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New York Community Bancorp Inc (NYSE:NYCB)
Q1 2020 Earnings Call
Apr 29, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Salvatore J. DiMartino -- Director of Investor Relations

Good morning. This is Salvatore DiMartino, Director of Investor Relations. 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 first quarter 2020 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.

Today's release includes a reconciliation of certain GAAP and non-GAAP financial measures that may be discussed during this conference call. These non-GAAP financial measures should be viewed in addition to and not as a substitute for our results prepared in accordance with GAAP. Also, certain comments made on today's conference 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, uncertainties and assumptions that could cause actual results to differ materially from expectations. We undertake no obligation to and would not expect to update any such forward-looking statements after today's call. You will find more information about the risk factors that may impact the company's forward-looking statements and financial performance in today's earnings release and in the company's SEC filings, including its 2019 Annual Report on Form 10-K.

To start today's discussion, I will now turn over the call 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

Good morning to everyone on the phone and on the webcast, and thank you for joining us today. I hope that all of you are healthy and safe during this unprecedented time. Our immediate thoughts go out to all the individuals and communities impacted by this pandemic. We are also very grateful for the healthcare professionals and all of those on the frontlines who are battling this crisis every day.

Before I discuss this quarter's performance, I would like to cover these two topics with you. First, I would like to share with you some of the actions we have taken across the bank to deal with COVID-19 crisis. It goes without saying that the health and well-being of our employees, customers and shareholders is of the utmost importance to management and the Board of Directors. The company was very proactive during the very early stages of the crisis and immediately enacted a business continuity plan and pandemic preparedness procedures. By mid-March, close to 100% of our bank office employees are working remotely; in addition, we temporarily closed all of our in-store branches, along with several other locations, converted some to drive up only and adjusted the hours at our remaining branches. On the consumer side, we have enhanced our online banking and mobile capabilities, temporarily waived certain retail banking fees for those customers who may be experiencing financial difficulties during this time and offered 90-day payment forbearance to residential mortgage customers. On the commercial side, we have proactively reached out to borrowers on a case-by-case basis to help them manage through this crisis as well. We put in place several risk mitigation strategies including enhanced monitoring of certain credits, payment restructuring plans and deferral options, consistent with regulatory guidance.

Second, I would like to clear up some misperceptions regarding trends in the rent regulated multi-family market in New York City. We are not a newcomer to this market. If you recall, at this point, we have been doing this type of lending for over 50 years, we have relationships with some of the largest property owners in the city and we have very strong ties to some of the biggest commercial real estate brokers, including the largest one servicing the New York City marketplace. We also have as directors several real estate professionals who participate in this market for a living, providing us with a unique perspective on the multifamily market. Over the past week or so, there has been some discussion about the level of rent collections in our market. With our conservative view on underwriting, we closely monitor a number of trends in the multifamily market and when things change we reevaluate. During the month of April, we surveyed a wide gamut of our borrowers, including some of our top 20 borrowers, we spoke to brokers and we also reached out to a number of industry experts. Based on our market intelligence, April rent collections on the rent regulated buildings in our portfolio are estimated to be in a range of 80% to 85%. On the market rent properties, it is even higher. This is very encouraging given the impact on the New York City area given the COVID-19 pandemic. While there are still many uncertainties regarding how COVID-19 crisis will ultimately unfold, to what degree it will impact the economy over the long run, we believe that we are better positioned than most other financial institutions to navigate through it given our strong credit culture and low operating model. While no two economic cycles are alike, I would impress upon you the fact that throughout various cycles, our actual loan loss experience has been much lower than the rest of the industry.

With that out of the way, let's turn to our quarterly results. Earlier this morning, we reported diluted earnings per common share of $0.20 for the three months ended March 31, 2020, that's up 5% compared to the year-ago quarter and ahead of consensus estimates. Despite what is usually a seasonally slower quarter, we had strong loan growth, a higher level of net interest income and net interest margin expansion, lower operating expenses and stable asset quality metrics. We entered the first quarter with positive underlying momentum and we are in a strong capital and liquidity position. Our results include a provision for credit losses of $21 million, that's 0.05% far below industry metrics due to the application of CECL during the quarter. This reflects an additional reserve for the potential impact of COVID-19. This was slightly offset by an income tax benefit due to certain provisions under the CARES Act.

That notwithstanding, we are very pleased with our first quarter performance. We entered the year with strong fundamentals, building off a solid performance in the fourth quarter of last year. One of the highlights of the quarter is the improvement in both net interest income and the margin. After reaching an inflection point last quarter, when these two metrics both increased for the first time in five years, they increased again during the current quarter.

Net interest income excluding the impact of prepayment activity increased $9.3 million or 17% percent on an annualized basis compared to the previous quarter due to lower interest expense as funding costs continue to decline. The net interest margin also continued its upward trajectory, also excluding the impact from prepayment income, the first quarter margin would have been 1.2%, up 2 basis points and in line with expectations. We are currently very well positioned for further growth throughout 2020 in both the margin and net interest income, albeit at a higher rate than we experienced during the current quarter. This is due to our liability sensitive balance sheet, the Fed having lowered its target rate to near zero and the significant repricing opportunities embedded within our funding mix, especially on the CD side.

We also reported a strong increase in pre-provision net revenue. PPNR was $135.8 million for the first quarter, up $8.5 million or 6% compared to the year ago quarter. On the expense front, total non-interest expense was $125 million, down 10% from a year ago quarter. The efficiency ratio in the first quarter was 48% and continues to reflect positive operating leverage.

Moving onto the balance sheet, despite the usual beginning of year seasonality, total loans increased almost $400 million or 4% on an annualized basis compared to the fourth quarter. Specialty finance lending and multifamily portfolio continue to be the primary drivers of this growth. The specialty finance business had strong growth this quarter. This portfolio rose $415 million to $3 billion on a linked quarter basis. Meanwhile, the multifamily portfolio increased $113 million to $31.3 billion sequentially.

As I alluded to earlier, given all that has transpired over the last few months, multifamily credit spreads have widened significantly due to market dislocation and less competition, similar to what has occurred in previous cycles. Origination activity was also strong as overall originations increased 35% on a year-over-year basis to $2.7 billion with both multifamily and specialty finance originations increasing significantly compared to the year ago quarter. First quarter originations exceeded last quarter's pipeline by $1.2 billion or 80%. Multifamily originations were $1.4 billion and specialty finance originations were $957 million, both up 40% relative to first quarter of last year.

