be potentially lower than that. So that's obviously a positive thing. But I'm looking at a relatively difficult interest rate environment and I'm giving you EPS comp at our substantial on based on forecast and these are forecasts obviously, it's not a specific number forecast, but we do the simple math margin going up every quarter, expenses relatively flat, asset growth, you're going to have the efficiency ratio, let's just say, projected for 2020, low 40s, 43 to 45, I think it's more toward the low end of that range.

Peter Winter -- Wedbush Securities -- Analyst

That's great. Thanks, Tom.

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Sure.

Operator

Your next question here is from Brock Vandervliet from UBS. Please go ahead.

Brock Vandervliet -- UBS -- Analyst

Good morning, thanks for taking this question. There was a story in the journal this morning, I wondered if you could just react to it perhaps large transaction billion plus 28 units, the sponsors are actually shifting from market rate units to rent stabilized apparently to capture in New York tax break for rent stabilized units, very unusual transaction I thought, but do you think that type of thing where people shift to actually to rent stabilized to capture that tax rate becomes more popular in a bit of a solution for landlords and valuations?

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

I think it is the circumstances building-by-building. It's been, it's not going to -- that's right, it's not going to always work. There may be unique circumstances where that works, but it doesn't work everywhere,

Joseph R. Ficalora -- President and Chief Executive Officer

But when you have the opportunities on tax credit out there it's a substantial real estate play right now that's going to be utilized by many billion as I look at the -- actually exempting themselves from tax patents which is the best possibility. And you're going to look at the fact that non-luxury will be given in luxury, so the non-luxury average rents, let's say 2,500 on the 3,000, which is not that much different rent stabilized that may be an interesting dynamic. They will do what it takes to make money. They will be in the marketplace looking at opportunity as real estate investors like I indicated before with a hurdle rate of return that works for them with leverage.

The question is how much leverage is we're going to own it for us. We happen to be low leverage. So we're going to be super conservative but I truly believe that this is simple math, it's about cash flow putting a capitalization rate on it and what is the NII as far as going forward, is that NII going to be impacted, lenders should look at it more conservatively now because there may be some erosion of NII for their for the NOI. So that's important to understand that that you have to look at it with an abundance of caution given the change and we happen to be viewed in the marketplace as a low-risk lender.

Brock Vandervliet -- UBS -- Analyst

Great, thanks very much.

Joseph R. Ficalora -- President and Chief Executive Officer

You are welcome.

Operator

This concludes the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Joseph R. Ficalora -- President and Chief Executive Officer

Thank you. And certainly, we look forward to speaking with you again at the end of the next quarter and the performance for the three and six months ended September 30, 2019 is now been present. Thank you.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Salvatore DiMartino -- Director, Investor Relations, Strategic Planning

Joseph R. Ficalora -- President and Chief Executive Officer

Thomas R. Cangemi -- Senior Executive Vice President and Chief Financial Officer

Ebrahim Poonawala -- Bank of America Merrill Lynch -- Analyst

Steve Moss -- B. Riley FBR -- Analyst

Unidentified Participant

Steven Alexopoulos -- JP Morgan -- Analyst

Moshe Orenbuch -- Credit Suisse -- Analyst

Matthew Breese -- Piper Jaffray -- Analyst

Collyn Gilbert -- KBW -- Analyst

Peter Winter -- Wedbush Securities -- Analyst

Brock Vandervliet -- UBS -- Analyst


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