We continue to be encouraged by our potential loan growth over the course of this year. Our pipeline currently stands at $2.1 billion, 40% higher than the fourth quarter and year-ago pipeline. Of the $2.1 billion, approximately 64% is new money. On the funding side, our deposit growth continued into the first quarter as well. Total deposits rose $316 million or 4% annualized to $32 billion. Most of this growth was in lower cost savings and non-interest bearing checking accounts while CDs declined modestly.

Wholesale borrowings also increased as we took advantage of the low interest rate environment to replace matured borrowings with lower cost longer duration borrowings. Borrowings increased $375 million to $14.3 billion during the current quarter. On the asset quality side, as discussed in more detail in our earnings release, we reported a $21 million provision for credit losses, mainly driven by COVID-19.

Net charge-offs totaled $10 million or 0.02% of average loans, $6.5 million of which was taxi medallion related loans. That portfolio continues to be in run-off mode and currently stands at $33.5 million. Importantly, we had no losses in our core portfolio. The adoption of CECL did not have a material impact on our asset quality metrics as they remained strong during the quarter. Nonperforming assets declined $15 million or 20% to $59 million compared to the level at year-end or 11 basis points of total assets. As with charge-offs, the largest component of NPAs is taxi medallion loans. Excluding taxi medallion related loans, NPAs would have been $36 million or 7 basis points of total assets. As noted in today's investor presentation, $18.7 billion were 60% of our total multi-family portfolio is subject to New York State rent regulation loss. The weighted average LTV on this piece of the portfolio is 53% compared to 57% for the overall multi-family portfolio, unchanged from the previous quarter.

Lastly, 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 on May 19 to common shareholders of record as of May 9. Based on yesterday's closing price, this represents an annualized dividend yield of 6.6%.

Before moving on to your questions, I would like to make a final comment. At NYCB we are not just a community bank, we are a family and when things get difficult our family comes together. I am extremely proud of all the efforts everyone, every employee has made to ensure that we continue to service our customers. This has been a very challenging, stressful period for everyone, and I am proud at how the entire organization has come together and risen to the challenge. A very big collective thank you to all of our 3,000 employees throughout our franchise. Lastly, our prayers go out to all those members of the NYCB family past and present who are suffering from COVID-19 and particularly those employees, their families and friends, who have lost due to the disease. On that note, I would now ask the operator to open the line for your questions. We will do our best to get to all of you within the remaining time, but if we don't, please feel free to call us later today or this week.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. Our first question is from Ebrahim Poonawala with Bank of America. Please proceed.

Salvatore J. DiMartino -- Director of Investor Relations

Good morning, Ebrahim.

Ebrahim Poonawala -- Bank of America -- Analyst

Good morning. So I guess just to follow Joe on your comments about the multifamily borrower base, I guess, my sense is, we'll probably see an uptick in rent deferrals when we look at the May 1 week data. So those numbers probably go from 80% to 85% to something lower. So would love to get your thoughts on that? And additionally, if you can talk about just the strength of your customer base given us the LTVs in the low 50s, what's the risk in terms of from a credit standpoint to NYB and what level of payment deferrals have you provided to your clients in the last month or so?

Joseph R. Ficalora -- President and Chief Executive Officer

Tom, you want to take that?

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

Yes, sure. Ebrahim, good morning, it is Tom Cangemi. Joe can address the market, but I'll clearly give you the specifics on what we've done with our customers. We were very quick to react to obviously this pandemic to support the customer base. So, we offered right out of the, mid March when the government shut down the country, the ability for customers to come to us and defer for a period of six months and part of that deferral was they have to be current as of time they went into a deferral agreement and they have to be also paying their escrow payments throughout that period. But that being said, actually as of yesterday, which is almost [Indecipherable] May, we have approximately $3 billion of multi or 9.63% of the entire multi portfolio, that's in a deferral agreement, if you think about the entire portfolio and add to it CRE, it's approximately $4.8 billion and the CRE piece of that I believe is approximately $1.8 billion and total percentage of the CREs are approximately 26%. So, all in, it's about 12.6% of multifamily CRE of $4.8 billion and the LTV of that portfolio that's on deferral is 57% and that's as of yesterday. So that's real-time.

Ebrahim Poonawala -- Bank of America -- Analyst

And it's a 90-day deferral Tom, like, what do you say, like, is your expectation [Speech Overlap].

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

That is a 6-month deferral, 90 days on the residential side. That's right.

Ebrahim Poonawala -- Bank of America -- Analyst

And if we start seeing these lockdowns kind of open up, let's call it somewhere around in June, July, is your sense that most of these borrowers or all of these borrowers would go back to being current coming looking out in the third quarter toward the end of the year?

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

So, Ebrahim, I do not have a crystal ball, but I can give you actual specifics collections as of yesterday. We're looking at when you're taking into account the deferrals, as well as people that have not deferred, we are up to 97.73% of April collections compared to all of the previous months around the same level when you back out deferral, so the multifamily that's at 91% versus 97%. So, we're really not seeing a significant adjustment here on payments coming through. So, we're very pleased on the current collection effort that is going on as of yesterday.

Ebrahim Poonawala -- Bank of America -- Analyst

Understood. And just moving away from multifamily Tom, anything, when you look at the other CRE book, I think CRE retail is obviously under the scanner, just talk to us in terms of the risk exposure there particularly to any more retail high end and also if any risk on the specialty finance book which has grown a lot over the last couple of years?

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

Sure. So obviously the percentage of the deferral is higher for commercial real estate in particular looking at retail and office in NY [Phonetic]. So we expected that, especially on the mixed-use properties. So, I'd say the highest percentage will be the mixed-use properties where you have smaller buildings that have higher concentration of retail on the ground floor and you have residential above that. That number is in probably in the 40 percentile. When you think about pure, we'll call pure retail and office, 23% for office and professional buildings and retail is at 27%. When you blend those numbers in for the portfolio, it is 26%. But clearly the higher level is going to be as expected, there is no revenue coming in in the ground floor. On the multi side, we happened to have some very interesting statistics, the larger the buildings, the much lower the amount of deferral, so the buildings that have in excess of 100 plus families living in the building, that's like a 6% deferral rate. So, it's much lower, so it is 6% type versus the retail what is you know could be substantially higher because there is no revenue coming through. On specialty finance, I would tell you that as we stand right now, everything is current and no miss payments, we feel pretty confident on the portfolio given our senior security and our position, and we've been growing that portfolio very nicely and again we're an asset based lender, we know what, we feel that we don't have significant exposure that's COVID related, we do have some energy, a $200 million in energy, but that's all super senior secured, its very stable institutions. And on the auto side, which is dealer floor plan, we believe that portfolio will do well given the PPP program as well as the ability to get up and running toward the end of the year with their option to take on deferrals and eventually get the dealerships open up again. So, we think that portfolio, we should have zero losses in the specialty finance business.

Ebrahim Poonawala -- Bank of America -- Analyst

Got it. That's helpful. And just one separately and last one on the margin. So, you've a ton [Phonetic] of like funding coming up for refi, just talk to us in terms of the new deposit rates offered, and if you can provide some cadence of the industry backdrop if it stays where it is given the spread widening on the lending side like what level of margin expansion should we expect between now, [Technical Issues] just quarter, but what if you can talk to just in the next few quarters, like, what is the level of margin you expect in 2020?

Joseph R. Ficalora -- President and Chief Executive Officer

Sure. So, I'd say, big picture, as we talked about going back to 2019. And we said, there's an inflection point in the fourth quarter, the margins start to rise in Q4 with the anticipation of seeing significant rises go into 2020, with the exception of the substantial adjustments in interest rates. Obviously the Fed has intervened here, so around, it is a little close to a near zero Fed fund rate. With that being said, we did hit our guidance for Q1 as expected, up 2 basis points, but when you think about second quarter margin, we're seeing more likely not double-digit margin expansion. We believe that throughout 2020, we anticipate double digit every quarter. So, we're going to have substantial margin expansion given our liability sensitivity balance sheet and more importantly we have substantial amount of CDs coming due. As you can see from the press release, we put the numbers out there, it's approximately $14.8 billion coming due, in the second quarter it is $6 billion coming due at a 235 [Phonetic] and in the event that you have a CD rolling off in this environment you're going to end up in a probably more like a level well below 50 basis points. So, I think if you think about the potential there $6 billion in Q2, Q3 is almost $5 billion at 206 [Phonetic]. These rates are coming down well below 1%. So, the margin is really being driven by a number of factors. We have the CD cost dropping materially, funding cost is dropping on the borrowing side. If you look at where borrowings are right now on two-year bullet it is 74 basis points with a swap that has closed effectively zero and you think about the money coming through on the borrowing side and if we growing the portfolio depending on how we grow with the deposits and no borrowings, the cost is relatively cheap. But more importantly, there has been a real change in pricing in respect to the multi-family CRE space. I mean, no question that there has been some dislocation with CMBS players are on the sidelines, you have the agency's tightening up their standards. So, we're looking at north of 300 basis points increase in our product mix. So, if you were to come to the bank today with what we'll call an A-type credit with five-year structure, our typical bread and butter structure, you had a 3.5% coupon. That's pretty attractive compared to where five-year treasuries are trading right now. So, we're very bullish about the economic spreads on the product mix, we're extremely bullish on the drop in the cost of funds. So, we can see double-digit margin expansion every quarter throughout 2020 and that would be assuming credit costs are in check, you're looking at EPS growth in the mid teens.

Ebrahim Poonawala -- Bank of America -- Analyst

Got it. Thanks for taking my questions.

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

Sure. Our next question is from Brock Vandervliet with UBS. Please proceed. Good morning, Brock.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning, Brock.

Operator

Brock, please check if your phone is muted.

Brock Vandervliet -- UBS Financial Services, Inc. -- Analyst

Sorry.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning, Brock.

Brock Vandervliet -- UBS Financial Services, Inc. -- Analyst

Good morning. Could you kind of dive into the multifamily credit spreads, I think we also had the dislocation in March, it seemed like the GSEs kind of pulled themselves out of the market. Why doesn't this mean revert and how much of that aggressive margin guide is based on the current pricing holding?

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

So, again, we don't have a crystal ball what happens with interest rates. But clearly, it seems like rates are going to stay low for a while here given the pandemic and the circumstances. So we have in our run rate for, let's just talk about 2020, Fed not doing anything in 2020, at the same time, we've been through many crisis and cycles and we have seen adjustments within the marketplace and clearly, go back to the 2008 adjustment. You had massive dislocation, you had CMBS, you had the agency out of business back then. So, it doesn't, I'm not saying that the agency is out of business but the agency has clearly tightened their standards, they have widened their spreads. There is a premium risk reward that's priced in the marketplace and we're enjoying that healthier spread. I think what's most important here, when we talk about asset growth, we were anticipating 5% net loan growth, but we're seeing substantial favorable results on retention as we ended up the quarter. So, as we go into Q2, we think our retention level will be higher and we have well over $16 billion in the next two years coming due from our own customer base, so we believe we will retain a high percentage of that unlike we did last year. So, I think the fact that the competition is weighing significantly 300-basis point spread with funding costs coming down to zero, it can be a very powerful margin expansion story here at NYCB.

Brock Vandervliet -- UBS Financial Services, Inc. -- Analyst

Okay. And you're going through these numbers very quickly, could you just review again the CRE and multifamily forbearance percentage?

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

Sure. $3 billion as of yesterday that we've entered into agreements on forbearance for multifamily, $1.8 billion for CRE which is office and retail predominantly, on a percentage basis that is 12.6% in total, 9.6% multi, 26.4% on CRE. LTV in the total portfolio is 57% of that deferral.

Brock Vandervliet -- UBS Financial Services, Inc. -- Analyst

Okay, great. Thank you.

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

Sure.

Operator

Our next question is from Steve Moss with B. Riley FBR. Please proceed.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning.

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

Good morning.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

On the loan growth here, just wanted to see, you're talking about a pretty strong pipeline here, any updated thoughts around total loan growth here for the year?

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

So, Joe, do you want to handle that one Joe?

Joseph R. Ficalora -- President and Chief Executive Officer

All right, I think the idea here is that as always is the case when the market is stressed, we get a greater share of the market. We do believe that we will be growing our loans at least at the levels of last year and well likely in excess of the levels of last year. So, the important thing is that in this crisis our principal asset will greatly outperform and our ability to take share of the marketplace will increase. Both of those factors have always been the case in a stressed environment. We do believe that the period ahead will represent an environment where many of the other lenders in our niche will lend less and we will lend more.

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

Steve, I would just add some color on our projections. Obviously, we're projecting a mid-single digit, which is 5%, we're pretty bullish about the pipeline, and more importantly, going back to my dialog as far as retention, it feels like our team has done a phenomenal job on really conveying that we're really fighting for that retention. So, we have moved that retention rate back up to historical norms, which typically will happen when a lot of competition is waning, we should see the potential as Joe indicated of higher growth, but for conservative purposes, we feel comfortable that 5% net loan growth is reasonable for the company and I think this year, you'll probably see more on the multifamily side, you'll still have strong growth on the specialty, but multifamily should be back-loaded here, especially in Q2, obviously Q2 is usually a strong quarter for us.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Great. And then just in terms of underwriting standards here, any changes as you're getting new customers approaching the bank?

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

So I would add that we had made some changes, obviously given the marketplace, we've tightened the standards in particular on cash money refi coming out of a transaction, we feel that we have a lot more flexibility now given the marketplace. So, we are actually, when we do a transaction with the cash out type refi, we're actually holding six months of both P&I [Phonetic] and escrow payments in escrow with the bank. So that's one of the major changes we've done in this environment, and obviously you can imagine that when the environment gets tighter, we're one of the tightest underwriters in the marketplace. So we're going to continue to be there for our customers, but we're going to be there at a very conservative level and that's the hallmark of the Company.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Great. And then on funding costs here, interest bearing deposit costs down 12 basis points. I hear you in terms of significant repricing, just wondering if you could put a little bit more in terms of what you would expect this quarter versus the first quarter?

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

So, I would say, the continuation of substantial declines in deposit cost is real. We have unique situation going in particular, we are in the epicenter. So, it's very difficult to go out to the branch and change your deposits when CDs are coming due. So many people are just very comfortable for safety reasons keeping their cash in the bank. With that being said, that's people that were at 275 [Phonetic] last year, about 250 [Phonetic] are going down to close to 2 basis points today until they come back to the branch and will make a phone call and try to get a higher rate. And my guess is that given where the marketplace is, you're looking at rates that are going to probably be south of 50 basis points for between one or two-year type periods. We do have an offering now, but there are no real takers on that type of coupon at 75 basis points to 90 basis points. But the reality is we're going to be continuing lowering our rates unless there is a change in the market because we're looking at close to 0% interest rates and being a thrift we are very stable when it comes to targeting for some spread off of the US Treasury, which is at a very low rate. So, we feel highly confident that the substantial amount that is coming due about $14.7 [Phonetic] billion in particular Q2, $6 billion in the middle of the epicenter at 235 [Phonetic] will drop materially lower for us.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Great. And then just on the energy exposure that you just mentioned, Tom, you said $200 million in energy senior secured. Just wondering what type of loan it is [Indecipherable]?

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

It's equipment for, Schlumberger's our largest client there, they are household name, large institution, we've been lending to them for multiple years since we started the business and they've [Indecipherable] down in some facilities, but it's all super senior secured and we have it as pretty high rated on our scale, I think it was a 5 John, 4 or 5. It's a high-rated internally classified asset. However, we feel highly confident that it's money, good, and in particular, it's a household name that has very strong fundamentals, more importantly it is super senior secured. So, it's not a loan to Schlumberger, the corporation, but it is on its equipment.

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Great, thank you very much.

Joseph R. Ficalora -- President and Chief Executive Officer

You are welcome.

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

You are welcome.

Operator

Our next question is from Collyn Gilbert with KBW. Please proceed.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning.

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

Good morning.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Good morning [Indecipherable]. First question just on the pipeline, really strong pipeline obviously this quarter, do you have a sense of sort of how that's going to behave going into 2Q. Tom, I know you just mentioned you expect strong loan growth in 2Q, but just curious kind of what your borrower behavior is, how closings are getting done, so maybe what the pull-through rate is on that pipeline, and then also what the blended rate is on that pipeline [Speech Overlap]?

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

So let me get the easy one first. The blended rate is about 326 [Phonetic] as of yesterday. But if you think about how it evolves, when you go to the end of the quarter, spreads widen out materially. We started with the rent regulatory changes in last year where we went from 150 basis points to 200 basis points because of the change in the rent control markets. And then we hit the pandemic, now we're north of 300 basis points. So, it really was a change in the marketplace toward the back end of the quarter. So, this is more of an evolving pipeline that we're going to see throughout the year, but the business that we're out there getting good flows of opportunity right now within our own portfolio and others as you indicate our new money pipeline is about 64%. You are seeing a much higher coupon relevant to the current, the one I just cited at 325 [Phonetic]. It's going to take some time to work to the bank. But clearly, we've never, I don't think we've ever closed less than what we have announced in our pipeline. I can't remember ever where we announced the pipeline, we didn't close at a minimum our pipeline. So, we are looking at a $2.1 billion pipeline in Q2. So you are just [Indecipherable].

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay.

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

And Collyn, one thing I would say is a proviso assuming that the market reopens right, we did this, we had great closings in a very difficult environment where we had to get attorneys together, appraises together, we get actual appraisals. We're not, we are in the marketplace closing loans on a daily basis with all these operational issues that are out there. Assuming that the country reopens that will only be better for us.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. But your assumption that you closed that pipeline like, let us assume things don't open, certainly not New York City first, I do not know [Speech Overlap].

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

Assuming the lawyers are in business and assuming that the banks are still funding, we will be funding. You went through a pretty difficult March and April, right. So, and we had some very significant originations, we had substantial originations.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay and then just on the amount that your deferred, you gave the 57% LTVs on those loans. Do you have what the debt service coverages are on that?

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

Yes, sure. The debt service covers are 174 [Phonetic], that's the commercial real estate portfolio and 153 [Phonetic] for the multi.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

And that's for the deferred loans or that's for the broader book?

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

That's only for the deferred loans. That is right.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay, that's helpful. And then also of those deferred, how much of those were going to be coming due contractually anyway this year?

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

I don't have that number for you. Again, I would guess probably not many, but I can follow-up on you offline on that.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay.

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

I think what's interesting about the program, we were very active and obviously when it was publicized within one day that we're doing this, so people read the real deal, it's public that we're doing this program and people call and we offered it. And more importantly we've done our own due diligence on each customer, right, and the fact that you have to have your ESCOs current, you have to be current on the payment, and we work at a six-month range, we think that liquidity backstop for them for the next six months will be very helpful to get to the other side of this problem. We have this pandemic in the United States and we think that six-month time should be reasonable. We could have done a shorter period. We think six months is more reasonable because it's going to take a few months here to get us in particular on the ground floor of our businesses, but we think it's a reasonable timeframe that we can at least have the landlords work it out with the tenants, so we can move forward and be supportive of them given the crisis.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay, along those lines, and you sort of answered it, but just broadly, right, so obviously sitting in unprecedented times, your book has not been tested to this degree, I don't think, I wouldn't even say 9/11 tested it like it does right now. How does that impact the way you're thinking about the reserves. I mean it was a modest reserve build this quarter. Just kind of broadly, given the risks that are out there, how are you thinking about [Speech Overlap]?

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

I'm going to actually defer the time tested to Joe. Ficalora has been with the bank well over 50 years. Joe, maybe you want to talk about the time tested as far as your experience in multiple decades more than I have?

Joseph R. Ficalora -- President and Chief Executive Officer

Well, I think the good news is we are structured such that this adverse change, which of course was not anticipated is not all that different than many other reasons why our marketplace deteriorates and payments are deferred or otherwise evaporate. The environment we are in presents challenge, but none of this challenge actually changes the reasonable expectations that our owners will in fact remain stable, our buildings will remain stable and much, much more importantly, we cultivate relationships that are way bigger than isolated properties that are funded by us. The very people that have each and every loan with us in many cases are extremely large players in the New York market, and they have long history with us and the opportunity that a deteriorating market represents and in every deteriorating market, the large players buy and in every circumstance when they are buying in a deteriorating market, we fund. There is a very big difference between having a relationship with us and having a relationship with a giant bank or with another bank. Many other banks literally vacate the space because they are experiencing so much adverse performance. They're not willing to continue to lend within the space. We are not having adverse performance and we gained share during periods of crisis. The period ahead will literally provide for us additional market share and that additional market share will give us the ability to grow our book with good product and better than existing rates. The ability for us to earn on our principal asset go forward is actually better than it has been for a long period of time.

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

Collyn, I'll address the reserve, the point that Joe has good history of the bank and, obviously, he's been here for many decades. As far as the reserves are concerned, assuming the COVID did not happen, we guided in the first quarter for CECL that there will be no impact at all, other than the transitional adjustment that we took. So just if you take COVID out of the equation for the first quarter, you're looking at probably close to a 0 provision in the first quarter 2020. So that's kind of how we looked at the COVID analysis. In particular, we actually did some more quantitative adjustments just because of the Moody's change on as far as their view of unemployment going into 2020 in the second, third quarters. So we're a conservative institution at the history of really no losses in the marketplace and these are predominantly residential units that are housing people in the City of New York. So, we feel highly confident that our loss content is low, but, yes, we booked a sizable adjustment that we didn't anticipate because of COVID-19.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

All right. And just lastly I wanted to clarify there was some confusion at least to me the way the press release was written and I know the share count move happens in the first quarter, what did you guys buy back this quarter?

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

I think it's in the press release. We were slightly active and we have a little bit left and we will evaluate the market depending on market conditions, but it's not a material nonetheless, yes, it's very small. There is $2 [Phonetic] million of the $30 [Phonetic] million left. So, the buyback is not significant, that's left, so we did buy shares in the quarter given the price action in the quarter. Sure.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay. The actual share number is in the press release that you bought back this quarter?

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

I think the difference where we have the numbers on the second page, John. Yes, it's in there, second page.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

And you did not issue any shares in the quarter?

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

Just normal plan, it's netted against the plan. When you look at the share count in the back of the documentation, it's netted against purchase [Phonetic] of the shares. So, I would say, what we've bought back is what we've issued for [Indecipherable] shares. No significant change there. We don't have a material buyback in place since it's insignificant.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Got it. Okay. I will leave it there.

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

It doesn't mean that we're not buying back shares, right. So we're not halting anything. We feel very bullish about our business and obviously we will pay a very strong dividend, we're comfortable that given the guidance I gave you, albeit credit issues which were unforeseen credit issues, we're looking at significant EPS growth and more importantly, double-digit margin growth every quarter throughout 2020 and you'll see growth continue through 2021, but I don't want to get too ahead of myself, but clearly, this has been a significant change of our funding cost going forward, but you'll see Q2 up 10 basis points versus up 2 basis points in Q1, that's a substantial change. We envision that change continue in Q3 and Q4 as well.

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

Okay, very good. I'll leave it there. Thank you.

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

Sure.

Operator

Our next question is from Dave Rochester with Compass Point. Please proceed.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning, Dave.

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

Good morning, Dave.

David Rochester -- Compass Point Research -- Analyst

Good morning guys. Just back of the CRE book real quick, what was the total retail exposure you had, how large is that segment roughly and can you just talk about like a rough breakdown of that, what that is, whether it's mix you [Phonetic] strip centers, what not?

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

So, again, we have approximately $1.7 billion of retail stores plus shopping center of which we have indicated about $470 million of that is deferred, that LTV in our portfolio like 56% with a 170 [Phonetic] debt service coverage ratio. As far as further breakdown, we do have office and professional buildings in the CRE book, which is the vast majority of it. That's about $3.5 billion, of which $830 million is deferred which is 23% and that LTV I believe is about 53% [Phonetic] with a 185 [Phonetic] debt service coverage ratio. So a lot of it mostly in the Manhattan region.

David Rochester -- Compass Point Research -- Analyst

Yes,and pretty low LTVs too. That's good.

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

Yes, we have a handful of garages, there is no people going to parking garages. So that's going to be deferred and it's not material for us. You'd expect that to go for the deferral program until they start opening up the city again.

David Rochester -- Compass Point Research -- Analyst

Yes. And then you guys gave some great color on the cash flow trends for the rent regulated multifamily piece. I know you hold most of that at a 50% risk weight given the loans need certain debt service coverage and LTV requirements. Was just wondering what those thresholds are for debt service coverage and LTV that they have to continue to meet in order to maintain our capital treatment. And then do you have, and then the ones have to switch to a 100% risk weight if you trigger one of those thresholds or do they have some triggers, so how does that work?

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

Yes. So it's 120 [Phonetic] is the number, 120, and then 80% LTV, 120, and we've been in constant dialog with obviously, our regulators, but the reality is this regulatory expectation under the CARES Act is to work with the customers. We're getting some very good latitude now based on this change under the 50% versus the 100%. We envision that after these customers come off a deferral, they will be treated as if they were 50% risk-weighted. That's what we're expecting. Could that change, possibly we don't expect that to change. We believe that the CARES Act was very clear for the banking sector to work with your customers. So, I believe that we will have some grandfathering and when we make these deferrals. When they come back, we hope that there will be cash flowing north of that 120 and the LTVs will be well insulated. So, we should have, we don't know if that's going to be the final ruling what the regulators decided a year from now, but clearly there's a lot of regulatory guidance and we've been working directly with the regulators as far as some specific guidance given our business model and it appears that under the CARES Act, there is a mission here for the banking sector to step up and do right [Phonetic] by the customer base. Given our LTVs, given our business model, we feel highly confident that these, when we get to the other side, people will be living in Manhattan in the [Indecipherable] and paying their rent.

David Rochester -- Compass Point Research -- Analyst

And if you have to restructure any of those and the restructured loan actually meets all the criteria, is it OK or because you have restructured it, it actually has to go to 100% risk weight?

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

I think that will be fine on the restructuring, but again I don't want to get the cart before the horse here. Again, we feel highly confident that as we get to the other side, people are going to be living and working in the city and we believe that there's still a housing shortage in Manhattan, there is still a rent regulated shortage of Manhattan. So, we think they will be fully occupied and we were not in the luxury market, we are non-luxury lenders, right. So, even though our buildings have a blend of rent regulated, the other piece is non-luxury for the most part. So, we have a unique portfolio. Because any event, the market was to reprice itself down as far as rentals, we're insulated because we're not looking at the luxury market. So, we feel pretty confident. But we don't have a crystal ball, this is, like as Collyn said, untested times, but we're working with our customers and given the percentage that has occurred. The good news in the past week or so, we haven't seen any uptick of more people asking for deferrals, so we're almost sitting here in May, we think a lot of that's been out already. So we will monitor every month and the next time we speak to you next quarter, we'll have an update. But the good news is that, here we are coming into May and we don't see the spike in additional requests.

David Rochester -- Compass Point Research -- Analyst

Yes, OK. And then how often do you have to do that 50% test, is that once a quarter or once a year, and when does that typically happen?

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

We do it every quarter depending on what loan comes due as far as [Indecipherable], by the way it is all automated quarterly.

David Rochester -- Compass Point Research -- Analyst

Okay. And then maybe just one last one on expenses, how are you thinking about that trend at this point is that you're talking to 515 [Phonetic] maybe for the year in the last call, is that still a level you think you can achieve?

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

Yes, it seems that, look, I think at Q1 was better than expected. I think Q2 will probably be slightly better than expected internally, so anywhere from 128 to 129-ish [Phonetic] just slightly south of 130 [Phonetic] and then may be flat for the rest of the year. Again, we're not seeing a ramp up in expenses now, we don't anticipate substantial expense because of COVID-19 but we'll evaluate that as we move along here, but I would say based on absent the pandemic versus last year, I think our expense guide is at still within that range. I don't see any major change here. I would say the only real change is that we haven't completed our conversion and that would have probably added some savings. But it gets postponed because of the stay home order. We anticipate to have that once New York opens up; hopefully, by the summer, we'll be able to do the full conversion.

David Rochester -- Compass Point Research -- Analyst

Okay, all right, thanks guys.

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

Sure.

Operator

Our next question is from Peter Winter with Wedbush Securities. Please proceed.

Peter J. Winter -- Wedbush Securities -- Analyst

Good morning.

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

Good morning, Pete.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning, Pete.

Peter J. Winter -- Wedbush Securities -- Analyst

The ones that reach contractual maturity and then get refinanced, can you just talk about what's happening to the LTVs with those loans and also what's happening at the cap rates post the new regulation loss?

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

So, we've evaluated our cap rates post, I'd say, pre-pandemic, and we actually saw a slight drop in cap rates, believe it or not, we didn't change the way we viewed our stress testing because of that. We do it every six months, we evaluate the market. So from June 30 to December 31, cap rates actually trickled down a little bit, believe it or not. So on our internal analysis when we look at stress testing and how we look at the potential risk, we have assumed to be kept it flat without decreasing it. I would say that is too early to tell how that's going to pan out in this environment but interest rates again near zero. We have a higher spread, but you're still talking about a mid 3% type coupon. So, we haven't seen any noticeable changes yet, who knows what happens in the next two or three quarters out, but clearly no noticeable change in cap rates. And with that being said, when we have loans that come due to us, we haven't seen any situations where customers can cash flow out on the refinance. If anything, customers are still actively taking down funding because they've improved their rent roll. They've been working. So these are I would say delayed refinancing, it should have, and when you have an average life that is this short, you would assume that the portfolio is still short [Phonetic], because the people have delayed their refinancing. So, they still have equity built and they are still drawing down equity. And like I said, given this environment, given the nature of the difficulties in the environment, we're actually tightening our standards on refi cash out where we're actually we're holding escrowable [Phonetic] taxes and P&I payments for a period of six months as part of our strategy to mitigate risks.

Peter J. Winter -- Wedbush Securities -- Analyst

Got it. And then, can I just ask about how big the PPP is and with this downturn, is it an opportunity to take market share from the larger banks aside from the multifamily business?

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

So, Pete, for us what you know, we're not a C&I lender. So, we are a commercial real estate lender in multi-family, so we got geared up, we were a little bit late on getting geared up. We work with a third party provider, so we partnered with a third-party provider and we were very active on the second round. So our PPP numbers are going to be between $100 million to $200 million at best. However, a lot of the customers that we have internally, we're putting through this system and we're getting great success, our team has done a phenomenal job in getting it up and running, but it's interesting, it's more anecdotal, a lot of [Indecipherable] customers come from other banks, Bank of America, JPMorgan, Citibank in particular where they had no results. These are smaller businesses that were left behind on the first round and we put them through the second round, and it was successful and believe or not, they are switching their accounts to NYCB. You still have to go through the vetting processes, you will have to go through the BSA process, there is a lot of work, but many smaller businesses were left behind locally. So, we're there for them. We're actively taking some new business, but I won't say it can be material, but I think on an anecdotal basis, there is no question that the larger players protecting their book and we were, they had to pick a handful of from here and there to help out the local community, as Joe said this morning, it's a family here, these are local business that need help and we're going to be here to help the local community and it is not a big number for us, but we are in the program.

Peter J. Winter -- Wedbush Securities -- Analyst

Got it. Thanks, Tom.

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

Sure.

Operator

Our next question is from Christopher Marinac with Janney Montgomery Scott. Please proceed.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning, Chris.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Hi guys, good morning. Thank you very much for all your information this morning. If we go back to the beginning of the call when Joe mentioned the sort of implied survey of 80% to 85% collected in April, would that number get stronger in May and June, do you think? And does that ultimately kind of square with the deferrals that you've talked about this morning?

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

Joe, you want to handle that one?

Joseph R. Ficalora -- President and Chief Executive Officer

Yes, I think that number does continue to strengthen. We're in a very, very good place with the relevant players in our niche. So our ability to not only have a performing portfolio, but a growing portfolio in the period ahead is quite real and is very consistent with how we perform in other stressed environments. We should assume the period ahead to be stressed and during that period, we will gain share of what we want from the marketplace. And, therefore, as has always been the case during periods of difficulty, we do not just better than our peers but better than we historically have done and this environment presents opportunity for us to lend favorably in greater numbers in the environment in front of us.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great, Joe.

Joseph R. Ficalora -- President and Chief Executive Officer

Chris, I would just to add to Joe's commentary. The big picture of our portfolio, we're a very large player in this marketplace. So, we have hundred plus families in some of these large buildings in clutches of buildings. You think about the percentage of deferral versus all the other deferral, that's the lowest percentage. That means we're getting significant rent collections. These are very sophisticated billionaire property owners that have deep valued equity that are going to protect their investment, but more importantly, they are not even asking for deferral. So, the programs out there, only 6% has come to the table on the 100 plus family dwellings, which is very encouraging. Now the smaller ones are obviously the higher percentage because you have that ground floor issue and you can have 0% revenue coming in. So, going to the next months ahead as the country opens up and the city opens up and they start working out their lease arrangements with their tenants, we envision that thought in the next six-month period to start to stabilize.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great, that's helpful. And just a follow-up Tom, my impression has been that you still are sitting on enormous liquidity to deploy and that liquidity really presents new opportunities for you, both on the investment side as well as loans as you've documented. So will that kind of get put to work in the next two quarters or do you think it's going to take into next year to really deploy kind of your full horsepower?

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

Chris, we do have a lot of liquidity on the balance sheet, we have excess cash, we sold some securities going into the second quarter, actually middle of the first quarter, given that we felt the rates were going to go much lower, they were, these are floating rate securities that would have been having close to 0% yield. There was about $300 million that created a lot of cash for us. We believe that will be put right back into our core lending product. So, we want to stay liquid. We want to have the liquidity and the cash to fund all in that loan book. I don't think there's a lot of value in the securities market right now. There was maybe a one or two-week blip during the end of the quarter as the market dislocated but it seems that given where the treasury is very active on buying all asset classes, we will probably keep the securities portfolio relatively flat because we don't have any real any risk reward opportunity there and put it into our loan portfolio, which as Joe indicated, if this continues, and we're in a difficult cycle, we tend to have significant growth, we're only forecasting 5%, but you can easily see a substantial number of growth because of the retention that we have within our own portfolio and the lack of market players willing to step into this market.

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Great, Tom, thank you again. Appreciate it.

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

Sure.

Operator

Our next question is from Matthew Breese with Stephens. Please proceed.

Matthew Breese -- Stephens -- Analyst

Hey, good morning.

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

Good mornig, Matt.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning.

Matthew Breese -- Stephens -- Analyst

Looking at the borrowings book, I've been surprised that the cost there haven't come in more, can you give us the breakdown between the structured advances and the classic advances and help me better understand how the structured of hand side behaves and reprices relative to changes in the yield curve?

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

Yes, so we have what about $8 billion, John.

John J. Pinto -- Executive Vice President and Chief Accounting Officer

$8 billion in portables. $8 billion in portables. It's interesting because obviously in January the environment was different than at the end of March, right. So we have some money coming due in the beginning of the quarter, so we refinance at a lower cost based on what was coming off. However, where we are today, that number is close to zero if you hedge it, if you put a derivative against it, and if you just go straight forward, you are still at a number that's probably what 50 basis points, 45 basis points to 50 basis points or 74 basis points for a two-year bullet. So, I think the cost is coming down materially, we've been active when we look at the opportunity to get a unique swap opportunity, that probably drives it may be anywhere from 25 basis points to 50 basis points depending on the anomaly of the marketplace and there's been a lot of anomaly. So you could effectively borrow money, swap it out from float to fixed, fixed to float, and then you're looking at a 0% effective interest rate, which is unique. But the reality is that it is significantly lower than our current cost of that's coming due, which is around 2% in 2020, the remainder of 2020. We have about $1.2 billion coming to this quarter, another $400 million in Q3 and $300 million at the end of the year and they're all in around 3% [Phonetic], 185 [Phonetic] is Q2 and then in the back half of the year, it is 238 [Phonetic] for the six months ended. So, again...

Matthew Breese -- Stephens -- Analyst

I'm sorry. Are you putting that on at a, are you more apt to put on the structured with a swap at 50 basis points or are you going to take the classic at 75 basis points?

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

We may just keep it short in this ball, 45 basis points in the home loan bank. I mean, we have opportunities, but I don't see the Fed actively driving interest rates higher here. So, we have options, right, but the options are still all well below 1%. So, conservatively in our model we have high cost, I gave you double digit margin expansion with expensive funding. So, I'm assuming our funding will be cheaper. So I'm hoping my guide on my margins even conservative up double-digit.

Matthew Breese -- Stephens -- Analyst

And is that the risk to that portfolio that interest rates go higher and the Federal Home Loan has the right to call it?

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

Well, do they call it, yes, if rates go up 400 basis points, they're going to call it. But again, if you think rates are going up 400 basis points, that's not what we were running in our model. We have the Fed remaining flat this year. I'm not going to talk about 2021, I'm talking about 2020 and I don't envision any real changes to policy given the current situation. With that being said, in the event a portable structure gets called and rates are up, we have to have higher borrowing costs. That is correct.

Matthew Breese -- Stephens -- Analyst

Okay, understood. And then, what's the incremental securities yield that book on quarter-over-quarter basis fell quite a bit, just curious what the incremental, what does it look like, if you do buy, what are you buying and what's the yield on it?

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

Yes, so like I said, we're not buying anything. We are just keeping it flat. So if we still get called out, we have some calls expected. So let's just say we may have a few basis points bleed next quarter if not could be flat this quarter depending on what prepays and speeds. We do have some mortgage-related securities; it is all agency for the most part, so we are not really in the market buying. So, I would say that, unless we see a significant dislocation in security yields and is attractive opportunity, we'll keep it flat.

Matthew Breese -- Stephens -- Analyst

Okay. And then, I appreciate the retail exposure in the commercial real estate book. Just curious, is there any additional retail exposure in the specialty finance book and what's the health and characteristics of those borrowers if there is any?

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

I would say, we have a handful of maybe some grocers, some household name grocers that have been very successful because their business is booming right now. So, they've been drawing down on their facility. But I'd say for the most part the specialty finance group has been performing its stellar performance. We haven't had a delinquency since we've been in the business. And as far as our ratings, we're very comfortable with all the credits we have. We are very selective. We have always talked about that that what we see 96% or 90% of that we decline. So, we have large relationships, Amazon, [Indecipherable] large household names, but we're not the lead bank. We participate where we feel is there low risk and again this is not a high yielding portfolio, but it's a low-risk portfolio and it's super senior secured. I would say on a deferral perspective, you're probably looking at maybe $200 million of the deferrals on auto. But we think that the auto sector will be fine this year, and by the end of the year that stuff will go off the deferral and they will be back in business. And by the way, all these clients in the auto have access to PPP and they all have been funded. So we feel pretty good about that.

Matthew Breese -- Stephens -- Analyst

Okay. Last one, just on capital, how comfortable are you operating at these levels, especially as New York City is the epicenter and economic conditions do remain uncertain?

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

So, again, I would say very comfortable, obviously we're going to earn more money this year assuming that credit holds itself. We've taken a sizable provision for COVID-19, absent COVID-19, we talked about. So, we didn't expect to have any real provision in the quarter other than the transitional adjustment. So we think that our portfolio performed very well in this environment. We are not a C&I lender. We do have tenants that [Indecipherable] tenants that have retail and they have to work that out. But given the deferral program, we think that as they open up the city, as they open up America we should be in a good place.

Matthew Breese -- Stephens -- Analyst

Got it. Great. That's all I had. I appreciate taking my questions.

Operator

And our final question is from Ken Zerbe with Morgan Stanley. Please proceed.

Joseph R. Ficalora -- President and Chief Executive Officer

Good morning, Ken.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Good morning. Just in terms of the margin, I guess I'm a little surprised that you don't get more benefit sort of near term and it sounds like you get as you said double-digit NIM expansion sort of every quarter over the course of the year. Can you just talk about like why it's, I must say so consistent over the course of the year? Is it just because of how your deposits are repricing?

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

So, rates are zero, of course, zero. So pretty much the entire liability side of the balance sheet is getting close to zero, so that's the major driver. At the same time we do have lots of loans coming due and we're not getting bleed on the loan yields going forward and the coupons are reasonable, but not spiking, but if you take the cost of funds close to zero, pretty much most of our retail funding is tied to short-term funds, right. So, like I said, $6 billion plus this quarter, is at 235 [Phonetic] and there's really no high-cost opportunity in the marketplace. We don't envision customers leaving the bank to go somewhere else. So, and if that's being said, we still have the ability to borrow funds that are close to zero. So, I think that the funding cost is clearly driving this opportunity and at the same time asset yields are holding up very nicely. So, you're going to have, like I said, double-digit margin growth in the second quarter we envision that happening in Q3 and Q4 as well. We talked about Q1 being up 2 basis points, we hit our guidance, the pandemic hit toward the middle of March and that's sort of cutting interest rates. We actively cut interest rates and then we're going to see that benefit going right into Q2. Again, we don't know where the market is going to end up on short-term funds, but given that where the country's position is, my guess is that rates are going to stay relatively low in 2020 and most customers are not going to go past one year to restructure their CD portfolio and as we continue to build savings account and not operate an operating account that will also benefit a very stable cost of funds for the bank.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Got it. But in terms of the timing [Speech Overlap].

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

Ken, if you go back, just remember, we had five years of not seeing NII growth, we were positioned at the lowest return this bank has experienced. So, we are in upward trajectory both the EPS growth and margin expansion. This will continue into 2021. We do not have the crystal ball, what's going to happen in 2021 and we're talking about margin expansion here but we think the margin bottomed out in the fourth quarter of 2019, we saw that inflection point, it's going to continue to significantly because of Fed action. At the same time the business model is getting a much higher spread that we are accustomed to, when the competition is robust; Fannie, Freddie, CMBS, the whole world looking to get into the space, you are 110 to 150 spread, right. So, when we raised that to 200 after the rent was changed, now we're north of 300. So that's a very healthy spread.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Got it. And then back in terms of the timing though, do you have just as much repricing in second quarter down 200 basis points as you do in say fourth quarter?

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

Yes, second quarter on the CD side just under $5 billion and that's a 206, so it's continuing. So you can get the benefit from the repricing in Q2 going into Q3 and more benefit in Q3 as well, that continues throughout the whole year. So, again I feel highly confident that we're going to have a very nice NII growth. Okay. Top line growth, EPS growth assuming and we are not talking about the potential of credit, because that's the unknown out there and I understand that, but clearly if you run that analysis, given where our profitability was which was sub 1% on return on average tangible assets, you will see a very unique growth in earning story and growth in margin story that could continue throughout 2021 and only we are only talking about 2020 right now, short-term visibility. But for the short term in the second quarter margin expansion double digits.

Ken A. Zerbe -- Morgan Stanley -- Analyst

And is that margin expansion also premised on the view that your credit spread stay above 300 basis points?

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

Yes, but again we have a 3.25% [Phonetic] coupon coming on. It's conservative, we have our pipeline, we are feeding our pipeline through our model, right, the model is sophisticated. We just take the $2.1 billion pipe that we have, we have 64% new money and that's going on at 325 [Phonetic]. Now, new money is coming that new deals that we would offer you if you come to the bank tomorrow, you have 3.5 if you are an A-credit. If you are little less than A, you're going to pay close to the 4.

Ken A. Zerbe -- Morgan Stanley -- Analyst

Got it. Okay, great. Thank you.

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

Ken, pleasure.

Operator

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Joseph R. Ficalora -- President and Chief Executive Officer

Thank you again for taking the time to join us this morning and for your interest in NYCB. We look forward to chatting with you again at the end of July when we will discuss our performance for the three months ended June 30, 2020. Thank you.

Operator

[Operator Closing Remarks].

Duration: 69 minutes

Call participants:

Salvatore J. DiMartino -- Director of Investor Relations

Joseph R. Ficalora -- President and Chief Executive Officer

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

John J. Pinto -- Executive Vice President and Chief Accounting Officer

Ebrahim Poonawala -- Bank of America -- Analyst

Brock Vandervliet -- UBS Financial Services, Inc. -- Analyst

Steve Moss -- B. Riley FBR, Inc. -- Analyst

Collyn Gilbert -- Keefe, Bruyette & Woods, Inc. -- Analyst

David Rochester -- Compass Point Research -- Analyst

Peter J. Winter -- Wedbush Securities -- Analyst

Christopher Marinac -- Janney Montgomery Scott -- Analyst

Matthew Breese -- Stephens -- Analyst

Ken A. Zerbe -- Morgan Stanley -- Analyst

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